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

“Congressional Leaders Signal They Intend to Kick the Can Down the Road on CHIP” Again

A Little History of the legislator who wrote the bill:

Chair of the House Appropriations Committee since 2017, Rodney Frelinghuysen’s campaigns have been funded by the aerospace, defense, pharmaceutical and health care industries. On domestic issues, he opposes legalized abortion, Planned Parenthood, sanctuary cities, and federal regulation of greenhouse gas emissions. He endorsed Donald Trump in the 2016 presidential election. He voted to repeal the Patient Protection and Affordable Care Act (Obamacare) and replace it with the American Health Care Act (AHCA). He was criticized for purportedly failing to have in-person town hall meetings since 2013, as well as writing a letter which had the effect of threatening an opponent’s employment.

It does appear Congressman Rodney Frelinghuysen has some irons in the fire when it comes to woman’s healthcare, healthcare in general, the healthcare industry, and who is a priority in healthcare plus sanctuary cities and green-house gases. Definitely unbiased irons as Congressman Frelinghuysen, like Michigan’s Mike Bishop, refuses to meet with his constituents and learn of their interests. His “Chip Further Continuing Appropriations Bill” passed by the Senate was reported-on by the Georgetown University Health Policy Institute, Center for Children and Families’ Joan Alkers. The bill does not solve the 5 year funding issue for CHIP as proposed in another Republican led bill.

What is coming to pass is a stopgap measure taking unused CHIP funding and giving portions of it to states running out of funding. Some states ware better funded due to timing and other reasons. It is as Chairman Greg Walden of the House Energy and Commerce Committee called the stopgap measure:

“a short-term, fill-the-gap for states – a little rescue, lifeline for them right now.“

Portion of the Bill:




‘‘(i) PRORATION RULE. Subject to clause (ii), if the amounts available for redistribution under paragraph (1) for a fiscal year are less than the total amounts of the estimated shortfalls determined for the 3 year under subparagraph (A), the amount 1 to be redistributed under such paragraph for each shortfall State shall be reduced 3 proportionally.


‘‘(I) IN GENERAL.—For the period beginning on October 1, 2017, 8 and ending December 31, 2017, with respect to any amounts available for redistribution under paragraph (1) for 11 fiscal year 2018, the Secretary shall redistribute under such paragraph such amounts to each emergency shortfall State (as defined in sub-15 clause (II)) in such amount as is equal to the amount of the shortfall described in subclause (II) for such State and period (as may be adjusted under subparagraph (C)) before the Secretary may redistribute such amounts to any shortfall State that is not an emergency shortfall State. In the case of any amounts redistributed under this subclause to a State that is not an emergency shortfall State, such amounts shall be determined in accordance with clause (i).

What is Stopping CHIP Funding?

The Hill blames it on Congress not reaching an agreement on how to fund the CHIP for children. The issue lies with the Republican Congress which wishes to take funds from other programs, etc. to fund the Children Health Insurance Program.

• Additional Means testing of certain higher income seniors. (if you start with this, it will grow to other things also. This is another Republican scam.)
• Allowing states to kick out Medicaid beneficiaries if they win the lottery (This can be done by asking for a waiver from the Republican run CMS).
• Shortening the grace period for people paying their Obamacare premium payments late. (The point to this is to penalize those who have lower incomes and have trouble paying during certain time periods.)
• Cutting more than $5 billion from the Affordable Care Act’s prevention and public health fund. These funds are used for the ACL, CDC, and SAMHSA programs.

Not satisfied with holding children hostage in the continental United States, Republicans are also holding Puerto Rico Medicaid funding hostage.

Another funding option suggested by Chairman Greg Walden of the House Energy and Commerce Committee is;

“letting states receive more money for CHIP from the Centers for Medicare and Medicaid Services (CMS). This would not be new money, but would come from the agency’s unused funds.”

With Walden’s suggestion there would be no additional funding. This option would pit the needs of CHIP against the needs of Medicaid and Medicare. All of the funding options proposed either grow into something worse down the road for children and the elderly or steal from funding for those needing healthcare, programs again for the elderly and also programs for minorities and low-income constituents.

Its beginning to look a lot like Christmas for Republicans will be stealing healthcare from children and those who can least afford it or lose it.

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Why I Do Not Say Much on Facebook

I have watched Ken Houghton, Tom Bozzo, and Daniel Becker out on Facebook and have sometimes made a few not to serious remarks. Similar interests. There are some I just associate with who like to engage in politics which I usually ignore. I go out of the way not to engage with people because you would have a better conversation talking to a wall at times. This commentary defies logic, shows no understanding of what is taking place, and neither does she care how many will be hurt by this. It was hard to pass up. I am sure this person will eventually drop me.

Sheri: A very important component of the proposed tax changes will help ensure homeownership remains a valuable financial incentive over renting — and a big reason why I’m a republican — homeownership is truly a HUGE part of the American dream. Any presidential administration that enacts laws that erode it is NOT okay in my book. If you got socked with the ‘3.8% property sales tax’ since 2012, go ahead and flip the bird at Obamma’s picture if it makes you feel better. Thank God we again have a republican president that gets how crucial real estate is to our economy and way of life!!

