Archive | Government

Will Obamacare, PPACA, Affordable Care Act save money and if so, for whom?

7 Dec

Much has been written, discussed and debated about health care reform.  Even more has been promised in terms of savings and making health care “affordable,” but what does it all mean?

Will there be savings and how will any savings generated benefit you? Read my assessment of the situation for a definitive answer to this important question.

Will health care reform save money and lower costs?


Your pension may be at risk. You CAN lose all or a portion of your pension…even if you are already retired

5 Dec

ERISA, the Employee Retirement Income Security Act, had its genesis in the failure of the Studebaker car manufacturer when the pensions of its workers we’re wiped away with the passing of the company.  ERISA included the establishment of the Pension Benefit Guarantee Corporation (PBGC) a government agency funded by premiums paid by pension plan sponsors, well partially funded, the PBGC is not in great shape itself in terms of assets versus liabilities. 

If you would like to see the issues facing the PBGC and what Congress is considering doing take a look at this:  Congress and the PBGC 

While ERISA imposed new minimum funding standards on pension plans, employers don’t or can’t always comply. The result is that if a pension plan is terminated with insufficient assets to cover liabilities or an employer goes bankrupt, the PBGC steps in to make up the difference for retirees … up to a point that is. 

For example, a 65-year-old retiree is guaranteed up to $4,653.41 in monthly payments from the PBGC in 2012 should the agency take over his or her plan. On the other hand, a 55-year-old retiree is guaranteed just $2,094.03 (both based on the age at which a person retired).  Any amount above those limits is lost, you had it and now you don’t. Participants who have earned a benefit but are not yet eligible to retire have even more to lose. 

The situation is worse for anyone who earned above the amount permitted under federal law for pension purposes. In 2011 the annual compensation limit is $245,000 (it’s adjusted periodically, for example: 1990=$209,200, 1995=$150,000, 2000=$170,000 and 2005=$210,000). That means any earnings above the annual compensation limit cannot be used to calculate a pension in a qualified plan, the benefit cannot be funded in a pension trust and is not guaranteed. 

So, if you happen to be in the same pension plan as employees earning $100,000 and you are fortunate to earn $300,000 you better hope your employer stays in good financial shape because the pension you earned is at risk if the employer goes bust.  Unlike a qualified pension trust, money put aside to pay pensions earned on income above IRS annual compensation limits is not protected from creditors. Remember, these are not extra pensions; they are based on the same formula used for all plan participants. It’s just that you earned too much and I guess you need to take your “fair share” of risk. 

Here is the bottom line, regardless of your income; at least a portion of your pension could be at risk if your employer or union is not adequately funding your pension. This is something you want to pay close attention to. What percentage of the promised benefits is funded in the pension trust?  Is the employer making required funding contributions today?  This information must be made available to participants once each year through the Annual Plan Funding Notice.  

The lack of adequate funding is going to wipe out a significant portion of the pensions earned by American Airlines (AMR) employees just as it did for United Airlines several years ago.

Here are the results of one study. 

The funded ratio of the Milliman 100 pension plans increased slightly during 2010, reaching 83.9%. The aggregate pension deficit of $231.6 billion had decreased by $12.4 billion during the 2010 fiscal years, partially reducing an aggregate deficit of $244.1 billion at the end of 2009. 

Many employer plans are far less funded as a result of employer actions and the decline in stock values. States are among the poorest funded plans, but then a state doesn’t go out of business. 

Read this from The Atlantic: 

The Incredible Shrinking Public Pension Funds

By Megan McArdle

Apr 9 2009, 4:38 PM ET 36

America’s public sector pensions have been a scandal for years.  It wasn’t that long ago that they finally got around to doing their accounting the way that normal pensions do:  by showing how likely their assets were to generate enough revenue to pay for future benefits.  When they did, we found out what critics had long been claiming:  many pension funds for state and local governments were disastrously underfunded.  Politicians had gotten into the habit of promising generous pensions as a “cheap” giveaway to powerful unions…

This is not, it should be emphasized, exclusively a problem of public sector pensions; private firms are also underfunded.   But the scale is vastly different.  According to the Pension Benefit Guaranty Corporation, which regulates and insures pensions, the total deficit in private plans covering about 34 million workers was a little over 10 billion as of September 2008.  That’s almost certainly multiplied quite a bit since then.  But the current underfunding in public plans, which cover about 22 million workers, seems to be something north of a trillion dollars.  And they’re not insured.

