Free Markets, Free People

Daily Archives: December 9, 2009


Reid’s Secret Plan

You gotta love the way Dingy Harry builds faith in his mission:

We have a broad agreement. Now I know that people are going to ask to be given every detail of this.

[...]

We have had a rule here for 40 years or however long we have been in existence, if you start talking about the plan and start shipping it around, it will be made public. And we want not that to be the case because we want to know the score before we start giving all the details even to our own members.

So you are not going to get answers to those questions.

[...]

As I have indicated, we can’t disclose the details of what we have done, but believe me we have got something that is good and that I think is very, for us, it moves this bill way down the road.

That’s right, just “believe” him and his Democrat buddies. You’re gonna love it!

Fortunately, enough of the super-secret, whats-good-fer’ya plan has leaked out that some cogent analysis is possible. Cato’s Michael Tanner, for example, observed that the proposed legislation would basically replicate the Federal Employees Health Benefit Program (FEHBP), through which many government workers and Members of Congress get coverage, as well expand MediCare (and possibly MediCaid) to people as young as 55. He also notes several problems with this proposal:

A few reasons to believe this is yet another truly bad idea:

1. In choosing the FEHBP for a model, Democrats have actually chosen an insurance plan whose costs are rising faster than average. FEHBP premiums are expected to rise 7.9 percent this year and 8.8 percent in 2010. By comparison, the Congressional Budget Office predicts that on average, premiums will increase by 5.5 to 6.2 percent annually over the next few years. In fact, FEHBP premiums are rising so fast that nearly 100,000 federal employees have opted out of the program.
2. FEHBP members are also finding their choices cut back. Next year, 32 insurance plans will either drop out of the program or reduce their participation. Some 61,000 workers will lose their current coverage.
3. But former OPM director Linda Springer doubts that the agency has the “capacity, the staff, or the mission,” to be able to manage the new program. Taking on management of the new program could overburden OPM. “Ultimate, it would break the system.”
4. Medicare is currently $50-100 trillion in debt, depending on which accounting measure you use. Allowing younger workers to join the program is the equivalent of crowding a few more passengers onto the Titanic.
5. At the same time, Medicare under reimburses physicians, especially in rural areas. Expanding Medicare enrollment will both threaten the continued viability of rural hospitals and other providers, and also result in increased cost-shifting, driving up premiums for private insurance.
6. Medicaid is equally a budget-buster. The program now costs more than $330 billion per year, a cost that grew at a rate of roughly 10.7 percent annually. The program spends money by the bushel, yet under-reimburses providers even worse than Medicare.
7. Ultimately this so-called compromise would expand government health care programs and further squeeze private insurance, resulting in increased costs, result in higher insurance premiums, and provide a lower-quality of care.

Let’s be clear. The point of the health-care takeover was never to control costs, but to control the market. Obama and the Democrats are certain that they can transfer the money involved in every health care transaction from the provider/insurer side of the equation to the recipient side. In other words, they simply want to rearrange the entire transaction in a way that seems “fair” to the favored constituency. As long is doesn’t cost those people any more (for awhile at least) then actual costs don’t really matter.

That’s why they draft loss ratio provisions mandating insurers to pay out 85% of the premiums received in benefit claims (i.e. the companies can only “make” 15% over top of premium revenues, which percentage Congress assumes is mostly profit, and not going to overhead costs; most states set the loss ratio somewhere between 65% and 75%). And that’s also why Reid and his band of merry cohorts see fit to hitch the health care wagon to programs that are already money-losing. Accordingly, when the primary goal is simply control, actual costs become irrelevant except when making the sales pitch to a public weary of profligate government spending. Mix in some budget gimmicks (like starting the tax 3 or 4 years before actually beginning the program), and voila! You have a health care bill.

No matter what comes out of the Congress for Obama to sign, you can rest assured that it will (a) cost American taxpayers way more than is promised, and (b) further cede control over the market place to the government.


Medicare Buy In: Worst. Idea. Ever.

What in the world are the Senate Democrats thinking?  Isn’t this supposed to be about “health care reform”?  Apparently their idea of reform is to take a system that has trillions of dollars in unfunded liabilities and expand it without ever addressing the underlying reason for the huge future debt?

Brilliant.  Just brilliant.

But apparently winning the process (passing something called “health care reform”) has become more important than the original purpose of “reform”.

This is just a stunningly bad idea, but one that seems to be generating some “enthusiasm” among Democrats and “progressives”:

Now, it appears, negotiators are making headway to ensure that the [Medicare] expansion would take place at a far quicker pace than any proposed public option. According to the well-placed source, Democrats are rallying behind a proposal that would allow a portion of the 55-64 year old age group to buy in to the Medicare system as early as 2010. By contrast, a public plan for insurance coverage would not come into being until 2014.

