Health Care Supreme Court Decision: Shares of Medicaid MCOs Soar

Shares of Medicaid providers soared Thursday, after the U.S. Supreme Court voted 5 to 4 to uphold President Barack Obama's health care reform law, confirming the constitutionality of the president's signature legislative achievement and expanding insurance to millions of low-income Americans under Medicaid -- a large influx of new customers and notable revenue opportunity for Medicaid-focused managed-care organizations (MCOs).

Shares of Centene Corp (NYSE: CNC) rose as much as 11.5 percent to $33.18 apiece, before falling to $31.04. Shares of Molina Healthcare Inc. (NYSE: MOH) jumped 7.8 percent, and shares of Amerigroup Corporation (NYSE: AGP) gained 10 percent.

It's certainly good for Medicaid providers in that they can expect to benefit from 16 million or so people that are going to gain coverage through Medicaid, said Matthew Coffina, senior health care analyst at Morningstar.

The Supreme Court limited the law's extension of the Medicaid program for the poor by saying the Constitution requires that states have a choice about whether to participate in the expansion of eligibility. If they decide not to, they can continue to receive funds for the rest of the program.

But the impact should be minimal.

That's probably an immaterial change, given that the mandate is upheld, I think most states will probably feel pressured to expand the Medicaid program in the way prescribed by the law, Coffina said. This means that Medicaid MCOs, like Amerigroup and Centene and so on, stand to benefit from a significant inflow of new patients as we have been expecting.

However, Coffina warned that this rallied may or may not be justified.

It's worth keeping in mind that these new members are relatively low health care cost and relatively low premiums compared to some of the other opportunities that are in front of these companies, Coffina said.

Starting on Jan.1, 2014, Medicaid, the low-income health insurance program, will be expanded to cover between 16 million and 20 million more Americans with a higher annual income than what is currently allowed, the Congressional Budget Office estimates. Currently, 62 million Americans are covered by Medicaid.

To be eligible, one has to earn less than $29,000 for a family of four. Medicaid represents about one-sixth of total health care spending in the U.S.

Provisions in the Patient Protection and Affordable Care Act, more commonly known as Obamacare, will save taxpayers and States an estimated $17.7 billion over five years on prescription drugs bought through Medicaid, according to estimates released by the Centers for Medicare & Medicaid Services (CMS).

Some states, including California, Connecticut, Colorado, Minnesota, Missouri, New Jersey and Washington have already gone ahead and expanded their Medicaid programs without waiting for the federal ruling.