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Michigan Medicaid Waiver

The State of Michigan Legislature is applying for an ACA Waiver as I pointed out in my post Why States Should Not Be Allowed to Alter the ACA with Waviers

This is a relief valve for “counties” with high unemployment. In effect if Michigan counties have a high unemployment rate (8.5% or above), the unemployed workers in that county can have Medicaid until such time as the Unemployment Rate drops to 5%. Then the workers are expected to seek employment to be eligible for Medicaid. Ok, that should cover Detroit, Flint, Saginaw, Muskegon, etc. high unemployment rate. which exceeds 8.5%. Or does it qualify them?

The issue with SEC 107B is the word “Counties.” By using solely the word counties, SEC 107B does not make an exception for townships, villages, or cities. For example, Wayne County has an unemployment rate of 5.5% and not 8.5% or greater. As a result, Detroit which does have an unemployment rate greater than 8.5% and sits in Wayne County does not qualify for a Medicaid exemption because it is not a county. Neither would the other Michigan cities in other counties with low unemployment rates qualify. Set this aside for a moment.

The waiver strips predominantly Black populated Michigan cities of Medicaid if the county in which the city resides has an unemployment rate lower than 8.5% even though the city has an unemployment rate higher than 8.5%. Additionally and besides a work requirement of 29 hours per week, the bill will end Medicaid and expanded eligibility for residents after they’ve been on Medicaid for 48 months for those earning between 100% and 133% FPL and eliminate the option to extend coverage by completing healthy behaviors.

To force the issue with lame duck governor Rick Snyder, the Senate on Thursday (May 7th) approved a $56.6 billion budget which includes a suspension of the salaries of Health and Human Services Director Nick Lyon and other top officials in the department if Governor Snyder does not request and secure a federal waiver to implement the Republican legislation passed Medicaid work requirement, and other proposed parts of the legislation. The CMS has already blocked a lifetime limitation on healthcare in Kentucky’s waiver request. When the legislature includes a particular mandate on a budgetary piece of legislation, it can not be overturned by a vote. Both the House and the Senate are controlled by Repubs.

It is unlikely the CMS will approve Michigan’s waiver as they have already blocked Kansas and I believe Kentucky.

Sponsor of the Legislation Sentaor Shirkey:

“This is personal for me, because I laid a lot of political capital on the line to try to get this done,” (Shirkey coaxed fellow Republicans to support the Medicaid expansion in 2013 but is now leading the reform effort).

I still believe it was the right thing to do, but I’m not going to go back on the promises that were made to get those votes.”

Republican Michigan State Senators Shirkey and Joseph Hune have lifetime healthcare benefits which they passed for themselves in 2012.

run75441 @ Angry Bear Blog

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Intelligent Economist names Angry Bear among the top 100 Economics blogs for 2018

Angry Bear made the list again on the Intelligent Economist list of top blogs. We are listed in the general category seventh from the top. I see some new names on the list. Congratulations to all contributors for making a fine publication.

The Angry Bear is a multi-author blog. Each author has his or her own unique area of expertise. Authors include a tax law expert, historian, numerous economists, and business and financial professionals. The varying degree of topics makes this an informative blog and a great overview of economic issues.

Economics Blogs 2018Intelligent Economist

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Real wage growth adjusted for gas prices

Real wage growth adjusted for gas prices

One of the things I note from time to time in my discussions of wage growth is how much its fluctuation in real terms has been affected by gas prices. For example, in the middle of the worst recession in nearly 70 years, real wages actually went up! Why? Because gas prices fell from $4.25/gallon to $1.50/gallon in just a few months.

So, what would a long term view of real wages look like if I took out the whipsawing effect of gas prices?

In the 25 years from 1970 to 1995, what you mainly find is that the huge increase in the new supply of potential workers (women) acted to depress wages, so the below graphs start in 1995. In the first, I’ve normed the level of both real wages in total (red) and real wages ex-gas prices (energy) (blue) to 100:

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Since 2010, Minnesota’s economy has performed far better for working families than Wisconsin’s

(Dan here…unemployment rates were about the same at 3.1 per cent (M) and 3.0 per cent (W). Taking a look at other measures of the success of an economy for the average person is well displayed here)

Via Eeconomic Policy Institute comes this study:

Since 2010, Minnesota’s economy has performed far better for working families than Wisconsin’s…

At the time of the November 2010 elections, most states were still reeling from the economic devastation caused by the Great Recession. Although the recession had officially ended in 2009, the low point of the labor market was in 2010—the country continued losing jobs until March of that year. Thus, when newly elected Governors Scott Walker of Wisconsin and Mark Dayton of Minnesota took office in January 2011, the economic policy agendas that each pursued would largely define their respective states’ recoveries.

