Health Care Ruling: Business Winners, Losers

June 28, 2012 — -- For American businesses in general, and the health care industry in particular, the Supreme Court decision to uphold President Obama's overhaul law removes a great deal of uncertainty.

After months of legal challenges, the ruling gives hospitals, insurance companies, biotech firms and drug makers a clearer picture of what will happen when the major provisions of the law are expected to go into effect in 2014.

The legislation is a boon for much of the health care industry by making coverage affordable for tens of millions of uninsured Americans. But not every company will benefit. Medical equipment makers, for example, will be hit with a new tax on their sales.

There will be new fees as well as cuts in some forms of government reimbursement to health providers.

Beyond the health care industry, how will the Supreme Court ruling affect small- and medium-sized businesses?

"I would say there is actually a positive impact in that people know what to expect," said Brian Hamilton, CEO of the financial information firm Sageworks. "It's very important to remember the psychology of people who run privately held companies. If they have time to plan, the legislation is less important than the time horizon."

Hamilton said if the Supreme Court decision had led to confusion over the future of health care reform that would have been much more damaging to many firms than the cost of paying for a change that's been in the works for years.

"For the companies that have more than 50 employees who do not currently have coverage there will be an additional charge. It will be expensive, but they've been anticipating it."

On the markets today, stocks of major insurance companies dropped as analysts sorted through the ruling. UnitedHealth Group declined 3 percent, while WellPoint lost almost 6 percent. Overall, stocks were down today with the Dow Jones industrial average falling 127 points.

"Managed care companies probably did not have too many positives with or without the law," Alex Morozov, Morningstar's director of health care research, said.

Morozov said he believes the managed care sector is undervalued in terms of their share prices. "We think the investor community is still unclear about what the law means to firms in the space," he said.

Hospital chains rose. Hospital Corp. of America was up 7 percent. Quest Diagnostics, which runs laboratories, was up 2.5 percent.

"We think hospitals can breathe a sigh of relief," Morozov said. "Without the mandate the environment would have been rather dire for providers."

The health care law will bring an influx of new patients, which will mitigate other negative trends for the hospital industry, such as a shift to quality of care measures, regulatory scrutiny over premium increases and government incentives to curb overall health care spending growth.

From a consumer standpoint, Thursday's decision is the biggest change in healthcare coverage of our lifetime, said Michael Thompson, principal in PwC's Human Resource Services Group.

The biggest benefits of the health care reform will go to lower-income families who do not have employer-sponsored health plans.

"People generally not covered by employers will be in a position of better access to coverage going forward," Thompson said.

Thompson said there will be a "tremendous" increase in the number of people covered and subsidized by the federal government.

The law establishes health insurance exchanges at the state level, but one of their roles is to administer subsidies offered by the federal government to households whose income is up to 400 percent of the poverty level, essentially the middle class.

Thompson said health care costs in many states will increase with the new rule requiring managed care providers to insure people with pre-existing conditions.

But people eligible for subsidies will see costs decrease as premiums will be based on a percentage of their income, Thompson said.

Morozov said it will be "tough to speculate" how health care costs will change for consumers.

"States are going to exercise significant pressure on managed care companies regarding premium increases," he said.