Abolishing Obamacare

Briton Ryle

Updated August 1, 2013

President Obama’s healthcare reforms and all the new programs that go along with them – a.k.a. Obamacare – are about to meet their staunchest challenge yet… the threat of a government shut-down. Opponents of healthcare reforms are saying, “Stop Obamacare or we’ll stop the government.”

With only 8 weeks to go on the government’s current spending permissions, an agreement must be reached soon or government services can potentially go offline starting October 1st. Will these two opposing forces settle their differences by then? Or will you be a pawn caught in the middle of their power struggles? What are the implications either way?

President ObamaThe Challenge

The total cost of all proposed Obamacare reforms and programs – some already in effect, others on the way – is expected to amount to $1.1 trillion spread out over 10 years.

Those opposed to the reforms say the U.S. just cannot afford it right now, not while the economy has still not fully recovered from the recent recession, financial crises, and global slow down. So they’ve come up with a plan: block Obamacare’s funding.

The current Congressional bill funding the government’s operation is set to expire September 30th. Some Republicans are demanding that funding for Obamacare be left out of the new replacement bill or they will withhold their support for the bill’s renewal, effectively shutting down the government on October 1st.

But a recent report by the non-partisan Congressional Research Service notes that Congress’ budget process has no control over the funding of Obamacare. Healthcare services fall under a special category of expenses deemed essential for the “safety of human life”. So even if Obamacare opponents manage to block the renewal of Congress’ bill, Obamacare would not shut down with the rest of the government.

Those calling for the blocking of the bill’s renewal are aware of this, but they feel the message is important enough to warrant this disruption. “We have the potential to show real leadership and stand together and actually defund (Obamacare),” Texas Republican Sen. Ted Cruz defended the strategy to CNNMoney. “Republicans will be blamed for a government shutdown. . . but I think (the House) should fund the entirety of the federal government — except Obamacare.”

Others in government who also want to see Obamacare eliminated agree with the cause, just not necessarily with the means. Oklahoma Republican Senator Tom Coburn sympathised, “I praise my colleagues in what they’re trying to do. What we need to do is delay (Obamacare) and get it to a point where we can kill it.” But he added that blocking the renewal of the Congressional bill is not a meaningful tactic, especially in light of the Congressional Research Service’s report.

In his response to the threat, the President turned the Republicans’ economic recovery argument against his opponents, stating that they would be the ones who “would hurt a fragile recovery by suggesting they wouldn’t pay the very bills Congress rang up, and threaten to shut down the people’s government.”

Implications Either Way

So who would be affected in either case, if the government were to shut down on October 1st or not?

Shut-down implications: Basically, any industry or company that depends on non-essential government funding would be hurt if the government were unauthorized to pay its bills.

Government contractors would be the hardest hit, affecting over 100,000 workers and many of the largest companies in the country. In fiscal year 2011 alone, over $536 billion – that’s more than half a trillion – worth of government contracts were handed out to some 170,000 contractors across the nation.

The top 5 contractors alone received a total of over $103 billion, or some 19% of 2011’s government contracts, with $7.9 billion going to United Technologies (NYSE: UTX), $14.7 billion to Raytheon (NYSE: RTN), $19.5 billion to General Dynamics (NYSE: GD), $21.5 billion to Boeing (NYSE: BA), and Lockheed Martin (NYSE: LMT) receiving nearly $40 billion in 2011.

It is unlikely that contractor stocks would plunge dramatically come October 1st, as half of this year’s contract payments have likely already been made, and any government shut down would probably last just a few days.

But markets have been jittery lately, and it doesn’t take much to shake them up. If you do notice any of these stocks fall around that time period, you might consider it a buying opportunity and snap some up before the government reopens.

Renewal implications: If Congress manages to approve another year of spending and avert a government shut-down, the prime beneficiaries will of course be anything healthcare related, from healthcare providers to insurers.

Insurance, in fact, is pretty much at the heart of the Obamacare debate. Health insurance exchanges, or marketplaces, are currently being organized in nearly every state in the union, with some to be run by the states themselves and others to be run by the Federal government.

One part of the Obamacare plan – the “individual mandate” – requires taxpayers to buy health insurance or pay a fine starting January 1st. Another part of the plan – the “employer mandate” – obliges any company with 50 workers or more to provide full-time employees with company sponsored insurance.

As you would expect, this is going to be a bonanza for healthcare insurance companies. Shares of the top 4 publicly traded insurers have already climbed an average of 55% in price over the past 12 months, which include: Unitedhealth Group (NYSE: UNH) up 42%, Wellpoint Inc (NYSE: WLP) up 58%, Aetna Inc (NYSE: AET) up 75%, and Humana Inc (NYSE: HUM) up 43%.

It is unlikely that the government will be shut down, however, since Congress can always pass an emergency “temporary funding bill”, though it will likely be at reduced spending levels.

Still, you’d do well to be prepared. If you are counting on monthly or weekly payments from the federal government, start setting some money aside now to cover your essential expenses. October 1st is a Tuesday, and direct deposits of pensions or benefits will likely not arrive as of that day. So pay your rent early.

Joseph Cafariello

 

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