Friday, November 29, 2013

When Dinosaurs Ruled The Earth

'Repeal Obamacare! Repeal Obamacare!'
Years from now, American political paleontologists may be looking back on the first part of the 21st century and marvel:

'What happened to all those big things in America back then?'

This is not just us predicting this from the wishful, wistful, small government Jeffersonian side of the political spectrum.

It is now coming from the left side of the political spectrum from a guy named Doug Sosnik, a consultant to President Bill Clinton who wrote a very important and interesting piece you really need to read today: 'Which Side of the Barricade Are You On?'

Doug, a Duke University grad, is someone we met way back in 1980 or so way before he became famous as the article is prefaced: '(H)e's famed in Washington circles for his closely held, big-think memos on the state of American politics'.

He sees a major populist movement building in American politics against all things 'big'.

We think he is onto something here, something we have been bringing to your attention for quite some time now: 'Americans are finally beginning to see the danger in 'big things'; in business, in banking, on Wall Street and certainly in government.'

Once you have read his article in full, come back and think on these things and see if you don't agree with Mr. Sosnik when he concludes with these words:
'Underneath this turmoil you can see the shape of an emerging populist movement that will, in time, either move the politicians to action or throw them out of office. The country is moving toward new types of leaders, those who will be problem-solvers....'
Let's take a look at some of the things that have happened in the past 5 years that have eroded the public's confidence in all things 'big and powerful':

  1. Congress, in its infinite wisdom, relaxed the rules and regulations governing real estate speculation and investment in America over the previous 2 decades to 'encourage more homeownership' to the point where many people qualified for loans simply by breathing and signing on the dotted line.
  2. Big Wall Street investment bankers persuaded many unsuspecting folks and national, state and local governments around the globe to invest in risky derivative investments with complicated investment structures such as credit default swaps and collateralized debt obligations and who knows what other sorts of legalese financial jargon.
  3. The real estate market collapsed like a ton of bricks in 2008. Financial panic spreads throughout the globe.
  4. Congress bailed out most of the financial investment houses and banks who got us into the mess in the first place and restores the lost wealth of CEOs and executives alike with your tax money.
  5. Over the past many decades, Detroit automakers 'negotiated' (sic) lucrative deals with big union labor bosses to the point where American cars became cost-uncompetitive or quality-uncompetitive with foreign automakers. The cost of 'Cadillac' health plans where union workers paid no copay, premium or met any deductible proliferated. The cost of health care in each automobile built in Detroit exceeded the cost of steel and aluminum in each car.
  6. The crash came. Detroit carmakers faced bankruptcy. Congress and President Obama bailed them out with your tax money. Again.
  7. The US Senate under the leadership of Majority Leader Harry Reid hasn't passed a federal budget. Ever. Now wonder we have had no control over spending.
  8. President Obama pushed for and promised health care for everyone. 'You can keep your insurance if you want to' was his bottom-line promise. Millions of Americans now face cancellation of their health insurance plans. Individual and corporate alike. A complete falsehood coming from our Chief Executive in the White House. 'A bald-faced lie' it used to be known as when public officials still had some shame in their character. People used to resign in private business and government when they did things like that in the past.
  9. Big health insurance companies worked with the Obama Administration to get Obamacare passed in 2010 ostensibly because it 'promised' to deliver up to 40 million new customers into their existing customer base, millions with substantial federal subsidies in hand. But then, for some unknown reason, the Big Health Insurance companies canceled plans in existence they say because of Obamacare! What the heck is going on here?
  10. Congress has not dealt with anything at all and come to any practical working conclusion on the major problems we face as a nation. We now just have crazed people from both sides of the aisle go on cable talk shows and scream at each other and point fingers somewhat ridiculously and in a childish manner.
Need we go on?

We disagree with Mr. Sosnik on a few things. We are not going to bang on the heads of successful people or try to exploit the 'income inequality' issue any more than it already has been exploited.

We think successful people do a common good by providing jobs, salaries and benefits for the rest of us to enjoy and support our families. We just don't want them ever to do it with taxpayer support.

We also think Mr. Sosnik might be more amenable to trying some more government programs even when Obamacare, which is now being considered as 'Medicaid Plus' by many experts, is in the process of showing everyone who is paying any attention a classic case of why centralized government fails in many regards.

We do agree with him that something big is a'brewin' in America today and it is the large swath of registered voters who are done with both established political parties. Record numbers of people in North Carolina are now not just walking but running to their local boards of election to change their registration to Unaffiliated aka Independent.

28% of them have already done so. 42% are expected to have done so by the presidential election of 2016. Who will be the 'majority party' then?

Good for them. They have finally 'seen the light' and decided to leave both parties to the extremes on both sides in hopes of electing sensible, thoughtful people in the fall elections. (Assuming they can get out of their primaries, that is which is a big, big problem on both sides nowadays)

We have already written a great deal about where we would like to see this nation turn and that is more towards individual responsibility, duty and honor versus passing all of our freedoms off to an ever-increasing central government that is now proving its limits.

Here's just a few things we think would help make this nation the land of the free again where everyone gets a chance to prosper, more so than under current restrictive, ossified systems and structures (previous articles we we have detailed such solutions):
  1. Individualized personal savings retirement plans funded by the same FICA tax now being collected from every worker on a weekly basis (
  2. Conversion of our health insurance system to a catastrophic health insurance system as opposed to a 'pre-paid health care payment plan (
  3. Means-testing and conversion of Medicare and Medicaid into income-based health support payment plans (
  4. Conversion to a consumption tax plan to replace the current confusing and sclerotic income tax system (
There are more ideas such as these that would steer us back to a far more prosperous and vibrant future where not only recent college grads but the approximately 20 million people who are either unemployed or significantly under-employed today could stand a reasonable chance of finding a job once the economy gets moving again at a 3-4% annual growth rate versus the abysmal rates of growth under existing policies.

