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 assurances, 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 percent sales tax on the sale of certain residential real estate and a burdensome IRS filing requirement on small businesses.
Based on anecdotal evidence from business owners, insurance brokers and the media, insurance premiums on policies renewed for 2010 and 2011 are increasing 20 percent to 40 percent. These rising premiums are driven by mandated coverage that includes free or low-cost preventive care, non-exclusion of children with preexisting medical conditions, required coverage for children up to age 26 and the elimination of lifetime medical reimbursement limits.
Americans may recall that the 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 assurances, 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 when 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 percent and the employee paid 40 percent. For 2011, the premium for this coverage will increase 30 percent 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 percent 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 percent! 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 onto 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.