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Speaker Pelosi may have unintentionally taught Congress and the American people a lesson.


Obamacare Killing Recovery

Speaker Pelosi may have unintentionally taught Congress and the American people a lesson.

Six months ago, the Health Care Reform Act became law.  Prior to its passage, Nancy Pelosi condescendingly announced “we have to pass the bill so that you can find out what is in it “. President Obama also assured Americans that health care “reforms…. will finally reduce the costs of health care…. Families will save on their premiums.”  Contrary to the President’s assurance, unfortunately, the Health Care reform legislation is already causing a substantial increase in medical insurance premiums. We are also finding expensive provisions in this act that we did not know were there, including a hidden 3.8% sales tax on the sale of certain residential real estate and a burdensome IRS filing requirement on small business. 

Based on anecdotal evidence from business owners, insurance brokers and the media, insurance premiums on policies renewed for 2010 and 2011 are increasing 20% to 40%.  These rising premiums are driven by mandated coverage which includes free or low cost preventive care, non-exclusion of children with pre-existing medical conditions, required coverage for children up to age 26 and elimination of lifetime medical reimbursement limits.

Americans may recall that President Obama promised “If you like your health care plan, you can keep your health care plan.” While this mandated coverage in the health care reform legislation may be desired by some people who are willing to pay the cost, there are certainly other medical insurance consumers who would rather have their current lower cost coverage.  However, under the legislation, contrary to the President’s assurance, they are not permitted to keep their preferred lower cost health care plans.

The Health Care Reform legislation will also have a devastating impact on the spending power of working Americans and our economy as the higher premiums kick in.  In order to understand this impact, it is instructive to look at the actual impact of the legislation on a small company.  In 2010, this company’s plan cost approximately $15,000 per year for family health care coverage, of which the company paid 60% and the employee paid 40%. For 2011, the premium for this coverage will increase 30% or $4,500. The average non-management employee in this company earns $30,000 per year. The employee’s share of the increased premium will cost $1,800.  That is equivalent to a 6% pay cut for the average worker! The legislation will not allow him to keep his old policy at a lower cost.

The unintended consequence of this reduction in spending power on American workers is a shift in spending from non-medical consumption to medical consumption.  This will translate into a negative impact on spending for consumer items needed to help support the tepid American economic recovery.

The impact of this increased premium on the employer is equally devastating. The employer will bear $2,700 of the increased premium per employee. That means the direct cost of his labor increases 7%! If the business has 100 employees, this will cost the business $270,000. The increased cost will either come out of profits, in which case the employer will have less to invest in his business to create additional jobs; or it will be passed on to consumers in the form of higher prices, which will result in less consumption. In either event, the increased premium costs will have a negative impact on the country’s fragile economic recovery.

The long-term economic impact of Obama Care is even more ominous. No evidence or analysis thus far shows that Obama care will reduce the cost of medical cost in the US. All the evidence is to the contrary. Consequently, companies are expecting premium costs per employee to skyrocket. This will further reduce the competitiveness of American labor.  Companies will have less money to invest in their American businesses, thereby creating even fewer jobs. Companies that have the option will decide to set up new production in lower cost countries with more competitive labor and medical costs.

Hidden in the bowels of the Health Care Reform Act is a 3.8% sales tax on home sales beginning in 2013. The tax experts are not yet certain how this tax will work because it was not publicly discussed in Congress prior to the passage of the Health Care Reform Act. Did you hear the pundits discuss it? In principle this tax applies only to wealthy individuals with profits in excess of $250,000 (single taxpayer) or $500,000 (joint taxpayers) from the sale of their primary residence. However it also appears to apply to profits on second homes and residential investments. This tax will have a major impact on upper middle income baby boomers living in high cost metropolitan areas who want to downsize from their long held large family home. This tax will certainly have a chilling impact on the nation’s morbid housing market.

If middle class Americans think they will escape this tax, think again. At some point in the near future, inflation from the Federal Reserve printing money to finance the President’s huge budget deficits will drive up the nominal price of housing. Even modest 3 bedroom homes will sell for big nominal dollars. At that point the middle class will be ensnared with the tax.  Look at history. The income tax was originally sold to the American people as only taxing the top 2%!

Speaker Pelosi may have unintentionally taught Congress and the American people a lesson. Read a bill and understand the impact of the bill before you pass it. It is unlikely that the Democratic Congress wanted to pass a medical reform bill that kills jobs and impedes the country from recovering from the Great Recession. Unfortunately, in their haste to control 20% of the economy represented by health care, they have passed a “Jobs Reduction Act”.

Written By

Dr. Williams is a nationally syndicated columnist, former chairman of the economics department at George Mason University, and author of More Liberty Means Less Government

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