Let's face the truth square in the face:

It just ain't working now whatever the Big Government Advocates and Aficionados have been selling lately for these past 5 years.
That is half of a decade that has been lost. For any young person who wanted to get a good job and provide for a good life, those first 5 years of employment are perhaps the most important in terms of building up funds for retirement that would compound for 45 years+. Those years are now lost forever.

Want to go for another 5 years?
The Big One That Wiped Out The Dinosaurs

The dinosaurs were wiped out by a huge meteorite that struck Earth 65 millions ago.

Will the demise of Obamacare be the self-destructive meteor that finally turns America away from the fool's gold of More Big Things as Doug Sosnik postulates in his great article?

Or will we settle again for more government, more regulations and more crony capitalism as we have seen in the Wall Street and Detroit bailouts?

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Sunday, November 24, 2013

Disintermediation and Health Care Insurance: Market Forces Still 'Work' In America

'Disintermediation: What Goes Around,
Comes Around!'
One of the more interesting things about working on Capitol Hill was learning what big words mean when luminaries such as Alan Greenspan, Paul Volcker and just about every other famous economist or technical expert came to testify in Congress.

'Disintermediation' was one of those words. We heard a lot of it on the House Banking Committee when the S&L industry melted away between 1985 and 1990. We also heard a lot of it during the financial meltdown of 2008 when commentators on CNBC repeatedly talked about the threat of 'disintermediation' on financial giants such as Wachovia (which passed away) and Bank of America (which somehow survived, albeit with massive taxpayer-supported federal help).

It started out meaning the bypassing of 'intermediaries' such as brokers or agents and 'cutting out the middleman' entirely. However, when it came to the financial industry in the late '80's and beyond, 'disintermediation' came to mean 'consumers taking a rational, cold hard look at the financial institutions in which they have entrusted their money...and withdrew it to find better, safer havens for their life savings'.

You want to chill the hearts, brains and bones of any banker? Start a 'disintermediation' campaign on Twitter and urge all your friends and their friends and their friends to take their money out of X Bank and move it all to Y Bank. Nothing gets the attention of a banker like red lights popping up all over his computer as indications of 'closed accounts' due to people moving their money elsewhere.

That is the power of the free enterprise system. Treat your clients or customers like crap and you'll see them leave you. In droves. And your business suffers and eventually dies because you need your clients/customers' cash flow to grow and survive.

The recent debacle of Obamacare causing the major health insurance companies to cancel (and then reinstate in some states) their policies to millions of hard-working, innocent people brought to mind the whole concept of 'disintermediation' in the health care insurance world in specific and in Obamacare in general.

Here's the question we all have to answer for ourselves each in our own individual way:
'Why in the world am I being held captive by President Obama and the health insurance companies in the first place?'
This is America still, isn't it? Aren't we all supposed to be free to make our own choices about what we buy; whom we will marry and how we will worship and live our lives?

If not, we have really made a drastically dangerous U-turn at Albuquerque, as Bugs Bunny would say:

Why can't we do that in health care insurance?

There are over 250 million automobiles owned by Americans and every single person who buys a car buys their own car insurance without any help from the government or their employer or anyone else. They have to have insurance to drive their car, (although you know there must be millions of uninsured drivers driving around just like there are undocumented people voting in elections....or is the driving registration system in all 50 states 'perfect' as well?)

Close to 200 million Americans live in owner-occupied homes. Every one of them have home insurance to pay for the rebuilding of the home in the case of fire or other catastrophes. None of them have the government paying for their home insurance nor do their employers pay for it either. The lender requires the insurance before authorizing the loan for the purchase of the home. The homeowner shops around and buys the type of coverage he or she is most comfortable with for their particular station in life.

What would 'disintermediation' look like in the health insurance field anyway?

For the most part, very large private health insurance companies and non-profit Big Blues (BCBS) 'own' the health insurance markets in each and every state since each state is governed by a single insurance commissioner. It is darned near a monopoly in some states; a tightly-knit oligopoly in the rest.

Since the rollout of Obamacare has become such a debacle, perhaps it is time to shift the governance of insurance from 50 states to a single Department of Insurance in Washington.

We know, we know...we are the last ones to be advocating more power going to Washington. God forbid we send 'more' power in governance to Washington after these last 5 years, yes?

However, since health insurance companies always hide behind the excuse that their hands are tied when it comes to 'interstate competition' because of the 50-state insurance commissioner excuse, let's end it right now and allow health insurance companies to expand across all 50 states and Puerto Rico and Guam if they want.

You want competition? There it is right there on a silver platter.

Secondly, in order to have a true 'free market', there have to be viable alternatives to what exists today in order to change it. There is hardly one at all under Obamacare or under the current sclerotic system.

We recently were told about alternatives that have been in effect for years now which, in essence, set up cooperative self-insurance pools as opposed to traditional fee-for-service health insurance offered through your employer or on your own in the individual market.

One, Samaritan Ministries seeks to pool people of faith together into a large enough pool so that they essentially pay for the high-end health costs of other people in their group. No insurance, no underwriting by the big insurance companies. Just a statement of faith plus a promise to live a healthy lifestyle meaning no smoking, over-drinking or drug abuse and a dedication to keeping your weight down through sensible eating and exercise.

Pretty much exactly what we have long said was the solution to 'high health insurance costs' in the first place: take care of yourselves and health care costs will absolutely plummet.

Now, this is not for everyone. The cap is $250,000 which is the top limit of health-related bills this group plan will cover. The website says it is a clear alternative to being forced into Obamacare against your will without having to pay the tax penalty each year but you should take some care to have your accountant or lawyer check this out before jumping in.

Consider this: The chances of your having a $1 million health care claim might be lower than the chance that you will be struck by lightning, which is 1 in 700,000. If that ratio holds up for the entire nation of adults, there might be 350 cases per year in the entire nation where someone's health care bill approaches $1 million.

