Relevant and even prescient commentary on news, politics and the economy.

Fair Market Valuation; CBO, Student Loans, Food Stamps, Etc.

Earlier in 2013, CBO’s Douglas Elmendorf’s forecasted return on Student Loan’s resulting in a positive return for the Government. Later Elmendorf reversed the forecast claiming student loans would cost the government and the taxpayers by generating a negative return. Using one cost model (FCRA) to estimate the return, the government will make $184 billion on student loans in the next 10 years. Using another cost model (Fair Market Valuation ) to estimate return, the government will lose $95 billion over the same period. So why the difference? Utilizing the Fair Market Valuation methodology would necessitate additional compensation for investors to accept the risk that losses may exceed those already reflected in the cash flows. A premium for the possibility that debtors will default in large numbers is added into the calculation. Wait a minute, these are students locked in by signature to these loans which can not be discharged through bankruptcy. So why?

I happened upon a New America Foundation article by a former senior analyst in the Republican staff of the U.S. Senate Budget Committee Jason Delisle, who proclaims much the same as the CBO’s Douglas Elmendorf positing the Fair Market Valuation methodology being a fairer and more accurate way to assign risk to student loans. Beneath Jason’s article and within the comments section associated with the article by Jason were comments by Alan Collinge of the Student Loan Justice Org disputing Jason’s assumptions on Fair Market Valuation (The New America Foundation agreed to a discussion with Alan and reneged. Alan has gone unanswered by Jason and The New America Foundation).  Alan’s argument is the Fair Market Valuation methodology uses the less abundant commercial data to evaluate the return on student loans as opposed to the more readily available and abundant Department of Education student loan data (which has been used in the past by the CBO). The difference between the two databases is the Fair Market Valuation uses commercial loan data reflecting riskier loans than what occurs from the Federal Direct Loans program. While there exists a level of default within the student loan program administered by the Federal Direct Loans program; remember too, Federal Direct Loans can not be discharged through bankruptcy proceedings. Additionally, the collection percentage on Federal Direct Loans is much higher than commercial credit collections which can be disposed of via bankruptcy proceedings. Griffith and Caperton of the Center for American Progress add to the criticism of using Fair Market Valuation stating government loans of all types has cost taxpayers 94 cents for every $100 loaned over the last 20 years. While the FHA took a huge hit when Wall Street crashed, it still performed better than the commercial counterparts. Government programs appear to be on pretty stable ground in their projections yet The New America Foundation and the CBO arbitrarily claim otherwise. Reviewing the history of government lending over the last 20 years shows it has overestimated the total costs to government by $3 billion. For those who may not know, Federal Student loans are like a Roach Motel, checking in by loan signature is near to impossible to negate or check out except to die, become disabled, or pay it off . . . a bankers dream. CBO’s Douglas Elmendorf is showing a partisan preference for the Fair Market Valuation of Student Loan which in the end favors commercial interests over students and the Direct Loan program.

Most recently, another supporter of the Fair Market Valuation methodology of loans, Jason Richwine formerly of the Heritage Foundation and the AEI, wrote an article at the National Review on Farm Subsidies. Myself, I am not a big fan of farm subsidies; but if it comes to eating, I would prefer my food to be homegrown rather than controlled by an out-of-country food cartel the way oil is today. ~ 50% of the US food base is imported today, so why more? There is a need to control subsidies to food manufacturing farms which differ from the family farms as many know them; but to throw the baby out with the wash, I am not sure is necessary. The SNAP program has been heavily contested in Congress with the Repubs looking to balance the budget on the back of the poor. One comment by Jason Richwine within his Farm Subsidy article challenges the ~$4.50/day food stamp recipients get daily and its correlation to health:

“Henry Olsen criticized House Republicans for seeking to cut food stamps but not crop-insurance subsidies in the recently passed ‘farm bill.’ Point taken. But personally I think he is being too hard on conservative activists. To say that cutting the food-stamp budget by a small percentage is ‘the taking of food from the mouths of the genuinely hungry’ and will ‘cut back on your dinner’ is a bit overblown. In fact, I would guess that a randomized controlled study, were it done, would show that food stamp recipients are no healthier than non-food stamp recipients in the long run.”

Well Jason Richwine is correct on one thing, the Food Stamp recipients would be no healthier than the poor non Food Stamp recipients not on SNAP. Consider the SNAP ~$4.50/ day could not buy a one time saltier and higher fat content Quarter pounder meal (soda + fries) at McDonalds. So why quibble over 5 or 10 cents? The true issue is ~$4.50 per day does not go far in many sections of town or in the suburbs and at the store as it now stands. If health is truly the issue here, maybe the program should be expanded to include others and increased in daily dollars? Health is not so much the issue as being hungry or hungrier and then being expected to work while hungry in order to gain the Food Stamps as expected by many states. Or perhaps they can eat cake?

Jason Richwine claims the Fair Market Valuation methodology (based upon commercial data) will give a more accurate picture for the farm subsidies which he also asserts are also less risky than the Food Stamp and the Student Loan Programs. Jason may have a point here since the economic growth of recent has been driven by wild swings on Wall Street and Repubs always look to the poor to make up the difference. I would want to look to past projects to determine what the historical difference has been before making radical changes resulting in phantom deficits. This seems to have been throw to the side with the push to use Fair Market Valuation for relatively stable programs with good returns.  The Food Stamp program is but one area for Fair Market Valuation to come from Jason Richwine.