A few points to note regarding the proposed tax changes related to real estate:

A last-minute change to the Senate version would make up to $10,000 in property taxes deductible. Previously, the Senate version had eliminated the property tax deduction entirely. The change aligns with the property tax cap set in the House bill.

One difference between the two bills is that the Senate version retains the deductibility of mortgage interest payments on up to $1 million of indebtedness; the House version caps
indebtedness at $500,000.

Now, members of the Senate and the House must meet to agree on a final bill. It’s not too late to make your voice heard. Tell your members of Congress that incentives for homeownership and the capital gains tax exclusion on the sale of a home MUST be protected.

Myself: It is not often I say much out here as much of what is said defies reason. I assume you make >$200,000 AGI as a single person or >$250,000 AGI as a member of a marriage? It is then the investment tax hits with after another exclusion.

Another limitation is that it’s imposed on the smaller of:

1. A person’s investment income, or
2. The amount by which AGI exceeds the threshold amounts of $250,000/$125,000 or $200,000.

But there is more. There is a limiting factor on the house sale:

It only applies to home sale profits above a $500,000/$250,000 exclusion.

When the portion of the profit above $500,000/$250,000 causes the seller’s AGI to exceed the threshold amounts.

Let’s say a couple has an AGI of $325,000 and sells their home at a $525,000 profit (not sale proceeds, but profit). $500,000 of that gain is excluded; the $25,000 isn’t, and raises their AGI to $350,000.

The couple’s revised AGI exceeds the $250,000 threshold for joint filers by $100,000. That’s more than the amount of their taxable gain ($25,000). So the 3.8% is applied to the smaller of these two amounts. They owe a surtax of $950 ($25,000 x 3.8%).

There has always been a capital gains tax on homes when you sell them and it is wise to keep your receipts on renovation of a home as that comes off of the profits in the end when you make the final reckoning. This tax does not apply to everyone in the US. I certainly do not have $250,000 or $200,000 in AGI income. Of the ~156 million of Household Taxpayers, ~5.5 million Households exceed $200,000 in income annually or ~3.5% of the total (Tax Policy Center numeric).

The 3.8% tax itself + the 9 tenths of 1% go to fund healthcare, Medicare, and Medicaid. Now as far as the GOP Tax plan of which ~66% of will go to less than 1% of the household taxpayers (~1 million households), those making less than $75,000 will start to see their taxes rise even before 2027. The GOP tax plan is a scam and rides on the backs of the middle class.

Sheri: While that is true, it doesn’t change the fact that it is a grossly unjust tax, which was put in place to support Obummer’s ‘ACA’. People making $250k/yr are already paying high taxes, and it is tough enough to make money on investments in this economy — 0.25% interest on a CD — no thanks. Any ‘surplus’ taxes that discourage investing in RE are a bad thing.

Myself: I will stand by my understanding as will many other people. It is a tax giveaway to less than 1% of the taxpaying households making greater than $500,000 . It is not hard to make money on investments.

Sheri: It’s still a ‘take from the successful to give to the poor’ SURPLUS tax, and it applies to couples who make $250k, and individuals who make $200k, which in today’s economy is by no means ‘wealthy’. I’m sick and tired of liberals thinking taxation is the answer to everything — it is not.

Myself: It is obvious you did not read all of what I said. Please take a moment and read it all.

Sheri: It is OBVIOUS you are a liberal.

Myself: Non Sequitur.

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What Republican Iowa Senator Grassley Really Thinks . . .

of His Constituents.

Iowa Republican Senator Grassley came out publically stating he wants to eliminate the estate tax to help Iowan farmers stay on their family farms. In rebuttal, the Des Moines Register had this to say:

Of the numbers of Iowans paying the estate tax, they can be quantified in the dozens each year. Out of the 1.45 million Iowans filing federal tax returns, the numbers of Iowans over the last five years paying estate taxes numbers from 32 in 2012 to 61 in 2015 according to IRS data. Further-more, the vast majority of those probably were not farmers or small business owners.

Despite evidence to the contrary, Finance Committee member Sen. Chuck Grassley still insisted the estate tax is potentially a ruinous burden on Iowa farmers and small business owners.

Earlier this year either in a blatant misleading statement or in total ignorance, Grassley said;

“The federal estate tax may force family members to liquidate to pay the death tax. It is harder than ever for families to pass down the family-run farm or business from one generation to the next. The death tax creates financial hardship for family businesses to survive and thrive.”

Today, the estate tax is a 40 percent tax on wealth assessed when a person die. It is applied on assets > $5.5 million for individuals and $11 million for couples. The House and Senate proposal doubles those exemptions to $11 million and $22 million. The House version abolishes the tax completely in 2024.

Iowan Republican U.S. Reps. Steve King and David Young joined the chorus with King insisting the estate tax;

“often falls hardest on family-owned farms and small businesses.”

and Young called the repeal being a massive giveaway:

“a ‘myth,’ that the repeal of the estate tax would be a massive giveaway to the wealthiest Americans.

