Sunday, August 21, 2016

Scraping the Bottom


In this era of instant news, is there now instant truth?  Today, how do you know who to believe?  It used to be amusing to watch one group of media condemn another group as being a tool of this or that political philosophy.  But we’ve now trained a group of journalists that somehow their opinions are more newsworthy than just reporting the events, and every story must support either their personal or corporate political position.  It would be nice if we lived in the idyllic world of lake Woebegone “the little town that time forgot and the decades cannot improve ... where all the women are strong, all the men are good-looking, and all the children are above average.” 
Before us looms an election where we are presented with two, less than compelling, candidates, and a dozen or so alternative options.  At the same time, we have some fundamental principles for how our society should be that weigh in the balance of this choice.  If we were unified in our beliefs perhaps it would be different, but we are not.  Perhaps, we have never been. 
Historically we can expect about 60% of eligible voters will go to the polls and cast a ballot for the various candidates, including those running for the office of the President of the United States.  The demographics of that turn out will be the deciding factor.  My sense is the media, and the pollsters, don’t really have a clue as to how upset the average American is with the status quo. 
Voters will make their choices based more on who they don’t want than who can do the job.  Why?  Because our history has shown the promises of the campaign are always empty.  
Thanks to the transparency standards set over the past eight years by the current chief executive, whoever wins this election will believe they can dismiss the Congress and rule by executive order.  I am afraid we will be electing America’s first Caesar.
Good luck to us.

Monday, August 15, 2016

AppleTax


According to CNBC, Mr. Tim Cook the CEO of Apple and Democratic supporter, has just weighted in on his view of tax inequity in the US[i].  It is always refreshing to see the views of the CEO of a US based international mega-corporation who avoids paying taxes by sheltering money overseas.  In Apple’s case they avoid paying money wherever they can, and I think it works out to billions of dollars kept off the tax base.

Tim promises to keep that money where the US or Europe can’t tax it until we have a “fair rate.”  Obviously he does not like the current 35% corporate rate on the books, or perhaps he is concerned the top 1% aren’t paying their fair share? 

Interestingly, Mr. Trump has proposed lowering the corporate tax rate from 35 to 15%, and Ms. Clinton has not weighted in with specific rate proposals, only the ideas that we should look at ways to keep company profits in the US, or penalize companies that expatriate.

Ms. Clinton, who Mr. Cook supports, has proposed higher rates for the wealthy, but as mentioned, has not chosen to address how internationally diverse companies, like Apple, should pay their “fair share.”  So far she’s not even defined what “fair” looks like.

Does anyone really believe Apple will voluntarily pay corporate taxes if there was a change to the individual tax codes?  In fact, I would go so far as to say Mr. Cook would look for ways to avoid personal taxation that exceed what he, his accountants, and lawyers do today if the rates were changed.

We talk about corporate greed, and then for some reason never question the honesty of billionaires who have made their fortunes off our society.  That is unless they espouse support for anyone other than a Democrat.


[i] http://www.cnbc.com/2016/08/14/tim-cook-addresses-apples-us-taxes-says-no-repatriation-without-fair-rate.html

Thursday, August 11, 2016

I'm Sorry, but Stupidity is Not an Excuse.


I stumbled across this today as the weather rained down on me. 


I have to laugh at how so many with alternative life styles believe the Islamic States of the Middle East are welcoming havens for them.  As glamorous and rich as Dubai may be it is still an Islamic state.  As glamorous and internet famous as you think yourself to be you are still viewed as a deviant by Islam. 

People who view their own self-importance as beyond that of the average working man or woman seems to fall into these kind of traps. 

It is like the movie star who will fly a private jet back and forth across the nation to complain about carbon emissions at a glamorous gala, and support the President who will fly his 747 to Spain for a day or two to tell the world how we need to abolish fossil based fuels and lower our carbon foot print.

As I try and figure out why liberal academics are so enamored with fundamental Islam, and their desire to return to the middle ages, and so despise the only democracy in the Middle East these types of stupid examples keep coming up.

