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Commentary

Oct 21
0

Obamacare Economics

By | Commentary

Andrea Mitchell was on Meet The Press this weekend and managed to speak a bit of truth with this quote:

“They need the healthy people to be enrolled in order for the economics of it to work”

So…take a pool of 100 healthy single 23 year old men.  If you are an actuary….what is the expected medical costs for this pool over the next 12 months? We know there won’t be any pregnancies, and there probably won’t be any cancer, arthritis, or osteoporosis. Maybe one guy will have a serious ATV accident, a few colds, and a handful of STD’s. With a moderate deductible, lets just say the expected insurable costs add up to $75k, plus $15k profit/admin cost for $90k total…or $75 per month per guy….to insure against being bankrupted should something terrible happen….like a car crash, cancer ect…

The entire premise of Obamacare is to attempt to slip…into this pool of young and healthy….the really sick. So now we take 10 guys out of our population and replace them with 10 chronically ill people, each requiring $50k per year of medical services. So now, instead of being able to insure himself against unlikely, but catastrophic events for $75 per month….our 90 young men have to pay $500 per month instead. Now…for the 10 chronically ill people…this is a really good deal. They can go it alone and pay $4200 per month….or sign up for Obamacare and pay $500…or less. But as you can see…this is a screw-job for our young males…..who are being forced by law to subsidize the sick population.

And that’s how the game works….just like social security and medicare…..the old and powerful using the legislative process to benefit themselves and screw over the young. The fear is….that only sick people will sign up for Obamacare…which is why there is a penalty…to attempt to force the young and healthy…who would otherwise look at the $500 per month payment and decide…correctly….that the insurance risk/reward simply didn’t pencil out for them and decline. However….at least in the first year, the penalties are minimal…as low as $95, and grow to$695 by 2016. So what is likely to happen…especially in year one is rather than getting a pool of 90 23 year old healthy males and 10 sick folks…you get almost all sick folks. In that case….somebody, either the insurance company, or probably the federal government ends up losing a ton of money, and in year two….rates go up accordingly.

I have a better idea….personal responsibility. First…we take down all of the medical monopolies that allow Dr. McDreamy to jack up his prices 500%. This should collapse prices down to a point where you can afford to pay cash for essentially all of your routine care. Sure….it will mean no more Lamborghinis for McDreamy, and he’ll have to get rid of 90% of the hot secretaries he keeps on the payroll, but I’m ok with that.  You will still have a catastrophic insurance policy that will cover car crashes and other random events you have little personal control over. But…50 and need a $2M heart transplant because you weigh 450 lbs….tough crap. You can sell your BMW and offer McDreamy $50k cash…take it or leave it….I suspect he’ll take it. Dying of cancer because you smoked 3 packs of cigarettes per day for the last 3 decades??….That sucks, but sorry….you can’t force society…or your insurance pool to pay for the consequences of your personal decisions.

The entire medical establishment has gotten fat and rich by offering services at outrageous prices nobody would voluntarily pay. They have managed to pull it off by working with government, big business, and the insurance industry to create and promote the screwed up system we currently have…. Obamacare just builds onto and solidifies an already screwed up system….it solves nothing and attempts to screw over the young in the process. The only thing that will work is to destroy the current system, and make people responsible for their own decisions. I’m willing to bet….as a result…they start making better decisions. I think it will work….that’s how much faith I have in mankind….

 

 

Oct 21
0

Market-Ticker’s Worth Reading

By | Commentary

Karl Denninger’s Blog “The Market Ticker” is one of a handful of sites I read every day without fail. The recurring theme is….these problems we all know exist in our country and our economy are not accidents. We…the middle class are being actively screwed over by not just our politicians and the federal reserve, but by also by the medical industry the education system, the banking system ect… If you are interested in understanding it all….Take a look at these links and add The Market Ticker to your daily reading list.

Yes, This Is YOUR Fault

The Tea Party Is Not “Wrong”

Brit Hume Outlines Why

Oct 18
0

Debt Limit Day After…. Debt Outstanding Increases $328B

By | Commentary, Debt Limit

So the numbers are in… and on the first day after the debt limit was removed, the debt outstanding increased by $328B…..which is the amount Treasury has been hiding for the last 5 months with “Extrordinary Measures”.

Here’s a snapshot of the DTS:

10-18-2013 Debt Spike

This really doesn’t count as a surprise….back in 8/2011 the day after yielded a $238B increase. I had guessed it would be similar…at around $250B, but this tops even the high end of what I would have expected….I guess Lew’s magic hat is a bit deeper than I expected. Well…if nothing else, if we ever get another debt limit, we know that we need to add $300B to get to the real number.


Oct 17
0

Debt Limit Raised…Now What?

