ACA Repeal: The Latest

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The Senate proposal is out. The proposed law is 142 pages of (perhaps unnecessary) complexity, and, given the rushed nature, probable errors. But it’s out.

It’s not out in time to prevent damage for 2018.

  • Withdrawal of insurers: Aetna notified agents that it will be withdrawing from individual markets in 18 states. Notices to policy holders will be sent on or about July 1st. Other firms have announced withdrawals from a few states, most particularly Iowa and Indiana.
  • Heavy rate increases: Insurers in the individual market in Virgina have asked for a 30% rate increase for 2018, based on uncertainty about whether the Federal government will continue subsidies for health insurance. Insurers in NY State have asked for a 16.6% increase. Most other states will be in that range.

The proposal represents a mixed signal for consumers.

  • Pre-existing conditions: The Senate version conforms with the House version in requiring insurers to cover people with pre-existing conditions. HOWEVER . . .
  • Coverage: States can apply for waivers allowing insurers to reduce the coverage they provide. Services required by people with pre-existing conditions may not be covered.
  • Medicaid: The bill supports a contraction of Federal Medicaid funding, but delays the start of cutbacks until 2021. The House version started cuts in 2020, an election year. The Senate version of the cuts are later and deeper.
    • The Medicaid expansion was an increase of the income limit for eligibility from 100% of poverty level to 138%.
    • Under the Senate version people making more than 100% of poverty level would be prevented from enrolling in Medicaid starting in 2020.
    • All Federal funding for the expansion would be limited in 2023.
    • The impact on the Medicaid program for children, CHIP, is unclear at this time.
    • Inflation adjustments for Medicaid funding would be changed from an index based on medical costs to the overall Consumer Price Index (CPI), which would reduce annual increases in funding in all future years. (See graph.) (4) The focus of this change is strictly on reducing Federal spending, not helping consumers. Federal payments would lag behind increases in medical costs — who pays the difference?fredgraph
  • Tax credits to help pay for insurance: The House version based subsidies on age; the Senate version reverts to income as the basis, consistent with the existing ACA rules. However,
    • The Senate version reduces the maximum income eligible for these subsidies, making some people now receiving subsidies ineligible for them in the future. On low low end, the Senate version makes subsidies available for people earning below below poverty level who might not be eligible for Medicaid in their state. The Senate version maintains cost-sharing subsidies for insurers through 2019.
    • The Senate version reduces the amount of subsidy people receive, increasing out of pocket costs for everyone, and especially for those between age 50 and 64.
  • Planned Parenthood: Both House and Senate versions remove funding for Planned Parenthood.
  • Tax reductions for affluent households: The Senate and House versions are in agreement on this; the reductions remain intact.
  • Individual mandate: Penalties for not having insurance are eliminated.

Sticking points:

  • For conservatives: Treating healthcare as a human right. They would rather see the ACA eliminated without replacement.
  • For moderates and those in competitive districts

Collateral damage:

  • Insurance coverage: There’s a debate as to how many people will not have insurance coverage with this law.  Estimates vary between 13 and 23 million.  The reasons for the variance in estimates include:
    • Time frame — loss of coverage will build over time as insurance costs increase and subsidies don’t.
    • Medicaid — how many people will lose coverage under Medicaid. That impacts more people than you would expect. Most people don’t have Long Term Care insurance, and Medicaid has become the prime vehicle for paying for home health aides and nursing home costs. Since nursing home costs average nationally more than $9,000 per month and Medicare pays for only the first 100 days, there are a lot of middle income families that will be in trouble. Even some moderately affluent families will be affected, and the poor . . . forget about it.
  • Tax increases: Healthcare for the uninsured will fall back on emergency rooms, largely of public hospitals. That will drive costs and budget increases and increases in local taxes. Tax savings for the rich will mean tax increases for everyone else.
  • Economic stagnation: The US is a consumer economy. I’ve argued previously that money siphoned from consumers for education, housing and healthcare is money they can’t spend for anything else. One analyst sees 1.1 million jobs disappearing by 2020 with passage of the AHCA. (3)