The estate tax (sometimes called the death tax) negatively impacts farms and businesses all over the 3rd District. … Death should not be a taxable event and families should not have to fear the Internal Revenue Service and more taxes making it more difficult and costly to pass on the farm or family business to the next generation.”


No shame amongst politicians who are either ignorant on the topic, outright lying, or believe the populace is so unknowledgeable of the facts, they can say anything and be believed.

Kristine Tidgren, assistant director of the Center for Agricultural Law and Taxation at Iowa State University, told the Register;

“I have not come across any examples of an Iowa family that had to sell the farm to pay the estate tax,” adding, “I don’t think the current estate tax system threatens family farmers.

IRS data from 2016 confirmed the 682 tax filers in the entire country who owed estate taxes owned farm assets and represented ~ 13 percent of the 5,219 estate tax returns in which taxes were owed.

Even that numeric likely overstates the number of primarily farm operations subject to the tax. A 2015 Congressional Research Service report projects that 65 farm estates annually across the U.S. face an estate tax liability. Less than a quarter of these, the report finds, lack sufficient funds to pay their tax bills.

There is no fool like an old fool and Senator Grassley who has served 7 terms in the Senate confirmed it by getting indignant when challenged on his beliefs.

“I think not having the estate tax recognizes the people that are investing, as opposed to those that are just spending every darn penny they have, whether it’s on booze or women or movies.”

Grassley could not have stated it any better what he thinks of his constituents. His work, argument, and effort is not to eliminate the estate tax to benefit working constituents; but, it is an effort to protect and separate the ownership class from the rabble, his constituents. His comments prompted a pointed response from Pat Rynard of the Iowa Starting Line:

It is difficult to think of a more condescending, elitist worldview – that if you are not ultra-wealthy, it is clearly because you are wasting all your money on alcohol, frivolous fun, and prostitutes (I assume that’s what he meant when he said women). Certainly, it could not be because people are struggling to find decent-paying jobs, are burdened with debt from the college education needed to attain better jobs, or are paying outrageous sums for health insurance and medical bills. Nope, it must be because they are all getting hand jobs from hookers in the back of a dark movie theater while downing a bottle of Jack Daniel’s.

Describing himself as a farmer Senator Grassley runs a farm in Butler County with his son and grandson. Initially Grassley stated his own family farm would not be subject to the estate tax and then changed his mind after rethinking his farm.

If he and his wife died on the same day, the estate would be subject to the $5.5 million exemption rather than the $11 million exemption and likely would have to file an estate tax return.

Enough said.

Mr. Grassley will retire on lifelong healthcare benefits and a nice government pension thanks to his liquor swilling constituents who repeatedly elected him to office. Later in another interview, Mr. Grassley stated his comments were taken out of context.

Hat Tip to Tom Sullivan @ Hulabaloo.

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CVS Phamacy Chain buys Aetna Healthcare Insurance

Pharmacy chain CVS Health has agreed to buy health insurer Aetna for $69 billion in cash and stock, retaining its current management, the companies announced late Sunday.

The deal brings together one of the largest providers of pharmacy services with the No. 3 U.S. health insurer, which together would establish a healthcare giant with more than $240 billion in annual revenue.

The CVS-Aetna deal would likely give the combined company bargaining power in negotiating with hospitals and pharmaceuticals if they chose to go in that direction. There has not been much to control the rising cost of pharmaceuticals since Congress has blocked Medicare/ACA (Part D) from negotiating pharmaceutical pricing. The possibility of more insurers combining with pharmacy retail businesses. United Healthcare may be looking to do the same.

Interesting Direction . . . .

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ACA without a mandate

It appears almost certain that the ACA (Obamacare) mandate will be eliminated. This actually means that Obamacare will correspond to Obama’s 2008 proposal which didn’t include a mandate. Obama claimed it would work (he was lying or, to be polite, playing 11 dimensional chess).

Can ACA without a mandate work at all ? Can it be modiefied so that it works better ?

People who know a hell of a lot more than I do about health economics have struggled with these questions, so I doubt this post is useful. But I will type it anyway.

This excellent post by the always excellent Sarah Kliff explains.

First the CBO forecasts that removing the mandate will cause roughly 13 million more people to be uninsured. This means that they forecast that some people will still buy insurance on the exchanges — that there won’t be a complete death spiral. I am even more optimistic. The CBO’s forecasts of the number of uninsured Americans have been excellent, so I fear their forecast is better than my guess. The CBO forecasts 5 million fewer people will get Medicaid and 8 million fewer will buy insurance on the exchanges.

The effect on Medicaid enrollment shows the CBOs confidence in behavioral economics. Those 5 million don’t have to pay for Medicaid, but they forecast that without the push from the mandate, they won’t check and find out that they are eligible.

The 8 million would be roughly 40% of the numbe of plans purchased on the individual market (which still includes millions bought directly from insurance companies and not on the exchanges).

How can the individual market survive at all with guaranteed issue, community rating, and no madate ?
One might fear an adverse selection death spiral where only sick people get insurance so premiums are very high so only very sick people get insurance etc.