Yet the Democratic Candidate for President seems to embrace the current administrations love for Islamic law.  I am so confused.

Wednesday, August 10, 2016

Monosynaptic Reflex


As we watch the debacle that is this year’s Presidential  campaign I wonder if we are seeing the end of the two party system in the US?  On the one hand we’ve seen an outsider come into one party and destroy his career politician opponents in a primary system that has left the hierarchy in disarray.  On the other, we’ve seen a corrupt party hierarchy control their system so only their preferred candidate is crowned, and the usurper pushed aside.

And what have those two different approaches given us?  Two extremely flawed candidates; either of whose election promises to tear apart the nation even further than it is today.

I am not sure how Mr. Trump chooses his spokes-people, but he does seem to have a gift for picking people who can only help his opponent as they try and explain his statements.  On the other hand, Ms. Clinton does seem to benefit from a news corps that leans heavily to her side, perhaps from fear they too would be found in an alleyway if they got too close to a secret she wanted kept private.

It is almost as if we are watching a modern rendition of Shakespeare’s Julius Caesar, or maybe Hamlet?

Monday, August 8, 2016

Waiting for the Storm


As a senior in high school we studied, and I think performed, at least one of the two scenes from the Samuel Beckett play “Waiting for Godot.” For those unfamiliar with this work, the title character never appears, but there is a running dialogue between the two characters, Vladimir and Estragon, who are waiting for him.

This week promises to be like that play.  There is a low pressure area in the Gulf of Mexico, which according to the weather people last Friday is supposed to dump epic, apocalyptic (cats and dogs sleeping together), and massive amounts of rain on me all week.

I’ve prepared for this, but as each hour passes the forecasters push the expected arrival back, and thankfully, the total amounts down. I think we need to come up with some kind of confidence rating scale for these long-range forecasts.

Something akin to the this.

Right now I am 100% confident it is raining

Over the next hour it will, in all probability, rain  

Over the next six hours I am pretty sure it will rain

Over the next 24 hours I think it will rain in this area somewhere

Over the next 7 to 10 days… look at the pretty colors on the weather map.

Saturday, August 6, 2016

The Affordable Care Act, 2016


Here we are a little over six years, and two Supreme Court challenges, after enactment of President Obama’s signature piece of legislation, The Patient Protection and Affordable Care Act (also known as ACA and Obamacare), and today’s question is how well is it doing?

To answer that question, I think it important first to remind ourselves what the Administration and the Congress said when it was enacted.  What did they promise?

Much has been made of the promises of the President, i.e. “if you like your Doctor you can keep him, if you like your insurance you can keep it, etc.” but as in most things said by the government the devil is in the details and the marketing BS is usually just that.  At the end of the day what were the real expectations by those who wrote the legislation?

When it was enacted by the Congress it promised: Lower costs, coverage for those previously uninsured, removal of co-payments and coverage caps for essential services, an on-line exchange to promote competition, subsidy payments for those who could not afford the costs of mandated insurance, penalties for those who chose not to participate, and changes to Medicare and Medicaid to improve affordability, and penalties for small business and corporations that did not provide government approved coverage for their employees.

I don’t intend to get into the philosophical debate on whether universal health care is a human right, and an obligation of the government, or rather an undue imposition on a free market system.  Those who have opinions on this have already made up their minds on the answer and nothing I will write will make any difference to them.  I intend only to examine, with the help of the internet, how well the administration has kept its promise, and where it has fallen short perhaps look at why.  The one caveat I will make - is to point out we, the United States of America, already spend more on individual health care per capita than most of the rest of the developed world, and we as a nation also spend way more on everything than we take in through taxation and tariff.  Just to be clear when we create a new program it comes with a cost.  That cost is either paid through our revenue or our borrowing.  Right now these programs are part of our deficit spending. 

So let’s get to the discussion.

