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The Economics of Repealing and Replacing Obamacare

 

Barry Armstrong

Founder and President, Armstrong Advisory Group

 

The Affordable Care Act (better known as “Obamacare”) became law in 2010, but the debate over health care reform has raged since Harry Truman became the first American president to propose national health insurance legislation in 1945.  Since its passage, Democrats have fought to preserve Obamacare at all costs, while many Republicans are firm in their belief that government should have minimal involvement in the health care industry.  In the view of Republicans, they won mandates from voters in 2010, 2014, and 2016 to repeal and replace Obamacare.  Although most observers debate this issue in a political context, I think it is important to examine it in the context of economics.  What are the economics of repealing and replacing Obamacare?

 

A Rising Deficit v. A Growing GDP

 

According to the Congressional Budget Office (CBO), the repeal of Obamacare would increase federal budget deficits by $353 billion over a ten-year period1.  The Joint Committee on Taxation and the Committee for a Responsible Federal Budget have put forward very similar projections2.  However, the same CBO report indicates that repeal would ultimately increase the level of economic output by increasing the labor supply1.  The report also shows that this increase in output would cause the nation’s GDP to grow at a rate of around 0.7% over a four-year period from 2021-20251.  Although budget hawks would certainly frown upon skyrocketing deficits, other economic observers would likely applaud the anticipated exponential growth in GDP.

 

The Human Impact

 

More important than the economic impact of repealing Obamacare is the human impact.  A CBO report from 2015 indicates that up to 24 million customers could lose their insurance plans within a few years of the law’s outright repeal2.  Furthermore, Medicare subscribers may also experience an adverse impact to their cost of coverage: higher premium payments could become the norm and the infamous “doughnut hole” for prescription drugs may be reopened2.  Although observers would be quick to debate the validity of these points from a political perspective, I think it is important for our leaders to consider the overall impact of repeal and attempt to remedy any potential issues by formulating a comprehensive replacement plan before the law is completely abandoned.

 

A Path Forward

 

As someone with a free-market backbone, I like to see minimal government intervention in all areas of the economy.  However, I also think that Rand Paul is on to something: the Kentucky senator is fervent in his belief that Obamacare makes for poor public policy, but feels that the law’s immediate replacement must accompany its repeal.  The repeal of Obamacare is imminent, but one can hope that a sound replacement plan will stem the flow of negative consequences experienced by consumers.  Regardless of what happens to Obamacare at the federal level, I urge you to meet with an investment advisor to analyze the effects your portfolio may experience because of any changes to the health care industry.  Remember that President Trump has promised additional changes in other areas, so seek wise financial counsel as these and other policy alterations enter the picture over the next four years.

 

Barry Armstrong has over 30 years of experience in the financial industry.  He founded the Armstrong Advisory Group in 2004 and has been sharing his financial knowledge with New Englanders on a daily basis during his Boston-based radio broadcast for nearly 20 years.  Learn more about Barry and the Armstrong Advisory Group at www.armstrongadvisory.com.  Securities offered through Securities America, Inc.  Member FINRA/SIPC and Advisory Services offered through Securities America Advisors.  Barry Armstrong, Representative.  Representatives of Securities America do not offer tax advice.  Always seek the assistance of a tax professional familiar with the laws in your state.  Armstrong Advisory Group and Securities America are unaffiliated.  January 2017

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1 https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/50252-Effects_of_ACA_Repeal.pdf

2 http://www.politifact.com/truth-o-meter/article/2017/jan/05/what-would-be-impact-if-affordable-care-act-repeal/