Inequality of Wealth and Income

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This article is related to health care costs because new sources of revenue will be needed to help balance the federal budget.  There simply are not enough reasonable cuts in spending to close the deficit gap.  Tax increases will be necessary and this analysis examines effects of past tax policies.

SUMMARY

After years of neglect, political America has awakened to the problems of rising deficits that are developing  at all levels of government. Economists and politicians may argue endlessly about  causes and solutions.  Cutting spending, raising taxes, growing the economy all have their place.  This essay examines income, wealth, and taxes, not just in terms of rates but also where those rates have affected income growth.

By every measure, U.S. wealth and income have skewed heavily and continue to tilt to the top 1%, approaching an unhealthy situation. A robust middle class will spend more of its earnings than the wealthy, and in this country consumer spending constitutes the largest economic component.

METHODOLOGY OF REPORT

All the data used in this report are derived from government sources. Income and tax data are from Congressional Budget Office (CBO).  CBO published tax and income data from 1979 through 2007, dividing data of households into five quintiles (20% each) as well as the top 10%, 5%, and 1%. Wealth data come from the Federal Reserve’s 2007 Survey of Consumer Finances Chartbook divided into four quartiles plus top 10%.

DISCUSSION – Tax Rates

Beginning in the Reagan administration, there has been an overall trend towards lower tax rates as shown in the graph below.  Despite differences in timing, the total average tax rate for middle America has declined virtually the same as for the highest 1% of households.

The next graph shows trends in who is paying how much in total federal taxes.  Here clearly shows tax rate reductions have brought down the share of lower 80% of all taxpayers from 45% of total taxes to 35%. One group that has an increased share is the top 1%, rising from 15% to a 28% share.  With declining rates and overall increases in share of tax payments can mean only one thing.  The top 1% are increasing income at a significantly faster rate than other taxpayers. Continue reading

Inequality of Wealth and Income – Paged

Download PDF Report >>> Income-Wealth

This article is related to health care costs as new sources of revenue will be needed to help balance the federal budget.  There simply are not enough reasonable cuts in spending to close the deficit gap.  Tax increases will be necessary and this analysis examines effects of past tax policies.

SUMMARY

After years of neglect, political America has awoken to the problems of rising deficits being incurred at all levels of government. Economists and politicians may argue endlessly of causes and solutions.  Cut spending, raise taxes, grow the economy all have their place.  This essay examines income, wealth, and taxes, not just rates but where those rates have affected income growth.

By every measure, U.S. wealth and income has skewed heavily and continues to tilt to the top 1%, approaching an unhealthy situation. A robust middle class will spend more of its earnings than the wealthy and in this country consumer spending constitutes the largest economic component.

METHODOLOGY

All the data used in this report are derived from government sources. Income and tax data are from Congressional Budget Office (CBO).  CBO published tax and income data from 1979 through 2007, dividing data of households into five quintiles (20% each) as well as the top 10%, 5%, and 1%. Wealth data come from the Federal Reserve’s 2007 Survey of Consumer Finances Chartbook divided into four quartiles plus top 10%.

GO TO DISCUSSION – Tax Rates

GO TO DISCUSSION – Household Income

GO TO DISCUSSION – Household Wealth

CONCLUSION

The wealthy always had the lion’s share of income and assets.  At some point, however, excessive accumulation of wealth can tend to stymie economic growth.  A robust middle class will spend more of its earnings than the wealthy and in the US economy, consumer spending constitutes the largest economic component.

Download PDF Report >>> Income-Wealth

 

Insurers’ Efforts to Shift Admin Costs to Medical Costs

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Senator Rockefeller recently came out with a report cautioning about health insurers efforts to shift Selling, General and Administrative (SGA) expenses to medical costs.  A shift would increase medical loss ratios (MLR) allowing insurers to keep more earnings. Two uncertainties affect predictions.  First is how plans are grouped and second is how one computes “medical costs” and “premiums”.  Below are reasonable interpretations of the new law that favor consumers, not insurers.

HOW ENROLLEES ARE GROUPED

The first order is to define “group.”  The more groups are combined, the greater the opportunity for balancing out gains and losses, which is the whole idea of insurance.  Continue reading

Affordable Care Act – Table of Contents

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The Affordable Healthcare Act for All Americans is without a doubt, a large and complex piece of legislation at just over 2,400 pages.  But how big is 2,400 pages when wide margins, lines numbered, text double spaced, large font,  multiple levels of indent, and more than a few references to other documents?  The sample page below (standard 8.5 inch wide paper) is indicative of the 2,400 page document. The actual content is but a small fraction of a page. AHA legal text sample

Aside from the claims of too lengthly and complex, Republicans argued that this was a Democratic bill rammed through congress.  Interestingly, AHA includes more than 160 Republican amendments accepted during the month-long mark-up through just one committee (HELP), one of the longest in Congressional history.

