Author: bill

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The Fiscal Cliff Deal: The Good, The Bad, and The Ugly

By a 257-167 vote the House passed the fiscal cliff deal on Tuesday. For our family the vote is a good since:

  1. Both my wife and I have mothers who are older than eighty and have estates greater than 1 million but less than 5 million.
  2. All of the other tax increases except for the resumption of normal Social Security taxes do not affect us.

The bad news is that we are reminded that even in the face of disaster, our politicians cannot vote for spending cuts. I guess we have to run the economy into the ditch to get meaningful spending cuts. After reviewing a lot of economic history, my best guess is that we have been on a down hills slide since 2000 due to our debt load. Historically the three most powerful macroeconomic stimuli that increases consumer spending have been increases in defense spending, tax cuts, and increased consumer debt. If we cannot over-stimulate the economy with all three of these at work like we had during the Bush years, we are doomed to plan B, spending cuts and debt reduction. The 2009 stimulus spending package is a grim reminder that this time it is not different. We probably went over the magic debt to GDP number that Reinhart and Rogoff  talk about in their book, This Time Is Different: Eight Centuries of Financial Folly in 2000 but it was obscured by the consumer spending tricks of the last decade.

Too bad that these consumer spending tricks no longer work. Now we are left with the ugly option.  We know from history that there is a good way and a bad way to balance the budget. As the editorial in the Wall Street Journal, The Right Way to Balance the Budget, pointed out, the " the typical unsuccessful consolidation consisted of 53% tax increases and 47% spending cuts" while the "typical successful fiscal consolidation consisted, on average, of 85% spending cuts." Here is a summary of the bill that passed. History predicts that this bill with its preference for tax increases over spending cuts will be unsuccessful at balancing the budget or improving the economy. Fixing the spending problem was left for another day.

The Senate early this morning passed H.R. 8 by a vote of 89-8 to avert the fiscal cliff.  The bill now moves to the House.  Highlights of the bill include:

  • Raise the marginal tax rate to 39.6% on income over $450,000 (joint) and $400,000 (single).
  • Raise the tax rate on dividends and long term capital gains to 20% on taxpayers with income over $450,000 (joint) and $400,000 (single).  The top rate would remain 15% for taxpayers with lower incomes.
  • Estate and gift tax:  $5 million exemption (inflation-adjusted) and 40% rate.
  • Permanent and retroactive patch for the AMT.
  • Return of the exemption and itemized deduction phase-outs on taxpayers with income over $300,000 (joint) and $250,000 (single).
  • One-year extension of 50% bonus depreciation.
  • Extension of various tax extenders.

Revenue estimates from the Congressional Budget Office and Joint Committee on Taxation score the bill as adding $3.9 billion to the deficit over ten years compared to existing (January 1, 2013) law.  The White House has released this fact sheet and statement from President Obama.

TaxProf Blog: CBO on Fiscal Cliff Deal: $1 in Spending Cuts ($15 Billion) for Every $41 in Tax Increases ($620 Billion)

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Switzerland’s “Debt Brake” Is a Role Model for Spending Control and Fiscal Restraint « International Liberty

I agree with Dan Mitchell on many issues. I just found this piece he wrote about Switzerland’s “Debt Brake” in April of 2012. I originally read about the “Debt Brake” in his opinion editorial in the Wall Street Journal. As Dan mentions it is not really a debt brake but a spending restraint and it is only as good as our legislators are willing to let it work. Although it is unlikely that this type of spending restraint will be part of the fiscal cliff negotiations Part I, it make be part of the Part II or Part III negotiations. Ultimately our politicians would have to embrace the fact that our major entitlement programs, Social Security, Medicare, and Medicaid, have become “pay as you go” programs. Here is his chart that shows the problem with spending growing faster than the tax revenues or population.

Obviously spending growth is a fundamental economic problem for the United States and our legislators are willing to copy good ideas from other countries. Representative Brady with his MAP act and Senator Corker with his CAP Act  think a similar debt brake policy in the United States would be a good solution to control the growth of federal spending. Here is what Dan said about the “Debt Brake”.

