KEEPING THE PUBLIC IN THE DARK

By John Norris, Managing Director, and the Head of Wealth Management at Oakworth Capital Bank in Birmingham

Our elected politicians are currently sparring over tax rates and spending cuts to avoid something popularly called “the fiscal cliff,” as we head into 2013. If the two sides can’t reach a conclusion, all the so-called Bush tax cuts expire, as does the Administration’s payroll tax break. Further, the Congress will have to start cutting spending, or at least cut the growth of deficit spending moving forward.

When combined, the US economy is presumably facing a sudden loss in liquidity, or government largesse if you will. While experts can’t reach a unanimous conclusion as to the outcome, they are in agreement it won’t be positive for the economy. Frankly, that probably isn’t very likely.

The reason is pretty simple: either party’s proposal is preferable to letting everything expire, no matter what the media leads you to believe. Further, Washington’s concept of spending cuts is much different than yours or mine. When we cut spending, we reduce the absolute number of dollars going out the door. When the Federal government does it, it simply reduces the projected amount of deficit spending over the next 10 years.

As a result, the biggest problem with the fiscal cliff is psychological, in so many ways. Yes, your tax bill is likely going to go up no matter what happens, but the end result is probably not going to be as bad as you currently think. Once you accept this, the only thing left is for Washington to quit the fooling around, and set the rules moving forward. After all, knowing what the rules are is arguably more important than the rules themselves.

What is more concerning is the public’s basic illiteracy regarding what has become known as Obamacare.

I admit I haven’t taken the time to read the entire 2000 page healthcare bill. So, I don’t know all the nuances and the like. Does anyone, really?

Obviously, the problem with predicting the future is things can change. I have seen the numbers Washington is throwing around in regards to associated costs, and think you can throw them out the window. They are estimates about something that has never happened from people who have never had to make them. Were the original 10-year estimates for Social Security, Medicaid, and Medicare accurate? You know, who cares? What good is a 5-10 year guesstimate when you are talking about a perpetual entitlement/program?

Now, throw political ideology out the window, and look at the issue in terms of basic economics. What ultimately determines the price of a good or service in a competitive market? Perhaps it has something to do with the level of consumer demand relative to the supply, you think? If demand is greater than the available supply, prices go up. If it is less, they go down. This makes sense.

For all the hand-wringing in Washington, I still can’t figure out where the increase in supply is going to come from in order to drive down the price of healthcare. Oh, I understand forcing people to buy insurance policies and the like, and there might even be a public option. Who knows? But that isn’t the same thing as increasing the supply of healthcare, is it? Wouldn’t that actually be increasing the number of people demanding it? Hmm.

Think of it this way. From what I have read, the new Birmingham Barons stadium, Regions Field, is estimated to have a seating capacity of around 8,500. Now, what if the Yankees come to town to play an exhibition against the Barons, and I stand outside the stadium selling $5 general admission tickets to everyone who walks up? If I sell 20,000, how many people will be able to get inside to watch the game? What? 8,500? Maybe 10,000 if you use a shoehorn? What about the other 10,000?

Hey, you might not get to see the Yankees play, but you would have an affordable ticket to watch them, wouldn’t you? As such, you should be happy and thank me.

The only real way to have a meaningful decrease in healthcare costs is to increase the number of trained medical professionals and decrease our demand for them. It is kind of like losing weight. You won’t keep the weight off for good unless you fundamentally change your eating habits and get some exercise. Everyone thing else is just pushing string, wasting time, and spending someone else’s money. 

So which is it? Forcing people to buy insurance will increase demand, but what about supply? Well, cutting Medicare payments 21%, tacking an additional $2 billion tax on medical device companies, and forcing states to pick up more of Medicaid at first blush don’t look like good attempts to increase the supply of healthcare. In fact, you could even argue these things might actually decrease the supply. Hey, you seniors on Medicare, the doctor won’t be taking on anymore Medicare patients this year! If they do, they make less money, and making less money isn’t what most people go into medicine to do. 

In the end, from what I have seen thus far, healthcare reform, at this stage, proves to be a costly endeavor, for someone, which won’t be able to deliver as promised. Still, there are people who honestly believe Obamacare is going to provide “free healthcare” and the same measure of care to everyone. That is very frustrating, because it simply isn’t going to happen.

Where the rubber meets the road, between the fiscal cliff and Obamacare, the American public gets bombarded with a lot of talk and not a lot of useful information. If Washington’s end aim is to frustrate and confuse the medical industry and the rest of us, it seems to be doing a good job. If it is to rapidly expand the economy and increase the supply of healthcare in the country, I am afraid its current actions and game plan are, well, ironic.

John Norris is a Managing Director, and the Head of Wealth Management at Oakworth Capital Bank in Birmingham. He can be reached at john.norris@oakworthcapital.com.

The opinions expressed within this report are those of John Norris as of the initial publication of this blog. They are subject to change without notice, and do not necessarily reflect the views of Oakworth Capital Bank, its directors, shareholders, and employees.