THOUGHTS ON THE HEALTHCARE PASSAGE
CNN is reporting that the Obama healthcare plan has the votes for Congressional approval. Intrade is also confirming this as the possibility of passage has surged to 90% as of this morning:
The implications of the plan is relatively simple and they’re economically disastrous. I have long argued that this is not the time for Obama to play politics and pass a healthcare plan. The country has MUCH bigger issues at hand, but the President is using this window of opportunity to pass a plan he has long worked on. Some say it is being jammed down our throats. I am not so sure I’d go that far, but this is certainly poor timing. With so many millions unemployed President Obama is off worrying about healthcare. Well, news flash Mr. President – it’s hard to get healthcare when you don’t even have a job.
As we’ve argued before, this is terrible timing for healthcare passage. With very weak aggregate demand due to high unemployment and weak private sector balance sheets the last thing we need is higher costs for businesses and higher taxes for consumers. This plan will contribute to both. Small businesses, the engine of job growth, will be particularly hard hit by this plan. In addition, tax hikes are the ultimate end result. The last second addition of investment taxes is a disaster for the market. This plan alone won’t kill the recovery, but Congress certainly appears to be doing their best to do just that. Like the housing tax credits and cash for clunkers this is just one more ill-timed spending plan that sounds great on political posters, but is economic disaster.
These bastards are gonna crash the market. Could you think of a worse thing to spend $1 trillion dollars on?
Yes I can.
hmmmm, Iraq War?
We have already spent $700 billion on it. And there are projections it will cost another $600 billion, plus another $500 billion or so for medical/post war costs.
All in the name of fake weapons of mass destruction.
Or the second largest known oil reserves in the world. You don’t REALLY think that money was pissed to the wind do you? Unlike Afghanistan, Iraq has a resource we need/want. We’ve just saddled them with that debt and they’ll pay it off in oil, at lower than mkt price.
Freedom ain’t cheap. We’re never pulling out of Iraq. We haven’t even pulled out of Germany or Japan!
Uh….didn’t the market go up today???
Can you provide data supporting your claim that small businesses will be particularly hard hit? My understanding is that companies with fewer than 25 employees and average annual wages of less than $50,000 will be eligible for tax credits to cover up to 35% of their insurance premiums. I’m not sure how this nets out – so curious why you feel such conviction around your statement that this plan may “kill” the recovery.
Wow, so increase their costs and then give them a tax credit. It nets to higher costs across the board. If you have more than 50 employees your costs are about to skyrocket.
This thing is a mess. Why does a small business owner have to provide healthcare for his/her employees? What are we? Their parents?
My question is less about the morality issue than about the pure economics. You say costs are about to “skyrocket” but cite no facts. Can you explain why – and by how much – costs will change?
The main provisions of the bill – like the 3.8% tax to high income individuals and the fine for uninsured individuals – don’t even take effect until 2013. And, large corporate plans can generally be grandfathered in.
Clearly, there are added costs here: companies with more than 50 workers that don’t offer health-insurance coverage would pay an assessment of $2,000 per full-time worker if any of their workers gets a tax credit to buy coverage. Employers with more than 200 employees would be required to enroll all employees automatically in their health-insurance plans, though workers could still opt out.
But none of this seems likely to crush any incipient recovery. I’m not suggesting that an incremental $2k/FTE fee is immaterial, but it isn’t even clear how many employers will end up paying it. What am I missing? Why the conviction that this is such a negative?
I think that’s one of the big problems. No one is quite sure what the plan will cost exactly. All we know is that it will be paid with by higher taxes down the road.
The plan details as of now are very optimistic, but so were the Iraq war costs. It will change over time (for the worse). The uncertainty regarding this is almost certain to dampen potential hiring and new business expansion.
Anyone who tries to paint this as an economic positive is delusional. This is a nightmare for taxpayers who are already very weak.
I agree that hc reform implies additional uncertainty, which is an incremental negative. How does the CBO analysis factor into your argument? Does the reported deficit reduction they cite strike you as unrealistic? If so, can you explain why? Are there other new taxes that you can specifically point to that will dampen hiring?
