This Is Not The Way To Do Healthcare Reform: Democrats Propose Windfall For Insurance Industry
By L. Randall Wray
It is beginning to look like Congress is going to vote to pass health care legislation on Sunday. According to the NYTimes, Democrats are practically celebrating already. here
It is interesting, however, that no one is talking about providing benefits to the currently underserved.
Rather, the “good news” is that the bill is supposed to be “the largest deficit reduction of any bill we have adopted in Congress since 1993,” according to House Democratic leader, Rep.Steny H. Hoyer of Maryland. “We are absolutely giddy over the great news,” said the House’s number three Democrat, Rep. James Clyburn of South Carolina. (Of course, deficit hysteria is nothing new. See here
Who would have thought that health care “reform” would morph into deficit cutting?
As Marshall Auerback and I argue in a new policy brief here
, the proposed legislation is not “reform” and it will not reduce US health care costs. I will not repeat the arguments there. But very briefly, the most significant outcome of this legislation is the windfall gain for insurance companies—who will be able to tap the wages of the huge pool of nearly 50 million Americans who currently do not purchase health insurance. Since many of these are too poor to afford the premiums, the government will kick in hundreds of billions of dollars to line the pockets of health insurers. This legislation has nothing to do with improving health services for the currently underserved—it is all about increasing the insurance sector’s share of the economy.
You might wonder how Democrats can call this a deficit reduction deal? Elementary, dear Watson. They will slash Medicare spending. No wonder—it stands as an alternative to the US’s massively inefficient private insurance system, hence, needs to be downsized in favor of an upsized private system.
There is nothing in the deal that will significantly reduce health care costs. At best, it will simply shift more costs to employers and employees—higher premiums, higher deductibles, higher co-pays, and more exclusions forcing higher out-of-pocket expenses and personal bankruptcies. As we show in our paper, the US’s high health care costs (at 17% of GDP, double or triple the per capita costs in other similarly wealthy nations) are due to three factors. As many commentators have argued (especially those who advocate single-payer) part of the difference is due to the costs of operating a complex payment system that relies on private insurers—resulting in paperwork and overhead costs, plus high profits and executive compensation for insurance executives. This adds about 25% to our health care system costs. Obviously, the proposed legislation is “business as usual”, actually adding more insurance costs to our system.
In addition, Americans spend more for medical supplies and drugs. Since the Democrats ruled out any attempt to constrain Big Pharma through, for example, negotiating lower prices for drugs, there will not be any savings there.
Finally, and most importantly, the biggest contributor to higher US health care costs is our American “lifestyle”: too little exercise, too much bad food, and too much risky behavior (such as smoking). here
This is why we spend far more on outpatient costs for chronic diseases such as diabetes—40% of healthcare spending and rising rapidly. Ending the subsidies to Big Agriculture that produces the products that make us sick would not only do more to improve US health outcomes than will the proposed legislation, but it would also reduce health care spending—while reducing government spending at the same time. That would be real healthcare reform! But, of course, no one talks about this.
Interestingly, according to the NYTimes article, President Obama likened the legislation to fixing the financial system or passing the economic recovery act. “I knew these things might not be popular, but I was absolutely positive that it was the right thing to do,” he said. That is an apt and scary comparison. This legislation will do as much to “fix” the US healthcare system as the Obama administration has done to “fix” the financial sector and to put the economy on the road to recovery?
Of course, we have not done anything to “fix” the financial sector, or to put Mainstreet on the road to recovery.
I think the President’s comparison is uncannily accurate. So far the main thing his administration has done is to funnel trillions of dollars to the FIRE sector in an attempt to restore money manager capitalism. The current legislation will simply continue that policy—the trillions spent so far to bail-out Wall Street have not been nearly enough. Hence, the effort to funnel billions more to the insurance industry.
But what is the connection between Wall Street and health insurers? As Marshall and I argue in our brief, they are “two peas in a pod” since the deregulation of financial institutions. We threw out the Glass-Steagall Act that separated commercial banking from investment banking and insurance with the Gramm-Leach-Bliley Act of 1999 that let Wall Street form Bank Holding Companies that integrate the full range of “financial services”, that sell toxic waste mortgage securities to your pension funds, that create commodity futures indexes for university endowments to drive up the price of your petrol, and that take bets on the deaths of firms, countries, and your loved ones. See also here
Hence, extension of healthcare insurance represents yet another unwelcome intrusion of finance into every part of our economy and our lives. In other words, the “reforms” envisioned would simply complete the financialization of healthcare that is already sucking money and resources into the same black hole that swallowed residential real estate. here
Just as the bail-out of Wall Street was sold on the argument that we need to save the big banks so that they will increase lending to Main Street, health care “reform” was initially promoted as a way to improve provision of healthcare to the underserved. What we got instead is a bail-out for insurers and cuts to Medicare. Funny how that happens.
