The Haphazard Blog

As we approach January 1, 2014, the big parts of the Patient Protection and Affordable Care Act (a.k.a. PPACA, ACA or Obamacare) are going to go into effect.  Over the next couple of months, states will be getting their health exchanges set up for open enrollment in October. As this happens, we’re getting alternating announcements about how rates will be going up or down (or not—I will return to this specific analysis later). Since this is more about a political battle (not so much ideological in my opinion), we should expect to see these headlines declaring Obamacare a loser and winner for the foreseeable future.

I can’t think of any politician who was against the need for health care reform. Sadly, it was pushed through by one party with the other party now 100% against it. There’s a good write-up on the Wonkbook about where this road is likely to lead. The goal in Washington, DC now isn’t to focus on reforming health care for the better, but to win the next election through a “winner” take all approach. Just get the message out there, regardless of the facts to win the battle. The public isn’t fully informed about this law while it will impact nearly everyone.

Obamacare is what we have. We should think of it as a starting step. There’s going to be some good and some bad. We should keep the good, learn lessons from the bad and improve it. Healthcare is too big to fix with one reform. I also think anyone who “knows” what is going to happen is just hoping that will happen. All these predictions on the success and failure of Obamacare are absurd–the law is entirely too big to succeed or fail as a whole.

Getting back to the health exchanges, people are comparing premiums in 2014 to premiums in 2013 to determine if health care costs fell or went up. The exchanges are designed for the individual market which is going to have the largest impact. By law, everyone must have health insurance in 2014. If they do not, they will have to pay a penalty under most circumstances. They can no longer deny coverage to someone who may be high risk.

Now, every insurance company is trying to predict how many people who previously chose not to have insurance will choose to get insurance or pay a penalty. The penalty in 2014 (1% of income or $95/adult and $47.50/child, whichever is greater) is significantly lower than the annual premium will be.  For each person/family that is uninsured, there will be an inflection point where the value of the insurance outweighs the penalty and vice versa.

The insurance companies must also account for all the people who they were able to deny in the past who are now eligible. Those people are more likely to spend more than they pay in premiums. They’ve hired experts to try and figure this out, but the reality is, they have no previous data to gauge this. They also cannot change the premiums for 2014 once set.  Some will get this right, others wrong. If they are wrong, one of two things happen. If they didn’t collect enough premiums, it’s their problem and if they collected too much (did not spend 80% on medical services), they will have to issue a rebate. Personally, I’d rather hit it right or issue a rebate than take a loss. It’s for this reason I think it will be interesting to see what happens with rebates for 2014.

There still won’t be stability in 2015. The penalty changes to 2% of income or $325/adult and $162.50/child. Same thing happens in 2016 with a change to 2.5% of income or $695/adult and $347.50/child. It stays this way going forward. I think following this, we will see what rates really will look like. They should have the data necessary to predict who joins and who takes the penalty. Until then, the individual rates are a snap judgment. We should continue to look toward the group rates for comparisons in the meantime. (Note that group rates are the same regardless of age. The variation is based on the number of people enrolling. So when comparing individual to group, that needs to be accounted for as well.)

Finally, the Forbes article mentioned before. In his quest to prove his colleague wrong, he did his own analysis. He called California’s comparison apples and oranges (it was), but then proceeded to compare his own apples and oranges. He compared 2013 individual rates to 2014 individual rates. As I mentioned above, the pool of customers is going to change drastically. I don’t think you can really compare them to anything to determine if the rates are better or worse. I’d say they are competitive at a minimum. Most employer plans (group) accept employees with pre-existing conditions. In 2014, individual plans will have to do the same. Those plans should have much larger groups than small businesses, so there is more people to spread the risk across, but the big question is how is the pool going to be comprised?

In his comparison he still cherry picked the data. He first said he took the average price from Covered CA and immediately said it was the Median across the state instead. He did not explain if that was all plans, the cheapest plan, most expensive plan, median plan or average plan in each region. He also did not say where the eHealthInsurance was from as you have to provide a zip code. I used Santa Clara and got 52 plans. To support his position that “Liberals” are wrong, he used the median for the cheapest 5 in his “analysis”.

Let’s try to do a more honest analysis first. I’m using Region 7 (picked “randomly”, I didn’t use a number generator, I just chose a number). It is Santa Clara. They have 5 catastrophic plans with the following prices for 25 year olds: $171, $169, $147, $228 and $225 (Average: $188, Median: $171). So what is a catastrophic plan? Loosely, it has a high deductible and you get 3 doctor visits before the deductible applies. So finding plans that waive the deductable for the first 3 visits and has a deductable over $5000 on eHealthInsurance: $202, $118 and $176 (Average: $165, Median: $176). 2013 plans have the cheaper option, but average and median aren’t so far apart. The writer did not even compare similar plans. He simply chose the 3^rd cheapest plan from a list of 50+ while choosing the middle value for the state plans.