At its enactment, the proponents for the ACA said it would lower an average family’s health care costs by about $2,500 per year.  According to Forbes what we have actually seen is a continuation of straight line growth in costs that far exceed a simple inflation index.  For example, at the time of the ACA enactment the average family of four’s annual cost of health care was $18,074 (this included employer contributions, employee contributions, and out of pocket expenses).  In 2013 that cost had risen to $22,030, averaging over $6.5% per annum (a bit lower than the historical average), in 2015 (one year after full enactment) that annual cost had climbed to $24,671, or a 4.5% per annum increase[i].  So, from what I find on Forbes, and the Milliman actuarial firm’s analysis, this promise of lowered costs goes unmet.  One could and I suppose the government would say it has seemed to have a relatively minor impact (lower slightly) on the cost growth medical care has seen since the mid-90s.

The ACA changed the way the health insurance industry managed its risk (to maintain or increase their profitability).  Under the ACA the insurance companies must: allow young people to remain on their parents plans until 25, not drop customers who get sick while insured (i.e. reach their insurance caps), remove limitations for pre-existing conditions, and finally establish requirements for essential services and limit co-payments.  Essential services are defined by the government as covering about 8 to 10 specific areas ranging from ambulatory care to pediatric care.[ii]  Of course this government requirement directly affects the profitability of the health insurance industry so there is a quid pro quo requirement the government placed on the citizens and the taxpayer.  Specifically, all eligible people are mandated to have insurance and therefore increase the number of healthy people who will pay the costs of the sick.  The legality of this requirement was the basis for the first challenge to reach the SCOTUS.  In National Federation of Independent Business v Sebelius[iii] the court ruled the mandate equated to a tax and Congress had the right to impose such a tax.

Obviously it has been easy for the government to mandate the changes to industry standards, but in those mandates it has also attempted to continue its push to fully mandate the inclusion of abortive services on those organizations who sought to claim a religious exemption provided under the Religious Freedom Restoration Act (an act proposed by Democrats, passed almost unanimously by the House and Senate, and signed into law by a Democratic President[iv]).  In Burwell v Hobby Lobby[v] the court found for the defendants, forcing the government (i.e. Department of Health and Human Services) to develop a compromise position that ultimately overcame the defendants objection of having to pay for services they found morally objectionable.

Now we come to the question of the individual mandate.  This individual mandate is central to the success or failure of the ACA.  For those who don’t understand how insurance works it is really simple.  You might not like it, but it is really simple. Think of it as a Las Vegas table game.  A group of investors, really smart people, get together to bet that something will not happen.  They have looked at all the odds, they have weighted all the possibilities and they think the odds are a ship won’t sink, a plane won’t crash or you won’t get sick.  They then offer this bet to the person who wants to be protected if something bad happens.  They know the odds, and are willing to take some risk, but they also want to win the bet so they don’t enter into the agreement haphazardly.  They make similar bets with all kinds of people.  What they want to do is bring down their risk to as low as possible.  If they only insured people who know they were going to get sick they would not make a return on their bet, so they would have to charge the person who was sick a lot more.  What they want is a pool of really healthy people who are paying to cover the cost of the people who do get sick.  To help them out with this the Government promised them it would make all the healthy young people buy insurance to cover the cost of paying for the older sick people.  This is the individual mandate.  If you do not buy the insurance the government promised to insurance companies you would buy then they will lose money, stop insuring people, or raise the rates as we have seen for the past 40 years.  To incentivize you to buy the insurance they threaten you with a penalty in the form of an increase to your taxes.  If too many people choose to pay the penalty the cost of insurance goes up.

It is in the Government’s interest to paint a rosy picture about how many people are enrolling for insurance under the individual mandate.  In the first enrollment period in late 2013 to mid-2014 the government claims that over 8 million Americans signed up.  They are proud of the fact that of these 8 million about 2.2 million are in the young (18 to 34) age group.  What goes unsaid is that about 5.8 million would be in the older age groups more likely to need the insurance they are buying.  As Kavata Patel of the Brooking Institute[vi] points out this skewing of sign ups was not totally unexpected and the ACA has provisions for allowing the health insurance companies to increase rates to address the increased risk.