Health care
Looks like bad macro- various taxes kick in right away while increased expenses start a few years later.
It’s completely backwards for this point in the business cycle.
Health-Care Bill Would Increase Taxes On Wages, Investments
March 19 (Bloomberg) — High-income families would be hit with a tax increase on wages and a new levy on investments under President Barack Obama’s health care overhaul bill.
CPI/Claims
Interesting how years of 0 rate policies don’t seem to generate inflation.
Karim writes:
Data in past week (retail sales, Empire survey, claims, PPI, CPI) continues to show best of both worlds—economy improving and inflation very low.
Initial claims drop another 5k to 457k.
- CPI unch on headline basis and +0.053% on core.
- Core now 1.3% y/y and has a couple more mths of favorable base effects that should allow it to fall below 1%.
- Core inflation running 0.1% on a 3mth annualized basis!
- OER (unch) continues to hold down the series with apparel (-0.7%) the only notable outlier this month.
Saudi Oil Minister Sees No Need to Alter OPEC Production Now
The Saudis continue to set price and let quantity adjust, and output levels are ‘comfortable’ with substantial room to go higher or lower to support their target price. If they do leave it ‘in the 70-80 range’ there should be no inflation in the US and most other nations. The US has never had a serious ‘inflation problem’ that wasn’t oil driven.
Saudi’s Naimi Sees No Need to Alter OPEC Production
By Ayesha Daya and Grant Smith
March 16 (Bloomberg) — Saudi Arabia, the biggest and most influential member of the Organization of Petroleum Exporting Countries, said oil prices are in the right range and there’s no need to change production policy.
“We are extremely happy with the market, the economy is doing well, it will do better down the road, so I don’t see any reason to disturb this happy situation,” Saudi Oil Minister Ali Al-Naimi said late yesterday in Vienna, where OPEC meets tomorrow. “The price has stayed very well in the range of $70 to $80. It is in a very happy situation.”
Iran
Not a good idea to get short crude with this kind of tail risk….
Final destination Iran?
By Rob Edwards
Published on 14 Mar 2010
Hundreds of powerful US “bunker-buster” bombs are being shipped from California to the British island of Diego Garcia in the Indian Ocean in preparation for a possible attack on Iran.
The Sunday Herald can reveal that the US government signed a contract in January to transport 10 ammunition containers to the island. According to a cargo manifest from the US navy, this included 387 “Blu” bombs used for blasting hardened or underground structures.
Experts say that they are being put in place for an assault on Iran’s controversial nuclear facilities. There has long been speculation that the US military is preparing for such an attack, should diplomacy fail to persuade Iran not to make nuclear weapons.
Although Diego Garcia is part of the British Indian Ocean Territory, it is used by the US as a military base under an agreement made in 1971. The agreement led to 2,000 native islanders being forcibly evicted to the Seychelles and Mauritius.
The Sunday Herald reported in 2007 that stealth bomber hangers on the island were being equipped to take bunker-buster bombs.
Although the story was not confirmed at the time, the new evidence suggests that it was accurate.
Contract details for the shipment to Diego Garcia were posted on an international tenders’ website by the US navy.
A shipping company based in Florida, Superior Maritime Services, will be paid $699,500 to carry many thousands of military items from Concord, California, to Diego Garcia.
Crucially, the cargo includes 195 smart, guided, Blu-110 bombs and 192 massive 2000lb Blu-117 bombs.
“They are gearing up totally for the destruction of Iran,” said Dan Plesch, director of the Centre for International Studies and Diplomacy at the University of London, co-author of a recent study on US preparations for an attack on Iran. “US bombers are ready today to destroy 10,000 targets in Iran in a few hours,” he added.
The preparations were being made by the US military, but it would be up to President Obama to make the final decision. He may decide that it would be better for the US to act instead of Israel, Plesch argued.
“The US is not publicising the scale of these preparations to deter Iran, tending to make confrontation more likely,” he added. “The US … is using its forces as part of an overall strategy of shaping Iran’s actions.”
According to Ian Davis, director of the new independent thinktank, Nato Watch, the shipment to Diego Garcia is a major concern. “We would urge the US to clarify its intentions for these weapons, and the Foreign Office to clarify its attitude to the use of Diego Garcia for an attack on Iran,” he said.
For Alan Mackinnon, chair of Scottish CND, the revelation was “extremely worrying”. He stated: “It is clear that the US government continues to beat the drums of war over Iran, most recently in the statements of Secretary of State, Hillary Clinton.
“It is depressingly similar to the rhetoric we heard prior to the war in Iraq in 2003.”
