Obamacare ruling ends threat to U.S. hospitals, insurers

By Caroline Humer and Bill Berkrot

By Caroline Humer and Bill Berkrot

NEW YORK (Reuters) - The U.S. hospital and health insurance industries breathed a collective sigh of relief on Thursday after the U.S. Supreme Court upheld subsidies for individuals under President Barack Obama's signature healthcare law.

Shares in hospitals surged, with several hitting all-time highs, on the expectation that patients would be able to continue paying for services. Health insurer stocks also gained. Wall Street analysts called the ruling positive for an industry on the edge of consolidation.

Health economists have estimated $15 billion to $22 billion in healthcare spending was at risk with the decision. About 10 million Americans have insurance through the healthcare law's insurance exchanges and, of those, 6.4 million have subsidies.

The court ruled 6-3 that the 2010 Affordable Care Act (ACA), widely known as Obamacare, did not limit subsidies to states that establish their own online healthcare exchanges. It marked the second time in three years that the high court ruled against a major challenge to the law.

Trinity Health, one of the largest not-for-profit health systems, was holding a board meeting when the ruling hit.

"There was a ‘Yahoo!’ and a big round of applause," Dr. Richard Gilfillan, chief executive of the Livonia, Michigan-based hospital chain said.

Insurers said subsidies were key to bringing in new customers.

"For a lot of the individuals who were depending on these subsidies in order to have coverage, I think it is a major sigh of relief," said J. Mario Molina, chief executive of insurer Molina Healthcare.

Annie Wisecarver, 53, of Shepherdstown, West Virginia, receives a monthly subsidy of about $200 to buy Obamacare insurance.

"I really only purchased insurance for an emergency, like if I fell off a mountain and broke my leg," Wisecarver said. "I can’t see myself spending $300 or $400 a month on insurance just because I might have an accident."

The ruling could remove uncertainty for the insurers who are seeking deals, like Anthem Inc and Aetna Inc, Leerink Partners analyst Ana Gupte said.

Anthem is pursuing an acquisition of Cigna even after being rejected, while sources previously told Reuters that Humana put itself up for sale last month, with Cigna and Aetna making offers. Bloomberg reported on Thursday that an Aetna-Humana deal could be reached as soon as this weekend.

Humana jumped 7.5 percent. Aetna Inc gained 3.6 percent, Anthem Inc 1,1 percent, Cigna Corp 2.6 percent, and UnitedHealth Group Inc rose 2.7 percent.

Among hospitals, shares of Community Health Systems were up 13.3 percent, HCA Holdings rose 8.5 percent and Tenet Healthcare jumped 12.2 percent. HCA, Universal Health Services and LifePoint Health hit lifetime highs.


Since the subsidies were introduced last year, they have helped hospitals reduce the losses from covering the cost of uninsured patients.

"It's just a very positive thing because it takes away the overhang on the company and the industry," said Alan Miller, CEO of Universal Health Services, which has hospitals in 37 states.

Bill Carpenter, chief executive of Lifepoint Hospitals, which has 64 hospitals in 20 states, was at an offsite patient safety event and said everybody in the room was excited about the ruling.

"We are just are so pleased that those people who have secured coverage through state exchanges will have the peace of mind to know that their coverage is going to continue," Carpenter said, calling on states to expand Medicaid to more income levels, another goal of the ACA. "In many states, this has been about politics and not policy."

In Florida, one of the biggest remaining issues is expanding Medicaid, said Jim Nathan, president and chief executive of Lee Memorial Health System in Fort Myers, one of Florida's largest public, not-for-profit health systems.

Jason Montrie, president of Land of Lincoln Health, a non-profit CO-OP health insurance company launched in 2013 with the government funding of the Affordable Care Act, said subsidies are vital to most of its more than 50,000 members.

"We're relieved that our court made the right decision here," Montrie said.

Options activity had been sanguine in the days and weeks leading up to the ruling, with many traders betting on a rally in the hospital names after the Supreme Court decision.

The S&P 500 healthcare sector is up 11.3 percent in 2015 so far. The sector accounts for about 15 percent of the S&P 500 index.

(Reporting by Caroline Valetkevitch, Caroline Humer, Bill Berkrot, Kylie Gumpert, Saqib Ahmed and Robin Respaut in New York and Julie Steenhuysen in Chicago; Editing by Peter Henderson and Nick Zieminski)