The spiral will be stopped for people with income under 4 times the poverty line who purchase insurance on the exchanges. They get subsidies so the amount they pay is a fixed function of their income and does not depend on the amount insurance companies charge. There will be only one loop of the spiral — healthy people don’t get insurance so premiums go up, but so do subsidies, so medium healthy people still get insurance.

It is possible that ACA without a mandate will destroy the direct from insurance companies individual market and will cause people with income over 4 times the poverty line to go uninsured. Also many people eligible for subsidies will be scared off by the premiums before they check and find they won’t pay them.

How could these consequences of GOP insanity be prevented or, at least, ameliorated ?

First there will be part of the same surprising effect of Trump’s previous attempt at sabotage — refusing to pay insurance companies for the cost sharing reductions they are required to make to reduce deductibles for people who have income less than 2.5 times the poverty rate who buy silver plans. Trump’s action caused extremely high silver premiums. Subsidies are linked to silver premiums. In many counties people can get bronze quality insurance for free. I’m pretty sure adverse selection must make silver premiums increase more than bronze premiums (with better insurance, the insurance company bears more of the additional cost from a sick policy holder). So the latest sabotage effort might cause the post subsidy cost of bronze insurance to go down. I hope this is an important effect. I think the end of Federal subsidies for cost sharing reductions may have strenthened Obamacare (in the short run, it probably hurt, because many peope don’t know that insurance companies still have to pay the cost sharing reductions, and now there won’t be a long run).

Importantly something probably will be done to undo the damage, because powerful entities will suffer. Obviously insurance companies will lose customers. Of course it is very much in their interest to try to convince healthy people to get insurance (it always has been). Also hospitals will go broke. Importantly, the GOP did not restore the program which paid hospitals which provided a lot of uncompensated care (it costs money). It was cut by the ACA, because it was assumed there would be much less need for it. This is already causing huge problems for rural hospitals in states which didn’t expand Medicaid. Hospitals might step up efforts to get people insured. But most importantly state governments will have a compelling reason to try to deal with the problem.

State governments end up paying for uncompensated care. They can protect themselve from Republicans in congress in many ways. First the remaining 19 states can expand Medicaid. It is insane not to. If Republicans are held responsible for Obmamacare without a mandate, the political incentive to refuse to expand Medicaid to stick it to Obmama is eliminated. I think the dread tax and sabotage ACA bill will cause states to expand Medicaid. Of course I can’t believe so many haven’t and that voters didn’t punish them.

Blue states could impose their own individual mandate. I doubt many will, because it is unpopular, but a bad enough effect of eliminating it might convince voters that it is necessary.

Finally, State and local government try to get the people who seek other services insured. If there are huge premiums and huge federal subsidies, the incentive to do this becomes stronger. I think one place to do this is unemployment offices. Newly unemployed people can buy Obamacare outside of open-enrollment periods. They tend to have low incomes. Similarly the state can contact people in divorce court. Again they are allowed to purchase outside of open enrollment. They will need to rearrange health insurance along with everything else. At least a terminal for bored people waiting at the DMV to check if they can get free insurance makes sense. People spend a lot of time waiting in state offices (after taking a number). A reminder that they might be going without free insurance (and a terminal) might be the nudge they need.

I think a lot can be done to undo the damage Republicans in Congress are doing. I fear it won’t be, but I am sure it can be.

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Medicare and Social Security reductions?

AARP notes a planned reduction in Medicare funding.  I have not hear much from them as in times past.

If you read through the umpteen pages of the Senate tax bill, you won’t find a clause that says it dramatically cuts Medicare spending. But the effect of the legislation being debated this week would be to slash up to $25 billion from the health program in 2018 and possibly more in the future.

That’s because the tax measure would prompt the “pay-as-you-go” law, commonly referred to as PAYGO. The law was designed to keep the deficit in check by requiring the administration to institute spending cuts in many mandatory federal programs if Congress passes any measure that increases the deficit but doesn’t include offsetting revenues.

The Senate tax proposal would add $1.5 trillion to the federal deficit over the next 10 years. Under PAYGO, if this bill were to become law, the government would have to lop off $150 billion in spending every year for 10 years.
Medicaid, Social Security, food stamps and other social safety net programs are exempt from the PAYGO law, which went into effect in 2010. But Medicare and other programs — such as federal student loans, agricultural subsidies and the operations of the Customs and Border Patrol — are not exempt.
The law caps how much the government can trim from Medicare at 4 percent. That’s $25 billion the first year, according to a report by the nonpartisan Congressional Budget Office. The annual amount could increase in subsequent years depending on the size of the deficit and Medicare’s budget.
The $25 billion reduction would affect the payments that doctors, hospitals and other health care providers receive for treating Medicare patients. Individual benefits would not change and neither would premiums, deductibles or copays. But with so much less money going to providers, the cuts could have major impacts on patient access to health care — such as fewer physicians accepting Medicare patients.
“We’re deeply concerned that the tax proposals being made will very directly affect the ability of Medicare to maintain services, and we do not think it is fair that older Americans who have paid into Medicare their entire working lives get stuck with the bill for a tax overhaul,” says Cristina Martin Firvida, AARP director of financial security.

