Private Health Care Reform is Getting Started!

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Yesterday’s Wall Street Journal has a very interesting article, “More Employers Overhaul Health Benefits”, which describes a movement just getting started whereby employers give their employees a fixed sum of money and let them choose their own plan from an online market place.  The idea is that employers will be better able to predict and control their healthcare expenses for employees.  Furthermore, employees will be able to get better value for dollars spent by selecting their own coverage options, deductible amounts, copays, etc.
In fact, in an exchange run by Liazon Corp., which has 60,000 people enrolled, 75% of workers have chosen less expensive plans than they had before, by accepting bigger deductibles and copays, as well as smaller choices of healthcare providers and restrictions such as primary-care gatekeepers.
This is such an appealing approach to private healthcare cost control that the Accenture Management Consulting Company estimates just five years from now there will be 40,000,000 business employees receiving their healthcare benefits in this manner.  This would be a phenomenal development!
The United States spends 18% of GDP on healthcare altogether, both public and private, which is double the amount spent by any other country.  This enormous expense is a major reason why wage growth is stagnant in our country as well as why the costs of public programs like Medicare and Medicaid are so high and contributing to so much government debt.  It is critical for our country to get the rapid increase of healthcare costs under much better control.  That’s why this new movement of employers and employees working together on this critical problem is such a big step in the right direction.
If the estimate by Accenture is anywhere nearly accurate about how fast this new private healthcare selection method will grow, then there will soon be an excellent opportunity for Congress to expand its benefits to the control of Medicare and Medicaid costs as well.  This is very exciting indeed!

The Best Way to Spread the Wealth

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In today’s Wall Street Journal, Stephen Moore discusses how “Obama’s Economy Hits His Voters Hardest.”  A  report by Sentier Research shows that the average American household income has fallen from $54,478 in June 2009 (when the recession ended) to $52,098 in June 2013, amounting to a decline of 4.4%.
Mr. Moore notes that in the 2012 election, won by Barack Obama with 51% of the vote, the President received 60% of the youth vote, 67% of single women, 93% of black, 73% of Hispanics, and 64% of those without a high school diploma.
But, according to Sentier Research, it is precisely these groups for which income has fallen the most during the last four years.  Those under age 25 experienced an income decline of 9.6%, single women’s income dropped 7%, black heads of household’s incomes dropped 10.9%, Hispanic’s by 4.5%, and those without a high school diploma by 6.9%.
On the other hand, during the period 1981 – 2008, often referred to as the Great Moderation, income for black women was up by 81%, followed by white women up 67%, black men up 31% and, finally, white men up only 8%.  In other words, income inequality shrunk dramatically during the Reagan-Bush-Clinton-Bush years and has increased significantly during the Obama years.
The lesson is that in order to spread the wealth it is first necessary to create more wealth.  If more people were working today, and the economy was growing faster, then the people at the bottom of the income scale would be doing much better and gaining on everyone else.  There are tried and true methods to get this done!  It’s exasperating that we aren’t using them!

The Best Way to Help Working People

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The lead story in today’s Omaha World Herald, “Demand for skilled labor rising”, along with an accompanying editorial, point out that “Ours is a place where opportunity exists, to the tune of 35,000 advertised job openings counted by the Nebraska Department of Labor.”
Terry Moore, President of the Omaha Federation of Labor, predicts that demand for construction workers will only increase in the near future.
Gary Kelly, Business Manager for Local 22 of the International Brotherhood of Electrical Workers, said “It’s times of full employment that allow us to go out and organize the unorganized.”
Kirk Ahrends, Dean of Applied Technology at Metropolitan Community College, said that instructors who teach 16 different trade professions get many requests for job candidates.  “They’re knocking on the door.  Not only the students, but the industries.  They’re saying ‘Get us some graduates.’”
Nebraska is fortunate to have such a good job market, much better than the U.S. as a whole which is suffering from an unemployment rate of 7.4% and an anemic growth rate of just 2% a year.
By far the best thing the government can do to help workers is to adopt policies which will speed up economic growth.  This can be accomplished by giving entrepreneurs and investors greater incentives to take more risks.  Lowering tax rates (offset by closing loopholes) and easing burdensome regulations are the tried and true methods of getting this done.
There are twenty million unemployed and underemployed Americans who would benefit from national leaders more attuned to their need for work.