Switzerland’s debt brake limits spending growth to average revenue increases over a multiyear period (as calculated by the Swiss Federal Department of Finance). This feature appeals to Keynesians, who like deficit spending when the economy stumbles and tax revenues dip. But it appeals to proponents of good fiscal policy, because politicians aren’t able to boost spending when the economy is doing well and the Treasury is flush with cash. Equally important, it is very difficult for politicians to increase the spending cap by raising taxes. Maximum rates for most national taxes in Switzerland are constitutionally set (such as by an 11.5% income tax, an 8% value-added tax and an 8.5% corporate tax). The rates can only be changed by a double-majority referendum, which means a majority of voters in a majority of cantons would have to agree.

He goes on to make the point that this policy becomes a de facto spending cap and that it has been a good policy for avoiding the fiscal crisis problems affecting the rest of Europe.

Switzerland’s spending cap has helped the country avoid the fiscal crisis affecting so many other European nations. Annual central government spending today is less than 20% of gross domestic product, and total spending by all levels of government is about 34% of GDP. That’s a decline from 36% when the debt brake took effect. This may not sound impressive, but it’s remarkable considering how the burden of government has jumped in most other developed nations. In the U.S., total government spending has jumped to 41% of GDP from 36% during the same time period.

He concludes with:

To conclude, we know the right policy. It is spending restraint. We also know a policy that will achieve spending restraint. A binding spending cap. The problem, as I note in my oped, is that “politicians don’t want any type of constraint on their ability to buy votes with other people’s money.”

Overcoming that obstacle is the real challenge.

Switzerland’s “Debt Brake” Is a Role Model for Spending Control and Fiscal Restraint « International Liberty

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On Christmas, Liberals Are By No Means Liberal – Thomas Sowell

Some great quotes from Thomas Sowell. I was just thinking I need to read more of his writings.

Some people seem to think that, if life is not fair, then the answer is to turn more of the nation’s resources over to politicians — who will, of course, then spend these resources in ways that increase the politicians’ chances of getting reelected.

This quote is particularly pertinent in the battle over the “living” Constitution.

The more I study the history of intellectuals, the more they seem like a wrecking crew, dismantling civilization bit by bit — replacing what works with what sounds good.

On Christmas, Liberals Are By No Means Liberal – Thomas Sowell – [page]

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What if Individual Health Insurance Premiums do not go up as fast as expected?

Last week I found it odd that Austin Frakt chose to highlight the non-group(individual) insurance rates on the Incidental Economist. As he said in a comment he expects “the individual market will undergo more change than the group market in about a year.” That got me to thinking what if the individual insurance market does not go up as fast as he expects? The Affordable Care Act has been a cornucopia of unintended consequences.

In the health care debate individual health insurance occupies the same position as coal does in the global warming debate. The proponents of the Affordable Care Act have not gone as far as to say they are going to crucify the individual health insurance market but the intent is obvious. I have been unable to confirm their allegations that the individual insurance market policies are substandard and should be eliminated. The spearhead of the attack on the individual insurance market was the the Individual Mandate and the Essential Benefits regulations. The Affordable Care Act proponents were trying to make it easier for people with chronic, high cost health problems to get health insurance. The uncomfortable fact is that no insurance company in their right mind would want this group of people in their plans.  These people need grace and insurance is a dumb substitute. The grand idea of the Affordable Care Act was to force this group of high cost people into the insurance market with least number of people to spread the costs over, the individual insurance market. It is a dumb idea filled with malicious pitfalls. A Milliman report prepared for Ohio expects that the rates will increase 55% to 85% above the normal health insurance inflation rate. The conventional wisdom is that the healthy customers will choose to be self insured rather than pay the much higher premiums and the individual insurance market will lose its best customers. The only customers left will be those who have high medical costs. In this scenario the best case is that the individual insurance market gets smaller and in the worst case the market ceases to exist.

What if the Individual Insurance market expands?

Although I understand the rationale behind the declining individual insurance market scenario, the individual insurance customer is looking at a different health insurance picture. Here are some of the facts that may cause the individual insurance market to go against conventional wisdom and expand. The most important issue that the individual insurance market has going for it is lower cost.