That group which would get immediate access, of course, would the the high-risk group that will cost the most to treat.

In addition to debating a potential start date for a Medicare buy-in proposal, Senate Democrats are also in negotiations over who, exactly, should be allowed to qualify for the expanded Medicare program. At this juncture, it doesn’t appear that everyone in the 55-64-age bracket would be granted access. Negotiators are considering limiting consumers to those who would qualify for high-risk insurance pools already set up under the Senate’s health care legislation. This would mean primarily those who have been uninsured for a certain amount of time, have a history of poor health or are unable to get insurance because of a preexisting condition. The Senate has already earmarked $5 billion for subsidies for this group to buy insurance and may increase that total to help them pay for Medicare coverage — should it become available to those under 65 and above 55 years of age.

Note that the subsidy is only to help this group buy insurance coverage under Medicare. It says nothing about the cost of that pool to Medicare. And, don’t forget, they’re cutting Medicare payments by $500 billion over then next 10 years.

Then, in 2014, they’re going to bring in the rest of that age group in total. And they’re going to tell you this will save money and “reform” health care?

What a load of horse apples. A little reminder for those who seem unable to remember or remain willfully ignorant:

According to the Medicare Trustees:

* Medicare’s expected future obligations exceeded premiums and dedicated taxes by $89 trillion.
* In other words, Medicare’s liability is about 5 1/2 times the size of Social Security’s ($18 trillion) and about six times the size of the entire U.S. economy.
* Throw in Medicaid, and health care spending alone will crowd out every other thing the federal government is doing by mid-century, says Goodman.

Yet to date, other than a claim they’re going to cut that $500 billion out of it – a claim I’d be willing to bet never happens – there is no recognition of the huge unfunded liability nor the fact that these additions they’re “negotiating” will simply swell it even more.

What does that mean to those starting to build a life for themselves now? Well, it isn’t pretty:

Future Payroll Tax Burdens. Currently, a 12.4 percent payroll tax on wages funds Social Se­curity and a 2.9 percent payroll tax funds Medicare Part A (Hospital Insurance). But if payroll tax rates rise to meet unfunded obligations:

* When today’s college students reach retirement (about 2054), Social Security alone will require a 16.6 percent payroll tax, one-third greater than today’s rate.
* When Medicare Part A is included, the payroll tax burden will rise to 25.7 percent – more than one of every four dollars workers will earn that year.
* If Medicare Part B (physician services) and Part D are included, the total Social Security/Medicare burden will climb to 37 percent of payroll by 2054 – one in three dollars of taxable payroll, and twice the size of today’s payroll tax burden!

Thus, more than one-third of the wages workers earn in 2054 will need to be committed to pay benefits promised under current law. That is before any bridges or highways are built and before any teachers’ or police officers’ salaries are paid.

That’s also before this latest hare-brained idea by the Democrats (adding another entire decade’s worth of people to Medicare).

Look, you don’t have to be a Harvard PhD to figure this out (in fact, it appears it’s better if you’re not). We are being again sold further down an unsustainable river by a bunch of yahoos who seemingly have no cognizance of the detrimental future impact of what they’re proposing.

Between the promises they’ve made with Social Security and Medicare/Medicaid, we’ll be broke before you know it:

* By 2020, in addition to payroll taxes and premiums, Social Security and Medicare will require more than one in four federal income tax dollars.
* By 2030, about the midpoint of the baby boomer retirement years, the programs will require nearly half of all income tax dollars.
* By 2060, they will require nearly three out of four income tax dollars.

And instead of fixing this, they’re now talking about adding to it and making it worse? If you need a picture (this is primarily for those Harvard PhDs who can’t seem to wrap their heads around the nonsense that’s being proposed) here you go:

1855

This is the mess the Democrats are “enthusiastic” about adding on too with trillions more in unfunded liabilities without addressing the necessary reform to “bend the cost curve down”. It is, in the truest sense, generational theft. It is unacceptable. It is obviously unaffordable and, unfortunately, they don’t seem smart enough to realize that.

This is an outrage and they need to know that they are so far afield on this that they’ve lost site of the goal – reform which makes health care more affordable. This monstrosity just gets more expensive as they “negotiate”.

Just kill it.

~McQ


Harsh Words For Politicized Economic Advisers

Richard Epstein, writing in Forbes, has some very unkind but deserved words  for President Obama’s panel of economic advisers and specifically, Christina Romer.

