Health Care Reform and Health Care Stocks: Evidence from the Affordable Care Act Supreme Court Ruling

Abstract

The Patient Protection and Affordable Care Act of 2010 marked a substantial shift in U.S. health care policy. This paper creates an event study that measures the impact of the law by observing health care firm stocks in the S&P 500 when on June 28, 2012, the U.S. Supreme Court very unexpectedly did not overturn key sections of the Affordable Care Act in their landmark ruling on NFIB v. Sebelius. This included upholding the individual mandate, a provision requiring that Americans maintain a certain level of health insurance or face a monetary penalty. Following the upheaval, the paper finds cumulative average abnormal returns for managed care stocks of -6.7% (-$6.9 bn in total market capitalization). The same metric was -1.2% (-$1.5 bn) for biotechnology companies, 3.2% ($0.4 bn increase) for hospitals, 1.9% ($1.6 bn increase) for health care services, and 0.5% ($4.8 bn increase) for pharmaceutical companies. Health care equipment, distribution, and technology stocks had flat cumulative average abnormal returns over the period.

Keywords: Legislatures, and Voting Behavior, Information and Market Efficiency, Event Studies, Analysis of Health Care Markets, Industrial Policy

JEL Classification: D72, G14, I11, L52