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After the Cliff Comes Obamacare

December 17, 2012

Apart from the crying need for fundamental fiscal reform, a new urgency will develop around the implementation of Obamacare, more formally known as the Affordable Care Act.
-Milton Ezrati, senior economist and market strategist, Lord Abbett & Co.

Once the matter of the fiscal cliff is resolved, as is likely by early next year at the latest, it would be nice to contemplate a reprieve from Washington. Unfortunately, there will be no such luck. Apart from the crying need for fundamental fiscal reform, a new urgency will develop around the implementation of Obamacare, more formally known as the Affordable Care Act. The law dictates full implementation by January 2014. Despite the Supreme Court decision affirming the healthcare law and the presidentís re-election, the matter is proving to be more complex and politically fraught then even pessimists expected. The attendant uncertainties will disrupt plans and planning throughout the economy at least the next 12 to 24 months.

The insurance mandate forms part of the problem. Endorsed last year by the Supreme Court, it imposes penalties on those who fail to buy insurance, ranging from $695 for each uninsured individual to 2.5% of family income, whichever is higher, up to $12,500. Tracking compliance alone will burden the Internal Revenue Service. Though the implementation budget funds no more than 1,200 new hires at the IRS for Obamacare, the agency may need to hire up to 16,500 additional employees. Enforcement will bring on further complications. Though the law makes the penalties clear, it makes no provision for either civil or criminal actions against those who refuse. The IRS has no ability to seize bank accounts or dock wages, nor will interest accumulate on unpaid penalties. The only thing the IRS can do beyond sending scary letters (for which, admittedly, it has remarkable talent) is to withhold refunds, hardly a motivation if the refund is less than the penalty.


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