With or Without "Obamacare" These Healthcare Stocks Are Headed Higher

The fat lady hasn't sung yet...but she is warming up.

Three days of arguments before the Supreme Court have made it abundantly clear - "Obamacare" is in danger of being gutted or completely wiped off the books.

Only one thing's for sure. Investors will want to keep buying healthcare stocks -especially as 10,000 baby boomers a day turn 65 years old for the next 20 years.

But there's one segment of the healthcare sector that will be sitting in the driver's seat when it comes to delivering healthy profits and investment returns - no matter how the court rules.

Here's what you need to know...

Obamacare's Confusing Details

Fact is, analysts have been struggling to figure out how the Affordable Care Act (ACA) would impact various segments of the healthcare sector ever since the bill was passed.

"For most companies, the bill is neither very good nor very bad," Dan Mendelson, CEO of Avalere Health, told NPR after the bill passed in 2010. "Across each of the different segments there are pieces that will be good and pieces that will be more challenging."

That's because in addition to a slew of new taxes on pharmaceutical, hospital, and insurance businesses, Obamacare includes a dizzying array of incentives that will have a dramatic effect on industry profits.

Uncertainty surrounding the law is already rattling stocks.

Healthcare stocks have underperformed the broader market this year, up 6.4% compared to the S&P 500's 11.6% gain.
With the bill's fate up in the air, major players will have to devise new strategies for either outcome.

What Obamacare Means for
Healthcare Stocks

Here's what the law might mean for major players.

Big Pharma - Big drug makers like Pfizer Inc. (NYSE: PFE) and Eli Lilly & Co (NYSE: LLY), would pay about ! $85 bill ion over 10 years to fund ACA. They also made concessions that would save the Medicare system billions of dollars a year.

In return, they were able to kill a proposal to allow cheaper prescription drugs from Canada and were granted longer patents on generic versions of biotech drugs.

On balance, they probably would come out ahead.

Insurance Companies - The picture appears positive for insurance companies. The infusion of 40 million new people into the system is seen as a gigantic shot in the arm.

But there are huge tradeoffs.

Most importantly, the insurers would no longer be able to deny people coverage based on pre-existing conditions. They also would face billions of dollars in new taxes and restrictions.

But insurers supported the plan for one simple reason - they can pass any cost increases on to their customers.

Hospitals & Doctors -Over the next 10 years, hospitals and doctors would contribute $155 billion to paying for the legislation by taking smaller payments from Medicare and other government programs.

But if the court rules that the individual mandate is constitutional, hospitals would no longer be forced to treat patients who can't pay for their services.

The Ultimate Winner in the Obamacare Debate

There's only one sector that is likely to benefit no matter what the court decides.

Managed care companies, typically known as Health Maintenance Organizations (HMO) and Preferred Provider Organizations (PPO), are already heavily involved in reducing health care costs.

They do that through a variety of techniques to reduce unnecessary health care costs by reviewing the necessity of services, controlling admissions and lengths of stay and intensive management of health care cases.

Although widely criticized for denying medical services, they are also credited with subduing medical cost inflation.
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But here's the kicker: fully 90% of insured Americans are enrolled in plans with some form of managed care, according the industry's trade association.

That puts them in a position to profit delivering investors solid returns for years to come -- no matter how the Supreme Court weighs in.

Here are three managed-care companies that stand to thrive - whether Obamacare survives or not.

UnitedHealth Group Inc. (NYSE: UNH) - the largest managed care company provides services to more than 78 million members. Its products include risk-based health insurance and plan management for mid-sized employers, small businesses, and individuals. Shares are up 6.2% this year and have a three-year average annual return of 36%.

WellPoint Inc. (NYSE: WLP) -- is one of the largest U.S. managed care firms with over 34 million members. The company offers various network-based managed care plans to large and small employers, individual, and Medicaid markets. The stock is up 1% this year and has a three-year average annual return of 24%.

Aetna (NYSE: AET) -- the nation's third-largest managed-care organization with a market value of $16 billion, Aetna provides medical, pharmacy, dental, and vision plans. Shares are up 8.5% this year and have a three-year average annual return of 24%.