“Right now, the cost of almost every government credit or insurance program – from crop insurance, to student loans, to public pensions – is underestimated. The movement for ‘fair value’ accounting is intended to fix that problem.”

What Alan Collinge points out does makes sense. Jasons Delisle and Richwine and CBO Director Douglas Elmendorf scrapped decades of data on student loans and other programs which show a return even after historical cost. In place they assume higher risk as taken from commercial loan data, a riskier environment which is not reflective of degree of risk within these programs. We are not talking MBS or CDOs here and the end game are students locked into these loans whether they default or not. The long arm of the government extends much further for students than it does for AIG, Lehman, or Goldman’s Executives to the extent it will garnish Social Security or Disability benefits and future wages. The risk of default Delisle and Richwine, which is so prevalent in commercial loans, is mitigated substantially in Student Loans.  The wild swing seen in the CBO’s projection of Student Loan Return was caused by using the riskier data of FMV and assuming the interest rate charged no longer covers the cost of the Student Loan program. Commercial Investors would demand a higher interest rate to cover losses in case Wall Street blows up the economy again or risk as taken from commercial data (Fair Market Value) rather than the historical data (FRCA) of the US Department of Education. In the end, this will drive interest rates higher for student loans and other loan programs to cover projected potential phantom deficits or costs. This makes sense on Wall Street and for TBTF who failed to mark down investments when they defaulted; but, it does not make much sense for student loan borrowers who are locked into it. there are other things to consider.

An Invitation to Jason Delisle of The New America Foundation by email on September 25, 2013:

from: run75441 aka Bill H
To: delisle@newamerica.net

Good morning Jason:

I write on Angry Bear Blog and I have also helped many soon-to-be college students apply for grants and loans.

I have been reading and watching the discussion going back and forth on Fair Market Valuation of student loans and the resulting change in return as projected by Douglas Elmendorf’s CBO. This change in valuation establishes a basis for a dramatic change in how student loans rates are calculated for risk and return which in most cases does not exist in the same manner as what exists for commercial loans when using commercial loan data. There is no bankruptcy for student loans which would mitigate the risk factor and is also reflected by the collection rate as opposed to lets say credit cards?

Allan Collinge has rasied several points challenging Douglas Elmendorf and your conclusions on the utilization of Fair Market Valuation in determining the return on student loans. Reviewing all of the posts, I have not come across a response to Allan’s points arise from The New America Foundation. His points go unchallenged and I would offer you an opportunity to respond in dilogue to Allan on Angry Bear Blog in your own and unaltered words. Is this a possibility?

Please let me know. Thank you for your time and consideration.

Regards,

Bill

 

1. Deseret News; August 14, 2013 “Making a Killing or Getting Fleeced?”

2. The New America Foundation; March 23, 2012, “Fair Values Accounting Shows Switch to Guaranteed Student Loans Costs $102 Billion”

3.  Student Loan Justice Org

4. Forbes, July 11, 2013 “Interview with Student Loan Activist Alan Collinge – Fair Value In An Unfair System?”

5. The Center for American Progress, May 2012 , “Managing Taxpayer Risk”

6  National Review, September 23, 2013;  “Farm Subsidies, Even Worst Than You Think”

7. The Center for American Progress, April 26, 2006,  “Understanding Mobility in America

8. The Heritage Foundation; May, 2012 “The Real Cost of Pensions”

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Why Do People Prefer the Affordable Care Act Over Obamacare?

Affordable Care act versus Obamacare Act

I will give you, there is nothing within this bill that is easy to understand. Along with Maggie Mahar and others, I took the time to read the act and attempt to understand it which even today causes me fits. As shown in this clip, many people can distinguish between the words Affordable Care Act and Obamacare; but they fail to distinquish the content and understand they are the same. Kudos to the propagandist to associate a black President with a particular Law. There should be a Goebbels award somewhere for this type of achievement in skewing  the true intent of an act to just a person’s name. Would it sell better if we called it the Boehner Act or McConnell Act? People are acting against the interests of the whole and their own self interests because of a name. When you get right down to it and you know a large percentage of people within the wealthiest and richest in income nation in the world go without healthcare, why would you object to a plan to provide it because of the name even if it was not single payer, Medicare for all, or Universal etc.?

Maybe we should change the Link to Affordable Care Act to Black Man Care Act? Perhaps then, we might understand the true beliefs of a Congress who would shut down a government and people who might pick one over the other without knowing they are both the same. Hat Tip to Digsby for providing the clip.

The words are solely mine.

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Chris Hayes Explains the PPACA for Fox and Friends

Obama Care for Fox News and Friends

 

Not that they have any interest in reality at the moment. The Republicans have worked themselves into a frenzy that resembles the adolescent girls who accused the Salem townspeople of witchcraft at this point. This is how they look:

 

Maybe it is time to take away the beer? Hat Tip to Digsby

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October 1st, A New Republican Proposal, and the Bad News Bears

October 1st, the country and government will once again be held captive by minority political interests seeking to force their will upon a country which did not endorse them or their beliefs in the last election. Radical House Republicans have come back with another proposal which seeks to delay the PPACA for one year, removes the medical device taxation to appease the healthcare industry, and adds Huelskamp’s “conscience clause” to the amendment limiting the coverage of preventative birth control. Funding for the military was included in the latest amendment. This is a radical change from John Boehner’s efforts to concentrate on setting a new Debt Ceiling rather than funding the PPACA. The Republican’s actions strip those of healthcare coverage who can least afford it. Much of what is proposed by the Republicans lends credence to Independent Senator Bernie Sander’s speech “Lone Star Strategy.”

