Premium Healthcare Increases Spell Death for 2017
By John Del Vecchio, Editor, Forensic Investor
My tan from my recent trip to Florida has started to fade, but the impressions from several of the great speeches I attended at the Irrational Economic Summit have stayed with me.
One such speech was a by Raoul Pal, who gave a talk about major economic trends.
Pal is a former hedge fund manager from one of the premier firms in the industry. He looks at macroeconomic factors and uses the Business Cycle as a major role in his investment themes.
He suggested that, based on his analysis of the Institute for Supply Management’s (ISM) survey, we’re quite late in the Business Cycle. In fact, we could already be in a recession (as numbers get revised downward in later periods this would become apparent) or, if not now, than most certainly by Q1 of next year.
Pal also stated that, over the last 100 years, every president-elect that’s succeeded a two-term president has been met with a recession. That’s not good news for either Clinton or Trump.
While watching the presentation, and for a few days after, I thought about what might cause this recession. Then the answer hit me last Thursday.
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Healthcare.
A friend of mine received his notice for increased premiums for 2017 last Thursday. His rates are rising 40%. That means about $4,000 will be picked from his pocket next year and siphoned off to pay healthcare premiums.
That’s $4,000 that doesn’t get spent on dining out, vacations, music lessons for their daughter and other activities that improve quality of life. It’s also $4,000 that doesn’t filter through the economy.
See, when you spend $100 for a night out on the town, the servers spend their tips, the restaurant pays their suppliers who then buy more inventories, and the virtuous cycle of the dollar filtering through the economy revs up growth.
This is called the velocity of money.
With healthcare premiums, it goes into a big, black sinkhole with very little benefit to almost no one. A quick look at the St. Louis Federal Reserve shows that the velocity of money is in a death spiral.
That’s very bad news.
Of course, my friend isn’t the only one affected by this. During a conversation with an insurance agent, I realized my friend got off relatively easily. Others are seeing much more dramatic increases of 60%-80%.
How do people feel about it? According to the agent, who has been accustomed to being yelled at a lot recently, they’re “pissed.”
This could have implications for the presidential election depending on how many people receive their notices and become angry in response, and any nasty surprises on November 8 could roil the markets.
But it has broader implications way beyond the election. This could be the growth killer in 2017.
I haven’t received my notices yet, but I already know I’m getting hosed. My insurance company is pulling out of the state. So, I’ll have the double pleasure of changing healthcare providers (again!) and paying more money for the privilege.
If you believe the government, healthcare costs are rising modestly. The healthcare inflation rate is 4.89%. That’s actually below the long-term average of 5.41% according to government statistics!
Does that make any sense to you?
To steal a phrase from George W. Bush in the 2000 election, it’s “fuzzy math.”
Back in the real world, my own healthcare costs have risen 400% since I struck out on my own in business six years ago. While I’ll pay the premium increase I ultimately receive for 2017, the money has to come from somewhere. The result? I’m in complete hunker-down mode.
These increases, all while the quality of healthcare is going down, have severe implications for not only my family, but also millions of Americans in this country.
It’s going to spell death for 2017.
John Del Vecchio
Editor, Forensic Investor
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