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Economic Insights

The prognosis is by no means clear. Ambiguity surrounding the implementation of the Affordable Care Act will create further uncertainty for the economy in the years ahead.

When the Affordable Care Act (ACA) became law in 2010, its scope and inevitable ambiguities created tremendous uncertainty throughout the economy. The attendant caution in part explains the atypically slow economic recovery to date. During these past few years, people hoped, even expected, that time would bring greater clarity and lift this particular economic weight, whatever other burdens and benefits they saw in the law. But now as 2014 and the deadline for the law's implementation approaches, little of that hoped-for clarity has emerged. The way it looks now, these unfortunate uncertainties will remain in place for the foreseeable future.

It was always the law's ambiguity, more than the costs it imposed, that weighed heaviest on the pace of growth. Had people known all the costs, had they a clear picture of the law's provisions, they could have weighed the expenses involved against the potential gains from a decision to invest, for instance, or hire, and proceeded with confidence, even though the law imposed costs. But all the many ambiguities made such calculations impossible. Individuals and firms were in the dark about the costs and were unable to weigh them against the potential benefits of action, so they naturally delayed economic decisions. Households spent less than they otherwise might have. Firms avoided as much expansion and new hiring as possible. An overriding reluctance permeated all economic decision making and has unavoidably slowed the pace of expansion for years, now especially in the area of hiring.

Today, as the country stands on the verge of implementing this huge piece of legislation, Washington seems to have conspired to maintain an oppressive ambiguity. Some of this unfortunate effect emerges from political and legal challenges that are, no doubt, inescapable with such an immense, wide-reaching law. Part of the ACA's effect relates to the administration's decisions to delay the implementation of aspects of the law, and part reflects ongoing and potential administrative failures. Some blame Health and Human Services [HHS] secretary Kathleen Sebelius for failing to get into place and on time the massive administrative machinery required by the law. Some blame the president for paying too little attention to detail. Some blame Republicans in Congress for obstructionism. Wherever the blame may lie, and there surely is plenty to go around, the issue for investors is stark: an overriding caution will continue to keep this recovery historically slow.

The most straightforward problem emerges from the administration's decisions to delay the application of parts of the law. The White House has made several such announcements, some with more fanfare than others.

In all, 41 of some 82 deadlines required by the ACA have been missed or actively postponed. Six stand out: 1) planned cuts in Medicare were supposed to go into effect on January 1, but now will wait at least a year; 2) the law's mandate that firms with 50 or more employees buy health insurance for their workers will also wait a year; 3) the law for the time being will not investigate eligibility requirements of individuals who apply for insurance premium subsidies; 4) the law's cap on the out-of-pocket costs to healthcare insurance beneficiaries will also wait a year to go into effect; 5) the administration has decided to scale back on the promised, stringent privacy protections for the huge medical data base mandated by the law; and 6) exchanges for small businesses to buy insurance for their employees will not arrive in the new year as the law demands.1

A lot of politics and legal questions have swirled around these decisions. Many in Congress, for instance, claim that once a law is passed, the administration has an obligation to implement it as it is written and has no legal right to change its provisions. Others have accused the administration of cynically waiving certain provisions in order to postpone the pains of implementation until after the 2014 midterm elections. Still others have accused the White House of simply cosseting favored constituencies with special breaks, though no one in Congress complains about the special favor the president granted Congress itself to subsidize the insurance purchases of senators, representatives, and their staffs in violation of the law's provisions.2

If the delays were implemented to help the economy, they will almost surely fail in that objective. Take, for example, the relief on the requirement that firms buy health insurance. They still know the requirement is on the horizon and so are hardly likely to hire more workers simply because of a 12-month reprieve. Whatever the objectives of these delays, however, cynical or otherwise, they leave huge uncertainties about how postponed or modified provisions will eventually work in practice and how much they will cost. Households and managers remain unable to calculate costs.3

Bigger problems, though, lie with the state exchanges on which, according to the law, otherwise uninsured individuals must buy healthcare coverage. Those who framed the law anticipated that each state would set up its own exchange in order to enable its residents to find adequate health insurance at the lowest possible cost. But many states have already refused to set up exchanges. Some will set up the exchanges only in partnership with the federal government. Others, which have agreed to do the work, clearly will fail to meet the deadline written into the law. Part of the problem is purely partisan politics in nature. Most of the governors who have refused outright are Republican. But political partisanship is only part of the story. Many states simply have refused to take on the huge administrative burdens and expenses involved in setting up and administering the exchanges.4

Whatever the reasons, the lack of state cooperation has burdened the federal government formidably and unexpectedly. The problem was, apparently, unanticipated when the law was signed in 2010. Otherwise, the lack of state enthusiasm has been evident for a while. Now, in just a few months, HHS finds itself forced to create front-end interfaces for a large number of states to take in users' personal information, verify their identities, screen insurance plans, certify whether health plans meet standards, itemize those that are acceptable, and provide ways for users to navigate the exchanges and apply, not just via computer links but also over the telephone and by conventional mail. Complicating the process still further, HHS cannot build a single system. Each exchange will have to account for each state's insurance laws and Medicaid regulations, a task that will require the federal authorities to come up to speed on local insurance markets in a great number of states.

To cope with these overpowering administrative and technical burdens, HHS has already announced that it will include many fewer options on its exchanges than were originally contemplated. The administrative and technical overload is why the White House has decided not to bother verifying eligibility for subsidies, at least not for the time being. HHS has also pointed to administrative and technical difficulties as reason why it will have to shortcut some of the privacy safeguards that the law originally promised. Of course, those who dislike the law are outraged and ask what HHS has been doing in the intervening years to prepare for this situation. Those who like the law see these problems effectively as growing pains. However one prefers to see it, the bottom line is continued uncertainty about how the final arrangements will work and how much they will cost, with all the ongoing, negative economic fallout those ambiguities imply.5

Making matters still more complex, the funding of the law's requirements has become embroiled in Washington's debt-ceiling and overall budget debate. Most of the fighting here is occurring within the Republican party. The conservative wing of the party, in this case led by Senator Mike Lee of Utah, has advanced two strategies. One would vote down the continuing budget resolutions needed to keep the government running unless language was inserted in the budget that deny funding of the ACA. The other would refuse to raise the debt ceiling unless the legislation defunds the ACA. Either strategy could shut down the federal government. Though establishment Republican senators Richard Burr of North Carolina, Roy Blunt of Missouri, John McCain of Arizona, and Ohio congressman House Speaker John Boehner, prominent among them, have announced a desire to defund the ACA, they resist shutting down the government to do so. How this works out is impossible to tell, but it only adds to uncertainty in the immediate future and further obscures the ultimate cost and character of this legislation.6

The economy could grow despite these burdens, as it has for some years now. Markets could make gains too, as they have to date. But it would help on both fronts if the country's households and businesses could get out from under these ambiguities, as it was hoped they would have by now. Unfortunately, it now looks that this desired event lies on a distant horizon indeed.


1 "The Fierce Urgency of ObamaCare Delays," Investor's Business Daily August 27, 2013.
2 "Newly Revealed Obamacare Delay Draws Fire," CNBC.com, August 14, 2013.
3 Milton Ezrati, "The Market's Next Appointment: Health Care," Economic Insights, December 17, 2012.
4 Ibid.
5 "The Fierce Urgency of ObamaCare Delays," op. cit.
6 Sam Bake, "How the Obamacare Defunding Battle Exploded into Political Showdown," The Hill, August 29, 2013.

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