The British Ministry of Defence has said in the past that the US government would need permission to use Diego Garcia for offensive action. It has already been used for strikes against Iraq during the 1991 and 2003 Gulf wars.
About 50 British military staff are stationed on the island, with more than 3,200 US personnel. Part of the Chagos Archipelago, it lies about 1,000 miles from the southern coasts of India and Sri Lanka, well placed for missions to Iran.
The US Department of Defence did not respond to a request for a comment.
Euro finance ministers to agree on Greek aid: source
Without an interest rate and a credible quantity pledged, the agreement is grossly deficient.
The way Greece obtains funding is by offering ever higher rates until there is a taker.
So let’s say they offer securities at 5%, then 6, then 7, then 10, then 15, then 20 with no takers. How high do they go before they tell the EU group they have failed to obtain funding?
And then what rate does the EU charge them if they agree?
The process makes no sense.
The way to do it is for the EU group to offer funding at some rate, giving Greece some amount of time to try to find a better rate.
Euro finance ministers to agree on Greek aid: source
By Jan Strupczewski
March 13 (Reuters) — Euro zone finance ministers are likely to agree on Monday on a mechanism for aiding Greece financially, if it is required, but will leave out any sums until Athens asks for them, an EU source said on Saturday.
Policymakers have been debating possible financial support for the heavily-indebted European Union member state for more than a month, but have provided only words of support. Germany, key to any deal, has resisted appeals to promise aid.
British newspaper The Guardian on Saturday quoted sources as saying Monday’s meeting of the currency zone’s 16 finance ministers would agree to make aid of up to 25 billion euros available.
But a senior EU source with knowledge of preparations for Monday’s meeting told Reuters no numbers were likely at this stage.
“I think we should be able to agree on principles of a euro area facility for coordinated assistance. The European Commission and the Eurogroup task force would have the mandate to finalize the work,” the source said.
“It would be the principles and parameters of a facility or mechanism, which then could be activated if needed and requested.
He said no figure had been agreed.
“You would have a framework mechanism and you would have blank spaces for the numbers because there has been no request (from Greece) yet,” the source said.
Greece has announced steps to reduce its budget deficit this year to 8.7 percent of GDP from 12.7 percent in 2009, triggering street protests and strikes but also reducing market concern over whether the country would be able to service its debt.
That helped Athens sell its bonds with ease on debt markets earlier this month, but policymakers are still searching for ways of making its cost of borrowing — still far above that of other Europeans — more sustainable.
They are also concerned that the problems in Greece could undermine confidence in the euro and spread to other heavily indebted eurozone countries such as Portugal or Spain.
CUTBACKS
The EU source said that among the instruments considered to help Greece were both bilateral loans and loan guarantees.
“The preparations have been done under the Eurogroup by member states and the Commission. The Commission has done much of the technical work,” the source said.
“The aim of the exercise so far has been to do the technical preparations, so that the political decision could be possible on Monday. Germany holds the key at the moment.”
Polls show that public opinion in Europe’s biggest economy Germany is strongly opposed to bailing out Greece, which has for years provided unreliable statistics about the true size of its deficit and debt, breaking EU budget rules.
In a move that is likely to alleviate German concerns about spending money on Greece, the Commission has said it would soon make a proposal for stronger economic cooperation between euro zone countries and tighter surveillance of their performance.
French Economy Minister Christine Lagarde told the Wall Street Journal she believed Greece’s austerity moves were behind the improvement in its situation on markets and negated the need for a bailout.
“”There is no such thing as a bailout plan which would have been approved, agreed or otherwise, because there is no need for such a thing,” she said.
But she added that “technical experts” at the EU have been working on a contingency plan, so that if the need arose “all we would have to do is press the button.”
The Guardian quoted a senior official at the European, the EU executive, official as saying the euro zone members had agreed on “coordinated bilateral contributions” in the form of loans or loan guarantees if Athens was unable to refinance its debts and called on the EU for help.
The agreement has been tailored to avoid breaking the rules governing the operation of the euro currency which bar a bailout for a country on the brink of bankruptcy, and to avoid a challenge by Germany’s supreme court, the official said.
A German ministry spokesman said he could not believe the newspaper’s report on the bailout plan was correct.
“We are not aware that this is being planned,” he said, adding that Greece had not requested any aid. “Greece is implementing its (savings) program and we expect that it will manage it alone.”
(Additional reporting by Tim Pearce in London, Pete Harrison in Brussels and Volker Warkentin in Berlin, Writing by Sarah Marsh and Jan Strupczewski; Editing by Patrick Graham)
The Eurozone Solution For Greece Is A Very “Clever Bluff”?
The Eurozone Solution For Greece Is A Very “Clever Bluff”?