What Is the Best Way to Advance Martin Luther King’s Dream?

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In Wednesday’s Wall Street Journal John McWhorter, an African-American professor at Columbia University, describes “A Better Way to Honor Dr. King’s Dream”. Mr. McWhorter writes that a new conversation about race, “one in which whites submit to a lesson from blacks about so-called institutional racism” is not what America needs.  “Today’s struggle should focus on three priorities.  First, the war on drugs, a policy that unnecessarily tears apart black families and neighborhoods.  Second, community colleges and vocational education, which are invaluable in helping black Americans get ahead.  And third, the AIDS and obesity epidemics, which are ravaging black communities.”
Such sentiments represent a huge dose of common sense.  The African-American community needs help and cooperation from the wider society to address fundamental issues like juvenile delinquency, poor educational outcomes and unhealthy environments.  But these things, as much as they’re needed, are not enough by themselves for further progress towards racial equality.
The route out of poverty for all low income people, including blacks, is to raise themselves up by their bootstraps through educational attainment and hard work.  Society can and should make sure that the appropriate institutions, such as community colleges, are readily available to provide training for jobs which are out there in the private sector.
But most of all we need a vibrant economy to give lower income Americans more opportunities to work their way up the economic ladder.  We have not yet recovered in a satisfactory manner from the Great Recession which ended in June 2009.  This makes it all the more important for our national leaders to focus on the pro-growth policies which will get our economy humming again.

Education Reform Is Speeding Up

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A front page article in yesterday’s Wall Street Journal, “Biggest Changes in a Decade Greet Students in Classroom”, discusses many new and recent developments in K-12 education.  The controversial Common Core, with tougher math and reading standards, has been adopted by 45 states.  A total of 41 states have agreed to link teacher evaluations to test scores or other student achievement measures and 15 states use, or plan to use, an A – F grading scale to rate schools.  Last year there were 5997 charter schools, up from 2559 during the 2002-2003 school year.
What all of this means is that states are hotbeds of educational experimentation.  Meanwhile Congress is trying to figure out how to replace the unpopular No Child Left Behind law which was enacted in 2002 and has been renewed on a year by year basis since it expired in 2007.  Both the Senate and the House are currently considering legislation to give individual states more flexibility in figuring out how to increase educational success.
The fiscal implications of this whole movement of educational reform and decentralization are huge.  The U.S. Department of Education has over 100 separate programs for K-12 education alone, involving massive duplication and inefficiency, with a combined budget of $100 billion per year.  A smaller total amount of money could be given directly to the states in the form of block grants devoted to education.  The states are able to spend the money more effectively than the federal DoE and at less total cost.  Conclusion: better results for significantly less money.
This helps reduce the deficit!

How Can We Boost Stagnant Wages?

