Month: September 2011

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New Study Shows Obamacare’s Impact on Ohio Coverage and Premiums

As a resident of Ohio and purchaser of individual health insurance, I am particularly interested in how Ohio is impacted by the Obamacare reforms. In a previous post this year I performed a simple price check of similar health care policies in Ohio and in Massachusetts using my family information. Massachusetts was chosen as a proxy for Obamacare. The policy in Ohio would cost me $305 a month and $1,296 if I lived in Massachusetts. I tried and failed to find an extra benefit offered in Massachusetts plan was necessary for my family. My conclusion was that the higher rates required in Massachusetts were an income redistribution scheme that resembled a tax more than a traditional insurance plan. The Milliman report linked below provides additional evidence that the expected individual policy rate hikes are more about bringing more money in to the insurance companies than providing benefits for policy holders. As a purchaser of health insurance for over 30 years, health insurance has gotten progressively worse in benefits for the cost as it has migrated to a more tax like system. The idea that we are trying to model our national health care after a state in which all of their  people paying $1,296 a month or higher for their health insurance is not rational since the rest of the world is paying half that amount. If $1,296 a month is the best Massachusetts can do, than we need to pick a different state to model our health care after. Health care as a tax is not working. If we assume that Obamacare will fail because of insurance rates that are too high, then our national health care plan should be modeled after the individual insurance policies offered in Ohio, essential services offered at a reasonable rate.

Americans knew the negative impact Obamacare would have on the nation before the law even passed. Millions of Americans will be added to Medicaid, which already provides low-quality coverage and patchy access to care. The new law will not result in universal coverage, despite its $1 trillion+ price tag. Premiums will go up. And Americans who like their current health plans will not be able to keep them.

Now, states are beginning to better understand the impact of Obamacare. Earlier this month, Gorman Actuarial and Jonathan Gruber reported on Wisconsin residents’ moving out of existing coverage and experiencing premium hikes.

Milliman, an independent consulting firm, recently released its findings on the law’s effects in Ohio.

Greater dependence on government coverage. The most striking finding of the study is the expansion of taxpayer-funded, public health care programs under the new law. Before Obamacare, enrollment in Ohio’s public health programs, including Medicaid, was a little more than 2 million. Now, Ohio (and federal) taxpayers will be picking up the tab to expand these public health programs by 52 percent. Of the more than 1 million state residents added to these programs, more than half had coverage before the law passed, and only 47 percent were uninsured in 2010.

Though Obamacare expanded Medicaid by as many as 25 million Americans and created a new health entitlement, millions of Americans will still go without coverage. In Ohio, only 53 percent of the uninsured will have coverage in 2017, when all the provisions of the law will be in effect. Real health care reform could expand coverage for those who are currently uninsured without these negative consequences, and with better success than Obamacare.

Escalating premiums. The Milliman study also shows across-the-board increases in premiums resulting from the new law, on top of customary growth due to medical inflation. Premiums will grow by 3 percent to 5 percent in the large group insurance market, 5 percent to 15 percent in the small group market, and a whopping 55 percent to 85 percent in the individual market. As the authors point out, these numbers represent the estimated average premium impact and will vary based on age and health status. According to the report, “In the individual market, a healthy young male…may experience a rate increase of between 90% and 130%.” At the same time, older and less healthy individuals could see a decrease.

Premium increases will result from a number of policies and effects of the new law. These include new benefit requirements, age rating, and other types of requirements placed on insurers. They also include shifting of costs by providers from publicly covered individuals to the privately insured; the authors warn that “The significant expansion of the Medicaid population may result in increased charges to commercial payors to account for low provider reimbursement under Medicaid.”

The impact of Obamacare on Ohio is clear: The huge expansion of government-run health care will raise costs for state residents by increasing taxpayer funding of government health care programs and by escalating health care costs. The Milliman study is the latest reminder of why Obamacare must be repealed.

New Study Shows Obamacare’s Impact on Ohio Coverage and Premiums
Kathryn Nix
Mon, 26 Sep 2011 22:30:06 GMT

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Guess How Many Americans Don’t Have Enough Saved To Cover A $1000 Emergency

I was told of the importance of funding an emergency funds for most of my adult life but despite this sound advice, I did not an emergency fund one until about three years ago. It started when after many years, our farm starting to break even. So I started putting away money just in case we had problems again. During the time we had financial problems with the farm, we accumulated a lot of credit card debt. It took the help I got from a relative to get out of the hole and I vowed to my relative and to myself to never let us get in to that debt problem again. I learned my lesson the hard way and hope that others have to follow my path to enlightenment. From my hard learned lessons I find it amazing and disappointing that more people are not embracing emergency funds as a key part of their financial plan. Considering the expected returns in real estate and the stock market the best financial strategy for people with credit card debt is to pay it down and avoid accumulating any more credit card via emergency spending. Like our governments the biggest problem is controlling spending. It is easier said than done but that does not make it any less important.