Re-creating his chart:

ACA California Median Comparison

He probably wouldn’t want to use this one. -3% and +29% when “upgrading” to the Bronze coverage for 25 year olds (vs. his +100% and +123%. +52% for 40 year olds (vs. his 116%).

Other charts:

ACA California Cheapest Comparison

Cheapest would work a lot better for the argument. +25% and +69% when “upgrading” to the Bronze coverage for 25 year olds. +90% for 40 year olds.

ACA California Average Comparison

Finally average (I don’t mean median). +14% and +36% when “upgrading” to the Bronze coverage for 25 year olds. +35% for 40 year olds.

If you didn’t decide TL;DR (or maybe if you skipped to the bottom), my opinion is it’s pointless to declare 2014 rates better or worse because there isn’t a baseline yet. It does however appear from this example people buying in the individual insurance market are likely looking at higher premiums than 2013. One thing to determine is if the coverage is better or worse.

One last note to data manipulators: If you’re trying to find favorable data, premiums for the young are likely to go up while premiums for the old are likely to go down. This is because there are provisions to limit premium variation by age. Given that the costs are higher the older the person and it is believed the cost ratio between youngest to oldest is higher than the limit, the math would require the lower number to come up the same amount the lower number comes down if there was an equal distribution by age until the new ratio was achieved.  If the distribution is slanted toward the young, older customers will see a greater decrease than the increase to the young and vice versa.

Well, not really. I haven’t blogged in a while and there are a lot of reasons for it. Probably the biggest being the amount of effort it takes to write. Which is closely related to #2, which is the amount of time that I want to devote to things I want to blog about is high. And that leads to #3. Far more people have thoughts on topics that I want to blog about by the time I can get to it, it feels like I’m rehashing their thoughts. I considered tweeting to get my thoughts “out there” more quickly, but it’s just not the medium for those thoughts.

So what got me to write a post over 2 years after my last one? John Boehner.

My question is, who’s going to jail over this scandal?
— John Boehner on the IRS Scandal

A line was crossed by the IRS, no question, but sending someone to jail when not one person was even prosecuted over the 2008 financial crisis? Beyond ridiculous.

And he’s not the only person in Congress demanding this. This is how dysfunctional Congress is at this point. Imagine if both parties could be this enraged over far bigger problems?

When I was a candidate for this office, I laid out a set of principles that would move our country towards energy independence.  Last year, the House of Representatives acted on these principles by passing a strong and comprehensive energy and climate bill –- a bill that finally makes clean energy the profitable kind of energy for America’s businesses.

Now, there are costs associated with this transition.  And there are some who believe that we can’t afford those costs right now.  I say we can’t afford not to change how we produce and use energy -– because the long-term costs to our economy, our national security, and our environment are far greater.

So I’m happy to look at other ideas and approaches from either party -– as long they seriously tackle our addiction to fossil fuels.  Some have suggested raising efficiency standards in our buildings like we did in our cars and trucks.  Some believe we should set standards to ensure that more of our electricity comes from wind and solar power.  Others wonder why the energy industry only spends a fraction of what the high-tech industry does on research and development -– and want to rapidly boost our investments in such research and development.

This is some of what President Obama had to say on Tuesday. It’s basically a rehash of what he (and many others) have been saying since they began to run for President. (On a side note, Jon Stewart has a great segment on how long we’ve been talking about energy independence and doing nothing.)

Here is my simple solution to get the ball rolling. I’m sure it has been suggested many times. Remove every subsidy that is given to the oil industry (and really any energy that relies on imports). This includes tax breaks, favorable loans for capital costs and removing legal protections that limit liability (for most of us, if something is too risky, we don’t do it, but if we could take those risks and have someone else shoulder the burden of the liability, who would pass on that?).

Take all that money (tens of billions) and start investing in alternative energy companies and technologies. People go where the money is. Start-ups will be chasing it. Companies who are established will be chasing it. All the companies who were getting all these subsidies will suddenly be very interested in alternative energy. Is there really any justifiable reason to prop up an industry that is more than capable of turning profits without this help? What is the argument against this? When these global oil companies complain about taxes, they aren’t complaining about the U.S. taxes, but their total taxes. What they want from the U.S. is for taxpayers to subsidize them to offset all the taxes they pay everywhere else. Just like prescription drugs, we get to provide the subsidies while other countries get paid the taxes.

I’m not saying we need to increase taxes, but this argument that taxes here are too high and if we increase taxes (many consider taking away subsidies the same thing) all these companies will just leave the U.S. If oil companies are paying almost 50% in taxes, and the maximum U.S. corporate tax rate is 35%, I’d think they’d prefer to pay those taxes here. It’s time to stop rewarding  oil companies and reward companies that are investing in the future of energy, whether it’s nuclear, wind, solar or something we haven’t thought of yet.

