Why Is the Economy Not Recovering?
Disastrous economic policy is almost certainly the reason. And number one on my list of disasters is the new health reform law.
Did you know that the Patient Protection and Affordable Care Act (PPACA) uses the term “the Secretary shall” 1,075 times? That means enormous discretionary power to make decisions about the fate of a sector that is more than one-sixth the size of the entire economy has been vested with one government department. And after Kathleen Sebelius makes all of those decisions, the election in 2012 could easily produce a different Secretary from a different political party which could have 1,075 opinions very different from those of Secretary Sebelius.
You’ve got to pick a pocket or two
Even before the passage of PPACA, personal health spending was close to one-fifth of family income. Under the new law, the cost of the mandatory health insurance coverage for a family will equal about 50% of the wage of a $30,000 a year worker. And after that, decisions by the Secretary of Health and Human Services could easily raise or lower labor costs by 5% to 10%. Will your health plan be “grandfathered”? How expansive will the mandated benefits be? Will the fine for not providing insurance stay at legislated levels? Or will it become much higher? No one knows the answers to these questions.
What matters most is not the size of the mandates, but the uncertainty surrounding them. Businesses can adjust to costs — managing to pass them back to employees or forward them to customers. What they recoil from is uncertainty.
Suppose you are in a position to hire new workers. Here is your dilemma:
- You have no idea what your labor costs will be. In addition to the cost of health insurance is the uncertainty created by the threat of card check and other pro-union legislation, to say nothing of an endless array of other potential mandated benefits.
- You have no idea what your capital costs are going to be. Even without cap and trade legislation, the EPA’s newfound power to regulate CO2 emissions creates enormous uncertainty for almost everybody who produces anything.
- You have no idea what the cost of financial capital is going to be. Even if President Obama’s pledge to return to pre-Bush tax rates on capital gains and dividends is temporarily set aside, the future is very uncertain.
- You have no idea what your taxes are going to be. Skyrocketing deficits for as far as the eye can see will have to be financed somehow. Will we get a VAT tax? A payroll tax? Higher income taxes? Who knows?
This explains why businesses are not hiring or investing. Instead, they are sitting on cash. Treading water so to speak.
We previously reported Trevor Frankel’s observation that temp jobs are up 20% year over year, while permanent private sector jobs are down 1%. Businesses are using labor, they are just not committing. Meanwhile, many temp jobs underutilize labor skills. While the unemployment rate hovers at 9.5%, the underemployment rate is almost twice as high. Frankel’s conclusion that bad policy is the primary cause of this problem is similar to my own. See Gary Becker’s very good analysis here.
Becker also contrasts our experience with that of Germany, which has a larger welfare state but more stability and a more rational response to the recession. While America borrowed and spent 6% of GDP in an effort to stimulate the economy, Germany spent a more modest 1.5% on stimulus. As a result, the German economy is growing at a sizzling 9% growth rate and unemployment is back to pre-crisis levels. The U.S. economy, by contrast, is creeping along at an anemic 1.6% growth rate and unemployment rates near double-digits.
We’ve made these mistakes before. In 1937, the Great Depression entered a double dip. The reason: “Increases in tax rates, particularly capital income tax rates, and the expansion of unions, were most likely responsible.”
Are we destined to repeat those same mistakes again?
Great music pairing. There is no doublt about who is tying to pick a pocket or two.
Policy makers need to understand there are limits (in the short run) in what can be done to boost the economy. In the long run, the best method is to get out of the way. Stimulus spending tends to stimulate growth in the wrong areas.
Excellent Health Alert. And spot on. Businesses are not going to commit to hiring or investing if they have no idea what their costs are going to be. That’s common sense.
Gov. Charlie Crist (I-FL) is selling health insurance, without a license I might add, at his campaign website!! Charlie says, “Cover Florida benefit options include a robust set of benefits,” yet the maximum annual benefit is a pitiful $25,000 per year. My daughter has MS and the Rx alone is $30,000 per year.
Charlie brags about his coverage only costs $150 a month. Last year, before Ugly ObamaCare, a 30-year-old female in Florida could get HSA insurance for $57 a month that paid 100% after the deductible to $5 million.
