Obamacare is a Catastrophe That Cannot Be Fixed

Obamacare is a catastrophe that cannot be fixed, because it doesn't fix what's broken in American healthcare.

I just finished a detailed comparison of my current grandfathered health insurance plan from Kaiser Permanente (kp.org), a respected non-profit healthcare provider, and Kaiser's Affordable Care Act (Obamacare)  options. I reviewed all the information and detailed tables of coverage and then called a Kaiser specialist to clarify a few questions.

First, the context of my analysis: we are self-employed, meaning there is no employer to pay our healthcare insurance. We pay the full market-rate cost of healthcare insurance. We have had a co-pay plan with kp.org for the past 20+ years that we pay in full because there's nobody else to pay it.

What we pay is pretty much what employers pay. In other words, if I went to work for a company that offered full healthcare coverage, that company would pay what we pay.

Kaiser Permanente (kp.org) is a non-profit. That doesn't mean it can lose money on providing healthcare; if it loses millions of dollars a year (and some years it does lose millions of dollars), eventually it goes broke. All non-profit means is that kp.org does not have to charge a premium to generate profits that flow to shareholders. But it must generate enough profit to maintain its hospitals, clinics, etc., build reserves against future losses, and have capital to reinvest in plant, equipment, training, etc.

As an employer in the 1980s, a manager in non-profit organizations in the early 1990s and self-employed for 20+ years, I have detailed knowledge of previous healthcare insurance costs and coverage. As an employer in the 1980s, I paid for standard 80/20 deductible healthcare insurance for my employees. The cost was about $50 per month per employee, who were mostly in their 20s and 30s. In today's money, that equals $108 per month.

In other words, I have 30+ years of knowledgeable experience with the full (real) costs of healthcare insurance and what is covered by that insurance.

Our grandfathered Kaiser Plan costs $1,217 per month. There is no coverage for medications, eyewear or dental. That is $14,604 per year for two 60-year old adults. We pay a $50 co-pay for any office visit and $10 for lab tests. Maximum out-of-pocket costs per person are $3,500, or $7,000 for the two of us.

We pay $500 per day for all hospital stays and related surgery; out-patient surgery has a $250 co-pay.

So if I suffered a heart attack and was hospitalized and required surgery, I would pay a maximum of $3,500 for services that would be billed out at $100,000 or more were Kaiser providing those services to Medicare.

(Yes, I know Medicare wouldn't pay the full charges, but if Medicare is billed $150,000--not uncommon for a few days in the hospital and surgery-- it will pay $80,000+ for a few days in the hospital and related charges. All of this is opaque to the patient, so it's hard to know what's actually billed and paid.)

In other words, this plan offers excellent coverage of major catastrophic expenses and relatively affordable co-pays for all services.

The closest equivalent coverage under Obamacare is Kaiser's Gold Plan. The cost to us is $1,937 per month or $23,244 a year. The Gold Plan covers medications ($50 per prescription for name-brand, $19 for generics) and free preventive-health visits and tests, but otherwise the coverage is inferior: the out-of-pocket limits are $6,350 per person or $12,700 for the two of us. Lab tests are also more expensive, as are X-rays, emergency care co-pays and a host of other typical charges. Specialty doctor's visits have a $50 co-pay.

The Obamacare Gold Plan would cost us $8,640 more per year. This is a 60% increase. It could be argued that the meds coverage is worth more, but since we don't have any meds that cost more than $8 per bottle at Costco (i.e. generics), the coverage is meaningless to us.

The real unsubsidized cost of Obamacare for two healthy adults ($23,244 annually) exceeds the cost of rent or a mortgage for the vast majority of Americans. Please ponder this for a moment: buying healthcare insurance under Obamacare costs as much or more as buying a house.

A close examination of lower-cost Obamacare options (Bronze) reveals that they are simulacra of actual healthcare insurance, facsimiles of coverage rather than meaningful insurance. The coverage requires subscribers to pay 40% of costs after the deductible, which is $9,000 per family. Total maximum out-of-pocket expenses are $12,700 per family. This coverage would cost us $1,150 per month, and considerably less for younger people.

How many families in America have $9,000 in cash to pay the deductibles, plus the $13,800 annual insurance fees? That totals $22,800 per year. If some serious health issue arose, the family would have to come up with $12,700 (out-of-pocket maximum) and $13,800 (annual cost of insurance), or $26,500 annually.

Is healthcare that costs $26,500 per year truly "insurance"? I would say it is very expensive catastrophic insurance in a system with runaway costs.