After finishing work on Friday I headed over to the living room to watch TV and FOX News was on the TV. Turned out, they were the only “news” channel not to be going on-and-on about Tiger Woods with pointless opinion. (He cheated on his wife over and over. There’s no excuse. No one will ever know if he’s really sorry. What did people expect from him besides an apology?) In any case, Glenn Beck was starting and he was talking about pensions.

Personally, I think pensions are the next big mess. I don’t see the government standing by as pensions start to get wiped out when they can no longer be paid. Especially when so many of them will be for former government employees and unions. Just like social security and Medicare, pensions are becoming untenable. The simple math makes no sense on them. Beck showed a clip of the Governor of  New Jersey talking about what it looks like in his state.

One state retiree, 49 years old, paid over the course of his entire career, a total of $124,000 toward his retirement pension and health benefits. What will we pay him? $3.3 million in pension payments over his life and nearly half a million dollars for health care benefits: A total of $3.8m on a $124,000 investment.

So the worker that replaces him will be contributing $8,070/yr to the pension and it will be paying the retired worked $72,300/yr (assumes 30 years of contributions and 35 years of pension payments with 5% increases). What kind of ROI are they expecting to get? This is going on all over the country. When Mercedes-Benz was trying to sell Chrysler off a couple years ago, the buyer’s were trying to avoid purchasing the pension obligations. That was their biggest concern, not the other assets.

Pensions are going to crush companies and states. Here in Kansas, the pension fund is only 56.5% funded ($8.3B shortfall) for their calculated future obligations. I’m certain those calculated future obligations are larger than they calculate given the explosion in government salaries over the last few years. Healthcare is 0% funded ($317M shortfall). Pew Research released an in depth paper for all 50 states, the trillion dollar gap.

Again this is a case where politicians will wait until the last minute to do anything because the only possible solutions for state/federal government are to raise taxes to cover the shortfall or reduce benefits. Best to let the next politician deal with the problem (even better if they can collect theirs first).

Companies will have to stare down bankruptcy to get out. Depending on how well the workers/unions at those companies are connected, the taxpayers may get to bail them out too.

So far, President Obama has talked about taking care of the long term now, but he hasn’t shown any leadership or made any demands of Congress to make those goals a reality. Are we doomed to let things continue until they are so bad? When no one will buy our debt and inflation is running out of control? The Tea Party is a good idea in concept, but from my perspective, they are simply a partisan group who chose a popular issue to attack the President and Democrats with. They’d have a lot more legitimacy if they formed before President Bush left office and attacked his policies that did the same thing we see them attacking now (stimulus, debt).

CBS has created a small mess in choosing what commercials will be allowed to air during the Super Bowl. It started with the Tim Tebow and his mother’s commercial advocating for life. It is reported to be Pam Tebow’s story about choosing to continue her pregnancy despite the urging of doctor’s that she have an abortion because of the risks of the pregnancy. This of course turned into a Pro-Life/Pro-Choice war.

The underlying message in favor of life is a good one. I don’t quite get this commercial. Is it supposed to mean more because Tim Tebow is famous? Could there be a commercial where the mother of someone like Slobodan Miloševic? (if she is still alive) says she was urged to have an abortion but didn’t. Is that what Pam Tebow is implying? I think the spot would be more appropriate with commercial actors instead. The biggest issue people seem to have is that it is being paid for by Focus on the Family who have a public Pro-Life stance. If they had their way, people like Pam Tebow would not have a choice to make. (On a slight aside, people are actually questioning the validity of this story because Pam Tebow was told this in the Philippines where abortion was and still is illegal in all circumstances.)

CBS then went ahead and muddied the waters by rejecting a commercial from a male gay dating site, Man Crunch. It certainly seems like they are applying different standards to what is acceptable to air in these situations. There seemed to be plenty of push back against the Focus on the Family commercial. On the positive side, Man Crunch got a lot of free advertising without having to hand over $2.5-2.8M. Something to keep in mind for start up companies next year.

David Walker was the head of the Government Accounting Office (GAO) from 1998 to 2008. I will assume that he is somewhere between left and center on the political scale since he was appointed by Bill Clinton. The political leanings really shouldn’t matter since this person does not set policy, they only review financials. David Walker was vocal (and continues to be) that the U.S. is on a course for bankruptcy. He was saying this before the wars in Afghanistan and Iraq. Before the economic melt down. Before we added trillions of dollars to the national debt.

Now, when the majority of people in Congress talk about fiscal responsibility they are just a bunch of hypocrites. They are all presiding over the continued destruction of the U.S. budget. The Republicans have essentially forced the Democrats to write a bill that removes virtually all of their objections from last summer yet they will not vote for it. The Democrats have successfully sold out to special interests. When President Obama tells us that their healthcare bill is supported by doctors, nurses, insurance companies and pharmaceutical companies, that is just another way of saying that none of them are going to be adversely affected.

