What Obamacare and Rising Yields Mean

``The public will think the health-care system is what Democrats want it to be. Dissatisfaction with it will intensify because increasingly complex systems are increasingly annoying. And because Democrats promised the implausible -- prompt and noticeable improvements in the system. Forbidding insurance companies to deny coverage to persons because of preexisting conditions, thereby making the risk pool more risky, will increase the cost of premiums. Public complaints will be smothered by more subsidies. So dependency will grow.” George F. Will, A battle won, but a victory?

One of the seemingly uneventful but seismic political shifts just occurred in the US.

Last week, President Obama’s signature health reform program, the Obamacare, had finally been forced into a law through procedural manipulations, in both the House of Congress dominated by President’s Obama’s party.

With over a year in power, and with elections drawing nearer, the risks of a decline in the political power held by the Democratic Party eventually prompted a desperate power manuever. As an old saw goes, what are we in power for? Or to quote Emmanuel Rahm, White House’s Chief of Staff popular view on the last crisis, `` it's an opportunity to do things you think you could not do before.” That could have been the rallying cry of the progressives, in passing a highly unpopular law, regardless of the public’s opinion, as manifested in almost every polls.

So only after a year in office has President Obama successfully convinced several dissent partymates to shift sides, after several horse trading and compromises, from initially opposing his European style welfarism.

There could be several reasons why the market seemed to have discounted the enactment of Obamacare.

One, markets already expected the eventuality of this program considering the dominance in the political spectrum by President Obama’s Democratic Party.

Two, markets assumed that since many parts of the law will take place years from now, the adverse affects will unlikely have an impact soon. Besides, with Senate elections slated this year, there could be manifold amendments that result to a massive facelift.

Three, markets may not be the normal functioning markets as we know of. Like most US markets today, they could be under the influence of various agencies of government, just possibly in disguise.

Fourth, the initial impact of the Obamacare, ignored mostly by mass media and the experts, could possibly be the surge in yields of the US treasuries, which came a day late.

Obamacare Equals Greater Risks Of Fiscal Wreck

How can Obamacare be related to rising yields? In essence; increased government spending.

There is one thing we can be sure of; when government promises to curb deficits or produce savings with massive new redistribution program, it is likely to be unfulfilled.

In the case of the US Medicare, which was signed into a law in July 30, 1965[1], the initial estimates and actual expenditures turned out to be…you guessed it, was a mile apart. (see figure 4)

Figure 4: Cato.org: Huge Disparities in Projection and Actual Spending

Cato’s Daniel Mitchell refers to the testimony of Robert J Myers to the Joint Economic Committee as evidence, ``The federal government’s ability to predict healthcare spending leaves much to be desired. When Medicare was created in the 1960s, the long-range forecasts estimated that the program would cost about $12 billion by 1990. It ended up actually costing $110 billion that year, or nine times more than expected.[2]”

Government estimates that Obamacare’s spending will be modest, ``The CBO estimates the bill would cost $940 billion over a decade and that it would cut the deficit by $130 billion in the first 10 years and some $1.2 trillion in the second 10 years” notes the MSNBC.

However, Alan Reynolds of Cato argues otherwise, saying that government spending will vastly accelerate after the next 4 years[3], [bold emphasis mine, italics his]

``In fact, new spending is negligible for four years. At that point the government would start luring sixteen million more people into Medicaid’s leaky gravy train, and start handing out subsidies to families earning up to $88,000. Spending then jumps from $54 billion in 2014 to $216 billion in 2019. That’s just the beginning.

``To be unduly optimistic (more so than the CBO), assume that the new entitlement schemes only increased by 7% a year. At that rate spending would double every ten years — to $432 billion a year in 2029, $864 billion a year in 2039, and more than $1.72 trillion by 2049. That $1.72 trillion is a conservative projection of extra spending in one year, not ten. How could that possibly not add to future deficits?

``Could anyone really imagine that the bill’s new taxes and fines could possibly grow by 7% a year? On the contrary, most of the claimed revenues are either a timing fraud (such as treating $70 billion for long-term care premiums as newly found treasure) or self-defeating. The hypothetical tax on Cadillac plans (suspiciously postponed until 2018), for example, is designed to discourage such plans from being offered by employers or wanted by employees — that is, it’s designed to yield less and less over time.”

Figure 5: US Treasury on Government Debt Estimates and Heritage.org on welfare programs

In the Secretary of the Treasury’s ‘2009 Financial Report of the United States Government’ report which does not include the Obamacare in its estimates, it recently warned (see figure 5 left window), ``But the Government must simultaneously address the medium- and long-term fiscal imbalance resulting from past budget deficits, the impact of the economic downturn, and demands on the nation’s social programs, notably Medicare, Medicaid, and Social Security. As currently structured, the Government's fiscal path cannot be sustained indefinitely and would, over time, dramatically increase the Government's budget deficit and debt.[4]” [emphasis added]

So Obamacare is likely to shorten the reckoning period for the current unsustainable path of growing fiscal risks from a vastly expanding welfare program.

Politicization of US Healthcare

Moreover, the 2,400 page law is a quagmire of bureaucracy[5]. This means much of the America’s healthcare will be politicized and effectively rationed by the unelected officials. And the traditional symptoms from increased bureaucracy will likely adversely impact health care distribution via more red tape, cost overruns, risks of fraud, risks of corruption, shortages, delays in payment, higher taxes on the wealthy, delayed or waiting list treatment, possibly reduced payments to hospitals and physicians, diminished competition and innovation and etc.

