SCOTUS Round II: Does King Really Matter?
The Supreme Court of the United States (SCOTUS) will hear arguments in King v. Burwell, in February or March of 2015, with a ruling likely in June of 2015. A decision to uphold King would mean persons buying health insurance on federally (rather than state) managed health insurance exchanges (HIEs) are ineligible for subsidies
If King is upheld, governors in affected states (those with federally managed HIEs) can keep federal subsidies flowing on their HIEs by simply taking over management of the HIE. We believe most are likely to do so
In the 27 states with federally managed HIEs, we count roughly 11.8M persons who are likely to favor state control of the HIEs in order to keep $12.2B in subsidies flowing; included in this number are 3.8M persons currently receiving subsidies (which average +/- $3,216 / year), 2M persons who are likely to need federal subsidies in any given year because of job loss, and 6.5M healthcare employees. In these same states we count roughly 6.8M persons who oppose state control of the HIEs in order to shield themselves from penalties for being uninsured, which average about $590 per person per year, and total about $4.0B in aggregate. On net, voters in favor arguably outnumber those opposing, and voters in favor arguably are more motivated (the dollar impact of subsidies gained is far larger than the dollar impact of penalties avoided) (see Appendix 1 for details by state)
Where we’re BULLISH: Biopharma companies with undervalued pipelines (e.g. VRTX, BMY, SNY): Biopharma companies with pending major product approvals (e.g. TSRO, ALKS, HLUY, EBS, BMY, BVRX, CBST, ACRX, BMRN, PCYC); ABBV and ENTA on sales prospects in Hep C; CFN, BCR, CNMD and TFX on rising hospital patient volumes; XRAY and PDCO on rising dental patient volumes and rising average dollar values of dental products and services consumed per visit; CNC, MOH and WCG on bullish prospects for Medicaid HMOs; and, DVA and FMS for the likely gross margin effects of generic forms of Epogen
Where we’re BEARISH: Biopharma companies with overvalued pipelines (e.g. GILD, ALXN, SHPG, REGN, CELG, NVO, BIIB); PBMs facing loss of generic dispensing margin as the AWP pricing benchmark is replaced (e.g. ESRX, CTRX); Drug Retail as dispensing margins are pressured by narrowing retail networks and replacement of AWP (e.g. WAG, CVS, RAD); and, suppliers of capital equipment to hospitals on the likelihood hospitals over-invested in capital equipment before the roll-out of the Affordable Care Act (e.g. ISRG, EKTAY, HAE, VOLC)
For our full research notes, please visit our published research site