The Guardian is today reporting that, after weeks of crisis, the Eurozone has agreed to what appears to be a multibillion-euro assistance package for Greece that will be finalized on Monday. Member states have apparently agreed on “coordinated bilateral contributions” in the form of loans or loan guarantees to Greece, but only if Athens finds that it is unable to refinance its soaring debt and asks for help. Other sources said the aid could total €25bn (£22.6bn) to meet funding needs estimated in European capitals that Greece could need up to €55bn by the end of this year.
Once again, however, since funding is a function of interest rates, this proposal has the appearance of a very “clever bluff”. It says nothing about how high interest rates for Greece would have to go before the Greek government is somehow declared unable to refinance, and asks for additional help. The member nations probably structured the loan package and terms this way hoping to try to draw in lenders who would rely on this member nation as a back stop when making their investment decisions. However, if this ploy fails, Greek rates will go sky high in an attempt to refinance, and as Greece asks for more help, the spike in rates will make it all the more difficult for the entire Eurozone monetary system to function. Additionally, the prerequisite austerity measures will subtract aggregate demand in Greece and the rest of the Eurozone, and, to some extent, the rest of the world as well.
I have a very different proposal. It is designed to be fair to all, and not a relief package for any one member nation. It is also designed to not add nor subtract from aggregate demand, and also provide an effective enforcement tool for any measures the Eurozone wishes to introduce.
My proposal is for the ECB to distribute 1 trillion euro annually to the national governments on a per capita basis. The per capita criteria means that it is neither a targeted bailout nor a reward for bad behavior. This distribution would immediately adjust national government debt ratios downward which eases credit fears without triggering additional national government spending. This serves to dramatically ease credit tensions and thereby foster normal functioning of the credit markets for the national government debt issues.
The 1 trillion euro distribution would not add to aggregate demand or inflation, as member nation spending and tax policy are in any case restricted by the Maastricht criteria. Furthermore, making this distribution an annual event greatly enhances enforcement of EU rules, as the penalty for non compliance can be the withholding of annual payments. This is vastly more effective than the current arrangement of fines and penalties for non compliance, which have proven themselves unenforceable as a practical matter.
There are no operational obstacles to the crediting of the accounts of the national governments by the ECB. What would likely be required is approval by the finance ministers. I see no reason why any would object, as this proposal serves to both reduce national debt levels of all member nations and at the same time tighten the control of the European Union over national government finances.
USD
Drop in crude imports today bullish for dollar
EU Should Create Euro-Area Monetary Fund
They already have one that can deal with it operationally.
It’s called the ECB.
And my annual per capita distribution of 5% of GDP to the member nations remains the only viable, sustainable solution I’ve seen.
EU Should Create Euro-Area Monetary Fund, Sweden’s Borg Says
By Johan Carlstrom
March 9 (Bloomberg) — The European Union should consider
creating a body similar to the International Monetary Fund to
help distressed euro-area members and sharpen fiscal discipline
in the bloc, Swedish Finance Minister Anders Borg said.
“It’s good if we get an organization that can more
concretely help countries with financial problems,” Borg said
at the office of Prime Minister Fredrik Reinfeldt in Stockholm
today. “Most important, of course, is that we tighten the rules
to make sure that euro countries that are misbehaving cease to
do so.”
The European Commission, the EU executive in Brussels,
yesterday said it’s drawing up plans for a lender of last resort,
or a European Monetary Fund, as leaders try to draw lessons from
the Greek fiscal crisis. Borg said the EU also needs to find
ways to enforce more rigorously the Stability and Growth Pact
rules, which stipulate budget deficits shouldn’t exceed 3
percent of gross domestic product.
If budget rules are breached, the EU needs to consider
imposing “sanctions,” Borg said.
Marking a potential split among EU leaders, French Finance
Minister Christine Lagarde said an EMF may not be the best way
to support fiscally distressed countries. Consideration
shouldn’t be “limited to a European Monetary Fund,” Lagarde
said today. “Other ideas need to be studied and those that
respect the Lisbon treaty are much preferable.”
Eurozone buying time
Looks like behind the scenes they may be getting their banks to fund Greece and, by extension, any other national govt. this which will buy time, though longer term it depreciates the currency, which they may want to happen as well.
As long as the banks can carry their eurozone bonds at par and book the interest as earnings and fund themselves based on implied govt guarantees there is no operational limit to how long they can continue.
The limits would be the extent to which the banking laws restrict this practice, and the political tolerance for any inflation that may get imported through the fx window should the euro continue to fall.
The other problem is the downward pressure on aggregate demand of the prerequisite ‘fiscal consolidation’ is likely to result in increased social unrest as living conditions further deteriorate.
And this could be accelerated if the fiscal consolidation were to include reductions of transfer payments.