  1. As a purchaser of individual health insurance I have been notified of the 2013 rate increase. Although the premium for my family plan will increase by 12% to $391 per month, the annual amount is only $4,692.  As a family who was self insured for a decade this is a competitive amount. The employer sponsored average of $15,022 is ridiculous.
  2. As a healthy family covered by a HRA who is living in a state with low individual health insurance rates, we have not paid any health insurance premiums or out of pocket health care costs in several years. When you compare this with the employer sponsored plans, the HRA is a big winner for the healthy families. The 2011 average employee contribution in the employer sponsored plans is $3,962.
  3. My insurance plan is “grandfathered”. I am not sure what this means in my specific case but a Kaiser article implies it may be exempt from the “Essential Benefits” regulation and its much higher costs.
  4. Ohio has passed a law forbidding the Individual Mandate. Since the Affordable Care Act proponents have said that the Individual Mandate is essential for the system to work, I would not be surprised if our politicians came up with an alternative plan for paying for high cost customers. Anything that spreads the cost of these customers over a much wider base is good for the individual insurance market.
  5. If you are a small or medium sized business that partially subsidizes the employee health insurance cost, the individual insurance market is very attractive. The employer sponsored contribution according to the NIHCM brief was $11,060. When you compare this price with a $6,000 HRA, a HRA is pretty attractive option that caps your health care subsidy for the future.
  6. If the states choose to implement a market based exchange using companies like www.ehealthinsurance.com rather than a state or federal exchange based on the ideas in the Affordable Care Act, it will be attractive to small or medium sized businesses to dump their employer sponsored plans. The state and federal exchanges have too much government baggage to be successful in a market place. The Affordable Care Act proponents subverted a good idea and are surprised by the lack of interest in their version of the exchange concept by the states. The government sites, http://www.healthcare.gov/ and https://www.mahealthconnector.org/, that try to provide a similar service in www.ehealthinsurance.com are pretty useless for people shopping for insurance.
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Spending for Private Health Insurance in the United States

Here are two charts from the the brief, Spending for Private Health Insurance in the United States. The Incidental Economist pointed out only one of these charts. 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.

So why are we are trying to make the individual insurance market more like the insurance obtained through an employer? Is this a case where misery likes company?

 

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The Problem with the Economy is People Like Me

Since we are all Keynesian economists until we realize that “Keynesian economics” doesn’t work, the problem with the economy is the lack of consumer demand. So let’s do the math on consumer demand. The 47% dependent on the government for their income are by definition living from paycheck to paycheck and have a very limited chance of expanding their spending. The remaining 53% are in a different pickle. Most of those businesses have not seen their sales grow. As a result their employees have not seen their wages grow. In this group are some consumers saddled with too much debt. Since they seeing the increased costs of living, their budget for the upcoming year is to spend less and try to work their way down to a more manageable debt load. I don’t put a lot of hope that they will increase their spending.  They could opt to default on their loans but this will not allow them to increase their spending. There is a part of 53% that had their houses foreclosed on or they defaulted on their consumer debt. If the financial system still has any common sense then these people credit score is bad enough to keep them from spending more than their income for many years to come. From 1980 to today this economy has lived off of convincing consumers to increase their debt. Now there is a much smaller group of consumers who can afford to spend and increase their debt then there was in 1980.

So now we get to people like me who can afford to spend or increase their debt but choose not to. Like most people who feel blessed to have a job and to be debt free, I do not feel wealthy. I still have financial problems. It is highly likely that my income will not go up in 2013 and  I already know that my health care, taxes, and utilities are all going up in 2013. I feel a quiet desperation with my future. My time is running out to save money for retirement. It is critical that I increase my retirement saving rate but my health insurance costs are are accelerating even though we are a healthy family. It is frustrating that in this current health care system a significant portion of my health care cost increase is going to pay my “fair share” to help the uninsured pay for their insurance. Unfortunately this diverts funds I was planning to use for my retirement.  If the system is not working for those with a job, no debt, and good health, the system is not working for anybody. So I am going to focus on doing the simple things to take care of my family. I will cut back on smartphone and cable TV costs. A new car or a house is out of the question. If we are lucky we will not buy any new appliances either. Going without health insurance is an option. Although John Maynard Keynes is cursing me from his grave to spend more for the good of the economy, the economy will have to fix itself without me. Good luck to those Keynesian economists trying to stimulate consumer demand!

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No Pain, No Gain!

I think it was Reinhart and Rogoff who advocated in This Time Is Different: Eight Centuries of Financial Folly that if we want to fix the United States economic problems we need about $7 of “real” spending cuts to $1 of increased tax revenue through structural tax reform. Yea, it has to be real spending cuts and meaningful tax reforms.  Europe has chosen the no pain approach and chosen policies that are light on spending cuts and heavy on tax increases. This is not a ratio that has succeeded in the past so it is not surprising that Europe’s economy has slowed down and the tax revenue situation is much worse. So we can reform our economic policies now or we can do it later with a much weaker economy. I guess it is too much to hope that we can be a little bit smarter about policies that work to fix our economy than Europe.

