Author: bill

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How Health Exchanges Became Another Affordable Care Act Missed Opportunity

The idea of encouraging an insurance market place for health insurance has been a favorite idea of health care economists. The key idea was to establish an insurance market place as an alternative to the employer based health insurance. As a person who buys health insurance in the individual insurance market, my view of a health exchange is more along the idea of www.ehealthinsurance.com. The Affordable Care Act proponents decided that by combining a few concepts of market based health insurance with a new mandate to distribute insurance subsidies to the poor, they could convince the states to subsidize the exchanges. It was a political gambit that failed to convince states or people like me to participate. The states figured out that if they did nothing, the federal government would pick up the entire bill for setting up and funding the exchanges. This subsidy issue overwhelms and obscures efforts at encouraging an insurance market place with more competition and lower costs.  Why should I participate in a health exchanges if they are not offering me lower costs and greater choice like I can get by using www.ehealthinsurance.com? 

States have to decide by Feb. 15 whether they will create their own health insurance exchanges, partner with the federal government or allow the federal government to do it for them. Meanwhile, during a congressional hearing marked by skepticism, a Health and Human Services official told lawmakers that the government would be ready to enroll people this fall.

Health Exchanges: Today Is States’ Decision Day
Fri, 15 Feb 2013 15:46:00 GMT

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Only 5.2% of Highway Funds Used to Build New Roads | CNS News

81 percent ($94 billion) of the Highway Trust funding is spent on “construction and maintenance purposes.” 19 percent($22 billion) is spent on “Transportation Enhancements” and “Other” costs that included but were not limited to: “planning,” “Rail/Highway crossing,” and making carpool (HOV) lanes operational. Here is the pertinent question. Why are they spending more than they are taking in for the last decade? Is this a sign of bad management, a temporary necessity due to infrastructure priorities, or an unfortunate result of political expediency? A decade of spending more than your revenues is hard to justify as a sign of good management. Maybe it is time to limit the political expediency to what you bring in? Spending restraint has to start some place.

A May 2012 report from the Congressional Budget Office  noted that for much of the past decade, the Highway Trust Fund’s outlays have exceeded receipts. In recent years, the shortfall has been covered by transfers from the U.S. Treasury’s general fund.

Only 5.2% of Highway Funds Used to Build New Roads | CNS News

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The Problem with Jobs in America

Yesterday I went to Sam’s Club to pick up some groceries. One of the items I was purchasing was a case of wine. I buy the wine by the case to take advantage of the 10% case discount. Every time I buy a case I am amazed at the difficulty the cashier and her manager have with calculating a 10% discount. They bring out their smartphone, start up the calculator app, and scratch their head. Sometimes they resort to paper. I offer them the answer since this calculation is pretty easy to do in your head but they look at me with a blank stare. After several minutes of fiddling around they come up with the answer and ring up the case. I used to be amused with this small piece of drama but now I am annoyed.

The problem with jobs in America is that we have a lot of unemployed people with less skills, education, and common sense than those who are employed. How are we going to find a job for these people? I am very skeptical that President Obama’s Manufacturing Jobs Plan is the answer. His plan focuses on high tech manufacturing. I just do not see many of the unemployed ever running a CNC machine. We need a lot of low tech industry jobs that have a competitive advantage over our foreign competitors. We need entry level jobs and I don’t see that happening anytime soon.

The White House’s plan follows four general guidelines: Investing in American-made technologies; ending tax breaks for companies that ship jobs overseas; new partnerships to bring jobs back to America and encourage companies to hire in America; and opening global markets to American-made goods.

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Affordable Care for the Rest of Us

Everyone agrees that the Affordable Care Act improved the situation for those people subject to the the Medicare “donut hole” in the Part D program, those people who have pre-existing conditions that prevented their ability to purchase health insurance, and the poor. Unfortunately these changes improved the situation for a very small portion of the population. Here is the Kaiser slide about the Concentration of Health Care Spending. The Affordable Care Act tries to help out with the left side of this chart. Most of us are on the right side of the chart and we need affordable health care options.

