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June 08, 2009

Kennedys Healthcare Bill Will Increase Expenses, Decrease Employment and Encourage Outsourcing
by Mike Shedlock

Ted Kennedy believes everyone should have a plethora of good options on healthcare.

However, other than raising taxes on businesses, Kennedy refuses to say how his proposals will be paid. Moreover, he is too blind to see (or too political to admit), the myriad of disastrous consequences that his health care proposal will entail, especially on small and medium sized businesses.

His bill is political demagoguery at its finest.

Please consider the details as presented in Kennedy Health Bill Mandates Public Plan, Coverage for All.

Under a draft bill to overhaul the U.S. health-care system all employers would be required to supply health insurance for workers or contribute to the cost.

The bill, by Senator Edward M. Kennedy, would create a public health plan to compete with private insurers, a priority of President Barack Obama's that is opposed by Republicans. It would provide all Americans with health benefits, penalize those who don't buy them and bar insurers from limiting coverage.

The "America Health Choices Act," circulated in Washington late yesterday, offered the first detailed glimpse of legislation being discussed in Congress. Many of its provisions would expand coverage for uninsured Americans. "It is the sense of the Senate that Congress should establish a means for all Americans to enjoy affordable choices in health benefit plans," the bill said.

Obama set aside $635 billion in his 2010 budget proposal to act as a "down payment" on the cost of reconstructing the health-care system and expanding coverage to the estimated 46 million uninsured Americans.

Kennedy's draft did not include details of how its proposals would be paid for.

Kennedy's bill opened with an affirmation of a patient's rights to choose his or her doctor and the importance of the patient-doctor relationship. "Doctors, nurses and other health professionals have the right to judge what is best for their patients," the bill stated.

America Health Choices Act Provisions

Government subsidies will be provided to people with income up to 500 percent of the poverty level.

Doctors and hospitals paid at Medicare rates, plus 10 percent.

Medicaid, expanded to cover uninsured people earning up to 150 percent of the poverty level.

Essential" benefits, include hospital care, maternity and newborn care, prescription drugs, mental-health and substance-abuse services and doctors' services.

The bill establishes protections for "fair" insurance coverage, setting limits on how much premiums can vary. Insurers would be forbidden from turning away customers due to pre-existing conditions.

Each health insurer that offers coverage in the individual or group market in a state would have to accept every employer and individual in the state that applied for coverage.

Companies that provide coverage for children through their parents will have to extend "dependent" coverage for those children through the age of 26.

America Health Choices Act Consequences

1) Every employer thinking about hiring someone is going to think twice about it, then not do it.

2) Every employer struggling to maintain jobs in the US with a choice of outsourcing will have another huge incentive to outsource.

3) Many employers struggling to maintain solvency will go bankrupt after this bill passes.

4) Corporate profits across the board are going to drop.

5) The stock market will drop along with corporate profits.

6) Health care companies will have an incentive to not offer plans in states with poor demographics.

7) Government mandates about how much insurers can charge will bankrupt insurers and/or cause rationing of services.

8) Businesses will have an incentive to fire workers and instead offer contract work to individuals. Banks and financial institutions will be among the first to consider this option. Programmers have another reason to start worrying about their jobs.

9) Businesses unable to outsource or make use of contractors will bear the brunt of this legislation. The group hardest hit will be retailers like Walmart, Target, and Costco, and restaurants like McDonalds and Pizza Hut.

10) This bill will weigh on business expansion plans. Retail stores are already saturated. This bill provides one more reason for businesses not to expand further.

Business Owners Should Be Scared To Death

In general: The bill has a negative effect on hiring, a negative effect on business expansion, a negative effect on corporate profits, and it promotes outsourcing. Moreover, it will delay the recovery of the stock market and it puts the brunt of the burden on businesses that cannot outsource.

If you are not scared to death by those consequences, you are not paying attention to what is happening.

Requiring businesses to pick up the tab will slow hiring and the recovery. Monetizing medical expenses will cheapen the dollar. Requiring taxpayers to foot the bill will take away from discretionary spending.

It is axiomatic that someone must pay. There is no such thing as a free lunch or free health care either.

I have come up with 10 easy to see consequences. I am sure there are many unforeseen consequences, some of which will be even worse.

For those who want more for their money in these deflationary times, here is a bonus 11th consequence: It will encourage the employment of illegal aliens under the table paid in cash and all kinds of underground barter transactions that also will not be taxed.

Standards of Measurement of Good Health Care

Please consider what Raoul Pal of Spain wrote John Mauldin in the June 5 Frontline Thoughts called The New, New Normal.

In its simplest terms a healthcare system is there to extend the longevity of live of the population. It is the single best and simplest way to judge it because we can all find examples of where one country is better than another but the longevity stats don't lie. When we use that framework the picture is incredibly different. The US has many of the best doctors and medical care in the world but it doesn't work for the population as a whole and therein lies the problem.

"According to the Economist the total US spend on healthcare is 15.4% of GDP including both state and private . With that it gets 2.6 doctors per 1,000 people, 3.3 hospital beds and its people live to an average age of 78.2

"UK - spends 8.1% of GDP, gets 2.3 doctors, 4.2 hospital beds and live to an average age of 79.4. So for roughly half the cost their citizens overall get about the same benefit in terms of longevity of life.

"Canada - spends 9.8% of GDP on healthcare, gets 2.1 doctors, 3.6 hospital beds and live until they are 80.6 yrs

"Now if we look at the more social model in Europe the results become even more surprising:

"France - spends 10.5%, 3.4 docs, 7.5 beds and live until they are 80.6

"Spain - spends 8.1% , 3.3 docs , 3.8 beds and live until they are 81

"As a whole Europe spends 9.6% of GDP on healthcare, has 3.9 doctors per 1,000 people, 6.6 hospital beds and live until they are 81.15 years old.

"The list goes on. The truth is that in many cases as is pointed out the healthcare system is better in the US than in some other countries BUT US citizens must therefore get ill more often than any other country in the West in order to achieve the truly appalling statistic that they are the 41 longest living nation on earth with France, Spain, Norway, Switzerland, Italy, Austria, Andorra, Holland, Greece and Sweden all featuring in the top 20 longest living nations and the UK and Germany at 22.

"This is the big failure of the US system. It is unforgivable. You may get a better chance of recovering from certain diseases but as a whole you will die younger in the US than most developed countries. ... Something is severely broken."

Something Is Severely Broken

Something is indeed broken and Kennedy's bill sure is not going to fix it.

"America Health Choices Act" is a horrible piece of legislation that does nothing to reduce costs but instead increases them on businesses. A better name for it would be "Delayed Recovery And Outsourcing Encouragement Program" or DRAOEP.

I tried to come up with a name that would equate to DROPDEAD (because that is what Kennedy's plan says to businesses) but could not quite make it.

If you are a business owner you better be flooding your representatives with faxes and phone calls (see Speak Out! for a detailed list of fax numbers) if you know what is good for you, because I can ensure you, this isn't.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Michael "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com/ to learn more about wealth management for investors seeking strong performance with low volatility.

Copyright © 2005-2009 Mike Shedlock

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