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Marketwatch is reporting dismal numbers related to economic growth in the first three months of 2016; expansion is “the slowest pace in two years as business slashed investment by the steepest amount since the Great Recession.”
GDP growth was significantly reduced as well — recording a .5% annual growth rate. The prior three quarters were 1.4%, 2% and 3.9% in the preceeding year, per quarter.
Marketwatch suggests that some economists contend this sluggishness is an anomaly and will bounce back this spring, estimating a 200,000 job growth for April numbers, which will be released on the first Friday in May. Those with this sentiment predict that “the economy will speed up to a 2.6% annual clip in the spring, typically the fastest growing quarter of the year. The same pattern occurred in both 2015 and 2014.”
On the other hand, I tend to side with economists who are a little bit leery about a robust-growth outlook. “A tepid global economic scene and a tumultuous U.S. presidential election marked by heavy anti-corporate rhetoric appears to have made business executives more cautious.”
Business investment is certainly anemic, and we’ve recently crossed the threshold of more businesses closing than opening. None of this is a sign of a healthy economy, and I doubt very much that the April numbers will be so rosy.
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The Hill has an interesting article about Obamacare, premium costs, and insurance companies. Insurers have been losing money as a result of the Obamacare set-up, and many are facing increased financial security. From the article:
Insurers say they are losing money on their ObamaCare plans at a rapid rate, and some have begun to talk about dropping out of the marketplaces altogether.
“Something has to give,” said Larry Levitt, an expert on the health law at the Kaiser Family Foundation. “Either insurers will drop out or insurers will raise premiums.”
While analysts expect the market to stabilize once premiums rise and more young, healthy people sign up, some observers have not ruled out the possibility of a collapse of the market, known in insurance parlance as a “death spiral.”
In the short term, there is a growing likelihood that insurers will push for substantial premium increases, creating a political problem for Democrats in an election year.
Insurers have been pounding the drum about problems with ObamaCare pricing.
The Blue Cross Blue Shield Association released a widely publicized report last month that said new enrollees under ObamaCare had 22 percent higher medical costs than people who received coverage from employers.
A report from McKinsey & Company found that in the individual market, which includes the ObamaCare marketplaces, insurers lost money in 41 states in 2014, and were only profitable in 9 states.
“We continue to have serious concerns about the sustainability of the public exchanges,” Mark Bertolini, the CEO of Aetna, said in February.
The Aetna CEO noted concerns about the “risk pool,” which refers to the balance of healthy and sick enrollees in a plan. The makeup of the ObamaCare risk pools has been sicker and costlier than insurers hoped.
The clearest remedy for the losses is for insurers to raise premiums, perhaps by large amounts — something Republicans have long warned would happen under the healthcare law, known as the Affordable Care Act (ACA).
“The industry is clearly setting the stage for bigger premium increases in 2017,” said Levitt of the Kaiser Family Foundation.
Insurers will begin filing their proposed premium increases for 2017 soon. State regulators will review those proposals, and then can either accept or reject them.
Michael Taggart, a consultant with S&P Dow Jones Indices, pointed to data from his firm showing per capita costs for insurers are spiking in the ObamaCare marketplaces.
“We made a significant change in the rules with the ACA and we’re still working through the process to see how that market stabilizes,” Taggart said at a panel on Wednesday. “Is [a death spiral] a possibility? Sure it’s a possibility. I wouldn’t attempt to put a probability on it because I think there are a lot of things going on.”
One factor helping to prevent a death spiral is ObamaCare’s tax credits, which cushion the impact of premium increases on consumers.
“What we’re likely to see is more of a market correction than any kind of death spiral,” Levitt said. “There are enough people enrolled at this point that the market is sustainable. The premiums were just too low.”
Dr. Mandy Cohen, the chief operating officer of the Centers for Medicare and Medicaid Services (CMS), said in an interview that there is “absolutely not” a risk of a death spiral or collapse in the ObamaCare marketplaces.
While acknowledging that “companies are needing to adjust” to the new system, she pointed to the 12.7 million people who signed up this year, 5 million of whom were new customers, as a sign of success.
“What brings us the most confidence about the long term stability and health of the marketplace is its growth,” Cohen said.
Another risk, should regulators reject large premium increases, is that insurers could simply decide to cut their losses and drop off the exchanges altogether.
