Who’s the ATM Machine for Obamacare?

Based on what I’ve been reading, the type of healthcare plan I prefer when I’m consulting would be outlawed under Obamacare. The last catastrophic coverage plan I had, an HDHC from Blue Cross, cost me approximately $1450.00 per year. This plan would not fall under the acceptable plan guidelines of Obamacare, so once the mandate kicks in holders of such plans would be fined by the I.R.S. to the tune of 2.5% of taxable income. The alternative would be to purchase a plan that falls within the minimum plan guidelines, (e.g. a “bronze plan”) which the CBO estimates would cost around $5000.00 per year. Similarily, families that use such plans would also see their premiums rise, to around $13,000.00 per year. According to eInsurance, an HDHC plan for a family of three currently runs around $4500.00 per year.

Healthcare Reform shaping up better than expected

This is really starting to shape up far less disastrous than Obama’s original proposal, specifically –

Expanded Medicaid – The original income levels this was to be expanded to have been scaled all the way back to the poverty line for adults, and around 133% for kids. Subsidies will be phased in over a few years, which is basically a way for Congress to hide true costs at the time of enactment.

Insurance Subsidies – Eligibility has been scaled back to around 300% of the poverty line. This is still way too high in my opinion. I’d much rather see reform that cuts costs vs. simply having government pay the bills. However, future reforms will have the ability to decrease costs by regulating the level of care, so it gives future politicians the opportunity to scale this back.

Public planIt’s looking more and more like this is not going to be part of the plan, with some sort or consumer run co-op non-profit corporation taking its place. This is really good news IMHO. The public plan (which was based on Medicare) was flawed in a thousand different ways, so it’s good to see Congress is finally making some changes. IMHO whatever this “co-op” thing is, the idea that it’ll be “consumer governed” seems like a great idea. Another good thing about this is that the financials would likely be completely separate from the general accounting of the federal government. (Like a Freddie or Fannie for health.) The details though are still thin, so we shall have to see.

Mandates – A foregone conclusion. It’s unfortunate we have to implement stuff like this as its basically playing Robin Hood with health, but it’s also easy to understand the financial issues revolving around not having it.

Insurance regulation – In return for mandates, insurance companies would be regulated more. For example they would not have the ability to refuse coverage for those with pre-existing conditions. IMHO trading the mandate for this is probably a worthy trade.

Employer provider / funding mandates – It may get scratched completely, or phased back significantly.

Misc. “preventative health measures” – Mostly provided through existing systems or tax incentives for business who provide preventative health service for employees. Note that last part.. Congress it seems, is not filled entirely with idiots.

Funding – A whole host of major tax hikes are under consideration. Predictably Obama wants to tax the rich, but it seems Congress is thinking that something a little more fair might be the right solution. Options range from payroll tax hikes (fair), VAT taxes (fair), taxes on the rich (not fair), taxes on company provides health benefits (levels the playing field). It’ll be interesting to see what they come up with. Tax hikes are inevitable, so if I had to choose I’d go with a payroll tax (so everybody pitches in their fair share and gets a feel for the cost) or even better, a new VAT tax that could be leveraged down the road to implement a more broad based “fair tax” at the federal level.

Senate Finance Committee PDF Link

All-in-all, it seems some real progress is being made.

The Dysfunctional State

ON MAY 19th Californians will go to the polls to vote on six ballot measures that are as important as they are confusing. If these measures fail, America’s biggest state will enter a full-blown financial crisis that will require excruciating cuts in public services. If the measures succeed, the crisis will be only a little less acute. Recent polls suggest that voters are planning to vote most of them down.

The occasion has thus become an ugly summary of all that is wrong with California’s governance, and that list is long. This special election, the sixth in 36 years, came about because the state’s elected politicians once again for the system virtually assures as much could not agree on a budget in time and had to cobble together a compromise in February to fill a $42 billion gap between revenue and spending. But that compromise required extending some temporary taxes, shifting spending around and borrowing against future lottery profits. These are among the steps that voters must now approve, thanks to California’s brand of direct democracy, which is unique in extent, complexity and misuse.

A good outcome is no longer possible.

Without bubbles the state of California is fiscally screwed. No doubt some form of drastic change will likely come out of this. I’m glad I won’t have to deal with it. What’s interesting (as the article points out) is that California is a mixture of a representitive and direct democracy, and that system has apparently completly failed to work. I’ve always kind of liked the idea of more direct control by the people over government, but clearly there are flaws, as the mess in California shows.

