Health insurer WellPoint Inc. faces a near-term risk if the Supreme Court decides to overturn the health care overhaul's requirement that most Americans purchase insurance, according to a Leerink Swann analyst.
The court is expected to issue a ruling on President Obama's overhaul sometime this month, and it could strike down the massive law, uphold it or strike down parts of it.
The overhaul, which was passed in 2010, aims to extend health insurance coverage to millions of uninsured people. Insurers will benefit from this potential influx of new customers, but they also face fees and restrictions triggered by the law.
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Analysts and investor have been speculating on the court's decision since it heard oral arguments on the overhaul in March. Under one possible scenario, the court may strike down the mandate that requires people to buy insurance coverage but leave the rest of the law intact. That could expose some insurers to losses if they get an influx of sick people the law requires them to cover but cannot balance those claims with enough premium revenue from healthy people who may skip buying coverage.
WellPoint, the second largest health insurer after UnitedHealth Group Inc., runs Blue Cross Blue Shield plans in several states. Analyst Jason Gurda estimates that more than 25 percent of the Indianapolis company's earnings come from individual insurance and coverage for employees of small companies. Those product lines are exposed to risk if the individual mandate is overturned.
Gurda also said in a Tuesday morning research note that WellPoint turned in a solid first quarter but its overall earnings growth has trailed its peers. He downgraded the stock to "market perform" from "outperform."
"While we aren't making a specific prediction, we do believe that the risk that individual mandate could be overturned by itself cannot be ruled out, which could pose a potential near-term risk to the shares, and we would hold off on building any new positions," he wrote.
Wellpoint shares finished at $71.88 on Tuesday. They have traded in a 52-week range of %56.61 to $80.90 per share.
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