Of the supposed savings, then, $1.6 trillion comes from tax hikes and $577 billion comes from spending cuts, not counting saved interest. So 73% of the savings comes from taxes, 27% from spending cuts. That’s $3 of tax hikes for every $1 of spending cuts.

Even if you include interest savings, 60% of the debt reduction comes from tax hikes. Obama is making the exact mistake Europe is making by employing a tax-hike heavy version of fiscal austerity. Indeed, a 2010 analysis by AEI scholars found that successful fiscal consolidations are heavy on spending cuts, light on tax hikes. Even Bill Clinton’s debt reduction plan was 2-1 in favor of spending cuts. The Obama plan is dangerously unbalanced, especially given the weak economic recovery.

European-style austerity: Obama’s new ”˜balanced’ debt plan is 73% tax hikes
James Pethokoukis
Wed, 14 Nov 2012 15:57:11 GMT

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Cliff Notes on The Age of Deleveraging by A. Gary Shilling

I just finished reading The Age of Deleveraging by A. Gary Shilling and I agree with his analysis and conclusions. I think that his book is the most important book on economics that I have read this year so I included some notes from the book for my future reference. Part of the reason I enthusiastically agree with his analysis is because it matches my own analysis. Over several posts I have been looking for signs that the consumer is actually deleveraging. Part of my curiosity stems from listening to Dave Ramsey try to convince people of the benefits of becoming debt free and wondering whether he is part of a larger trend. The other part is trying to figure out what the average American will do with their investments and disposable income in a slow growth environment. Mr. Shilling and I come up with the same conclusion. It is time for the American households to unwind the excess borrowing on credit cards and student loans that occurred over the last thirty years. Consumer spending as a driver for the economic growth is tapped out.

In a similar way I was fascinated with the problems that CALPERS and other pension plans are facing if our economy fails to grow at 4% per year. It seems many of the pensions plans are making big bets that the economy will grow at 4% and the stock market returns will grow much faster than that. The reality is that CALPERS recently announced that their 1-year return was 1%, their 10-year return was 5.7%, and they are spending about 6.4% of their portfolio on benefits. For kicks I charted the inflation adjusted returns for the GDP(blue line), S&P 500(red line), and our total debt(green line). From the chart you can see a pretty good correlation between the three indices from 1980 until 2000. For that time period I came to the conclusion that the growth in debt from was primarily responsible for the growth in the economy and the stock market. Traditional economic theory seems to be working. After 2000 the correlation falls apart. It is as if we passed a tipping point and the equation we use to describe the economy changed. Increased debt was no longer a good thing for the economy or the stock market. Debt soared but the economy hardly budged off of its long term trend line and stock prices went down on an inflation adjusted basis. For pension plans like CALPERS that really sucks! For those who think we can borrow our way to economic growth, you need a new plan. I was pleasantly surprised the Mr. Shilling noticed the same problem with inflation adjusted stock returns and debt.

Here are my cliff notes from the book and two posts about the book at BusinessInsider.

Slow Growth Ahead

Global slow growth in the next decade will result from the U. S. consumer retrenchment, financial deleveraging, increased government regulation and involvement in major economies, low commodity prices and the shift by advanced lands to fiscal restraint.

No Help from Anywhere

Four more reasons for slow global growth: Rising protectionism, continuing U. S. housing weakness, deflation and weak state and local government spending.

Chronic Worldwide Deflation

Deflation comes in several varieties, but is fundamentally driven by supply exceeding demand. Productivity-saturated new tech and globalization will drive the good deflation of excess supply while slow economic growth introduces the bad deflation of deficient demand. As the combine, I look for chronic price declines of 2 to 3 percent annually.

Twelve Investments to Sell or Avoid

#1 Big-ticket consumer purchases

Consumer discretionary spending is getting whacked as Americans grow debt shy. Moreover, consumers will have less money to spend.

Autos, appliances, airlines, cruise lines and leisure and hospitality providers will suffer.

#2 Consumer lenders

America could be finally, finally kicking the credit habit. Credit card companies, like Visa (V), and various financial firms will pay the price.

#3 Conventional home builders

Home prices are dropping (Shilling predicts a 20% drop). People are losing interest in giant McMansions. Add to that America’s newfound antipathy toward debt and you’ve got a bear market for home builders.