All this provides a good lesson. Too much of a good thing may end up being nothing. When an employer finds itself in decline, it behooves unions and management to deal with the problems before the PBGC starts writing partial pension checks that make retirement a struggle for many workers…or states start diverting money from other programs or raise taxes.

Cash flowing to states to implement health insurance exchanges, but how will they control costs? Ability of state health insurance exchanges to “drive costs down” seems rather optimistic

2 Dec
Secretary of Health and Human Services Kathlee...

Ladies, remember, never let the facts get in the way of a good political goal

There coming, barely two years away and counting; that’s state health insurance exchanges by the way.

Federal money continues to flow to the various states to help them establish their exchanges. Initially the exchanges will be primarily for individuals and small businesses, but over time employers are expected to shift workers into the exchanges simply because there are financial incentives for employers and many workers to obtain health insurance through an exchange. Only time will tell.

What is interesting is that policy makers and bureaucrats still believe that the exchanges will somehow create new competition among insurers that will restrain costs. That is an interesting assumption since insurers already compete with one another with no positive effect on costs and by adding more insurers into a market their individual leverage to negotiate with health care providers is reduced. In addition, all insurers will be subject to the same mandates and minimum benefit packages. There will be little room to maneuver. We seem to keep missing the point that premiums are not the issue, underlying costs of health care are. Federal officials should articulate exactly what they expect insurers to do to hold down health care costs so we all have that information.

After you read the optimistic view of the world from the bureaucratic point of view in the following press release, read this:  Study: Employers Could Dump Sickest Employees On Public Health Care

News Release   FOR IMMEDIATE RELEASE   November 29, 2011
Contact: HHS Press Office
States receive more flexibility, resources to implement Affordable Insurance Exchanges.  More than half of states now creating marketplaces to help millions of families and small businesses buy insurance

The Department of Health and Human Services (HHS) today awarded nearly $220 million in Affordable Insurance Exchange grants to 13 states to help them create Exchanges, giving these states more flexibility and resources to implement the .  The health care reform law gives states the freedom to design Affordable Insurance Exchanges – one-stop marketplaces where consumers can choose a private health insurance plan that fits their health needs and have the same kinds of insurance choices as members of Congress.

The Department also released several Frequently Asked Questions providing answers to key questions states need to know as they work to set up these new marketplaces. Critical among these are that states that run Exchanges have more options than originally proposed when it comes to determining eligibility for tax credits and Medicaid.  And states have more time to apply for “Level One” Exchange grants.

Today’s awards bring to 29 the number of states that are making significant progress in creating Affordable Insurance Exchanges.  States receiving funding today include: Alabama, Arizona, Delaware, Hawaii, Idaho, Iowa, Maine, Michigan, Nebraska, New Mexico, Rhode Island, Tennessee, and Vermont.

“We are committed to giving states the flexibility to implement the Affordable Care Act in the way that works for them,” HHS Secretary Kathleen Sebelius said.  “Exchanges will give consumers more choices and make it easy to compare and shop for insurance plans.”

In the new Exchanges, insurers will provide new information such as an easy-to-understand summary of benefits and costs to consumers. The level of detail will sharpen competition between carriers which will drive costs down.  “OMG,” rdq

HHS also released today a set of Frequently Asked Questions (FAQs) in anticipation of state legislative sessions beginning in January. Answers will help advance state policy development for Exchanges.  For example, they clarify that Exchange grants can be used to build a state Exchange that is operational after 2014; that state-based Exchanges will not be charged for accessing Federal data needed to run Exchanges in 2014; and that state insurance rules and operations will continue even if the Federal government is facilitating an Exchange in the state.  HHS will also allow greater flexibility in eligibility determinations, allowing, for example, a state-based Exchange to permit the Federal government to determine eligibility for premium tax credits.

