Diary

ObamaCare Economics, 101

About 48 hours after President Obama signed the Patient Protection and Affordable Care Act into law, two of the US’ largest manufacturers announced that certain provisions of the law would result in significant charges being taken against the companies’ balance sheets.

Heavy equipment manufacturers Caterpillar (NYSE: CAT) and Deere & Comany (NYSE: DE) both told investors and reporters that Obamacare would result in hefty charges.  Caterpillar estimated its hit at approximately $100 million.  Deere’s damage was expected to be worse–something on the order of about $150 million.  This is not chump change.  While both companies are well managed and appear to be weathering the economic downturn well, charges like these are a drag on profits when they are taken every year, forever and ever, Amen.

Shareholder value suffers and ordinary Americans with these stocks in their 401(k) plans suffer.

The real economic damage from Obamacare is yet to be manifested, and it will come like crashing down like the boom of a 32-ton Cat excavator boom.  Smaller companies that have not weathered the recession as well as Cat and Deere may not have the capital to take proportionately similar charges on an annual basis.  As they review cost analyses and forecasts of Obamacare’s impacts, they will be all but forced to make a painful decision:  Do we simply end participation in our group healthcare plans?  Or, do we lay off or terminate productive employees due to the untenable costs of health insurance?

In the coming months, we are likely to see a significant number of household name-type companies announcing layoffs and job cuts.  Employees of these companies will be given pink slips.  Unemployment will rise.

Capitalistic markets are highly adept at discounting the effects of external forces and pricing their impacts accordingly.  The announcements made earlier this week are only the start.  US companies will not continually take a hit on the bottom line to satisfy a utopian dream held by leftist ideologues. They will pass these costs onto consumers.  They will seek to cut costs by reducing compensation to employees, or eliminating employees altogether.  The era of part-time student help is probably over.

These economic changes won’t happen overnight.  But they are going to happen, and they are most likely to become known in the next six to eight months and their impacts fully felt by the turn of the calendar in January 2011.