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Health care spending will grow, but will economy?

Dave Bartman/Post-Tribune Brian Wesbury chief economist GriffKubik Stephens Thompstalks about NWI economy arebusinessmen breakfast Hobart sponsored by Centier Bank 10/30/03

Dave Bartman/Post-Tribune Brian Wesbury, chief economist at Griffin, Kubik, Stephens and Thompson, talks about NWI economy to area businessmen at breakfast in Hobart sponsored by Centier Bank on 10/30/03

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Updated: July 30, 2012 6:23AM



In 193 pages, the U.S. Supreme Court delivered a health care ruling that was confusing at the outset — the mandate to buy health care was overturned, oops, it wasn’t — while ultimately doing everybody a favor.

For all the murkiness and shifting alliances in their 5-4 decision, the justices provided clarity for business and an important segment of the economy.

It’s clear that health care will continue to be a growing part of Americans’ budgets. The law the court upheld directs that spending towards hospitals and insurance companies, while imposing costs on each. If you’re looking for a job or thinking about higher education, health care still beckons.

For employers, the decision reinforces that larger companies are either going to have provide coverage to workers or pay a penalty starting 2014. Bosses holding out hope that the court would let them weasel out were let down.

Similarly, the court put to rest the complaints of people who don’t like the restrictions placed on insurers. In an alternate universe, there’s still support for rejecting coverage based on pre-existing conditions or for not allowing parents to carry 25-year-old children on their policies.

The rules laid out in the Affordable Care Act, dubbed Obamacare, passed muster with the justices, which helped reframe the debate. Even Republicans who want to repeal President Barack Obama’s biggest legislative achievement now talk of preserving its popular features.

The decision allows the health care tangle to move on to cost control, which some economists say will determine if Obamacare helps or hinders the economy.

If the contentious individual mandate to buy health insurance, framed and upheld by the court as a tax, induces people to seek more preventive care and make better lifestyle decisions, it will help the country’s physical and fiscal well-being, supporters say.

“Because health care is so costly, many people have treated it as a discretionary expense,” putting off doctors’ visits until they need far more expensive treatment in a hospital, said Diane Swonk, chief economist for Mesirow Financial Holdings Inc.

Swonk said the health-care bill was the nation’s most significant law on the subject in 40 years, but, “We still have to deal with the cost issue.”

Detractors respond that health-care reform will only accelerate cost growth while imposing a tax that will swamp whatever economic recovery is out there.

“This is a significant tax hike on the American economy and anytime you do that, you have slower growth,” said Brian Wesbury, chief economist at First Trust Portfolios LP.

Wesbury said the nation has a slow-moving “plow horse economy.” He regards the penalty that the act imposes on people who do not buy insurance as a harmful tax.

The act also imposes taxes on pharmaceutical companies and the health insurance industry, extends Medicaid coverage to more people and invests power in an Independent Payment Advisory Board to limit growth in Medicare spending, a major middle-class entitlement.

To Wesbury, the United States is acting more like Europe by enacting higher taxes to fund entitlements that will stymie growth. “A lot of people want us to be more like Europe and they think it’s great from a social point of view, but from an economic point of view its disappointing,” he said.

France typically records 2 percent annual growth in domestic spending, and “here we think that’s a recession,” Wesbury said.

University of Chicago law Professor Anup Malani, who studies health economics, doubts the insurance mandate will play out as a tax. People will treat it as a push to buy insurance, and if that enlarged pool of customers helps control costs, the law will be beneficial, he said.

But he noted that under some scenarios, the reform will push the Medicare trust fund more quickly to a zero balance. Malani said the government has shown little ability to control the Medicare beast.

Obamacare is a law that people distrust in the aggregate while supporting in certain particulars. The reforms that stick it to health insurers are fine with most, as is the push toward near-universal coverage. Americans don’t want poor sick people kicked to the curb.

Still, they doubt government’s ability to fix a complex system and they know that Obamacare fails without tax increases applied to people and companies. It also requires Medicare savings that no politician has satisfactorily explained.

These points will be battlegrounds for the November election and beyond. The Supreme Court provided clarity, not closure.



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