 


Sources:

  1. M. J. Lee, Tami Luhby, Lauren Fox, Phil Mattingley, “Senate GOP finally unveils secret health care bill; currently lacks votes to pass,” CNN, 22 June 2017. http://www.cnn.com/2017/06/22/politics/senate-health-care-bill/index.html
  2. Stephanie Armour, Kristina Peterson and Louise Radnofsky, “Battle Lines Drawn on Health Care,” The Wall Street Journal, 23 June 2017, P. A1.
  3. Josh Bivens, “Millions of people have a lot to lose under the AHCA,” Economic Policy Institute, 21 June 2017. http://www.epi.org/publication/millions-of-people-have-a-lot-to-lose-under-the-ahca/?utm_source=Economic+Policy+Institute&utm_campaign=50e819bfcb-EMAIL_CAMPAIGN_2017_06_23&utm_medium=email&utm_term=0_e7c5826c50-50e819bfcb-58834721&mc_cid=50e819bfcb&mc_eid=0541ad0f29
  4. Federal Reserve Bank of St. Louis, Economic Research. Chart downloaded 25 June 2017. https://fred.stlouisfed.org/graph/?id=CPIMEDSL,
  5. Bob Bryan, “Unveiled: The Secret Senate Healthcare bill,” Business Insider, 22 June 2017. http://www.businessinsider.com/senate-healthcare-bill-trumpcare-ahca-details-2017-6

How Americans Drive Up Their Own Health Insurance Costs (UPDATE)

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This is not a defense or excuse for the exorbitant pricing or profits in the health insurance industry in the US.  As with most social issues, there is no single cause of a problem. The industry owns part of the issue, Congress owns a major part, but consumers also own a piece. It’s time to recognize that and do what you can do about it.

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I grew up in an advertising era touting “rugged individualism.” The icons of that era included John Wayne, the TV character Palladin, and the advertising “Marlboro Man,” all part of a mythology that people could cut their own path regardless of others.

Unfortunately, that’s not how life works. If your reading this, someone else probably had provided the electricity for  you. If you also write, the court system protects your intellectual property. If you have a retirment account, you depend on financial regulators to protect your assets. If you eat (and you’d better be doing that), there’s the farmers and fishermen who provide what you consume. We are a connected network of people, whether on the grid or not. Whether you like it or not.

That’s blatantly the case in health insurance. There was a time when health insurance didn’t exist and didn’t matter. There were relatively few doctors in the 1850s, medical knowledge was relatively crude, and life expectancy was short.

  • In the Americans, life expectancy from birth was only 35.1 years in 1850. Life expectancy for slaves was less, with estimates ranging from 22 to 30 years of age.
  • The shortness was due to childhood deaths. If one could make it to age 10, there was a reasonable prospect to live to age 60.

ourworldindata_life-expectancy-cumulative-over-200-years-768x548

Life expectancy has  increased dramatically in the last two years, as you can see from the chart above, from an excellent article by Max Roser. (1)

In most geographies, the major gain in life expectancy came after World War II.

Exponential-PHE-Growth-Irfan

However, the increase in life expectancy comes at a substantial cost. One estimate says that each day of additional life expectancy adds $1.6 billion to medical costs just in the US. (2) However, living longer is just one component of the story of rising health costs.

Behavior matters. Certain things some of us do add substantially to medical costs for each and every one of us. How does that work? It’s in built into the concept of insurance as conceived by Benjamin Franklin.

  • People — healthy and sick — pay into a fund that in turn pays people in their time of need.
  • The required size of the fund is determined by the number of claims and the size of claims. The required size of the fund determines what people who participate have to pay.

That might seem unfair to healthy people, but we have to remember that no one stays healthy forever. Everyone dies. Everyone gets a turn with illness, sometimes more than one turn.