Republicans’ efforts to cut food stamps and defund the Affordable Care Act are just “the beginning of the game,” Senator Bernie Sanders said.

“All of these issues are related to something that is much, much larger and that is the transformation of American society in a radically different way than it is today,” Sanders said. “And what my Republican colleagues, almost without exception, want to do now is take us back to the 1920s where working people had virtually no protection on the job at all.”

In the midst of all of this, the Federal Government is releasing preliminary information on PPACA subsidies and coverage by states.

Obamacare and The Bad News Bears; Maggie Mahar; Health Insurance Org.

Why is the mainstream media downplaying the good news about affordable insurance rates in the state health insurance exchanges?

Yesterday, when I read the new HHS report on premiums in the individual exchanges in 36 states, I was impressed by the good news. In the marketplaces where people who do not have access to employer-sponsored insurance will be purchasing their own coverage, rates will be much lower than expected. This is true even in Red States that have resisted Obamacare. For instance in Houston, Texas, a 27-year-old earning $25,000 would pay $81 monthly for the least expensive Bronze plan – after using his government subsidy – while a family of four with income of $50,000 would owe just $52. What we are seeing is “reverse sticker shock.”

Then I began to read what the press had to say about the report, and found myself frustrated by the misleading, fear-mongering response. It sometimes seems as if the mainstream media is bent on downplaying any good news about reform.

Was it wrong for HHS to focus on costs?

Even the New York Times – a highly-respected publication that is often viewed as “liberal” – took a dour view, warning that “the data” in the HHS report on premiums “provides only a partial picture of the reality that consumers will face  … The figures, almost by definition, provide a favorable view of costs, highlighting the least expensive coverage in each state.”

What Times reporter Robert Pear overlooks is the fact that the vast majority of individuals shopping in the exchanges live in middle-income or low-income households. (More affluent Americans tend to have access to comprehensive insurance through their employer, a spouse or their parents.)

What folks purchasing their own coverage in the state marketplaces want to know is what the least expensive Bronze and Silver Plans will cost. Those are the plans they will be buying, and that is why the HHS report focuses on those policies.

Ignoring ACA’s subsidies

Pear goes on to stress how much premiums will vary – even within a given state – and how high they will be in some cities: “… a 40-year-old buying the least expensive silver plan would pay $240 a month in Los Angeles, but $330 in Sacramento, about 38 percent more.”

True. But Pear doesn’t take into account the fact that most Americans shopping in the exchanges will be eligible for government subsidies. They won’t be paying $240 or $330 a month. Thanks to the government help, some 60-year-olds will have to pay nothing for insurance.

Indeed, after applying his subsidy, a 40-year-old living on $22,980 in either Los Angeles or Sacramento would pay only $120.65 a month for coverage. This is because the lawmakers who wrote the Affordable Care Act believed that someone earning $22,908 should not be expected to spend more than 6.3 percent of his income on insurance. As the table in this post shows, the IRS will calculate tax credits to make up the difference between the percentage of income that someone is expected to contribute and the “sticker price” on a Silver plan.

Forbes columnist Avik Roy also ignores subsidies when writing about the HHS report. This allows him to claim that the newly announced rates will force individuals buying their own coverage to shell out 99 percent more than they are paying today.

Moreover, when Roy compares today’s rates to the premiums that individuals purchasing their own insurance will pay next year, he overlooks the fact that many of the plans now sold in the individual market are “bare-bones” plans. Most don’t cover maternity benefits. Some don’t pay for chemotherapy. Many carry huge deductibles. When he compares the policies that will be sold in the exchanges to these plans, Roy is not making an apples-to-apples comparison. He is comparing apples to rotten apples.

Narrow networks

Meanwhile, Pear appeals to his readers’ worst fears by cautioning that, according to “consumer advocates … people shopping for health insurance should consider not only price, but also other factors like the list of covered drugs and the doctors and hospitals available in a health plan.”

Not long ago, the Times reported on the dangers of insurance plans with “narrow networks” that may not cover the doctors and hospitals that a patient knows best. The truth is that most of the currently uninsured and underinsured Americans who will be shopping in the Exchanges don’t have a list of favorite specialists. Many don’t have a doctor; when they receive care, they are treated in an ER or a community clinic.

Polls also show that the young Americans who will be flooding the exchanges are three times as likely to be willing to give up their choice of doctor for a lower premium.

Insurers are holding down premiums by excluding marquee healthcare providers who charge more than others for the even the simplest procedures. The Times has suggested that, in “narrow networks,” patients with “complex conditions” may not be able to get the care they need.

In fact, the Obama administration addressed that problem last year, issuing a “rule” that ensures that networks will not be too narrow. In order to win state and federal approval insurers will have to show that their network includes “a sufficient number and type of providers.”

