New health care bill facts: How will it affect the economy?

Among the new health care bill facts: The legislation will bring tax hikes, mainly on the highest-income Americans.

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    President Barack Obama signs the health care reform bill in the East Room of the White House in Washington, Tuesday. Among the new health care bill facts: The legislation will increase taxes on the richest Americans.
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President Obama's victory on the new health care bill could provide a modest boost to the US job market starting this year.

But the legislation also means tax hikes, mainly on the highest-income Americans. And provisions designed to curb healthcare costs probably aren't strong enough to put a big dent in medical inflation – or federal budget deficits.

Those are some of the conclusions forecasters are drawing as they assess the facts and healthcare reform's impact on the economy.

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"The most obvious quantifiable impact of the bill is an increase in taxes for upper income Americans, particularly on investment income," writes David Kelly, an economist and chief market strategist at J.P. Morgan Funds. More broadly, the law "will expand demand [for healthcare] without much effort to rein in costs."

Still, Mr. Kelly and others don't see the reform package as an economy-killer. In the near-term, its impact will be relatively small, since many core provisions won't be in place until 2014.

Here's a rundown of what may be the law's central economic impacts:

Jobs: A plus for now?

The job market could get an immediate but modest push forward. That's because the law will offer tax credits to small businesses that provide health insurance, reducing incremental labor costs by about 4 percent among those firms, according to an analysis by economist Alec Phillips at Goldman Sachs.

Taxes to hit business and the well-to-do

The law uses various tax hikes to pay for coverage that could reach 32 million uninsured Americans by 2019. Households with income over $250,000 will see a hike in their Medicare payroll tax and will pay a new Medicare tax on their investment income.

Separately, those same households will see a boost in their capital-gains taxes on investments. That plus the Medicare tax will bring their effective capital-gains tax rate to 23.8 percent, up from 15 percent today, Kelly says.

Businesses will incur a new tax if they offer high-end health benefits, estimated to bring in $20 billion in revenue in 2019. Large employers also incur penalties if they don't offer health benefits at all.

The healthcare industry itself will be paying new taxes as well. A tax on medical devices and drug companies could impair their ability to raise capital, with a slight impact on new-product development, say economists at Wells Fargo Securities.

Skepticism about cost control

The reforms are designed to be "deficit neutral" for the government – and to bring down projected deficits by a modest amount. But many health-policy experts and economists question whether cost savings will materialize. For one thing, many are skeptical that planned reductions in the growth of Medicare will be achieved.

"For the most part this bill moves away from, rather than towards, the principles of market economics," Mr. Kelly says.

He lists several examples: The law doesn't open up the insurance industry to competition across state lines, includes no meaningful malpractice reform, and imposes few incentives on consumers to take better care of themselves.

"Rather than reducing costs, the healthcare plan appears to shift costs to employers and higher-income households," write economists John Silvia and Mark Vitner of Wells Fargo Securities. "The cost of purchasing insurance should be reduced by the creation of exchanges, where small businesses and individuals would be able to [pool] their purchasing power," they conclude. But that doesn't mean America's overall spending on healthcare will stop rising as fast, they say.

Despite such skepticism, the stock market rose in the weeks leading up to the reform's passage on Sunday. Since many factors drive the market, that trend isn't necessarily an endorsement of Mr. Obama's policy. (Stocks worldwide have followed a similar path.)

But it appears clear that the reforms haven't caused a surge of investor pessimism. A final note: Before the reforms take effect, they will face legal hurdles in court.

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