According to a recent study from The National Foundation for Credit Counseling (NFCC), 33 percent of Americans do not have a savings account of at least $1,000 or more to cover emergency expenses.

The NFCC study surveyed 1,010 Americans to determine how much money they had set aside in the event of a financial emergency that could cost around $1,000.

Of the respondents surveyed, 64 percent claimed to possess emergency funds.

Those individuals without savings said that they would have to turn to an outside source to ask for money if they were faced by an unexpected expense.

In the words of Technorati:

Although the study might have been a bit biased in selecting its sample pool, the fact that such a high number of participants are lacking a relatively modest $1,000 in savings is still alarming. And is clearly something that should be addressed””for example, through better financial education.

This seems to be part of a wider picture of poor financial provision by households in the US. An earlier study by the NFCC found that 30 percent of Americans have zero dollars in non-retirement savings. A separate study by the National Bureau of Economic Research found that 50 percent of Americans would struggle to come up with $2,000 in a pinch.

Savings

And these are just a few of the alarming discoveries made in the NFCC’s annual report. Here are some others:

Today, more than 1 in 5 U.S. adults (22 percent) do not have a good idea of how much they spend on housing, food and entertainment. Although just over 2 in 5 Americans (43 percent) say they have a budget and track their expenses, more than half (56 percent) do not.

More than half do not budget? Well, that certainly explains what is going on in D.C.

Furthermore, more than 1 in 3 adults (36 percent) say they are now saving less than last year. And, in fact, 1 in 3 (33 percent) do not have any non-retirement savings. Although there had been a steady increase in the proportion of adults who have savings between 2008 (63 percent) and 2010 (67 percent), that proportion has now declined somewhat (to 64 percent in 2011).

One of the conclusions that can be drawn from the report is that there seems to be a prevalent attitude in American culture where not enough emphasis is put on self-reliance and personal financial freedom but instead too much has been put on the “gimme-gimme” mentality. That would certainly account for the multitudinous amounts of Americans in debt and the coinciding lack of personal financial responsibility.

View the full report here.

This post originally appeared at The Blaze.

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Guess How Many Americans Don’t Have Enough Saved To Cover A $1000 Emergency
Becket Adams
Tue, 20 Sep 2011 21:00:00 GMT

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If Social Security is a Ponzi scheme, does that make CalPERS a Ponzi scheme, too?

If Social Security is a Ponzi scheme then all of our defined benefit pension plans such as the California Public Employees’ Retirement System (CalPERS) risk falling into the same category. CalPERS is a $226 billion pension fund with an estimated $240 billion unfunded liability according to a Reuters article. So even if you are willing to concede the point that Social Security and CalPERS are primarily "pay-as-you-go" systems as advocated on the Social Security site, you are confronted with three almost insurmountable problems.

  1. How do you scale back the future benefits in an equitable manner?
  2. How do you convince current contributors to contribute more money at the same time you are scaling back benefits?
  3. In the case of defined benefit programs that are partially advance-funded, who is responsible for investment risk?

This is not a new problem. For many years companies had difficulties managing the funding and benefits of their pension plans. An additional problem was what to do with defined benefit plans for companies that no longer existed. This problem became very apparent when the steel companies disappeared in the 1970’s. In 1974 the government created the The Pension Benefit Guaranty Corporation(PBGC) to take over the defined benefits for pensions for bankrupt companies. The funding for the PBGC came from fees charged on the remaining existing corporate defined benefit plans. This policy seems to have worked. In the following years most private companies converted their pension plans into defined contribution plans and problems with the remaining defined benefit plans diminished considerably. On the other hand public sector fully embraced the defined benefit plans. Part of the allure was that the promise of future benefits was a major issue in collective bargaining agreements. Instead of pay raises they were promised future health and pension benefits.  The long history of problems that the private sector had with funding and managing defined benefit pension plans seems to have been ignored by the public sector. Since the management of defined benefit plans were not being managed differently than the way the private sector managed their plans it is inevitable that they would duplicate the same mistakes. Considering the size and extent of the public sector unfunded pension and health care liabilities, most of these agreements were done in bad faith and led to deliberate mismanagement of pension funding and benefits. It will probably take some form of the PBGC for state and local governments that is funded by the public sector pension funds and has strict funding and benefit rules to clean up the public sector pension mess.

