The forced shutdown of US Government has now entered the second day and is threatening to affect other economies. For general information we may state that US Shut down has arisen because the House of Representatives dominated by the Republican party has refused to pass the Government budget before the expiry of the earlier budgetary sanction (September 30). The reason is that Republic party does not approve the so called “Obama Care” bill officially known as the “Patient Protection and Affordable Care Act” (ACA) and expenses associated with it which are part of the budget. The shut down has affected 800,000 federal workers and is expected to cost the economy about $1 billion a week. This is the first such event since 17 years and is likely to leave an indelible mark on the Obama administration.
The Affordable Care Act envisages mandatory health insurance for all Americans to commence from January 1, 2014. The Act has already come into effect with the enrollments under the Health Insurance Exchange commencing from 1st October 2013.
The Act itself is a revolutionary legislation which aims at providing health care security to every American. It envisages that obtaining health insurance coverage is mandatory and for those who cannot afford, there would be a certain subsidization.
“The law is expected to eliminate pre-existing conditions, stop insurance companies from dropping cover when a person is sick, protect against gender discrimination, expand free preventative services and health benefits, expand Medicaid and CHIP, improve Medicare, mandate larger employers insure employees, create a marketplace for subsidized insurance providing tens of millions individuals, families and small businesses with free or low-cost health insurance, and decrease healthcare spending and the deficit.”
The Republican party is opposed to the law since it is felt that the Democrats steam rolled its passage ignoring the opposition when it was passed in 2010. The economic feasibility of the proposal is also under debate. (Similar to the Food Security Bill controversy in India).
A legal challenge led by the law’s Republican opponents ended in June 2012 when the Supreme Court validated the law’s keystone provision – a requirement that Americans not receiving health coverage from their employers or the government purchase individual plans or pay a fine.
Now the Republic party which has a majority in the House of Representatives has put its foot down on the passage of the budget and the result is the shut down of all non essential Government activity. Employees of non essential Government services are now on “Leave without Pay” disrupting the economic activities of different kinds. It is also feared that by October 17, there will be a need for another endorsement from the House of Representatives on raising the Government borrowing limits and if it does not occur there could be defaults on US treasury bonds and a global repercussion in terms of increased interest rates etc. If the crisis is not defused by then, the consequences could be disastrous even for Stock markets in India.
Since many of the provisions of the Act have already commenced from October 1, 2013, Obama and the Republicans have reached a stage where neither can retract without losing face. It is a serious political crisis which is likely to determine the results of the next Presidential elections and hence neither party is willing to give in.
In India we have faced many similar challenges in the Parliament where the finance bill has been under the mercy of the opposition parties. However, opposition parties have always avoided the crisis by letting the finance bill pass even though they are opposed to the Government policies in general which indirectly increase Government spending in the budget. Whether it is the Food Security Bill or the Corruption, the ultimate burden is on the people with increased tax burdens but the opposition has never expressed the resolve to shoot down a Finance bill which can force the Government to resign. But in US it appears that neither the President is weak to retract nor the opposition meek to let things pass.
The outcome of the crisis is uncertain. Optimists hope that the crisis would be resolved within a short time of a day or two in which case the crisis may pass off. If it persists beyond October 17, we may be in for a major economic crisis that may hit even India.
The silver line for India is that once the Obama Care provisions get implemented, there would be a huge business potential for Indian IT Companies and BPOs and the prospects of the IT industry will get a boost just like the Y2k issue.
P.S: It was interesting to observe the reactions of the American people on the street when they were asked by CNN if they liked Obama Care or Affordable Care Act. Almost all said that they supported Affordable Care Act and opposed Obama Care without realizing that both were the same. This shows not only how much the average American is ignorant as much as the effect of naming social welfare activitities in the name of political leaders. We in India are used to many many Rajiv Gandhi schemes and such schemes will be opposed by people just for the reason of the name. There is a lesson for politicians in India in this.