notes on the ACA arguments, january’s home prices, & february’s personal income & outlays

   the story of the week revolved around the 3 days of supreme court hearings and arguments over the constitutionality of sections of the Patient Protection and Affordable Care Act (PPACA), often shortened to ACA & more frequently called obamacare; the primary and best known challenge to the act involves the individual mandate, ie., the question as to whether the government can force people to buy health insurance; the less frequently discussed challenge is from 27 of the states, led by florida, who object to a significant expansion of medicaid under the act, which they will eventually have to pay for out of their already strained budgets…despite the fact that the prejudices of most of the justices are well known, they are still expected to ruminate for around three months before they hand down a final decision….there are a number of ways they can rule on this, fortunately, the NY Times economix blog provides us with an excellent visual flowchart which illustrates the questions they will be ruling on and the sequence of decisions they’ll be making; we’ll start by looking at the decision tree on the right of the graphic, which is for the individual mandate, wherein they start by answering the question “does the anti-injunction act apply?”; what is being asked here in its most simple telling is can the court even rule on the individual mandate now, when it doesnt go into effect until 2014 and no one has yet been compelled to buy insurance against their will or financially penalized for not doing so; since both the challengers to the ACA  and the administration want this case to be decided now, neither party was willing to argue to have the anti-injunction act apply, so the court had to appoint their own attorney to present arguments on its behalf…should the court decide that the anti-injunction act applies here, then they’ll wait until someone is actually affected by the individual mandate and brings the mandate back before the court, which wouldnt be likely until after 2015…however, if the court decides that the anti-injunction act is irrelevant in the case, then they move on to determine if the individual mandate is constitutional or not…the question being asked here is can the government tax or penalize individuals if they dont buy a product (insurance) from a private company? if they can, ACA opponents argue, then they could conceivably force you to buy a health club membership or health foods; the administration argues that health care is a special case, that they are within their rights to regulate interstate commerce under the commerce clause, that the penalty for not buying health insurance should be considered within their power to impose taxes, and it’s essentially what is already being done with Medicare…if the court rules the mandate is constitutional, the law stands; if they rule it to be unconstitutional, which now seems likely, the next question they have to answer is does that doom the entire Affordable Care Act, or is it severable, ie, can the rest of the Act remain in place without the individual mandatemost major pieces of legislation passed by congress contain a severability clause, which states that if a part of the law is overruled, the rest of the law still applies…but in all the wheeling and dealing done in the final months to produce this 2700 page health care law, inclusion of a severability paragraph was overlooked, so it’s now within the power of the supreme court to throw out the entire law if they rule the mandate unconstitutional…the rationale for the mandate has been to include as many people as possible in the insurance pool to spread the costs; if the mandate fails, then young and healthy people wont buy insurance, and with only high risk & unhealthy individuals buying insurance, premiums would skyrocket…& of course, this underscores the underlying problem with this health care reform act as it was passed, which was to assume a for-profit insurance industry was necessary for health care…

    so if the rest of ACA survives these rulings, whether or not the mandate is ruled unconstitutional or the decision is deferred, the court will then decide if the medicaid expansion is constitutional…medicaid as it exists now obviously is, so what’s difference?  as Medicaid now exists, it’s an optional program, with enough funds provided by the federal government for the relatively small number covered by the program that all states have voluntarily joined; under ACA, it’s expanded to cover all adults earning up to 133% of the federal poverty line, so much so that about half of the newly insured under the ACA will be getting their coverage through Medicaid, costing a total of almost $800 billion over the next decade…since under the new law, states will lose not only the new funding but all Medicaid funding if they don’t expand the programs, they claim the actions of the federal government are coercive, & thus a violation of the constitution’s spending clausesimilar cases have been found in favor of the federal government, ie, that they had the right to amend Medicaid regulations, but this is the first time this will be tested before this conservative supreme court…if this medicaid expansion should be overturned, it will have wider ranging implications as to congress’s ability to set national priorities in areas other than health care; if the individual mandate is overturned, then other state’s health care laws which have similar provisions, such as Massachusetts’ Romneycare, and other similar mandates, such as state laws requiring auto insurance, will no longer be constitutionally permissible…and if in ruling that either the mandate or the expansion are unconstitutional, the court also finds they are not severable, ie, that the entire ACA is dependant on either, then the whole law is struck down & we’re back to square one…

  so if obamacare is scrapped, then what?  one would imagine there’d be some attempt to re-instate some of the ACA already programs underway, such as free cancer screenings, prescription drug savings, and continued insurance for young adults on their parents’ health insurance plans…and both romney and obama do appear to be committed to health care reform…but obamacare as legislated was mostly a sellout to big pharma, medical corps, & the insurance companies & still does nothing to tackle our spiraling out of control health care costs…it’s worthwhile to recall again what we found out when health care reform was being debated; that being that we have the most expensive health care in the world, and get far from the best results…compared to the OECD, we spend 141% more per capita than the average wealthy country, yet have lower than average life expectancy & higher than average infant mortality…(for a detailed breakdown on what makes the US health care system so expensive compared to the rest of the world, see the series of 12 posts by health care economist aaron carroll, who blogs at the incidental economist)…even under the ACA, health insurance premiums are rising so rapidly that they’ll be equal 50% of the household income by the year 2021, and surpass the average household income by the year 2033…and less and less employers are picking up the tab; according to a study by the Center for Studying Health System Change (pdf), the share of children and working-age adults with employer-sponsored coverage fell  to 53.5 percent from 63.6 percent between 2007 and 2010…

