Did the Market Forecast the Passage of the Health Care Reform Bill? Evidence from an Event Study

ABSTRACTOn Sunday, March 21, 2010, House voted on and approved Health Care Reform Bill. It was referred to as one of largest pieces of legislation to reform health care since Medicaid and Medicare. There were also many critics of bill. Some argued that it would not bend cost curve and lower health insurance premiums. Others argued that insurance mandate was unconstitutional. This paper used event-study methodology to see if market anticipated passage of bill and to see how market reacted after passage of bill. It was found that market forecasted bill would fail in House vote and if it passed, it would negatively affect health insurers.Keywords: Health care, Reform, Event study, Vote(ProQuest: ... denotes formulae omitted.)IntroductionOn March 23, 2010, President Obama signed Health Care Reform Bill, formally known as Patient Protection and Affordable Care Act, into law. This bill was referred to by some as largest and most significant piece of legislation to reform health care since Medicare and Medicaid were enacted in 1965. It was also called an historic bill and the most expansive social legislation enacted in decades (Stolberg and Pear, 2010). The bill called for insurers to no longer exclude individuals based on pre-existing conditions and to not cancel coverage for those who became sick. The bill also called for an insurance mandate wherein individuals would be required to buy health insurance or face fines. Government subsidies would be provided for those who could not afford health insurance.The road to health care reform since inception of Medicare and Medicaid started in 1971 when Senator Edward Kennedy became Chairman of Senate Health Subcommittee. Kennedy proposed a national health care plan that would be paid for by federal government (Furrow, 2011). A national health insurance program was later introduced and proposed in 1993 by President Clinton. It appeared, however, that major health care reform would have to wait another seventeen years to take place. In November 2009, House passed its version of a health care plan with only one republican vote (New York Times, 2010). In December of 2009, Senate passed its version of a health care plan. The House and Senate versions of health care reform had many similarities but also important differences. The House version would raise taxes on high-income households to help pay for health care while Senate version would raise taxes on high-end health insurance plans (Grier, 2009). The House version contained a public option with federal government operating a health insurance plan. The Senate version contained no public option. The House and Senate plans also differed on how abortion would be covered.A compromise bill would have to be developed and passed by both House and Senate before being signed into law by president. Al-lssiss and Miller (2010) used event study methodology to show that Republican Scott Brown's election to Senate on January 19, 2010, decreased likelihood of passage of a compromise health care bill. This in turn, led to increases in prices of health insurance company stocks. Al-lssiss and Miller concluded that market viewed passage of health care reform bill as a detriment to health insurance companies. In end, however, House passed Senate version of health care reform on March 21, 2010 with a vote of 219 to 212 and no republican votes. The House also passed a reconciliation bill to make certain changes to Senate bill (Ice Miller LLP, 2011). The reconciliation bill was approved by Senate and then approved again by House (Murray and Montgomery, 2010).Did market forecast passage of Health Care Reform Bill in days before House vote on March 21, 2010? With all of controversy surrounding bill and with republicans joining together to defeat bill, outcome of vote was uncertain. …