“Given that most carriers have experienced losses in the exchanges, often large losses, it only makes sense that most exchange insurers will request significant rate increases for 2017,” said Michael Adelberg, a former CMS official under President Obama and now a consultant at FaegreBD.
“Market exits are not out of the question if an insurer is looking at consecutive years of losses and regulators are unable to approve rates that get the insurer to break-even.”
The most prominent insurer eyeing the exits is UnitedHealth, which made waves in November by saying it was considering whether to leave ObamaCare in 2017 because of financial losses. The company last week announced that it is dropping its ObamaCare plans in Arkansas and Georgia, and more states could follow.
The Department of Health and Human Services argues that the attention on UnitedHealth is overblown, given that the insurer is actually a fairly small player in the marketplaces.
It’s more important to watch what happens with Blue Cross Blue Shield plans, which are the backbone of the ObamaCare marketplaces.
There have been some rumblings of discontent from Blue Cross plans. The plan in New Mexico already dropped off the marketplace there last year after it lost money and state regulators rejected a proposed 51.6 percent premium increase. Now, Blue Cross Blue Shield of North Carolina says that it might drop out of the marketplace because of its losses.
Blue Cross of North Carolina CEO Brad Wilson said in an interview that the company had lost $400 million due to its ObamaCare business.
“We’re not alone and I think that that also is evidence to suggest that there are systemic and fundamental challenges that we all need to have a civilized conversation about,” Wilson said.
He said a key factor in the decision on whether to stay in the market next year will be whether regulators approve whatever premium increase the company ends up proposing so as to try to make up for its losses.
Asked about the risk of a death spiral, Wilson said he is not worried about that happening “tomorrow,” but has concerns if the situation does not change over time.
“There’s not going to be something magical happen that will cause this to turn around,” Wilson said. He is pressing for changes like further tightening up extra sign up periods that insurers say people use to game the system, and repealing the Health Insurance Tax, which could help lower premiums.
Dr. Cohen of CMS said that her agency is in close touch with insurers and Blue Cross Blue Shield of North Carolina in particular. But she pushed back on talk of Blue Cross of North Carolina dropping out of the marketplace, stating flatly that, “I have no concerns about them leaving the market.”
She referred to problems the company has had with its computer systems that have led to some people being enrolled in the wrong plan, along with other issues that have added to the company’s administrative costs.
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A short but informative article by the Washington Free Beacon describes how the Government Accountability Office (GAO) has calculated that within a few years, the federal government will owe more money that the sum of what is produced by the economy. That, my friends, is an egregious amount of debt.
“Gene Dodaro, the comptroller general for the Government Accountability Office, testified at the Senate Budget Committee to provide the results of its audit on the government’s financial books.
“We’re very heavily leveraged in debt,” Dodaro said. “The historical average post-World War II of how much debt we held as a percent of gross domestic product was 43 percent on average; right now we’re at 74 percent.”
Dodaro says that under current law, debt held by the public will hit a historic high.
“The highest in the United States government’s history of debt held by the public as a percent of gross domestic product was 1946, right after World War II,” he said. “We’re on mark to hit that in the next 15 to 25 years.”
Another economic projection which assumes that cost controls for Medicare don’t hold and that healthcare costs continue to increase, shows debt rising even further.
“These projections go to 200, 300 percent, and even higher of debt held by the public as a percent of gross domestic product,” said Dodaro. “We’re going to owe more than our entire economy is producing and by definition this is not sustainable.”
Additionally, the audit found fault with the number of improper payments that should not have been made or were the incorrect amount. The audit found that in fiscal year 2015 there were $136.7 billion improper payments, which was up by $12 billion from the year prior.
The audit also called into question the reliability of the government’s financial statements. According to the report, if a federal entity purchases a good or service, that cost should match the revenue recorded by the federal entity that sold the good or service. The report found that this was not always the case and found hundreds of billions of dollars in differences between transactions between federal entities.
“The government-wide financial statements that the GAO audits tell us what came into the government’s coffers and what went out, what the government owns and what it owes, and if the operations are financially sustainable,” said Sen. Mike Enzi (R., Wyo.). “But can we trust the information in the statements?”
