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How the healthcare sector will be impacted by the ACA ruling

David Toung, senior analyst at Argus Research, joins Yahoo Finance Live to discuss how the healthcare sector stands to be impacted by the upcoming Supreme Court ruling on the Affordable Care Act. Plus, with the ongoing ACA debate, Toung talks about the one stock he thinks stands to benefit from this type of environment.

Video Transcript

JULIE HYMAN: Well, the Supreme Court is now hearing a case that involves the Affordable Care Act. Specifically, they're looking at the legality of the mandate that is in that act, and it looks like an argument that what the various justices are asking the participants seems to indicate they're not willing to strike down the whole ACA, perhaps just a mandate. At least that seems to be the early read. But what is the read through for health insurance companies and the health care industry overall?

Let's bring in David Toung now to talk about that. He's Argus Research Health Care Analyst. So David, first of all, are you surprised by that sort of early read that we're getting on the case, and is this something that the health care industry was sort of prepared for?

DAVID TOUNG: Sure, Julie. Frankly, I wasn't surprised at the tone of the commentary from Chief Justice Roberts. I mean, after all, he read the court when it upheld the ACA earlier. And you know, in oral arguments, he said that, you know, it's not really the role of the court to strike down the law. What is interesting is what Justice Kavanaugh said, that he would be able to find the individual mandate severable from the rest of the law so that even though the taking the tax away there really is no individual mandate, the rest of the law can stand.

And it sounds like, you know, here you have two votes from the conservative wing of the Supreme Court who would uphold the law, and that, I think, you know, at least may be a five to four upholding of the ACA. And what are the implications for the insurance market, for insurance stock? I think that it's a positive to have stability in the insurance market.

More importantly, this will give the opportunity for the Biden administration to strengthen the law. There are things that they can do legislatively to improve affordability, to improve financial incentives, for the state to expand Medicaid and to improve affordability and tighten up, you know, several provisions. So I think overall, it's a positive, both for people who could benefit from insurance coverage, and also for the stability of the insurance market overall. And given the impact of COVID-19 global pandemic, you can clearly see how important it is to have insurance coverage.

BRIAN SOZZI: David, this is going to be, the ACA debate, it's still going to remain very much top of mind next year. Is there one health insurer that stands to do better in this type of environment?

DAVID TOUNG: Well, one stock that we cover is Humana, and they are a leader in Medicare Advantage, and they also offer, you know, Medicaid plans where they're working with the states. So clearly, you know, Humana is a stock that would benefit from stability in the ACA.

MYLES UDLAND: And David, I guess thinking about the overall situation right now, you kind of outlined it at the beginning where we've got the pandemic going on, we have what's likely to be a contentious political period as it relates to the ACA going forward, how are you thinking about the broad universe of health care stocks right now? I know Brian just asked about, you know, is there a specific name, but just with all these moving parts, how are you within your coverage area just trying to pin down, you know, which models may do better or which ones may be under pressure and what the needs for, you know, citizens as it relates to health insurance could be over the next decade or so?

DAVID TOUNG: Well, one area that, you know, I focus on is medical devices, and that sector saw quite a pullback, you know, back in March and April, because elective surgeries were down as hospitals focused their care on treating COVID-19 patients. The procedural volume has come back. It hasn't all the way come back. There's some question as to whether the second or third wave, how that would impact hospitals. But it looks like the procedural volume continues to improve.

And you know, we are seeing the, you know, advent of robotics in surgery that, you know, that's something that will improve the technology and make these devices more attractive to hospitals. You know, we're seeing the news that Stryker is completed the acquisition of right medical. That strengthens Stryker's offerings in extremities upper and lower. So that's, you know, that's certainly bullish. And do you have another question on the sector?

JULIE HYMAN: No, that was, I think, he was just asking for thinking through these various sectors, so that's a good one to think about. We're going to leave it there. David, thank you so much. David Toung is Argus Research Health Care Analyst. We'll get you back soon to talk about the implications for all these various subsectors within healthcare.