Some policy makers don’t have a clue.
http://www.charliecrist.com/charlie_healthcare.html
This is what I am hearing from everybody I talk to in the business world. Why isn’t it being reported better?
Good article– for once I can’t find anything to pick apart.
The most alarming thing about the impending tax change is the increase in dividend tax rates from 15% all the way up to 39.6%. That’s not exactly an incremental increase.
The authors of the 2003 tax cuts may have unwittingly set the stage for a less flat, more progressive tax code. This will be the case if today’s Republicans cave in regarding the top tax rates in order to preserve the tax cuts for low- and middle-income. The alternative seems to be to block any partial extension of the tax cuts and allow the entire package to expire. Do the Republicans in Congress have the cohesiveness to accomplish this? Doubtful. I think Obama will get his way on taxes.
Why did States and the new Federal Health Care Reform program increase young adult (not child) dependent coverage to age 26 or higher in some States?
Failed economic policy!
There are not enough employers offering good paying jobs with health benefits for young adults. Since government has failed to create and promote a prosperous economic climate they blame everyone else, then force the parents and their employer to pay for their mistakes. It is an easy fix for a group who can’t seem to fix anything. The right answer is to create an economic environment that helps employers hire young adults and provide health care benefits. But, this appears to be too hard and almost impossible for this bunch to consider.
It is wrong that a 20-25 year old young adult can’t get a job with health care benefits and must depend on mom or dad. It is wrong that employers are forced to hire temporary employees without benefits in order to reduce costs and remain competitive.
What next? Expand coverage to the spouse and dependent children of the dependent adult?
Is it wrong to provide coverage only for the adult dependent and not for their spouse and dependent children? What happened to universal coverage? What happens to the sick child of the adult dependent? Don’t this people count. How can anyone claim high moral character when they decide that some will benefit and others will not. Where will it end?
John K. – Your “right answer”, although admirable, will be difficult to implement with the present economy and policies being introduced.
“Vision without implementation is hallucination” – Benjamin Franklin
R.G. – Well-said..and I agree. But, having insurance doesn’t give you access to quality care.
The big problem: Third parties.
Direct practice primary care physicians (“Concierge”), cut out all the waste by working for our patients.
For your 30 yo, I charge $100/month to call me all she wants on my cell and same day access.
I had a 24 yo girl 10 minutes ago diagnosed with cervical cancer yesterday. Her parents flew in immediately from San Antonio. All scared. I spent 45 minutes with them explaining the options and got her into a gynecologic oncologist tomorrow. That’s health care and can’t be done at the charity hospitals I trained in.
Even worse, PCP’s are exiting third party models….See the reasons/numbers for family physicians on the last reply I made today on Monday’s blog.
“Becker also contrasts our experience with that of Germany, which has a larger welfare state but more stability and a more rational response to the recession. While America borrowed and spent 6% of GDP in an effort to stimulate the economy, Germany spent a more modest 1.5% on stimulus. As a result, the German economy is growing at a sizzling 9% growth rate and unemployment is back to pre-crisis levels.”
Germany has many more built in stabilizers, what you would probably call a welfare state. As a result, they laid of fewer workers, keeping many on part-time. They also have universal health care and about 60% of its work force unionized. Do you really want to emulate Germany?
I think Reinhart and Reinhart are closer to the truth with their emphasis on the need to deleverage. We have underutilized capacity, just what would business invest in? Need to work off the housing excess.
http://www.aei.org/docLib/Reinhart-After-the-Fall-August-17.pdf
Steve
Bart, I would remind you that the 2003 tax cuts were passed under reconciliation needing the Vice President’s tie breaking vote. The administration shouldn’t have any problems getting the 51 votes for their plan to extend the 2003 law for all but the top tax brackets and to limit capital gains at 20%.
This summer I bought a small outboard motor for my fishing boat. The dealer, who normally should have had one in stock, told me he would have to search around the state to find one because “no one wants to hold inventory when they don’t know what government will be doing.” Multiply this nationwide.
The monumental blindness of Obama’s economic team is astonishing. Reckless government can act as negative stimulus that swamps other actions. And is next year really the time to raise income taxes?