Meanwhile, study after study shows that there is little correlation between what a health care provider charges an insurer and the quality of care provided. Pricing is all about market clout. Some hospitals charge more “because they can.”

But Americans can no longer to afford to pay exorbitant prices for brand healthcare. HMOs that charge less if the patient stays “in network” fell out of favor in the 1990s, but today they’ve become increasingly popular. Indeed when Consumer Reports ranks insurers, HMOs that rely on a network of providers to coordinate patient care receive the highest rates both for quality of care and consumer satisfaction. Networks represent the future of American medicine – and not just in the exchanges.

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Senator Sanders on the The Transformation of American Society

This is an 11 minute clip of his speech, “The Lone Star Strategy.” It is worth a listen.

The Lone Star Strategy

Senator Bernie Sanders

Republicans’ efforts to cut food stamps and defund the Affordable Care Act are just “the beginning of the game,” Sanders said.

“All of these issues are related to something that is much, much larger and that is the transformation of American society in a radically different way than it is today,” Sanders said. “And what my Republican colleagues, almost without exception, want to do now is take us back to the 1920s where working people had virtually no protection on the job at all.”

I listened to Senator Ted Cruz who looks and sounds a lot like Bill Murray (sorry Bill) in “Meat Balls or Stripes”  .  .  .  fun to listen to and get a laugh ; but who takes him seriously? He needs to go home to Texas and watch the corn grow.

 

More from Senator Bernie Sanders on CSpan:

 

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Maggie Mahar Healthbeat Blog: Reverse “Sticker Shock” Part 2 –Subsidies Mean Enormous Saving for Older Americans

In the past I have written about how government tax credits will help young adults (18-34) who must buy their own coverage because they don’t have access to “affordable, comprehensive” employer-sponsored coverage.

But older Americans forced to purchase their own insurance will save even more. Precisely because a 50-year-old’s premiums may be three times higher than a 20-year-old’s, his subsidies will be larger.

Subsidies are designed to fill the gap between the percentage of your income that you are expected to contribute toward the cost of a premium (with the government assuming that if you earn more, you can spend more on health insurance) and the actual rates that insurers in your market charge for a benchmark Silver plan..

Families USA estimates that while the majority of 18-34 year olds shopping in the Exchanges will qualify for help from the government, fully 30% of the those who receive tax credits will be 35 to 54, and 12.5% will be 55 or older.

Note that younger Americans will not be subsidizing these tax credits for their elders. Under the Affordable Care Act subsidies are funded by device-makers, drug-makers, hospitals—plus taxpayers earning over $200,000—and couples earning over $250,000) Very few twenty-somethings are that fortunate. A New KFF Report Offers Eye-Opening Final Numbers on Premiums and Subsidies for 40 –Year Olds and 60-Year-Olds in 17 States

In August the Kaiser Family Foundation (KFF) published an “Early Look at Premiums” in California, Colorado, Connecticut, DC, Indianapolis, Maryland, Maine, Montana, Nebraska, New Mexico, New York, Ohio, Oregon, Rhode Island, South Dakota, Virginia, Vermont and the state of Washington.

The report reveals what a difference the tax credits will make for 60-year-olds, 40-year-olds and 25-year olds in the most populous city in each of these 17 states (Los Angeles, Denver, Hartford, Indianapolis, Baltimore, Portland, Maine, Billings, Omaha, Albuquerque, New York City, Cleveland, Portland, Oregon, Providence, Sioux Falls, Richmond, Burlington and Seattle.)

Thanks to the KFF report, the prices that I quote below are not estimates or averages. They are final rates that have been approved by those states. (In a very few cases KFF did not have final numbers; I don’t include those states in my discussion.)

Let me add that this report represents a major step forward for KFF. The Kaiser Family Foundation Calculator, which I have recommended in the past, is now outdated.

The calculator provides only a very rough estimate of what insurance is likely to cost in 2014, based on average premiums nationwide. Trouble is, rates vary widely depending on where you live. Premiums mirror how much health care providers in your area charge. In some cities, insurers are forced to pay hospitals and doctors with market clout 30% more than in others. As a result, the calculator’s estimates are back-of-the-envelope guesstimates. (KFF made that clear at the time.)

Now, KFF is collecting the actual rates that insurers will be charging, and it has come up with a formula to update its calculator. Using that formula, you will be able to find out what healthcare insurance will cost in your town, whether you will qualify for a government subsidy, and how large that tax credit will be.

I will be writing about how you can customize the calculator as soon as more state regulators report the premiums that carriers will be allowed to charge in cities throughout their states.

In the meantime take a look at to some of the eye-popping premiums in Kaiser’s August report. These numbers will change the lives of millions of older customers.

As the table below reveals, in 2014, a 60-old living on $28, 725 in Sioux Falls, South Dakota will be able to buy a Bronze Plan for just $44 a month.

Without help from the government, she would have to shell out $508 monthly, for the very same plan.

60-year-old-monthly-premium

 

This table also shows that in 2014, a 60-year-old in Harford Ct. earning $28,725 would pay Nothing for a Bronze plan. Under Obamacare, his subsidy would cover the entire $423 monthly premium.

