• WisBusiness

Tuesday, September 1, 2009

The economics of nationalized health care and your financial plan



By Kevin Reardon
The great debate has begun pertaining the future direction of our healthcare system in the United States. Few would disagree that our healthcare system could be improved and that changes need to be made. However, rather than debate whether health coverage and patient care could be improved in a government controlled program, we instead would like to focus on the economics of nationalizing healthcare. Although the almighty dollar shouldn't always be our primary focus, we can't neglect the long term economic impacts of any legislation.

Right now, healthcare-related services consume over 15% of our Gross Domestic Product. Americans are spending a significant percentage of their family budgets to purchase health services. That number will continue to grow as the population ages and the cost of health services continues to go up.

Keep in mind that this significant outlay for healthcare isn't all negative. The dollars we spend on healthcare go to people working in the healthcare field and to companies who sell healthcare goods and services. Obviously doctors, nurses, and other workers earn a living from our healthcare expenditures and they, in turn, invest into our economy when they own a home, purchase goods and services, save money into their retirement accounts, etc.

As opportunists, we can earn a return on our investment by purchasing publicly traded companies in the healthcare field. The healthcare sector is split into various sub-industry categories, including pharmaceutical, biomedical, medical devices, services, insurance, hospitals, and many other sub-categories. Many of these companies provide life-saving medical devices, prescription drugs, prosthetics, medical equipment, and countless other valuable goods and services. These companies frequently produce positive earnings through their innovations, research and development as they strive to serve the greater population. If the companies produce a product or service that isn't desirable, or that is priced too high, we can choose not to buy it.

The Affordable Health Choices Act of 2009 would create a public health insurance alternative and require coverage for most Americans and from most employers.

In considering the nationalization of our healthcare sector, we begin to see what my grammar school English teacher called a 'double negative.' In order to pay for expanded coverage of healthcare for everyone, the government will have to impose higher taxes. One proposal is a mandatory tax on employers who don't offer credible healthcare benefits. Before we proceed, it is important to point out that individuals pay taxes, not "employers". Behind every company are individual owners or shareholders, and WE (you and me) will pay any tax that is imposed.

Higher taxes on "employers" result in less money available for wages, employee benefit plans, and other expenditures. Those other expenditures include less money to be spent with a company's vendors, building and maintenance expenses, research and development, capital equipment and improvements, legal and accounting services, marketing budgets, community outreach programs, charitable contributions, etc. The trickle down effect of higher taxes simply means that less money will be available for individuals.

The second negative of nationalizing healthcare will be the destruction of the private healthcare industry including companies and individuals involved in health insurance, pharmaceutical drugs, biotech research, medical devices, and more. First, imagine a private health insurance company competing against a government sponsored health insurance plan. The government sponsored health plan, as is true for most government sponsored programs, can and will operate at a loss. Individuals and corporations that operate at a loss eventually go bankrupt. The introduction of a government sponsored health insurance plan will lead to the destruction of private health insurance companies.

Now imagine a healthcare company trying to sell their product or service in an environment where the government is in control. What if the government won't pay the market price for a medical device, prescription drug, imaging system, etc.? The end result will be fewer profits for companies competing in the healthcare field and less incentive to create the next generation of products. Less profits trickles quickly down to the individuals (you and me) in the form of less opportunity, lower wages, and fewer jobs.

Are people willing to pay the double negative of higher taxes and fewer jobs for universal healthcare coverage? Some people are willing to pay that price, and others aren't. But we need to be clear that this will be one of the ramifications of nationalized healthcare.

So what is the best answer? It is up to ALL of us as Americans to make that decision, not just Congress and the President. Let's slow down the rush to pass a healthcare bill and start asking some tough questions, such as:

1. The Government is currently in the business of healthcare with the programs of Medicare and Medicaid, along with other government sponsored programs and agencies. Why?

2. What part of the U.S Constitution and Bill of Rights talks about Life, Liberty, and the pursuit of Healthcare?

3. Are people happy with the way Medicare and Medicaid work? How about the VA Medical System? Based on how these government sponsored healthcare programs work, do we want to expand more power and control to the government?

4. How is it that Grandma and Grandpa lived their whole life without government run health insurance?

5. When Grandma and Grandpa incurred a medical bill, why did they feel compelled to pay their bills and while so many people today view that to be someone else's responsibility?

6. Why do we allow frivolous lawsuits, which drive up the cost of everything, from healthcare to car insurance?

7. If someone incurs significant medical bills, shouldn't they be expected to pay those bills over their lifetime? If they die owing medical bills, shouldn't they have to use remaining assets (home, retirement accounts, bank accounts) to pay those bills back before their assets are distributed?

8. Is health insurance more important than your cellular phone? If so, why is that many people without health insurance own a cellphone, have cable/satellite TV, own an automobile, or even own their own home? Health insurance must not be that important.

9. If you are comfortable having the government run the healthcare system, how about the government running our banking, insurance, and auto industries? How about government run utilities?

10. If healthcare is Right, and not a privilege, should owning a home also be considered a Right? Should we have government run housing?

We have started down the slippery slope of government intervening in key aspects of our private life. If this continues, imagine what life will be like in ten years. When you go to purchase a new car, you would be given a government financed and insured electric automobile. You can drive home to your government sponsored house and plug into an outlet with government produced electricity. Of course, when you get sick, the government ambulance will come pick you up and take you to the shiny new government hospital where government paid doctors and nurses will happily care for you.

Such utopia will never exist, not because government bureaucrats won't try to give it to us, but because the financial equation of government sponsored programs never works. Instead of asking if people want universal health coverage, we should be asking if people want high unemployment, high taxes, and an economy that doesn't grow.

One footnote: Having a safety net, like Medicaid or BadgerCare, for those who are truly poor and indigent or for those with preexisting conditions is important. We shouldn't do away with these programs. Catastrophic illnesses do happen, and after the individual has exhausted significant effort and assets trying to pay the bills, we should have programs that help people in these situations.

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

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