Friday, March 26, 2010

Health Care Bill Not So Healthy

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

Although the political wrangling continues over the legality of the health care bill, for all intents and purposes, it's law, like it or not. On the one hand, it's a positive that we've gotten at least something done on this issue. But, this bill is FAR from being great in my humble opinion.

This morning, I had a conversation with a client whom I routinely disagree with. We always have very spirited political, social and economic discussions. Sometimes he makes a good point that causes me to reassess my position, like today, and other times I do. And sometimes, we agree to disagree.

From my seat, that is good and healthy debate; always respectful, never personal. Two individuals from different sides of the political spectrum and from different generations. The question is... why can't our elected officials in Washington behave like this?!?!

Getting back to health care, one of the problems with reform is that we're not dealing a straight social or free market issue. Think of yourself as the CEO of a health insurer whose top priority is to deliver results to the shareholders. That's your fiduciary responsibility. The more times your company says "no", the more profits in the corporate coffers.

As a customer of that insurance company, you pay significant premiums to cover you in case of health issues. You expect a "yes" when the time comes. You expect life to be preserved. The problem is that health insurance companies are a hybrid and cannot be a straight capitalist/free market model. There must be regulation to "insure" life and protect the insured as another client (physician) offered at lunch today.

I am NOT in favor of government run health care, but I think we all know that without the proper oversight, the insurance companies become the sector of "no" to maximize profits. It's a social and free market issue that doesn't seem to have a good compromise. The health care bill does have some pluses, such as added coverage for meds, subsidies for lower income families to buy insurance and hopefully a small business tax credit.

Socially, I am 100% in favor of fixing the preexisting condition problem. But I do know that shareholders are hurt by that. I am not in favor of requiring everyone to buy health insurance. I don't know our forefathers personally, but I have a hard time believing that they would be in favor of this. I also don't think they would have too much respect for Nancy Pelosi who believes that "pursuit of happiness" means forcing citizens to buy a product.

If you don't want to buy auto insurance, you don't have to drive. If you don't want to buy homeowner's insurance, don't buy a home or buy one without a mortgage. Since smoking and obesity are huge burdens on the healthcare system, is Congress going to mandate our weight or outlaw smoking to protect the system? Will they pass a bill forcing us indoors during peak sun hours because of skin cancer danger?

I've seen the Congressional Budget Office (CBO) estimates on what the bill is going to do over the next 10 years in deficit reduction. Wonderful. It's primarily through tax increases and this insane idea that the government can find hundreds of billions in savings from Medicare waste and fraud. If it was so easy, why hasn't anyone done it before???

And while the CBO is an independent group, who ever said they were correct or even good? Show me ANY of their previous long range forecasts that have come true. You can count me as a skeptic here. I don't buy it.

And the tax increases are the crowning point of not only this bill, but additional increases coming online in 2011. Have we not learned ANYTHING from FDR's great mistake in 1937 when he raised taxes and removed fiscal stimulus, causing Great Depression Part Deux?

The folks at Casey Research recently penned a piece entitled, "Help! I've Been Taxed and I Can't Get up!" The general premise of the article is HOW we are going to pay for all this spending. If you don't know, by doing nothing, taxes are going up in 2011 to the pre-Bush cut levels. That's a huge increase during a very fragile recovery.

Forget about income tax levels for a minute where the top rate is going from 35% to 39.60%, dividends and interest are going from 15% to ordinary income levels. To rub salt in the wounds, the new health care bill adds the Medicare tax of 3.80% to capital gains, interest and dividends beginning in 2013.

Add another 0.90% tax on all income earners above $250,000 and you have the recipe for slow economic growth at best, another recession or two at worst. It's not a pretty picture. The Casey folks also point out that it's possible for the 3.80% Medicare tax to hit you when selling real estate for a gain, even the lower income brackets. Additional tax increases are seen in raising the deductible medical expense threshold from 7.50% to 10%.

There are other less widespread taxes starting in 2013 that are almost certain to raise various medical costs, but I think you get the picture. I feel like a politician saying this, but I am for lower taxes and smaller, less interventionalist government. Boy, do I feel like the odd man out!

Please feel free to email me with any questions or comments at

Until next time…

Paul Schatz