What might be considered unfair is when people do things or allow things to happen that cause illness. For example,

  • The CDC estimates that 36.5 million Americans smoke cigarettes, and 16 million currently have a smoking-related illness. Not everyone who smokes gets sick, but a larger percentage do, and that adds $170 billion to total medical expenses in the US. (3, 4)
    • According to a recent Gallup survey, more than 28% of adults in Ft. Smith, Arkansas, Layfayette, Louisiana, Erie, Pennsylvania and Bristol, Tennessee smoke. The national incidence is 18.2%, down from more than 40% in the 1960s. (9)
  • Obesity is estimated to add $147 billion to national healthcare spending (2008 dollars). (5) That figure may be low due to the large number of undiagnosed diabetics in the US.
  • Alcohol and drug abuse adds another $64 billion to healthcare spending (7)
  • Distracted driving (there are no separate estimates of direct medical costs), but medical bills have been rising even as the severity of injuries has been declining. (6)

The medical expenses that result from these behaviors hit every consumer:

  • Rising healthcare charges (remember the principle of “supply and demand”?)
  • Rising insurance premiums to cover the rising healthcare costs
  • Rising taxes to cover the proportion of expenses the government pays

High spending doesn’t mean better medical results.

With development, health outcomes generally improve, but the U.S. is an anomaly. The U.S. and the U.K. are both high-income, highly developed countries. The U.K. spends less per person ($3,749) on health care than the U.S. ($9,237). Despite its high spending, the U.S. does not have the best health outcomes. [Life expectancy, for example, is 79.1 years in the U.S. and 80.9 years in the U.K. And while the U.S. spends more on health care than any country in the world, it ranks 12th in life expectancy among the 12 wealthiest industrialized countries, according to the Kaiser Family Foundation, a non-profit organization focusing on health issues.] (8)

Europeans and the Chinese government understand the impact of individual behavior on costs. Americans have been more reluctant to understand and accept personal responsibility for how their behavior affects themselves and everyone else. It’s time to grow up and put the myth of rugged individualism away.

 


Sources:

  1. Max Roser, “Life Expectancy,” Our World in Data, undated. https://ourworldindata.org/life-expectancy/
  2. Sean Davis, “8 Charts that Explain the Explosive Growth of U. S. Health Care Costs,” Media Trackers, 1 October 2013. http://mediatrackers.org/national/2013/10/01/8-charts-explain-explosive-growth-u-s-health-care-costs
  3. US Centers for Disease Control and Prevention, “Economic Trends in Tobacco,” last updated 17 June 2017. https://www.cdc.gov/tobacco/data_statistics/fact_sheets/economics/econ_facts/index.htm
  4. US Centers for Disease Control and Prevention, “Current Cigarette Smoking Among Adults in the United States,” last updated 1 December 2016. https://www.cdc.gov/tobacco/data_statistics/fact_sheets/adult_data/cig_smoking/index.htm
  5. US Centers for Disease Control and Prevention, “Adult Obesity Causes and Consequences,” last updated 15 August 2016. https://www.cdc.gov/obesity/adult/causes.html
  6. Rocky Mountain Insurance Information Association, “Cost of Auto Crashes and Statistics,” undated. http://www.rmiia.org/auto/traffic_safety/Cost_of_crashes.asp
  7. National Institute of Drug Abuse, “Trends and Statistics,” last updated April 2017. https://www.drugabuse.gov/related-topics/trends-statistics
  8. NPR, “What Country Spends The Most (And Least) On Health Care Per Person?” 20 April 2017. http://www.npr.org/sections/goatsandsoda/2017/04/20/524774195/what-country-spends-the-most-and-least-on-health-care-per-person
  9. Samuel Stebbins, “Cities with the Most Smokers,” 24/7 Wall Street, 22 JUne 2017. http://247wallst.com/special-report/2017/06/22/cities-with-the-highest-smoking-rates/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=JUN232017A&utm_campaign=DailyNewsletter

What the CBO Report on the American Health Care Act Actually Says (updated)

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Photo Courtesy of Holden Police Department

By now. most people have seen headlines or soundbytes about the report.  The Congressional Budget Office is a nonpartisan group. The head of the CBO was actually appointed by the GOP. The purpose of the office is to provide Congress with a source of “objective” information about the financial impact of legislation that is independent from information provided by the Executive Branch. In a complex world, this actually makes sense.