The chances are very heavily in your favor that you will not have a $1 million health event if you don't smoke, don't over-drink, lose weight and exercise every day by walking for 30 minutes or taking the stairs to work.

The 'disintermediation' will occur when not only Obamacare but the private insurance companies are deprived of your $800-$1200/month premium which amounts to $10,000 to $15,000 per year. You will pay $10,000- $15,000 in premiums BEFORE you meet your $12,000 deductible AFTER you have met your 50/50 cost-share co-pay.

In our case, we figure it would cost us over $25,000 out-of-pocket in any year with a significant health event before BCBSNC would pay the majority of our health care claims if we took the policy they suggested we take when they canceled our previous plan (that they said they will now reinstate but we haven't seen any documentation of that yet)

Oh, we forgot to mention that the Samaritan's Ministries has never cost more than $370/month for any family of any size. Ever. $4400 per year for a family of 4 or more. Much less for a single person. Probably below what you would pay under Obamacare even with the generous subsidies.

They currently have 25,000 households (approximately 100,000 people) in their collective pool. If they get up to 1 million participants, their coverage should expand due to more financial strength and support.

Did you hear the sound of that stampeding in the background? That is the sound of everyone rushing to the Samaritan's Ministries website to sign up for their plan before the Obama Administration can come up with Obamacare Version 2.0 and the health insurance plans can figure out a way to make you pay higher premiums for your health care.

50,000 people in North Carolina opting for the Samaritan's Ministries approach would cost either the private health insurance market or Obamacare or both $600 million in annual premiums foregone.

Once Obamacare architects and health insurance actuaries start figuring out just how much money this disintermediation is going to set back their programs, maybe then elected officials will get serious about reforming health care of its internal cost-drivers that are making health care unaffordable in the first place.

Only then will we get the true 'reform' we have so desperately needed in the American health insurance market for the past 30 years.

Money talks. In any business or government program.

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Wednesday, November 20, 2013

'Risk Corridors'--Automatic Federal Bailouts for the Health Insurance Industry in Obamacare

The Shell Game of 'Risk Corridors'
You really have to wonder if President Obama knew what he was getting into when he ran for President in the first place in 2007.

Namely, if he won the White House, he was actually going to have to 'faithfully execute' his duties as Chief Executive of the federal government and administer leadership and management skills to his administration.

Unfortunately, the American people and the media failed to fully vet President Obama to see if he had any management skills, other than getting himself elected in truly masterful campaigns that will be the envy of every future presidential aspirant, such a being a former governor or executive of a business large or small.

He 'didn't know' how faulty the website was and the rollout of Obamacare was going to be. He 'wasn't briefed' about Benghazi. He 'wasn't aware of' the following: the NSA snooping on cell phones; IRS targeting of conservative groups and most importantly, 'people were actually going to lose their health insurance plans even if they liked them and wanted to keep them'!

What did he think being the President of the United States was going to be, one long golfing and vacation package?

We have found one more 'surprise' in the bill Nancy Pelosi said 'we have to pass in order to find out what is in it' (big mistake) that we are sure President Obama will deny he had any knowledge of beforehand.

They are called 'risk corridors' (click on link to learn more)

They are automatic federal payments to health care companies built into the bowels of the Obamacare legislation in case they suffer losses from enrollment targets not being hit in Obamacare.

Get ready to see your tax dollars flow towards the big health insurance companies just like they went to bail out the Big Wall Street (Robber) Barons after they helped destroy the economy in 2008 with their rampant and reckless over-speculation and excessive risk-taking with things such as credit default swaps backed by your taxpayer money.

We had a former insurance executive write to us when we asked for more explanation of how this got into Obamacare and he responded as follows:
'There is no question now that they (the health care insurance companies) were in cahoots with him, but the only people who are going to get hammered are the American people.
Does anyone seriously believe that insurance companies, who have just spent three years getting ready to comply with Obamacare unlike, apparently, the Administration, can in three weeks go back (for a year) to now outlawed policies, just because the President, in his kingly beneficence, says they can?  They will not, nor could they as a practical matter at this late date.  They made their bed, now they have to sleep in it even if Obama just pulled off the sheets, sawed off three legs and set the mattress on fire.'
Well, the problem for American taxpayers is that the health care companies, just like Wall Street and Detroit 5 years ago, have figured out that they really don't like or want a true 'free enterprise' system but rather one backed up by the federal government. Meaning you as the federal taxpayer acting as the ultimate 'backstop'.

That is why you didn't see any 'Harry and Louise' ads coming from the health insurance industry this time around to fight Obamacare tooth-and-nail like you did in 1993 to fight Hillarycare which was really Obamacare version 1.0.

It is just another case of something very troubling in America we have been writing about for the past 5 years:

'Privatizing the Upside and Socializing the Downside' for American Business.

We really don't have a true 'free market' in America in many large businesses today. Detroit and Wall Street bailouts are just the primetime examples lately.

Small business, yes, we have a free market there. They succeed and fail all the time and no one goes propping them up with your taxpayer dollars, do they? Start-up business, yes. No one ever gets a federal bailout when all their hard work, sweat equity and start-up funds go up in smoke if they are one of the 4 out of 5 new businesses that don't make it past their 5-year anniversary.

We just would like to see people who pound their chests and say they are 'free enterprisers' and wear Adam Smith bowties act like it for a change and bear the risk of their business decisions and investments up AND down.

We worked for a congressman, Alex McMillan who was CEO of Harris-Teeter Supermarkets during its formative years. We asked him one time if he would have ever gone to to Washington DC with his hat in hand with the majority owners of Harris-Teeter, Alan Dickson and Stuart Dickson, asking for a federal bailout if things went sour with Harris-Teeter somewhere along the way.

