Written by Steven Spear, Jr.
Not since Lyndon B. Johnson in the 1960s has the federal government grown so much in size and authority: Obamacare gave the government a strong position within the health insurance market; his financial regulatory reforms were described as a gross overreach of federal authority. Obama believes that health insurance is a right—rather than a privilege—and that business cannot be trusted to act in the best interests of their consumers without a government watchdog.
Affordable Care Act
From Franklin Roosevelt (1933-1945) and Harry Truman (1945-1953) to Lyndon B. Johnson (1963-1969) and Bill Clinton (1993-2001), Democratic Presidents and other liberal politicians have pushed for a government-run healthcare system in the United States for decades. None could do it until Barack Obama in 2010. It is worthy to note that the law passed with little Republican support, and Democrats lost control of the House of Representatives in mid-term elections later that year.
Healthcare reform was one of the most prominent issues of the 2008 presidential election, and then-Senator Barack Obama pledged to make the issue a top priority in his presidency. As soon as he took office in January 2009, Obama began meeting with Congressional leaders to write the legislation and negotiate with Republicans who opposed the law. The Affordable Care Act (shortened to “ACA” and nicknamed “Obamacare”) was signed into law in March 2010. ACA is a long and complicated law, but here are some of the main provisions:
- Insurance companies are banned from denying coverage to someone with a pre-existing condition. Before ACA, if a person with a medical condition tried to buy insurance, an insurance company could choose to not provide coverage to cover that person.
- The individual mandate is the most important and most controversial part of ACA. The rule requires that every person that does not have insurance through an employer or under another public healthcare plan must enroll under ACA or pay a penalty.
- To appease Republican opposition to a single-payer healthcare system, ACA created “health insurance marketplaces” (nicknamed exchanges) to mimic a free market. ACA enrollees are able to purchase insurance in these exchanges. State agencies run the exchanges and approve the insurance plans that can be offered.
- A tax subsidy is available for individuals and families between 100-400% of the federal poverty level to help pay for insurance under ACA. According to the U.S. Census Bureau, the poverty thresholds are $12,082 for a single person and 24,257 for a family of four.
Congress passed the Affordable Care Act with most Democrats voting “yes” and most Republicans voting “no.” Even though President Obama signed the law in March 2010, coverage did not begin until January 2014, and full implementation has been delayed until 2020.
Throughout the early and mid-2000s, financial institutions bet trillions of dollars on the theory that housing prices would continuously go up. All of sudden, housing prices plummeted, and banks held billions of dollars of assets (the homes and related stocks) that were worth considerably less than what they paid for them. The 2007-2008 financial crisis and subsequent global recession saw sixteen trillion dollars of wealth lost and millions of families losing their homes. The speculative actions of banks caused many of them to fail (declare bankruptcy), and investors began to fear that other large banks (Wells Fargo, Bank of America, etc.) would soon fail. Because these large banks failing would have caused the collapse of the U.S. financial system, the U.S. government designated them as “too big to fail” (TBTF) and committed trillions of dollars to them to prevent their bankruptcy.
The international community also responded to the global recession by creating the Third Basel Accords: the main provision of this framework was increasing the amount of cash that banks must hold relative to their assets. Having more cash on hand allows a bank to more easily withstand investments that lose money. This framework was not binding, and it was up to the individual countries to pass laws reflecting the standards.
Many in Congress wanted to strengthen the regulatory agencies that oversaw the financial industry. This new authority was created with the Wall Street Reform and Consumer Protection Act (nicknamed “Dodd-Frank” for its main writers: Senator Christopher Dodd and Congressman Barney Frank). Wall Street bankers (the ones who crashed the economy) complained that the new regulations were too strong and that they would hurt profitability and future job growth, but congressional Democrats didn’t believe them and wanted to prevent TBTF banks from threatening the financial system. Here are some of the main changes under Dodd-Frank:
- Much of the regulatory authority that was spread among several agencies was consolidated into the Federal Reserve (the Fed) and the Federal Deposit Insurance Corporation (FDIC).
- TBTF banks must create “living wills” each year that detail how the bank’s assets are to be quickly sold in the event of bankruptcy. This provision is in response to the over three-year process of selling Lehman Brothers’ assets—Lehman Brothers was an investment bank with assets of $600 million that declared bankruptcy in 2008.
- Paul Volcker, a former Chairman of the Federal Reserve, proposed a new rule that would ban financial institutions from making speculative investments that did not benefit their clients. This “Volcker” rule would prevent banks from risking their clients’ money to enrich themselves. The final regulations that would implement this rule were approved in 2014, and large banks have been and are continuing to request extensions citing compliance issues.
- One of the most controversial points of Dodd-Frank was its creation of the Consumer Financial Protection Bureau (CFPB). This independent bureau protects individuals from being taken advantage of by businesses mainly in the areas of mortgages, credit cards, and student loans.
Congress passed Dodd-Frank with most Democrats in favor and most Republicans in opposition, and President Obama signed the law in July 2010.
President Obama’s healthcare law fixed the problem of people not having health insurance but neglected to addressed ever-rising costs of American healthcare. The Affordable Care Act faces repeal as Trump and the Republican-controlled Congress take action. I believe that Dodd-Frank should be safe from complete repeal, but with Donald Trump in power, the next two years will be completely unpredictable.