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- Regulatory Oversight of Investment Advisors Although the regulatory environment is in a state of flux, it is imperative that RIAs adhere to their compliance obligations. To ensure compliance, RIAs and IARs must fully understand what those obligations are.
Now that the Supreme Court has handed down its 5-4 ruling in favor of President Obama’s health care overhaul, markets and businesses are dealing with whatever consequences may follow now that the individual insurance mandate is the law of the land.
For registered investment advisors (RIAs), many of whom own small businesses, the challenge now lies in incorporating the Patient Protection and Affordable Care Act’s realities into their business operations. The Supreme Court said the landmark health care law’s mandate to buy coverage is permissible under Congress’ taxing authority. However, the court did significantly restrict the expansion of Medicaid by preventing the federal government from terminating a state's Medicaid funds if a state declines to comply with the PPACA’s expansion of Medicaid rules.
“I think the court hit on all the major things that Obama wanted, so it’s a pretty big victory for him,” said Frank Fantozzi, CEO of Cleveland-based Planned Financial Services, a wealth management firm that has $250 million in assets under management and offers securities through LPL Financial. “The market usually starts feeling like it knows what’s going to happen, but I think everyone is surprised that it passed because they were feeling that it wasn’t going to pass. Setting politics aside, the market’s going to have to digest this, but long term, this all gets baked into the economy just as past legislations have come to fruition.”
Fantozzi added that his own eight-employee firm already pays for health insurance coverage, but if the act works the way it’s supposed to, he should see a reduction in his premiums.
“The question is, with all these providers, will the savings be passed on, or will there be leakage in regards to administration and everything else?" he said. "I don’t know that, and it’s the question everybody is asking.”
Gallup Poll Shows Growing Confidence in U.S. Health Care System
Signed into law on March 23, 2010, the law led to a sense of national malaise as Democrats and Republicans argued over whether the mandate was constitutional. According to a Gallup poll on health care released Thursday, confidence in the U.S. medical system has risen since passage of the PPACA, with 41% of Americans now feeling confident versus 36% in 2009.
“Confidence in the U.S. medical system hit a low of 31% in 2007, a year in which confidence in most U.S. institutions dropped,” Gallup reported. “In 2010, after President Obama signed comprehensive U.S. health care reform legislation, confidence improved a bit more to 40%, and has stayed at about that level—essentially the historical average—since then.”
Democrats showed the largest increase in confidence, but Republicans have typically shown greater confidence in the medical system than independents or Democrats, and that is now the case, Gallup said. Currently, 49% of Republicans have “a great deal or quite a lot of confidence in the medical system,” compared with 44% of Democrats and 34% of independents.
The U.S. stock market’s response immediately after the complicated ruling was handed down was one of near inactivity as participants digested the news. By noon, the Dow Jones industrial average was down 132 points, or 1.05%, at 12,494. The S&P 500 was down 13 points, or 1.0%, at 1,319. The Nasdaq index was down 40 points, or 1.41%, at 2835.
Earlier in the week, the markets had anticipated that the Supreme Court would put an end to “Obamacare.” On Monday, quoting a Goldman Sachs Q&A on possible outcomes of the Supreme Court ruling, the Zero Hedge blog highlighted the online prediction market intrade.com’s implication for roughly a 75% probability that the individual mandate would be struck down, up from about 35% prior to the oral arguments and 55% a month ago.
Most Small-Business Owners Favor Obama’s Health Care Overhaul
As for small-business owners, the advocacy group Small Business Majority found in a January survey that just one-third of owners wanted the Supreme Court to overturn PPACA. Half wanted to see it upheld with few or no changes.
Small Business Majority’s national survey of 619 small business owners with fewer than 50 employees also showed how they view small business tax credits and insurance exchanges. It found that 33% of employers who don’t offer insurance now said they’d be more likely to do so because of the tax credits. Another 33% not offering insurance said they’d be more likely to because of insurance exchanges. Results for employers already providing benefits were almost identical.
“These findings are very encouraging,” said Small Business Majority Chief Executive John Arensmeyer in a statement. “Once small-business owners learn about the tax credits and insurance exchanges, they realize these provisions will help them provide insurance to their workers, many for the first time ever. However, many employers don’t know these provisions exist, so it’s imperative to continue getting the word out so they can take advantage of these benefits.”
S&P Capital IQ equity analyst and health care research head Jeffrey Loo said in a phone interview Monday that the health care sector has been outperforming the overall market, and that he would expect some downward pressure on the sector if the Supreme Court overturned the individual mandate.
With the finding that the mandate is constitutional, and assuming the law continues to be implemented as scheduled, the health care sector stands to benefit from about 32 million additional insured customers phased in from 2014 to 2019, he said.
In a June 12 analyst note on potential winners and losers, Loo had warned that even after the Supreme Court ruling, he believed there would be continued heated opposition and possible introduction of new legislation. “If the law is upheld,” he wrote, “presidential candidate Mitt Romney has vowed to repeal the law if he is elected. Some Democrats have already stated their intention to introduce new legislation if the law is overturned. So although the Supreme Court decisions will remove some of the uncertainty hanging over the health care industry in the short term, we believe there will be some continued uncertainty regardless of the decisions.”
‘Actually, I Shouldn’t Call It Obamacare Anymore’
Fantozzi, for his part, said that health insurance costs in the United States could go down as PPACA goes into effect.
“Theoretically, if you buy into Obama’s arguments, health care costs should go down,” he said. “If everyone is required to have insurance, then you will avoid adverse risk selection. In other words, the only people who have tended to buy insurance are those who are unhealthy, which means that healthy people who could buy into the system and reduce its cost have not been participating.”
Asked what he was advising his clients, Fantozzi responded that from an investment standpoint, the business owners that he advises are concerned that their cost to comply with all the PPACA’s rules would be high.
“That’s their big fear about Obamacare,” he said, adding with a laugh, “actually, I shouldn’t call it Obamacare anymore, but the new health care law.”
Nevertheless, Fantozzi expects the overall feeling now will be relief as the Supreme Court ruling calms markets.
“Clearly, what the markets like is certainty,” he said. “Whether it’s good certainty or bad certainty, they know now what we’re dealing with, so companies can begin planning. I think what you’ll see in the next three to six months is people saying, “OK, we may not like these rules, but now we know what we’re dealing with and can plan accordingly.”
Read Supreme Court Upholds Health Care Law at AdvisorOne.
Read Supreme Court Ruling Won’t Mute Varied Health Care Concerns at AdvisorOne.