Monday, March 22, 2010

Two Chartalist perspectives of Health Care

The first from David Kelly via Mosler:
The most obvious quantifiable impact of the bill is an increase in taxes for upper income Americans, particularly on investment income. Starting in 2013, the Medicare tax rate on households with income over $250,000 will be increased from 1.45% to 2.35%. In addition, a new 3.8% Medicare tax will be introduced for the same group on investment income....'s not like we haven't been here before. On average over the past 40 years the maximum federal tax on capital gains was 24.7% and the maximum tax rate on dividends was 44.6%.

For the Medical Care Industry, this bill will expand demand without much effort to reign in costs. A combination of federal subsidies and mandates will increase the pool of insured, and while there many constraints preventing insurance companies from limiting coverage there are few which limit how much they can charge for it.

However, whatever else is said about this bill there is nothing in it to suggest a reduction in either the quantity or prices of health care services consumed.

* - There is no meaningful malpractice reform.

* - There is no reduction in drug patent lives.

* - There is no compulsion to force insurance companies to compete across state lines.

* - There is no effort to limit health care procedures in the last year of life.

* - There are no meaningful incentives to force the insured to take better care of their own health.

Despite dire predictions, it's not clear that health care reform will really slow economic growth that much. Most of the tax provisions don't kick in until 2013 and the mandates on businesses and individuals don't kick in in a big way until 2016. Between now and then, the economy is quite capable of staging a full cyclical recovery. It may be that businesses will, in the end, be forced to pay more for the health care of their workers – however, overall, American business is quite capable of limiting wage increases to add to benefit costs.
And from Wray:
he most significant outcome of this legislation is the windfall gain for insurance companies—who will be able to tap the wages of the huge pool of nearly 50 million Americans who currently do not purchase health insurance. Since many of these are too poor to afford the premiums, the government will kick in hundreds of billions of dollars to line the pockets of health insurers...You might wonder how Democrats can call this a deficit reduction deal? Elementary, dear Watson. They will slash Medicare spending
I don't believe Medicare spending will be cut, and taxes don't increase much under the bill until about 2013-4, IIRC. I'm not as sanguine as Kelly about the economy though, as private sector debt remains too high, and the EU presents significant downside risks to equity. Net net though, I think this Bill is good for the insurance industry primarily, and OK for the healthcare industry. It is a strange creature, requiring households to pay private companies and give them Government money to do so, but then healthcare is a strange industry.


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