Hutchens Investment Management Weekly Update

CONCORD, N.H. - Aug. 27, 2013 - PRLog -- While we know that this proverb is not true and any reference to reality will certainly disappear with the full enactment of Obamcare. Chaos and rising costs will accompany the implementation, if for no other reason than government oversight and management. The delays are shaking people’s support and ultimately the plan will prove unyielding and costly to economic growth. Simply it is another transfer payment. As it stands, health insurance in the US and employment are uniquely entangled. It is estimated 57% of employers now offer plans covering 150 million people. The government in its plan allows workers who like their company-provided insurance to keep it. According to the human resource consultancy Mercer, larger firms that already cover workers will continue to do so. Obamacare also includes a tax on expanded health plans. The lower-end workers will drop their plans to receive subsidies for the government plan. People who cannot afford coverage will receive “generous subsidies” hence the new entitlement.

No doubt the structural problems in the employment market will broaden. Small business employers, with more than the exemption level of 50 employees, will cut jobs and hours to avoid inclusion in the law. For firms currently offering insurance their costs would increase, however in Massachusetts it was found that every extra dollar spent on insurance comes out of wages. In general, employers have shown they are skillful at capping the amount of money they spend on employee health. To date, the current Administration has shown no ability or determination to limit the growth of entitlements, but it will be hard-pressed to fund additional costs. Controlling costs will fall to government agencies, resulting in program administration chaos. Healthcare will change dramatically as confusion and increased costs accompany the stages of the rollout. The structure of the labor market will shift at the lower end and entitlement spending will rise. For many, including the middle class, discretionary spending will decline.

In conclusion, Obamacare will not be repealed and the President’s legacy will be tainted. However, substantial modifications will be made over the next few years and the system will be costly but functional. The prospect of disruption to an already structurally weak labor market could dominate headline news in politically sensitive 2014. Hopefully the securities markets will focus on corporate fundamentals and the growth sectors of the economy will outweigh employment headlines.

Our investment policy remains positive on equities. There is a possibility of a short-term correction as we approach the seasonally weak early-fall.

Authors:
David Minor
Rebecca Goyette

Editor:
William Hutchens