Coronavirus and A Medical Bazooka?
By Brian Aberle
Since the outbreak of the Coronavirus (Covid-19) as well as the underlying market volatility, I have kept in regular communication with my clients about the implications of the virus on the economy and the financial markets. In my early February portfolio related client communications, I referenced the virus as a wildcard for the markets. Unfortunately, that wildcard is now a reality. This is a slight modification of my 3rd virus-specific communication, shared on Tuesday, March 10th. Going forward, I’ll try to provide a blog version. This is on me.
Yesterday, and as part of my email update on the Coronavirus and market impacts, I expressed my concerns about how little the government was doing to provide more firepower to combat the virus. That seems to have changed for the better today.
I have, and likely will continue to express concerns about government dusting off the old playbook of tax cuts and monetary stimulus as if it would make contracting the virus any less harmful. I have made the argument that Americans are less interested in a reduction in payroll taxes if they are facing a more sizeable health care bill centered around the virus, or can't work at all.
As part of a late edit from my communications yesterday, I had deleted this thought. According to the Kaiser Foundation, the average health care deductible in the US is around $4000 for individuals and $8000 for families. Thus, the financial impact of contracting the virus would not only result in the potential for lost compensation but also would have a profound effect on those once they receive their bill. I fret that in the US, given what I see as a discombobulated health care system, many would opt out of testing and treatment in favor of self-treatment, thus prolonging the potential health and financial impacts of the virus.
Finally, there is some good news. In a brief announcement today, The Trump Administration announced they are working on an agreement (my words) with several of the largest insurance companies within the US. The agreement would, according to my understanding, have all costs associated with the Coronavirus covered by insurance. I understand that there would be no deductibles and no co-payments. While I know the devil is in the details, I am pleased to learn of this news today. I also give the Trump Administration credit for recognizing that fear of contagion was two-pronged, that alleviating the potential financial impact is a primary driver of fear. Now, it's about getting the message out, make testing widely available, and making sure there is adequate medical ammunition to combat it. They've been a little slow out of the gate, but I'm hopeful we'll see action here too.
If government does indeed provide a backstop, it may usher in increased societal conversations on the role that the government plays in health care, which personally I think is long overdue. Progressives might argue that this is an acknowledgment of what they have been saying all along that "everyone should be covered, no matter what." They have a point. The conservative view is also justified, and that is a conversation about moral hazard, which I also deleted yesterday from my message (dang!). The conservative perspective might be that should the outbreak be substantial; there would ultimately be a fear of financial bailouts, whether to individuals (insured and uninsured), or the health care industry. If it were the latter, I suspect our collective heads would explode, regardless of political leanings. Perhaps for another conversation.
As I wrote this email, the reaction from Wall Street was uncertain. I'm not surprised. Markets likely want to see it in writing. Wall Street is also addicted to an economic stimulus like I am to the seemingly 75 cups of coffee I drink every day (half-caff, but still....). As Treasury Secretary Hank Paulson said during the financial crisis, and I'm paraphrasing here, “markets want to know that the government has a financial bazooka at the ready.” Like ordinary Americans, we all just potentially got a nice sized health care bazooka, just in case. Wall Street will come around.
Until next time, wash your hands,
Brian Aberle, CFP®
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