'I would have rather had both eyes gouged out with a hot poker!' was his sardonic reply.

Do you know people in business like that anymore? Please tell us you do so we can believe American free enterprise will somehow survive this rough patch of flirtation with capitalistic socialism.

Here's another article about risk corridors you might want to read as well 'CBO Never Scored Obamacare's Insurer Bailout Program'. You are probably going to be hearing more about this and other 'surprises' that are now in the bill Nancy Pelosi said they needed to pass so we can see what is in it.

We know now, don't we?

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Friday, November 15, 2013

'Why We Have Federal Deficits' by Charles Blahous

'If you don't want to be stupid,
read Chuck Blahous' report! Now!'
If you don't ever read another article or report about the US federal budget deficit after this one, you will know all there needs to know about 1) what they are; 2) how we got to where we are today; 3) why we have them and 4) what we have to do about them.

We have always been struck by the simplicity of federal budget. That is right. The 'simplicity'.

As long as we balance our budget and pay off the national debt, almost all of the truly 'bad' things that nations fear such as hyperinflation and high interest rates have next to zero chances of occurring.

Think about it: Suppose we had a balanced budget today and no national debt. Roughly $300 billion per year would not have to be collected from you, the American taxpayer, and you could keep it in your own pocket to do with what you choose. No national debt; no interest on that debt to be paid.

Add to that the fact that the Federal Reserve would become completely invisible to the general American public.  NO ONE, not even bankers, would know who Ben Bernanke was or who Alan Greenspan or who Janet Yellen is. There would not be any 'expanded' balance sheet at the Fed or QE1 or QE2 or QE1000 one day.

We strongly urge you to read every word Mr. Blahous has written here below which was published on the E21 Economics. We also almost beg you to download his full report embedded in the article below and read it in its entirety and take notes as you read it. It is so chock full of facts and common sense that we wish everyone could be forced to read it as well.

The level of American debate over the largest issue we face as a nation, solving our budget imbalance, would be significantly elevated and we would probably be able to find common solutions before it is too late.

And then tell all your friends to do the same.

'The federal deficit is a huge public policy problem that must be understood, confronted, and solved. Federal deficits run in these last five years dwarf any precedent in U.S. post-world-war history. The Congressional Budget Office (CBO)’s latest projections warn that without legislative corrections, deficits will rise to untenable levels with severe consequences for our economic well-being. There is widespread agreement among non-partisan analysts that the deficit problem is a serious one.

About the causes of deficits, however, there is much less agreement. This is partially because partisan advocates cannot resist the temptation to blame these deficits on leading figures from across the political aisle. There is practically a cottage industry of “analyses” purporting to show why a particular individual (often President Obama for conservatives, President George W. Bush for the left) is the one to blame for the deficit problem. These studies are usually meaningless because they exclude from view any policy decisions made before their targeted political figure entered office.

If we want to understand and solve the deficit problem, we need to go about our analysis in a better way. Today the Mercatus Center is releasing a comprehensive study I completed earlier this year that does just that. Instead of focusing on policy decisions made during an arbitrarily-assigned time frame, I analyzed the sources of deficits by dissecting the budget itself, identifying deficit-driving policy decisions regardless of when they were made. The study was a mammoth undertaking; it required the digestion of practically every CBO and Office of Management and Budget (OMB) budget report published over the past forty years.

The striking finding of this analysis is that more than three-quarters of our long-term fiscal problem derives from a set of policy decisions made over a period of just seven years, 1965 to 1972. 1965 saw the establishment of Medicare and Medicaid, advocated for and signed by President Lyndon B. Johnson. Both of these programs were later expanded in 1972 during the Nixon administration, as was Social Security. Thus one Democratic and later one Republican President each worked with a unified Democratic Congress to enact a fundamental worsening of our long-term budget outlook. Nothing done by any recent President or Congress carries long-term fiscal consequences as daunting as those arising from these 1965-72 decisions. Details follow.

Defining the Question: The study examined deficits from three different vantage points. The first was to analyze the specific policy decisions that led to current projections of untenable long-term deficits. The second was to analyze the policy decisions that led to the current 2013 deficit. The third analyzed which office holders ran the largest deficits in fiscal years during which they were responsible for federal budget policy.

Each of these perspectives is useful and none is inherently superior to the others. The first two perspectives track specific policy changes, assigning responsibility to those who enacted them. The third perspective evaluates general records of fiscal stewardship. This perspective is also important, to recognize that that later federal officials bear responsibility for correcting fiscally problematic practices regardless of when they were originally adopted, and that they often possess updated information that earlier officeholders lacked.

When undertaking such an analysis, it quickly becomes apparent that misleading, trivial and/or often bizarre results will arise unless reasonable methodological solutions are found. For example, consider that lawmakers must enact appropriations legislation anew each year (unlike mandatory spending, appropriations do not carry over automatically from one year to the next) and are thus responsible for current appropriations levels. Now, consider also that appropriations spending moves separately from revenue measures; it is spending without a specific revenue source. Going about this the wrong way, one could easily stumble into a framework in which one finds that Congress is always adding immensely to the deficit unless it ceases all appropriations and shuts down the government altogether. Such a method would nearly always find that current officeholders caused the current deficit, even if they had actually cut appropriations relative to previous levels, and even if there were more than enough incoming tax revenue to finance all such appropriations. The results of such an analysis would be uninformative and potentially very misleading.

These problems can be avoided by employing the technique of norming relative to historical practices. I pulled these historical norms from data published by CBO on revenue collections and spending category totals stretching back over the 1973-2012 period. As I demonstrate in the longer study, these forty years are a very good time span for establishing representative norms of federal budget behavior.  These historical norms illuminate the policy changes that caused our current deficit problem.

