US Economy: the incredible shrinking farmer

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The US has lost its dominant position in global agriculture. The Wall Street Journal reports that since 1985, the US share of global sales has shrunk from

  • Soybeans: 77% down to 38%
  • Corn: 56% down to 37%
  • Wheat: 30% down to 15%

Brazil alone farms the same amount of land for soybeans as does the US, and has almost matched the US in annual production.

US farmers are now watching weather and crop reports for Brazil in order to time when to sell crops.

While farming is much less important to the US economy than it was in the 1920s, weakness in the sector was cited as a contributor to the Great Depression. It certainly contributes to balance of payments issues today.


Sources:

  1. Jesse Newman and Jacob Bunge, “U. S. Farmers Fall Behind New Powers,” The Wall Street Journal, 11 April 2017, p.1.

Sources of a No Growth Economy

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ben_franklinYounger people are putting off marriage, children and buying  homes because they lack financial security — unstable jobs and too  much student loan debt.

That’s one of the interpretations of a new report from the Census Bureau on Millenials. (1)

In looking at generational change, the report compares 18 to 34-year-olds in 2016 versus 1975.  In looking at just the older portion of this group, 25 to 34-year-olds, there are striking differences:

  • 1975: 45% lived on their own, were working, had married and had a child.
  • 2016: 24% live on their own, are working, have married and have a child.

From the point of view of the economy, the difference is huge. Buying a home drives spending on furniture and appliances, as well as painters and a range of other services. Having children drives demand for larger cars and clothing. Doing neither reduces spending in all of these categories.

The average income for 25-34-year-olds in 1975 was $30,101. In 2016, it was $43,751. That sounds good until you factor in inflation.

  • A salary of $30,101 in 1975 dollars is worth $134,283 in 2016 dollars.
  • The percent of people with student loans has climbed from 17% in 1975 to 41% today.

More people have gone to college, but they’re paying more for education in order to earn functionally less than their parents.

The report also notes that among the growing percentage who live with their parents, there are issues with health or grandchildren that interfere with employment. There’s also an issue with a cohort of younger white males who lack a college degree and have very limited employment prospects.

As long as politicians ignore these trends, efforts to keep the economy going will run out of steam.  In this context, Andrew Cuomo, the government of New York, seems especially prescient in eliminating college cost as a burden for many New York residents.

 


Sources:

  1. Vespa, Jonathan, “The Changing Economics and Demographics of
    Young Adulthood: 1975–2016,”Current Population Reports,P20-579, U.S. Census Bureau,Washington, DC, 2017.

ACA Rule Changes

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If you were waiting for changes that would actually help consumers, don’t hold your breath.

Absent the actual repeal the administration sought, it announced rule changes late yesterday affecting consumer access to healthcare and the percent of costs health insurance will cover under marketplace plans. The point of the changes is to incent insurers to continue offering health insurance on the ACA marketplaces. The technical term for this is “market stabilization.”

A cynic might wonder why these changes come out on the even of holidays when most people will be distracted and might not notice.

The rule changes focus on what the insurance industry calls “adverse selection.” Insurers are concerned about people buying coverage only when they expect they will use it, and then dropping it immediately — which forces the insurer to take a loss on the policy.  The rule changes are designed to prevent that.

Here’s the basics:

  • Silver level plans will cover 66% of consumer medical costs, down from the original 70% requirement.
  • The new rules increase also increase subsidies to consumers buying these plans — provided the administration actually commits to making these payments.

At issue are cost-sharing payments that low-income people enrolled under the healthcare law receive to help cover out-of-pocket expenses. Trump has threatened to withhold the payments as a means to force Democrats to negotiate on healthcare legislation.(2)

[Actually, these subsidies can help people making up to $60,000 per year, which is more than “low income.” Half of US households earn less than that.]