Of the 13 states awarded grants today, 12 are receiving Level One grants, which provide one year of funding to states that have already made progress using their Exchange planning grant.  The 13th state, Rhode Island, is receiving the first Level Two grant, which provides multi-year funding to states further along in the planning process.
Forty-nine states and the District of Columbia have already received planning grants, and 45 states have consulted with consumer advocates and insurance companies.  Thirteen states have passed legislation to create an Exchange.

Barney Frank retires; another example of why we need term limits

28 Nov
Representative Barney Frank, co-architect of t...

Massachusetts Rep. Barney Frank, the ranking member of the House Financial Services Committee, will not seek reelection in 2012, his office has confirmed. Frank is a 16-term Democrat who last year helped pass the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Mr  Frank is 71 and was first elected in 1980; he made a career out of politics and it is hard to imagine that the people in multiple generations knew enough about his politics to affectively evaluate his sixteen terms in Congress. In most of his bids for reelection  he didn’t even have to campaign. Mr Frank is one of many such career politicians in both parties who overstay their welcome.

Mr Frank has a unique distinction however. While no one person can be blamed for the financial crisis and housing bubble, Mr Frank deserves a lot of the credit via pushing for sub prime mortgages, pressuring the federal mortgage agencies and most recently the ill conceived Dodd-Frank legislation.  One can only wonder if his constituents  even knew of these efforts or the unintended consequences.  He is not alone of course, politicians of both parties should be held accountable for similar social engineering disasters.

No matter, he is retiring with his federal pension and related benefits. His thirty-two year career as a “public servant” is over. However, it should have ended much sooner because we should be limiting the terms for members of Congress. Power corrupts and a long stay in Congress creates a lot of power and little accountability .

Sign the term limit petition by clicking on the link at the top of the page. 

Public employee unions; Ohio voters shoot themselves in the foot; Mr. Spock, why didn’t you vote? Madam Secretary, have you read your job description?

18 Nov

Some public employees may have gained a victory, but the people of Ohio voted themselves a big loss.

I am not against unions or collective bargaining; I participated in both for many years. Unions serve a valuable and necessary purpose. In fact, I currently work with a union, but to have a fair collective bargaining process both parties must represent their respective interests trying to achieve mutually beneficial goals. That is rarely the case when unions bargain with politicians who are largely dependent on the unions for their jobs. Public employee unions are not the same as other unions.

Many states and cities have gotten themselves to the brink of bankruptcy as labor costs and pension liabilities consume their budgets. That didn’t happen as a result of effective bargaining by government officials. The fact is that collective bargaining in the traditional sense does not work with public employees and their unions and bureaucrats and politicians because no one looks out for the interests of the group with the most at stake; taxpayers. (apparently in Ohio taxpayers don’t even look out for their own interests.)

I am the only logical person around?

In Ohio the unions spent $30 million (of member dues) to defeat legislation limiting collective bargaining for state workers. Ohio unions were still able to negotiate for wages and working conditions. There is no victory for anyone. Where is Mr Spock when you need him? Voters in Ohio threw out all logic with their vote and rather were swayed by some misdirected emotional attachment to firefighters, police officers and teachers. Public employees deserve a fair compensation package, but regardless of the job they do or service they perform, that package must be affordable to the citizens who foot the bill today and into future. It was only the most costly and the most subject to abuse issues that were off the table, mainly pensions and other benefits.

The voter who holds the view that “teachers are underpaid or first responders risk their lives and deserve every penny they get” without regard to economic reality or the total concept of public employment, has no right to complain about taxes or loss of other government services. Attempting to manage public labor costs is not an effort to hold down the middle class; rather it protects the vast middle class dependent on government services.

Even while the OWS crowd blames their woes on the one percent, in many states and cities far more damage is being done by public employee union contracts and the politicians who supported them. Mr. Spock would support the logic of politicians trying to fix long-term problems not overturn their efforts or vote them out of office.

