Forbes’ Matthew Herper raises 5 key question that analysts will be evaluating following the Supreme Court’s decision to uphold the Individual Mandate of the Affordable Care Act.
Roberts Splits the Baby
Chief Justice John Roberts somehow saw his way to rising above partisanship as a conservative Republican to uphold the decision in a Supreme Court that has been tainted by partisanship. It appears there was too much at stake to play politics – how history will regard his stewardship, since he is obviously aware that the Roberts court has been one of the most conservative in history. Peter Dreier in the Huffington Post sees it this way:
There will be many analyses of the Supreme Court’s ruling, including why Roberts sided with the majority. My own view is that Roberts was looking at history, and was concerned that future generations would look at the “Roberts Court” as simply a partisan, right-wing pro-corporate court, which it has been so far. Polls show that since Roberts became Chief Justice the American public has lost confidence in the Court. Perhaps he was tired of being seen as a clone of right-wing Justice Antonin Scalia, who wrote a wacko dissent attacking the majority ruling.
And perhaps Roberts was taken aback by Obama’s State of the Union attack on the Supreme Court for its outrageous Citizens United decision, which has unleashed a flood of billionaire and corporate money into the current election contests, hijacking democracy in the process.
A Solomonic DecisionAccording to Herper, John Roberts made a Solomonic decision about the future of health care in America. Faced with the question of whether Congress and President Obama could force individuals to either buy health insurance or pay a penalty, moving even the young and healthy into the insurance market and force the states to expand the patients on Medicaid or else forego membership in the program altogether, Roberts “threatened to split the baby on both counts.”He decided that:
- Yes, the law could impose a penalty, because that penalty is fundamentally a tax (although this is not really accurate); and
- No, you couldn’t force states out of Medicaid, but you can try to expand the program by offering more money to them.
What’s Ahead: 5 Things to Watch
What happens next depends what the various players do within this new landscape. Some key questions. He points to 5 important questions we should be focused on. This blog will try to keep current on developments as they unfold:
- Will states expand Medicaid if they don’t have to?
This is perhaps the key question as to how much ObamaCare will increase the number of people with health insurance. Twenty six states challenged the Medicaid prevision; will any of them actually not try to expand the program, and what will be the political consequences?
- Will the law be good for health stocks in general?
Many investors are assuming that except for hospital stocks like HCA and LifePoint, the upholding of the individual mandate on health insurance is bad news. But health stocks have all been held back by years by the sword of Damocles that the reform law represents. Some analysts are making the argument that knowing what’s going to happen next will be good.
- Will the law actually benefit some drug companies?
Many in the drug business have expressed regret about the decision to back the Affordable Care Act, even blaming former Pfizer chief Jeffrey Kindler, a Democrat, for having pushed a deal through. I think that some of this opposition is based on outdated thinking that says that even though the government already pays for a lion’s share of health care spending through Medicare and Medicaid, giving it even more control will eventually create price controls like in Europe.This made sense when the industry made all of its money selling mass market pills such as Lipitor and Plavix, both now off-patent. But the model for many new cancer drugs (the biggest category in drug company pipelines) and for drugs for rare diseases is that the companies charge a price no individual can pay, and then try to get insurers and governments to pay for them. This is the basic strategy taken by companies like Alexion, Biomarin, and the Genzyme division of Sanofi, all of which charge hundreds of thousands of dollars per patient per year for their medicines. Getting more people insured is good for these companies. Right now Alexion and Biomarin are down, which makes little sense. Fundamentally, the success of the drug industry depends on inventing new medicines; at most, the law is neutral. (Thanks to David Miller at Biotech Stock Research for helping me think this one through on Twitter.)
- Will medical device companies benefit too? Medical device makers likeMedtronic and Boston Scientific are down or trading sideways because they are going to pay a new 2.3% tax on their product. But Lawrence Biegelsen, the medical devices analyst at Wells Fargo, argued in a note to clients that maybe Wall Street is remembering the tax, but neglecting that the fact that the law benefits hospitals could result in higher volumes and less pricing pressure for the medical device industry.
- Will the law disrupt the health insurance market? Changing the way health insurance works in the U.S. is one of the biggest and most obvious goals of ObamaCare. It could result in higher premiums. An alternative case is that it will slowly eliminate fee-for-service payment, creating new systems called Affordable Care Organizations that help control costs by paying for patients’ health levels, not their care. But the biggest potential disruption is the idea that the health insurance exchanges created by the law, which are now nebulous, will allow companies other than existing giants such as Wellpoint and Cigna to enter the health insurance market. What if big health systems start offering insurance on their own because the cost of entry has gone down? Nobody knows what these changes will really do, but they represent maybe the biggest potential outgrowth of the law.
It could take years before we really have the answers. In health care, unintended consequences always rule the day.