Bruce Bartlett predicts that as soon as the tax bill is passed the deficit hawks will rise again.

Be prepared for an onslaught of reports from Republican “deficit hawks” the second the tax bill passes, demanding immediate action to slash SS & Medicare b/c the deficit suddenly & mysteriously got much, much worse. But no taxes or defense cuts, period.

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Healthcare Costs and Its Drivers Today

I have been doing my typical reading on healthcare in the US and ran across several articles which seemingly come together at various points in the dialogue and are written by different authors. I decided to tie them together into a much wider and telling story.

An interesting point being was made by MedPage Today’s Dr. Milton Packer on his blog, “people suffer and die because Payors (Healthcare Insurance) is cost effective.” He starts his discussion on the opiate epidemic in the US, opiates are being prescribed by doctors for pain relief and . . .

“Patients are becoming addicted to opiates after the initial 10 day prescription with one-fifth of patients still using opiates a year later. There is no need to prescribe opiates as other less addictive pain-relief formulations are available, which are not commonly prescribed.” This raises the question of why?

Payers will not pay for the alternatives. The less-addictive opiates are more expensive and payers have declined to support them. Patients get addicted because prescribing for the lower cost and highly addictive opiates saves the payers money initially (me).

September 17, 2017, the New York Time and ProPublica (independent, nonprofit investigative journalism organization) collaborated on an article concerning the opiod epidemic in the US.

At a time when the United States is in the grip of an opioid epidemic, many insurers are limiting access to pain medications that carry a lower risk of addiction or dependence, even as they provide comparatively easy access to generic opioid medications.

The reason given: Opioid drugs are generally cheap while safer alternatives are often more expensive.

While the pharmaceutical manufacturers, distributors , and doctors have come under scrutiny; insurance companies and the pharmacy benefit managers (CVS Caremark, Express Scripts and OptumRx) make the final decisions as to what is covered. It could be something as simple as a higher tier and deductible to block usage.

A little side trip here and a continuation of the above. A week or so ago, I ran across another MedPage Today article by Dr. Packer; “ Who Actually Is Reviewing All Those Preauthorization Requests and How the System Works.” Dr. Packers was giving a talk on advances in medicine with regard to heart failures to a room of about 20 or so doctors who were retired.

Since many of them were no longer involved in active patient care, he wondered why they might want to hear a presentation on new advances in heart failure. Here was their answer:

Doctors: “We no longer care for patients, but we care about what’s going on. You see, most of us are employed by insurance companies to do preauthorization for drugs and medical procedures.”

Dr. Packer: I just gave a talk about new drugs for heart failure. Are you responsible for preauthorizing their use for individual patients?

The answer; “Yes.”

So did I say anything today that was helpful? I talked about many new treatments. Did I say anything that you might use to inform your preauthorization responsibilities?

“Oh, we’ve heard about those drugs before. We are asked to approve their use for patients all the time; but, we don’t approve most of the requests. Nearly all of them are outside of the guidelines we are given.”

I just showed you evidence that these new drugs and devices make a real positive difference in people’s lives. People who get them feel better and live longer.

“Yes, you were very convincing. But the drugs are too expensive. So we typically reject requests, at least the first time. We figure that, if doctors are really serious, then they should be willing to make the request again and again.”

If the drugs will help people, how can you say no?

“You see, if it weren’t for us, the system would go broke. Every time we say yes, healthcare becomes more expensive, and that isn’t a good thing. So when we say no, we are keeping the system in balance. Our job is to save our system of healthcare.”

But you are not saving our healthcare system. You are simply making money for the company that you work for. And patients aren’t getting the drugs that they need.

“You really don’t understand, do you? If we approve expensive drugs, then the system goes broke. Then no one gets healthcare.”

“Plus, if I approve too many expensive drugs, I won’t get my bonus at the end of the month. So giving out too many approvals wouldn’t be a smart thing for me to do. Would it?”

Now before you start on insurance companies and doctors; understand, this is not as free a market place as many would assume. In all of their political wisdom, Congress favors pharmaceutical companies over doctors, insurance companies, and the welfare of the constituents. Through legislation, Congress has made it impossible for insurance companies to negotiate pharmaceutical pricing in Medicare Part D insurance and also the ACA. Furthermore with the consolidation happening in healthcare, negotiation by insurance companies with a consolidating and growing healthcare industry is becoming more and more difficult as the former does not have as great of leverage. You have read my argument calling out of Single Payor, Medicare-for-All, Public Option, etc. as the cure for today’s healthcare issues and rising cost not being enough as the ACA and Part D were specifically blocked or the cost issue unaddressed in the legislation written by Congress. If these issues are not addressed from the very beginning, we will be fighting the same issues with rising costs a decade later with other programs.

At this point, I begin to disagree with Dr. Packers as he goes on to say:

“So we spend more for healthcare than any other country in the world; but, Americans do not get the care they need. There is a simple reason. Treatment decisions are not being driven based on a physician’s knowledge or judgment. They are being driven by what payers are willing to pay for.”