Social Security is different from the public pension plans but it shares many of the same mismanagement of funding and benefits problems and a more puzzling style of investing. Considering the size of unfunded liability for Social Security, the funding and benefits have been negotiated in bad faith, too. So although comparing Social Security to a Ponzi scheme may seem too severe, it shares the same bad faith negotiations and plan mismanagement as public sector pension plans. A pension plan relying solely on "pay-as-you-go" financing and funky investing may have been a viable option for my father’s generation but not my son’s generation. The pact between one generation and the next is about to be broken. The future of defined benefit plans in general is in doubt. Defined contribution plans are the preferred option in the private sector but suffer from inadequate savings rate. This problem can be fixed by a relatively simple solution, policies to encourage a higher savings rate. It remains to be seen whether defined benefit plans can overcome their predisposition to bad faith negotiations and mismanagement and create a better pension outcome than those offered by defined contribution plans.

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Why Those Keynesian Stimuli Are Not Working

For a stimulus to be economically helpful it needs to be “timely, targeted, and temporary.” This stronger version of the Lawrence Summers quote is an important economic policy issue to ponder. So let’s start out the discussion with a look at how the Swiss manage federal stimulus. The Swiss made it through the last recession relatively unscathed. Despite the benefits of being the reserve currency status, the United States economy did a lot worse than the Swiss economy. The Swiss secret to a resilient economy appears to be something written into their constitution called the debt brake rule.

Effectively, the rule aims to maintain a structural budget balance every year. The rule allows deficits to be run in a recession, but requires surpluses in better economic times so that over the cycle the budget is in balance.

Putting the Brakes on U.S. Debt | Committee for a Responsible Federal Budget

 

This sure looks like a working example of the proverbial “Keynesian stimulus”. In the United States our policy makers have embraced  “Keynesian stimulus”  plans since the Great Depression but we have much different results. Here is a post from Mercatus that demonstrates that temporary increased federal spending always seems to lead to higher permanent federal spending.

The chart shows how expenditures as a share of GDP spiked during World War II but were reduced rapidly and significantly. However, spending never returned to the pre-war level and has followed a general upward trend ever since.

Today federal, state, and local expenditures as a share of GDP are back at the highs reached during World War II. This time, however, we are unlikely to see a swift decrease. Wartime expenditures on items like weaponry and salaries for conscripted soldiers were relatively easy to wind down. The bulk of current and future government spending is on entitlement programs like Social Security and Medicare. This variety of spending is nearly impossible to reduce in the near term.

The tendency for spending to ratchet up during a crisis is important because it suggests why fiscal stimulus is unlikely to be economically helpful. In an oft-repeated quote, economist and stimulus advocate Lawrence Summers has argued that stimulus ought to be “timely, targeted, and temporary.” Otherwise, it is unlikely to be economically helpful. The fact that spending rarely returns to pre-crisis levels suggests that governments may find it impossible to implement stimulus in the way Keynesians such as Summers would like to see.

Federal, State, and Local Expenditures as a Share of GDP at WWII Levels | Mercatus

Finally here is an analysis why the United States stimulus efforts are not working.

ONE REASON WHY THOSE KEYNESIAN STIMULI AREN’T WORKING: They’re Not Keynesian. “Whalen isn’t simply dumping on Keynesianism, he’s bent on pointing out that even its latter-day adherents are straying far from their master’s theory. And in this, he’s surely correct. As Allen Meltzer has argued, Keynes was against the very sort of large structural deficits that characterize contemporary federal budgets and policy, believing instead that deficits should be ”˜temporary and self-liquidating.’ And Keynes believed that any sort of counter-cyclical spending by government should be directed toward increasing private investment, not simply spending current and future tax dollars on public works projects. Or, to put it another way: If the federal government had a strong track record of responsible spending, it would mean one thing if it went into hock for a short period of time to goose the economy (again, whether this would work is open to question). It means something totally different when a government that spent all of the 21st century piling on debt and new, long-term entitlement programs responds to an economic downturn first by creating yet another gargantuan entitlement (Obamacare) and taking on even more debt in the here-and-now.”

 

ONE REASON WHY THOSE KEYNESIAN STIMULI AREN’T WORKING: They’re Not Keynesian. “Whalen isn’t simply…