The goal here is reform and a reduction in costs. Medicare is already destroying state budgets (who are unable go to China to get more money i.e. print money) and will eventually bankrupt the federal government. I don’t expect anyone to happily hand over money/profits, but how else do costs come down? If everyone directly involved is happy, then it’s more than likely the rest are getting the short end of the stick.

There is a disconnect when President Obama talks about reform and thinking long term when you look at the bill. They used some trickery talking about the impact of the bill on the budget. They provide a 10 year cost, but you have to dig a little deeper to see that they are booking revenue to spend on the bill immediately, but the actual reform wouldn’t happen until 2013. So with a 3 year head start, the bill will still a $1T deficit after 10 years.  A long term plan would have a surplus after 10 years. If the plan adds to the deficit, then it is just making things worse. If it does nothing, then the current problems remain unchanged.

The bill is nothing more than giveaways to the healthcare industry and tax favors for unions. The healthcare industry is going to get millions of new customers. Millions more with insurance. Millions more seeing doctors and getting procedures. Millions more buying prescription drugs. The unions get a pass on taxes on their super-expensive health insurance. “Reform” is great when you just need to make things worse for the long term.

The entire system is corrupted and slanted in the worst direction if you’re at all concerned about the majority. Everyone is lining up to get “theirs” while they still can. At this rate, when it all comes crumbling down, it will take a very long time to recover. I predict one of two things. It will be worse than the great depression. The government will have no money and all the people who got theirs will leave this country or it will be a twisted parallel of the Wall Street melt down where the United States is too big to fail. The major difference being that every Country that bails us out will be a lot smarter than the government was with Wall Street. Every condition will be tilted in their favor and they’ll do their due diligence.

Getting back to David Walker. He’s been making the rounds on TV lately because he has a new book out now. Everything he says makes sense to me. Our national debt is quickly closing in on GDP. It hasn’t been this bad since the early 1950s. There needs to be a fundamental change in the mindset in Washington. President Obama needs to block bad bills regardless of where they come from, including healthcare. Congress needs to start doing what is best for the Country, not the special interests that cut them campaign checks. The American people need to get involved and elect people who will put what’s best for the Country ahead of their ambitions. It’s a monumental task given how entrenched everyone is, but without it, disaster looms.

With the completion of the Burj Khalifa in Dubai it reminded me of a couple things. It’s a sad reminder about how inefficient the United States has become in so many areas. Politically we can’t make positive progress on much. Healthcare reform has been bounced around in Congress for six months now. There still hasn’t been any work done to adjust regulations for financial institutions. Matt Drudge purposely lets the ignorant know global warming is a joke. I’m sure climate change will also end up going nowhere.

Nothing illustrates how ineffective and inefficient we are than 1 World Trade Center (The Freedom Tower). There was a time where the biggest skyscrapers were being built here. People would set out to build something and it would get done. Now, over eight years after the attacks, there is still nothing there. What is supposed to be a symbol that the terrorists won’t win is around 200 feet of steel so far. Estimated completion date is 2013, over 7 years after the groundbreaking and nearly 12 years after the attacks at an estimated cost of $3.5B.  Comparing that to the Burj: Ground breaking to completion was 5 years, 4 months; Total cost was $1.5B; Nearly 1M more square feet; 1,000 feet taller (1,350 feet if you exclude the antennas.). In summary, for $2B more, we get a smaller building that takes longer to build.

The other thing the Burj reminded me about was a science fair project I had done in 8^th or 9^thgrade. My friend Mike and I did a project called “How High can a Skyscraper Go?”. The answer ended up being pretty much as high as you want. There would be logistical issues to overcome (plumbing, elevators, etc.) but structurally the sky really was the limit. In retrospect, the project probably should’ve focused on a specific height instead of being open ended. But that’s not why I was thinking about it. I was talking to Mike recently and he mentioned that he saw a design that looked like the model we had built back then. Unfortunately he couldn’t remember where he saw it. We build it with balsa wood and hot glue. It was about 6 feet tall, but I’m told it no longer exists. Since I didn’t have any pictures of it, I spent part of the day messing with Google SketchUp to create a mock-up of it.

Mile High Skyscraper in SketchUp

If anyone recognizes it from somewhere, let me know. I want a commission or at least some credit!

Google SketchUp is a pretty good product, especially considering it is free. For someone with a more artistically geared mind than me, I bet it works great. You are always working in 3D. There are very few drawing tools which keeps it simple, but it’s very capable. I wanted to design a house, but I don’t think that is the best thing to use. It’s a little too generic for that purpose in my opinion. Better to use something geared just for that purpose.