Why All The Healthcare Stocks Are Exploding Higher Today

Big healthcare/managed care companies are surging today, reversing steep losses earlier in the week.

Wellpoint and Aetna are in the chart below.

You can click the chart to enlarge.


Photo: Yahoo Finance

So why are they going nuts?

Remember: earlier in the week we were talking about how bad they were doing on that day when Obamacare was getting creamed at the Supreme Court.

So what gives?

Let’s explain:

On Tuesday, the Supreme Court was debating the constitutionality of the individual mandate — whether the Federal Government could demand that individuals buy health insurance. This law is a good thing for health insurers, since it means scads of new customers. And many of those customers will be ideal, since they’ll be young healthy people that don’t end up sucking much out of the insurer pool.

But when that had a bad day in the court the stocks fell.

However, the next day the Supreme Court took on the issue of “severability” and whether the death of the individual mandate would impact the rest of the law.

Let’s back up. …

Another angle of the law is that insurers can no longer deny people insurance for pre-existing conditions. The inability to deny people with pre-existing conditions is only economically feasible if you have the mandate, since otherwise people just don’t buy insurance until they get sick, and then sign up as soon as they do, turning the whole idea of insurance on its head.

An Obamacare without the mandate is horrible for insurers who end up getting a lot of people as customers who only exploit the system.

Well anyway, yesterday Obama had another bad day in court, suggesting that if the Supreme Court tosses out the individual mandate, they’ll also toss out the rest of the law, meaning insurers won’t have to take on people with pre-existing conditions.

So investors are buying up these stocks, because the nightmare scenario of having to accept customers with pre-existing conditions but not having the mandate may be off the table.

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