Economist Link

Social Security Version 2.0

The flaws of 401(k)s have come under sharp scrutiny in Washington. At a February hearing the Senate Aging Committee examined 401(k) target-date retirement funds, which posted surprisingly large losses, particularly for older workers who were seeking safety. “Despite their popularity, there are absolutely no regulations regarding the composition of target funds,” said committee chairman Sen. Herb Kohl (D.-Wi.). “With more and more Americans relying on 401(k)s and other defined contribution plans as their primary source for retirement savings, we need to make sure their savings are well-protected with strong oversight and regulation.” The House Education and Labor Committee has also held hearings on 401(k) plans—at the most recent one, committee chairman Rep. George Miller (D.-Calif.) labeled 401(k)s plans a “a high-stakes crap shoot.”

As the criticism mounts, some policy experts are seizing the opportunity to push for a new tier of savings plan designed supplement or replace the 401(k), which would provide a steady stream of retirement income. A flurry of proposals have already been issued, including one last month, backed several policy groups and Service Employees Union International. This latest plan calls for a universal retirement program that would mandate contributions from employers and employees, with the government subsidizing lower-income workers.

These idiots want a new government managed “universal retirement plan”. Forced contributions, managed by government, and invested in safe securities like U.S. bonds. Sounds familiar, oh yes – that retirement investment system we currently have that’s insolvent – Social Security. Brilliant!

Money link

Doubling the national debt

In 2014, at which point the White House projects a deficit of $570 billion, it’s now expected that CBO will show a number in excess of $700 billion. Five years later, in 2019, Obama’s budget concedes that the deficit will have widened to $712 billion; Democrats expect CBO to put the number over $1 trillion.

The cumulative impact could be substantial. The White House has already conceded that the Obama budget will produce deficits of about $6.9 trillion over 10 years. If the CBO projections were to add in the range of $1.5 trillion more, as some Democrats expect, that would be more than a 20 percent increase and would surely affect debate in Congress.

Politico

Lets assume a few things – one, these numbers will be revised upward again as the downturn worsens, two, when it’s all said and done, the cost of Obama’s programs are probably underestimated, and three, there will be unanticipated additional costs during Obama’s tenure. (e.g. another Katrina, Afghanistan, major bank failures, etc..)

In the end, we will likely double our national debt in eight to ten years. (Assuming the world continue to lend to us, which isn’t assured.) Debt payments currently make up around ten percent of the total federal intake. Social Security, Medicare, and Medicaid costs are currently rising. Where does this put us in eight years, and why do Obama supporters think this is grand idea?

TARP Asset Losses – 64 Billion and Counting

CBO estimates that the net cost of the TARP’s transactions (broadly speaking, the difference between what the Treasury paid for the investments or lent to the firms and the market value of those transactions) amounts to $64 billion—that is, measured in 2008 dollars, we expect the government to recover about three quarters of its initial investment.

Link

It’s been so successful, Obama plans on accelerating the mortgage assets purchase program using the newly approved TARP fund. Yeah!

While Summers told Congress Obama’s Treasury would use between $50 billion and $100 billion for a mortgage modification program, a good chunk of the rest of the funds could be used to buy the illiquid assets from banks. The FDIC, which has authority to take “any action” with insured deposit-taking firms deemed necessary to counter “adverse effects on economic conditions or financial stability,” could also play a role.

“We think by leveraging TARP funds in this way, you could have a significant capacity to acquire troubled assets,” Bair, who is set to stay on under Obama, said. Officials could “require those institutions selling assets into this facility to contribute some capital cushion themselves.”

Link

Uncharted Territory

The Romers briefly described how different administrations responded to recessions. All the administrations, Democratic and Republican, resisted large-scale fiscal stimulus plans. They didn’t believe they could time a stimulus correctly. They didn’t trust Congress to pass the bills quickly or cleanly. They decided they shouldn’t be making policy in what Kennedy administration economists called “an atmosphere of haste and panic brought on by recession.”

The Romers’ essay exemplifies the economic doctrine that reigned up until a few months ago: fiscal stimulus plans that try to time a recession are dangerous, unproven and unnecessary.

That doctrine has suddenly vanished. But not because we suddenly know how to create effective stimulus plans. Last year, the Congress passed a $165 billion plan that seems to have done almost nothing for the economy. The doctrine has vanished because this recession is deeper than the others and we’ve run out of other stuff to do.

