The Court Has Ruled on Health Care Reform

Today, on the last day of its current term, the U.S. Supreme Court announced its decision on the constitutionality of the health care reform law. The Court upheld the entire law, holding that Congress acted within its constitutional authority when enacting the individual mandate. This means that the health care reform law will continue to be implemented as planned and provisions that are already effective will continue.

BACKGROUND

The health care reform law, commonly referred to as the Affordable Care Act, was enacted in 2010. Opponents of the law quickly started filing legal challenges to its validity. Most of the legal challenges focused on the constitutionality of the law’s individual mandate—the requirement that individuals purchase health insurance coverage or pay a penalty beginning in 2014.

The U.S. Courts of Appeals split in their decisions regarding the law’s constitutionality. To resolve this uncertainty, the U.S. Supreme Court reviewed the health care reform law in March 2012. The Court heard six hours of oral argument on the case, which is an extraordinary amount of time for oral argument. Most modern court cases only receive one hour of oral argument so this was indicative of the importance of the health care reform law challenges.

CHALLENGES TO THE INDIVIDUAL MANDATE

The main substantive challenge to the health care reform law was whether Congress had the authority under the U.S. Constitution’s Commerce Clause to require individuals to purchase health insurance coverage. The Commerce Clause gives Congress the power to regulate multi-state, economic activity. Most of the arguments centered on whether enacting the mandate fell within the Congressional power to regulate interstate commerce.

Opponents of the health care reform law argued that the Commerce Clause does not give Congress the power to regulate economic inactivity (that is, the decision not to purchase health insurance). They noted that Congress’ Commerce Clause power has never before been extended to this degree, and argued that this would open the door for the federal government to have unrestricted power to regulate.

The Obama Administration, however, stated that the law was an attempt by Congress to address the problems of access and affordability in the national health care market. The Administration pointed to the health care costs associated with the uninsured to demonstrate the economic effect of not purchasing health coverage, and argued that the law expands access to health care by making affordable health insurance more widely available.

Opponents of the law also argued that without the individual mandate, the law could not function as intended and would have to be struck down in its entirety. The Obama Administration argued that, in the event the individual mandate was ruled unconstitutional, only certain provisions of the law—those related to guaranteed issue and underwriting restrictions—would also be invalid. Thus, these parts of the law could be severed and all other provisions could stand.

THE COURT’S DECISION

The Supreme Court ultimately ruled that Congress acted within its constitutional authority when enacting the individual mandate. In its ruling, the Court first concluded that the Commerce Clause did not give Congress the power to pass the individual mandate. The Court concluded that Congress has the authority to regulate interstate commerce, but does not have the authority to compel it. The Court stated that “construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority.”

However, the Court held that Congress had the power to enact the mandate under its authority to impose taxes. The majority of the Court agreed that the individual mandate’s penalty is essentially a tax that Congress can impose using its taxing authority. The Court held that “our precedent demonstrates that Congress had the power to impose the exaction in [the individual mandate] under the taxing power, and that [the individual mandate] need not be read to do more than impose a tax. That is sufficient to sustain it.”

Because the Court upheld the individual mandate, it did not need to decide whether other provisions of the health care reform law were constitutional. One exception to this is a provision that required states to comply with the health care reform law’s new Medicaid eligibility requirements or risk losing their federal funding. The constitutionality of this provision was also before the Court. On that issue, the Court ruled that the provision is constitutional, but that Congress cannot penalize states that decide not to participate in the law’s Medicaid expansion by taking away their existing Medicaid funding.

FUTURE IMPLICATIONS

Because the individual mandate was upheld, all aspects of the health care reform law that have been implemented will remain in effect. Additionally, the remaining provisions of the health care reform law that are not currently in effect will continue to be implemented as planned. Most notably, beginning in 2014, all individuals will generally be required to purchase health insurance or pay a penalty.

Many of the health care reform law’s provisions require agency guidance to be implemented. The Departments of Labor (DOL), Health and Human Services (HHS) and Treasury have been regularly issuing guidance to implement the health care reforms. These agencies will continue to promulgate regulations relating to the health care reform law, and employers and health plans will be required to comply with these to the same extent that they are required to comply with the various provisions of the health care reform law.

Although the Supreme Court held that the individual mandate is constitutional, opponents of the health care reform law may challenge other provisions using various legal arguments. If any further challenges arise, courts will address these accordingly.

Additionally, members of Congress have already introduced new legislation to amend or repeal various parts of the health care reform law, and likely will continue with this strategy. Each of these possibilities may have an impact on the health care reform law and its requirements in the future.

