The US Economy: Myth and Reality

Standard

Don’t drink the Kool-Aid.

The administration is boasting about a jobs report that is at best mediocre. The facts  are:

  • We added 200,000 new jobs last month. Prior to the 2008 crash, we the standard for a robust economy was 300,000 jobs.
  • Wages are stagnant.
  • The number of workers holding multiple jobs to make ends meet is increasing.
  • The number of people who are underemployed (working part time when they want full time employment, or at a job below their qualifications) is static.
  • Labor force participation remains at or near the low following the 2008 crash.
latest_numbers_LNS11300000_2007_2017_all_period_M07_data

Source: Bureau of Labor Statistics

As I’ve stated previously, the unemployment number is an artificial misrepresentation of reality. That number excludes anyone not activity seeking work. After 26 weeks, when unemployment insurance expires in most state, there’s no reason for anyone to report whether they are looking for work or not. These “long term unemployed” aren’t included in the unemployment rate calculation.   That’s why the labor force participation is the more meaningful number. (By the way, other countries don’t misrepresent unemployment the way the US does.)

The real numbers are buried in data reported by the Labor Department.

US non-institutionalized population:          255,155,000
In labor force:                                                  160,494,000 (b)
Unemployed in labor force:                              6,981,000 (a)
Not in labor force:                                             94,657,000
Want job, not in labor force:                             5,420,000 (c)

The unemployment rate as reported is a/b. That’s currently the widely reported 4.3% figure.

The more accurate rate is (a+c)/(b+c).  That’s 7.4%.  And that number doesn’t address under-employment.

A classic case of underemployment is the insurance industry. The industry primarily uses unsalaried “independent” agents (people who get paid on a commission basis) and the washout rate for first year agents exceeds 98%. Yet, until they washout, the government considers them employed.

Why the high washout rate? Well, as a ballpark, with supplemental insurance (accident, cancer, etc.), an agent makes $100 per policy sold. For a first year agent to make an income that exceeds poverty level requires the sale of 150 policies, not impossible, but not easy to do when there are millions of others trying to do the same thing, and a lot of viable prospects already have policies with which they are satisfied.

Another contrary indication about the economy is per capita gasoline use.  It’s down 18% from before the recession in 2008.  Of course there are several other factors contributing to that decline:

  • Improvement in car fuel economy and introduction of hybrid cars
  • Re-urbanization, and millennials move into city centers, with a reduction in car ownership
  • Replacement of car ownership with Zipcars, Uber and Lyft
  • The growing population of seniors who drive less
  • Replacement of face-to-face contact with social media and Skype

However, a key element underlying these factors is that cars have become unaffordable for many consumers. Between car payments, parking and insurance, the cost is simply too high for too many.

73057908c522843bf52dd94d09cb1882.png

Recovery? What recovery?

Prudence says to prepare for a slowdown in housing and another round of layoffs. 

Unless you see a mushroom cloud on the horizon on some future morning.

In that case, the economy will be irrelevant.

 


Sources:

  1. Pedro Nicolaci da Costa, “The number of Americans holding multiple jobs is sending a ‘troubling’ message,” Business Insider, 8 August 2017. https://www.aol.com/article/finance/2017/08/08/the-number-of-americans-holding-multiple-jobs-is-sending-a-trou/23070442/?brand=finance&ncid=txtlnkusaolp00002412
  2. https://data.bls.gov/timeseries/LNS11300000
  3. Jill Mislinski, “Gasoline Volume Sales and our Changing Culture,” Adviser Perspectives, 24 July 2017. https://www.advisorperspectives.com/dshort/updates/2017/07/24/gasoline-volume-sales-and-our-changing-culture

Drug Profits in the US: Who Gets What?

Standard

Conflicts-of-interest in the distribution of prescription drugs are driving health pillsinsurance costs higher in the US.

The Wall Street Journal analysis uses the example of the EpiPen, a drug used to counter life-threatening allergic reactions.