 

What the CBO report actually says:

  • Health insurance costs for individuals will under the new act (the AHCA is also known as “Trumpcare”), will increase through the year 2020 and may decrease after that.  The CBO expects increases in health insurance premiums under the new law of between 15% and 20% for 2018 and 2019 under the new law.  However, the CBO argues that by 2026, premiums might be 10% lower than under the ACA.
    • Some professionals refer to these as “hockey stick” forecasts, with a positive result occurring sometime in the remote future.  That could happen, but usually unforeseen events preempt the desired result.
  • Healthcare costs should decline for people in their 20s, but will increase sharply for older Americans.  The proposed tax credits will be insufficient to cover the cost increase.
  • The CBO estimates a $337 decrease in the Federal deficit from the AHCA law, mostly due to the repeal of Medicaid expansion and the end of subsidies for health insurance.  (As noted, the tax credits are smaller than the current subsidies.)  That averages out to about $33.7 billion per year.
    • The current US deficit is $441 billion in the current fiscal year.  Obviously, any reduction is good, but a savings of less than 10% of the deficit isn’t a cause for celebration.
    • The US budget deficit is expected to expand by over $10 trillion over the next decade, after shrinking during the Obama administration.
  • The Medicaid rollback will cost 14 million people their healthcare coverage immediately.  That plus the increase in out of pocket expense will ultimately mean that 24  million people will be forced to do without health insurance.
    • The CBO expects that some states will lose Federal funding for Medicaid in 2020 by their failure to provide the matching funds required under the new law.  That will further reduce Federal spending.
    • The matching funds requirement simply moves part of the tax burden from the Federal government to the states, and may require increases in state taxes.
  • Existing law requires the CBO to provide guidance on the impact of the law on the economy.  However, the CBO claims it has not had sufficient time to do this.
    • My argument is that anything that takes money away from consumers will be a drag on economic recovery.  This law does, by raising health care out-of-pocket expenses for most people.

Sources:

  1. Congressional Budget Office, “Cost Estimate,” 13 March 2017.  https://www.cbo.gov/publication/52486 I’ve downloaded a pdf of the report from the CBO website, and will share it on request.
  2. Emily Stephenson, “U.S. deficit forecast to shrink in 2017 but climb over next decade,” Reuters, 24 January 2017.  http://www.reuters.com/article/us-usa-congress-budget-idUSKBN158217

ACA Repeal: the idea of responsibility

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The legacy of healthcare muddies any discussion about what to do next.

  • What responsibility do individuals have to care for themselves and avoid burdening others?
  • Since Congress has created rules on exclusivity that have massively inflated pharmaceutical prices in the US, what responsibility does the government bear for making healthcare affordable?
  • What is the proper balance between public good and greed for health practitioners and insurers?
  • Since government regulation has created the malpractice mess and allowed the AMA to protect the small minority of physicians who are incompetent and careless, what obligations does the government have to consumers?

Neither the ACA nor the current repeal effort addresses the root causes of the current mess.  The House bill is unsatisfying because it’s a band-aid, not a cure.

Susan Combs, CEO of an insurance brokerage, offers an interesting perspective on ACA repeal.

“I know many people tout that requiring health insurance is ‘unconstitutional,’ yet you don’t hear people saying that in regards to auto insurance,” Combs says.

“It’s all about mitigating your personal risk and you have a duty to do so. The mandates help to balance out the risk pool. It is very important to have the high utilizers in with the young and healthy, this in turn helps to manage and control the costs.”(1)

The duty to minimize risk is recognized by the courts, but the US doesn’t do consistency well. On the one hand, we want people to live as they wish. On the other, we want to hold them responsible when their behavior affects others.  With healthcare, these desires clash. There are so many examples.

