The Affordable Care Act (ACA) has reared its controversial head again, with California and Oregon announcing 2014 premiums for their state insurance plans. Opposing sides will quibble over whether new premiums in these early-mover states represent a cost savings or not—and whether they'll set a pattern for other states’ exchanges. But either way, like or loathe the ACA, our view remains the law creates winners and losers (and already has a bit—for our past analysis, go here), but it’s certainly not enough of an unanticipated, material negative to drive anything like a bear market in the period ahead.
As for the premiums, California said they’ll range “from 2% above to 29% below the current market” prices. But evidently, that’s true only if you compare the new premiums to prices in California’s already similarly regulated small-business market. Plenty of opposing views and data suggest the true comparisons are far less favorable. For example, one analyst compellingly argues that if one includes the less regulated, currently well-functioning individual market in the price comparison, ACA plan premiums could rise 64% to 117% for a 25-year-old man and 73% to 146% for a 40-year-old. Premiums for other strata could rise, too.
Debate on this subject will no doubt persist. But one thing is clear, all ideology aside: When the government mandates prices and/or requires people to purchase bundle of services—as it has done via ACA—prices will rise (we can point to ample examples proving this point), regardless of the societal benefit folks may or may not get out of said bundle. Hence, we think markets will very likely be utterly unsurprised by any ACA premium sticker shock—particularly since the law has been widely discussed for years now, with chatter over potentially higher prices prominent.
Now, from an economic standpoint: We believe the law as written isn’t the great boon to the US economy its advocates advertised. However, note the operative words: “as written.” No law is sacred. This particular one was greatly watered down between initial drafts and the final legislation and, since passing, it’s lost a bit more punch. And, being legislation, it’s fungible. As voters begin feeling and reacting to ACA’s real world effects, the law likely changes again.
Plus, 2014 midterm elections are quickly approaching, and US healthcare is likely a campaign issue on both sides—that doesn’t guarantee changes, but it perhaps increases the likelihood, as victors feel compelled to keep campaign pledges. Hence, any long-term bets made on what the law looks like today will likely ultimately be proven wrong (as most long-term forecasts are).
Then, too, the ACA is specific to the US—a country with a tremendously resilient economy. Weakness in one area of our economy can easily be offset by strength in another (housing, maybe, or stocks). On a macroeconomic level, the US is about 22% of the global economy, and US healthcare is only a portion of that. Therefore any impact, for good or bad, gets greatly watered down on a global scale, if not buried under economic news in other countries and the myriad positive market drivers globally.
So the ACA may be in the headlines again—and likely stays there for a while—but that isn’t necessarily bad for stocks. Surprises tend to move markets, and ACA’s been largely unsurprising thus far.