The example illustrates two points about prescription drug distribution in the US:

  • Who the players are
  • How the system misfires

The bottom line is that many consumers are being incentivized to use the more expensive brand name product rather than much less expensive generic version. Insurers are eating the costs of the brand name version, which in turn shows up in insurance rates for the following year.

To be clear, this is the private sector misfiring on its own, with tacit permission from Congress.

Pharmaceutical distribution in the US involves six players. The profit percentages are based on the EpiPen example and will vary for  other drugs and insurance plans. In that example, at a list price of $300, the actual money changing hands with insurance is $220. (The consumer without insurance is out the full $300, but that’s another issue.)

  • The consumer who buys the drug ($35 out of pocket)
  • The plan sponsor or insurer who pays much of the cost of the drug ($185)
  • The pharmacy, which earns 7% on the drug (in this case, $16)
  • A wholesaler, which may take a 1% profit on the drug ($3)
  • The drugmaker (62% or $137)
  • The pharmacy benefit manager (PBM, 8% or $18)

(The numbers are approximately and don’t add up because of other markups, discounts and rebates involved in the prescription process.)

The benefit manager is the player with which most consumers are unfamiliar. His/her job is to design benefit plans and negotiate discounts and rebates with drugmakers that are distributed to pharmacies and wholesalers.

The benefit manager is potentially subject to a conflict of interest. In the EpiPen case, the Journal asserts that the benefit manager receives a higher fee for designing plans that promote the use of the more expensive brand name drug. Thus a plan may

  1. Feature the same out of pocket cost (copay) to the consumer for the brand name as for the generic, even though the actual cost of the two is quite different; or
  2. Offer a lower copay for the brand name.

An attentive pharmacist will recommend that the consumer buy whatever is less expensive — the pharmacist has no direct concern with what the insurer pays, and may not in fact know. CVS, for example, does not provide that information it its staff.

This isn’t the first time that analysts have flagged conflicts of interest with PBMs. The issue has arisen previously with regard to

  • Major pharmacy chains having in-house PBMs
  • PBMs owning mail order pharmacies.

In both cases, the PBM has an interest in maximizing its own revenue rather than minimizing costs to insurers, plan sponsors or consumers.

How can this happen? Pretty easily actually, if the plan sponsor or insurer is inattentive to what the benefit manager is doing.  With the myriad of drugs on the market, this inattention is understandable if not excusable.

Interesting question: Who’s better at policing drug prices — traditional insurers or large companies running self-insured drug plans? Or is there a different?

What you need to consider:

  1. As a consumer, it’s in your interest to buy generic drugs even if the brand name has the same copay — if the brand name and copay are equally effective. Someone is paying the higher price for the brand name, and that extra cost will show up in insurance rate increases in your future.
  2. Drug companies may offer coupons for both brand name and generic products, but may only distribute the coupons for the brand name. You may have to ask to get the coupon for the generic.
  3. You always need to ask the pharmacist if a generic is available for any brand name prescription. Ignorance can hurt you.

 


Sources:

  1. Jonathan Rockoff, “Behind the Push for High-Price EpiPen,” The Wall Street Journal, 7 August 2017, page B3.
  2. Applied Policy, “Concerns Regarding the Pharmacy Benefit Management Industry,” November 2015. http://www.ncpa.co/pdf/applied-policy-issue-brief.pdf
  3. Brian Friedman, “Big pharmacies are dismantling the industry that keeps US drug costs even sort-of under control,” Quartz, 17 March 2016. https://qz.com/636823/big-pharmacies-are-dismantling-the-industry-that-keeps-us-drug-costs-even-sort-of-under-control/
  4. http://www.pbmwatch.com/conflicts-of-interest.html

Situational American Morality

Standard

A new study from the University of Illinois at Chicago has implications for both politicians and advertisers — and should scare anyone who cares about ethics.

The study involved having consumers

. . . read a political monologue about federal funding for Planned Parenthood that they believed was previously aired over public radio.