Case-Shiller Price Declines  probably the most noted headline economic report we had this week was the case-shiller home price index for january, which you’ll recall represents prices on houses sold between november & january; it wasnt much of a surprise; home prices for both indexes fell 0.8% month over month, in keeping with the normal housing price declines we typically expect in winter over most of the US; of the 19 cities reporting (Charlotte NC data was delayed), only prices in phoenix, miami & washington DC increased, whereas the largest declines were seen in atlanta and portland, cities that were less affected earlier in the recession…on a seasonally adjusted basis, prices were virtually unchanged, but over the entire year, prices showed annual declines of 3.9% and 3.8% for the 10- and 20 city indexes, respectively, both post bubble lows; of all 20 cities, atlanta prices have seen the worst annual decline, falling year-over-year by 14.8%, mostly due to more foreclosures being sold; RealtyTrac reports that in Georgia overall, nearly four out of every 10 sales in the last quarter were of foreclosed homes…we can probably expect a similar wave across the country as servicers ramp up foreclosure proceedings in the wake of the national mortgage fraud settlement…the chart included here is calculated risk’s seasonally adjusted chart of cumulative price declines for all 20 cities; on that basis, prices in 9 of the cities reporting increased; for each city, each of the bars represents the price decline at the end of a year from 2007 to 2011, and the red bar is january’s price index; if you click on the chart you might note that prices in the cities that declined the most early on (phoenix, las vegas, detroit, and cities in CA & FL) have stabilized, and the national index is now being dragged down by cities not hit earlier (chicago, atlanta, portland, & seattle)

  the case shiller index is the last of the national home price indexes to report; it also pays to note that despite it’s wide following, it reflects prices from sales from as far back as november, and those prices may have been contracted for as much as two months earlier, so it’s really reporting on the state of the housing market late last fall; looking at other home price indexes, CoreLogic is also a 3 month index, where more recent sales are given more weight; for january, they reported a month over month decline of 1.0% as compared to their report from december, their annual price index was 3.1% lower, and they’ll report prices for february next week; the FHFA (Federal Housing Finance Agency) reported january prices last week for Fannie & Freddie as unchanged on a seasonally adjusted basis, and their december index was revised down from 0.7 to 0.1, leaving their index 0.8% below year earlier prices; FNC reports 4 indexes using a blend of sold homes and real-time appraisals; their 30-MSA composite index fell 0.6% month over month in january; and radarlogic’s composite index, which tracks 25 metro areas, declined 5.42% for the year ending January 19th to $169.75 per square foot

  on a nominal basis, prices in the case shiller 20 city index are back to levels of january 2003, and prices for the CoreLogic index are back to february 2003’s levels…bill mcbride at calculated risk also computes those price indexes in real terms (adjusted for inflation using the CPI less its shelter component); in this comparison, prices for the case shiller 20 cities are back to the levels first reached in february 2000, CoreLogic national prices are back to the levels homes sold for in august 1999, and the case-shiller national index is back to its 4th quarter 1998 level…on a price to rent basis (see his post for an explanation), the case-shiller 20 is at february 2000 levels, case-shiller national is back to october 1998 levels, and CoreLogic prices are back to august 1999 level…

the other report we should look at today is the Personal Income and Outlays for February from the BEA; personal consumption expenditures (PCE), which most focused on, increased 0.8% for the month; this bodes well for 1st quarter GDP, since consumer spending is still about 70% of our economy…but continuing the trend we’ve seen in this report in previous months, disposable personal income, which includes income after taxes from all sources, was only up 0.2%, resulting in a savings rate which has returned to 2008 levels at 3.7%; doug short looks at disposable income per capita adjusted for inflation and finds disposable personal income has declined for the last two months, and has essentially been unchanged over the past 21 months by that metric; real disposable personal income per capita is now at the level of autumn 2006, and 1.7% below that at the beginning of the recession; karl smith points out some of this recent decline is due to inadvertent austerity, as the biggest drag on personal income right now is the decline in transfer payments from federal programs; we knew unemployment compensation was being cut back, but he also finds a significant decline in Medicaid (see his unique FRED chart)…so if disposable income is flat, how does spending continue to accelerate?  we saw a few weeks back that except for student loans, consumer credit was flat (revolving credit was actually negative)…except for the relatively small number taking out student loans to live on, the only other factor that comes to mind is that roughly 12% of homeowners arent paying on their mortgages, which does free up disposable income, but neither of these trends, nor the drawing down of saving, is sustainable in a healthy economy…

(the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

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