In the meantime our Secretary of Labor makes it clear where the sympathies of the Obama administration reside. How inappropriate is it for a cabinet member to be so one-sided. Read this statement carefully. It hits all the right emotional buttons and mixes the attributes of public and private collective bargaining as if they were the same. Such political pandering is reprehensible.Guess what, government entities are not businesses and don’t operate as if they are, that is the difference.

Official portrait of Secretary of Labor Hilda ...

Ah, sweet victory!

News Release
OPA News Release: [11/09/2011]
Contact Name: Carl Fillichio
Phone Number:
Release Number:

Statement by Secretary of Labor Hilda L. Solis on Ohio labor law vote
WASHINGTON — Secretary of Labor Hilda L. Solis today issued the following statement on the Nov. 8 Ohio labor referendum, in which a majority of voters rejected a state law limiting collective bargaining:

“Last night, Ohio voters delivered a bona fide victory for public sector workers everywhere.

“After months of advocacy and organizing, the people of Ohio have defeated a law that would have silenced the middle class and curtailed the collective bargaining rights of thousands of teachers, firefighters and police officers. Ohio has made it clear: these dedicated public servants still need a seat at the table to demand fairness, dignity and respect — especially in tough economic times. Through their unions, they have a voice in their workplace, in their future and, most importantly, in our future.

“In my time as labor secretary, I’ve seen firsthand time and time again how unions make remarkable contributions to the strength and prosperity of our nation. In workplaces across the country, collective bargaining is helping businesses improve their bottom line, providing tax payers with high-quality services, making workplaces safer and more productive, and ensuring that all Americans have the opportunity to make it into the middle class.

“I am proud to join everyone in Ohio and across the country in celebrating the voice of workers, which can only be guaranteed when they have the right to organize and bargain collectively. Congratulations to all who contributed their time, passion and dedication to achieve this incredible feat for working families.”

While Ohio voters were shooting themselves in the left foot on this issue they couldn’t resist taking aim at their right as well. They overwhelming approved a (meaningless) referendum rejecting the Obamacare mandate to carry health insurance. Hey folks, you may not like the Affordable Care Act or Obama, but the logic and reality is that you cannot have affordable health care if you allow people to game the system, jump in and out of coverage as they need it and dare I say it, not “pay their fair share” in premiums even if they don’t use health care. Everyone has to be in the pool.

Ohio voters, and I suspect many others, seem to think you can deal with selected issues in isolation without extended consequences, you can’t!

Teachers are underpaid, teachers are overpaid, what’s your perspective?

16 Nov

Are teachers underpaid, overpaid or is their bowl of porridge just right?  Take a position and I can find you statistics to support it. The fact is you can’t realistically find other jobs fully comparable to a classroom teacher. After all, what job in industry has to put up with a parent who thinks her C student belongs in an AP course? What other job virtually requires you to buy your own supplies?

People don’t go into teaching to get rich and people wouldn’t keep going into teaching if they were not adequately compensated; that’s total compensation, not just pay. I’d like a job with eight weeks off in the summer, snow days, and a week off here and there during the year. I wouldn’t like a job managing a few dozen kids for hours on end or reading a couple of hundred eighth grader’s attempts at prose while watching Desperate Housewives.

Is a pension better than a 401(k) plan, you betcha. Is paying little or nothing for health insurance better than paying 25-30% of the premium, again affirmative. Is individual job security through tenure better than employment at will, it kinda is. Are government backed health benefits in retirement at any age retirement is permitted better than “you are on your own” before age 65, I’m guessing it is.

Let’s run some numbers. Say you are a teacher earning $60,000 a year. You work 180 days a year or a total of 1440 hours. That means you earn $41.66 an hour (yes I know, you actually work more hours, but so do people in the private sector if they want to keep their job and advance). Now let’s look at a training manager in a large company also earning $60,000. She works 264 days a year less 10 days vacation and say 8 holidays. That’s a total of 1968 hours meaning she earns $30.48 an hour or 36.6% less than the teacher. Or to put it another way, the corporate trainer would need base pay of $81,960 to be even with the teacher plus about an additional 15-20% to be even in total compensation and benefits.

