Source: Wikimedia Commons.
How it could happen
While there are multiple ways that the ACA could fall apart, three stand out in my view as the most plausible paths. And each ties in with a different branch of government.
Time magazine’s Joel Klein wrote about one way that Obamacare could fail in his story from April 2 titled “Obamacare Incompetence.” Klein noted the problems in implementing the health insurance exchanges that are a critical component for small businesses. His argument was that Obamacare will fail if more attention isn’t paid to the “details of implementation” by the administration.
The legislative branch of government could still cause the ACA to crumble, even without an outright repeal of the law. The Department of Health and Human Services is scrambling to cover the costs of implementing exchanges for 26 states that decided not to setup their own exchange. HHS asked for nearly $1 billion from Congress for this purpose, but that request didn’t meet with much sympathy.
HHS Secretary Kathleen Sebelius has enough discretionary options at her disposal to keep things rolling for now. However, at any point in the future, Congress could effectively dismantle the exchanges by not funding them. If the exchanges go by the wayside, Obamacare unravels.
The Supreme Court’s role in deciding the fate of the ACA probably isn’t over despite last year’s ruling. Multiple cases are winding their way through lower-level courts. One, in particular, stands out as a quite serious challenge for the ACA, in large part because it hinges on the initial Supreme Court determination that the individual mandate is a tax.
Section 1311 of the ACA states that a health insurance exchange must be “established by a State.” Anyone who doesn’t receive insurance from an employer must obtain insurance through an exchange or pay a penalty (i.e., a tax.) However, section 1401 of the ACA gives a tax credit for applicable taxpayers buying insurance through “an exchange established by the State under [section] 1311.”
While section 1321 allows the federal government to create an exchange for states that choose not to do so on their own, the language of the ACA only allows tax credits to be given to people who buy insurance through an exchange established by their state. That’s where the Supreme Court might have to step in yet again.
Article I, Section 8 of the U.S. Constitution requires that taxes “be uniform throughout the United States.” If the ACA imposes a tax on citizens of all states but only provides a tax credit for those in states that setup their own exchanges, an argument could be made (and is being made) that the Uniformity Clause of the Constitution has been violated. Without the tax levies and credits, the individual mandate falls. Without the individual mandate, Obamacare implodes.
If it did happen
I’ll leave the political consequences of any possible Obamacare implosion for pundits to discuss, but I am interested in what it could mean for investors. There are two sectors that would be greatly affected: medical device makers and hospitals.
