11/5/13 – Obamacare’s “Yes I Can” Becomes “I Think I Can”

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Nov 5, 2013 8:43:48 AM

and tagged Politics and the Economy

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I have been shamelessly avoiding writing about the Affordable Care Act, better known as Obamacare, because it was both inherently too political and economically too nebulous to really get my hands around. Apart from noting that it would inevitably create additional headwinds to growth and job creation—which isn’t a value judgment, but an economic fact—I haven’t weighed in on the law itself. An opinion on the law has to be a value judgment between competing goods, a relative cost-benefit analysis that everyone has to do for himself or herself.

Now, however, we’re at a place where the law itself is not at issue, but the implementation is, and that is having (and will continue to have) economic and market implications that we should be aware of.

Watching the headlines over the past couple of weeks and months, there was an implicit presumption, even on the Republican side, that Obamacare would work. In fact, that seemed to be what was driving the desperate resistance on the right—the idea that the system would roll out easily and, once the wider public had access to insurance, it would be impossible to take away, bankrupting the country.

Several weeks on, this looks somewhat naive and, of course, inconsistent with the notion that government can’t get anything right. Repeated failures on a management, technology, and basic planning level have made the rollout a disaster. The frontline failures are now leading to second-order failures, as many who would have signed up, and helped make the system sustainable, are now putting it off—or deciding not to. As someone tweeted the other day, the joke writes itself: Put the NSA tech wizards in charge of Obamacare, since they won’t be allowed to eavesdrop soon.

I wrote yesterday about the narrative shift in the markets and how, when the public perception changes, it can be a self-fulfilling prophecy. We may be witnessing just that kind of shift on the ACA. Though it’s too early to tell, and the betting still has to be that the system will be fixed, the loss of early momentum certainly makes eventual failure more possible.

The economic fallout of the troubled rollout will be substantial. The ACA itself will reshape a substantial part of the economy as a whole. Had the rollout gone smoothly, that reshaping would still have been disruptive, touching almost every job and employee in the country. The fact that the system is broken, and every employer and employee will now have to try and navigate a broken system, will divert more time and resources away from growing businesses and careers. Again, this is not a political statement. It’s simply harder and more time-consuming to navigate a nonfunctional system.

When you combine these challenges with the continuing uncertainty around the actual requirements of the ACA—who will be required to sign up for what, when (which, again, will hit every business and employee in the country), not to mention the varying requirements by state—we have even more of a mess.

As to whether the ACA itself is a good idea, both sides can make an effective argument. But you have to accept that the botched rollout and changing goalposts will continue to do economic damage by making the costs of hiring (for businesses) and of changing jobs (for individuals) more uncertain. People generally respond to uncertainty by taking fewer chances on hiring or investing, resulting in lower growth across the board until some clarity becomes available.

At this point, that day seems some time away. In conjunction with the budgetary and fiscal uncertainty from Washington, DC, it makes me seriously concerned about the possible effects on growth in the real economy for this quarter—at least.

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Tune into Yahoo Finance's The Final Round on Thursday, March 12, between 2:50 and 4:00 P.M. ET to hear Brad talk about the market. Exact interview time will be updated once confirmed. Watch at finance.yahoo.com

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