OBAMACARE “TAX AND SPEND” “Victory”: What Businesses Didn’t Get From the Health Care Ruling
June 28, 2012 (TSR) – For American businesses, uncertainty over the health care law is anything but over.
When the Supreme Court upheld Obamacare on Thursday-including the individual mandate that forces most Americans to have insurance-it made the issue even more political, promising it ultimately will be decided in the November presidential election.
GOP candidate Mitt Romney vowed again Thursday to repeal the act if elected, while President Obama said he would move forward in implementing it.
That means businesses will have a hard time budgeting for health care costs and are likely to delay hiring even further.
ObamaCare signing. In a complex ruling, the Supreme Court has largely upheld the controversial Obamacare law. The Court struck down the individual mandate as an unconstitutional penalty under the Commerce Clause, but upheld it as a permissible tax. It also limited the expansion of Medicaid spending under Obamacare, which states had argued was a violation of the Tenth Amendment.
U.S. corporations are sitting on more than $1.2 trillion in cash – $3.5 trillion counting the financial sector – that has not been deployed, in large part due to anxiety over health care, the looming fiscal cliff in Washington, and the European debt crisis.
The Supreme Court decision “increases the likelihood that businesses will continue to hold onto that cash to see how the election turns out,” said Greg Valliere, chief political strategist at Potomac Research Group in Washington, D.C. “If Romney wins, he will overturn the Affordable Care Act within days of his inauguration on Jan. 20. Therefore, the reluctance of businesses to spend and hire will persist at least through the election.”
The court decision hinged on the individual mandate, a provision the court upheld so long as it is called a “tax” rather than a “penalty” as the law’s wording originally indicated.
“From a political standpoint, this significantly improves the chance that Romney wins in November,” said Valliere, who called the decision a “Pyrrhic victory” for Obama. “Congress was too chicken to use the word ‘tax’ because it has such a pejorative implication for voters…Of course, the Supreme Court doesn’t have to run for re-election.”
That political advantage may cheer the Romney supporters, but it does little to assuage concerns of business leaders and investors alike who were hoping to get the health care issue resolved.
Obamacare serves as one point in a daunting triad of uncertainty the business climate faces.
There also is the accelerating debt crisis in the euro zone, as well as the fiscal cliff, a term coined by Federal Reserve Chairman Ben Bernanke to describe the automatic spending cuts and tax increases that kick in at the beginning of 2013 if Congress fails to agree to a deficit-reduction plan.
To be sure, the reaction to the decision was mixed, with some saying that the decision, good or bad, at least will allow companies to plan for the future.
“As flawed as it is, it still has taken us some way along the path to reduce some uncertainty,” said James Paulsen, chief market strategist at Wells Capital Management in Minneapolis. “To throw it all out would have put us back to square one and, net-net, a loss for the country.”
Paulsen added that he was glad that what essentially was a political decision did not get overturned at the judicial level.
But the political considerations are no small part of what happens going forward. Not only will the fate of the law under a Romney administration hang in the balance, but there also remain a number of questions with how the mandate will be implemented.
“The level of uncertainty about the outlook and ultimate cost to business of the health care reform bill remains somewhat,” said David Resler, chief economist at Nomura Securities in New York. “It kind of leaves us where we were.”
Among the questions Resler pointed out will be how the Internal Revenue Service collects the new tax, and how reporting will take place. He compared it to the Dodd-Frank banking reform law, which still has many provisions that are being negotiated.
“Most of the scheduled implementation for that has not been met, and it’s not clear that the provisions under the health care law will be met as originally envisioned in the law,” Resler said. “There’s still some uncertainty, but businesses have some clarity about the rules of the road, so to speak, going forward.”
The stock market reacted negatively to the decision, sending major averages and health care stocks in particular down about 1 percent or more across the board, though the market could be more inclined to move onto other concerns in future days.
“Stocks themselves are just going to pretty much crash because of what’s happening with Europe and because of the fiscal cliff in the U.S.,” said Lee Markowitz, partner at Continental Capital Advisors in New York. “The broader issues are so much bigger than some increase in spending related to health care.”