Wisconsin and Minnesota offer a particularly useful case study for assessing the merits of two very different governing philosophies. As Markusen (2015), Caldwell (2015), Aleem (2015), and others have pointed out, the two states’ geographic proximity—as well as their similarities in population, demographics, culture, and industry composition—make comparing outcomes in Wisconsin versus Minnesota a useful natural experiment for assessing how state policy is affecting economic outcomes and residents’ welfare. Though one must be careful not to attribute too much of a state’s economic performance to the policy choices of state lawmakers, there are areas where governors and state legislatures can significantly influence outcomes and set the direction for medium-to-longer-term trends.

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Why Republican Short Term Healthcare Plans “Suck”

Having talked about the proposed state High Risk Pools and why they are bad; Charles Gaba at turns his attention to the proposed Short Term Plans and why they are also bad. Keep in mind the proposed Short Term Plans are not the same as the ACA Catastrophic plans.

Most of the protection found in the ACA plans are not in the proposed short term plans. This would include insurability, rates, pre-exiting conditions, essential benefits, etc.

run75441 @ Angry Bear Blog

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Comment on CEPR Policy Insight 91 section 4.2.1

Sorry for the title which is pure click bait.

I would like to discuss a reform of the Stability and Growth Pact proposed by Agnès Bénassy-Quéré Markus Brunnermeier, Henrik Enderlein, Emmanuel Farhi, Marcel Fratzscher, Clemens Fuest, Pierre-Olivier Gourinchas, Philippe Martin, Jean Pisani-Ferry, Hélène Rey, Isabel Schnabel, Nicolas Véron, Beatrice Weder di Mauro, and Jeromin Zettelmeyer in CEPR Policy Insight 91 “Reconciling risk sharing with marketdiscipline: A constructive approach to euro area reform” (pdf warning). This is just one section of the proposal (4.2.1) and it is the one related to some of my own research.

Vox EU has a good executive summary of the proposal. I quote the relevant passage (I will add details from the long detailed proposal especially on points which were not clear to me from the summary)

Martin Sandbu likes the proposal.

Second, replacing the current system of fiscal rules focused on the ‘structural deficit’ by a simple expenditure rule guided by a long-term debt reduction target. The present rules both lack flexibility in bad times and teeth in good times. They are also complex and hard to enforce, exposing the European Commission to criticism from both sides. They should be replaced by the principle that government expenditure must not grow faster than long-term nominal output, and should grow at a slower pace in countries that need to reduce their debt-to-GDP ratios. A rule of this type is both less error-prone than the present rules and more effective in stabilising economic cycles, since cyclical changes in revenue do not need to be offset by changes in expenditure.

Monitoring compliance with the fiscal rule should be devolved to independent national fiscal watchdogs, supervised by an independent euro area-level institution, as elaborated below. Governments that violate the rule would be required to finance excess spending using junior (‘accountability’) bonds whose maturity would be automatically extended in the event of an ESM programme (the status of the existing debt stock would remain unaffected). The real-time market pressure associated with the need to issue such bonds would be far more credible than the present threats of fines, which have never been enforced. And the cost at which these junior sovereign bonds are issued will depend on the credibility of government policies to tackle fiscal problems in the future.

To summarize more, the proposal is to focus more on expenditure and less on deficits and to enforce the rules through the junior status of bonds issued above the allowed amount. The second aspect of the proposal is more interesting and I have an (even) more favorable view of it, but I will focus on the first for most of this post.