  • As previously noted, the enrollment period is being shortened from three months to six weeks, starting November 1st.  Given the problem that CMS has had in handling the volume of people applying for coverage in the longer period in the past, it’s essential for consumers to apply as early as possible.
  • The administration is making it harder for consumers to qualify for special enrollment periods (SEPs). More people will be required to submit supporting documentation than in the past, which will extend the time required for enrollment. If approval is delayed by three months, the consumer will be required to pay for coverage for two of those months.
  • Consumers are being restricted in terms of their ability to change levels of coverage using a SEP.
  • Insurers can refuse to cover people who have failed to pay premiums for this insurance in the past. If you’ve had coverage and dropped it, you may have to wait a year or more before being able to get coverage again.
  • The determination of whether an insurer has an adequate network of doctors and hospitals in a state will be turned over to the state. Some states are much more rigorous than others.

The new rules don’t address some of the key issues challenging insurers:

  • Will the government continue to pay subsidies to help people afford insurance?
  • Will the government use financial penalties to force consumers to carry insurance?

Trump has said that he would eliminate the penalties and the subsidy, but his bill didn’t pass and no one knows about  his current thinking. A negative on the first question will drive insurers out of the market. A negative on the second will raise costs for everyone who needs insurance.

There’s speculation that the reduction in benefits for the silver policy might allow insurers to reduce the cost of these policies. However, any reduction will be subject to higher out-of-pocket costs for consumers who do incur expenses. The net impact isn’t clear.

Are these rule changes even needed? The Congressional Budget Office has stated that it expected the insurance markets to be stable in 2017 without these changes.  So, what is the point?


Sources:

  1. Virgil Dickson, “White House finalizes ACA rule to strengthen individual market,” Modern Healthcare, 13 April 2017. http://www.modernhealthcare.com/article/20170413/NEWS/170419936?utm_source=modernhealthcare&utm_medium=email&utm_content=20170413-NEWS-170419936&utm_campaign=am
  2. Associated Press, “Democrats seek to resolve health payments on spending bill,” 14 April 2017.
  3. Timothy Jost, “Examining The Final Market Stabilization Rule: What’s There, What’s Not, And How Might It Work?” Health Affairs Blog, 14 April 2017. http://healthaffairs.org/blog/2017/04/14/examining-the-final-market-stabilization-rule-whats-there-whats-not-and-how-might-it-work/

ACA Repeal: Here we go again

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According to one report, VP Pence has offered three changes to the repeal bill to win Freedom Caucus support for the Trumpcare bill:

  • Elimination of requirements for what insurers must cover
  • Eliminating coverage for pre-existing medical conditions
  • Eliminating limits on what insurers can charge people with medical conditions

Whether the bill can retain any support among moderates in the GOP with these changes is questionable. These provisions will cause problems for hospitals and healthcare providers, and result in more people having no health insurance coverage, and may allow a sharp increase in insurance prices for consumers, as the Congressional Budget Office has predicted.

This simply makes a terrible bill worse.


Sources:

  1. Marlene Satter, “Freedom Caucus would support health care bill that kills 3 ACA provisions,” BenefitsPro, 10 April, 2017. http://www.benefitspro.com/2017/04/10/freedom-caucus-would-support-health-care-bill-that?kw=Freedom%20Caucus%20would%20support%20health%20care%20bill%20that%20kills%203%20ACA%20provisions&et=editorial&bu=BenefitsPRO&cn=20170413&src=EMC-Email_editorial&pt=Consumer%20Driven%20PRO

British Columbia bans mandatory high heels at work

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I’m sure there will be mixed comments on this, but it makes sense for several reasons:

  • Safety
  • Comfort
  • Productivity
  • Gender equity

As noted in a previous blog, US emergency rooms treated an average of more than 12,000 injuries each year between 2002 and 2012, and the trend is increasing. (1)

Health insurance costs being what they are, how does requiring employees to wear heels make any sense?

So, one Canadian province has taken action. (2) The government of British Columbia has stipulated that employers can no longer require high heels as part of a work dress code.

Very intelligent.  No wonder people live longer in Canada.

This discussion calls to mind a classic issue that has arisen in relation to motor cycle helmets, seat belts, physical fitness, impaired driving, and vaccines — an individual’s actions affect others.

What do you do when one person’s choice can raise health insurance costs for everyone else? Each person who pursues a risky behavior adds a small increment to the costs borne by health insurers, and the little pieces add up. Of course, the health insurer response is to raise rates to cover these costs. Everyone who has insurance pays more. 