  • In general, when an uninsured individual needs healthcare, the cost falls on taxpayers. Is that fair?
  • The motorcycle rider who opts not to wear a helmet raises both motorcycle and health insurance rates for others.
  • The parent who chooses not to have a child vaccinated raises the risk of serious illness for others, and that impacts their health insurance rates.
  • People who are obese are at greater risk of a variety of illnesses, and are prone to later detection of disease, than those of standard weight.  Both the illnesses and delayed detection drive up the cost of care. That cost hits all insurance policy holders in a state.

What is the individual’s responsibility to mitigate risk? To oneself? To the group?

And yes, the government has aggravated the mess and has an obligation to undo the damage.  The current bill doesn’t address that at all.

A note on cost increases for insurance:

“I’m concerned about the age rating ratio changing from 1:3 to 1:5,” Combs says. “Many consumers don’t get that this means that if a 20-year-old was paying $200 per month for insurance, that a 64-year-old, on the same plan, is currently capped at paying $600 per month. With the new proposed bands, that would go up to $1,000 per month. The increased tax credits won’t scratch that surface.”(1)

Costs will go up and the tax credits will be insufficient to offset the increase.  They may be insufficient to motivate healthy individuals to buy insurance.

 


Sources:

  1. Claire McInerny, Erin Moriarty-Siler, “Benefits experts weigh in on ACA replacement,” Benefits Pro, 8 March 2017. http://www.benefitspro.com/2017/03/08/benefits-experts-weigh-in-on-aca-replacement?kw=Benefits%20experts%20weigh%20in%20on%20ACA%20replacement&et=editorial&bu=BenefitsPRO&cn=20170308&src=EMC-Email_editorial&pt=News%20Alert

Alternative Math

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17456_1269532813224_1076952025_30803996_7657050_nWe have “alternative facts” and now we have alternative math.

The Trump administration has proposed changing how the balance of payments number is calculated in order to support their case for trade restrictions and tariffs (taxes on imports).

Now the administration is projecting 3% annual growth in GDP for the next three years.  That’s substantially higher than the 1.9% estimate by the nonpartisan Congressional Budget Office for average growth over the next decade.  At best, the CBO estimates 2.3% growth in 2017, which is in line with the estimate from the IMF.  Kiplinger is forecasting 2.1% growth.  The Conference Board has a 2.2% forecast for 2017.

The last time tax cuts spurred major economic growth was in 1962, under a very different economic environment.  The record since with cuts has been erratic and overall much less productive.  Giving people money that they then invest in overseas markets does nothing for the US economy.

Why does the higher figure matter?

Higher growth means higher tax revenues to the government.  These higher revenues would offset reductions in tax rates for corporations and the wealthy.  Without the higher revenue, the current proposals aren’t “revenue neutral” and will produce a massive increase in the Federal deficit.

Which is precisely what fiscal conservatives don’t want to see.


Sources:

  1. Nick Thornton, “Economist cautions against lavish growth projections,” Benefits Pro, 24 February 2017. http://www.benefitspro.com/2017/02/24/economist-cautions-against-lavish-growth-projectio?kw=Economist%20cautions%20against%20lavish%20growth%20projections&et=editorial&bu=BenefitsPRO&cn=20170227&src=EMC-Email_editorial&pt=Daily
  2. International Monetary Fund, “World Economic Outlook Update January 2017”. https://www.imf.org/external/pubs/ft/weo/2017/update/01/
  3. “Kiplinger’s Economic Outlooks,” Kiplinger, February 2017. http://www.kiplinger.com/tool/business/T019-S000-kiplinger-s-economic-outlooks/
  4. The Conference Board, “The U. S. Economic Forecast,” 8 February 2017. https://www.conference-board.org/data/usforecast.cfm

 

Tax “Reform”: starting the next war before finishing the first

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OK, let’s start a battle over tax reform before we finish healthcare.  That appears to be the ben_franklincurrent mantra in Washington.  Keep enough balls in the air at the same time and people will become confused and bored.

