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Insurer stocks continue to fall after ruling

LOS ANGELES (MarketWatch) -- In the wake of a landmark Supreme Court ruling that reverberated throughout the sector, commercial insurers started sliding again in Friday trading despite a broad market rally.

These insurers, which had stumbled from the shock of the court's decision Thursday to uphold President Barack Obama's health-care overhaul legislation, rebounded when trading opened. But as the session wore on, they slid into negative territory.

UnitedHealth Group Inc. (UNH) , WellPoint Inc. (WLP) , Aetna Inc. (AET) , HealthNet Inc. (HNT) and Coventry Health Care Inc. (CVH) all were down two percentage points or more. WellPoint led the losers with a 3% drop to $63.79.

It appears investors are concerned about some of the provisions in the bill, formally known as the Affordable Care Act, including new fees as well as the requirement that insurers spend at least 80% of their revenue on providing health care.

The high court ruled 5-4 on Thursday that a requirement for all U.S. citizens to purchase health insurance or pay a penalty was constitutional as a tax. The court also ruled that the federal government could expand its Medicaid program but couldn't coerce states into it by threatening to withhold existing funds if they failed to participate in the expansion.

Medicaid insurers, which got a shot in the arm from Thursday's ruling, were mixed in trading on Friday. Amerigroup Corp. (AGP) and Molina Healthcare Inc. (MOH) inched up slightly while Wellcare Health Plans Inc. (WCG) and Centene Corp. (CNC) were off roughly 2% each.

Hospitals continued their surge Friday, as industry leader HCA Holdings Inc. (HCA) stacked another 3% in gains on top of the 11% it climbed on Thursday. Health Management Associates Inc. (HMA) was up more than 5% as well, and Community Health Systems Inc. (CYH) climbed nearly 2%.

Other parts of the sector followed the rest of the market in its rally. Medical-device makers posted gains of 2% or more with Baxter International Inc. (BAX) leading the way with a 3.3% gain.

Drug distributors also were up, as well as technology specialists serving the medical profession. SXC Health Solutions Corp. (SXCI) , a provider of technology information products to benefit providers, posted gains of nearly 5%. Its shares now are close to cracking the $100 mark. Cerner Corp. (CERN) was up 6%.

Meanwhile, online health-insurance broker Ehealth Inc. (EHTH) was up nearly 5% after Bank of America analyst Nat Schindler upgraded the company's shares back to buy. Schindler had downgraded the shares in April, shortly after arguments in the case were presented to the Supreme Court.

Schindler was concerned the individual mandate that required policy purchases was in doubt. He said the mandate and subsidies offered in the legislation officially known as the Affordable Care Act would more than double eHealth's market opportunity in two years.

"EHealth's primary business is selling individual and family plan insurance policies to an address market of 19 million," Schindler wrote in a note to clients. "With more than 715,000 current members, eHealth has only about 4% market penetration. Since the individual mandate of the ACA is approved, the Congressional Budget Office estimates 30 million additional individuals will be added to the individual and family plan insurance market."