US public policy in this area is at best erratic. Some rules support individual liberty; some what is best for the majority. Very inconsistent.


Sources:

  1. Mary Elizabeth Dallas, “Injuries from high heels on the rise,” Spectrum Health Healthbeat, 13 JUne, 2015. http://healthbeat.spectrumhealth.org/injuries-from-high-heels-on-the-rise/
  2. Jamie Feldman, “New Canadian Law Bans Mandatory High Heels At Work,” Huffington Post, 10 April 2017. http://www.huffingtonpost.com/entry/high-heels-at-work_us_58eba4b9e4b0c89f9120220c?arq&utm_medium=email&utm_campaign=Lifestyle%20041017&utm_content=Lifestyle%20041017+Version+A+CID_8acfd2db7513e868287551b794356c32&utm_source=Email%20marketing%20software&utm_term=Read%20more&%20041017

Free College Tuition: a new reality in USA

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Free college tuition — it’s back!martin-luther-king-anger-quote1

There has been a continuing debate as to whether college education is a privilege or a right of citizenship. In an age in which demand for unskilled labor is fading, will people without college be employable in 10 or 20 years?

The US has taken one position on this; Europe and the Commonwealth countries, the opposite. Today, it’s possible for a US family to put four children through college in Europe at the price of sending one to college in the US. For Europeans in several countries, college is free.

In the “golden age” of the US economy after World War II, college was either free or very inexpensive in the US. When I was in high school, City College of New York and the University of California still were free to residents.  Ronald Reagan eliminated free tuition in California.  New York was earlier.

On February 7th, San Francisco because the first city in the current era to offer free community college education.

San Francisco Mayor Ed Lee announced at a press conference yesterday that, starting next fall, community college will be tuition-free for all San Francisco residents through the City College of San Francisco.

As first reported by the San Francisco Chronicle, San Francisco would become the first city in the nation to make community college free to all city residents. Any student who has lived in San Francisco for at least one year – regardless of income – is eligible.

“To California residents who are living in San Francisco, your community college is now free,” Lee said at the press conference. (1)

New York Governor Andrew Cuomo announced a plan in January to make all state, city and community colleges free to residents. There is now a bi-partisan budget deal to make that a reality.

Budget negotiators struck a deal late Friday that could make New York the largest state to offer tuition-free public higher education.

The $163 billion state budget agreement includes the Excelsior Scholarship, which covers tuition for any New Yorker accepted to one of the state’s community colleges or four-year universities, provided their family earns less than $125,000 a year. (2)

Interesting question: Why would you want to live in an expensive state like New Jersey when your kids can attend college for free next door? Or leave San Francisco for anywhere?

 


Sources:

  1. Zack Friedman, “Free College: San Francisco Joins New York With Tuition-Free Plan,” Forbes, 7 Feb. 2017. https://www.forbes.com/sites/zackfriedman/2017/02/07/free-college-san-francisco/#590c8b482bb6
  2. Danielle Douglas-Gabrielle, “New York set to become first state to offer free tuition at public four-year colleges,” The Washington Post, 8 April 2017. https://www.washingtonpost.com/local/education/new-york-to-become-the-largest-state-to-offer-tuition-free-public-higher-education/2017/04/08/3fe0563a-1c8b-11e7-9887-1a5314b56a08_story.html?tid=sm_tw&utm_term=.e16eea88beb6

 

Just how smart are you with your money?

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The Future is coming, whether you like it or not. In fact, some parts are going to be very ben_franklinpositive, and some aren’t. You have to be prepared to deal with both. The sooner you start to prepare, the lower your costs will be!

We like to think about buying a house, buying a car, fancy weddings, babies and graduations. We don’t like to think about down payments, maternity costs or paying for college. However, as economist Milton Friedman famously wrote, “there’s no such thing as a free lunch.”

The statistics are simple.

  • The average life expectancy (LE) in the US is 78.8 years (1) — shorter for the poor and Southerners; longer for women and the affluent.
  • The healthy life expectancy (HLE) in the US is 68.1 years. By comparison, the HLE for Bosnia is 68.8 years and for Canada it’s 72.3 years. (3) HLE in the US varies by state and is shorter for Southerners. (2)
  • The difference between LE and HLE is the amount of time you can expect to have to deal with some kind of physical impairment. In the US, that amounts to a decade of trouble on average.