ADDITIONAL RESOURCES

A copy of the Supreme Court’s decision is available at: www.supremecourt.gov/.

 

Déjà Vu: 1979 and the “Death of Equities” by Jeremy Burri

In 1979, Business Week ran a famous cover story titled, THE DEATH OF EQUITIES.  The article spelled out the case for why stock investing was dead.  The evidence seemed compelling.  From 1966 to 1978, the Dow Jones average had been up & down — but actually was higher in 1966 than in 1979.  Inflation, oil prices, and other issues were a constant worry, and the US economy seemed to be in for years of slow growth.  But, contrary to popular wisdom, stock investing was not dead.  From January 1 1979 to January 1 2012, the average annual return for the Dow was 8.59%,  8.15% for the S&P 500 and 9.88% for the Nasdaq.  What lessons can we learn from this?  First, long-term investing requires discipline.  History is filled with times where the market did not perform up to our sometimes lofty expectations. Second, every time the market slumps, experts will say, “This time is different.”  They were wrong in 1979 and will likely be wrong about this market as well.  To paraphrase Peter Lynch, “I can’t tell you what direction the next 1,000 point move in the market will be, but I can tell you what the next 10,000 move will be.”

Slaying Dragons Part I

Discipline and Your Portfolio: Why it Matters.

“Discipline” is not a word that tends to make us feel warm and fuzzy.  In fact, It is sometimes seen as negative. 

It might make you think of being “grounded,” as a kid, of getting on the treadmill for a workout, of saying, “no” to that second helping of chocolate cake. 

Is discipline a dirty word?

Discipline is the key to success in almost every aspect of life.

To get good grades in school takes the discipline of good study habits.  To maintain a successful career means having good work habits.  Athletes know that to be on the top of their game takes the discipline of hours of practice.  The same is true for musicians or artists.  The list could go on and on.

And so it also is with financial success, and your investing life.

Choosing a disciplined, prudent investment philosophy is the single most important decision the investor makes.  This is one of the main messages I learned at an Advanced Coaching Conference set in Chicago this year.

What does a disciplined investing philosophy look like?

¨ Focused on asset allocation using engineered portfolios which are periodically rebalanced.

¨ Based on the science of investing. 

¨ Choosing partners who focus on delivering efficient market returns.

This is the opposite of what you will find at most investing firms, the opposite of gambling and speculating, of attempting to find so-called “experts” who think they can pick winning stocks and can time the market.  A disciplined client – advisor relationship is based on communication and education. That is one of the main reasons we offer classes every month.  Join us this summer and discover what the dreaded “D” word can mean to YOUR financial future!

By Margaret Wittkopp

Investment Advisor Representative

Investment Risk: There's No Escaping It!

Looking for an investment without any risk? You won't find one. 

All investments have risks - just different kinds and degrees. So it's important to know what the specific risks are and how they can affect your portfolio.

Market Risk. Stock market ups and downs are unpredictable. So market risk - the possibility that investments will lose value because of a decline in the securities markets - may be the risk you think about first. Choosing an appropriate investment strategy and sticking with it may help your portfolio survive a volatile market.

Interest Rate Risk. You may think you can avoid the uncertainty of the stock market by investing in bonds. But bond investments have their own risks. Changes in interest rates affect bond prices. When rates rise, prices of existing bonds fall because older bonds are paying less interest than newly issued bonds. Holding a variety of bonds having different maturity dates may reduce interest rate risk.

Default Risk. Bonds are subject to another type of risk - the risk that the bond issuer won't have money to make principal and interest payments to bondholders. Generally, investors who buy lower rated "junk" bonds are more at risk from default than investors who hold investment grade bonds. Check an issuer's credit rating with a bond-rating agency, such as Moody's or Standard & Poor's, to minimize default risk.

Inflation Risk. Over the years, the rising costs of goods and services can reduce the purchasing power of your savings. If you invest the bulk of your money in fixed income investments, you may be at risk of not earning enough to reach your long-term goals. Consider investing a portion of your money in investments, such as stocks, with the potential for earning higher returns to help reduce inflation risk.

Currency Risk. Adding international investments to your portfolio may provide diversification.* But be aware that currency exchange rates, foreign taxation issues, and differences in auditing and financial standards, among other things, can affect the value of foreign investments.

Play a Role. You can't prevent investment risk, but you can take steps to moderate it. By diversifying your portfolio, you improve your chances that gains in one asset class may offset losses in another. And, when you invest for the long term, you'll have more time to recoup any losses.