In this country there seems to be a prevailing notion that a job should come with benefits in which the employer “pays” for health insurance on top of salary. Benefits are merely untaxed salary (compensation).
In reality, an employer must determine the cost of hiring employees. He can either give them a salary plus benefits or pay them a larger salary without benefits. He is ever mindful that this per employee, total compensation must be enough to compete for laborers while sustaining profitability for the company.
Suppose two employees do the same job and receive the same salary, but one (A) has a family and the other (B) is single. If the employer is giving extra compensation to employee (A) by paying for his children and spouse’s health insurance, then employee (B) is receiving less compensation for the same job. I think you would agree that salary and compensation should be based on job description and performance rather than the size of one’s family.
Why is it the employer’s responsibility to make sure that an employee or his family has health insurance, any more than he should be responsible for auto or home insurance? The employer is required to provide a safe, work environment and to outline job responsibilities for which he compensates the employee. It is the employee’s responsibility to take his salary and budget to purchase whatever good or service that he chooses, including health insurance.
In the small business world more employers are paying competitive salaries and employees are discovering that they can purchase their own policy from a large array of plans and carriers. Young people pay very low rates which works well since they often have smaller salaries and have less risk of claims. These policies are portable.
We always take better care of something when we have ownership of it; an employee will take better care of his health if he pays for his health care and selects and pays for his own policy.
Interesting fact for you: The federal health insurance tax credit is only available to small business owners who offer a GROUP plan to their employees and pay at least half the premium. So if a business owner (D) paid his employees a smaller salary and offered a compensation package that included half the cost of a policy, (D) would get a tax credit for 35% of that premium.
But if employer (E) paid a higher salary (equal to D’s salary plus compensation)and all of his employees bought personal policies, he receives no tax credit and they receive no tax deduction on their policy.
Question: Is the goal to encourage better health, universal health insurance coverage, more jobs, and higher salaries? Or is it to have greater government control?
artk, I read this as saying you agree with me. I wonder if the Republicans would have tried as hard had they known in 2003 that the long-term result would be merely to exempt more people from paying taxes without reducing the top brackets, and that the Democrats would end up taking the credit for it?
I only hope that any extension of the 2003 tax cuts– whether complete or partial– is temporary, in order to force re-visitation and re-negotiation after the economy has recovered.
The problem with what Republicans have done over two decades is that about half of the population is not paying the income tax. The irony on top of that is that they never claimed credit for it. In every election, Democratic candidates claim that Republican tax cuts favored the rich and hurt everybody else, and most people probably believe that.
So half the population has no interest in keeping tax rates down, there is no way to raise revenue except by raising rates for the other half, and Republicans get no (electoral) credit for the benefits they created in the process.
Bruce:
Half of the population is not paying an income tax, because they don’t have enough income to meet the threshold.
Lowering the tbreshold does nothing to addresss the growing economic inequality.
Don Levit
“Half of the population is not paying an income tax, because they don’t have enough income to meet the threshold.”
Dont forget the pro-family tax credits pushed by both parties.
Steve
John,
Yes, let us follow you and return to ‘good ole days’ and leave millions of Americans behind without healthcare or hope and one chronic illness away from economic bankruptcy.
Once again, your calculations of the cost to a family are off the mark and without basis.
It is also puzzling on one hand you criticize President Obama for inserting a mandatory purchase of insurance into PPACA that will cost a person not complying (in 2014) $8 a month. A provision intended to offset the $112 billion dollars it now costs every American for healthcare provided to people who can afford coverage, but choose to forgo it. At the same time, you allege the Obama Administration is not doing enough to balance our fiscal budget. Can someone explain this to me?
Philip, you apparently don’t read what we write. We have proposed (for more than two decades now) a refundable tax credit for health insurance. Same subsidy for everyone, regardless of how or where they obtain their insurance. We do not favor Rube Goldberg subsidies that will destabilize the entire insurance marketplace and do great economic harm.
I have no idea what “returning to the good ole days” means.
I’ve never understood the rationale behind a tax credit designed specifically not to provide any incentives or market distortion (which I suppose is redundant).