A new study confirms what people with elder parents already knew: older people need help with daily living. Even if they are fairly independent, both finances and medications can get out of control. They may not have or want to be dependent on family members to manage either.

Over 10 years, 10.3% of those aged 65 to 69 needed help managing medications and 23.1% needed help managing finances. These rates rose with age, to 38.2% and 69%, respectively, in those over age 85. Women had a higher risk than men, especially with advancing age. Additional factors linked with an increased risk for both outcomes included a history of stroke, low cognitive functioning, and difficulty with activities of daily living. (4/5)

There are resources, but they aren’t free.

  • The average cost of in-home healthcare in the US is $3,600 per month, as I mentioned in a prior blog. The average cost of a nursing home is $9,200 per month. Medicare can pick up the first 100 days. One of the Trump proposals for Medicaid reform involves eliminating Medicaid as a way to deal with these expenses.
  • There is a  category of professional, “daily money managers.” These aren’t financial planners, but they deal with records management, budgeting, checking the validity of expenditures, and bill payment. Costs for these services vary but can start at around $450 per month. (6) Not only do they keep things together for their clients, they are an important line of defense against scammers preying on seniors.

So, how are your parents going to deal with this? How are you going to deal with this when it’s your turn?

These problems are  best addressed when you do what most people don’t — act early on them.

  • Set aside dedicated savings for retirement.
  • Purchase permanent life insurance with a rider that allows you to take up to 50% of the face value of the policy for disability and long term care expenses. (7)

Both of these actions are best done earlier in life rather than later

  • Starting savings early allows the most time for compounding of interest.
  • Starting life insurance early minimizes cost. Insurance premiums are directly related to the length of time the carrier expects to have your money before they have to pay out. The earlier you buy, the less it will cost and the more you can afford. For example —
    • In NJ, for a woman age 24 non-smoker, a new $200,000 whole life policy might cost $113.68 per month.
    • In NJ, for a woman age 44 non-smoker, the same policy would cost $365.08 per month.
    • In NJ, for a woman age 59 non-smoker, a new $100,000 policy would cost $395.08. From the carrier used to quote these examples, a $200,000 whole life policy would not be available for someone that age.

With age, the price goes up and what you can buy goes down.

Procrastination costs you money. Don’t put this off.

If you practice a healthy life style, you can try to minimize the gap between LE and HLE, but you can’t count on eliminating it. There are just too many factors outside of your control (e.g., ice, drunk drivers, pollution, etc.).

 


Sources:

  1. Centers for Disease Control and Prevention, “FastStats,” 17 March 2017. https://www.cdc.gov/nchs/fastats/life-expectancy.htm
  2. Centers for Disease Control and Prevention, “State-Specific Healthy Life Expectancy at Age 65 Years — United States, 2007–2009,” 19 July 2013. https://www.cdc.gov/mmwr/preview/mmwrhtml/mm6228a1.htm#fig1
  3. World Health Organization, “Healthy Life Expectancy at Birth — 2000 to 2015,” http://gamapserver.who.int/gho/interactive_charts/mbd/hale_1/atlas.html
  4. Nienke Bleijenberg, Alexander K. Smith, Sei J. Lee, Irena Stijacic Cenzer, John W. Boscardin, Kenneth E. Covinsky. Difficulty Managing Medications and Finances in Older Adults: A 10-year Cohort Study. Journal of the American Geriatrics Society, 2017; DOI: 10.1111/jgs.14819
  5. Wiley. “Many older adults will need help with managing their medicines and money.” ScienceDaily. ScienceDaily, 7 April 2017. <www.sciencedaily.com/releases/2017/04/170407113035.htm.
  6. For those in the NJ area, I have a friend, Nancy Sobin, who offers these services. Please see her at http://paperwork-services.com/. She belongs to the American Association of Daily Money Managers, http://www.aadmm.com/.
  7. There are some companies that offer these riders for term insurance, which is much less expensive than permanent. The problem is that term insurance typically terminates by age 65, and home or nursing home care expenses typically start after that age. There’s no point having a rider that’s not going to be in force when you need it.