“GAO’s audit calls into question the reliability of the underlying financial data,” he said. “The sketchiness is such that GAO remains unable to even issue an audit opinion on the government’s books.”
According to the audit, these weaknesses will eventually harm the government’s ability to reliably report their assets, liabilities, and costs, and this will prevent the government from having the information to operate in an efficient and effective manner.
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The Financial Times reviewed data recently that suggested that the US public pension system is in dire straits; the funding shortage is likely 3 times as large as what is being reported. The estimated deficit is $3.4 trillion.
The solutions for the funding shortfalls are grim: either raise taxes or cut spending; unfortunately the “cut spending” approach always goes to the essential services first, so that taxpayers feel the heat and will consider a tax hike instead.
US Congressman Devin Nunes recently noted that, “It has been clear for years that many cities and states are critically underfunding their pension programmes and hiding the fiscal holes with accounting tricks.” Nunes has “put forward a bill to the House of Representatives last month to overhaul how public pension plans report their figures.” He added: “When these pension funds go insolvent, they will create problems so disastrous that the fund officials assume the federal government will have to bail them out.”
Insolvency has already been observed in San Bernardino, California and Detroit, Michigan, largely due to mismanagement of pension funding and budget shortfalls. The Financial Times noted that “Chicago, Dallas, Houston and El Paso have the largest pension holes compared with their own revenues”, as well as the states of Illinois, Arizona, Ohio, and Nevada.
Research done by Stanford paints a difficult future: “Currently, states and local governments contribute 7.3 per cent of revenues to public pension plans, but this would need to increase to an average of 17.5 per cent of revenues to stop any further rises in the funding gap.”
And more: “Several cities and states, including California, Illinois, New Jersey, Chicago and Austin, would need to put at least 20 per cent of their revenues into their pension plans to prevent a rise in their deficits, while Nevada would have to contribute almost 40 per cent.”
Much of the problem lies in the fact that retirement costs and liabilities have consistently been calculated on a 7%-8% return , which is not particularly realistic, as has been demonstrated in recent years during the economic downturn.
There is no way this silent funding crisis will get any better — and until localities recognize and admit their crisis and make ardent changes to their pension systems, it will only continue to worsen egregiously.
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The Fix the Debt Campaign Steering Committee is a bipartisan group of prominent leaders and experts, including luminaries such as Erskine Bowles and Alan Simpson, the co-chairs of the White House Fiscal Commission. The Fix the Debt group put together some decent graphics regarding federal spending.
This is a “taxpayer receipt” highlighting where the money goes and highlight where it comes from in the first place.
How are our federal tax dollars spent? As the taxpayer receipt illustrates, more than $75 of every $100 paid in federal taxes goes to Social Security, federal health care, defense, and interest on the debt. And the amounts for Social Security, health care, and interest are forecast to grow considerably in the years to come.
Where does the money come from? Much of the revenue for the federal government comes from the individual income tax that many of us are rushing to complete. Another major source is the payroll tax, which is the “FICA” tax that is withheld from your paycheck. It is used to fund Social Security benefits and parts of Medicare.
But a significant part of the government is deficit financed because spending exceeds revenue. That share is expected to grow substantially in the years ahead.
Check out their blog for more information.
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Yesterday, The Treasury Department made more changes to rules with regard to inversions. The driving force behind the constant meddling into this legal practice is the retention of tax revenue.
“Under the new rules, there will be a three-year limit on foreign companies bulking up on U.S. assets to avoid ownership requirements for a later inversions deal, Treasury said in a statement.”
In an inversion, a U.S. company typically buys a smaller foreign rival and reincorporates to the rival’s home country, which moves the company’s tax domicile, though core management usually stays in the United States.
The Treasury, which had last introduced new rules in November to curb inversions, also is proposing tackling the practice of post-inversion earnings stripping with new limits on related-party debt for U.S. subsidiaries.”
This continued attack on inversions is ridiculous and companies are being targeted unfairly because they represent a possible loss of revenue for the government. Inversions are legal, and sometimes necessary. They are a way for U.S. companies to change their HQ from the U.S. to a foreign country, for the sole purpose of allowing themselves the express privilege of being on par with foreign companies and eliminate the severe disadvantage that the U.S. puts on its own businesses via excessive taxes!