Specifically, federal tax revenues have consistently averaged 17.9 percent of GDP over the historical period. Only rarely has this level varied by even two percentage points (on the low side during the recent recession, and on the high side during the dot-com bubble and Clinton-era tax rates). Similar averages are seen over even longer spans of time. Hypothetically, if today we spent less than 17.9 percent of GDP, we could fairly say that our current deficit problem was not being driven by recent spending growth. The long-term data enable us to determine whether our deficits arise because of spending exceeding sustainable historical norms, or are due to tax collections falling short, or both.

And we can be even more specific than that. We can use historical budget data to determine how much spending we could have afforded in each budget category, if we kept a balanced budget and if our spending priorities remained as they were in recent decades. This enables us to determine which subsequent policy changes have caused deficits to emerge, whether they involve a specific diminution in tax revenues or an increase in a specific spending category.

The Long-Term Deficit Problem: Our long-term deficit problem turns out to be pretty simple. It consists entirely of spending growth in Medicare, Medicaid, Social Security, and the new health insurance exchanges established in the 2010 Affordable Care Act. If it were not for spending growth in these four areas, we would not have a long-term budget problem. Tax revenues under current law will well exceed historical averages, and spending in all other areas will be far less, as a percentage of GDP.  Politicians spend a lot of time debating tax policy and appropriations levels, but neither has much to do with fixing the long-term fiscal outlook.

Interest costs also play a deficit-driving role under current projections, but these too would remain well within historical norms were it not for the growth in Medicare, Medicaid, Social Security and ACA exchange outlays.

The total distribution of long-term deficit drivers is as in the accompanying pie graph. There is not space here to explain the derivation of these numbers, which can be found in the full study.

Let us review these contributors one by one:

1) Medicare. Medicare is the single biggest contributor to our long-term deficit problem. What many do not appreciate is that the vast majority of our currently projected Medicare costs derive from the program’s original enactment in 1965. There was a significant Medicare expansion in 1972, and its Part D prescription drug benefit was added in 2003. But the majority of Medicare legislation in recent decades has reined in projected cost growth rather than added to it. Thus, most of this component of the long-term problem is with us courtesy of President Johnson and the Congress of 1965.

2) Medicaid and the ACA Health Insurance Exchanges. CBO groups these together in its long-term spending projections. Around 30 percent of the projected excess spending growth in this combined category is due to the ACA, which dramatically expanded Medicaid and established new health insurance exchanges.  But again, most of the other costs derive from Medicaid’s original enactment in 1965. Medicaid also underwent an expansion in 1972, and a series of smaller-scale expansions from 1985 through 1990, but this category of spending growth is also predominantly a Johnson administration creation.

3) Social Security. If the pre-1972 Social Security benefit formula were still on the books, projected Social Security spending would be well within affordable historical norms. Legislation in 1972 during the Nixon administration increased benefits by 20 percent across the board, in addition to introducing annual COLAs and indexing the growth of benefits paid to new claimants.

The Current-year Deficit: Responsibility for the current-year deficit is more diffuse than the long-term deficit. As with the long-term deficit, growth in Medicare, Medicaid and Social Security outlays is a big part of the problem. In addition, growth in income security programs as well as lower-than-typical tax revenue collections have played a role. Again, see the accompanying pie graph, the full derivation of which can be found in the full study.

The reason that tax revenues were lower than historical norms this year was because of legislation enacted by the last outgoing Congress and signed by President Obama; without that law, tax collections would have exceeded historical averages. Some of the recent growth in income security spending is attributable to recent expansions of the earned income tax credit (EITC) and child tax credit, and extensions of unemployment insurance, all during the Obama administration. Another significant portion traces back to an expansion of the EITC enacted in 1993 under President Clinton. Notably, even with ongoing military operations abroad, all current appropriations spending (including defense) remains within levels affordable within a balanced budget assuming current interest rates; appropriated spending is simply not the main reason we have been running large deficits.

Summarizing the Policy Decisions: One of the interesting aspects of our current political dialogue is the cognitive disconnect between widespread recognition that our budget problems are rooted in the rising costs of Medicare, Medicaid and Social Security, while at the same time enormous political energies are expended arguing over the budget effects of less significant policy choices. The study assumes that 50 percent of the responsibility for fiscal policy decisions resides with the president, 25 percent with the House majority party, 20 percent with the Senate majority party, and 5 percent with the Senate minority party. Those assumptions lead to the following allocations of responsibility for our projected long-term fiscal imbalance, and for our current-year deficit, respectively. Due to rounding errors, the totals on the table do not add.

A brief glance at this table clarifies why so much of our contemporary budget debate is simply misplaced. Political opponents of President Bush have devoted tremendous energies to debating, for example, the fiscal effects of the “Bush tax cuts,” the Afghanistan and Iraq wars, and the Medicare Part D prescription drug benefit. But in the grand scheme of our budget problems these issues are sideshows; Bush tax policies have since been replaced by others signed by President Obama, and in any case the long-term deficit problem exists despite projections of higher-than-typical tax collections. Even with the ongoing costs of war, all appropriations including defense make up a smaller share of the federal budget than they did when deficits were much smaller. And while the Medicare prescription drug benefit undoubtedly added to that program’s costs, presently it constitutes 11 percent of total Medicare spending. If it makes sense to be concerned about 11 percent of Medicare spending, it makes far more sense to be concerned with the other 89 percent.

Fiscal Stewardship Track Records: The third method of evaluating federal deficits is simply to measure the sizes of the deficits run during different fiscal years and allocating responsibility among those in office at the time. For obvious reasons, this method finds that deficit responsibility shares have been much higher on an annual basis during the Obama administration than during any other studied.