A tax credit John? Yet another way to structure a health care benefit that’s much more valuable to high income earners with little to no health care access problems than it is to low income earners with significant health care access problems. Tell me when that happens, I’ll make my reservations to take my buddies to diner at Masa with the money. Gotta love their $600 a person prix fixe.
artk, John said a refundable tax credit. That means everybody qualifies regardless if they pay taxes or not.
A refundable tax credit of $3,000 would pay 100% of the premiums for a 30-year-old male for HSA insurance plus deposit $2,500 in his tax free HSA.
Can you say anything that is correct artk?
Well, R. G., just for fun I looked up health insurance prices for a 2,500 deductible policy for a 30 year old in Texas. Pretty much all the plans were about $2,000 a year, not the fantasy $500 a year you stated. You shouldn’t make things up if can be fact checked.
Again, why? If insurance is only $500 (or even $2000) a year, why do we need a tax credit? What is it designed to accomplish? I may be dense, but this is a sincere question.
Philip,
I respectfully disagree.
It should be:
Let us return to the ‘good old days’ and give millions of Americans healthcare and prevent economic bankruptcy by treating all chronic diseases and easy access to care with new, innovative models for primary care.
My prices range from $2.15/day ($802/yr) for kids to $5.40/d ($2,006/yr) for those over 60. If you cut out the bean counters (third parties and the high overhead that burdens PCP’s), the result is enormous cost savings to all (patient, providers, payors, etc).
That said, I’ve pointed out before that we have a fee for service problem because PCP’s make you come go the office in order to get paid. It’s not cost effective for FFS Docs either (if they’re not working, they’re not making money.
As you know, Fee for care models have transparent yearly fees for unlimited access to care. Studies show that we decrease hospitalization by roughly 60%. Early intervention over the phone by your trusted physician who knows you well + less cost to the patient/employer.
Employers paid roughly $1800.00/year in 1998 (don’t quote me) for loss in productivity (patients work when they are ill) and being out of the office.
Think of the savings a member of our military and the government if they had someone to guide them threw the system and treat things early (wound infections, referrals to specialist, etc.). If you had a son or loved one who just returned from Iraq, don’t you think you and your family could scrape up a$100/month to have access to his trusted PCP who knows him well?
I’m having trouble with this sense of entitlement we are seeing with the poor, less fortunate (uninsured/unemployed) in this country. Many are able to afford flat screen TV’s, cell phones, decent cars and smoke 1 ppd and go to fast food restaurants. How can they not afford this and keep themselves out of the ER for their primary care?
PCP’s will have to change the system in order to provide this. Unfortunately, they are retiring early and leaving, and not many med students are going into primary care.
Once again, John’s and innovative PCP’s marketplace solutions of the cost to employers, CMS and states (Medicare/Medicaid), our military, and most important, the providers of care and you the patient, are right on the mark and the basis should be understood by all.
artk, sure pick an expensive state like Texas. I went to Humana online and used the Texas zip code 78401 and the cheapest HSA plan costs $54.13 per month or $649.56 per year for a 30-year-old male.
http://www.humana.com/
So a $3,000 refundable tax credit would pay 100% of the insurance plus deposit $2,350.56 in the tax free HSA.
In cheaper states the cost goes down and the HSA deposit goes up.
So check it out yourself.
Like I said – are you ever correct artk.
Sure, R.G., pick a plan that bankrupts you if you get sick and you won’t pay much. Then again, you’re getting next to nothing. The insurance companies love people who don’t understand tail risk.
artk, its HSA coverage so it has a limit on maximum out-of-pocket by Federal law. You say, “It pays next to nothing.” Not true, this plan pays 100% and has a $2 million cap after the deductible.
artk, you are always wrong.
Just to be clear on the tax credit, everyone would get the same subsidy from government. The value would be independent of a person’s income. It’s as egalitarian as you can get. (Much more egalitarian, for example, than what happens under ObamaCare.)
Under the Coburn bill, the amount is $5,800 per family — paid for by completely replacing the current system of tax subsidies. But if you used some of the money Obama Care raises, it could be more generous — say $8,000 or $10,000.