The recent “upbeat” news is that the level of unemployment has leveled off at about 10% after its earlier climb this year. And just what has been the role of his professional advisors in the sorry performance of the last 10 months? To tell, it appears, the president exactly what he and his political advisors want to hear.

He points to Romer’s recent WSJ editorial:

Exhibit A is Christina Romer’s recent Wall Street Journal column, “Putting Americans Back to Work.” Romer heads the president’s Council of Economic Advisers. Her column rates as a bit of transparent propaganda that belongs in a fan magazine, not a serious newspaper. If she wrote it of her own volition, she should be fired for economic incompetence. If, as seems more likely, the White House wrote it for her, or told her just what to say, she should resign in protest.

If, over the past 10 months, you’ve had the growing feeling (or realization) that we’re now into politics 2.0 and the entire administrative organization is committed to propagandizing and politicizing everything, I’d say you’re right. Oh certainly past administrations have been guilty of some measure of that, but not to the level we’re seeing it now – to the point that it is so obvious that it must be commented upon by usually dispassionate economic analysts.

For instance, Epstein says:

Her column contains nine awestruck references to presidential omniscience and benevolence. Its opening sally places all the blame on the Bush administration, by claiming that Obama took office at “the height of the worst downturn since the great depression.” Funny that she failed to mention the tumultuous events of September and October 2008 had cooled off before then. Nor, of course, did Obama “stop the economic free fall” in those tempestuous autumn days, unless Moses also parted the Red Sea.

Worse still, she blindly celebrates Obama’s worst economic blunders as his greatest triumphs. The $787 billion stimulus package in the American Recovery and Reinvestment Act was a bust. Its protectionist “Buy American” provisions remain a perpetual irritant to international trade. The warped Cash for Clunkers program created a short bubble via a massive public giveaway, while doing nothing to help the environment.

Why, one might ask, with all these supposedly farsighted maneuvers on the books, does the president still face a “weak” employment market? Romer offers no explanation for how Obama’s wise decisions made matters worse. Instead she hyped Obama’s inconclusive meeting with various community leaders that took place the next day.

Or, as he says, propaganda and cheerleading. Is this what we expect from so-called economic experts advising the president? Is there any wonder that unemployment stands at 10% after these same advisers told the president that the “stimulus” would hold it at 8%?

Why aren’t they, instead, advising the president to do those things that government can do that actually would spur employment? Is it because they are as political as the rest of the administration? If not, why would competent economists address unemployment like this:

High on its agenda was an investigation of public-private partnerships that could, at best, only usher in yet another round of economic gimmicks. No credible economist could think that “direct incentives of homeowners to retrofit their homes to improve energy efficiency” could place a dent in the ranks of the 15.4 million unemployed. Far more likely is a replay of the older story: subsidies for these programs sop up wealth and thus kill sensible job opportunities elsewhere.

Or, playing to the political agenda even when it is ineffective in doing what really needs to be done – square peg/round hole.

What they ought to be saying the president is either being left unsaid or being ignored. The reason will be obvious:

You can only improve labor markets by freeing them up. Scrap the talk about goofy ad hoc subsidies, and tell the president, for the first time in his life, to think hard about deregulation. Roll back the three recent minimum-wage increases that have blunted job creation for low-skilled workers in a stagnant labor market. Announce he will veto any effort by Congress to pass the Employer Free Choice Act, whose uncertain threat of compulsory unionization has prompted many businesses to shelve any plans for expansion. Abandon the monstrous health care bills winding through Congress, whose panoply of taxes, subsidies and regulations are job killers of the first magnitude. Put a halt on legislation for carbon caps and taxes until the science gets sorted out. Don’t let the EPA make a hasty endangerment finding on carbon dioxide.

Deregulation costs nothing to administer, increases jobs and adds to the tax base. It is only an added benefit that sound economics reduces presidential power.

Those are all things government can do now, and, they’re all things which would spur economic activity and employment. And they are all things that, politically, go completely against the agenda of the Democrats and the President. And, apparently, they go unspoken by his so-called Council of Economic Advisers.

The people are poorly served when politics seeps into every layer of an administration. Political survival becomes the foremost priority. Those whose job it is to credibly and ethically serve a president and thereby the people, fail in their duty when they become mere propaganda tools of an agenda. When the “advise”, for instance, of an economic panel is driven by politics and a desire to support an agenda rather than by a real desire to serve the best interests of the country, they fail in the inherent duty their position demands and even worse, they fail public’s trust. Being a credible adviser doesn’t mean always saying yes to the agenda, something this present bunch could apparently afford to learn and learn quickly.

~McQ

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