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Today’s Wall Street Journal has a column by Neil Shah, “Stagnant Wages Crimping Economic Growth”, pointing out that the average hourly pay for non-supervisory workers, adjusted for inflation, has declined to $8.77 last month from $8.86 in June 2009, when the recession ended.  It has also been reported recently, e.g. in the New York Times, that U.S. medium household income, now at $52,100, has not nearly recovered from its prerecession peak of $55,500 and is even below its $54,500 level in June 2009, at the end of the recession.
Lower income for workers and households mean lower consumer spending.  This is a major reason for our economy’s low annual growth rate of only 2% of GDP since the end of the recession.  Of course, the high unemployment rate, currently 7.4%, as well as increasing global competition, contribute to downward pressure on wages.  But there is another factor, directly under government control, which is a major contributor to stagnant and declining wages.
Washington Post columnist, Robert Samuelson, in a recent column reprinted in the Omaha World Herald, reported that, from 1999 to 2013, wages and salaries rose 50% (adjusted for inflation) while health insurance premiums increased 182%.
Most health insurance is provided and largely paid for by employers and is therefore an indirect form of compensation.  The huge disparity between wage gains and health insurance premium increases in recent years means that wages are being held back by the rapidly increasing cost of health care.  The U.S. spends 18% of GDP on healthcare, twice as much as any other country and this is clearly out of line.
The best single thing we can do to slow down healthcare inflation is to remove the tax exemption for employer provided healthcare (and offset it with lower overall tax rates).  Employees would then pay taxes on their health insurance benefits as part of their pay. This would have the beneficial effect of making consumers far more conscious of the true cost of healthcare and therefore consumers a strong incentive to hold down these costs.
It is up to Congress to change this provision of the tax code.  Let’s insist that they get this done!

Are Welfare Benefits Too High?

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The CATO Institute has just released a new study “The Work Versus Welfare
Trade-Off: 2013”, which analyzes the total level of welfare benefits on a state by state basis.  The authors, Michael Tanner and Charles Hughes, show that welfare pays more than a minimum-wage job in 35 states and, moreover, in 13 states, it pays more than $15 per hour. The authors recommend that Congress and state legislatures strengthen welfare work requirements, remove exemptions from working and narrow the definition of work.  Also many states should consider shrinking the large gap between the value of welfare and work by reducing current benefit levels and tightening eligibility requirements.
Clearly welfare benefits as well as disability payments, through the Supplemental Security Income (SSI) program of Social Security, have grown too large and have become a disincentive for many people to find a job.  Getting something for nothing is a moral hazard which induces an attitude of entitlement and helplessness.  It also causes the labor force participation rate to shrink and therefore hurts the economy.
Tightening up welfare payments and disability income are among the many actions
which Congress could take to speed up economic growth and lower government
spending.  We need more representatives in Washington who understand that change is needed and who can advocate effectively for policies which will get this done!

Is the Cost of Health Care Under Control?

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Today’s New York Times reports that “Health Care Costs Climb Moderately, Survey Says”.  The average annual insurance premium for a family rose 4% in 2013 compared with a 1.1% overall rate of inflation, according to the Kaiser Family Foundation which conducted the survey.  Since 1999 health insurance premiums have increased by almost 300% while consumer prices have increased by 40%.  As insurance premiums rise, deductibles are also getting bigger.  About 38% of all covered workers now face an annual deductible of $1000 or greater.  Dr. Drew Altman, CEO of the Kaiser Foundation, refers to this “quiet revolution” as an attempt by consumers to keep the cost of health insurance from rising even more quickly.
A 4% increase in insurance costs may seem moderate, but at almost four times the rate of inflation, it is really very large.  Obama Care is unlikely to have any impact in holding down such a rapid increase and, in fact, is likely to make matters worse because of massive new health care regulations which are coming.  The basic problem is that America spends 18% of GDP overall on health care, almost twice as much as any other country.
What can we do about this?  One major step would go a long way.  We need to remove the tax exemption from employer provided health insurance.  Employers could still provide health insurance for their employees, but the cost would be added to an employee’s salary for tax purposes.  This can be offset with a lower tax rate, of course.  But it would make employees, i.e. all consumers, far more conscious of the cost of healthcare and therefore to have a direct incentive to hold down these costs.  For example, Dr. Altman’s “quiet revolution” would pick up steam as employees raise deductibles even higher in order to lower overall costs.
How can we get going in this direction?  The Employer Mandate of Obama Care should be repealed, and not just postponed for a year.  Ideally, removing the tax exemption for employer provided health insurance would become part of the broad based tax reform which is so badly needed to stimulate the economy.
Our fiscal and economic problems can be addressed with smart leadership.  We should insist that our national leaders get going on such badly needed reforms!

