Supreme Court Health Care Ruling is Deflationary: Independent Financial Advice
Posted by Don Martin on Thu, Jun 28, 2012 @ 01:27 PM
New Health Care Law Upheld by Supreme Court – How Does This Affect the Economy?
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The Supreme Court upheld the March, 2010 health care law that requires purchases of insurance and requires health insurance to include more services.
This will go into effect in 18 months. The result will be that health care costs will rise because of increased demand. Many employers with under 50 employees may end coverage, thus forcing employees to pay for coverage. Healthy insured people will pay more to subsidize the unhealthy people who are now allowed to buy forced placement of health insurance.
Thus the typical consumer and typical taxpayer will pay more, resulting in less purchasing power for other things. This could hurt the economy, resulting in layoffs at businesses not involved with the healthcare industry. Possibly the extra income earned by members of the healthcare industry could be spent thus offsetting the reduction in demand caused by the higher healthcare costs. Possibly the health costs savings that formerly uninsured people realize when they get insurance to pay for their medical costs will allow those people more purchasing power for other goods. Some of the detriments such as reduction of purchasing power will be partially offset. The risk is that there will be huge frictional costs so that when Mr. A pays an extra $3,000 a year towards new health insurance mandates and Mr. B earns extra pay for working overtime providing health care the after-tax income B gets will be less than the costs paid by A and thus there will be a net reduction in consumer’s purchasing power for all types of goods, leading to a deflationary situation. The extra bureaucracy for health care will require hiring more lobbyists, lawyers, CPA’s, etc. and this could reduce the amount of discretionary income the general public has to spend on all types of goods. The extra income the elites (lobbyists, lawyers, etc.) will earn from these new frictional costs will go to them and not to the masses of people. These elites could save their paycheck instead of spend the money which would be deflationary.
Unlock secrets of Health Care Law
The new law requires taxes on investment income in addition to the other tax increases in 2013 that were due to the expiration of the Bush tax cuts. The new taxes will be deflationary, as any Econ 101 textbook will say raise taxes to cool down the economy, and reduce taxes to stimulate the economy.
The way that socialized medicine works is that the government is forced to cut costs by cutting benefits. In Canada someone was denied kidney cancer surgery for two years and finally they became so frustrated the patient paid $40,000 of their own money to get an operation in the U.S. In Britain the government insurance won’t pay $50,000 for Sutent, a kidney cancer medicine. Those that can afford the costs will pay out of pocket and this will reduce their purchasing power for other things, thus hurting the economy. Perhaps someday government controlled medical care in the U.S. will result in Americans going to Asia for medical treatment (that will be denied to them by socialized medicine), resulting in loss of jobs and taxes here.
I wrote an article “Establishment getting worried about the economy”.
Investors should seek independent financial advice. 