The purpose of this report is to examine the current state of health care as well as the impacts that new legislation will have on the United States healthcare system. Specifically, this report will inspect the immediate and long term effects of the healthcare reform bill HR 3590 that was signed into law on March 23, 2010 as well as investment advice on the medical care industry. There are two main topics when it come to health care reform, coverage and cost control.
Both sides of the debate recognize these as the eventual goal but both sides have different opinions on the procedure to achieving this goal. The current health care reform bill includes a very controversial provision know as the individual mandate which some believe is a necessary tool that will bring more health care to more people. Others who oppose it say that it will only exacerbate the current problem of over utilization of third party payers and will cause prices to rise further.
The bill that was passed on March 23 was scored by the Congressional Budget Office (CBO) as a deficit reducing bill and many proponents of the bill point to this an claim that a government run system will be more efficient. However, the CBO report is widely debated for misleading information and it does not include the reconciliation bill (HR 4872) signed into law on March 30, 2010 that amends HR 3590. The entire debate can be summed up into two main groups, those who think that the government can run health care and those who believe that the free market can run healthcare.
According to an article titled Major tax provisions in U. S. healthcare bill reported by Donna Smith of Reuters, the bill includes a large number of taxes including “a new 3. 8 percent tax on income from investments including capital gains, dividends and interest… an increase in the Medicare payroll tax by 0. 9 percent on incomes… a new 40 percent excise tax on high-cost health plans… a 2. 3 percent excise tax on the sale of medical devices… and a 10 percent excise tax on indoor tanning services” to name a few.
Health insurers will be required to pay large annual fees based on their market share and small businesses that do not provide insurance to their employees will be required to pay a tax up to 8% of their payroll. This will most likely cause employers to reduce wages as they would not be able to simply increase their payroll by 8% across the board and those who are working for minimum wage will be laid off. Also, a 2. 5% of income (up to $694) penalty tax will be levied on people who do not purchase health insurance coverage as the individual mandate requires.
The individual mandate has come under scrutiny for several reason; first, the real consequences of its implementation and second, the constitutionality of its implementation. In a Wall Street Journal article called House Passes Historic Health Bill, Greg Hitt and Janet Adamy say that, “Once the tax credits and Medicaid expansion are in place, most Americans will be required to carry health insurance or pay a fee. ” Many have argued that the current problem in the U. S. health care system is not a excess of free markets but instead a lack of free markets.
Often times it is hard for people to understand the power of the free market which is ironic so far it has brought more wealth and better standards of living to more people than any other system, period. In the case of our medical system, we rely too heavily on insurance (third party prayers) to pay medical bills for a lot of routine procedures that should be paid for out of pocket. A simple way of thinking about why health care costs are so high today is because demand exceeds supply.
Demand is a function of how much people are willing to pay and with third parties paying for expenses people tend to overuse medical services. Katherine Baicker and Amitabh Chandra point this out when citing a study by the RAND Health Insurance Experiment that concluded that, “people who paid nothing for health care used 30% more care than did those with high deductibles. ” The introduction of the individual mandate will only create more demand for medical services which will only drives prices up even higher.
When it comes to the constitutionality of the individual mandate many of the bills supports will look to the commerce clause and seek justification for its passage. This portion of the debate is not just about health care, but instead about the scope and power of the federal government; if the courts decide that the individual mandate is constitutional and therefore grant the federal government the power to force citizens to buy a product from a private company in order to ‘protect them’, then the existence of the constitution will become negligible.
Before the adoption of the constitution the states were reluctant to ratify it on the basis that they felt that it might grant too much power to the federal government to which James Madison, the writer of the constitution, wrote “The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite” (Federalist Papers #45).
The reasoning behind the constitution is to limit the power of the federal government not to grant it the complete control over the lives of all citizens. Supporters will make an argument that people are forced to buy auto insurance and so there should be nothing stopping congress from forcing people to buy health insurance. However, there are several big differences between auto insurance and health insurance. Driving on government roads is a privilege not a right and therefore conditions can be put on exercising that privilege.
Living, on the other hand, is a right and you cannot impose conditions on the act of living. Also, people are only required to buy auto insurance to cover liabilities against third parties (damage you do to other people’s cars) and not any damages you cause to your own car. As I mentioned earlier another goal of this bill is aimed at reducing costs. Supporters point to the CBO report which shows that over time the bill does reduce costs.
There is a problem with this conclusion though, the CBO has to make its estimates based on what is in the bill and cannot make assumptions based on what is actually likely to happen or what congress will most likely end up doing later. In order to make the bill look as though it would reduce costs over time they had to take certain provisions out that would actually raise costs and set them aside in a reconciliation bill that would be voted on later. The CBO however could not use this information in scoring the original bill which is why its report shows costs reductions over time.
When making a decision about whether or not to invest in a company that operates in a heavily government influenced industry there is only one metric that should be considered; how effective are their lobbyist. It is no secret that whenever the government gets involved in something it is always the companies with the best lobbying group that end up successful which is never the little guy. Timothy Carney says in his Washington Post article called, Obama gives sugar plums to the special interests, that, “the Pharmaceutical Researchers and Manufacturers of America — whose $26. million lobbying effort in 2009 was the most expensive by any industry lobby in history — hailed the health package as ‘important and historic. ‘” Put simply, congress just passed a law that makes it illegal to not own insurance, that is the biggest gift you could ever give an industry. In the final version of the bill there are many provisions that greatly help the certain drug industries such as lengthy exclusivity of Biotech drugs which essentially gives companies monopolies over these types of drugs for twelve years.
Also Health Savings Accounts (HSA) will no longer be able to buy over the counter drugs. This will put pressure on people to buy more expensive prescription drugs rather than cheaper drugs because the tax deduction will make it more affordable. Everything the drug industry got from this is adverse to consumers and beneficial to their bottoms lines. The way the bill is designed, however, is to eventually collapse any remaining shred of free markets left in the industry in order to usher in a single payer system.
This will happen when some of the big provisions start rolling out such as making it illegal for insurance companies to deny people based on pre-existing conditions which will cause insurance prices to raise to astronomical levels. The government will then do what it always does and blame the problem on the free markets and claim that the only solution is more government when ironically it was government that caused the problem to begin with. Investing in large health insurance and drug companies will probably be very profitable in the short term, but eventually around 2014 these companies will collapse.
Those who think that advocating free market principles is the same thing as giving special interests to large corporations are vastly misguided. Corporate welfare can only exist where free markets are not allowed to work and the health care industry is no exception. Competition always produces better results and allowing people to buy insurance across state lines and revamping the tax code so that it does not incentives an employer based system would do a lot to reduce costs by cause companies to actually have to companies to compete for customers.