It just seems to me that this has become a very dogmatic discussion, and – in this forum – I’d like to stick to economic facts and avoid arguments based on morality / politics.
“How does the CBO analysis factor into your argument? Does the reported deficit reduction they cite strike you as unrealistic?”
Ohhh yea
When was the last time these guys were right? When was the last time these guys were even close?
CBO director Peter Orszag was former consultant of…. Icenland Central Bank, …right before Iceland imploded.
Don’t get me wrong, Maybe he is smart and he is hired for a good reason. Because in reality most people can’t and won’t handle the truth.
The plan will put a hold on hiring at small businesses. It will also prevent many from starting a new business because the uncertainty of these costs are so high.
I’ve invested in, worked with, and been on the boards of many private companies over the past 10 years and never – not once – have I heard an entrepreneur say that he wouldn’t launch a business because of fears over incremental tax increases.
I acknowledge that higher taxes could slow hiring but my sense is that demand trends will trump – and demand is clearly improving (for now, at least).
I do know business people who do not want to hire anyone new in the face of this, and there’s also ways to hire people that do not require giving them health care and it seems to me (no data and charts) that hiring part time or subcontracting work rather than taking on “employees” might be a common reaction.
http://www.tennessean.com/article/20100321/OPINION01/3210338/1008/Congress+must+start+over+to+take+burden+off+businesses
Cramer also said that the market would rally once Brown was elected. Is he really someone you want to cite on this?
Cramer finally gets one right:
http://www.businessandmedia.org/articles/2010/20100319055725.aspx
Finally. I’ve been looking for uninformed discussion of health care, and I’ve found it. Keep these nuggets coming.
Uninformed are those who think it’s wise to raise taxes now and delay a huge government spending plan until 2014.
TPC: with permission, please, just re-posting this comment here also in addition to your ‘What’s on Tap’ section. Thanks.
Since that new 3.80% tax on all investment income, including dividends, capital gains and even rental income, was thrown in during the last hour, I wonder if the market fully appreciates the damage that could inflict.
That said, if it passes, I’m sure the PPT has clear instructions to take the market higher Monday for all kinds of reasons, so the true market reaction, I believe, won’t be visible until the noise clears.
This would be a clear shift by the world’s leading capitalist country to an additional, massive redistributive societal entitlement that it can’t afford. From a capital markets point of view, it is a mild negative at best.
“While the social aspect is certainly beneficial for all…”
TPC, I would challenge that statement. I know it isn’t your main point here at all, and I’m not trying to nit pick you, but the administration and the media have gotten away with murder on this talking point. They always have the claim in their articles that. “This plan brings coverage to 31 million Americans who lack coverage now.”.
Pointing a gun at someone’s head and making them write a personal check for something they don’t want under the threat of IRS sanctions is NOT what I would call “extending them coverage”.
The individual mandate = a tax just to exist.
Sure, I’ll agree with you that this is not the “optimal time” to pass healthcare reform, but if not now, when?
Exactly.
If Healthcare reform does not happen now, it won’t happen for another 10+ years. And trust me, we’ll probably be in another financial crisis by then. So why wait?
It is unfortunate that there is a severe crisis during the time where healthcare reform has come up, but hey, it has to happen.
How about when we’re not wrangling with a highly destructive balance sheet recession? How about when real unemployment isn’t at 17%.
Trust me, I am all for healthcare improvements, but the timing here is absolutely horrible.
MinyMa: There were a million and one better ways to “do healthcare reform”.
They never tried any of the free things first. It would have been absolutely free, and a massive windfall to consumers, to have made the insurance companies compete like crazy for your business. That alone could have dropped costs for virtually everyone across the board. That would have put money in people’s pockets. Obama’s monstrosity extracts money from everyone’s pockets.
Only a fool goes for an expensive, time consuming, and costly solution while a free and immediate option lies untested.
What kind of “healthcare plan” starts by hiring 16,500 IRS enforcement agents?
Please explain “Why does Healthcare reform has to HAPPEN” and why at all costs.
Please do not refer back to the millions and millions of uninsured.
This excuse for a massive government intrusion into our live is perpetrated for a special reason, not to help the uninsured but do give exxtra power to the elected representative i.e. the government.