It is outrageous that the government applies such discrimination. It is outrageous that American companies have to chose to move their headquarters elsewhere simply to survive and compete globally, because they are taxed on their profits in two jurisdictions — both domestic and foreign.
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Find Out How ACA affects Employers with 50 or More Employees
Some of the provisions of the health care law apply only to large employers, which are generally those with 50 or more full-time equivalent employees. These employers are applicable large employers – also known as ALEs – and are subject to the employer shared responsibility provisions.
Information Reporting
Applicable large employers have annual reporting responsibilities concerning whether and what health insurance they offered to their full-time employees during the prior year. In 2016, the deadline to provide Forms 1095-C to full-time employees is March 31. The deadline by which ALEs must file information returns with the IRS is no later than May 31 or June 30 if filed electronically.
All employers, regardless of size, that provide self-insured health coverage must file an annual return reporting certain information for individuals they cover. In 2016, the deadline by which self-insured ALEs must provide Forms 1095-C to responsible individuals is March 31. The returns with 2015 information are due no later than May 31 or June 30 if filed electronically.
Employer Shared Responsibility Payment
ALEs are subject to the employer shared responsibility payment if at least one full-time employee receives the premium tax credit and any one these conditions apply. The ALE:
- failed to offer coverage to full-time employees and their dependents
- offered coverage that was not affordable
- offered coverage that did not provide a minimum level of coverage
SHOP Marketplace
Employers with more than 50 cannot purchase health insurance coverage for its employees through the Small Business Health Options Program – better known as the SHOP Marketplace. However, Employers that have exactly 50 employees can purchase coverage for their employees through the SHOP.
For more information, visit the Determining if an Employer is an Applicable Large Employer page on IRS.gov/aca.
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Everything we were promised with Obamacare has yet to come to fruition: keep your plan! lower prices! tens of millions insured! and a litany of other broken promises and predictions.
Obamacare was signed into law on March 23, 2010. The Weekly Standard took the time to perform a thorough examination on the current state of Obamacare, an audit perhaps, comparing what was promised and what has been delivered. Their findings are sobering. It also offers some remedies of the most egregious maladies plaguing this particular legislation. I have reprinted the article in its entirety below, because it is chock-full of good information:
Three years ago, on the eve of Obamacare’s implementation, the Congressional Budget Office (CBO) projected that President Obama’s centerpiece legislation would result in an average of 201 million people having private health insurance in any given month of 2016. Now that 2016 is here, the CBO says that just 177 million people, on average, will have private health insurance in any given month of this year—a shortfall of 24 million people.
Indeed, based on the CBO’s own numbers, it seems possible that Obamacare has actually reduced the number of people with private health insurance. In 2013, the CBO projected that, without Obamacare, 186 million people would be covered by private health insurance in 2016—160 million on employer-based plans, 26 million on individually purchased plans. The CBO now says that, with Obamacare, 177 million people will be covered by private health insurance in 2016—155 million on employer-based plans, 12 million on plans bought through Obamacare’s government-run exchanges, and 9 million on other individually purchased plans (plus a rounding error of 1 million).
In other words, it would appear that a net 9 million people have lost their private health plans, thanks to Obamacare—with a net 5 million people having lost employer-based plans and a net 4 million people having lost individually purchased plans.
None of this is to say that fewer people have “coverage” under Obamacare—it’s just not private coverage. In 2013, the CBO projected that 34 million people would be on Medicaid or CHIP (the Children’s Health Insurance Program) in 2016. The CBO now says that 68 million people will be on Medicaid or CHIP in 2016—double its earlier estimate. It turns out that Obamacare is pretty much a giant Medicaid expansion.
To be clear, the CBO—which has very generously labeled Obamacare’s direct subsidies to insurance companies as “tax credits,” even though sending money to insurers doesn’t lower anyone’s taxes—isn’t openly declaring that Obamacare has reduced the number of people with private health insurance or that it has doubled the number of people on Medicaid or CHIP. Rather, the CBO maintains that Obamacare has actually increased the number of people with private health insurance by 9 million and has increased the number of people on Medicaid or CHIP by (just) 13 million. But it would seem that the only reason the CBO can make these claims is that it has moved the goalposts.