Critics have claimed it’s a government takeover of our health system.  It may be news to those critics but half of the health system is already government-run.  And the great bulk of the reform bill deals with steps to improve existing government systems that has hardly drawn any attention.  The following provides a quick breakdown of the law sections.  The PDF report that can be viewed/downloaded shows the entire table of contents.

There are 10 “Titles” or major topics in the bill.  Only the first, at 374 pages, less than one sixth of the entire bill deals with changes to how the private sector handles health care. Yet, this is the section that has garnered nearly all the criticism. The bulk of Title I deals with prohibiting abuses by the insurance industry, which, if you ask on an issue by issue basis, most people will agree with the new provisions. Nothing in the bill involves a “takeover” of private insurers.

The next three Titles [II,III,IV] deal with improving Medicare and Medicaid programs and comprise 852 pages, one-third of the bill.  These Titles address reduction of waste, fraud and abuse, and pilot new payment methods towards a “results” oriented method common in most other industrialized countries.  There are few objections to this section.

Title V, at 256 pages, addresses anticipated shortages of primary physicians and other healthcare workers due to services that will be required by aging baby boomers.  This is totally opposite the “death panels” that ration healthcare that unfortunately got too much press for a falsehood.

Title VI uses 323 pages to improve transparency and integrity, yet more efforts to reduce waste, fraud and abuse in both the public and private health sectors. Who objects to efforts like this?

Title VII  improves Access To Innovative Medical Therapies, with focus on lowering the cost of drugs

Title VIII addresses ‘‘Community Living Assistance Services and Supports Act’’ or CLASS Act. This title The purpose of this title is to establish a national voluntary insurance program for purchasing community living assistance services and supports.  Moving people from higher cost hospitals and nursing homes to assisted living lowers costs, a laudable goal.

Title IX includes the revenue provisions that include provisions to raise revenue to pay for the expanded coverage.

The final Title X addresses 1) Medicaid and CHIP, 2) Support for pregnant and parenting women, and the major section 3) Indian health care improvements.  None are controversial issues.

Title I——-Quality, Affordable Health Care For All Americans [374 pages – 14%]

Title II——Role Of Public Programs [221 pages – 8%]

Title III–—Improving The Quality And Efficiency Of Health Care [501 pages – 19%]

Title IV–—Prevention Of Chronic Disease And Improving Public Health [130 pages – 5%]

Title V——Health Care Workforce [256 pages – 9%]

Title VI–—Transparency And Program Integrity [323 pages – 12%]

Title VII-—Improving Access To Innovative Medical Therapies [65 pages – 2%]

Title VIII—Class Act [53 pages – 2%]

Title IX—–Revenue Provisions [93 pages – 3%]

Title X——Strengthening Quality, Affordable Health Care For All Americans [373 pages – 14%]

.

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Fact Check: Provider Consolidation Driving Up Costs

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Fact Check:  Provider Consolidation Driving Up Costs

  • · Massachusetts Attorney General issued a report that: “points to the market clout of the best-paid providers as a main driver of the state’s spiraling health care costs” and “found no evidence that the higher pay was a reward for better quality work or for treating sicker patients”.
  • · According to a new report in Health Affairs, Paul Ginsburg and Robert Berenson found that “providers’ growing market power to negotiate higher payment rates from private insurers is the ‘elephant in the room’ that is rarely mentioned.”
  • · According to a brief from the National Institute for Health Care Management: “With only a few exceptions, results consistently demonstrate that hospital consolidations result in higher prices for hospital services.”
  • · The Federal Trade Commission and the Depart­ment of Justice noted: “Most studies of the relation­ship between competition and hospital prices have found that high hospital concentration is associated with increased prices, regardless of whether the hospitals are for-profit or nonprofit.”

FACT CHECK CHECKED: The above are arguments that America’s Health Insurance Plans (AHIP) included in their response to advocates of reform. What AHIP may not recognize is it has set forth some of the most compelling arguments for a “public option”.

AHIP freely admits that insurers are powerless on their own to control provider costs. Even with anti-trust exemptions, they have failed to combine forces and confront providers.  Short of a government takeover, the only long-term solution is more clout.  The only entity with more clout is the government itself being an insurer, which, by the way, it already is – Medicare.