Imagine what the numbers in the chart above will mean to the 14% of Americans in their late 50’s and early 60s who were uninsured last year either because:

– they suffer from a “pre-existing condition” and can’t manage the premiums insurers charge anyone who is or has been sick (ranging from a Vet suffering from Gulf War Syndrome to someone with a bum leg injured 10 years ago in a skiing accident);

– or because they cannot afford to shell out 5 times what a 20-year-old would pay for a policy. (This is what carriers in many states now demand of 60-year-olds.)

Then there are the millions of older Americans who are underinsured. In theory they are “covered,” but their policy comes with a $5,000 to $10,000 deductible, which means that they cannot afford to use it and/or it does not cover the essential benefits that they need.

Older Americans Will Have Choices

The chart above shows that “Bronze: plans cost less than “Silver” policies. HealthBeat readers may remember that Bronze Plans are the least expensive policies that will be sold in the Exchanges. Like Silver, Gold and Platinum plans they cover all essential benefits and offer free preventive care.

Bronze premiums are lower than plans on the other three tiers because their co-pays and deductibles are higher. Though under Obamacare, total out-of-pocket spending is capped at $6,350 for an individual and $12,700 for a family. After that, their insurer must pick up all bills for essential care.

But people who receive tax credits don’t have to use the subsidy to buy a Bronze plan. If that single 60-year-old living in Sioux City preferred, she could choose a silver plan that carries a price tag of $561. After subtracting her subsidy, the table shows that the policy would cost her $193 monthly.

That is far more than the $44 she would pay for a Bronze plan. Nevertheless at 60, this might well be a wise choice. Since her income is less than $34,470, if she buys a Silver plan, she will qualify for a “cost-sharing subsidy” that will slash both her co-pays and deductible.(Click on “ cost-sharing subsidy” for a short explanation of who qualifies and how it works.)

Rather than facing the possibility of having to spend $6,350 out of pocket if she sees several specialists, takes two or three pricey prescription medications, is sent for a CAT scan and/or lands in an ER late one night, her exposure would be limited to half that amount –or $3,175 a year. Whatever happens to her, no insurer who sells her a silver plan in the Exchanges can ask her to pay more than $3,175 out of pocket. But, remember, she will be eligible for a cost-sharing subsidy only if she buys a Silver plan.)

Older Americans who live in areas where medical care is not as expensive will pay even less. The table shows that a 60-year old in Burlington, Vermont with income of $28,725 could use his subsidy to purchase a Bronze plan for $116. Without the tax credit it would cost him $336.

Meanwhile in Providence, Rhode Island he would wind up paying just $16 a month for a Bronze plan priced at $446. How could his premium be that low? He pays only $16 because in Providence the benchmark silver plan carries a relatively rich premium of $622, and, as I explained in an earlier post, that’s the price the IRS uses to calculates tax credits. As a result, the subsidy is larger in Providence than it would be in a city like Portland, Oregon where the benchmark silver plan is cheaper. In Providence, the subsidy covers more of the Bronze plan premium.

If You Are 40, How Much Will You Pay?

Kaiser’s “Early Look at Premiums” also offers a table indicating how much a single 40-year-old will be asked to lay out if she is purchasing her own coverage in her state’s Exchange. Once again, the table assumes that the individual shopping for insurance earns $28,725.

40-year-old-monthly-premium

 

Because the 40-year-old is younger, premiums before subsidies are not as high as they are for a 60-year-old. Even so, under Obamacare, the vast majority of states will let carriers demand that a 40-something significantly more than a twenty-something. A single 40-year who isn’t eligible for a tax credit (because she earns more than $45,960) will have to pay somewhere between $140 a month (in Baltimore) to $250 (in Indianapolis) for the least expensive Bronze plan.

The benchmark silver plan could cost her as much as $328 (in Hartford, Ct). On the other hand she might pay as little as $228 in Baltimore.

Once again, subsidies make an enormous difference.
After applying the subsidy, a 40-year-old earning $28,750 in Hartford could pick up a Bronzer plan for $97; in Omaha she would pay $119

If she preferred the Silver plan it would cost her $193 in any of the 17 cities. The price of a benchmark Silver Plan is the same in each city because subsidies are pegged to the cost of the benchmark (second least expensive) Silver plan wherever you live. As I explained in an earlier HealthBeat post , when calculating subsidies the Affordable Care Act expects you to spend a certain percentage of your income on health insurance; the more you earn the more you are expected to contribute. In the case of someone earning $28,750 he or she is expected to cough up $193. The tax credit makes up the difference between $193 and the actual price of a silver plan in a particular city.

Why Such a Wide Range of Prices ?

All Bronze plans must cover the same benefits. Why then do we see such huge differences in “sticker prices” (before subsidies)?

Insurer’s premiums turn on four factors:

1) how much insurers have to pay doctors and hospitals in a particular city; in some places, health care providers have the market clout to charge 30% more than in other towns;

2) the network of healthcare providers that the carrier chooses to include in his plan—in a given city brand-name hospitals may be able to command steep reimbursements even for simple procedures;

3) whether state insurance regulators flexed their muscles when negotiating with insurers, rejecting proposed rates that they viewed as too high, forcing carriers to slash their premiums if they wanted to peddle their products on the state’s Exchange;

4) whether a particular carrier is interested in attracting single 40 year-olds — or whether the insurer views these aging “Bros” as potentially expensive customers.

