The Supreme Court, the Affordable Care Act, and the Economy

Source: Tara Clarke, Money Morning  (3/26/12)

"The biggest issue is whether or not Congress has the constitutional power to require nearly every American to obtain health insurance or risk paying a penalty."


Health care reform takes center stage this week as the U.S. Supreme Court hears arguments on the constitutionality of the Affordable Care Act, otherwise known as Obamacare—and it's going to be a real doozy.

A final decision will be issued around the end of June, just months before the presidential election. It could be like the shot heard "round the world.

Law, politics, U.S. world image, and our economy weigh in the balance.

Pundits are predicting and cogs are turning. Here's how the Supreme Court's decision on Obamacare may play out and how it might affect our economy.

Is the Affordable Care Act Constitutional?

First, we need to understand the nuts and bolts of what the Supreme Court must decide.

The biggest issue is whether or not Congress has the constitutional power to require nearly every American to obtain health insurance or risk paying a penalty.

This is the issue people really care about, because it will directly influence our everyday lives.

To some, the idea of the government looking over your shoulder and forcing you to buy a product you may not want or agree with is some scary Big Brother-type overreach.

To others, the idea of the sick being turned away by insurers and hospitals is abhorrent, and this legislation provides the right prescription.

The second issue is the question of legal standing—that is, whether or not taxpayers have been sufficiently affected by the health care bill to sue the government over it.

The Anti-Injunction Act --a piece of legislation that prohibits taxpayers from filing suit until after the tax goes into effect and they are subjected to it—might bar challengers in this case from raising these issues until after the bill goes into effect.

A Supreme Court decision to bar challengers on the basis of standing would simply delay a decision on the constitutionality of the ACA itself.

As a lawyer, I think the legislation is full of problems.

It was admittedly a rush-job that needs to be trimmed down and then re-presented to the High Court. Getting that done in today's Congress would require a miracle.

How Obamacare Will Affect the Economy

The June decision could impact our economy in a number of ways.

One of them is indirect. The Supreme Court's decision might influence the political climate right before the 2012 presidential election, which would affect the economy depending on which way the hammer swings.

For instance, if the health care law passes, the Obama camp may surge and win a consecutive presidency. Or, if the law is struck down, the GOP may gain steam and win the election.

Different parties in the White House, different economic policies. You get the idea.

A recent Gallup poll supports this position, showing that health care reform is "extremely or very important" to 75% of voters.

"The Supreme Court's ruling returns the spotlight to an issue that really has faded," Matt Bennet, a senior vice president at Third Way, told The New York Times. "It is no longer a top-of-mind issue for most voters. This just brings it right back to the surface."

Yet, some believe the economy itself is such a hot issue in this year's election that healthcare reform has taken a permanent backseat.

Neera Tanden, the president of the liberal-leaning Center for American Progress and a former Obama administration official who worked on the healthcare bill, told CBS News, "Both parties will have to be talking about broader economic issues going into the elections. I don't anticipate it being an electorally significant issue regardless of the outcome."

However, in a tight presidential race, every bit of momentum will be essential. The fact that health care is a major issue for so many Americans may be the straw that breaks the camel's back for either candidate.

If that is the case, the Supreme Court's ruling on the healthcare bill will play a potentially key part to who wins the presidency, and in turn, the economic policies that will be put into place.

Health Care Reform, "Employer Dumping" and the Federal Deficit

A more direct effect that the Affordable Care Act (ACA) would have on our economy is its impact on the federal deficit.

The fear is that the reform will force employers to stop sponsoring health insurance for employees, exploding the federal deficit in the process.

Forbes contributor Avik Roy refers to this as "employer dumping."

Roy found that "a number of credentialed budget wonks, most notably Gene Steuerle (a former Treasury department official), Jim Capretta (a former healthcare specialist at the White House Office of Management and Budget), and Doug Holtz-Eakin (a former director of the Congressional Budget Office [CBO]), have pointed out that the ACA strongly incentivizes employers to drop coverage for their lower-to-middle-income employees, because those employees get a better deal by seeking out coverage on the law's new exchanges."

The trillion-dollar question is, how exactly could this "employer dumping" negatively affect the deficit?

According to Roy's report, "The CBO projects that the premium-assistance program will cost about $450 billion from 2014 to 2019, but that cost would rise to $1.4 trillion if workers and their family members between 133% and 250% of the poverty line were to migrate out of their current plans and into the exchanges on Day One."

But the CBO goes on to project that widespread employer dumping could actually reduce the deficit. In the same article, it is suggested that people who get health insurance through the new plans produced by the act, rather than through their employers, would no longer be able to take advantage of the tax deduction for employer-sponsored health insurance.

What is lost in the new exchanges is gained in tax revenue, as a result of a reduction in the size of employer tax exclusion.

There are big assumptions in the math here, but it is possible that the health care reform could serve its altruistic purpose without damaging the deficit.

Meanwhile, Forbes contributor Merrill Matthews has an opposite take on healthcare reform's effect on the deficit.

"Given that the Obama administration's federal budget deficit for the month of February was $232 billion (B), an $800B increase in the cost of Obamacare may seem like chump change—only about three and a half months worth of monthly Obama deficits," Matthews wrote. "Still, I for one can't help but think of $800B as real money."

The bottom line is that when numbers and bipartisan politics align, it is hard to find the truth.

Mark Twain's popularized phrase unhappily applies here: "Lies, damned lies, and statistics." My advice? Stay informed.

On March 16, the Supreme Court denied media requests to film the arguments in this case. Cameras will be barred from the courtroom, but it will release same-day audio recordings of the arguments.

Believe me folks, this one actually matters, so sit tight and tune in to this week's Obamacare arguments.

Tara Clarke, Money Morning

The Life Sciences Report The Life Sciences Report