Once the matter of the fiscalcliff is resolved, as is likely by early next year at the latest,it would be nice to contemplate a reprieve from Washington.Unfortunately, there will be no such luck. Apart from the cryingneed for fundamental fiscal reform, a new urgency will developaround the implementation of Obamacare, more formally known as theAffordable Care Act. The law dictates full implementation byJanuary 2014. Despite the Supreme Court decision affirming thehealthcare law and the president's re-election, the matter isproving to be more complex and politically fraught then evenpessimists expected. The attendant uncertainties will disrupt plansand planning throughout the economy at least the next 12 to 24months.

The insurance mandate forms part of the problem. Endorsed lastyear by the Supreme Court, it imposes penalties on those who failto buy insurance, ranging from $695 for each uninsured individualto 2.5% of family income, whichever is higher, up to $12,500.Tracking compliance alone will burden the Internal Revenue Service.Though the implementation budget funds no more than 1,200 new hiresat the IRS for Obamacare, the agency may need to hire up to 16,500additional employees. Enforcement will bring on furthercomplications. Though the law makes the penalties clear, it makesno provision for either civil or criminal actions against those whorefuse. The IRS has no ability to seize bank accounts or dockwages, nor will interest accumulate on unpaid penalties. The onlything the IRS can do beyond sending scary letters (for which,admittedly, it has remarkable talent) is to withhold refunds,hardly a motivation if the refund is less than the penalty.

More complex and potentially much more disruptive are thequestions surrounding the state insurance exchanges, thecenterpiece of healthcare reform. Those who framed the lawanticipated that each state would set up its own exchange to enableits residents to buy adequate health insurance at the lowestpossible cost. But at least 16 states have refused to set upexchanges, some with more fanfare than others. Another five decidednot to set up their own exchanges and proposed a partnership withthe federal government, while four others are considering apartnership. Beyond these 25 states, others clearly will fail tomeet the deadline written into the regulations.

Most of the governors who have refused outright are Republican,but political partisanship is not the whole story. Many statessimply refuse to take on the ample administrative burdens andexpense involved in setting up and administering the exchanges.There are also non-partisan considerations. Many state politicianswant to avoid the thankless task of deciding what constitutes“essential health benefits,” as the law demands the exchanges do.These governors and state legislators see only political downsidein choosing which health plans can go into the exchanges andwhether to include acupuncture, as California would, andchiropractic services, as Michigan would, or exclude both, asOregon would. They would prefer that the Department of Health andHuman Services (HHS) take the blame for such decisions. Though theymight lose a measure of power by deferring to the federalauthority, that is a small price to pay to avoid incurring thewrath of constituent groups.

The task that has befallen the federalgovernment will impose formidable and unanticipated burdens. HHSwill have to create at least 25 front-end interfaces to take inusers' personal information, screen insurance schemes and itemizeacceptable plans. It will also need to build systems to verify useridentities, certify health plans that meet standards and provideways for users to navigate the exchanges and apply, not just onlinebut over the telephone and by conventional mail. Complicating theprocess still further, HHS cannot build a single system. Eachexchange will have to account for that state's insurance laws, atask that will require the federal authorities to come up to speedon local insurance markets in at least the 25 states which havebalked on exchange building, and very likely more of them.

The overlap with Medicaid will complicate the effort further.Since the states control Medicaid eligibility and the Supreme Courthas allowed states to opt out of federal requirements, theexchanges run by HHS will have to cope with Medicaid questions.They will likely have to ask users to fill out separate Medicaidapplications, probably on a separate, state-administered site.There will be delays as users wait for the state authorities todetermine their eligibility. Should they be rejected, they willhave to return to federally run exchanges to make the mandatedinsurance purchase. Without diligent efforts, many users willbecome confused as to whether they qualify for Medicaid or must buypersonal insurance. Such people could easily fall through thecracks of a federally run system and lose all medical coverage.

To protect against such hardships and set up the massiveadministrative machinery involved, HHS will have to do a tremendousamount of work in the year remaining before the exchanges aresupposed to begin operations. The effort should quickly burnthrough the $1 billion budgeted to the department to implementObamacare. It will undoubtedly have to tap budgets from otherprograms under its jurisdiction and perhaps even return to Congressfor additional funding. Such a request will lead to morecomplexity. House Speaker John Boehner has already indicated thatsuch funding requests will become a bargaining chip in the fiscalcliff negotiations as well as any subsequent fiscal debate.

HHS is under considerable pressure to get it right from thestart. If Affordable Care is to work, it needs participation. Thereis a huge business risk, then, if the exchanges fail to work wellfor users or the IRS cannot track participation effectively orenforce compliance. As a policy analyst at Consumers Union noted:“Consumers are going to form an impression … based on the firstyear's experience, and if you create a negative impression, itwould take 10 years to overcome that.” That is not the outcome theadministration wants for its “signature legislation.” Moreover, anylevel of dissatisfaction will almost certainly spark futurelegislative challenges for this already unpopular piece oflegislative. Either way, the give-and-take, successes, failures andfoibles of this year of implementation will surely affect investorperceptions, fears, expectations and pricing.