ConcentrationofHealthCare2009

If we look at the NIHCM brief, Spending for Private Health Insurance in the United States, we cannot help but come to the conclusion that if high health care costs are the problem then group health insurance is the wrong answer. It wasn’t that way when I started working in 1976. Group health insurance was cheaper than individual health insurance. Here is my favorite quote from the brief.

Premiums for coverage purchased in the non-group market are considerably lower than for coverage obtained through an employer and are rising at a slightly slower pace.

If you are a small or medium sized business that partially subsidizes the employee health insurance cost, the individual insurance market is very attractive compared to the group health insurance approach. According to the NIHCM brief those companies looking at the group health insurance approach would be looking an a 2011 employer contribution of $11,060, an employee contribution of $3,962, and an employee deductible of $2,220. When you look at the individual market approach the premium cost of $4,968 and the deductible of $3,879. When you combine individual health insurance with a $6,000 HRA, a HRA is pretty attractive option for healthy through moderately unhealthy employees. For a healthy to moderately healthy employee you will pay nothing with the HRA approach versus $3,962 for the group approach. According to www.ehealthinsurance.com there are 44 states who have an individual health market close enough to the national average that makes the individual health insurance an attractive option. A small business in these states who has less than 50 employees can get the holy grail of health care benefits, a defined contribution benefit that pays for essential benefits for their current and prospective employees. Unfortunately the same situation is not available for those businesses in Connecticut, Washington, Alaska, New Hampshire, New York, New Jersey, and Massachusetts. Their health care costs are already too high to make HRAs a viable option.

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Stand-alone HRAs Can Still Reimburse Health Insurance Premiums

Rick over at Zane Benefits answered the question that has been puzzling me about the status of HRAs.

How Section 2711 Affects Stand-alone HRAs

The vast majority of stand-alone HRAs are not subject to the new health care law’s prohibition on annual benefit limits.

Under a special exception (see bold text above), HRAs that meet the requirements for IRC Section 106(c)(2) are not subject to Section 2711’s prohibition on annual limits. Here is the actual definition:

“Section 106(c)(2) Flexible spending arrangement – For purposes of this subsection, a flexible spending arrangement is a benefit program which provides employees with coverage under which””

(A) specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions), and

(B) the maximum amount of reimbursement which is reasonably available to a participant for such coverage is less than 500 percent of the value of such coverage.”

Under this exception, sometimes referred to as “the five times rule,” the HRA will be treated as a section 106(c)(2) flexible spending arrangement, and the Section 2711 prohibition on annual benefit limits does not apply.

Also, if an HRA is a Section 106(c)(2) flexible spending arrangement, reimbursable medical care expenses may not include expenses for qualified long-term care services.

How To Ensure Your Stand-alone HRA Is Exempted From 2711

To ensure your stand-alone HRA is exempted from the Section 2711 rules, you can take the following steps:

  1. Set a cap on annual rollover so that the maximum amount of available reimbursement is always less than 5 times the annual value of the HRA, and
  2. Modify the HRA plan to exclude qualified long term care premiums as defined in IRC Section 7702B(c).

Stand-alone HRAs Can Still Reimburse Health Insurance Premiums

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The question is whether CO2 is driving temperatures up – Part 2

 

In a previous post I highlighted some representations of the temperature and CO2 data. I created my chart using Excel. It confirmed the conclusion that CO2 is barely correlated with temperature. It takes a climate scientist to look at these correlations make the argument that CO2 is the cause of the temperature increase. I decided to take another look at the data using my the statistical software, R, and the PerformanceAnalytics package. Using a R program Stephen Turner published on his blog, Getting Genetics Done. Here is the chart I came up with.

 

Temp-CO2Raw

 

We can see that the best correlation is between CO2 and time. The correlations between July temperature and time and between July temperature and CO2 have similar values. Which is the driver of July temperature,  time or CO2? If CO2 is the driver why do we not see a similar correlation for January temperatures? For some this is settled science. Here is my original Excel chart again.