That is, the CBO has significantly altered its estimates for what 2016 would have looked like if Obamacare had never been passed. In 2013, the CBO projected that, in the absence of Obamacare, 186 million people would have had private health insurance in 2016, and 34 million people would have been on Medicaid or CHIP. The CBO now maintains that, in the absence of Obamacare, only 168 million people would have had private health insurance in 2016 (a reduction of 18 million people from its 2013 projection), while 55 million people would have been on Medicaid or CHIP (an increase of 21 million people from its 2013 projection). Somehow the hypothetical non-Obamacare world has changed a lot in the past three years. (The CBO doesn’t explain how this could have happened.)
Even the CBO’s revised figures for a non-Obamacare world, however, can’t gloss over the fact that Obamacare has failed to hit its target for private health insurance by 24 million people. To see that, one must simply compare Obamacare’s new tally of 177 million to its 2013 target of 201 million.
The CBO doesn’t release retroactive scoring of Obamacare. Try finding, for example, tallies from the federal government (whether from the CBO or otherwise) on what Obamacare has actually cost so far. Rather, the CBO is like a handicapper who predicts the results of horseraces, but then never bothers to publish the races’ actual results.
Now that it’s clear enough, however, that Obamacare is basically an expensive Medicaid expansion coupled with 2,400 pages of liberty-sapping mandates, it’s time for a winning Obamacare alternativeto emerge, one along the lines of what Ed Gillespie almost rode to victory in the Virginia Senate race. Such an alternative should address the longstanding inequity in the tax code—between employer-based and individually purchased insurance—while adhering to four basic notions:
1. It shouldn’t touch the tax treatment of the typical American’s employer-based plan.
2. It should close the tax loophole on the employer side—which says that the more you spend (on insurance), the more you save (in taxes)—by capping the tax exclusion at $20,000 for a family plan (while letting anyone with a more expensive plan still get the full tax break on that first $20,000).
3. It should offer a simple tax break for individually purchased insurance that isn’t income-tested and thus doesn’t pick winners and losers (in marked contrast with Obamacare, which is all about picking winners and losers.)
4. It shouldn’t provide direct subsidies to insurance companies like Obamacare does. (The federal government provides a tax break for mortgage interest paid—it doesn’t directly pay a portion of people’s mortgage bills. Likewise, it shouldn’t directly pay people’s health insurance bills as if it were some kind of “single payer.”)
In addition, anyone crafting an Obamacare alternative should keep this important point in mind and express it publicly: Far from being the gospel truth, the CBO’s scoring is more like a wild guess that will never be checked against future reality.
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We’re coming up on three years since the IRS scandal broke in May 2013. Most Americans have certainly forgotten about it, especially since the former head, Lois Lerner, went wholly unpunished. But some targeted groups have not forgotten about it, and continue to fight for transparency with the entire affair.
Earlier this week, a federal appeals court “ordered the IRS to quickly turn over the full list of groups it targeted so that a class-action lawsuit, filed by the NorCal Tea Party Patriots, can proceed. The judges also accused the Justice Department lawyers, who are representing the IRS in the case, of acting in bad faith — compounding the initial targeting — by fighting the disclosure.”
The IRS, of course, claimed that no targeting happened — that it was merely an issue of poorly trained employees. Of course, we all know better. A vast majority of the targets were conservative or tea-party groups, there were secret buzz words to identify them, and some of the groups still have not attained 501c3 status after 5 years!
According to the Washington Times, Tea Party groups have been trying for years to get a full list of nonprofit groups that were targeted by the IRS, but the IRS had refused, saying that even the names of those who applied or were approved are considered secret taxpayer information. The IRS said section 6103 of the tax code prevented it from releasing that information.
Judge Kethledge, however, said that turned the law on its head. ‘Section 6103 was enacted to protect taxpayers from the IRS, not the IRS from taxpayers,’ he wrote.”
This particular ruling certified the NorCal case as a class-action lawsuit. Others who were targeted may be permitted to join the case, but until that list is revealed, it is unknown who exactly among the 200 or so groups involved were actually targeted.
Now, “the case moves to the discovery stage, where the tea party groups’ lawyers will ask for all of the agency’s documents related to the targeting and will depose IRS employees about their actions.”
As a CPA intimately involved with the IRS for many years, I have been following this case since the beginning and have continued to report on updates. The actions of the IRS were particularly egregious and overreaching, and no one was appropriately punished for it. It’s good that some of the groups remain dedicated to getting more answers that what has been divulged by the Department of Justice to date.
