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Apart from the Court’s decision about whether it can decide anything until the law goes into effect, its attention focuses on two matters. The primary issue is the individual mandate, whether it violates the constitution to demand, as Obamacare does, that individuals purchase healthcare insurance. The second issue is the Medicaid expansion, whether the law exceeds the limits of federal authority to demand, as Obamacare does, that states provide a certain level of healthcare insurance coverage for all those that have incomes up to 133% of the federal poverty line.
Those who claim to have an insight into the legal principles and the justices involved point to a muddle. The Court, they argue, will neither throw out the entire law nor pass on all of it. Rather, they will strike down certain aspects, demand modifications elsewhere, and accept whole still other parts of it. Such a mixed decision cannot help but create ambiguity for the investors and businesspeople, who then would have to draw out the implications. If, for instance, the Court strikes down the individual mandate, but allows the rest of the law to proceed, health insurers would find themselves in a terrible bind. The law would still require them to provide a stipulated level of coverage for all comers, regardless of preexisting conditions, but it would deny them the financial resources to comply that millions of new customers would have provided. Investors and businesspeople not only would have to plan around the inevitable profits squeeze and premium hikes but they would also have to look ahead to what might replace such an untenable situation, perhaps such as calling for government subsidies of various kinds and, even, ultimately a publically run insurer.
Even if the experts are wrong and the Court simply accepts or rejects the law overall, uncertainty would persist, because if the law were to stand, it would still demand clarification on a raft of its provisions, regulatory decisions, rule-making, and negotiations between the states and the federal authorities. This would take some time. Such clarification, after all, is far from complete two years after the president signed it. Neither would it relieve uncertainty if the Court were to strike down the entire law. The debate surrounding this contentious piece of legislation has made it evident that the country could never return to preexisting arrangements. Republicans, Democrats, those on the left and those on the right, all seem to acknowledge that the end of Obamacare would require a new set of rules. Until these are worked out, business and investment planning would have little to go on.
This continuing ambiguity, regardless of the Court’s decision, will leave the economy and the investment climate much as it has been for the past two-plus years, at least in this regard. Managers will still have an impossible time estimating the expense of future health care to their firms and, hence, the true cost of any new hire, much less the cost of ambitious expansion plans. The jobs market might improve (and likely will), but such huge uncertainties will continue to hold back the pace of hiring, certainly compared with historical precedents. To the extent that the uncertainty holds back general expansion plans, it will also impose a drag on new capital spending and keep the spending that does occur oriented away from general expansion and toward labor substitution, where it helps managers sidestep the uncertainties surrounding healthcare costs. What the Supreme Court decides in this matter is undeniably important. The announcement, no doubt, will have a powerful psychological effect on markets. But on a practical level and over the intermediate term, it will have less effect than it might seem at first.
The opinions in the preceding commentary are as of the date of publication and subject to change based on subsequent developments and may not reflect the views of the firm as a whole. This material is not intended to be legal or tax advice and is not to be relied upon as a forecast, or research or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. Investors should not assume that investments in the securities and/or sectors described were or will be profitable. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy or completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.
Investors should carefully consider the investment objectives, risks, charges, and expenses of the Lord Abbett funds. This and other important information is contained in each fund’s summary prospectus and/or prospectus. To obtain a prospectus or summary prospectus on any Lord Abbett mutual fund, contact your investment professional or Lord Abbett Distributor LLC at 888-522-2388 or visit us at www.lordabbett.com. Read the prospectus carefully before you invest.