It is true that patients may not get some of the healthcare they need at the time due to denial, which can be appealed to the ACA, and can be a tiring process. It could be approved, passed on to patients, resulting in higher premiums the following year, and the Part D Risk Corridor program pay for it if excessive for the present year. What Dr. Packers does not mention is the rising prices and cost of drugs being blamed by pharmaceutical company on R&D, tooling up to manufacture, etc. The counter argument is much of the R&D is funded by the US government through tax deductions and write-offs for pharmaceutical R&D and capital Overhead. Pharmaceutical profits are double digit at ~25% beating out hospital supplies and healthcare insurance, which is already limited in what can be charged back to the insured by the MLR. To blame insurance companies totally for the higher costs in healthcare is false. Furthermore, a doctor’s decision do not always lead to less costly cures or practices.

Maggie Mahar of Health Beat Blog would take the subject of costs a step farther and state Medicare will approve anything the FDA approves for usage regardless of the quality of outcome when measured against older proven treatments. Notably the VA does limit its pharmacy and its care is rated higher than that of today’s commercial, for-profit healthcare to which most citizens are exposed.

Dr. Donald Berwick, President Obama’s proposed appointment for Medicare and who was in charge of Medicare and Medicaid for 17 months stated;

“20 to 30 percent of health spending is ‘waste’ that yields no benefit to patients, and that some of the needless spending is a result of onerous, archaic regulations enforced by Medicare and Medicaid.

He listed five reasons for what he described as the ‘extremely high level of waste.’ They are overtreatment of patients, the failure to coordinate care, the administrative complexity of the health care system, burdensome rules and fraud.

Much is done that does not help patients at all and many physicians know it.”

That is the same Medicare/Medicaid being touted by many proponents today as an alternative.

Speaking of costs and pricing for pharmaceuticals, there have been recent incidents of skyrocketing costs on particular drugs. A short while ago, I wrote a post concerning the appointment of Alex Araz as the new HHS Secretary replacing Dr. Tom Price. Formerly, Alex Araz was the CEO of the pharmaceutical giant Eli Lilly & Co.’s U.S. division. He also served under George W. Bush administration as the HHS General Counsel and Deputy Secretary. During that stint, he received praise for his management competence with the HHS; although, he did not have a healthcare background prior to this position.

Here it gets interesting when examining what took place during his tenure with Eli Lilly. One of the leading costs identified in pharmaceuticals increases has been in the rising cost of diabetes medication.

“While the Tweeter-in-Chief, Trump tells us presidential campaign contributor Alex Azar will be a ‘star’ who will lower prescription prices,”

Public Citizen’s Peter Maybarduk (Director) had this to say: “Eli Lilly is notorious for spiking prices of a century-old isolated hormone during Azar’s tenure as president and vice president. Eli Lilly raised the price of Humalog by 345%, from $2,657.88 per year to $9,172.80 per year.

Maybe President Trump in appointing Alex Azar to be HHS Secretary should have asked the 6 million diabetic Americans whose insulin prices have more than tripled under Azar’s watch at Eli Lilly.”

This has nothing to do with R&D and has more to do with pharmaceutical companies controlling the market regardless of supply and throughput restricted manufacturing (capacity).

What I have tried to do is tie these articles together into one cohesive story of how the pharmaceutical industry, insurance, and healthcare can have an impact on healthcare costs. For those who are interested, my background does include working in the manufacture of hospital supplies and pharmaceuticals. Using various citations from these articles, I have tried to touch upon the impact of insurance companies, the healthcare industry, government intervention under the HHS, one particular Med in the market place, etc. Overall, what is going on in the marketplace.

Another article, I read the other day gets into the foundation of what is happening based upon a recently completed study by JAMA. Using this study, the Methods Man, Dr. Perry Wilson (MedPage Today) examines what is driving healthcare costs in his article Here’s What’s Really Driving Healthcare Costs using data from Factors Associated With Increases in US Health Care Spending, 1996-2013 and the US Disease Expenditure Project. Dr. Wilson breaks it down using three simple charts which I have consolidated to one.

Dr. Perry Wilson starts off making an overall point about the rising cost of healthcare from 1996 to 2013 and stating; “after accounting for inflation, healthcare expenditures increased $933.5 billion from 1996 to 2013.”

Going on: “Healthcare expenditures in the US being high and rising rapidly is nothing new, but the study appearing in the Journal of the American Medical Association identifies the exact components of healthcare that are driving those soaring costs. The data from this study suggests traditional economic forces break down in the US healthcare market.

Different chronic diseases have different patterns of price increases. The biggest increase was seen in diabetes care, as you can see here, driven largely by the rising costs of pharmaceuticals.”

The Chart breakdowns reveal the various impacts of healthcare costs moving from left to right and then downward:

• 50% of the increase in healthcare costs was simply due to higher prices.

• Inpatient care or Service Utilization (purple) went down from 1996 – 2013 as outpatient treatment increased; however, the price of the remaining inpatient care went up much more – increasing overall inpatient care spending by around $250 billion.

• Different Chronic Diseases have different patterns of price increases. The biggest increase was seen in diabetes care and driven largely by the rising prices of pharmaceuticals.