Here, the actuary pricing an insurance company’s products faces many unknowns:

Just how healthy is the average uninsured or underinsured 40-year-old in this city? When he does have insurance, will he use it, or will he put off going to the doctor?

Some observers suggest that once the uninsured are covered, these new customers in the Exchanges will rush to see doctors who then will begin billing insurers for all sorts of tests and treatments.

But the truth is that most people don’t enjoy meeting a stranger, taking off their clothes, and facing questions such as: “How often do you drink? Have you thought about losing some weight?

My guess is that if a 40-year-old feels healthy, he may not be in a hurry to visit a doctor.

More Numbers: A Family of Four Earning $60,000, a 60-Year old Couple, a Single 25-year old .

While the charts above apply only to single 60-year-olds and single 40-year-olds earning $28,750, the Appendix of the Kaiser Report (beginning on p. 9) provides details on premiums, both before and after subsidies, for

a 60-year-old couple earning $30,000;

– a family of four with $60,000 in income that includes two 40-year-old adults,

and a 25-year-old earning $25,000.

The surprises range from the news that a family of four earning $60,000 and living in Washington D.C. will be able to buy a Bronze plan that covers the entire family for just $144 a month to the fact that after using their subsidy a 60-year-old couple living on $30,000 in Indianapolis will pay nothing for a Bronze plan. Meanwhile a 25-year-old earning $25,000 in Portland, Maine will be able to purchase a Bronze plan for $97 a month, and get free preventive care (including contraception).

Alternatively, she could decide not to buy insurance, pay a penalty, and get nothing in return.

Maggie Mahar Healthbeat Blog

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Maggie Mahar Healthbeat Blog: Reverse “ Sticker Shock”— Why are Insurance Rates in the State Marketplaces Lower Than Expected? — Part I

Even Forbes’ columnist Avik Roy is recanting. Earlier this month he acknowledged that under Obamacare, many Americans who buy their own coverage in 2014 will find that insurance is significantly more affordable than it was in the past: “Three states will see meaningful declines in rates: Colorado (34 percent), Ohio (30 percent), and New York (27 percent).”

Colorado, Ohio and New York are not unique. As states announce the prices that carriers will be charging in the online marketplaces (or “Exchanges”) where Americans who don’t have health benefits rate at work will be purchasing their own coverage, jaws are dropping. Rates are coming down, not only for those individuals, but for some small business owners who will be buying insurance for their employees in separate SHOP (Small Business Health Options Program) Exchanges.

What may be most surprising is that premiums will be lower, not only in liberal Blue states but in some Red states that are opposed to Obamacare.

What is making health insurance more affordable?

First, the majority of individuals shopping in the Exchanges will be eligible for government subsidies that will go a long way toward covering premiums. In the past I have written about how these tax credits will help young adults (18-34). But older Americans also will benefit. Fully 30% of those who receive tax credits will be 35-54, and 12.5% will be 55 or older. This is important because in the Exchanges, insurers in every state except New York and Vermont will be allowed to charge a 60-year-old three times as much as they would charge a 20-year-old for exactly the same policy. Without subsidies many would find insurance totally unaffordable.

The second reason premiums are significantly lower than expected is that as I have explained on healthinsurance.org in the state marketplaces insurers are forced to compete on price. All policies sold in the Exchanges must cover the same essential benefits, and follow other rules that will make the plans look very much alike. The only way for a carrier to distinguish himself from the crowd will be to charge less—or have a better network of providers. But the younger customers that carriers covet care far more about price than about the network.

Third, in many cases, state regulators have been clamping down. In Portland Oregon, for example, regulators forced insurers to cut their proposed rates by an average of nearly 10%. Three of the 12 insurance companies in that market had to lower their rates by more than 20% f

Finally, rates in many Exchanges are looking surprisingly affordable because many insurers are narrowing their networks to a group of hospitals and doctors who will offer higher-quality care for less. Meanwhile the fear-mongers argue that this means patients won’t receive the care they need.

Indeed, the New York Times just published an article suggesting that patients with complicated medical problems may have a hard time finding providers within an insurer’s network who can treat their problems.

What the Times neglected to mention is that the Obama administration had anticipated the possibility that a network could be too narrow and has already addressed the issue. As Modern Healthcare.com reports, “last year, the administration issued a rule” that insurers “must maintain a network of a sufficient number and type of providers … to assure that all services will be available without unreasonable delay.” The rule also requires that “essential community providers” be included in all plans.

This is an important fact. It is not clear why the Times ignored it.

Modern Healthcare.com goes on to quote Dr. Jeff Rideout, senior medical adviser for the Covered California state exchange, stressing that “all plans included in the exchange have to get state and federal regulatory approval for network adequacy.”

But will the in-network providers be as good as those who balk at the notion of charging less than top dollar? Study after study shows that there is little correlation between higher prices and better care. In fact, lower costs and higher quality go hand in hand: when more efficient hospitals co-ordinate care there are fewer “medical misadventures,” hospital stays are shorter; and both patient and doctor satisfaction is higher.

In the 1990s, HMOs that asked that t patients stay “in network” fell out of favor. But today, when Consumer Reports publishes NCQA ratings on quality of care as well as consumer satisfaction, it turns that that HMOs that rely on “networks” outrank other insurers. Networks that coordinate care are the future of medicine.

