IBJNews

Health insurance investors unfazed by court ruling

Back to TopCommentsE-mailPrintBookmark and Share

This week’s ruling by a federal judge could force Congress to rework the new health law to avoid a health insurance market collapse. But the decision had little to no effect on investor sentiment toward WellPoint Inc. and its peers.

Judge Henry Hudson in Virginia declared unconstitutional the individual mandate—the health reform provision that requires most Americans to purchase health insurance or else pay a fine. Hudson said that part of the law goes beyond Congress’ authority to regulate interstate commerce.

Hudson did not, however, declare the entire health care law unconstitutional, which leaves in place another new rule that requires health insurers to accept all customers regardless of their health status.

The ruling strikes at the heart of health reform. The grand bargain between President Obama and the health insurers in 2009 was to guarantee them millions of new customers (and generous subsidies) through the individual mandate in exchange for a ban on insurers’ turning away sick customers.

The insurers, led by Indianapolis-based WellPoint, soured on that bargain in the fall of 2009 when Congress reduced the fines for not having insurance to a level the insurers thought was too low to be effective.

But since Hudson did not strike down the entire law, his ruling leaves in place the ban on turning away sick customers, also known as medical underwriting. Nearly all—including the Obama administration—agree that having one provision without the other is a recipe for disaster.

“Banning medical underwriting without an individual mandate will wreak havoc on the market for individual insurance, perhaps causing many or most insurers to withdraw, as they’ve already done in the market for child-only insurance,” Mark Hall, a professor at the Wake Forest School of Law, wrote in a blog post.  “Despite all of that, the judge severed and struck only the individual mandate, leaving to Congress or administrative agencies the task of avoiding the train wreck of potential market collapse.”

In spite of such dire consequences, Wall Street shrugged at the ruling. WellPoint’s stock has been flat this week, closing Tuesday at $58.11. The stocks of other big health insurers also treaded water.

That’s because investors already expected Hudson, a George W. Bush appointee, to rule against the individual mandate. Two other federal judges had already dismissed legal challenges to the law. And a fourth case is pending in Florida.

“It has been clear for some time that this case was going to the Supreme Court and that this [ruling] is one stop on that path,” Les Funtleyder, who advises hedge funds on health care stocks for Miller Tabak & Co. in New York, wrote in a research note.

He acknowledged that Hudson’s decision could create “volatility” in the insurance markets, but said the fundamentals of the health insurance business are so strong right now, they will cloud out health reform news until at least the next election. In WellPoint's case, analysts are expecting the company to end the year with a profit of $2.8 billion, a 17-percent surge from last year, excluding a one-time gain in 2009 from selling a subsidiary.

“With respect to the managed care stocks, we believe until the 2012 election fundamentals will trump what will be a very noisy political environment,” Funtleyder wrote. “We continue to have a constructive stance on the group.”

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. If I were a developer I would be looking at the Fountain Square and Fletcher Place neighborhoods instead of Broad Ripple. I would avoid the dysfunctional BRVA with all of their headaches. It's like deciding between a Blackberry or an iPhone 5s smartphone. BR is greatly in need of updates. It has become stale and outdated. Whereas Fountain Square, Fletcher Place and Mass Ave have become the "new" Broad Ripples. Every time I see people on the strip in BR on the weekend I want to ask them, "How is it you are not familiar with Fountain Square or Mass Ave? You have choices and you choose BR?" Long vacant storefronts like the old Scholar's Inn Bake House and ZA, both on prominent corners, hurt the village's image. Many business on the strip could use updated facades. Cigarette butt covered sidewalks and graffiti covered walls don't help either. The whole strip just looks like it needs to be power washed. I know there is more to the BRV than the 700-1100 blocks of Broad Ripple Ave, but that is what people see when they think of BR. It will always be a nice place live, but is quickly becoming a not-so-nice place to visit.

  2. I sure hope so and would gladly join a law suit against them. They flat out rob people and their little punk scam artist telephone losers actually enjoy it. I would love to run into one of them some day!!

  3. Biggest scam ever!! Took 307 out of my bank ac count. Never received a single call! They prey on new small business and flat out rob them! Do not sign up with these thieves. I filed a complaint with the ftc. I suggest doing the same ic they robbed you too.

  4. Woohoo! We're #200!!! Absolutely disgusting. Bring on the congestion. Indianapolis NEEDS it.

  5. So Westfield invested about $30M in developing Grand Park and attendance to date is good enough that local hotel can't meet the demand. Carmel invested $180M in the Palladium - which generates zero hotel demand for its casino acts. Which Mayor made the better decision?

ADVERTISEMENT