WAKE UP: This Ruling Is Terrible News For The Health Insurers

The health insurance companies like United Healthcare and Aetna are up in knee-jerk fashion on the news that a judge has struck down the individual mandate aspect of Obamacare.

Investors should wake up: If this were ultimately upheld, it would be horrible news for the insurers.

The individual mandate is a necessary component of the system, because the new deal bans the exclusion of customers with pre-existing conditions.

If the individual mandate goes, but insurers still have to accept anyone, then you have the same problem you’ve always had — negative self-selection. The insurers don’t get the benefit of the diversified risk pool, and are stuck insuring a disproportionately sick share of the population. Those betting on the insurers in the wake of this ruling aren’t thinking this through.

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