Medicare doesn’t so much “ask” providers what they charge.  Medicare almost “tells” providers what it will pay. Republicans were so concerned with Medicare’s clout that they wrote into law “prohibiting” negotiated drug discounts.  But discounts will become necessary.

For many Americans, a drastically reformed healthcare system was a non-starter.  The administration politically tried to blend features of the current into the proposed system to reduce upheaval to such a large part of the economy.  Any change can be unsettling, and how you view it is very important.  Is the glass half full or half empty?  At some point, radical cost control will occur, and private insurers will not be leading the charge.

Insurers can look on government as an unreasonable competitor or they can look on government as the only insurer who finally has enough clout to contain provider costs.  It may be that insurers eventually withdraw from the market for “essential medical benefits” and focus their efforts on supplemental policies that go beyond basic.  If they did, they would look a lot like health insurers in Europe and other industrialized countries. Diminished compared to today but not destroyed.

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Fact Check: Put health plan profits in perspective

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Fact Check:  Put health plan profits in perspective

  • Ezra Klein, Washington Post:… it’s hard to see how [health plan profit margins] are a primary driver of health-care spending, much less the growth in health-care spending.”
  • Henry Aaron, Brookings Institute: “Insurance company profits in the large picture have very little to do with the overall rising cost of health care.”
  • Kaiser Health:“With the nation’s health care spending estimated at $2.5 trillion this year, even the elimination of insurers’ profits and executive compen­sation would lower health care spending by just 0.5 percent.”

FACT CHECK CHECKED: Granted, the insurers cut is a miniscule piece of total costs.  But it is still billions of dollars of non medical costs.  Where are they spending them?  It should be in two areas: to responsibly manage insurance and contain costs. If insurers were managing just fine, reforms would not include rule after rule after rule to rein in unsavory practices that occur now.

Cost containment has two faces: price and volume. You can control one or both. Insurers can control volume by denying claims, and here they have been successful.  In the price area, they have utterly failed to contain prices from providers. But Wall Street is indifferent in how one generates earnings, only that one does.  Clearly, insurers’ focus is Wall Street and not Main Street.

Insurers claim they add value by negotiating discounts with providers.  But by insurers’ own admission, those providers simply raise their rates resulting in no actual cost reductions.  Insurers are adding virtually no value, but draw compensation as if they were saving billions.

All large companies pay cost control experts to contain costs. If they fail, the experts are fired or the companies go out of business. Yet insurers exert every conceivable pressure to maintain the status quo which they admit has been a failure in containing healthcare costs.

Download PDF Report >>> Fact Check – profits and consolidation

Fact Check: Lines of Business Obscure Profit Margins

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FACT CHECK: In 2009, the percentage of premiums that went towards administrative costs and profits declined for the sixth year in a row and have been consistent for decades.

FACT CHECK CHECKED: America’s Health Insurance Plans (AHIP) combines self-insured line of business (LOB) and insured LOB and presents the results as if it were one homogeneous market.   Nothing could be further from the truth. Size wise, the ratio of self insured LOB to insured LOB is roughly 58% / 42% of self-insured / insured or underwritten.

Insurers charge self-insured (ASO – administrative service only) groups an administrative fee that, for the top 10 health insurers, averaged 6.94% of costs.  That translates to 6.5% of “premiums” which are really medical benefits plus service fee income.  This “efficient” administrative expense is not evident in the insured LOB.

To identify the administrative costs and profits for the insured group, one computes and then removes the self-insured revenues and expenses from the CMS Totals as shown in the table below.  Sources and stepwise methodology (top to bottom) are shown in the far right column.

The claim that insurers’ average percentage of premiums that went towards administrative costs and profits was around 11.75% (and have been consistent for decades) totally obscures two radically different lines of business with divergent expense ratios.   For 2008, self-insured admin costs and profits were about 6.5% for self-insured groups, but about 18% for insured groups.  Since the profit margin is VERY slim for the self insured, the bulk of profits are born on the backs of the insured groups which include small business and individuals. A reasonable question to ask is “why are insurers satisfied with profit margins of well under 1% on 55 % of their business but feel a need to push margins well beyond 10% on 45% of their business?”  Though risk is a small factor in the insured LOB, they have to compete far harder on self-insured LOB than on insured LOB where they hold oligopoly power in local market areas and convert that market power into profits.

Download PDF Report >>> Lines of Business Obscure Profit Margins