 

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Consumer Credit Update

For those inquiring minds that like annual comparisons, consumer credit increased from $2,627.4 billions in 2011 to $2,778.2 billions in 2012. This is 5.7% increase. Almost of all of this increase came from non-revolving credit(auto loans). Non-revolving credit increased from $1,780.1 billions in 2011 to $1,928.4 billions in 2012. This is a 8.3% increase. The revolving credit(credit cards) had a 0.3% increase from 2011 to 2012.  This is good news for the auto industry and bad news for everyone else selling to the consumer.

The Federal Reserve likes to estimate annual rates using quarterly results. It is a different way to look at the same problem. Here is their statement.

Consumer credit increased at a seasonally adjusted annual rate of 6-1/2 percent during the fourth quarter. Revolving credit was little changed, while non-revolving credit increased at an annual rate of 9-1/2 percent. In December, consumer credit increased at an annual rate of 6-1/4 percent.

Consumer Credit – G.19

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Mental Disorders

Let’s see… I have two college degrees. The first degree was excusable since all of my friends went to college. College is something we did after high school. The second degree was a passion I did in my spare time. It took me two and a half years of night classes to get the degree. While my friends played, I studied. When you combine this with the fact that I trained many, many hours so that I can run marathons and triathlons, you have a pretty good case for a mental disorder! The good news is that I did these things when I was in my twenties and thirties. I am much better now!

Comic for February 7, 2013
Thu, 07 Feb 2013 06:00:00 GMT

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Cutting Oil Subsidies

Cutting “oil subsidies” is an interesting subject. Most of the time when you ask for details on how the proponents plan to cut oil subsidies they are talking about altering depreciation schedules. The reason the depreciation schedules were altered in the first place was to encourage companies to increase their capital investments. This altered depreciation schedule is available to all companies not just oil companies. Increased capital investments are good for the economy and what is good for the economy is typically good for incumbent politicians. That is why the changed the depreciation schedules. This time we are seeing a different tax slant. Here is a quote from Representative Ellison in the Huffington Post.

Last week, I said that if Congress has to make cuts, we should embrace the idea of ridding ourselves of wasteful giveaways to the fossil fuel industry. Here’s an idea. Let’s cut the Master Limited Partnership loophole and fossil fuel subsidies.

Some years ago I invested in a Master Limited Partnership based on the recommendation of my broker. It was involved with “mezzanine financing” for small companies and it was a much more profitable venture for my broker than it was for me. In hindsight it was another way for brokers to sell me stuff I would not normally buy. Since I am older and wiser now, I avoid Master Limited Partnerships. Recently my mother-in-law invested in a Master Limited Partnership on advice of her broker. When I looked at its return on investment it was a lousy investment, too. Her broker does not like me anymore. There are more reasons to dislike Master Limited Partnerships. If you fill out your own tax returns, tax accounting for Master Limited Partnerships is a pain in the butt. As a person who lived in the oil patch for 18 years, Master Limited Partnerships are just another way to separate doctors, dentists, and lawyers from their money.

Although I would celebrate the demise of Master Limited Partnerships, Representative Keith Ellison’s argument that Master Limited Partnerships should be closed because they use a tax loophole is silly. This is the same loophole used by any partnership or sole proprietorship in which the income gets transferred directly to the partner or owner’s tax return. I doubt he is planning to change these areas, too. The biggest problem for Representative Ellison is that it is hard to get a bigger slice of the tax revenue pie when you are dealing with investments that do not generate much revenue. Oil companies are not offering their prime properties in this market. The properties in Master Limited Partnerships are tough investments to sell to the public. I suspect most companies will opt out of trying to make a market for these lower quality properties. If Representative Ellison was arguing that Master Limited Partnerships are lousy investments and should be avoided for the reasons I mentioned above, I would fully agree with him. In this case he is just making a purely political statement and the chances our country would get additional tax revenue by eliminating Master Limited Partnerships is between slim to none.