The takeaway drawn by Dr Perry Wilson: “Regardless of the disease, it is clear, the price of what we’re buying – whether a drug, an ED visit, or a hospital stay – not the amount of what we’re buying is the major driver of cost increases. Efforts to reduce the consumption of healthcare may not bend the cost curve as much as efforts to reduce its price.”

You can not make an argument about the regulation of costs “not” being one of the dynamic components of a healthcare plan given the continuous unhindered industry driven rising cost of healthcare. Yet, every healthcare plan I have read fails to mention cost regulation specifically, provide remedy for it, and many assume a natural occurrence of control.

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Cutting Taxes on Profits and Reality

The post below is silly. It is based on bending over backwards to take silly arguments for the GOP tax plan seriously. This older post is the one with some relevance to the real world.

The silly argument is that lower taxes on profits imply a lower cost of capital for firms. Investors will demand the same return net of taxes and so demand less from firms if the IRS takes less. The story continues that this lower cost of investing will cause firms to invest more which causes higher labor productivity and wages. This argument makes no sense for the following reasons

1) If you want to change investment, change the tax treatment of investment not something else. The gain (if any) from the GOP proposal should be entirely due to expensing investment. Reinvested profits will not be taxed. This should encourage higher investment in physical capital compared to paying dividends, buying back shares, or accumulating financial assets. I think it is good policy (and have thought so for 37 years at least). But once you have expensed investment, the tax on profits doesn’t affect the cost to the firm of investing. So long as it is constant it shouldn’t affect investment at all. Cutting the rate is a pure gift to owners.

2) Business investment doesn’t seem to be much affected by the cost of capital. This appears in aggregate data. The cost changes a lot with monetary policy as the interest rate changes. These changes have huge effects on aggregate demand, because they have huge effects on investment, in houses. The investment which depends on the interest rate is residential investment. Bigger houses don’t cause higher productivity and wages. For some mysterious reason the housing bubble’s expansion and bursting hasn’t convinced most economists to pay any attention to housing. Krugman says it’s been forgotten since the days of the dinosaurs

Back in the old days, when dinosaurs roamed the earth and students still learned Keynesian economics, we used to hear a lot about the monetary “transmission mechanism” — how the Fed actually got traction on the real economy. Both the phrase and the subject have gone out of fashion — but it’s still an important issue, and arguably now more than ever.

Now, what you learned back then was that the transmission mechanism worked largely through housing.

3) Been there done that. W Bush claimed he was going to cause high investment and wages by changing corporate taxation. In particular, the second Bush tax cut changed the taxation of dividends. Previously they had been taxed twice first as corporate income then as personal income of the shareholder. This, it was promised, would reduce the cost of capital for joint stock corporations (C corporations in IRS talk) and cause them to invest more. Importantly, it would have no effect on pass through firms whose profits are just taxed as personal income of their owners (some of these are called S corporations by the IRS). This means it was an experiment. According to W, if you look at a bunch of otherwise similar firms some of which are C corporations and some of which are S corporations, then following the tax reform investment by the C-corporations should increase compared to investment by the S-corporations.

Danny Yagan at Berkeley notes that it didn’t. Also there was not a statistically signficant difference in the growth of employee compensation.
American Economic Review 2015, 105(12): 3531–3563

I find analysis of the results of this experiment to be very convincing.

4) Capital is like clay, soft when you work it, then rigid once it is fired. In models it is easy to substitute capital for labor causing higher labor productivity. But in the real world, firms mostly invest to increase capacity. The substitution of capital for labor is slow. It has a lot to do with new establishments (new factories say) but not so much with refitting old ones. It is limited by technology. This means that investment has a lot to do with lack of spare capacity and not so much to do with the cost of capital. This story fits the aggregate data on non residential investment.

5) Just ask CEOs. Matt Yglesias reports

An awkward — but extremely telling — moment arose yesterday at a Wall Street Journal “CEO Council” event that featured the Trump administration’s top economic policy hand, Gary Cohn, as a key speaker.

John Bussey, an associate editor with the Journal, asks the CEOs in the room, “If the tax reform bill goes through, do you plan to increase investment — your companies’ investment — capital investment,” and requests a show of hands. Only a few hands go up, leaving Cohn to ask sheepishly, “Why aren’t the other hands up?”

And there is video

I got this from Natalie Andrews
I almost feel sorry for Cohn (OK I don’t but almost).

update: Matt Yglesias has another live one — a CEO saying the GOP argument is bogwash

Also Paul Krugman is still a dinosaur.

update: I forgot the BOA/Merrill Lynch Survey of CEOs

A Bank of America-Merrill Lynch survey this summer asked over 300 executives at major U.S. corporations what they would do after a “tax holiday” that would allow them to bring back money held overseas at a low tax rate. The No. 1 response? Pay down debt. The second most popular response was stock buybacks, where companies purchase some of their own shares to drive up the price. The third was mergers. Actual investments in new factories and more research were low on the list of plans for how to spend extra money.