However, if you’re a middle income taxpayer, the proposals on the table aren’t nice.

Here are some of the key options under consideration:

  • Tax reform will be “revenue neutral.”  That means any tax reductions will be offset by tax increases.
  • Reduce the top tax rate for the wealthy from 39.6% to 33.0%. The minimum tax rate would increase from 10% to 12%.
  • Increasing the standard deduction to $15,000 for individuals and $30,000 for married couples filing jointly.
  • Eliminating all personal and dependent exemptions.  That hits people with children as well as those providing care for disabled and elderly adults.
  • Capping or eliminating itemized deductions, and in particular, eliminating the deduction for home mortgage interest. However, some childcare expenses “up to the state average” might be deductible.
  • If some itemized deductions continue, they would be capped at $100,000 for individuals and $200,000 for couples, which will impact major charities and non-profits.
  • Making employer-paid health insurance taxable as income.
  • Elimination of gift and estate taxes.
  • Elimination of Alternative Minimum Tax.
  • Elimination the 3.8 percent tax on net investment income on people with incomes of over $200,000 for single filers and $250,000 for married filers.
  • Reduction of the corporate tax rate from 35% t0 15%.

Most of these changes would not take affect until the 2018 tax year.

According to the Brookings Institute, the primary beneficiaries of these changes are individuals and households earning more than $143,000 per year.

Single parent families would lose deductions and face sharply higher taxes.

Married couples with children would benefit from Trump’s original tax reform proposal, but would be penalized under the House GOP plan.

The loss of the mortgage interest deduction will change the economics of buying a home, making home ownership much less attractive. If you get the same amount off your taxes whether you own a home or not, why pay a premium price to buy? Further, since the housing industry is such an important part of the US economy, that supports forecasts of continued sluggish economic growth.  

Very little is definite at this time on either tax or healthcare reform.

What you need to consider

If you’re thinking about buying a house, you might want to wait to see if Congress eliminates the mortgage interest tax deduction. If they do, housing prices should fall. Conversely, if you are thinking about selling, you might want to hurry up and do it.

The same logic applies to changing jobs. If itemized deductions disappear, that would include deductions for moving to take a new job.

Finally, some analysts feel that the stock market has gotten overly excited about what Trump might include in his tax plan, leading to prices that are unjustifiably high.

It’s time for common sense to “trump” any excitement over change.


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Gas Taxes

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States have a variety of tools for raising tax revenue, and use them to varying extents.  Thus you can be in a low income tax state and still pay exorbitant taxes.

The gas tax is a case in point.  The average consumer drives approximately 13,350 miles per year.  With an average MPG figure of 25.2, that equates the use of 530 gallons per year.  That’s probably low, as it doesn’t factor in idling, which kills MPG.

In Pennsylvania, that translates into $308 of state gasoline tax the average driver pays each year.  In South Carolina, the average gas tax paid is $89 per year.  In Alaska, the lowest state, it’s $65.

Perhaps people don’t protest the gas tax because it’s not a big check one writes once a year.  Instead, it’s a constant nibbling at one’s wallet.  However, the nibbles add up.

States use a variety of these little taxes to avoid raising income and property taxes, but the effect on the consumer is the same regardless of how its done.

What are the odd little ways your state taxes you?


Sources:

  1. Federal Highway Administration, “Average Annual Miles per Driver by Age Group,” https://www.fhwa.dot.gov/ohim/onh00/bar8.htm
  2. Nora Naughton, “Average U.S. mpg edges up to 25.5 in May,” Automotive News, June 4, 2015.  http://www.autonews.com/article/20150604/OEM05/150609925/average-u.s.-mpg-edges-up-to-25.5-in-may
  3. Samuel Stebbins, “States With the Highest (and Lowest) Gas Taxes,” 24/7WallStreet, 3 February 2017.  http://247wallst.com/special-report/2017/02/03/states-with-the-highest-and-lowest-gas-taxes-4/