Today there is wide support for fiscal stimulus. It’s just that there is no historical experience to tell us how to do it, and there is no agreement on how to make it work. The economists’ prescriptions are all over the map.

Obama is compelled to jump into uncharted territory, with no compass or guide. He could have chosen to spend the big money that is apparently required in cautious ways. He could have chosen to pick out a few easily implemented policies that could be enacted in a way that is targeted, temporary and timely. He could have chosen to merely cut the payroll tax, boost aid to the states and do infrastructure projects.

But the Obama presidency is going to be defined by his audacious self-confidence. In Thursday’s speech, he vowed to do everything at once. He vowed to throw the big things into the stimulus soup — tax cuts, state aid, road and bridge repair — but also the rest of the pantry. He proposes broadband projects, special education programs, a new power grid, new scientific research, teacher training projects and new libraries.

This will be the most complex piece of legislation in American history, and as if the policy content wasn’t complicated enough, Obama also promised to pass it via Immaculate Conception — through a new legislative process that will transform politics. The process, he said, will be totally transparent. There will be no earmarks, no special-interest pleading. In a direct rebuttal to Federalist No. 10, he called on lawmakers to put aside their parochial concerns and pass the measure in weeks.

And as if that isn’t enough, he promised next month to make repairing Social Security and Medicare a “central part” of his budget. “I’m not out to increase the size of government long-term,” he told John Harwood of The Times.

Brooks @ NYT

The problem it seems is not with economic theory, which seems to indicate stimulus has little effect and is usually wasteful and poorly timed. The problem, is in America’s mentality – we demand growing markets, wealth in housing, good times for all. During a downturn, we seem incapable of accepting the inevitable results of our own actions. That’s when political winds always seem to shift. It doesn’t make any difference who’s in control, both parties love to spend money. At some point though, this is all going to come crumbling down around us. I sense we are closer to that moment than ever before.

Obama should look more closely at the evidence and make better decisions. He has enormous political capital with the people right now. He could leverage that to set the country on the right path, to promote real change. It doesn’t appear though that he is willing to do so.

Insolvent

Bill Lockyer, the treasurer of California, has cautioned that $5 billion of public works projects, including road and school construction, will have to be cancelled because the state’s lenders are worried about an impending Iceland-style bankruptcy. California — which has a GDP of $1.7 trillion — already has the worst credit rating of any of America’s 50 states. “Without a budget solution, state financing of infrastructure projects will stop. It’s as simple, and dire, as that,” Mr Lockyer said this week.

For California’s Republican Governor Arnold Schwarzenegger, the crisis represents a humiliating final act to his second term. Mr Schwarzenegger, 61, came to power in 2003 because of an almost identical financial calamity, which resulted in his Democratic predecessor, Gray Davis, being “recalled” from office.

At the time Mr Schwarzenegger promised an end to California’s tax-and-spend policies and runaway expenses, yet over the past four years of his administration the state’s budget has grown by 40 per cent to $144.5 billion. Thanks to the housing crash, recession and credit crunch, the state can no longer afford this with tax collection.

As the crisis continues and California’s credit rating deteriorates, the cost to the state of borrowing keeps rising — a process that could ultimately cause the same kind of deadly spiral that this week tipped the Chicago-based publisher of the Los Angeles Times into bankruptcy.

Mr Schwarzenegger is proposing the same kind of emergency tax rises that in 2003 turned Mr Davis into a pariah. He has suggested a 1.5 per cent increase in sales tax — the equivalent of Britain’s VAT — and a tripling of the car tax. When Mr Schwarzenegger first ran for office, he did so on a promise to revoke a similar car tax increase proposed by his predecessor.

So far, however, Republicans in California’s legislature have refused to go along with the proposals and Democrats have refused to cut government programmes, hence the stalemate.

Link

Tax increases and cuts in spending will only exacerbate the problem. California built a house of cards and there’s nothing they can do now to keep that house from crumbling. The state is insolvent, and will likely have to default on its debt. The result of that will be one of the worst state led financial melt downs of all time.

I wish I could say it’s not a concern of mine, but I work for a company.. based in California. So what happens there may well effect me as well. If you live or work for a company in that state, you better make sure you have a nice cash cushion to fall back on, you’re likely to need it before this whole thing is over.