Can We Solve Our Fiscal Problems Without Raising Taxes?

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Scott Lilly, a Senior Fellow at the Center for American Progress, has an Op Ed column in yesterday’s Fiscal Times, “The Choice Congress Won’t Face Up To”.  Mr. Lilly admits that we have at least a long-term deficit problem, namely exploding entitlement spending driven by the aging of the U.S. population.  The Congressional Budget Office predicts that federal outlays, including entitlements, will be 22.8% of GDP in 2023 while revenues will equal only about 19.3% of GDP, a huge gap.  And outlays will continue to rise,  because of entitlement spending, reaching 25% of GDP by 2040.  This means that the public debt, on which we pay interest, would rise from 73% of GDP today, to 99% of GDP by 2040.  As interest rates inevitably return to their historical average of 5%, interest payments on this massive debt will become an increasing burden on the economy.
Mr. Lilly asks the question:  How are we going to cut back on entitlement spending when the average Social Security monthly check is $1268 out of which about $350 goes to out-of-pocket medical expenses not covered by Medicare?  Congressman Ryan has proposed limiting the growth of Medicare to the increase of inflation + 1%.  But the cost of healthcare is increasing much faster than this.  And many seniors are living close to the edge.
Thus we reach “the choice which Congress won’t face up to.”  According to Mr. Lilly, either we have to make big cuts in entitlement spending or else raise taxes dramatically so that federal revenue increases to about 24% of GDP by 2040.  Mr. Lilly makes the far-fetched claim, based on flimsy evidence, that such a large tax increase will not retard economic growth.  But let’s set this issue aside for now.
Is there any alternative to increasing taxes so dramatically in order to avoid making big cuts in entitlements?  The answer is yes.  The above discussion assumes that the cost of healthcare in general will keep on increasing at the current rapid rate, much faster than the increase in inflation.  This is the main driver of entitlement costs.  The U.S. currently spends 18% of GDP on healthcare which is double the amount spent by any other country.  This is what must change.  We should abolish, not just postpone, the employer mandate in Obama Care.  But even more fundamentally, the tax exemption for employer provided healthcare should be removed (and offset with a rate reduction).  This would make consumers far more aware of the cost of healthcare and therefore drive down these costs.
Only after serious attempts are made, such as above, to control costs should any consideration be given to raising taxes.

Federal Cutbacks Suggest State and Local Expansion

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A front page article in yesterday’s Wall Street Journal, “An Ohio Prescription for the GOP:  Lower Taxes, More Aid for Poor”, describes how Ohio’s Republican Governor, John Kasich, a former congressional spending hawk, has expanded Medicaid coverage in Ohio and steered millions more dollars into local food banks.  Mr. Kasich says, “When you die and go to heaven, St Peter is probably not going to ask you much about what you did about keeping government small.  But he is going to ask you what you did for the poor.”
There are good reasons why we should shift programs and responsibilities from the federal government back to states and localities.  At the federal level there is little fiscal restraint and therefore little incentive for making sure that governmental programs operate efficiently and effectively.  Study after study by the Government Accounting Office, as well as by private think tanks, demonstrate enormous waste and duplication in virtually all areas of federal government.  This long lasting fiscal irresponsibility at the federal level has now led to a massive national debt which will have a perverse effect on our nation’s prosperity for many years to come.
At the same time, all state and local governments are required to balance their budgets.  This means that they have to pay attention to the costs of all programs and set spending priorities.  They have to make sure that all functions of government are effective and be prepared to cut back or eliminate any program which is performing poorly.  States such as Illinois and California, and cities such as Detroit, Chicago and Philadelphia, which have huge operating deficits year after year, will eventually be forced to declare bankruptcy (such as Detroit has just done) in order to reorganize their finances and make a fresh start.
It has long been a practical axiom that government should be as close as possible to the people.  But now it is a fiscal necessity as well to shift as much as possible from federal control back to state and local control.