The starting point is that the current adjustments used to calculate structural budget balance are not transparent, are controversial and according to the authors (and others including me) are just incorrect so the rules as applied force pro-cyclical fiscal policy. I have two problems with the proposal “that government expenditure must not grow faster than long-term nominal output” as stated in the executive summary. First it appears to be simply assumed that changes in government revenue are all cyclical — That Ronaldo Reagano will not be elected head of any European government. Second it is assumed that calculation of “long-term nominal output” is transparent, uncontroversial and won’t force spending cuts during recessions.

Some of my distress is relieved when I read the actual proposal.

4 Nominal expenditures are calculated net of interest payments, of unemployment spending (except when these are due to discretionary changes to unemployment benefits), and of the estimated impact of any new discretionary revenue measures (changes in tax rates and tax bases). The first two adjustments allow for more counter-cyclicality, while excluding the effect of expenditure-increasing structural measures. The last adjustment is meant to preclude the manipulation of tax rules (for example, tax cuts ahead of an election) that are not compensated by offsetting expenditure measures.

The nominal spending ceiling thus becomes a new formula for structural budget balance. The cyclical adjustments are remove changes due to changes in interest payments, unemployment spending (except when these are due to discretionary changes …) and tax revenue changes (except for those due to changes in the tax code).

The proposed system is at least as opaque as the SGP, the non-transparent part of the current process is the estimation of potential output. This must still be estimated in order to forecast normal nominal GDP growth (which, as they explain, is real potential GDP growth + 2%).

The actual application of the proposal would require and agreed definition of “unemployment spending”. Is this unemployment insurance or unemployment insurance plus unemployment assistance ? How does one correct for a change whose impact will increase as the population ages ? Netting out the effect of discretionary “changes” requires a baseline from which to estimate the change — an increase in duration of benefits can have a tiny effect the year it is introduced and a large effect later — is the effect on current spending of a 3 year old reform an increase “due to discretionary changes”.

To net out the effects of discretionary changes in unemployment benefits, one would need to estimate the effect of such changes, would increasing the replacement ratio to 110% have an effect on unemployment duration ? How about “new discretionary tax measures”, what if Arthur Lafferbaud were to assert that reduced tax rates caused increased revenue, so the correction for the effects of changes in the tax code would be to allow more spending if taxes were cut ? The effects of unemployment benefits and taxes on expenditures and revenue are exceedingly controversial. The controversies would have to be resolved for the plan to be implemented.

I think it is more practical to admit that the proposal is a new estimate of structural deficits and subtract a guess of the effect of the cycle on revenues and unemployment spending. I guess one might give fiscal authorities the right to appeal that there is no plausible discretionary change which could have caused a decline in revenue or an increase in unemployment spending, but I don’t like a rule where the key clauses are in parentheses and begin with the word “except”.

I think the real difference between the proposal and the current SGP rules is hidden in the phrase “grow … long-term nominal output (that is, the sum of potential output growth and expected inflation)”. This implies that the potential output is estimated as part of forecasts of output in the distant future. In the current approach, completely different time series models of potential output are used for medium term forecasts and for cyclical corrections. The potential output used for cyclical corrections is markedly pro-cylical which implies small cyclical corrections and a demand for procyclical fiscal policy. I think the problem would be resolved if it were required that “potential output” be given one definition and models which imply a high probability that the natural rate of unemployment will be negative in the not too distant future are ruled out (they are currently used to attempt to dictate fiscal policy).

On the other hand, it might be better diplomacy to propose an entirely new approach which is really mainly new because it doesn’t allow such models than to say that the old calculations are just incorrect and the application of the SGP has been nonsensical.

OK now the more interesting part. I do like the proposal for accountability bonds. It is enforceable — owners of regular bonds have standing to sue if a state attempts to even partially default on regular bonds while also paying something to owners of accountability bonds. My only concern is that I am pretty sure that the new rule would amount to a pretty much absolute ceiling on Italian public spending. I’m not buying and accountability BTPs from the Italian Treasury and I doubt many other people would be eager to buy them. That is, my problem with an actually effective enforcement mechanism is that, given the effects of fiscal rules so far, I don’t want them to be enforced effectively.

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CHIPS Funding

CBO Director Keith Hall responded to a request from House Majority Leader Kevin McCarthy to project the impact of the $7 billion CHIP rescission package. The CBO letter estimates that the rescission “would not affect outlays, or the number of individuals with insurance coverage.”

