Another One Gets Delayed

Another Affordable Care Act (ACA) rule delay has come to light in recent days—the second in as many months—and it seems to have spurred chatter and anticipation of other changes. From a stock market impact point of view, though, we’ve long argued the ACA’s overall impact is muted, and these delays don’t much change that outlook going forward.

The latest rule delay limits total out-of-pocket expenses, including deductibles and co-payments, to $6,350 for individuals and $12,700 for families. Health plan sponsors and carriers typically track these costs, but because many employers use multiple providers, most have no way to tally a single patient’s total costs—they can’t aggregate medical service, hospital and prescription drug costs. So they get a grace period: In 2014 only, each of these will be capped separately, giving employers extra time to shift providers, and giving providers more time to beef up their tracking systems and cooperate with each other. This comes after another rule delay, announced last month, which would move back the employer mandate to provide health insurance to employees by another year.

But more importantly, while this latest change is a new development, the law itself is nothing new. In fact, it has been in existence for three (long) years now—more than enough time for markets and investors to digest its long-term implications. And given the market’s reaction to its history has been minimal, these delays likely get the same response.

At the time the bill was passed in 2010, markets didn’t teeter much, despite some folks’ fears the passage would cause a collapse. Even when the Supreme Court ruled the legislation was in fact constitutional, markets barely budged. Stocks were a bit volatile for a short period after President Obama’s re-election—which some saw as affirmation the ACA would be in place—but that passed quickly and stocks rebounded fast. Moreover, the rule delay announcements haven’t resulted in surging stocks—markets have basically yawned at these developments. As these rule implementation delays seemingly only put off the inevitable and don’t at all affect the long-term outcome, we expect the trend continues. Those suggesting the implementation might carry some surprise for stocks may overlook the fact Health Care executives and research analysts, unlike politicians, aren’t spending other people’s money—hence, they likely read the bill.

There are good reasons stocks haven’t reacted more dramatically to the ACA. For one, it only impacts a small portion of the US Health Care sector, so broader market impact is minimal. Further, the industries most impacted—Hospitals and Managed Care—represent an even smaller portion of the sector. What’s more, this legislation primarily creates winners and losers, and winners and losers in the US marketplace specifically—not across the much bigger global economy. One potential winner? The ACA could very well buoy hospitals’ profits, since their deliveries to uninsured patients—harder bills to collect—would happen less frequently if coverage were expanded. Meanwhile, Pharmaceuticals are largely untouched, being assessed only a 1% fee they likely pass on to consumers.

Costs may increase for some while others may experience cheaper expenses, and positive and negative effects likely largely counterbalance. Some fee increases for companies are likely passed onto consumers through higher prices, but overall they are likely incremental increases distributed over a broad base—not ideal, though not disastrous either.

As we look forward, perhaps other aspects of the ACA are delayed. And perhaps that incrementally improves sentiment—though it likely wouldn’t be much of a surprise, positive or negative. In our view, you could say the same for implementation at this point as well.