Now look at the reality of pensions. It’s true most teachers pay a significant portion of their pension. However, that is comparable to the 6% to 8% of pay private sector workers must contribute to get a full employer match on a 401(k) plan.  A teacher earning $60,000 likely will have a pension of 70% of pay at full retirement age. To equal that pension initially, the worker with a 401(k) plan needs about $585,000 (to buy an annuity) and that does not provide a survivor benefit or inflation adjustment.  The typical teacher pension provides both. Many teachers also have a 403b plan to supplement their pensions.

But you know what, none of the above matters. What matters is what is affordable to the people footing the bill. In the private sector that is the business owner or shareholders. In the public sector it is taxpayers. You can argue all you want about who is over or under paid, what job is unique or more valued than another, but what matters is the ability to pay for the expense that is created.

Public employees are clearly at a disadvantage because there are limits on public spending and taxing (or there should be) and that is the essence of the problem.  The debate and crisis we are seeing today is a result of politicians and union leaders forgetting that fact and now faced with high costs and tremendous long-term liabilities which fall squarely on the shoulders of taxpayers.

Making the argument that teachers, police officers and firefighters “deserve” more is quite irrelevant, as irrelevant as the AARP saying seniors earned their untouchable Social Security and Medicare benefits.  

The head of the NJ teachers union earns $250,000 a year, the President of the United States earns $400,000 and according to the Bureau of Labor Statistics latest data, the average salary of a registered nurse in the United States is $67,720. The average teacher salary varies widely by state, but appears to be around $55,000. In some higher income states it is $60,000 or more.

So, are teachers overpaid?  Pick your facts.

Why does Congress get a free pass on insider trading?

15 Nov
A sleeping bag. A corner of the black sleeping...

Where should I put this thing?

Every time I hear the words occupy Wall Street I chuckle to myself, not that there is anything really funny, just pathetic. Sure there are many problems to be addressed, but they are not on Wall Street or Oakland or Seattle.

I can tell you where to protest without even naming a location. Remember the flap over insider trading, some guy just went to jail for four years and Martha Stewart served a few months for the same thing, it’s not a good thing, it’s illegal, well almost.

Did you know that members of Congress and their staffs are not covered by insider trading laws? They can and do use information they learn about in closed-door meetings, in legislative discussions and other non public venues to enrich themselves.

Not only can they act on this information they can tell others like the person who may be managing their blind trust.

In addition, Congress has for years ignored legislative initiatives to correct this travesty. Hey it’s no secret, I heard about it in detail on NPR and the Wall Street Journal and other publications have raised the issue repeatedly. I guess we need tents and sleeping bags to make a point.

Do you think anyone occupying someplace reads this blog … Or the newspaper?

How does a public servant for decades accumulate multi-millions of dollars?

It’s not just about millionaires

13 Nov

If you would like to read an excellent article about the realities of our deficit and dealing with it, I highly recommend:

It’s Not Just Millionaires” in the New York Times (can’t believe I just wrote that).

Can we actually benefit from new taxes?

13 Nov

Read any mainstream publication, listen to any news report and you will learn that raising taxes in some manner must be part of any deal to reduce the deficit. It may not be called a tax increase, but rather lowering of deductions or eliminating credits.

In the end these folks may be right, even Republicans are taking baby steps in this direction. This Congress and past Congresses have gotten us in such a mess (yes, including lighting the spark causing the great recession), there may be no way to simply cut spending for programs that many Americans have become conditioned to as something they earned.

But that is the real point, Congress that is. I subscribe to the Congressional Budget Office (CBO) news service and not a week goes by that I don’t receive a report on their scoring the cost for yet another piece of legislation that has been introduced in Congress. Legislators can’t help themselves, they have to keep doing something, just about anything it appears to spend money. Regardless of the cause, there is one special interest or another egging them on. Every new piece of legislation costs money; to administer, to comply with, to litigate, etc.

So here is the $64,000 question, If we cut some spending now and raise taxes or otherwise increase revenue, what assurance is there that the next Congress and the one after that and the one after that won’t just keep finding ways to spend the new revenue? To put it another way, will additional revenue reduce the deficit other than on some spreadsheet to be revised each time a politician wants to fix something?

