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Special Commentary
remembered. The driving force for this increase has been the aging of the population, which has
resulted in increased demand of healthcare services and a lack of market discipline in the
Relatively few healthcare marketplace. Relatively few people pay the full costs of medical care when they visit
people pay the full the doctor or purchase pharmaceuticals. Most costs are paid indirectly either by insurance
costs of medical companies or the government. This leads to over consumption and little to no price sensitivity.
care when they The cost of insurance and government programs are then paid for by consumers and businesses.
visit the doctor or The cost of purchasing insurance should be reduced by the creation of exchanges, where small
purchase businesses and individuals would be able to pull their purchasing power. It is unclear how the
pharmaceuticals. new healthcare law will reduce actual healthcare costs, however, particularly as it will increase the
number of people covered by insurance and likely result in increased demand for healthcare
services. In addition, much of the cost of healthcare services and products are real and cannot be
wished away. Creating life-saving drugs and providing high-level services comes with a price.
Rather than reducing costs, the healthcare plan appears to shift costs to employers and higher-
income households. Larger employers, particularly retailers, would face higher healthcare costs
or wind up paying significant fines. Smaller retailers and smaller employers in general, would
fare better as they would more likely fall under the 30-worker exclusion provision. The higher
taxes on investment earnings for individuals earning $200,000 or more and households earning
$250,000 or more would be on top of the expected increase in tax rates following the expiration
of the lower tax rates on dividends and capital gains at the end of this year. The higher tax rates
on investment earnings will draw more investment dollars into tax avoidance projects and lead to
modestly lower investment throughout the economy. Likewise, the new tax on medical devices
and pharmaceutical companies will modestly reduce profitability of these firms and increase their
cost of capital. This could lead to less innovation and product development.
Figure 1
9% 9%
6% 6%
3% 3%
0% 0%
80 83 86 89 92 95 98 01 04 07 10
2
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