As with all matters pertaining to the complex federal budget, much important information resides in the methodologies and assumptions underlying these various figures, which are provided in detail in the full study

But while the specific numbers are affected by the specific methodologies, the general picture is clear and transcends any subjective methodological choice: specifically, the fiscal problems now bedeviling policy makers are primarily those created during the seven-year span of 1965-72, when there was much less understanding of the magnitude of the spending commitments being taken on, as well as of the practical constraints binding what the federal government could responsibly promise. We will never get our deficit problem under control until we reduce our emphasis on budgetary side issues, and focus instead on scaling back our projected spending commitments for Medicare, Medicaid, Social Security and the ACA’s new health insurance exchanges. From a budgetary perspective, everything else is mere distraction.

Charles Blahous is a senior research fellow for the Mercatus Center, a research fellow for the Hoover Institution, a public trustee for Social Security and Medicare, and a contributor to e21. 

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Thursday, November 7, 2013

‘Defending the Constitution’ and Other Matters

One of the most important parts of the oath for office in the federal government is this phrase:

‘I do solemnly swear (or affirm) that….I will to the best of my Ability, preserve, protect and defend the Constitution of the United States.’

What does that mean exactly, to ‘preserve, protect and defend’ the Constitution anyway?

Keith Hennessey gives a really great insightful look at what it means for professional staff (see Accuracy and Honesty) to ‘preserve, protect and defend’ the Constitution in their roles as advisors to any US President but especially in the failure of the professional staff to win the battle to prevent President Obama from saying the following:

‘You can keep your health insurance if you want’.

He said it at least 29 times on nationally televised events. We can even say it on our sleep.

‘Keep your health insurance if you like. Keep your health insurance if you like’

Except we can’t. Our high deductible policy has been summarily canceled and executed by BCBSNC as of December 31, 2013. The next most affordable plan we can find is almost 100% more than what we currently pay in a self-employed individual policy. Millions of others are in the same boat as we are today with more to come on a daily basis.

We have been very fortunate at The Institute for the Public Trust to have the ability and occasion to invite constitutional scholars to come in and explain in minute detail what the Framers of the Constitution had in mind and what specific things in the Constitution ‘really’ mean.

Such as the ‘Corruption of Blood’ Clause. Or the Emoluments Clause. Or this 'clause', which is a direct quote from our revered document:
‘The Word, "the," being interlined between the seventh and eighth Lines of the first Page, the Word "Thirty" being partly written on an Erazure in the fifteenth Line of the first Page, The Words "is tried" being interlined between the thirty second and thirty third Lines of the first Page and the Word "the" being interlined between the forty third and forty fourth Lines of the second Page.’
What the heck is that all about?  It is the first recorded ‘white-out’, spellcheck, grammar resolution function in our nation’s history. Right there in the Constitution. Making corrections to the previous long handwritten document.  They were NOT going to rewrite the whole thing after 4 months of tortuous debate in hot, smelly, unsanitary Philadelphia during the summer of 1787.

The gist of what we heard this past week can be encapsulated in the piece by Keith Hennessey above. Our representative democracy depends almost completely on men and women of brains and integrity working to ‘defend and protect’ the Constitution once they are in office. Whether as elected representatives or staff selected to serve those elected officials.

Political people don’t usually think that way. Their job is to ‘get their guy or gal elected!’ whatever it takes.

The problem almost always arises when the political people go into the White House or any elected representative or Senate office to ‘run things’. They typically have a blind eye to what it takes to run the government and serve as a 'public servant' sworn to defend the Constitution...but they do have a keen sense of how to 'get your man elected so your side can win!

Haldeman and Ehrlichman ran the White House for Richard Nixon…and we got Watergate. Bill Clinton had his close political allies in the White House run things in the White House in his first term when things didn't get done. Erskine Bowles took over the chief of staff job in 1996 and then he started to get things done for the nation as a whole, not just to advance Clinton's political interests.

Mr. Hennessey points out the most important things that goes into the success of the American Democratic Republic Experiment for these past 224 years. Truth and honesty on the part of our elected leaders.
‘As someone who spent countless hours ensuring Presidential policy accuracy, the idea that an Obama White House staffer would lose such an internal battle, that they would give President Obama a speech staff knew was wrong, is beyond my experience.
A White House Chief of Staff who permits President Obama to say something he knows is false violates everything I learned about serving a President. A President must not lie to the American people and Congress about a core element of his signature domestic policy initiative, even if doing so is necessary for that initiative to become law. When he did this, President Obama breached the trust America needs to have in her President.’
Those are harsh words. But those are true words based on the everything we ever saw working on Capitol Hill as chief of staff in the employ of former Congressman Alex McMillan of Charlotte for a decade and then later with Senator Elizabeth Dole of North Carolina as well.

We took extreme measures in both campaigns and offices to check, back-check, double-check and triple-check facts and figures so as to never put the elected representative and senator in a bad light of appearing to be outright lying to their constituents and the American people. Elizabeth Dole had over 35 years of public life we had to dig deep in to research to make sure that she did not say things during the campaign that were contradictory to prior statements and if she had had a change of heart, be able to explain why in a coherent fashion.

The moment a politician is caught lying, their effectiveness diminishes considerably.

President George H.W. Bush did not win re-election in 1992 because he 'broke his promise' to the GOP Convention in 1988 for everyone in America to: 'Read My Lips! No New Taxes!'

In 1990, he signed the 1990 Budget Act that had new taxes in it but it also had all of the budgetary ingredients that ultimately led to the balanced budgets of 1998-2001; PAYGO; Discretionary Spending Caps; Credit Reform among other. He did the right thing for the country in that regard.

But he did break a promise. President Bush 41 paid for it by not being re-elected in 1992 when he lost to Bill Clinton.

Maybe President Obama felt as if the price of lying about Obamacare was worth it to get universal coverage for all Americans. He may prove to be on the right side of history on that score. Then again, he may not.

Regardless of the outcome, President Obama has now entered the 'death valley' of American politicians who have willingly lied to the American people. He can't be defeated for re-election which is more than a little convenient when you consider that he was re-elected 1 year almost to the day before people realized just how big of a whopper he has laid on the American people.