Members of Congress receive their salary for life…More Internet nonsense

5 Nov

Here is the text of an e-mail circulating around the internet:

Subject: Wages

Salary of retired US Presidents …………..$180,000 FOR LIFE

Salary of House/Senate ………………………$174,000 FOR LIFE

Salary of Speaker of the House …………..$223,500 FOR LIFE

Salary of Majority/Minority Leaders …… $193,400 FOR LIFE

Average Salary of Soldier DEPLOYED IN AFGHANISTAN $38,000

Average income for SOCIAL SECURITY seniors $12,000 

 None of the salaries for members of Congress are for life.  However, they may earn a pension.

And they say I'm lower on the road to evolution

In fact, the retirement benefits received by former Presidents include a pension, Secret Service protection (for ten years), and reimbursements for staff, travel, mail, and office expenses. The Presidential pension is not a fixed amount, rather it matches the current salary of Cabinet members (or Executive Level I personnel), which is $191,300/year as of March, 2008.  That figure is 47.8% of the President’s salary, not overly generous by any means. You may not like or agree with any given President, but you have to agree that it is not an easy job and one that takes its toll on all who hold it.

The average workers Social Security benefit as of September 2011 is $14,196 (plus 50% more if married) and of course does not include other sources of income (or other assets) beyond Social Security.

Members of Congress do participate in the federal pension system, contribute into the system and are vested in the benefit after five years of service. Therefore, a member of the House of Representatives would have to be re-elected twice to become vested in a pension.  By law the pension cannot exceed 80% of pay (which would require a substantial period of congressional service).  Here are some facts about actual Congressional pensions from

According to the Congressional Research Service, 413 retired Members of Congress were receiving federal pensions based fully or in part on their congressional service as of Oct. 1, 2006. Of this number, 290 had retired under CSRS and were receiving an average annual pension of $60,972. A total of 123 Members had retired with service under both CSRS and FERS or with service under FERS only. Their average annual pension was $35,952 in 2006.

9+9+9, flat tax or what ever, why is it so hard to get it simple and right?

2 Nov

I suspect everyone wants a simple and fair tax system and one that is reasonably progressive and certainly not regressive. The tax code is loaded with deductions, credits, exclusions and all manner of complex accounting and record keeping. All that got there to benefit one constituency or another, or to promote some social goal.

To make the tax code simple you simply scrap it all, you pay taxes on your total income from all sources, no exceptions. Once you have the base income number you decide what overall percentage of that number is required to run the government and you convert the single aggregate percentage to a graduated income tax similar to what we have now, but of course with lower percentages.

Everyone pays something. It may only be 2%, but something. This would be the only federal personal tax, the estate tax is eliminated. States with an income tax would base income on the same rules and adjust their percentages accordingly.

This approach is simple but follows the existing structure. Individuals who had all their income reported on a W-2 would not be required to file a tax return. Projecting federal revenue (along with the cash available to spend) would be relatively easy, perhaps too easy for those who want to spend more.

You don’t need another new system that people can take shots at, no+no+no. You need people with guts to just do it!

Simple and transparent is good, except perhaps if you are among the accountants, tax lawyers and preparers who now must find other sources of income… not to mention TurboTax and the like.

2012 Medicare Part B premium increase only 3.6% after three years. Is there mischief afoot? How realistic are the CMS assumptions?

28 Oct

The Center for Medicare and Medicaid Services (CMS) has announced the 2012 Medicare Part B premium to be $99.90.

Me thinks there is mischief afoot.

While I have no figures to support this, but only forty years of experience developing premiums for employer plans, the Part B premium increase doesn’t add up.  Let’s think about this. A premium is $96.40 in 2009 and $99.90 in 2012. That’s a $3.50 increase or 3.6% (coincidently the same percentage as the increase in Social Security benefits) after three years of health care trend inflation or about 1.2% a year. Does that sound reasonable?  The Part B premium increase is constrained to some extent because the cost increase is spread over all beneficiaries unlike the past several years, bet even so, what’s up?  Keep reading.