You might want to avoid PulteGroup (PHM), Beazer Homes (BZH), M/I Homes (MHO), Ryland Group (RYL) and KB Home (KBH).

#4 Collectibles

Collectibles are another casualty of deflation. That Rembrandt could be worth less in a few years.

#5 Banks

Home prices aren’t done crashing. When they do, banks will suffer from a wave of foreclosures. The financial system will be revived after the crisis with new profit-crushing regulations.

Mortgage heavyweight Bank of America faces the biggest liability.

Shilling also names Goldman Sachs as a potential target for CDO suits.

#6 Junk securities

Shilling calls this year’s rally in junk bonds overblown. Slow revenue and cash flow growth will make it impossible for many firms to service debts.

#7 Flailing companies

Companies with below-average revenue growth and high fixed costs and debt will be the first to drop in the coming era.

Shilling does not give any examples. We’re going with US Steel.

#8 Low tech equipment producers

US industrial production has stalled and won’t need many machine tools and parts. Besides, these products are made a lot cheaper abroad.

#9 Commercial real estate

Demand isn’t increasing as the US economy stalls. Moreover, loans made in the bubble come due in 2012, threatening a wave of foreclosures that will crater demand.

#10 Commodities

Slow global growth means there won’t be much supply pressure for oil and other commodities. Meanwhile, deflation will bring down prices.

#11 Chinese and other developing country stock and bonds

Emerging markets aren’t there yet, Shilling says, and won’t be able to pick up the slack from a languishing U.S. For overheating markets like China, this will lead to a sudden crash.

#12 Japanese securities

Shilling predicted the Japanese crash in 1988, and he says the slow-motion train wreck isn’t over yet. Bad demographics and lack of export growth are just now making their pretense felt.

Ten Investments to Buy

#1 Treasury bonds

Shilling says he has been a 30-year Treasury bull since 1981. The "bond rally of a lifetime" is going to continue as deleveraging causes deflation. Even Ben Bernanke won’t be able to stop that.

#2 Dividend payers

There won’t be much growth, so you might as well collect dividends. A few examples include Procter and Gamble (PG), Unilever (UN), Coca Cola (KO) and PepsiCo (PEP).

#3 Consumer staples

Consumer discretionary spending is getting whacked, but people still need to buy bread and socks. Stores like Walmart are well-positioned to grow.

#4 Small luxuries

People want to spend money on something. Shilling says items like snakeskin tote bags, five-blade razors and designer jeans could be the new type of conspicuous consumption, taking the place of big ticket items like sports cars.

#5 The dollar

With Europe and Japan drowning in debt and emerging markets verging on a crash, the dollar is going to start looking pretty good. Shilling says the dollar will remain the world’s currency, with no real competition from gold or the yuan.

Meanwhile, America will be mired in deflation.

#6 Investment managers and financial planners

Low investment returns will discourage day-traders and encourage the use of professionals.

#7 Factory-built houses and rental apartments

Cheap small homes are the order of the day, as old people look for a cheap retirement spot and young people look for a small mortgage.

Renting will be a more and more popular strategy.

#8 Health care companies

As America ages, the health care industry seems unstoppable. Even Obama’s health care reform ended up boosting earnings for many companies.

#9 Productivity enhancers

Anything that helps juice bottom lines will do well in the new era. This includes consulting groups, computers, internet, biotech and telecom.

#10 North American energy

Shilling is bullish on deepwater drilling and natural gas, as well as coal and nuclear. He has particularly high hopes for the massive Canadian oil sands.

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The Real Way We Should Classify Hurricanes: By Their Energy

I disagree! As a person who lived in Houston for twenty years classifying hurricanes by their energy is rather useless number. It is probably more useless than the current classification scheme. The problem with classifying hurricanes is relating their probable effects to the people in the area around the land fall. For the people in harms way, it is all about disaster preparations and they want to know about four things, wind, rain, storm surge, and location. The wind and rain components of Sandy were pretty mild compared to most hurricanes/tropical storms. Sandy made landfall as a tropical storm and fortunately kept moving. That’s the good news. The biggest problems with this storm was the storm surge and its location. In this case the residents of New Jersey and New York had a case of bad luck. As McNoldy wrote, “The storm surge, combined with a full moon and high tide, affected hundreds of miles of highly populated coastline.” From the news reports we can see that this area was dramatically unprepared for a storm surge of this size. Disaster preparations for this storm were an epic failure of poor planning. The obvious solution to the storm surge problem is to build a seawall. It blocks your view of the sea but some days the sea is not your friend.

