Ezrati’s Economic Outlook: Supremes Will Clarify Little

The high court's decision on healthcare reform is bound to leave uncertainty.

As of this writing, the Supreme Court has yet to announce its decision on Obamacare. It has not even announced when it will reveal its decision. Still, if much about the court’s conclusion remains a mystery, two things are pretty clear: 1) the court will almost surely hand down something complex, and 2) whatever it decides, uncertainty will continue to plague business and investment decision making.

Apart from the court’s decision about whether it can decide anything until the law goes into effect, it is focusing on two matters. The big issue is the individual mandate and whether it violates the constitution to demand, as Obamacare does, that individuals purchase healthcare insurance. The second issue is Medicaid expansion and whether it exceeds the limits of federal authority to demand, as Obamacare does, that states provide a certain level of healthcare insurance coverage for all those with incomes up to 133% of the federal poverty line.

Those who claim to have insight into the legal principles and justices involved point to a muddle. The court, they argue, will neither throw out the entire law nor pass on all of it. Rather, the justices 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 investors and business people who 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 pre-existing conditions, but it would deny them the financial resources to comply that millions of new customers would have provided. Investors and business people not only would have to plan around the inevitable profit squeeze and premium hikes, they would have to look ahead to what might replace such an untenable situation, perhaps calls for government subsidies of various kinds or even, ultimately, a publicly run insurer.

Even if experts are wrong, and the court simply accepts or rejects the law overall, uncertainty would reign. If the law were to stand, it would require clarification on a raft of its provisions, regulatory decisions, rule making, and negotiations between the states and federal authorities. This would take some time. Such clarification, after all, is still far from complete two years after the president signed the law.

Nor 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 obvious that the country could never return to pre-existing 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 those are worked out, business and investment planning would have little to go on.

No matter what the court decides, this continuing ambiguity will leave the economy and the investment climate much as it has been for the last two-plus years, at least in this regard. Managers still will have an impossible time gauging the expense of future healthcare to their firms and hence the true cost of new hires, 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.


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