Why Medicaid HMOs Soared

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Medicaid HMOs Molina Healthcare (NYS: MOH) , WellCare Health Plans (NYS: WCG) , and Centene (NYS: CNC) all popped today after the Supreme Court upheld the 2010 health care overhaul law.

So what: While the decision is a negative for most health insurers since a more regulated process will likely pressure margins, Medicaid companies are breathing a sigh of relief because the overhaul law also restricts the government's ability to take away states' existing Medicaid benefits. Medicaid stocks had been battered on huge uncertainty leading up to today's decision, so the ruling should help with investor sentiment as well.

Now what: With the Supreme Court overhang now removed, I'd expect the relief rally in the Medicaid space to continue. According to the ruling, written by Chief Justice John Roberts, "Nothing in our opinion precludes Congress from offering funds under the ACA to expand the availability of health care, and requiring that states accepting such funds comply with the conditions on their use. What Congress is not free to do is to penalize States that choose not to participate in that new program by taking away their existing Medicaid funding." While a great deal of policy uncertainty still surrounds Medicaid stocks, today's ruling brings some clarity to the situation and makes for a more favorable gamble.

The article Why Medicaid HMOs Soared originally appeared on Fool.com.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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