Respondents were randomly assigned one of two feedback conditions where upon completion they were informed that the monologue they had just read was either true or false.

Consumers were then asked whether they felt the monologue was justified. The bottom line:

  1. If the consumer agreed with the monologue, they were less critical of it, regardless of whether they were told it was true or false.
  2. If the consumer disagreed with the monologue, they were more critical of it regardless of whether they were told it was true or false.

In other words, in today’s America, it doesn’t matter if someone is telling the truth or lying as long as the consumer agrees with what they are saying. Functionally, that’s a blank check for a politician or advertiser to say anything as long as it includes something the consumer wants to hear.

Unfortunately, this “culture of lying” has consequences. It affects where people want to live, work and spend their money.

As an Airbnb host, we’ve been getting an earful from foreign travelers who don’t want to live here as well as workers who are asking for transfer back to their home countries. We have a doctor who views the level of medical errors in the US as unacceptable and disgusting. We have the Irani who says that, if she becomes ill, she will return to Iran for treatment rather than seek treatment in the US. We have a mother from Europe who is leaving so her daughter won’t become “Americanized”. We have the black teacher who grew up in the US and now works in Saudi Arabia, and says that her quality of life is better there than it ever was in the US.

We have the realtor from Kansas who lives in an American enclave near Mexico City and has seen a 41% increase in sales to Americans moving south this year. Mexico claims that it has 2 million Yanquis living there, most undocumented immigrants. South Korea has close to 1 million Yankee civilians; there are other large pockets in UK, Saudi Arabia, Costa Rica, Australia and other countries. The US Government itself is mum on the number of Americans leaving the country. (All of these numbers exclude military and government personnel stationed outside the US.)

A primary complaint among expats is that they want to escape what the US political culture has become. That brings us back to our topic — the moral acceptability of lying.

For some of us, lying remains unacceptable regardless of the excuse.


Sources:

  1. Allison B. Mueller, Linda J. Skitka. Liars, Damned Liars, and Zealots. Social Psychological and Personality Science, 2017; 194855061772027 DOI: 10.1177/1948550617720272
  2. University of Illinois at Chicago. “We tolerate political lies for shared views, study suggests.” ScienceDaily. ScienceDaily, 3 August 2017. <www.sciencedaily.com/releases/2017/08/170803145640.htm>

ACA, Next Act

Standard

Karma in politics?

The states that are getting shafted by extreme increases in health insurance costs for 2018 are the ones that voted for Trump last year.

The Wall Street Journal identifies five states in which insurers are asking for rate increases that are close to or higher than 30% for 2018. These are

  • Idaho
  • West Virginia
  • South Carolina
  • Iowa and
  • Wyoming

These aren’t wealthy states, and that increase is going to make health insurance unaffordable for many residents.

In turn, that will put the uninsured back into receiving medical care in emergency rooms. Hospitals add the cost of ER care for the uninsured to the bills of other patients, which means that hospital charges (and group health rates) will increase for everyone else.

Some states have avoided this, notably New York and Pennsylvania. It might be instructive to compare what the administrations in those states have done differently. I suppose it’s coincidental that the states avoiding huge rate increases have Democrats as governor?


Sources:

  1. “Some Insurers Seek ACA Premium Increases of 30% and Higher,” The Wall Street Journal, published online, 1 August 2017, 8:45PM.

Access to Health Services

Standard

The US doesn’t provide equal access to health services.

That’s not up for debate. The Centers for Medicare and Medicaid Services has created a set of interactive charts showing who has access and who doesn’t.

The example below is for home health services. Basically, nursing homes/rehab facilities are expensive. The average cost of nursing home care is $9,200 per month. That’s  more than many families can afford. That’s especially true for seniors, as Medicare only covers the first 100 days of nursing home care. The rest is the responsibility of the patient.

The viable alternative to nursing home care is home care, but families sometimes require assistance from trained professionals in providing this care. At $3,600 per month, that’s a lot less than a nursing home, although still not cheap.