As an example when I was living in Houston, I was amazed that people would build beach houses on west Galveston Island. Every ten years or so a hurricane would come along and clean off the west side of the island. In a couple of years the houses would be rebuilt. The east side of Galveston Island is protected by a seawall. The seawall was built as a response to the 1900 hurricane. For the most part it protected the city of Galveston well although the seawall was over-topped by the 1915 hurricane,  severely damaged by Hurricane Alicia in 1983, and over-topped again by Hurricane Ike in 2008. I remember Hurricane Alicia well. The eye of the hurricane passed over our house. Live and learn!

Hurricane Sandy

In sheer power, Hurricane Sandy ranks second among modern hurricanes, beating even Hurricane Katrina, according to Brian McNoldy, a hurricane researcher at the University of Miami.

Out in the Atlantic Ocean, Sandy was the most energetic tropical cyclone in history, thanks to its massive wind field.

Once Sandy ramped up to a Category 1 hurricane and slammed into New Jersey, the storm’s integrated kinetic energy was second only to Hurricane Isabel in 2003, McNoldy wrote in a blog post.

"It stood out to me that this was a pretty unique case of a rather weak storm as wind speeds go, but huge on the impact scale," McNoldy told OurAmazingPlanet.

Integrated kinetic energy (IKE) is a new scale designed to better convey the destructive power from both a hurricane’s wind and storm surge. It’s a measure of the wind speed integrated over how wide an area the winds are blowing. The U.S. government patented IKE in 2007. The Saffir-Simpson Scale, used by the National Weather Service, only reports top wind speeds.

The IKE scale helps explain why Hurricane Sandy, which quickly weakened after landfall, created such widespread flooding and damage, McNoldy wrote. The storm surge, combined with a full moon and high tide, affected hundreds of miles of highly populated coastline. The metric also incorporates the storm’s enormous size: The wind field was so large that tropical storm force winds (45 mph/ 72 kph) extended 485 miles (780 kilometers) out from the center at landfall. (Out at sea, the wind field reached a maximum extent of 520 miles, or 835 km.)

In modern records, Sandy’s IKE ranks second among all hurricanes at landfall, higher than devastating storms like Hurricane Katrina, Andrew and Hugo, and second only to Hurricane Isabel in 2003, McNoldy calculated.

Sandy’s IKE was more than 140 Terajoules, meaning it generated more than twice the energy of the Hiroshima atomic bomb, McNoldy wrote. At any given moment, many hurricanes contain more energy than an atomic bomb in their surface winds alone, he wrote.

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The Real Way We Should Classify Hurricanes: By Their Energy
OurAmazingPlanet
Mon, 05 Nov 2012 22:22:00 GMT

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Obamacare to Increase Individual Insurance Premiums

I made a comment on the Forbes article, “In Ohio, Obamacare to Increase Individual Insurance Premiums by 55-85%”, which reflects my objections to Obamacare as health care reform. The amount of cost attributed to “benefit expansion” in the article surprised me. I read the report last year and forgot that “benefit expansion” was a polite way to describe the additional benefits the chronically sick will get via a “Silver” plan that will reduce their out of pocket expenses.

As a person who purchases individual health insurance in Ohio and who read the Milliman report, there are a couple of issues I should highlight.

1. Ohio is one of those states in which the individual health insurance market costs considerably less than the small business or group insurance plans. My “bronze” plan through Aetna costs only $4188 per year. Compared to rates in large plans my plan is where real health care reform should be going. I would like to keep my plan just the way it is but Obamacare won’t let me.

2. The two major drivers of the individual health insurance cost increase, “benefit expansion” and “risk pool composition changes”, only benefit the “un-insureables”. I did not find any benefit expansion for the healthy in the report that my existing plan does not already have. By forcing the “un-insureables” onto the smallest market segment the individual health insurance purchasers will bear a disproportionate share of health care costs for the un-insuredables. The likely consequence of the rate increases, is that the healthy will leave the individual insurance market and rates will continue to spiral upward for those remaining in the market until the market ceases to exist. The obvious solution is that we should spread society’s obligation to care for the chronically sick over the entire population. The individual mandate was a really dumb idea for how we should pay for the chronically sick.

3. Health care reform does not exist until we can show that we have slowed down the increases in health care costs.