Healthcare Reform Signed – Watch Out Below

The deed is done.  Obama’s version of healthcare reform is law and the details continue to trickle out.  My favorite so far is that consumers will be fined $695 to not get insurance — the IRS will keep tabs, but the IRS hasn’t been given any money to enforce the bill (estimated at >$10b annually) — and the IRS has been given no enforcement ability.  People who don’t get insurance will be billed $695, but if they don’t pay, then the IRS can’t take the offender to court, doesn’t charge interest or penalties — in essence,  the IRS has no power to collect.  While stupidity like this kept the cost of the bill down for the CBO, ultimately money will need to be added and the deficit will grow larger.  With the deficit in mind, last week’s US government bond offering went poorly and interest rates ticked up 10-20 basis points.  Increases in interest rates has begun and the market, not the Fed, will push rates higher and ultimately the Fed will be pulled along.

If someone needs to pay $150/month for insurance, it seems to me that paying $695 in a fine (assuming the fine actually needs to be paid) is a no brainer.  This is especially true since if that same person gets sick and needs a major operation, he can just apply for insurance and the insurance company must cover him.  I guess that if he is in a car wreck he can still apply and get accepted, since the pre-existing condition of a car wreck presumably can’t be a reason for denial.

The perverse incentives that this bill will create will only be known as the rules and regulations begin to get published.  We can bet that Congress will need to fix the bill many times for these unintended consequences — and for some consequences that were intended.

Yet as investors we must keep our eye on one main theme:  IT IS NOT THE BILL THAT CAUSES THE PROBLEMS FOR INDUSTRY, BUT GOVERNMENT’S INTERPRETATION AND IMPLEMENTATION OF THE BILL.  Remember BBA-1997.  The bill itself was bad, but the implementation of the bill removed over 2x the dollars intended by Congress.  The Clinton administration used the bill to ratchet up enforcement of fraud laws by the Justice Department to the point where companies were guilty until proven innocent.  It is impossible to know how this current bill will be implemented — however we could get the first glimpse of the Administration’s intent in the last week of April — this is when CMS will be out with its proposed changes for fiscal 2011.

And when we think of implementation risk, we should think of public enemy #1 – the health insurance industry.  Remember in 1997 it was the home health industry and that industry almost went bankrupt.

In my view, this bill moves the USA one giant step towards an economic disaster.  The bill extends benefits, shifts some costs to the states and plays all sorts of accounting games that in the end will be meaningless — because in the end only cash in and cash out will matter.  Greece will have kinship with the USA.  It could be 10 years, but a single payor system will most likely emerge when the structure created by this bill fails.  With the failure of the healthcare exchange system and failure of the insurance mandate as written, I expect that it will be the American people that will scream for the government to take over healthcare as a single payor.

So put it on your calendar.  In March 2020 the USA moves to a single payor system and people with means go outside of the system for certain care that will be rationed.  I really don’t expect rationing by government design until later, but the initial rationing will be because of a lack of doctors.  The USA will experience what Massachusetts found when it started the health insurance mandate experiment.  With insurance comes a big increase in patient visits — and a big increase in cost. This incremental cost is not factored in to the current bill and will be a “surprise” to Congress and Washington.  Rationing will come from having more patients than doctor appointments — at least initially.  Ultimately (which is probably 2025), rationing will be more by design.

As a born optimist, I really dislike being a pessimist, selling short or betting against the USA.  The tsunami of demographics is coming.  There is no stopping it.  There is no  legislating around it, or legislating to delay it.  The baby boomers cometh.  Japan is toast.  France is Muslim.  Europe has negative growth.  We see riots in Greece — is that the future for much of Europe?  Unfortunately I think it will happen with some regularity, with ample peace time in between.  I would hope we would miss that in the US.