Sunday, September 25, 2016

Connecting Some Recent Dots In The News

I like to write about how government intervention distorts the economy. I call it a passion. And the last several weeks of financial news have given me plenty of interesting fodder. It's full of crony capitalism, law suits, one Harvard economics study and a tenured professor who calls this country's political discourse the “worst nightmare” for our economy.

Dot #1

Crony Capitalism

The first piece of news is a very well written editorial from Senator Rand Paul about the EpiPen pricing scandal. In Time Magazine online, Senator Paul rebukes the EpiPen price increase as a result of the FDA's monopoly against new entrants into the marketplace, and the mountain of red tape that all drug manufacturers face with every innovation. Citing paperwork, patent exclusivity and FDA grants, and a understaffed (and often very scared) FDA, he draws out just one option. His solution? We can reform the system, lower costs and increase competition by getting bureaucracy out of our innovators’ way.”

Read the whole article here.

Coming from a Libertarian, his solution is expected. He points out that the The Affordable Care Act (a.k.a., Obamacare) was supposed to prevent this kind of gouging. But it, and many other government groups, have actually done the opposite. A small handful of well-connected producers are being protected at the expense of many. And the monopoly being held by those few in that industry is costing everyone far more than is necessary for such life-saving medicines. If the company making EpiPen were acting within the marketplace normally, they wouldn't be spared from the lower prices that would inevitably be offered from competitors who are willing (and maybe even happy) to accept lower profits.

He has rightfully concluded that more government isn't the medicine we need. It's the government that ails us.

Dot #2

The Real Price of Socialized Medicine

In the second, but clearly connected, piece of news, Jed Graham, writing for Investor's Business Daily, talks us through the last policy and legal nightmare that has become Obamacare, and specifically its “risk corridor receivables” program. It's the “corridor” in which if a company suffers losses, the government will make up those losses – it's essentially government-assured backing. Should the companies involved lose, the government will pool all insurance monies together to make sure no losses are allowed. But, conversely, if “excess profits” of 3% or more are gained, all of the companies involved will become profit sharers. This sounds like a pretty good deal. Right? It's not.

In his article, Jed Graham points out that there are lawsuits afoot. In fact, many lawsuits. Several companies, including United Health, Anthem and Aetna are now treating what possible “risk corridor receivables” are owed to them to be “a lost cause,” while insurers Humana, and HealthNet/Centene are reporting losses of hundreds of millions of dollars each. All of them are trying to recoup their monies by way of picking apart the government through a class action lawsuit – if the government decides to allow such action.

And what should have been the biggest recipients of Obamacare funds have turned out to be the biggest losers. Blue Cross/Blue Shield are deep in the red, while participating nonprofit health cooperatives are being driven out of business entirely. What's more, Graham points out: “HHS confirmed in the memo that any money collected under the risk corridor program for 2015 will be used to shrink its massive $2.5 billion shortfall in 2014, and no funds will be available at this time for 2015 benefit year risk corridors payments.” In other words, they're going to pay off their pending debts first (from 2014), then the private insurers might receive something (for 2015). But, given the very disappointing, short history of Obamacare, (it's only two years old) and the numerous pending lawsuits, most likely not.

If these economic insults and injuries weren't enough to satisfy you, there's more. The DOJ is: “...open to discussing resolution of those claims,” which is a euphemism for: go ahead and sue us, we don't mind. Why don't they mind? Because they're getting their money from you. They aren't going to pay anything; you are. If they win, you pay into their system. If they lose, you pay for the failure of their system. That's the real price of socialized medicine. You pay. Always you.

But does that kind of news surprise anyone who knows even the most cursory information about the costs of Obamacare? To date, there are 12.7 million people enrolled in the A.C.A. plan, which cost 9 hundred billion dollars to implement. That means the implementation of the program, which was supposed to save Americans money, is now costing $70,866.00 per person covered from the very beginning.

I think I know what you're thinking: Yes, but that's the estimate for the first ten years. Okay, you're right. That was the initial estimate for the first ten years. Today, that estimate is a little different.



Photo above from The Weekly Standard.

Obviously, the costs have gone up. Actually, they've nearly tripled.

Our government purveys this feel-good economic chicanery on us all the time. It grossly underestimates the costs of programs to drum up public support, but then tells us the very real, painful truth, one subtle layer at a time much, much later. And all the while, the “architects” of such programs laugh at us for having believed in their nonsense in the first place.

