Sterne Agee Sees Opportunities With Latest Obamacare Court Challenge

Sterne Agee analyst Brian Wright issued comments Monday on the upcoming Supreme Court review involving the Affordable Care Act, often referred to as Obamacare.

"On Friday afternoon, the U.S. Supreme Court (SCOTUS) announced that it will hear the King vs. Burwell case that questions the legality of health insurance subsidies on federally facilitated public exchanges.

"While the issue creates near-term uncertainty, we believe there are potential solutions even if SCOTUS finds that subsidies are only allowed in state-run exchanges," according to Wright.

Wright also believed that "any associated weakness creates buying opportunities in [Health Net, Inc. HNT] and the Medicaid plans [Centene Corp CNC, Molina Healthcare, Inc. MOH and WellCare Health Plans, Inc. WCG] given lack of material exposure to this issue."

"Our reading of ACA allows the states to subcontract out exchange functionality and The Centers for Medicare and Medicaid Services (CMS) could be the subcontractor, though law specifics may require CMS to create state subsidiaries (subject to state law)."

The analyst note concluded that “ACA included an authority to contract section that allowed states to enter into agreements with third parties to carry out one or more responsibilities of the Exchange. Of the three requirements for an eligible contracting entity, CMS easily could be seen as fulfilling two. The only requirement that would be challenging is that it must be a person incorporated under, and subject to the laws of, one or more states.”