But President Obama can and will be subject to the same disapproval ratings that every President has seen in their second terms. Presidents Jefferson and Madison proved to be so unpopular in their second term due to policies they enacted that historians estimate they may have left office with approval ratings equal to or below Richard Nixon when he resigned in 1974. 24%.

Who were those people and where did they live...San Quentin and Leavenworth Prisons?

The American people are a forgiving people. They will forgive someone once they get caught in their lie and then ask for forgiveness. Look at President Clinton for goodness sakes! He is beloved and revered by many after he confessed to the truth about the Monica Lewinsky affair and moved on with his presidency and life.

But Bill Clinton will not be regarded as 'great' of a President as he and his admirers would hope he would be.

President Obama had a chance to be a transformative President given his speech that declared: 'There is No black America. There is no white America. There is only the United States of America!'

Wonder if that is the same place where 'you can keep your health insurance if you like it'? We'd like to find it again.

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Sunday, November 3, 2013

What Is The Most Dangerous 'Pre-Existing Condition' You Can Have That Prevents You From Affordable Health Care Insurance?

'I will not pay your higher premiums...
among other things!'
Having a high-deductible self-employed individual health care insurance plan today apparently.

16 million individual policy owners are going to lose their health care plans by January 1, 2014. God only knows how many millions more who are now covered by their corporate plan will lose that employer-paid health care when their employers terminate those plans and dump them into the Barack Obama Exchanges.

Chris Conover of the Duke Sanford School of Public Policy and the Fuqua Business School estimates a 'cool' 129 MILLION Americans who now have plans 'they like' will not be able to stay on them in the next several years. (See 'No, David Axelrod!')

All of them, every single one of them, were 'promised' by President Barack Obama that they could 'keep their insurance if they wanted to' repeatedly since 2009 when he took office.

Apparently President Obama doesn't know what the word 'promise' means or where it comes from. It means:
'a declaration made about the future, about some act to be done or not done'. Derivation from the Latin and French words conveying the sense of 'send forth'; 'let go'; 'foretell; and most importantly, 'to give assurance beforehand'.
So. What can you do now, besides shop for plans on the exchanges (which are not lower but much higher in many cases)?
  1. Just pay the higher premiums, shrug your shoulders and say: 'Oh, well. That is the way it goes, I guess'
  2. Complain, bitch and complain again on Facebook, Twitter and to your friends with whom you probably already agree 99.99%
  3. Get determined to repeal Obamacare or at least change significant pieces of it.
  4. Organize 1000 of your friends to vote against anyone who voted for Obamacare in the first place in 2010. Many House Members were wiped out in the 2010 GOP tsunami as the first wave of dissent against Obamacare. (*List of current incumbent US Senators who voted for Obamacare in 2010 attached below and whose seats are up for election in 2014)
We need a second one.
And/Or.... you can just decide to not buy any health care insurance. At all. Seriously. That is what we have heard a lot of people say they had come to the same conclusion without any help from us.

It is simply a matter of basic math, addition and subtraction really. You can call it something fancy such as 'personalized cost/benefit analysis' or 'risk/reward ratios' but the bottom-line is you are going to do whatever leaves the most amount of money in your pocket and not in the government's wallet or BCBS' bank account, yes?

Here's how it would work if you are in the individual self-insured market:
  • Don't buy any health insurance at all from now on. Not from BCBS. Not from the exchanges.
  • Pay the personal tax penalty each year. It is expected to be $95 per person in 2014 or 1% of modified gross income
  • Save all the money you would have paid in health care premiums and put it in a diversified growth fund. For self-employed individuals with HSAs now, that could be $500-$800/month or between $6000-$9600/year you would be setting aside to pay for most of your medical expenses.
  • And if you find yourself in need of a major hospitalization or treatment, sign up for Obamacare on your way to the hospital since, as we all know by now, 'you can't be turned away for any pre-existing condition'.
Finding out you have cancer would certainly qualify as a 'pre-existing condition', wouldn't you think? Just sign up on a new specially designed app on your IPhone on the way to the hospital. You will have then covered yourself in the case of catastrophic bills and saved a ton of money in the interim.

Very few people each year account for the largest percentage of costs in the healthcare system. Many are in their last few months of life for example and have failed to properly execute a living will that would take them off of the respirators when the doctors determine death is imminent and there is no need to keep a patient on (expensive) artificial life support and machines.

So the chances of you actually experiencing a catastrophic event in any given year is very small. Tiny in fact.

If Obamacare has so scrambled the eggs of our current privately-based healthcare system in America that you can not get a reasonably-priced high-deductible HSA any longer, you may want to consider this strategy after consulting with your financial counselors and accountants.

If you pay the $95 or 1% tax penalty, it is almost impossible to see how you will pay less than that for any form of health care offered now on the exchanges or by your current provider if you have a HSA or similar health care insurance plan.

Think about it: You will be starving not only the Obamacare exchanges of money they thought you would pay into their convoluted plan, you will also be starving your current health insurance plan of monthly premiums they were counting on you paying after they jacked up the premiums 2-3 times the current amount.

You get to thumb your nose at both Obamacare AND the Big Bad Insurance Companies, many of which thought Obamacare would be a boon to their business.

You can make it be a 'boom' for both and force everyone to go back to the drawing boards again and 'start over from the beginning'.

There are better ways to fix our healthcare system in America. We can, and have, put men on the moon...and we can't logically and systematically fix the system that is supposed to help keep us healthy?