News & Related Story Links:

• Money Morning:
  Drug Companies and Hospitals Get a Boost from Healthcare Reform
• Money Morning:
  From Obamacare to Taxes: 5 Hot Topics Politicians Love to Lie About
• NPR:
  Health Care Firms See Mixed Blessing In Overhaul
• Yahoo Finance:
  Health Care Sector Is a Winner Regardless of Supreme Court Ruling

Obama and Buffett Rule Make ¡®Good Tax Politics, Not Good Tax Policy,¡¯ Expert Says

President Barack Obama delivering the State of the Union address on Tuesday night. (Photo: AP)

A central focus of President Barack Obama’s State of the Union address Tuesday night was economic fairness, and requiring the wealthiest of Americans to pay more in taxes, but tax specialists and wealth managers say hiking taxes for the rich will do nothing to fix the tax code–which they say is a mess.
Obama’s proposal to cut $3.6 trillion from the deficit over the next decade through a measure called the Buffett rule, named for billionaire investor Warren Buffett, which increases taxes on wealthy Americans who earn $1 million or more per taxable year, is merely “good tax politics, not good tax policy,” says Christopher Bergin, president of Tax Analysts.
The fundamental problem with the tax code, Bergin says, is that “our tax system right now picks winners and losers.” The wages that average workers pay and are reported on their W-2s are taxed “differently” than the money Buffett and Mitt Romney, the current GOP presidential candidate, make, which is “not by working but by moving money around.” The way the law is written, Buffett and Romney “get a better tax rate than the rest of us.”
As Obama said during his speech on Tuesday, “Tax reform should follow the Buffett rule. If you make more than $1 million a year, you should not pay less than 30% in taxes.… Washington should stop subsidizing millionaires. In fact, if you’re earning a million dollars a year, you shouldn’t get special tax subsidies or deductions.” On the other hand, he said, “if you make under $250,000 a year, like 98% of American families, your taxes shouldn’t go up. You’re the ones struggling with rising costs and stagnant wages. You’re the ones who need relief.”
But “sticking it to the rich” will not fix the income tax code, “which is extremely problematic,” Bergin says. The tax system as it stands now “benefits the rich, and the poor–however you want to categorize them–lower income people do not pay federal income taxes. Some of them get refundable earned income tax credits for some of the payroll taxes they pay.” But it is the middle income folks–those generally earning $100,000 to $500,000 per year, Bergin says, that “really get hit; and are paying more of an effective [tax] rate than Romney.”
Obama also said he wants to let the Bush tax cuts expire. “When it comes to the deficit, we’ve already agreed to more than $2 trillion in cuts and savings. But we need to do more, and that means making choices,” Obama said. “Right now, we’re poised to spend nearly $1 trillion more on what was supposed to be a temporary tax break for the wealthiest 2% of Americans. Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households. Right now, Warren Buffett pays a lower tax rate than his secretary.”
Asked Obama: “Do we want to keep these tax cuts for the wealthiest Americans? Or do we want to keep our investments in everything else–like education and medical research; a strong military and care for our veterans? Because if we’re serious about paying down our debt, we can’t do both.”

Obama went on to say that America needs “to change our tax code so that people like me, and an awful lot of members of Congress, pay our fair share of taxes.”
But Bergin doubts Congress will make any headway in reforming the tax code this year. Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, and “his colleagues have to deal with things that are timed to blow up this year or have already blown up last year; there is no opportunity for tax reform this year.”
Lawmakers must grapple this year with the Alternative Minimum Tax, as the patch instituted last year has expired, as well as the estate tax. Bergin says he’s been hearing from wealth managers “who don’t know how to advise their clients” because the estate tax rules revert back to 2001 rates at the end of 2012.
Then there’s the payroll tax cut, which was extended for two-months before Congress’ holiday recess and that expires on Feb. 29. The Temporary Payroll Tax Cut Continuation Act of 2011 extends the two-percentage-point payroll tax cut for employees, continuing the reduction of the Social Security tax withholding rate from 6.2% to 4.2%.
Obama urged Congress during his speech to pass the payroll tax cut “without delay.” He said Congress’ “most immediate priority is stopping a tax hike on 160 million working Americans while the recovery is still fragile.”
Bergin says there’s a danger for Social Security if Congress continues to “extend” the payroll tax cut as opposed to a long-term solution. “If [Congress] keeps extending this payroll tax cut there’s a threat to Social Security that no one is talking about, of it not becoming a separate system but just another budget item” for Congress.