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

The Patient Protection and Affordable Care Act of 2010 marked a substantial shift in US healthcare policy. We create an event study observing the returns of healthcare stocks in the S&P 500 when on June 28, 2012 the US Supreme Court very unexpectedly ruled that the individual mandate, a provision requiring that Americans maintain a certain level of health insurance or face a monetary penalty, was not unconstitutional. The paper finds that as a result of the upheaval, over two days following the ruling the cumulative average abnormal return of managed care stocks was -6.7% (equal to -$6.9 bn in market capitalization), while the same metric was -1.2% (-$1.5 bn) for biotechnology companies, +3.2% ($0.4 bn) for hospital firms, +1.9% ($1.6 bn) for healthcare service firms, and +0.5% ($4.8 bn) for pharmaceutical companies. Healthcare equipment, distribution, and technology sub-industry stocks had relatively flat cumulative abnormal returns over the period.