The financial markets appeared to have already priced in passage of the healthcare bill before the weekend. There also appears to be some sense of relief the long and arduous process is coming to an end. Our early assessment is that, while there is a great deal of cost shifting taking place, the bill that passed was less onerous than many had feared.
The financial markets appeared to have already priced in passage of the healthcare bill before the weekend. There also appears to be some sense of relief the long and arduous process is coming to an end. Our early assessment is that, while there is a great deal of cost shifting taking place, the bill that passed was less onerous than many had feared. Unfortunately, the history of massive social spending programs is that they tend to grow larger and larger over time. Moreover, the scoring by the Congressional Budget Office (CBO), which shows the program costing $940 billion and reducing the deficit $138 billion over the 2010 to 2019 period, was based on a strict interpretation of the bill as it was written. The costs will likely be higher than the CBO estimate and the budget deficit will also likely be larger. Savings from Medicare cutbacks are likely to be harder to achieve than the plan suggests. Moreover, the extended phase-in of the program will likely lead to incessant political pressure to expand benefits and scale back the tax hikes.
The passage of the healthcare bill will have relatively little impact on economic conditions over the near term. Presuming the bill is signed into law following a few more procedural votes, most of the provisions of the new law will not take effect for a couple of years.
Some of the earliest changes include tax credits for small businesses to encourage them to provide healthcare coverage to their employees and new laws and rules prohibiting insurance companies from denying coverage to children with preexisting illnesses. Both take effect this year. The widely touted insurance exchanges, where people without employer-sponsored insurance coverage and small businesses can shop for health coverage, take effect in 2014. That same year is when most people will be required to have health insurance and is also when the Medicaid program will be expanded to include all Americans with incomes up to 133 percent of the poverty level.
Taxes will increase sooner, beginning with a new 10 percent surtax on indoor tanning salons this July. Drug companies will start paying higher taxes beginning in 2011 and higher income households will face higher taxes in 2013. The Medicare payroll tax will increase from 1.45 percent currently to 2.35 percent in 2013 and a new 3.8 percent tax on unearned income will also take affect that year on households. Both taxes will hit individuals earning $200,000 and above and couples earning $250,000 or more. In addition, a new excise tax of 2.3 percent will be imposed on sales of medical devices such as pacemakers and hip replacements.
The primary drivers for passing healthcare reform were to increase the proportion of the population covered by some sort of healthcare insurance and hold down the rate of growth in healthcare expenses. The new healthcare law appears to accomplish much of the first objective, although it is unclear how many firms will choose to pay a fine as opposed to offer coverage to their employees. Employers with 50 or more employees will be required to provide affordable healthcare coverage to their employees or pay a $3,000 per employee fine. The rule takes affect in 2015 and also excludes the first 30 workers from the fine. Part-time workers would be covered by the law on a pro-rated, or full-time equivalent, basis.
HealthcareReformMarch2010
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