Ohio—In September the Truth Finally Emerged

Ohio serves a striking case study of “reverse sticker shock.”

Before next year’s rates for individuals buying their own insurance were announced, many Red state officials had warned that prices would spiral. In June, for example, Ohio Lt. Gov. Mary Taylor, a Republican who heads the state’s insurance department, took fear-mongering to a new level by announcing that in 2014, the average cost of coverage would rise by an estimated 88 percent. l

Two months later, when Taylor’s department disclosed the actual premiums that insurers will be charging in Ohio’s marketplace, reality forced her to amend her estimate. Nevertheless, she still insisted that in 2014, premiums for individuals will be a whopping 41 percent higher than they were this year. Republican House Speaker John Boehner then picked up his megaphone, calling her announcement “irrefutable evidence” that Obamacare will hurt the economy as it drives up costs.

The Cleveland Plain Dealer wasn’t buying any of this. Reporting on Taylor’s revised numbers, it immediately observed that her statement “masks the fact that for many individuals, premiums and out-of-pocket medical expenses will go down” because the vast majority of Americans buying their own insurance in the state exchanges “will be eligible for income-based federal subsidies to reduce or eliminate their costs.” (It would be difficult to accuse the Plain Dealer of liberal bias. In 2012, the paper endorsed Mitt Romney for president.)

The paper then pointed to a second flaw in Taylor’s reasoning. When she compared the average cost of insurance to 2013 to the average cost of 2014 policies, she included bare-bones plans sold in 2013 that “require deductibles of $10,000 or more and offer only catastrophic coverage.”

This distorts the comparison between 2013 and 2014 prices in two ways:

1) All of the plans sold in the Exchanges in 2014 will offer far better protection and much lower deductibles than the bargain basement plans Taylor used in her comparison. She was comparing apples to rotten apples.

2) More importantly, as the Plain Dealer went on to explain, even in 2013 “relatively few people bought these plans (because of super-high deductibles and crummy coverage).” In other words, in order to draw a fair comparison between “average” prices in 2013 and 2014, one needs to look at the plans that most people purchase.

By September Forbes columnist Avik Roy, a senior fellow at the conservative-leaning Manhattan Institute for Policy Research agreed: rates in Ohio would plunge.

In June, Roy had trumpeted Taylor’s projections that healthcare reform would lift rates in Ohio’s state marketplaces by 88%. But as states announced the premiums they had approved, Roy and his team re-crunched the numbers, and acknowledged: “rates on average will go down for Ohioans” by “30 percent. . . even before even considering the effect of subsidies.” /

Let me be clear: Roy continues to claim that most Americans buying their own coverage will see their premiums rise in 2014. On that point, he still is wrong: in his state-by-state analysis of rates, he doesn’t include the impact of the subsidies.

But a policy’s “sticker price” won’t matter to someone purchasing insurance in the state marketplaces. What will matter is what he actually has to lay out, after applying his tax credit. That will determine whether he believes that the “Patient Protection and Affordable Care Act” is actually offering affordable insurance.

(Keep in mind that most people shopping for insurance in the Exchanges live in low-income and median-income households– and thus are eligible for subsidies. More affluent Americans are far more likely to work for employers who offer good health benefits– or to have coverage through a spouse or a parent. The Exchanges will not be open to them because an employer already subsidizes their insurance.)

Still, I greatly respect Roy’s honesty regarding Ohio. In these polarized times, retractions have become rare, even in highly-respected publications. A hat-tip to Roy and to Forbes.

Maggie Mahar Healthbeat Blog

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Will You Be Eligible for A Government Subsidy When You Buy Health Insurance in 2014? Check out Your “Modified Adjusted Gross Income” (MAGI) –You May Be Pleasantly Surprised

Maggie Mahar comments on the Modified Adjusted Gross Income and how this may positively impact your eligibility for healthcare insurance on the state exchanges.

Before writing this post, I had no idea how to calculate my “Modified Adjusted Gross Income” (MAGI). But I did know that this is the number the IRS will use when deciding whether people purchasing their own insurance in their state’s online marketplace (a.k.a. Exchange) will qualify for a tax credit to help them cover their premiums.

This piqued my interest.

The first thing you need to know is that your modified adjusted gross income (MAGI) may well be lower than your gross income.

When calculating your MAGI, you can subtract certain items from your adjusted gross income including: student loan interest, certain moving expenses, contributions to an IRA, some self-employment expenses, and any alimony that you pay.

As a result, an individual grossing $50,000 (or a family of four with income of $98,000) might well discover that after they deduct these items from, their MAGI falls under the cut-off for subsidies ($45,960 for an individual, $62,040 for a couple, $78,120, for a family of three, $94, 200 for a family of four)

This is why, even if think you earn a few thousand too much to qualify for government help, you should ask whoever prepares your taxes about your MAGI—and perhaps think about upping your contribution to an IRA.

Kiplinger’s Kimberly Lankford, suggests other ways to lower your MAGI by “selling losing stocks or boosting business expenses to offset self-employment income.” But, she warns, “Be careful with moves that could boost that your MAGI and make it more difficult to qualify for the subsidy — such as converting a traditional IRA to a Roth.” .

Clearly MAGI is a tricky number. For more detail see this -page definition from UC Berkeley’s Labor Center. It is far and away the best, and clearest description of how to calculate MAGI that I have found.