Unfortunately, a skilled facility isn’t always available.

The map shows the average number of home health care providers per county.

  • Certain states are well provisioned: Arizona, California, Connecticut, Florida, Illinois, Massachusetts, Michigan, Nevada,, Ohio, Oklahoma, Texas and Utah.
  • Certain states aren’t: Arkansas, Iowa, Kentucky, Mississippi Montana, North Dakota, South Dakota, West Virginia and Wyoming.

chart

When we look in detail at the better served states, we see that services are primarily in urban areas. Smaller towns and rural areas are poorly served. The examples of Illinois and Texas are shown below. In Illinois, services are concentrated around Chicago and the St. Louis suburbs. In Texas, the concentrations are around Dallas, Austin and Houston. West Texas is relatively poorly served.

chart(1)

chart(2)

(Sorry about the chart titles: that’s a problem with the jpeg download from the CMS site. The titles are supposed to read “Home Health — Average number of providers per county”)

Why don’t voters hold their politicians accountable for the lack of services?

For that matter, since Mississippi and West Virginia are at the rock bottom on almost every measure of quality of life, why does anyone live there?


Sources:

  1. https://data.cms.gov/market-saturation

Opiod Deaths and State Law

Standard

There were 71,000 fatal drug overdoses in the US in 2014. Roughly 2/3 of these (47,000 deaths) involved opiods, rather than heroin, cocaine or other substances. To put that in perspective, there were 13,472 murders in the US in that year.(2) Yes, opiod addiction is a big deal.

Opiod overdose requires immediate treatment. Those overdosing are usually not alone, but companions may be afraid to call 911 for fear of arrest and prosecution. Some states, primarily in the Northeast, have passed “Good Samaritan” laws exempting callers from prosecution, but the level of protection provided by these laws varies from state to state. Vermont provides expansive protection. Ohio has limited protection, excludes those on parole from being Good Samaritans, and provides loopholes that can enable other prosecutorial action.

Here’s another drug war we can lose.

Ad hoc, fragmented, uncoordinated state laws accomplish nothing expect filling for-profit prisons and increasing taxes. Punishment for addiction makes little sense. Rehabilitation is nonexistent.


Sources:

  1. Steven H. Linder, MD; Kathryn K. Hodge, MD; Evan M. Baker, PharmD; Lisa C. Huang, MLS, “Opioid Overdoses: Prosecution Risk and the Need for Naloxone,” Medscape, 26 July 2017. http://www.medscape.com/viewarticle/883080?src=wnl_mdplsnews_170728_mscpedit_wir&uac=153634BV&impID=1399244&faf=1
  2. https://ucr.fbi.gov/crime-in-the-u.s/2014/crime-in-the-u.s.-2014/tables/table-12

 

ACA: Equality and Justice for All

Standard

Every ACA repeal bill offered by the GOP this year has been a horror show, designed to cut taxes for the affluent while raising costs and reducing access for everyone else. The backstory of the healthcare debate has been to free up government funds to enable tax cuts primarily for the wealthy.  It’s not good health policy and it’s not good economic policy. It’s greed, nothing more.

If you believe in the concept of fairness, if you believe that the Declaration of Independence isn’t just a scrap of paper, or if you believe that the Preamble to the Constitution is meaningful, then you have two new heroes this week.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

These are rights for everyone, not just the more fortunate.

So let me introduce to you the two major risk takers of the Senate, Lisa Murkowski (Alaska) and Susan Collins (Maine). Senator McCain could kill the bill because these two stood firmly against it. It’s called placing citizens and Country above party and donors.

170728081701-john-mccain-300x169c14260ac0349f1370751c9bff4845658

(Source: Huffington Post)

Full disclosure: There are parts of the GOP bills that would have helped me. However, I’m not willing to place my own interests ahead of what I know to be true and just. Rich or poor, we are all fellow travelers to the grave. Or as the country song says, “never seen a hearse with a luggage rack.”