What Is the Deal with the Affordable Care Act?

Lawmakers passed the so called Obamacare act in response to the fact that a huge portion of Americans do not have health insurance (around 50 million) and basically cannot afford it. There certainly seemed to be a need to fix what seemed to be broken. Rather than opt for a nationalized health care system the Affordable Care Act goes through private insurers. The idea was to organize the system, cut out a lot of the excess costs that ended up at profits for the insurers, and give everyone a chance to buy insurance. The problem is that healthy people are prone to not buy insurance. The law mandates that insurers have to cover anyone who wants insurance. This means that a person who didn’t pay premium for the last twenty years and now has cancer can walk in and buy health insurance at the standard rate. This drives up the cost of insurance. Obamacare has a way to fix this. They are going fine you, with increasing fines, if you do not buy health care. That is where the Supreme Court enters the picture. If the court decides that this provision of the law usurps “police powers” which are limited, under the constitution, to the states, Obamacare will be gone. It may be possible to profit from the end of Obamacare if it goes away and if you, the investor, do a little research into which companies stand to lose. Picking new winners in the health insurance field may require a little study into just how the system will work in the post Obamacare era.

Who Stands to Lose with the Demise of Obamacare?

Think of these guys:

Aetna, AET, $46 a share

CIGNA, CI, $49 a share

Humana, HUM, $91 a share

Health Net, HNT, $40 a share

UnitedHealth Group, UNH, $59 a share

Wellpoint, WLP, $72 a share

The Affordable Care Act could be struck down in its entirety or the “Commerce Clause” portion that stipulates fines for nonparticipation could be struck down. In either case congress will need to deal with the issue again. And, the insurers and HMO’s that were planning on big profits from an enlarged insurance pool will need to recalculate. These companies have put a lot of effort into organization. They may need to cut back on expenses and deal with reduced reserves. To profit from the end of Obamacare an investor may choose to buy puts on one or more of the stocks listed above, prior to the Supreme Court ruling in June. They may choose to wait for a ruling and see if any of the stocks listed above start to fall. The point of this discussion is not to advise for or against investment in any of the insurance/hmo stocks listed above. It is to stimulate thought and, hopefully, to result in profitable investing. As always do your fundamental analysis and don’t invest unless you understand what you are doing.

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