Hence, rising taxes, added regulatory compliance and more bureaucracy is likely to lead to lesser productivity, reduced incentives for entrepreneurship and competition or an increase in the cost of doing business or higher economic cost structures.

Protectionists are likely to blame other countries for job losses anew, when redistribution programs as massive as this would likely be a major factor in reducing investments.

This, is aside from, the prospects of heightened inflation and credit risks which may have seminally manifested itself on the treasury markets, last week. Of course as explained above, the sweetspot of inflation may blur such risks for now.

As Robert Higgs aptly explains[6], ``because health-care-related economic activity is such a huge part of the overall economy, what happens in this sector will have significant consequences for the operation of other sectors. For example, when Obamacare turns out to be much more costly than the government has claimed it will be, the government’s demand for loanable funds will be greatly increased, with far-reaching effects on interest rates, investment spending, economic growth, and even the U.S. Treasury’s creditworthiness. It is not inconceivable that the burden of supporting this health-care monstrosity will prove to be the (load of) straw that breaks the back of the government camel in the credit markets, where the U.S. Treasury has long been able to borrow the greatest amounts at the lowest rates of interest because its bonds were considered virtually riskless” [bold highlights mine]

Nevertheless one of the investment opportunities from the pollicisation of American health care, which concerns us non-Americans, should be off shore or medical tourism.

The rest will just be more like today, more offshoring and outsourcing and diversification in search for cost effective ways to maximize profits.

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[1] Medicare, Wikepidia.org

[2] Mitchell, by Daniel J Will Federal Health Legislation Cause the Deficit to Soar? [Joint Economic Committee, “Are Health Care Reform Cost Estimates Reliable?” July 31, 2009. The JEC cites 1967 testimony by Robert J. Myers.]

[3] Alan Reynolds, Cato.org, It’s NOT a Health Bill, NOT a Medicare Tax and It Can’t Possibly Cost Only $940 Billion

[4] Secretary of the Treasury, Director of the Office of Management and Budget (OMB) and and Acting Comptroller General of the United States, “2009 Financial Report of the United States Government,”

[5] Businessweek, Obamacare's Cost Scalpel

[6] Higgs, Robert The Health-Care Reform Act: Que Paso?, Independent.org

Reason TV on Obamacare: 3 Reasons Healthcare Legislation Won't Reduce The Deficit

From Reason TV.

Global Medical Tourism As Health Care Reform

While Americans quibble about healthcare reform, little is known that there has been an ongoing evolution in health industry outside the ambit of government [so far].

It's fundamentally a free market transformation: The globalization of the healthcare services or popularly known as Medical Tourism.

This article from Wall Street Journal highlights on such transition, (all bold highlights mine)

``Hair tucked into a surgical cap, eyes hidden behind thick-framed magnifying glasses, Devi Shetty leans over the sawed open chest of an 11-year-old boy, using bright blue thread to sew an artificial aorta onto his stopped heart.

``As Dr. Shetty pulls the thread tight with scissors, an assistant reads aloud a proposed agreement for him to build a new hospital in the Cayman Islands that would primarily serve Americans in search of lower-cost medical care. The agreement is inked a few days later, pending approval of the Cayman parliament.



``Dr. Shetty, who entered the limelight in the early 1990s as Mother Teresa's cardiac surgeon, offers cutting-edge medical care in India at a fraction of what it costs elsewhere in the world. His flagship heart hospital charges $2,000, on average, for open-heart surgery, compared with hospitals in the U.S. that are paid between $20,000 and $100,000, depending on the complexity of the surgery.

``The approach has transformed health care in India through a simple premise that works in other industries: economies of scale. By driving huge volumes, even of procedures as sophisticated, delicate and dangerous as heart surgery, Dr. Shetty has managed to drive down the cost of health care in his nation of one billion.

``His model offers insights for countries worldwide that are struggling with soaring medical costs, including the U.S. as it debates major health-care overhaul.

"Japanese companies reinvented the process of making cars. That's what we're doing in health care," Dr. Shetty says. "What health care needs is process innovation, not product innovation."

``At his flagship, 1,000-bed Narayana Hrudayalaya Hospital, surgeons operate at a capacity virtually unheard of in the U.S., where the average hospital has 160 beds, according to the American Hospital Association.

``Narayana's 42 cardiac surgeons performed 3,174 cardiac bypass surgeries in 2008, more than double the 1,367 the Cleveland Clinic, a U.S. leader, did in the same year. His surgeons operated on 2,777 pediatric patients, more than double the 1,026 surgeries performed at Children's Hospital Boston.

``Next door to Narayana, Dr. Shetty built a 1,400-bed cancer hospital and a 300-bed eye hospital, which share the same laboratories and blood bank as the heart institute. His family-owned business group, Narayana Hrudayalaya Private Ltd., reports a 7.7% profit after taxes, or slightly above the 6.9% average for a U.S. hospital, according to American Hospital Association data."

Pls read the rest of the article here.

As you would note, outside government intervention, it is the basic laws of economics at work here [free markets]; to the benefit of the consumers (patients), the providers (Doctors, hospitals, medical suppliers and ancillary services) and the society in general (in terms of greater spending power and increased revenues).