“Under the Coburn bill, the amount is $5,800 per family — paid for by completely replacing the current system of tax subsidies…”
…which means it’ll never happen, and _can_ never happen.
This poor country is like a rowboat in the middle of a river, upstream from some dangerous rapids. The Democrats in Congress are the river current, dragging the rowboat toward the PPACA rapids. The Republicans are like the rower, doggedly trying to paddle the boat directly upstream and directly away from the waterfall.
During burst of energy, the rower manages to make a little headway upstream, but is unable to maintain progress for long. At other times, the current has the upper hand and the boat drifts closer to the rapids.
But anyone with any sense knows that the long-term situation is impossible, and that the rower would do better to turn the boat 90 degrees and head as rapidly as possible toward the bank. Do something that doesn’t involve fighting the current, in other words.
I still vote almost exclusively Republican, but only because it doesn’t cost anything. I won’t contribute another dime to a wasted effort.
Don’t be such a loser Bart. This country is stronger than some might think. Don’t give up yet.
John is correct. A $5,800 tax credit for a 30-year-old couple and 2 children in the Texas zip code 78401 can get Humana’s HSA qualifying coverage for $191.51 per month or $2,298.12 per year. So the credit would pay 100% of the family’s premium and deposit $3,501.88 in the family’s tax-free HSA.
I remember when George W. Bush was running for President in 2000 and Al Gore said, “Family insurance costs $6,000 per year,” and you John said, “A family can get insurance for $4,000 per year.” At the time I was enrolling Iowa families for $80 a month on MSA qualifying insurance. I thought with friends like John Goodman we need no enemies.
To this day, 10 years later, this family can purchase insurance for less than half of what John said in 2000. Of course with Ugly ObamaCare these low premiums will soon be gone.
Check for yourself here:
http://www.humana.com/
John must of been talking about dangerous employer-based insurance and not the security of permanent low-cost individual health insurance.
Of course it is illegal for an employer to purchase low-cost permanent individual insurance on an employee in the land of the free.
The credit would lift the burden of health insurance off the backs of small employers and your country would flourish.
R.G., I repeat my earlier question. If an entire family can buy coverage for $2,300 a year, why can’t they pay their own way? What is the justification for giving away $5,800 in free money, especially when you say the actual costs are so much less?
I read in in the Daily Policy Digest today that healthcare spending has grown at the slowest rate in half a century according to observers. They mentioned several reasons why. I am a medical practice administrator and I can tell you the main reason for this is this advent of high deductible HRA,HSA policies that are now prominent in the industry. People are not using their benefits due to their out of pocket costs before their benefits kick in. We have patients cancel appnts. everyday for this reason.
Bart, if the 30-year-old male paying $600 a year for HSA insurance deposits $3,000 in his HSA he will save over $600 in Federal and State income taxes in most states even if he is in a lower income tax bracket. That’s affordable health insurance.
I’m not a great believer in tax credits, I’m a believer in education. It’s too bad that President Bush’s advisors on tax free HSAs were so poor.
The question is – who were the Bush HSA advisors?
R.G., it’s only affordable because other taxpayers are making up the difference. Where do you thing the money for tax credits and HSA deductions originates? Thin air?
After Reading your article I could no lgnoer hold back my disgusting grin in knowing that this article is full of tyrannical rules imposed upon everybody. I don’t care what class of people they are.For example : ..It is time to take back our health care. ?? What health care have we really had? We never had no law stating that health care was a right in the constitution. It is an opportunity. Our constitution gives us the ability to prosper and on and on. The Constitution does not give govt the right to impose their form of tyranny against companies who do not want to provide health care for free to those who can not pay for their services. That is one example on who is losing their freedoms first so we the polotarant are next.Next in the article states this Eliminating federal regulations that discourage small businesses from providing coverage. So we have regulations in place to discourage small business’? why?I thought we had liberty.Reform licensure requirements so that pharmacists and nurses can perform some basic functions to increase access to care and lower costs.So we are not free. We just think we are.HR 3075 provides truly comprehensive health care reform by allowing families to claim a tax credit for the rising cost of health insurance premiums.So govt has to make laws that allow people to do things that they do not want to do. If the rich lose their rights where does that leave the poor?