*List of Current US Senators Who Voted For Obamacare in 2009/10, all Democrats and who's seat is up for election in 2014
Mark Begich (Alaska) (likely goes Republican)
Mark Pryor (Arkansas) (could go Republican)
Mark Udall (Colorado)
Mary Landrieu (Louisiana) (could go Republican)
Al Franken (Minnesota)
Max Baucus (Montana) (likely goes Republican)
Jeanne Shaheen (New Hampshire)
Tom Udall (New Mexico)
Kay Hagan (North Carolina) (could go Republican)
Jeff Merkeley (Oregon)
Tim Johnson (South Dakota) (likely goes Republican)
Mark Warner (Virginia)
Jay Rockefeller (West Virginia) (likely goes Republican)
**How the ObamaCare Tax Penalty Works

Your tax penalty (shared responsibility fee) for not having insurance is paid on your taxes at the end of the year. If your taxable income is below 133% of the FPL you are exempt from this tax.

2014 = $95 per person per year or 1% of your Income
2015 = $325 per person per year or 2% of your Income
2016 = $695 per person per year or 2.5% of your Income
2017 = Tax Penalty will increase by the rate of inflation going forward, or 2.5% of your Income

• The penalty is based on modified adjusted gross income.

• The total penalty for the taxable year cannot exceed the national average of the annual premiums of a bronze-level health insurance plan offered through the health insurance marketplaces.

• The maximum penalty per family is capped at no more than 300% of the minimum penalty (e.g. $695 x 300% = $2,085)

• Children under 18 are assessed at 50% of the minimum penalty.

• The penalty is pro-rated for the number of months you are without health insurance, though there is no penalty for a single gap in coverage of less than 3 months in a year.

• Health insurance plans will provide proof of coverage for their customers so as long as you have health insurance you don't have to worry about the details.

**From the 'Obama Care Facts-Dispelling The Myths' website. Click on it and see all the other 'lies' they have dispensed with such as 'You can keep your health care plan if you want to' and 'You can keep seeing your doctors if you want to'

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Friday, November 1, 2013

'Unaffordable Group Healthcare' or 'UGH': 129 Million People To Lose Healthcare Coverage

'UGH-Unaffordable Health Care'
'The Patient Protection and Affordable Care Act'. 'PPACA' for short.

That is what Obamacare started out being called as it went its way through Congress in 2009 before being signed into law in 2010. It is now just the 'ACA' for real short.

We would like to propose a new name for it:  'Unaffordable Group Healthcare'.

'UGH' for short.

We understand the purpose of the ACA:  Help people now uninsured be able to get health care insurance coverage. That has been the Holy Grail of health care and budget wonks for decades now in America.

However, we also learned in Washington about the 'Law of Unintended Consequences'. It ALWAYS 100% applies to every single piece of legislation, regulation and rule-making that has ever been done in Washington or ever will be done in Washington.

Mankind just is not omniscient. No matter how hard we try.

535 American lawmakers in Congress plus a President in the White House just can not be smart enough to imagine and prepare for every decision made by 310 million citizens, each of whom make thousands of rational cost/benefit decisions for themselves each and every single day of their lives.

In 2010, the Democratic majority in both the House and the Senate passed the 'UGH' and President Obama proudly signed it into law.

Now we are finally starting to learn 'what was in the 2000+ page bill' which is why then-Speaker Nancy Pelosi said we 'had to pass the bill in the first place'.

And it is chock full of 'unintended consequences' (or maybe not? Maybe it was fully intended 'consequences' as the first step towards single payor health in America after the private sector health insurance market was totally destroyed?....hmmm...we wonder)

Obamacare has gotten off to a dreadful start. When the late night comics lead every single night with another scathing attack on 'UGH', including former cheerleader Jon Stewart of the Daily Show, well, that is like LBJ lamenting the loss of Walter Cronkite when Cronkite declared that the Vietnam War was simply unwinnable.

Please take a good long hard look at this piece by Chris Conover an expert in health care at Duke University's Sanford School of Public Policy and Fuqua School of Business and a contributor to Forbes Magazine before you do anything else today: 'No, David Axelrod, 'The Vast Majority of People In This Country' Are Not Keeping Their Plan'

In it, he details exactly why close to 129 Million people in this nation are most likely to lose their existing health care coverage, including the 16-18 million who have already had notices sent to them from their insurance companies notifying them that their individual health plans, such as the HSA we were on, are not 'UGH-compliant'.

He also points out how the vast majority of people who now think they are 'safe' from the ravages of UGH because they are on a corporate health plan are probably soon going to be dumped into the exchanges by their employer when the employer realizes he/she can make millions more flow to their bottom line by simply paying the tax penalty for each employee each year and saving about $6000-$8000 per employee by ending their corporate sponsored health plan.

After all, a business is in business to make money. Not to be a health care coverage dispensing machine like some Coca-Cola or Pepsi soda machine in the break room.

Believe it or not, we actually don't blame President Barack Obama or his wife Michelle. They were pretty open about what they intended to do in 2008 if they won the White House with these following comments:
  • 'We are going to have to change our conversation; we’re going to have to change our traditions, our history; we’re going to have to move into a different place as a nation.' — Michelle Obama, May 14, 2008
  • 'We are five days away from fundamentally transforming the United States of America.' — Barack Obama, October 30, 2008'
If you are unhappy about the loss of your individual plan, or the pending loss of your corporate plan, or the doubling or tripling of your health care costs at any age, but especially in the 26-40 age cohort, and you voted for this 'fundamental change' in 2008, you have no one else to blame but yourself.

The only thing you can do next is to vote against every incumbent still sitting in the US House or Senate who voted for UGH in the first place and replace them with someone who will repeal it and/or vote to substantially reduce it and change it in a radical manner.

Voting for an untested, unseasoned freshman Senator from Illinois, Barack Obama in 2008 might have seemed to be historic in nature to you at the time.

Well, it certainly has proven to be 'historic' in many ways so far: NSA; IRS; wiretapping; Benghazi and the list goes on. UGH might be his most enduring 'historic' trademark going forward. Mostly bad.

Just watch and see.

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