The entire Obamacare scheme depends on somebody paying stupendous fees for coverage which then subsidizes the costs for lower-income families and individuals. How many households can afford $23,244 a year for Gold coverage plus $12,700 out-of-pocket for a total of $35,944 annually? How many can afford $26,500 for Bronze coverage? 

Recall that the median household income in the U.S. is around $50,000.
How many companies can afford to pay almost $2,000 a month for healthcare insurance per employee? Even if employees pay a few hundred dollars a month, the employers are still paying $20,000 a year per (older) employee.

If an employer can hire someone in a country with considerably lower social-welfare/healthcare costs to do the same work as an American costing them $2,000 per month for healthcare insurance, they'd be crazy to keep the worker in America, unless the worker was so young that the Obamacare costs were low or the worker was a contract/free-lance employee who has to pay his own healthcare costs.

Uninformed "progressives" have suggested that "Medicare for all" is the answer.Their ignorance of exactly how Medicare functions is appalling; recall that Medicare is the system in which an estimated 40% of all expenditures are fraudulent, unnecessary or counter-productive, where a few days in the hospital is billed at $120,000 (first-hand knowledge) and a one-hour out-patient operation is billed at $12,000, along with a half-hour wait in a room that's billed at several thousand more dollars for "observation." (Also first-hand knowledge.)

Medicare is the acme of an out-of-control program that invites profiteering, fraud, billing for phantom services, services that add no value to care, and services designed to game the system's guidelines for maximum profit. If an evil genius set out to design a system that provided the least effective care for the highest possible cost while incentivizing the most egregious profiteering and fraud, he would come up with Medicare.

Does Medicare look remotely sustainable to you? Strip out inventory builds and adjustments from imports/exports and the real economy is growing at about 1.5% annually. As noted yesterday in What Does It Take To Be Middle Class?, the real income of the bottom 90% hasn't changed for 40 years, and has declined by 7% since 2000 when adjusted for inflation.



Here is Medicare's twin for under-age-65 care for low-income households, Medicaid:



As I have observed for years, Obamacare and Medicare/Medicaid do not tackle the underlying problems of Sickcare costs in America. If you haven't read these analyses, please have a look:

Why "Healthcare Reform" Is Not Reform, Part I (December 28, 2009)

Why "Healthcare Reform" Is Not Reform, Part II (December 29, 2009)

Type sickcare into the custom search box at the top of the left-hand column of the main blog page and you will find dozens of essays addressing what's broken with American healthcare.

Obamacare is a catastrophe that cannot be fixed, because it doesn't fix what's broken in American healthcare. It is a phony reform that extends everything that makes the U.S. healthcare unsustainable sickcare.


If You Seek Practical Gifts, Consider These Everyday Kitchen Tools

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The Nearly Free University and The Emerging Economy:
The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?


We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Read the Foreword, first section and the Table of Contents.

print ($20)       Kindle ($9.95) 

---

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.
Kindle: $9.95       print: $24 

Thank you, Gwyneth M. ($50), for your superbly generous contribution to this site-- I am greatly honored by your support and readership.

Read more...

What Does It Take To Be Middle Class?

By standards of previous generations, the middle class has been stripmined of income, assets and purchasing power.

What does it take to be middle class nowadays? A recent paper, The Distribution of Household Income and the Middle Class, used Census data to discuss what sort of income it takes to qualify as middle class, but reached no firm conclusion: people tend to self-report that they belong to the middle class based on income, but income is not the only the metric--indeed, it can be argued that 12 other factors are more telling measures of middle class membership than income.

In Why the Middle Class Is Doomed (April 17, 2012) I listed five "threshold" characteristics of membership in the middle class:

1. Meaningful healthcare insurance
2. Significant equity (25%-50%) in a home or other real estate
3. Income/expenses that enable the household to save at least 6% of its income
4. Significant retirement funds: 401Ks, IRAs, etc.
5. The ability to service all debt and expenses over the medium-term if one of the primary household wage-earners lose their job

I then added a taken-for-granted sixth:

6. Reliable vehicles for each wage-earner

Author Chris Sullins suggested adding these additional thresholds:

7. If a household requires government assistance to maintain the family lifestyle, their Middle Class status is in doubt.
8. A percentage of non-paper, non-real estate hard assets such as family heirlooms, precious metals, tools, etc. that can be transferred to the next generation, i.e. generational wealth.
9. Ability to invest in offspring (education, extracurricular clubs/training, etc.).
10. Leisure time devoted to the maintenance of physical/spiritual/mental fitness.

Correspondent Mark G. recently suggested two more:

11. Continual accumulation of human and social capital (new skills, networks of collaborators, markets for one's services, etc.)

And the money shot:

12. