Archive | June, 2011

The income gap in America

30 Jun

It is not hard to miss an article or news report about the income gap in America. You know, the rich get richer and all that. While it is certain we need a strong middle class, the idea that the top one percent of Americans getting richer somehow is holding back the rest of us is puzzling to me. There are about 400,000 tax returns filed each year showing an income of $1,000,000 or more. I don’t know about you, but I wish I were one of them, I don’t begrudge them their success and I have a hard time blaming any of them for my station in life (although I have no complaints).  Heck, even the robber barons of the 19th century created jobs, museums and libraries.  The problem is that politicians and the media find it a lot easier to blame one group than to tell everyone the truth.  It is a classic strategy used for centuries, find a group or class to blame, divert attention from the real problems, create unrest and implement the changes a narrow group is seeking. 

Is it government’s job to “do something about this ‘problem’?” Should the tax code be changed so that more money can be taken from CEOs, sports stars, celebrities and entrepreneurs to be redistributed to the rest of us? 

Take a look at the excerpt from a recent editorial in the Washington Post.

 The rich get richer

EDITORIAL

Saturday, June 25, 2011; 06:30 PM

THERE’S NOTHING NEW, alas, about the increasing gap between rich and poor in America, where the share of national income, including capital gains, claimed by the top 0.1 percent of earners rose from 2.5 percent in 1975 to 10.4 percent in 2008. Still, the details never cease to amaze. In a recent Post report, Peter Whoriskey documented the fact that the average executive’s annual pay has roughly quadrupled since the early 1970s, while average wage income has crept up only 26 percent. No one who cares about the social cohesion of a society premised on the idea that all men and women are created equal can view such statistics indifferently. 

The question, though, is what to do about it. Some of the growing income disparity results from long-term social changes or market forces that are either inherently benign or practically irreversible. The statistics partly reflect the spiraling rewards to superstar talent in entertainment and sports. The golden age of U.S. income equality — from World War II to the 1973 Middle East oil embargo — stands out as an exceptional time when American wage workers were still mostly shielded from Asian and European competition. 

Corporate executives make up three-fifths of the richest 0.1 percent of U.S. earners, a result of the explosion of executive compensation. Government has a role in fixing this situation, but it’s worth recalling past efforts at regulating pay. In 1993, Congress ended the tax-deductibility of top executives’ compensation above $1 million, except for “performance-based” compensation. The resulting huge shift of executive comp into stock options probably left CEOs better off than before.

Why do we focus on the successful? 

“All men and women are created equal” are you kidding?  All men and women are not created equal and if they were we would have a world of cookie cutter people and still be sitting around trying to create fire.   People have different abilities, different personalities, they grow up in different environments, they have different priorities, IQs, drives, ambitions, they make significantly different life choices and much more.  That is why most people are average, some well below average and a few the highest achievers. 

“Government has a role in fixing this situation.” What situation is that, the one where a private sector corporation decides how much to pay its executives and shareholders don’t care? Why does government have a role as long as nothing illegal is done in the process of paying these people?  

Our current obsession with penalizing the high achievers is as troublesome as ignoring those who need the most help getting through life. 

Some Executives are Overpaid 

I happen to think it wrong that executives earn multi-millions of dollars without accompanying results that benefit all the stakeholders of their organization including employees.  I believe that corporate executives who grant each other million dollar stock awards one month and two months later cut the pension benefits of long time employees to boost earnings is wrong.  I think it is absurd that movie stars and sports stars make what they make.  However, none of that has a lick to do with the status of the middle class.  

The World has Changed-So Must Americans 

Many in the middle class have not adjusted to the new world economy and have gone on with their lives as their parents and grandparents before them.  To put it bluntly, they have their heads up their butts and living standard expectations beyond reality.  

Check the labels on the cloths you buy, or the electronics or even your car, you won’t find “Made in USA” very often.  Is that bad? Not if you want low-cost products to buy it isn’t.  Do you shop in Wal-Mart; do you like the low prices? Those prices cost someone their job or higher wages.  Do you support unions and their union wages and benefits?  Ok, be willing to pay more for your goods and services and your taxes.  The point is this is all connected, there is no free lunch.  The jobs in the US are changing, the skill sets needed are changing, what it takes to be competitive is changing (actually it has all changed already).   

You cannot act average and not expect to be average.  You can obsess over the obscene pay of some CEOs all you want, but what matters is what you do about your own situation.  I am not going to waste time listing all the dumb, irresponsible things people do and then wonder what happened to them years down the road, you know exactly what they are.  There is also no need to list the things the winners in our society do to be winners; you can see that on the History Channel or Biography.  Suffice to say personal choice and behavior has far more to do with the state in which we average folk find ourselves than what a hedge fund manager earns. There should be no surprise that many of our older Americans are low-income.  Even an economist knows that if you earn a very modest wage all your life you are going to have an even more modest income when you are not working. 

Although disputed, it has been reported that 60% of NBA stars go broke. According to Yahoo Sports, within two years of retirement, 78 percent of NFL players are bankrupt or in severe financial distress.  Not even those who get a break in life are always able to make sound life choices.  One in three lottery winners are in serious financial trouble or broke within five years of winning   

So what’s the secret to a strong middle class?  It is creating industries with jobs at which Americans can excel.  That means that Americans need education and training in the broadest sense.  They need the basics in the classroom and the right skill training, but they need much more.  They need exposure to the world that is their competition, to basic financial acumen and to common sense lifestyle smarts.  In other words, we need to help people break from their past and to think beyond their experiences.  We need to instill personal responsibility, accountability and reduce the welfare – entitlement mentality. 

We need to stop whining about the people we wish we could be and instead look in the mirror and ask why we aren’t the people we want to be. 

“We have met the enemy… and he is us,”  Pogo

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The high deductible health plan (HDHP), the up side, the down side and what you should know

29 Jun

Let’s take a close look at this high deductible health plan idea and what it may mean to you.  First, if you have no health insurance and this type of plan is affordable in terms of premiums, it will provide a good measure of protection from catastrophic expenses.  Second, if your employer only offers a high deductible health plan, it is certainly better than no coverage at all.

Umm, what was your deductible again?

Now, if you are currently in a typical PPO or Point of Service (POS) plan with a standard deductible, including a prescription drug plan with co-pays or modest coinsurance and your employer says, “we have a deal for you” we are converting to a high deductible health plan (HDHP) and adding a Health Savings Account (HSA), but your premiums will be lower, you might want to check your wallet.   As an example, following is the design of a typical HDHP from a major insurer (some HDHPs have  lower deductibles).  At first glance it does not appear all that different from a traditional plan except for high deductibles.  However, take a closer look.

  1. With a traditional plan there is an individual deductible and a family deductible.  The family deductible can be met by two or more individuals.  Let’s say there is a family of four with a $500 individual and $1,000 family deductible, if two individuals reach their $500 deductible, the $1,000 deductible is considered satisfied for the rest of the family members.  Not so with a high deductible health plan.  If there are two or more members of a family, no benefits are payable by the HDHP until the family deductible ($5,000 in this example plan) is met. Even if one individual reaches the $2,500 deductible, there is no benefit payable because the family still has another $2,500 to satisfy toward the family deductible.
  2. Under the high deductible health plan virtually all services are subject the deductible and coinsurance. This means that there is no separate prescription drug coverage, rather prescriptions are subject the deductible and coinsurance.  
  3. To put it simply, except for some preventive services covered at 100% and not subject to the deductible, a family will spend at least it’s deductible before any reimbursement from its health plan.  In this example plan, the family is also at risk for 20% of the first $25,000 in expenses after the deductible is met. In other words the potential family expense for eligible charges is $10,000 per year.
  4. Just like a traditional plan, a HDHP may have a network of doctors.  If you go outside that network, you may have no coverage or be required to pay a higher coinsurance.

The idea behind all this is if you are at risk for a large deductible out-of-pocket, you will be a more prudent consumer of health care, thus saving money.  The key question is can you afford do to that?  Keep in mind that the premium you pay for this coverage and likely the payroll deduction your employer takes will be considerably less than with a traditional plan.  However, you still must pay your deductible.  To help you pay for all this, you can establish a Health Savings Account (HSA) if you are enrolled in a qualified high deductible health plan.  Such a plan must have at least a $1,200 single and $2,400 family deductible and cannot have an out-of-pocket limit higher than $5,950 for single coverage or $11,900 for family coverage (including the deductible).  To the extent your premiums are lower in the HDHP, you might want to consider placing the premiums saved into a HSA.

High deductible health plans have one big drawback, they are not income sensitive.  If your family earns $50,000 a year, a HDHP may be a serious burden regardless of the lower premium. If your family earns $250,000, a HDHP may, coupled with a HSA, be a boon to saving for health care costs in retirement.  Will the upfront costs under a HDHP discourage you from obtain necessary health care for you and your family?

A Health Savings Account allows you to save  tax-free money (and potentially earn tax-free interest on the account) to help offset your out-of-pocket expenses. Because the unused money can roll over from year to year (unlike a flexible spending account) you may be able to save money for health care costs in retirement.  For 2011, a single person may save up to $3,050 in the HSA and a family $6,150.  If you are 55 or older you can add an additional $1,000.  The annual limits include any employer contributions.  However, a HSA is not for individuals 65 and older or anyone eligible for Medicare.  Before you rush out to set up an HSA, better check all the rules carefully.  Here is a link to the IRS publication on HSAs.

A negative view of HDHP and HSAs

If you want the dark side of these plans, at least as perceived by one writer, read this. Although I must point out that while he blames insurers, the fact is a substantial portion of the movement to these plans is among large employers that are self-insured.

Sample High Deductible Health Plan

Basic plan summary
Plan type PPO (Preferred Provider Organization) – Allows you to choose to receive care from network providers of your choice.
Deductible individual $2,500
Deductible family $5,000
Coinsurance 20% after deductible
Individual out-of-pocket maximum after deductible $2,500
Family out-of-pocket maximum after deductible $5,000
Individual lifetime maximum Unlimited
Dependent coverage Eligible children covered to age 26
HSA eligibility Yes
Doctor office visits (illness and injury)
Office visit – history and exam Subject to deductible
Office visit – specialist Subject to deductible
How can I find a doctor in this plan’s Network? Search for a doctor or hospital here
Do I need permission from my primary care doctor to see a specialist? No
Do I need authorization before seeing an out-of-network doctor? No
Hospital services Your cost sharing
Emergency room Subject to deductible
Outpatient Lab/X-ray Subject to deductible
Outpatient surgery Subject to deductible
Hospitalization Subject to deductible
Preventive care
As part of the Affordable Care Act, preventive services are paid at 100% of the allowable charge for new enrollees after Sept. 23, 2010. This includes routine screenings, immunizations, checkups and counseling received to prevent illness or disease.
Periodic health exam No charge
Periodic OB-GYN exam No charge
Well baby care No charge
Prescription drug
Generic Subject to deductible
Brand Subject to deductible
Non-formulary Subject to deductible
Prescription drug – Mail order
Generic Not covered
Brand Not covered
Non-formulary Not covered
Maternity coverage
Pre and postnatal office visit Subject to deductible (spouses must be enrolled in same plan)
Labor and delivery hospital stay Subject to deductible (spouses must be enrolled in same plan)
Additional coverage
Mental health Subject to deductible
Substance abuse Subject to deductible

What is the chance employers will drop health benefits in 2014?

28 Jun

McKinsey & Co is under attack because it released a survey indicating a significant number of employers will drop health benefit coverage for employees when the Affordable Care Act exchanges are available in 2014. The study’s conclusions are not consistent with administration or CBO projections (especially related cost projections).

Will employers make such a move, is it beyond their power or will?  Well, doubters should look at what employers have done in the past in the name of saving money and preserving earnings.

Is this what TR meant by a square deal?

Retiree health benefits have been capped or eliminated, retiree spousal coverage has been dropped, employees have been shifted into high deductible plans, pension plans frozen, 401k matches stopped and much more. In other words, when it comes to meeting shareholders expectations,  commitments to employees are an easy target and a low priority.

Consider the 100-year-old company with a pension plan in effect since 1911. Even during the great depression it maintained its pension plan trimming pay and pensions by 10% and reinstating both cuts after three years.  The twenty-first century is a different world. Employees of this company who still have the pension benefit are told their promised benefit will be frozen and future benefits will accrue under a new less generous formula. So, a 55-year-old trying to plan a future retirement suddenly finds the pension to be several thousand dollars a year less than expected.

According to the Employee Benefits Research Institute: EMPLOYMENT-BASED COVERAGE REMAINS DOMINANT SOURCE OF HEALTH COVERAGE, BUT CONTINUES TO ERODE: Employment-based health benefits remain the most common form of health coverage in the United States. In 2009, 59 percent of the nonelderly population had employment-based health benefits, down from 68.4 percent in 2000.

Legally of course there is no obligation for an employer to continue these benefits.   However, employers conveniently forget that future benefits are part of total compensation over an employees career.  Employees paid for these benefit promises through lower cash wages, a point employers have no trouble pointing out when promoting the value of the compensation package.

How is cutting the pension a worker ten years from retirement is counting on any different from telling an executive the stock options he received nine years ago as part of his total compensation now must be forfeited? Answer, one happens and one doesn’t. 

Employers have a right and obligation to manage costs and to assure that promises made can be kept.  Sometimes that means changing those obligations for new hires to begin a lower cost structure, it always means keeping a reasonable level of total compensation costs, but it should not mean changing the deal for long-term employees who have little time to adjust and had every reason to believe they could rely on that portion of their total compensation that was earned over ten, twenty or thirty years.

So, do you still think employers faced with ever escalating health insurance costs will pass up the opportunity to save thousands of dollars per employee by putting them in exchanges?

Let me also blow up the myth held by many economists and other experts that employers will feel any obligation to make up lost benefits with higher wages. Those savings have and will continue to go to the bottom line.

 

[Note: someone is going to say, ok, how is this any different from what the states are attempting to do to their workers, you support those changes.  Yes, I do because those benefits have been mismanaged and abused for decades, they are consistently well above the competitive market and unlike private employers, including in the example above, states have not attempted to manage their costs over the years and rather took little or no action until a crisis was born.]

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Kathleen Sebelius defends the Independent Medicare Advisory Board, but seems to miss important points

27 Jun

Writing an Op-ed for Politico.com Kathleen Sebelius, Secretary of HHS defends the Independent Payment Advisory Board for Medicare in a purely political piece.  She notes correctly that the Board is prevented by law from recommending rationing.  However, there are many ways to ration care that are not called rationing.  And if one is trying to lower costs, indeed if you are charged with being the main element in that effort, you must reduce the use of health care services and or the price you pay for each of those services.  Either way someone gets less directly or indirectly. Don’t get me wrong, I am all for reducing unnecessary health care and there is a great deal of that to deal with.

However, talk about misleading, Secretary Sebelius, while pointing out what the Board cannot do, loses site of the fact the Advisory Board is prevented from doing so many things and is specifically directed to focus on Medicare Parts C and D, that it has little room to affect direct cost savings. Here is what the law says:

The Board is to consist of 15 members with expertise in health care financing, delivery, and organization. All members are to be appointed by the President and confirmed by the Senate. Proposals are to primarily focus on payments to MA and PDP plans and reimbursement rates for certain providers

In addition, the PPACA already contains about 165 initiatives including Accountable Care Organizations (ACAs), partnerships to lower hospital readmissions, more comparative effectiveness studies (all good stuff)  and much more. It is hard to see what else the Board can come up with that is not duplicative.  How can we know what are good new recommendations until we know if all the trial programs also part of the law work? In addition, the Board’s recommendations must be effective so far into the future that any cost savings will be many years away.

Read the provisions of PPACA applicable to the Board for yourself in the link below:

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Ah, there’s the rub, spending is in the blood

26 Jun

I was listening to a radio talk show recently and they were discussing the money spent on the wars in Iraq and Afghanistan. The point being we should get out of those countries with the extra benefit of saving billions of dollars – and here’s the rub – that we could spend on many other things.

This reminds me of an episode of Till Debt Do Us Part, a couple was helped with counseling because they were $60,000 in debt from a score of credit cards. The host made them cut up the cards and begin a plan to reform their spending ways. In return the couple received $5,000 toward their debt. Upon receipt of the $5,000 check the wife is caught on camera whispering to her husband, “we can put some of this toward that new credit card we just got.”

To be, or not to be: that is the question;
Whether ’tis nobler in the mind to suffer the slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing end them? To die: to sleep;
No more; and by a sleep to say we end
The heart—ache and the thousand natural shocks.
That the flesh is heir to, ’tis a consummation
Devoutly to be wish’d. To die, to sleep;
To sleep: perchance to dream: ah, there’s the rub; – WS

To save, nay no chance: that is the lesson
Rather to spend our wants than tarry only at our needs
The ache of debt no more shall plague our hearts, but only in our dreams,
Tis nobler to print the cash and sling our troubles forward – RQ

Invaders, crusaders, occupiers, say what?

25 Jun
Soviet troops (in right row) withdrawing from ...

Image via Wikipedia

Is that how we Americans think of ourselves in Iraq, Afghanistan or Pakistan?  I never did.  However, apparently not only the terrorists have that point of view, but so do many (some say the majority) of citizens in those countries and even the leaders with whom we are supposed to be aligned voice that view in public.   From what I can see if you are a western non-Muslim you have no friends or allies in that part of the world, so be it.  Hey, if my neighbor doesn’t want me in his yard I don’t go – even is he has a nice pool…on a hot summer day.

My feeble understanding of all this just doesn’t get it.  From our point of view we are trying to help people first get rid of a dictator and second keep out insurgents trying to oppress them in a different way.  I still don’t get it.  Who the heck are the good guys in all this?  I think our politicians need to check the history books and see if they can find any successful external intervention in these countries over the centuries.  Who wants them anyway? 

If there was a widespread popular desire for help, that would be one thing, but that does not appear the case.  Are we fighting to preserve cultures that stone people, cut off hands of thieves, behead a couple who marry out of their class (true event) or have a law against women driving?   Hey, there are different cultures and they are welcome to theirs, but I am not certain I see much worth Americans dying for or being maimed. 

What is the mission, what are our vital interests, what would happen if we left?  Would the Taliban take over Afghanistan, would religious zealots run Iraq?  Tell me why that matters, please.  I’m no pacifist or appeaser, I don’t think we should turn the other cheek when attacked and clearly we need to be on the offensive in preventing such attacks, but I don’t know how to equate that with ten years of the type of wars we are fighting.

We have an articulate president these days, he has no drawl, he doesn’t pause frequently when he speaks, he doesn’t fly a jet fighter, so please Mr. President, splain this to us again.

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CBO sounds the budget alarm…again

24 Jun

I chuckle (not really, I actually cringe) when I read experts and special interest groups saying there is no real problem with the major entitlement programs, they are in fine shape and need only a bit of a tweak to continue business as usual.

Those folks and you should read the most recent blog posts from the Congressional Budget Office (CBO).

Here is a sample:

The implications of this analysis are clear: There is a substantial mismatch between what the government would have to spend to maintain existing programs in their current form and the revenues that taxpayers are accustomed to providing the government to pay for those programs.

To keep deficits and debt from climbing to unsustainable levels, policymakers will need to increase revenues substantially as a percentage of GDP, decrease spending significantly from projected levels, or adopt some combination of those two approaches. Making such changes while economic activity and employment remain well below their potential levels would probably slow the economic recovery. However, the sooner that medium- and long-term changes to tax and spending policies are agreed on, and the sooner they are carried out once the economy recovers, the smaller will be the damage to the economy from growing federal debt. Earlier action would permit smaller or more gradual changes and would give people more time to adjust to them, but it would require more sacrifices sooner from current older workers and retirees for the benefit of younger workers and future generations.

You can (and should) read the full article by linking to the CBO Directors blog under Blogroll on the right side of this page.

How much do you think older Americans and retirees are willing to sacrifice for their children and grandchildren? Not much I’m guessing if the voice of the AARP is any indication. Our fixation with seemingly “free” or buried in someone elses taxes entitlements has gotten us into not only class, but generational warfare and that ain’t good.

We have built the worlds largest Ponzi scheme and the new investors are disappearing.

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NLRB says employers have less time to express views on unionization…so what are they waiting for?

24 Jun

Quick, get the file, we have to talk to employees

Employers and their associations are bent out of shape over a new NLRB ruling that greatly shortens the time an employer has to respond to an organizing drive and make it’s case for employees not to unionize. Opponents say this political move by the NLRB ”eviscerates an employer’s legitimate opportunity to express its views about collective bargaining .”

Really now, and exactly what prevents an employer from making its case in deeds and actions every day it is in business? An employer that must go into defensive mode with enhanced communications upon learning of a unionization drive is…stupid.

An employer with a work environment that provides fair and competitive compensation, that treats workers with respect and consideration and continuously is open and honest in its communications has little need to be concerned there is too little time to respond to union efforts.

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Health care and the free market system, you are not buying a Ferrari. Revelation; your “wants” and “needs” may be the same

23 Jun

All this because I am not Ferrari red!

Writing for Forbes, Dean Zarra takes on Paul Krugman and his position on Medicare.  You can read the full article here.

Zarra’s point is that the free market system can work in the health care system.  He makes his case in part by illustrating the following:

In a free market system, prices perform that role.   I might want a Ferrari, but the price makes me realize I don’t really need it.  This is the underlying principle behind the typical “demand curve”: demand goes down as prices go up, and visa versa.  Note that this is demand that I actually act on — my wants might remain constant regardless of price.  If in fact I truly need something that is very expensive, I have to make choices about how to allocate my resources to raise the funds.

Where he heads with his thinking is that high deductible health plans save money because they force people to make economic decisions about receiving health care.  He and others point to slower growth in health care premiums for high deductible health plans.  It’s hard to argue that if a family has a $5,000 deductible before collecting one cent in reimbursement it won’t attempt to avoid as many costs as possible. And even if it doesn’t and pays for those costs, the plan still saves money because it has shifted that $5,000 to the worker.  This aversion to spending on medical care [and here I mean relatively routine care] is clearly more prominent the lower the income of the insured. In other words, a $5,000 deductible is a financial burden whether the money is to be spent on an office visit or open heart surgery. 

While it is true that the patient’s near total insulation from costs is a factor in our current cost crisis, this idea that the free market system works as well on health care as on an automobile is, shall we say, questionable.  I don’t want open heart surgery or a knee replacement or IV therapy for Lyme disease, but I sure as heck may need one of those.  My demand (need) for those services doesn’t go down as prices go up.  On the other hand, with a high deductible health plan or government intervention (think any form of rationing) my ability to receive what I need may go down.

About those choices, which choice do I make to allocate my resources to come up with the $5,000 for my hip replacement?   I suppose if I give up food, I won’t need the surgery.

There is far more to all this than free markets, the key is to change the system so that only the required (truly needed) care is provided in the most efficient manner possible.  The patient cannot make that determination in any meaningful way. In addition, pricing of those services can no longer be a game of discounts, networks and other mysteries beyond the patient, but a uniform payment model.  Every payer, private or public pays the same for a given service (adjusted for demographics). Providers can charge as they like and greedy or inefficient providers will fall by the wayside.  If you think this is a radical idea; in fact it is not that much different from the way insurance operated in the 50s and 60s when there were fixed fee schedules. 

Rather than block my access to care with a huge deductible, let me know what you will pay, point me toward quality providers (this implies good measures along with ongoing utilization review), tell me what they charge and let me decide how much I want to pay for something I perceive of value beyond the allowed fee.  If I can’t afford to pay an additional amount, I still have access to quality health care albeit with a bit less choice.

To say that free markets are applicable to ones desire for a Ferrari (I’ll settle for a Mercedes) and a hip replacement in the same manner is economics gone wild…what’s new?

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  • High Deductible Health Plans are not the solution. It is not the patient who can manage health care. New study finds skimping on preventive care. (quinnscommentary.com)

Government austerity programs are unpopular…well, duh!

22 Jun

Aside from the questionable spending on two wars for who remembers how many years, the last four and a half years have seen an escalation of spending, social programs and as a result also an increase in federal civilian employees.  In fact, federal employment is at an all time high of just over 2 million workers (excluding postal employees).

After decades of expanding popular programs such as Social Security and Medicare along with scores of smaller programs, politicians have gotten religion and figured out that these programs are expensive and that the promises they made must be paid for. Not that they have not been warned for many years what was coming, but after all, austerity is unpopular and unhappy people still vote.

There is a case to me be made that we Americans want all this stuff. We do elect people who make all this possible after all.  And as much as we like to talk about freedom and individual responsibility it’s darn convenient to have things like health care and retirement taken care of for you, just ask one of us on Medicare, Social Security and a company pension.  The part we don’t like to think about is paying for it.

Then we get to the point where we don’t have sufficient funds to pay for all the promises and we must do one or a combination of two things, implement some austerity (cut the benefits and promises) or increase the money available to pay for them (higher taxes).

Hands off all the good stuff!

Some will argue to trim benefits making them affordable.  A few people actually think they paid for what they are receiving, ha!  Others want to preserve all the promised benefits and to simply raise taxes…at least on some people.

Greece is our best example of social engineering, decades of promises, generous social benefits, high government employment and high taxes.  Greece has learned the hard way that people march in the streets when there is a whisper of austerity and at the same time they find ways to avoid paying taxes that are supposed to fund government promises.

Consider these published facts about Greece and draw your own conclusions as to any parallels to the U.S. if not now, surely in a few years.

It’s estimated that 20 to 30 percent of Greek economy is underground and the government may be losing up to $30 billion a year to tax evasion.

The New York Times reports that many wealthy, high-earning Greeks are not reporting their income. Take a look at the following; is there any wonder why Greeks avoid taxes?

Greeks pay a Value Added Tax (VAT) of 21%. (a giant broad-based sales tax)

Income tax rates range from 15% to 40%. At 30,001 Euros (around $42,000), the rate is 35%, below that the rate is 25% down to 12,000 Euros.

The New York Times reports, “When tax authorities recently surveyed the returns of 150 doctors with offices in the trendy Athens neighborhood of Kolonaki, where Prada and Chanel stores can be found, more than half had claimed an income of less than $40,000. Thirty-four of them claimed less than $13,300, a figure that exempted them from paying any taxes at all.”

Some of the most aggressive tax evaders, experts say, are the self-employed, a huge pool of people in this country of small businesses.

Greece Social Security

* The employer’s contribution is 28.06% of the salary. The employee’s contribution is 16%.

* A self-employed person makes payments to social security himself.

* The insurance covers pension, unemployment and health care insurance.  Greeks get their health care from the state. But, if a patient wants more attention than Greekcare mandates, “Greeks routinely pay doctors cash on the side”

If you were addicted to government promises and paying those kinds of taxes (or expected to pay is perhaps a better way of putting it), wouldn’t you think you were entitled to your entitlements and be inclined to protest austerity and take extraordinary measures to avoid taxes?  There seems to be a certain logic here in the way people react to all this and yet there are many experts who believe that somehow the American people will react differently.

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Medigap coverage – balancing premiums and your out-of-pocket risk

21 Jun

I'm confused

I began administering employer based health plans beginning in1961. In all those years the typical plan had a modest deductible and coinsurance of 20%. Starting in the late 1970s we saw changes with the introduction of HMOs promising lower costs in return for tighter control over health care services (unfortunately an unfulfilled promise). This evolved into point of service plans providing a lower deductible and lower coinsurance or a co-payment if in-network services were utilized. Today we have several variations and ever-increasing (high) deductibles and co-payments with the insured paying upward of 25% of premium even in the best employer plans.  Current thinking says that if the patient has a greater stake in the cost of care they will be better consumers.

The point is that regardless of the plan, there was a deductible to be met and a co-payment or coinsurance to be paid except for extraordinary annual costs eventually reaching an out-of-pocket limit.

Then we have Medicare with a hospital deductible, a low Part B deductible a 20% coinsurance, extended hospital stay co-pays and under the Affordable Care Act a growing array of services provided subject to neither a deductible or co-pay. While there is no out-of-pocket limit, fees are deeply discounted and there are strong caps on provider balance billing. Beneficiaries for the most part pay only 25% or less of the cost of Part B and nothing for Part A. This results in beneficiaries paying about 11% of the total cost in premiums (not including taxes paid in the past which were used by then current Medicare recipients).

Inpatient Hospital Deductible $1,132

Inpatient Hospital Coinsurance
$283 per day for days 61–90
$566 per day for days 91-150
$275 per day for days 61-90
$550 per day for days 91-150

Skilled Nursing Facility Coinsurance
$141.50 per day for days 21-100
$137.50 per day for days 21-100

By most measures Medicare is good coverage that many younger people would love to enjoy. But this is not sufficient. Many Medicare beneficiaries want 100% coverage so they spend an additional $250 or more a month (mostly more) to obtain coverage for the Medicare deductibles and coinsurance, a level of coverage virtually non-existent in the under age 65 population. This removes substantial concern over the utilization of health care services.

If a couple has $500 or more a month to spend on supplemental coverage, they may be better served putting that money in an investment to be used when necessary for out-of-pocket costs or for related costs such as dental, vision and hearing services. In essence, a Medicare Health Savings Account. Of course, such a special account does not legally exist, but saving the $500 is still an option. Sometimes our fear of health care expenses clouds our judgement, extensive Medicare supplemental coverage may be one of those times. Consider that the average hospital stay under Medicare is under six days and even the average length of stay in a skilled nursing home is about thirty days

Health care costs are not related to income so high out-of-pocket costs impact lower-income individuals far more than higher income, but that is not unique to Medicare, it is always the case. On the other hand, a fixed expense of say $500 a month as in this example may be more of a burden to lower-income individuals.

There is a balance to be considered between supplemental coverage for only the most catastrophic expenses such as a very prolonged hospital stay and accumulating funds on a “self-insured” basis for more routine expenses and which can also be used for other purposes not normally covered by Medigap policies.

In deciding how much to spend on Medigap coverage, consider your potential financial risk, how much you can absorb and whether all or some of the premium you pay would be better in your pocket by buying coverage only for that portion of the risk you don’t want to take as opposed to reimbursing you 20% of office visits and more average expenses that may not exceed your monthly premiums.

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Social Security- from lock box to slush fund. Can anyone look beyond 2012?

20 Jun

Deficits and debt

If you look at many of the fifty states you will find that their state worker pensions are grossly underfunded.  This is largely the result of overly optimistic earnings assumptions, and the failure of the states to adequately fund the trusts often diverting money to other purposes.  Clearly this is not a model we want to follow on a national basis…or do we?

For 2011 our elected politicians decided that lowering the Social Security payroll tax would stimulate the economy (and apparently that further underfunding Social Security was not a problem).  Now in the interest of the short-term economy, proposals are being circulated to extend the tax reduction and perhaps even to increase the cut in payroll tax and to include a tax cut for employers as well. 

Holy cow!

Payroll Tax Raid on Social Security

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Union leader makes strong argument against public sector collective bargaining

19 Jun

New Jersey Governor Christie with the help of some Democrats is ready to approve several changes in state worker benefits and pensions to help close a growing funding gap of tens of billions of dollars. Needless to say the unions are not pleased, but I think the following quote reported by Bloomberg.com is most telling, accurate and an excellent point for why collective bargaining is not appropriate in the public sector.

Union members hissed and booed as Sweeney, who is sponsoring the measure in the Senate, testified. “You’re not my brother,” one person yelled, a reference to his union position. The hearing was later delayed after state police led out two dozen union members who chanted “union rights are human rights” and “kill this bill” as Bob Master, political director for the Communications Workers of America, spoke against the measure.

“Real Democrats would have killed this bill,” Master said. His union represents about 40,000 state workers and is the largest union for New Jersey government employees. The organization has been pushing for any changes in its members’ health-care contributions to be done through collective bargaining, not legislation.

Call me cynical but in this case “real Democrats” and collective bargaining with the folks who financed their campaigns is what got NJ into this mess in the first place.  Now key Democrats are doing the right thing fixing the mess.  It’s about time the citizens of NJ and other states in a similar mess support the politicians trying to fix years of deals with the unions, underfunding of promises and overly generous benefits that are not affordable by  the citizens who are footing the bill. 

State workers deserve a fair and competitive total compensation package consistent with that of their fellow citizens, recognizing the jobs they do, the hours they work and the relative security of their positions, no more, no less.

Moran: Real leadership sang louder than N.J. unions’ tired refrains

Vouchers for Medicare-a different point of view

17 Jun
Paul Krugman, Laureate of the Sveriges Riksban...

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The Ryan plan to reform Medicare has been widely criticized mainly because it employs a voucher system. Among those critics is Paul Krugman. However, there is a different point of view that deserves serious consideration.  Are the exchanges coming as part of the Affordable Care Act much different from a voucher program?  Will the government simply keep increasing its subsidy to millions of Americans at a rate unconstrained by a reasonable percentage?  How do you manage a vast government program such as health care without a managed budget?  Consider this view on the matter.  Critics of the Ryan plan have a lot to say but offer little concrete as an alternative.  Even the many provisions contained in the Affordable Care Act while headed toward the right goal are untried, untested and difficult to measure with results unknown for many years.  In effect they are a very soft approach to solving a very hard problem.

Professor Laurence Kotlikoff writes for Bloomberg.com

Critics Respond

These questions are forcing Ryan’s critics to respond. Paul Krugman’s recent New York Times column, “Medicare Is Not Vouchercare,” is a case in point. Krugman manages to drop the V-word in his title and nine times in his column. As for his other words, they are, well,

First, Krugman suggests that Medicare directly pays all health-care providers. Not so. More than one fifth of Medicare participants are enrolled in Medicare Part C, in which the government makes payments to providers through private insurance companies. That’s the same system that Ryan is proposing, albeit for all participants.

Second, Krugman says vouchercare “would pay a fixed amount toward private health insurance — higher for the poor, lower for the rich, but not varying at all with the actual levels of premiums.”

Again, not so. All the plans — Ryan’s, Rivlin-Ryan, my own, the president’s health-care exchanges and Medicare Part C – - explicitly or implicitly adjust payments according to the patient’s risk profile, providing larger amounts for those with higher expected health-care costs.

Next Krugman claims that “If you couldn’t afford a policy adequate for your needs, even with the voucher, that would be your problem.” Nope. The voucher plans will require insurers to offer a basic policy whose coverage is set by a medical panel. No one can be turned down by participating insurers.

I urge you to read the full article here.

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Social Security’s Enduring Truths ( A naive point of view- what would FDR say?)

15 Jun
Social Security Poster: old man

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The following excerpts are from an article in the AARP Bulletin.  It is understandable why Mr. Roosevelt would be supportive of Social Security, but in my view this type of naïve assessment of the issues facing Social Security does every American a great disservice. Mr. Roosevelt is the grandson of FDR

 

 

 

 

Social Security’s Enduring Truths

Despite the naysayers, the system’s finances are sound by: James Roosevelt Jr. | from: AARP Bulletin | June 1, 2011

 “Much of the money that boomers are and will be drawing from Social Security is and will be their own.”

 “But these important factors are usually left out. Instead, the purveyors of fear want you to believe that boomers are retiring on the backs of their children and grandchildren. If you buy that, they have statistics showing fewer contributors supporting more beneficiaries— “proof” that the program is unsustainable. These utter distortions, however, are nothing new.”

 Utter distortions, ah, not so much.  For example, I paid Social Security taxes since I was fourteen.  The last statement I received from the Social Security Administration a few months before I began to collect benefits showed that over the years I paid $110,457 in taxes, my employer paid a like amount.  However, in 2.64 years my monthly benefit together with my spouse’s portion of the benefit will exceed the entire amount I paid in taxes.  If you include the employer taxes, my benefit will exceed what was paid in taxes in only 5.28 years.  These calculations do not include the fact that my benefit will continue for my surviving spouse or that there is a Cost of Living Adjustment that regularly raises the benefit.  Since I began collecting Social Security benefits in November 2009 I only have a year to go before I am receiving benefits paid for by someone else’s taxes, my children included. Thank you very much. 

“By the end of 2010, the Social Security trust fund had a positive balance of $2.6 trillion. As a result of interest earned on the trust fund balances, the fund’s surplus will continue to expand to approximately $3.67 trillion at the end of 2022. After that year, it is projected that the balance will begin to decline. Still, reserves will be sufficient to pay full benefits through the year 2036. After that, Social Security would still be able to pay for 77 percent of benefits.”

Here is what the Social Security Trustees Report says in 2011:

“Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983. The $49 billion deficit last year (excluding interest income) and $46 billion projected deficit in 2011 are in large part due to the weakened economy and to downward income adjustments that correct for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink to about $20 billion for years 2012-2014 as the economy strengthens. After 2014, cash deficits are expected to grow rapidly as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Through 2022, the annual cash deficits will be made up by redeeming trust fund assets from the General Fund of the Treasury. Because these redemptions will be less than interest earnings, trust fund balances will continue to grow. After 2022, trust fund assets will be redeemed in amounts that exceed interest earnings until trust fund reserves are exhausted in 2036, one year earlier than was projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2085.”

Let’s look at that interest earned and where it comes from.  If we were talking about interest earned on a private pension fund or even your 401(k) account, the interest comes from the earnings of companies in which you are invested, in other words from creating wealth or it comes from bonds, the proceeds of which the companies use to finance growth and expansion. However, the interest paid on Social Security bonds comes from the US Treasury and the Treasury gets the money from borrowing more money (or just printing it).  Think of it as using one credit card to make the minimum monthly payment on another card.

“Since when is news that a program is completely solvent for 25 years bad news?”

Not bad news?  Twenty-five years is not that far away, especially if you happen to be age 50 or 55 at the moment.  Would it be bad news if your employer said its pension trust was only going to be solvent for twenty-five years or that your 401(k) account would only last for twenty-five years?  In addition, it is foolhardy if not irresponsible to pretend there is no problem with Social Security.  This is such a massive and complex program and one so emotionally charged that it will take decades to change the direction in which we are headed.  We certainly cannot wait for twenty-four years and then try to find a fix.

FDR envisioned quite a different program from what we have today following decades of “improvements” made by Congress. If you think that government estimates of the cost of a program are to be relied upon for years into the future, consider this from a 1936 government Social Security brochure:

YOUR PART OF THE TAX

The taxes called for in this law will be paid both by your employer and by you. For the next 3 years you will pay maybe 15 cents a week, maybe 25 cents a week, maybe 30 cents or more, according to what you earn. That is to say, during the next 3 years, beginning January 1, 1937, you will pay 1 cent for every dollar you earn, and at the same time your employer will pay 1 cent for every dollar you earn, up to $3,000 a year. Twenty-six million other workers and their employers will be paying at the same time.

After the first 3 year–that is to say, beginning in 1940–you will pay, and your employer will pay, 1.5 cents for each dollar you earn, up to $3,000 a year. This will be the tax for 3 years, and then, beginning in 1943, you will pay 2 cents, and so will your employer, for every dollar you earn for the next 3 years. After that, you and your employer will each pay half a cent more for 3 years, and finally, beginning in 1949, twelve years from now, you and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year. That is the most you will ever pay.

When was the last year you paid $90.00 in Social Security tax?

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