On top of that the Part B deductible is decreasing by $22. Why?  The Part A hospital deductible increases slightly to $1156.

In 1967, the first year after Medicare had enrolled beneficiaries, the Part B deductible was $50. If that $50 had kept pace with general (not even medical) inflation, it would be $340 today. However, up until 2005 the deductible was fixed by Congress. Thereafter it is indexed to the increase in Part B costs for beneficiaries, so how does it go down even if there is only a modest increase in beneficiary costs?

According to an article in Kaiser Health News:

Officials attributed the premium surprise to several factors, including lower-than-expected use of medical care and slower cost growth. “Some areas of the program where we’ve had high spikes in the past have been virtually flat in spending growth, so I think today’s announcement just confirms a data trend of much lower utilization and spending growth throughout the Medicare program,” said Jonathan Blum, deputy administrator and director for Medicare at the Centers for Medicare and Medicaid Services.

However, the Medicare Trustees said this in their 2011 annual report released only five months ago in May 2011:

Part B costs, however, have been increasing rapidly, having averaged 6.9 percent annual growth over the last 5 years, and are likely to continue doing so. Under current law, an average annual growth rate of 4.7 percent is projected for the next 5 years. This rate is unrealistically constrained due to a physician fee reduction of over 29 percent that would occur in 2012 under current law. If Congress overrides this reduction, as they have for 2003 through 2011, the Part B growth rate would instead average 7.5 percent.

Kathleen Sebelius

You're doing a heck of a job, but how?

Is CMS now saying the trend in utilization is only about 1.2% a year and is expected to stay that way in the foreseeable future? Apparently they are. And why would you ever decrease a deductible, ever even if you had a good experience year? In this case it’s no doubt some shortsighted provision of the law.

Yet at the same time CMS officials are touting the growing use of “free” preventive services by seniors while Medicare benefits have expanded. In addition, CMS officials say the very modest premium increase assumes that Congress will not, repeat will not allow a nearly 30% cut in physician payment to go into effect in January. And no, this “good news” has nothing to do with health care reform.

Nope, something just doesn’t add up. After three years of growth we see only a 3.6% increase in premiums just five months after the Trustees Report say costs were rising at 6.9% and assuming the cut in physician fees does not take place, will rise at 7.5% in the future.   At the same time CMS says its 3.6% increase for 2012 assumes that the physician cut does not take place.

If you don’t believe the figures, read the statement below.

“Because we’ve kept next year’s premium increase lower than the cost of living adjustment to seniors’ Social Security benefits, the typical retired worker will have nearly $40 more per month in their pocket next year,” said HHS Secretary Kathleen Sebelius.

“Because we’ve kept next year’s premium increase lower…”. It’s the “we’ve kept” you have to worry about.

Social Security payroll tax cut for 2012 is a risky bet and not all it appears to be

22 Oct

I am not an economist, I have no mathematical models or sophisticated programs to project anything. However, I do have a great deal of experience dealing with people and their perceptions about money, retirement, savings and health care. For this modest reason alone I must question the wisdom of another cut in the Social Security payroll tax. What gives me the first clue of concern? It’s the spin. Read the papers and you will see that for 2012 the Obama jobs proposal will cut the employes payroll tax in half. For example:

“The President asked for a $175 billion one-year extension and expansion of the employee payroll tax holiday now in place, halving the tax rate to 3.1 percent in 2012.”

Here’s the problem, the payroll tax is already cut from 6.2% to 4.2% in 2011 so a further reduction to 3.1 is not halving the tax but reducing it by 26%. In addition, the results of that “stimulus” are hard to see. Did you even notice the difference in your pay, what did you do with this windfall? A further cut to 3.1% will add about $10.50 a week (before taxes) to the average family’s income. Will this stimulate your spending? And, keep in mind this plan has no impact on the spending by one sixth of the population that is retired and collecting Social Security today. Despite the perception of all-encompassing poverty, this group has a great deal of spending potential.

In addition, the 2012 plan calls for a tax reduction for employers under several conditions.