According to the IRS (always a trustworthy source), almost an equal number of people (7.5 million) chose to pay a penalty rather than sign up for insurance.  Additionally, another 12.5 million claimed exemptions that allowed them to not sign up. This is significantly higher than what the administration had projected and does not bode well for the ACA if the trend continues.  At the end of the day there are still 48 million Americans who do not have health care coverage.  I don’t believe this accounts for all the illegal refugees the administration has allowed entry so the number may be significantly higher.

To improve competition, the ACA called for states and the Federal Government to establish on-line insurance registration where an individual should, in theory, be able to shop around and get the best insurance for their personal needs at the most affordable rates.  This on-line exchange was supposedly modeled on what Massachusetts had established for its statewide programs.  We should all recall the fiasco that Secretary Sebelius and the Department of Health and Human Services went through as they tried to launch the federal site. 

Research shows the federal government has spent over $5 billion dollars trying to get the state exchanges up and running with a variety of successes and failures.  A significant number of states have opted not to even establish a state exchange.  From what I see only 17 of the 50 states have established an exchange,[vii] so competition certainly cannot be at the levels expected by the proponents of this legislation.  This fact is probably a significant contributor to the lack of participation and the increased costs of insurance the ACA has seen.

The next thing ACA did was to authorize subsidies for those who can’t afford the insurance.  We can debate the pros and cons of this, but so far no one seems willing to discuss the only germane question.  What do we not do to pay for this?  So far no one is willing to say how the government will balance the books.

Next we come to changes in Medicaid (state and federally funded programs for the poor and those with approved disabilities) and Medicare (federal program for the elderly).  The ACA changed the eligibility requirements for Medicaid, upping the income eligibility to 133% of the poverty level.  For Medicare there is a fundamental shift in how the government intends to reimburse the doctors and hospitals that provide care.  More on that in a couple of paragraphs.

Since Medicaid is jointly run by the states and the federal government it is hard to say definitively that everything is good or bad.  The ACA has in a number of cased significantly expanded the eligibility of the disabled to gain access to Medicaid, and the ACA promises to fully fund the expansion of coverage for the first three years and then fund only 90% of the cost after that.  Prior to the ACA Medicaid covered roughly 60 million citizens, after ACA it is estimated fully half of the newly insured people will come from the Medicaid expansion.  This is obviously a bill directly to the taxpayer or an increase to the annual deficit.

Medicare and Tricare remain as previously defined in law, but ACA funds the expected Medicare bills through 2029 (assuming Congress actually does what it promises).  The most significant change is how Medicare will reimburse the Doctors and Hospitals for care.

When the ACA was enacted people like Sarah Palin talked about “Death Panels” who would make a determination on the amount of heath care an individual would receive.  President Obama assured the nation that was not true, and the press ridiculed her for not knowing what she was talking about.  The Democrats remained united that this would not happen.  Well it turns out she was kind of right. It all hinges on the way the medical profession is compensated for their efforts.

Prior to enactment of the ACA Medicaid reimbursed Doctors and Hospitals for services rendered.  It is alleged that is why your doctor orders 18 different tests to determine your headache is not a brain tumor, or why the hospital bills you for using the toilet, or why each tissue you use is inventoried and billed to the government.  Under the ACA there is an expectation that payments will be made on an outcome basis.  Specifically, different illnesses have different expected outcomes and costs.  Rather than reimburse the Doctor or Hospital for what they have done, the government will provide a sum of funds available for treatment with the expectation the doctors/hospitals will spend that money wisely to insure the best possible outcome for the patient.  The problem comes up when the funds run out and the government says they won’t pay anymore and the patient is still sick.  If medicine were an exact science and patient care was fully understood and standard this might work, but I think we can agree it isn’t.  So somewhere along the line the Medical Professional will have to make a call, do I continue treatment or do I cast the patient off for someone else?

So who decides what the appropriate outcome based cost reimbursement schedule should be.  Why a group of bureaucrats and medical experts sitting on a panel in Washington of course.  What could possibly go wrong with this?

Finally, the ACA said that employers must provide group health insurance and pay their employees enough so they can afford any co-payment.  This has an obvious impact on the number of employees a company may hire, but so far that is okay for the proponents.  The limited job growth does not seem a reasonable excuse for those who want universal insurance.