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Earlier this month, the Wall Street Journal noted an incredible sequence of events brought to light through judicial process and undercover emails. Obama meddled in the net-neutrality process, violating standards of conduct. I have reproduced the article in its entirety, as the contents contained therein are rather incredulous:
Congressional committees rarely re-report journalistic exposés, but it’s amazing what information subpoenas can pry loose. A Senate committee has exposed new details on how the White House broke the law to get the Internet regulated as an old-fashioned utility, including emails that show how shocked regulators at the Federal Communications Commission were at the violation of their agency’s independence.
A page-one article in The Wall Street Journal last year detailed an “unusual, secretive effort inside the White House” led by a small group “acting like a parallel version of the FCC itself.” President Obama’s aides thought net neutrality “would help define the president’s legacy” and that along with immigration could be handled by unilateral presidential action. The courts have blocked Mr. Obama’s executive order on immigration, and the Internet regulations should be next to go.
The report, from Republicans on the Senate Committee on Homeland Security and Governmental Affairs, finds that FCC staff worked through a weekend in November 2014 to finalize a plan backed by Chairman Tom Wheeler for light regulation of the Internet. They were shocked on Monday, Nov. 10, when an agency official forwarded a news alert, which she summarized as follows: “Obama says to make it Title II”—the heavy-handed law regulating railroads and the old monopoly phone system.
Staffers then shared a flurry of emails: “Not sure how this will affect the current draft and schedule—but I suspect substantially.” “This might explain our delay.” “It might indeed.” “Will try to get to the bottom of this this morning.” “At least the delays in edits from above now makes [sic] sense.”
Panic struck when it became clear the chairman would cave in to Mr. Obama’s demand and surrender the FCC’s independence. This is a verbatim quote from a draft media Q&A prepared for Mr. Wheeler:
“Q. Has there been discussions between the WH and the FCC leading up to this rollout?
“A. The FCC kept the WH apprised of the process thus far, but there have not been substantive discussions [IS THIS RIGHT?].”
FCC staffers cited nine areas in which the last-minute change violated the Administrative Procedure Act, which requires advance public notice of significant regulatory changes. Agency staffers noted “substantial litigation risk.” A media aide warned: “Need more on why we no longer think record is thin in some places.”
These emails are a step-by-step display of the destruction of the independence of a regulatory agency. The Senate report should make fascinating reading for the federal appellate judges considering whether to invalidate the regulations.
Mr. Obama’s edict resulted in 400 pages of slapdash regulations that the agency’s own chief economist has dismissed as an “economics-free zone.” In the year since Obamanet has been in effect, regulatory uncertainty has led to a collapse in investment in broadband.
Independent regulatory agencies operate in a constitutional gray area, separate from the executive and legislative branches. They have the power to issue broad rules but are unaccountable to voters. The rationale is that agency staffers are experts in the fields they regulate. That justification collapses if they’re subject to political pressure.
In 1983, Ronald Reagan held a single meeting with his FCC chairman on the issue of regulating television rerun revenues. Unlike Mr. Obama, Reagan didn’t have his own staff working on the regulations. And Reagan didn’t express any opinion on the rules—also unlike Mr. Obama, who issued a video promoting utility regulation for the Internet.
Yet Reagan’s modest involvement was headline news. A congressional committee declared he “acted improperly and undermined the fairness and integrity” of the FCC. Sen. Daniel Patrick Moynihan said: “It is imperative for the integrity of all regulatory processes that the president unequivocally declare that he will express no view on the matter.” The Washington Post editorialized: “The danger lies in the kind of chilling signal a certain kind of presidential participation might send to all regulatory agencies about the possible fragility of their independence.”
A 1991 opinion from the Justice Department’s Office of Legal Counsel warns: “White House staff members should avoid even the mere appearance of interest or influence—and the easiest way to do so is to avoid discussing matters pending before the independent regulatory agencies with interested parties and avoid making ex parte contacts with agency personnel.”
The appeals court has plenty of evidence proving White House meddling with a supposedly independent agency. Voters have more reason for outrage at an administration that ignores limits on its power. The Internet is too important to be left to politicians, especially ones who violate the law.