This reduction in Social Security payroll tax will cost the Social Security trust fund $240 billion. Or, you can accept this estimate:

The tax cut would cause a $289 billion loss in Social Security revenues, which would be replaced by general tax revenue funds transferred from the Treasury.

Social Security is already short $49 billion a year because of higher benefits and lower payroll taxes. In the past the incoming taxes were more than enough to pay benefits. That is no longer the case.

Under the Obama jobs plan general revenue would replace the lost revenue to the Social Security Trust Fund by issuing more Treasury Bonds (debt) which would be offset by higher income taxes on the “wealthy” or under the Reid plan, just on real millionaires. You can be sure these additional taxes will not be temporary for the length of the payroll tax holiday, so now more taxes are in the mix to be spent in the future.

This plan would put an end to the myth that Social Security has no impact on the budget or deficit.

But the real unanswered question for me is what happens at the end of 2012? Once Americans have become accustomed to this extra cash in their pockets, how will they react to a 3.1% cut in pay when the tax is restored, a cut larger than most pay raises (if any) given in a year.  Have our policymakers thought of that?

Will people then reduce their spending, cut retirement savings, hide more of their income or simply Occupy Pennsylvania Avenue? Will employers retain the people they were encouraged to hire when their tax break ends? Even worse is the possibility that gutless politicians will not have the nerve to reinstate the tax thereby assuring that Social Security falls into the abyss of the federal budget. There are worse possibilities of course like politicians convincing people that the shortfall should be permanently shifted to Wall Street and all those millionaires and billionaires who don’t pay their fair share thus making certain Social Security become the largest of welfare systems.

Installation of a sidewalk in Middletown, Rhod...

The sign maker had employment stimulated

The bet is that by the end of 2012 the economy will improve, more workers will be on the job paying Social Security and other taxes, more spending will occur and all the rest that goes with a recovery. Given that the 2009 Economic Recovery and Reinvestment Act  and the current tax holiday seem to have had minimal positive outcome (I know, it saved jobs), this all seems like a risky bet to me.

Let’s hope it has been well thought out beyond November 2012.

CLASS Act kaput

16 Oct

During the health care reform debate there was much discussion about the CLASS Act, the portion of the law intended to allow individuals to purchase long-term care insurance from the government. A cursory review of that provision of the law made it clear the program was not viable. It is likely the policymakers knew this all along, but because of the way it was designed during the first ten years following enactment of the law this provision generated excess revenue and thus was used to partially fund the reform effort to the tune of $86 billion.

Now the Secretary of HHS has announced the program is not viable and cannot be implemented. There are a lot of people in line to say, “I told you so!”

The real question is what else in the PPACA is not viable … We may never know.

Long term care insurance; great expectations likely unfulfilled by the Affordable Care Act and a good thing too

8 Oct

The Wall Street Journal reports in an editorial that HHS has effectively shut down the planning process and office that was to implement the CLASS Act section of the Affordable Care Act. You remember the CLASS Act don’t you? That is the provision in PPACA that allows Americans to buy long-term care insurance from the government, begin paying premiums immediately but wait five years before any benefits are payable. At one point employers were going to be required to take payroll deductions for the premiums but that idea was scrapped.

Take a look at the HHS website about the CLASS program.

Experts and actuaries warned from the start that the program was not sustainable. However, to make the numbers work during the first ten years of health care reform, politicians needed to count the premium revenue from CLASS even while no claims were possible until at least 2018 (assuming the program was implemented on January 1, 2013). Beyond the first ten years disaster loomed because premium revenue would not cover long-term care costs.

Now it appears HHS has come to the same conclusion and is trying to avoid implementation of the program without actually changing the law. You see, if the CLASS program is repealed, health care reform is underfunded by about $86 billion (WSJ figures) and the federal deficit goes up.

Talk about creative accounting, you would think these bureaucrats and politicians were getting a big bonus for manipulating earnings per share. On the other hand this is a plus because the short-term deficit is increased in favor of lowering long-term liabilities and isn’t that what all the experts say should be done? The only problem is the real CLASS Act liabilities (beyond the first ten years) were never actually accounted for.

Don’t you wish you could operate a business this way?

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