By | Commentary

As most expected, it appears the debt limit was raised and the government has reopened…at least for now. I’m not sure how they got to these dates, but apparently the government will reopen and be funded through for 3 more months expiring 1/15/2014. The debt limit will be raised, being frozen at wherever it ends up on 2/07/2014. I’ll have a better guess at that after they true up the missing “extraordinary measures” ,  but I’m thinking it will pencil out to somewhere between a $400B-$500B increase ending up between $17.1T and $17.2T.

At that point, they will once again be able to employ EM…effectively adding $200-$300B to the debt limit. Now, I’m not sure why they chose 2/7, but if you are trying to maximize the time you get out of EM….this is about the worst date you could ever choose. The reason is that tax refunds pick up in early February and stay strong through March/April before petering out in May. So while last time we were able to hit the debt limit in mid May and squeeze an additional 5 months out of EM….this time, it might be a challenge to make it into early March. Of course, this assumes they don’t take the approach I would if I were Obama…which would be to issue about $3T of debt on 2/6, banking the cash, and making it all the way to 2016 without ever having to talk about this subject again. (not saying that’s what’s right for the country).

So…here we are, the day after a supposedly epic battle. Gotta say, not much has changed. Ok…maybe nothing has changed. I’m still not entirely sure what it was all about. At first it was about delaying Obamacare…which was never going to happen, and then, it was supposedly about balancing the budget…but the thing is, neither party really wants a balanced budget. Balancing the budget means cutting $800B of spending, which means cutting social security right here right now….which is politically impossible for either party. So either this was all about something they were never going to get, or it was about something nobody really wants….

Honestly, the end of this story has been pretty clear for a few years now. The US will default on it’s $17T (and growing) debt sooner or later, it’s just a matter of time. Furthermore, the US will default on the $100T+ of political promises…including SS, Medicare, Medicaid, Obamacare, Food Stamps ect… The math on this is extremely simple folks…it’s just a matter of time before the game is over. It is more apparent than ever that the political will to do the right thing simply does not exist within our democracy.


Oct 16
0

Fiscal 2013 US Cash Deficit: Part 2 Outlays

By | Commentary

In Part 2, we will take a look at Outlays…if you missed part 1 on revenues, you can find it here.

For the fiscal year, net cash outlays ended up at $3.833T, up $28B, or 0.7% from 2012’s 3.805T…so basically flat. So all of those terrible cuts the media has been reporting on all year long since the fiscal cliff and sequestration deal last year….not even enough to cut spending.

10-16-2013 Outlays Chart

The chart above shows cash outlays by year all the way back to 2000(where my data set starts)…you can see that after a spike in 2009 related to stimulus spending, we have been more or less flat for four years now.

While the chart may not be terribly exciting, the internals show a bit more movement. What we essentially have is growth in entitlements continuing unabated, but being offset by cuts elsewhere. Most of the cuts appear to have come from defense vendors, education, unemployment, and “other”. All of that is probably a good thing, but I’m not sure how much longer it can go on. Cutting the first 10% is usually pretty easy…but by the 5th year or so….finding additional cuts gets a lot tougher. Because of this….In the next year or so, perhaps tipped by Obamacare costs, we will probably start seeing outlays resume their upward slope, putting huge pressure on the deficit…especially if revenue growth pulls back from the 10%+ we’ve seen in 2013 to 5% or so….

The table below gives a bit more detail on outlays by category comparing first 2013 to 2012, then 2013 to 2010…the start of this 4 year plateau.

10-16-2013 Outlays Table

At the top we have social security, which grew a scary 9.3%, or $61B. I suspect some of that growth is due to a push that accelerated the trend to electronic checks over paper checks as a cost saving measure. Paper checks ultimately get rolled up into “other” (their report…not mine), but only represent a small and shrinking % of the total. Going forward, we will probably see something closer to 5% as enrollment continues to grow at 1M+ per year.

Marching down the list, we see Medicare and Medicaid growing at 5.7-5.8%. Also interesting, Vet Benefits increased 28%, Military retirement outlays increased 11.7% and Veterans Affairs grew at 11.8%. These are all relatively small, but seeing growth rates that high in nondiscretionary categories is not a good sign for the long run.

To wrap it up….it was good news that once again outlays were more or less flat for the fourth year in a row, thanks in part to the sequestration that many, including myself, thought was unlikely to actually stand. So in that…a small victory. But the question remains…what’s next? Given the uncertainty surrounding the shutdown and the debt limit, it’s kind of hard to predict, but if we can assume that these are resolved and more or less maintain the status quo, I guess we end up next FY closer to $3.9T….perhaps higher if Obamacare costs push through to the bottom line.

In the long run….all that is going to matter is the growth of entitlements. If we can’t cut the growth of SS, Medicare, Medicaid, food stamps ect….we’re toast. Unfortunately, everyone is too scared to talk about that lest they piss off the huge senior voting block. And that’s why it won’t ever happen. Apparently, in a democracy, collapse is the only way to stop the old/rich/powerful from screwing over the young/poor/weak.