Summary:

We see that the ACA has failed on reducing the cost of health care for the average family.  It is more expensive today than it was when enacted and it does not appear that it will reduce costs anytime soon.  Why?  I think the answer to this is the fact the government proponents entered into this contract with the people and the insurance industry by placing the insurance industry’s needs and wants first.  They laid out a series of talking points and lies to convince the people it was a good deal, but at this time it is only making the insurance companies richer.

It has been successful in expanding coverage of the poor, the sick and the disabled, but it has failed to draw in the requisite number of healthy people to offset the costs.  This will mean future year costs for those who pay for coverage will be more expensive then the estimates show today.

The outcome based reimbursement schedules have not yet been fully implemented so it will be interesting to see how that affects the medical professions willingness to work with the Medicare dependent elderly.

 In conclusion:  I found this video to be a good (i.e. neutral) summary of what ACA is supposed to do. 

Wednesday, August 3, 2016

Myths and Legends (Part IV)

        Born to poor parents, this man ultimately rose to become our Nation’s 40th President.  Prior to his election, he was a sports announcer, actor, union leader, corporate spokesman, and of course, politician.  He was also the first person elected President with a divorce in his background.

He was vilified by his opponents, and his proposals for economic reform were branded as “Voodoo” economics.  To this day the political opposition holds him responsible for all the problems with the economy, but let’s look at the time when he actually took over.

The year prior to his election the US saw its second gas crisis in the decade, with long lines and a doubling in the cost of crude oil.  This triggered a time of double-digit inflation and the governments Federal Reserve’s seeming inability to get a handle on the economy.  Interest rates on borrowing for a home mortgage topped 12% in some cases which drove down the house construction and automobile production, raising unemployment and compounding the economic woes of the county.  These factors drove the US into recession at the time of the election.

The sitting President seemed unable to make any right steps to solve this recession, or to address the other significant Geo-political crisis of the day.  Against this, came Ronald Reagan.  Twice governor of California where he had raised taxes, and turned the states deficits into surpluses, he offered a political theory that every government economist found appalling.  Lower the tax burden on the corporations, reduce government regulations, oversight, and control and let the businesses of America succeed.  His, and his advisors, theory was that if the supply-side economy was strong the wealth it created would pull up the standards of all the county.  This supply-side economic theory was called “trickle-down” economics by the opposition, and “Voodoo Economics” by his harshest critics.

He entered office on January 20th, 1981, and immediately set to the work with the Congress of gaining control of the inflationary spiral that had fueled the recession.  Within the first 100 days in office he had proposed an economic program that included $41 billion in budget cuts and a 30% tax cut for all Americans that would take place over three years.  He signed the economic recovery act of 1981 that phased in a 23% cut in individual taxes over three years, dropping the top rate from 70% to 50%, established the ability for all citizens to create individual retirement accounts and receive additional tax deferments, and created a 10% exclusion on income for two-earner married couples. He signed an executive order creating a council to look for efficiency and corruption in the executive branch, and removes a 15-month embargo the Carter Administration had placed on shipping grain to the Soviet Union.  Along the way he survives an assassination attempt. 

The recovery act of 1981 did not take effect until 1982, and the recession continued well into that year, reaching its peak in December.  But then the impacts of the act, as well as actions by the Federal Reserve began to show a positive effect.  As his popularity fell and the results of the mid-term election were assessed, Reagan agreed to raise corporate taxes but held the line on individual tax increases.

Unemployment from the recession rose to levels unseen since the Great Depression but by the beginning of his second term they were, on average, below 10% and declining.

The successes of his time are significant.  The fall of the soviet union and the improved relations with their several parts being most noteworthy.  The failures come not from the belief in supply-side economics, but in his failure to curb the growth of government and government spending.  During his terms he tripled the national debt and government growth continued an almost straight line trend that had begun in 1948.

As we look at the legacy of President Ronald Reagan, and ask the question would he fit into his party today? I think the answer would be yes, but he, like a number of long-term Republicans, would not be very happy.
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