Well this is good news, I guess? Except, the key here is this is based upon the present number of children enrolled in CHIPS. However, “In its estimates, CBO doesn’t (and can’t) assume recessions or natural disasters will happen. So while the CBO expects that the Contingency Fund dollars being rescinded will not be needed by some states, it is critical for sufficient funding to remain available in the event of an unforeseen recession or natural disaster.”

Part of the funds being clawed back by Trump and Republicans are in the Contingency Fund which is maintained the same as what states do in establishing a rainy-day fund. It is a reserve set aside to meet economic or catastrophic events. If we depended upon Congress to allocate funding immediately after catastrophic events, we would be waiting a long time. Even Texas was complaining about a slow response by Congress after a hurricane hit recently. And Puerto Rico, Puerto Rico is the result of deliberate negligence on the part of the President. Neither Dems or Repubs will protest the president’s discrimination.

Joan Akers at the Georgetown University Center for Children and Families had this to say:

“Two billion dollars in cuts would come from the Child Enrollment Contingency Fund.” As I said, the Contingency Fund is a reserve put in place to help and prevent states from running out of money. In a case of disaster or shortfall, there is little time to react. Unforeseen disasters and shortfalls do not wait for the politics of Congress to turn. Having a reserve available to cover unforeseen circumstance makes sense.

The other $5 billion comes from the actual funding. Over time some of the CHIP funding authorized is not spent leaving an excess. In the past, a fully aware Congress of the excess has reached a bipartisan agreement to allow allocation of the excess and unspent funds authorized solely for CHIPS to be used for other children’s programs. Trump’s clawback violates the bipartisanism on Congress to use these funds solely for children’s programs. A clawback of these funds is unlikely to impact states’ CHIP programs unless there is a shortfall; however, it does take away the bipartisan history of a Congress to utilize these funds in ways to continue to help low income children and families.

OMB Deputy Director Russ Vought had this to say: “Rescinding these funds will have no impact on the program. At some point Congress will likely ‘rescind’ those funds as a budget gimmick to offset new spending elsewhere (the elsewhere in the past has been other programs benefiting children), as it did on the recently passed omnibus. Instead Congress should rescind the money now.”

This statement comes after the past budget contingency funds were used to keep CHIPS afloat after the regular funding lapsed while Trump and Repubs held CHIPS hostage in a plan to force Dems to support ACA changes . . . a Sophie’s choice so to speak. Furthermore, a rescission of money not spent would not reduce the deficit created by the tax cuts according to David Super, a law professor at Georgetown University.

run75441 @ Angry Bear Blog

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Take the money and run

Via PR Watch for the Center for Media and Democracy points to the impact of tax cuts for nine companies:

The Center for Media and Democracy just concluded an analysis of nine companies that are major players in ALEC, showing that even with the tax cut, those corporations have laid off or will lay off employees. Comcast, for example, said it will save $128 million from the tax cut, and announced 500 layoffs. Caterpillar reported that it will pay 9 percent less in income taxes, but also announced it is closing facilities.

Eli Lilly reported that it lowered its corporate income tax rate by almost one-third but announced 3,500 layoffs at the end of 2017, layoffs that are still taking place. Energy companies are expected to be major beneficiaries of the tax cut; but two ALEC energy companies, Chevron, and Marathon Petroleum, reported large tax savings as well as layoffs for the year.

The Center for Media and Democracy did not cherry-pick companies to find those that announced both tax savings and layoffs. Excluded were coal companies, for example, such as ALEC members Dominion Resources and Peabody Energy, which are downsizing as coal sales continue to decline. Nor did we choose companies that saved money on income taxes because they lost money. The nine companies analyzed below all made large profits.

What the companies did with the profits was a corporate choice. In most cases companies bought back shares, a practice which then increases the earnings per share and the dividends paid to shareholders. The boards of these companies vote for these share repurchases, and directors which own large numbers of shares greatly benefit from this repurchasing.

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Real wages and unemployment update: April 2018

Real wages and unemployment update: April 2018

Now that we have the inflation numbers for April, let’s update the wage situation for ordinary Americans.

Real wages YoY are only up +0.2%:

More significantly, they are still down -0.3% from their most recent high 9 months ago:

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