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Cutting the tax on corporate profits would probably reduce US national income

Paul Krugman has been explaining (very slowly and clearly) that if the US attracts foreign investment by cutting taxes on profits, then it will have to pay the foreign investors. The Tax Foundation appears not to have noticed that loans are not gifts.

First he quoted Stephen Rosenthal’s observation that the direct effect of cutting taxes on corporate profits is to give roughly 700 billion over 10 years to foreigners who own shares of US corporations.

This is the ultra-static effect of the cut in which its effects on behavior aren’t considered. Krugman went on to note that if there is a huge inflow of foreign cash (as promised by supporters of the bill) then there will be a huge increase in US payments to the foreigners. He calls this Leprechaun economics, because it is a very important reason that Irish GDP is much greater than their gross national income. He wrote

GDP is actually the wrong measure. If you’re going to be pulling in foreign capital, you’re going to be paying more investment income to foreigners; so gross national income – income accruing to domestic residents – is going to go up by less. And surely that’s the measure we care about.


There are really two bottom lines here. One is that the true growth impacts of Cut Cut Cut would be even more pathetic than the numbers you’ve been hearing. The other is that if you’re going to make international capital flows central to your arguments, you really need to think about the implications for future investment income.

Krugman raises a question

In fact, when you bear in mind the reduced taxes collected on foreign investors who are already here, GNI could actually go down, not up.

It is interesting. I think that somewhere he explains that the answer depends on another debated issue — the true incidence of taxes on profits. Enthusiasts for the tax cuts assert that, in the long run, all of the benefits will go to workers. People who look at data, estimate that about one quarter of the benefits of a reduction of taxes on profits go to workers

(before going on, there are no free lunches — the benefits are at the expense of the Treasury so other taxes will have to be raised or programs will be cut.)

This matters for the discussion of Gross National Income vs GDP, because roughly 35% of shares of US firms are owned by foreigners. So if the money goes to investors, 35% goes to foreigners. This is true both of the old foreign investment in the USA and the new investment attracted by the low taxes. After the jump I will try a lot of horrible pain ascii formulas attampting to answer Krugman’s question of whether a profits tax cut causes higher or lower domestic gross national income. The key parameters are the current tax rate, the incidence on workers, and the share of capital.

Doing the algebra, I conclude that unless more than half of the incidence of profits tax falls on labor, cutting the rate of taxes on profits below 35% reduces gross national income.

“Half” is embarrassingly close to a whole number, but it is what came out of the horrible algebra. Also 35% is coincidentally the current statutory rate. I regret the fact that messy calculations gave such a suspiciously simple result. I don’t totally trust my algebra and don’t think my effort added much to Krugman’s. The point is that, for plausible parameters, cutting the tax on capital income reduces US gross national income.

thanks for comments. I didn’t explain the model well. I add a bit of explanation here. First it is assumed that tax reform doesn’t affect employment. In fact, it is standard to assume full employment in these models. This isn’t horribly silly at the moment. This means that total employment is equal to labor supply and can’t be changed by firms (who can compete with each other for the scarce workers).
However, increased capital does affect labor income by causing higher wages. The story is that it causes a higher marginal product of labor and higher labor demand for any given real wage. So there would be more demand for labor and the same supply, and so the price of labor (the real wage) would go up. This actually isn’t totally crazy. Real wages did go up in the late 90s and have otherwise stagnated since 1973.

end update:

Warning horrible horrible algebra after the jump

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Why are Republicans About to cut $25 Billion from Medicare ?

The PayGo law forbids bills which increase the national debt. Unless it is repealed or waived, the Republican tax cuts would cause automatic sequestration of, among other funds $ 25 billion from Medicare.

This is an excellent as usual Vox Explainer by Tara Golshan

It all comes down to the “pay-as-you-go,” or PAYGO, rule — a 2010 law that says all passed legislation cannot collectively increase the estimated national debt. In other words, if Republicans want to pass a tax cut, they have to pay for it with mandatory spending cuts — or, inversely, if Congress boosts funding for entitlement programs, it has to increase taxes.

If Congress violates this law, the Office of Management and Budget, which keeps the deficit scorecard, “would be required to issue a sequestration order within 15 days of the end of the session of Congress to reduce spending in fiscal year 2018 by the resultant total of $136 billion,” the CBO said in a letter to Minority Whip Rep. Steny Hoyer (D-MD).

Democrats can filibuster a bill which waives PayGo. But can they block a bill which defends Medicare ? If they do, will they be blamed for the sequestration ? Back to Golshan

“for Democrats, the pressure of impending Medicare and federal program cuts would likely be enough to get them on board — even though it is a budgetary gimmick to make up for a Republican tax bill they don’t want passed.”

I have a proposed strategy. Democrats demand that the bill waive PayGo and also restricts the budget resolution/reconciliation process with a claus saying budget resolutions and reconciliation bills may not be used to change Medicare. Basically, Republicans (especially Paul Ryan) have pretty much said they will try to reform (that is cut) Medicare and Social Security to close the huge deficits created by their tax cuts. Democrats can demand that they be given a veto on such reform (by requiring any such bills to be filibusterable). I think this is a line they can hold. It may be key to blocking the tax cut/ destroy the ACA bill.

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