Brief Filed in King vs. Burwell Case Which Threatens Obamacare

FBR Capital analyst Steven Halper provided an update on the important pending Supreme Court case King vs. Burwell, which question the ability for eligible individuals to receive subsidies when they purchase health insurance at Healthcare.gov.

Currently 16 states have created their own exchanges. Meanwhile individuals in the other states can currently purchase subsidized policies at the federal exchange, healthcare.gov. The plaintiffs in the King vs. Burwell case argue that subsidies should only go to participants at state-run exchanges, Halper notes. The suit, which will be heard by the U.S. Supreme Court in March, with a decision likely in June.

This morning, Politico Pro posted a brief filed by the Justice Department regarding King vs. Burwell. The brief indicates that the language in the legislation "is a term of art that includes the federal exchange." Politico Pro indicates that the lawyers wrote "It would be astonishing if Congress had buried a critically important statewide bar to the subsidies under this landmark legislation in sub-clauses setting forth the technical formula for calculating how much the subsidy should be."

Halper reiterated his view that if the court rules in favor of the plaintiffs, it could collapse one of the key underpinnings of the Affordable Care Act (ACA).

"It remains to be seen how the Obama Administration and Congress would react to such a ruling," he commented. "We remind investors that the ACA imposed a fair amount of regulation on health insurers with the expectation that more individuals would purchase insurance. Without subsidies, the number of individuals buying insurance on healthcare.gov would probably decline, all else being equal. In the event that the court rules in favor of the plaintiffs, there is likely to be significant political pressure to fix the legislation. Taking away an entitlement is always difficult for politicians. Lastly, various media sources have suggest that the administration does not have a fallback plan given its view that the law will survive this challenge."

For managed care companies, the analyst note that while still a small percentage of overall revenues, the simple elimination of the individual exchange market (at healthcare.gov) with no corresponding changes in other aspects of the ACA, would be probably viewed as a near term negative for the group.

Related care stocks: Aetna (NYSE: AET), Cigna Corp. (NYSE: CI), UnitedHealth Group (NYSE: UNH), Centene (NYSE: CNC), Health Net (NYSE: HNT), Humana (NYSE: HUM), Magellan Health (NASDAQ: MGLN), Monsanto (NYSE: MON), Wellcare Health Plans, Inc. (NYSE: WCG)

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