Cross Posted from The Health Beat Blog, Maggie Mahar, Will You Be Eligible for a Government Subsidy .  .  .

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“The Rest of The Story”

Somewhere along the way, the naysayers and the Repubs will find a way to turn this into a negative “Trader Joe’s Cut Health Benefits Last Week”  Last week Ezra Klein wrote about Trader Joe’s decision to cut health insurance benefits for employees who work fewer than 30 hours a week. After that, one reader forwarded a Trader Joe’s response to his letter inquiring about the change in benefits.

“Thank you for writing to us. It’s possible you have been misled, at least to some degree, by the headlines in some articles regarding our reasons for implementing the [Affordable Care Act] in January. We’d like to take this opportunity to clarify some facts.

For over 77% of our Crew Members there is absolutely no change to their healthcare coverage provided by Trader Joe’s.

The ACA brings a new potential player into the arena for the acquisition of health care. Stated quite simply, the law is centered on providing low cost options to people who do not make a lot of money. Somewhat by definition, the law provides those people a pretty good deal for insurance … a deal that can’t be matched by us — or any company. However, an individual employee (we call them Crew Member) is only able to receive the tax credit from the exchanges under the act if we do not offer them insurance under our company plan.

Perhaps an example will help. A Crew Member called in the other day and was quite unhappy that she was being dropped from our coverage unless she worked more hours. She is a single mom with one child who makes $18 per hour and works about 25 hours per week. We ran the numbers for her. She currently pays $166.50 per month for her coverage with Trader Joe’s. Because of the tax credits under the ACA she can go to an exchange and purchase insurance that is almost identical to our plan for $69.59 per month. Accordingly, by going to the exchange she will save $1,175 each year … and that is before counting the $500 we will give her in January.

While we understand her fear of change, at her income level this is a big benefit that we will help her achieve.

Clearly, there are others who will go to the exchanges and will be required to pay more. That is usually because they have other income and typically a spouse who had a job with no benefits and they do not qualify for the subsidies under the ACA.

One example of that we had yesterday was the male Crew Member who worked an average of 20 hours per week but had a spouse who is a contract consultant who makes more than $200,000 per year. The Crew Member worked for the medical benefits and unfortunately for them they are likely to have to pay more because of their real income. We understand how important healthcare coverage is to our Crew Members and we are pleased to be able to provide and support this program.

We do hope this information helps, and we appreciate your interest in Trader Joe’s.”

It is rare to see a company which actually thinks beyond the profit margin. Maybe I will be proven wrong on this; but, it looks like TJ may have done the right thing. For those employees who may have other income, TJ provided an $500 to compensate for differences. Hat Tip to Hullabaloo, Digby – Trader Joe Explains Itself (and Does It Well)

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Ohio Governor John Kasich to Follow Panera Bread CEO’s Lead in Taking the SNAP Challenge

In case you missed it, Panera Bread CEO Ron Shaich (founder) is taking the SNAP Challenge.

“in an effort to find out how the other half lives by limiting grocery purchases to the average benefit amount shelled out by the Supplemental Nutrition Assistance Program. It’s not much. A typical food stamp recipient receives just $4.50 per day in food aid, according to Feeding America.

The CEO and founder of Panera Bread,Ron Shaich has an income of over $4 million per year and can easily afford more than the supplemental $4.50 per day SNAP allots for food expenditures to single people.  Shaich’s effort is to increase the awareness of hunger in the US. His efforts come as Congressional Republicans and state governors such as John  Kasich of Ohio attempt to cut back on the Food Stamp program by forcing able-bodied-people to work even when no paying jobs exist. I am not going to say Ron Shaich has never gotten his hands dirty; but, I will pass on some of his comments on cutting back on his meals.

“Over the last few days, my thoughts have been consumed by food. When is my next meal? How much food is left in my cabinet? Will it get me through the week? What should I spend my remaining few dollars on? What would I eat if I had no budget at all?” he writes.

On top of the anxiety about food is actual hunger. Shaich notes that he opted to spend his budget on cereal and pasta, which has left him “feeling bloated . . . yet not really full.”

the feelings of anxiety and hunger led to another sensation: “an underlying sense of resentment.” For him, it was sparked by driving past restaurants he usually frequents. For a colleague trying the same challenge, resentment was triggered by “the price difference between branded and off-brand foods.”

One in seven people rely on the SNAP (Supplemental Nutrition Assistance Program) program to supplement their food expenditures. 75% of all people on SNAP spend more on food than what SNAP allots to them under its guidelines. Ron Shaich goes on to note;

“Hunger is not synonymous with unemployed or homeless,” he writes. “The inability to put food on the table is not equivalent to lazy.”

And what about Ohio Governor John Kasich taking up the SNAP Challenge with Panera Bread CEO Ron Shaich? I was dreaming; although, that suit John wears is beginning to look a bit tight. Republican Governors are good at making demands on people with little political power. Rather than forcing 130,000 people to work in a state where ~15,000 jobs exist according to the Ohio Jobs Office; maybe, Governor John Kasich should take up the SNAP challenge and see how some of his constituents are living. Or maybe Governor Kasich will accept a challenge from one of his constituents to do an honest day’s work and live off SNAP for food? Doubtful  .  .  .

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