The equation is simple here folks. The additional taxes are the last thing this country needs at a time when aggregate demand is so low. Any way you cut this bill results in higher taxes down the line. That puts the recovery at risk. It’s that simple.
I am all for social advancement, but this timing couldn’t be worse. You ask, if not now then when? How about when the real unemployment rate isn’t 17%? We have bigger problems to tackle.
Additional taxes yes, and lets not forget the individual mandates. People who chose not to have health insurance will now be forced to buy it or pay a fine.
Call it what you want, its an income drain.
Forget about tax cuts or any other form of fiscal support for the economy. This huge bill will be the focus for all state and federal government programs from now on. Its spending requirements will dwarf everything else and will be he filter through which everything is looked at – “we cant cut taxes beacuse we have this health care reform to pay for, we cant spend on updating he energy grid, we cant build nuclear power plants …. ths list goes on. We are now a Western European domcracy. Get used to govt intrusion in every aspect of your life and perennially high unemployment.
Tax now and spend later = weak economy. How much will you care about your healthcare plan if it means we risk a repeat of Japan’s 20 year recession?
Personally, I think we all should be more focused on righting this sinking ship we call an economy….This doesn’t help…
Futures are down 0.55% right now. Personally, I’m surprised they’re not down 2%.
Did I say amen? No, I did not. Amen Sean.
Reform is needed – the whole system needs to be re-designed.
Basic principles:
1. For minor health problems, make the individual pay for treatment whenever possible. Too many people spending on granite counter-tops and big screen TVs when they should be saving that money for taking care of their health. Also provides incentive for a healthier lifestyle.
2. Health insurance should be exactly that: An insurance against catastrophic but low probability events. It must not be an entitlement program.
Workable 3-component system:
A. Minor health issues: Patient pay fully out of pocket; total free market, doctors compete as entrepreneurs, strict license policing to ensure quality.
B. Major illnesses: Health insurance; hospitals and doctors may be private or public, patient choice and co-pay options per insurance plan.
C. Social safety net: Public system, doctors and staff on salary, priority is to serve low income group.
Don’t get me wrong. I’m sure the people on CBO are smart and try to generate accurate projections. They may have the best of intentions but their projections, at least in the past, have been consistently and very significantly inaccurate. For that reason it is difficult for me to assign much credibility to whatever they say. I think the variables they are trying to quantify are far to complex for assigning anything near an accurate projection to hang your hat on.
This is the US version of the Japan consumption tax hike just as they were emerging form their post bubble collapse recession and the Nikkei was up about 50% from the low.
I just read on CNN that to get one of the votes Obaama promised to tackle immigration reform next. What a disaster.
http://www.cnn.com/2010/POLITICS/03/21/immigration.rally/index.html?hpt=T2
What about financail reform?
Speaking of which the US will now become a much more attrctive place for the immigrants who now go to the welfare states or Western Europe. Why live in London when you can live in LA or Miami. The hard working industrious immigrants will be swaped by the welfare seeking interlopers that have pushed Western Europe to the brink.
And shouldnt everyone cancel their health insuarance now and wait until they need serious medical care before signing up again?
Thinking ahead: stim pack 2 is dead. There is no chance they can pass another stimulus plan. Koo’s plan is therefore dead in the water.
Another random thought:
roughly 1/6 of the US is unemployed, but we just voted to give 1/6 of America healthcare. Do you really care about healthcare if you dont even have a job?
for those who support the health bill…
i just need to know one thing that the big government do and do well and efficiently.
Two things – Social Security, Medicare, and Medicaid are all out of money as is the general budget. How do you add more costs on to a system that is already bankrupt.
As to the main funding mechanism, finding $500M in Medicare waste and fraud, what makes them think that passing this bill will automatically make this “waste and fraud” readily identifiable?
This is a bill full of unintended consequences and will eventually crater the market. Glad I am selling calls!
I have not seen one government in the world which can administer anything effectively, efficiently or logically. If you need confirmation of this statement look at any goverment controlled enterprise anywhere in the world.
The Hallmark of government is to waste money on programs which nobody wants but which increase their power.