But there's more. Let me bullet point a few of them to save you some time.

- The Obama administration originally wanted to cover at least 52 million people in the A.C.A. program. That number is now only 12.7 million.
- The administrative costs, losses and subsequent lawsuits are still climbing. And all of those costs are already being placed onto the backs of the American taxpayer.
- Out-of-pocket deductible costs to the recipients are much higher than originally estimated.
- Premiums are rising.
- Taxes, fees, and onerous regulations are spiraling into the system.
- There are more older and sicker people going into the system than originally estimated.
- Younger people are avoiding the system altogether, while not paying any penalties.
- Subsidies, money transfers, cost estimates and enrollee estimates have all been obfuscated by several offices and the accounting techniques they use.
- The program officially took effect in 2014, and two years in, it has already become a major liability to the American people and their very fragile economy.
- Should any more than 12.7 million people sign up for the program, the now 2.6 trillion dollar estimate will also go up. (If I include the original 52 million desired people estimate, at the present rate, then the cost of Obamacare for the original 52 million people, in a country of over 300 million people, will cost about 10.64 trillion dollars. That's an amazing sum, because the entire U.S. economy amounts to about 14 trillion dollars. So we need to ask: is there any country in the world that would be willing to sacrifice over 75% of its entire economy to “give” health insurance to less than 20% of its population?)
- Some clinics and hospitals are opting out of accepting insurance entirely, because of the complexity of dealing with that industry.
- Seven states have already tried government reformation of the health care industry in their respective states. All of them have failed.

We can be sure there's more.

There's always more to explore regarding what the government is doing to the American people. Especially when it's something as big as the health care system. I imagine only the tax system would be bigger. But from the information above, we can see that some of the most orchestrated, deceptive and constraining efforts placed onto the laps and into the wallets of the American people recently is socialized medicine – a.k.a. Obamacare.

Dot #3

Cause And Effect

In the last connected news story, Harvard Professor Michael Porter schools us in “...the reality of what is causing our problems and what to do about them.” He's an economist, so he's talking publicly about the economy – always the economy.

But he admits that when he and a group of colleagues put together their “Harvard Business School Study of Competitiveness”: “...the last thing I thought I would end up doing when I got into this project was to actually start deeply studying the political system.” But that's exactly what they did.

Most economists stick to what they already know – the graphs, the charts, the droll, boring data that gives most people the heebie jeebies. But not him. And not me. Their study found that what's really making the American economy sick isn't really the economy, but rather the politics behind the economy. In their study, titled: “PROBLEMS UNSOLVED AND A NATION DIVIDED,” the group outlines what they believe to be the real issues that the American public needs to address to get the economy back on its feet. Again, to save you some time, here are the bullet points.

- THE U.S. ECONOMY IN AN ERA OF POLITICAL PARALYSIS
- FALTERING U.S. ECONOMIC PERFORMANCE
- AN ERODING U.S. BUSINESS ENVIRONMENT
- THE PRESSING NEED FOR A NATIONAL ECONOMIC STRATEGY
- AN ECONOMIC STRATEGY FOR WASHINGTON
- ACHIEVING TAX REFORM
- A FAILING POLITICAL SYSTEM

When an entire group of Harvard-educated economists get together to discuss so much of the information that most people find not the least little bit noteworthy suddenly start to talk politics, as a matter of economic necessity, you can be assured that the underlying problems being talked about are seriously pressing issues for everyone. We should all read this study. It highlights what's wrong, and the path forward to put the American economy back on track from stagnation to becoming a growing competitor on the world stage.

It's about the economy, stupid. Always.

Okay, maybe not always the economy. Sometimes, even the most well-intentioned economists can stray from their charts and graphs (Paul Krugman, anyone?). But in this case, and I'm taking into account the two stories above, I think the Harvard Business School review is spot-on. Our current political climate is costing the American people far more than any of us realized.

And the American media is having a great deal of trouble seeing all of that forest through the trees. They're all focusing in on the economy, but the real culprit is our political system, and our political discourse. If we want to restart the economy, and grow, prosper and reinstate the mentality that our children are destined to have a life that's better than our own, then all of us will need to stop confusing cause and effect.

Our economy is sick. Very sick. But it's our political system that's the cause. Not the cure. No one in their right mind can think that the remedy for what ails us will come from the same people and system that are causing our illness.

Thanks for reading.

Mark

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