The US Economy: Myth and Reality

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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.

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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?

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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

What is Stress?

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I really like this post, especially regarding the importance of gratitude and of being of service to others. This isn’t necessarily gratitude or service in a religious sense; concrete actions in this world matter.

Broken Brain - Brilliant Mind

Shadow of hunchback walking up stairs Stress is the shadow that creeps up on me

Ken Collins sent along some great info about stress. Stress is by far one of the biggest problems after TBI. We experience it from all sides. First, we’re forced to deal with a very real change in how we function in the world. Second, we can get stressed about being stressed. And it builds…

I’ll add to Ken’s notes below:

KC: 99% of the stress you experience is caused by your thinking, your interpretation and your hardwired beliefs. Sure if you grew up in an abusive family, got assaulted, molested or raped, physically threatened or even wrongfully arrested those would all be examples of trauma/stress you have experienced. This trauma is buried in your sub-conscious and under stress is triggered – limbic system fight or flight response in the Amygdala.

True, true. Trauma does stay in the system, unless it is…

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Situational American Morality

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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>

Jumpstarting Yourself

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If you read, every once in a while, you’ll find something and say, “why does that just apply to X? Why wouldn’t that work for Y, Z  and W?”

Sometimes, the topic is medical — like noticing that the same protein is involved in both Alzheimer’s and concussions. (See previous blog.) Sometimes, the topic is far more universal.

Science Daily reports on a mind-training technique that improves the performance of athletes. (1) From the brief description, the program uses a step method (what program these days doesn’t?) and meditation to enable athletes to exclude mental distraction and focus on performance. Athletes who have gone through the program have been able to improve performance and importantly maintain the improvement over time.

The authors talk about enabling the athlete to block out distractions such as anxiety.

The basic premise is that half of athletic performance is mental and that conventional sports training ignores that aspect of the game.

I can certainly accept that. Great athletes have the ability to pay attention at a greater level than others. It’s said that legendary hitter Carl Yastrezmski could see the spin on a fastball and legendary racer Dale Earnhardt could see the wind coming off the car in front of him. The difference from others is in their uncanny ability to focus.

What could you do with that ability?

The larger questions is: what human activity isn’t at least 50% mental? That rule seems to apply to everything including sex.

  • Great levers aren’t great because of some physical attribute but because of their ability to focus on their partner.
  • Great teachers can sense what their students needs, whether the student is a visual or oral learner or requires some other form of coaching and instruction.
  • Great leaders don’t just have vision about where to go, but the ability to motivate their followers or employees — knowing what will get them going.

We even know that the ability to survive and recover from serious illness is largely mental. Part of the sales pitch for supplemental insurance is about removing financial distractions to enable patients to focus on recovery.

And who doesn’t have distractions like anxiety?

So, who wouldn’t benefit from “mindfulness training”? The authors focus on athletes because of the money to be made there, but the concept applies to everyone in all aspects of life.

I’m not endorsing the book or specific method that’s the subject of this citation. However, there’s a lot to be said for improving the ability to focus and exclude distractions. The ability to focus can improve everything you do. There are a number of roads to that goal — including meditation and tai chi. Which method will work for you is something you learn by trying. So try.

There’s even an app for that!  (4) No, I’m not endorsing that either, at least not until I try it myself.

 


Sources:

  1. American Psychological Association. “New mindfulness method helps coaches, athletes score: Sessions can help athletes at all levels develop mental edge, psychologist says.” ScienceDaily. ScienceDaily, 4 August 2017. http://www.sciencedaily.com/releases/2017/08/170804091350.htm.
  2. https://greatergood.berkeley.edu/mindfulness/definition
  3. https://www.pocketmindfulness.com/6-mindfulness-exercises-you-can-try-today/
  4. https://itunes.apple.com/us/app/the-mindfulness-app-meditation-for-everyone/id417071430?mt=8

Diabetes: Best and Worst States

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Diabetes is huge problem both for its direct affects as well as its ability to weaken the body’s defenses against other disease.

Diabetes can be genetic (Type 1) but the bulk of the problem is self-inflicted (Type 2) — a function of diet, obesity and lack of exercise. That’s reflected in the areas of the country in which it is most and least prevalent.

One issue with diabetes numbers is that an estimated 50% of those with diabetes don’t know it. Testing requires testing blood glucose levels after fasting, and a lot of people simply don’t see their doctors regularly, if they have a doctor at all.

Overall, the known incidence of diabetes in the US ranges from 6.8% in Colorado to 16.5% in Puerto Rico.

The worst areas in the US are mostly in the Old South

  • Puerto Rico, 16.5%
  • Mississippi, 14.7%
  • West Virginia, 14.5%
  • Alabama, 13.7%
  • Kentucky, 13.5%
  • Louisiana, 12.7%
  • Tennessee, 12.7%

The rates in some of these Southern states may be much higher than what’s documented, due to relatively poor provision and use of healthcare services in places like Mississippi, West Virginia and Kentucky.

The areas with the lowest rate of diabetes are

  • Colorado, 6.8%
  • Utah, 7.0%
  • Alaska, 7.6%
  • Minnesota, 7.6%
  • Montana, 7.9%
  • New Hampshire, 8.1%
  • Vermont 8.2%

These are areas in which people spend a lot of time outdoors and active.

As with smoking, poverty is linked to diabetes. Relatively affluent states like New York, New Jersey and Connecticut have rates that are below 10% despite the predominance of office-based work.


Sources:

  1. http://www.benefitspro.com/2017/08/03/5-worst-states-for-diabetes?kw=5+worst+states+for+diabetes&et=editorial&bu=BenefitsPRO&cn=20170804&src=EMC-Email_editorial&pt=Daily&page=3

ACA, Next Act

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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.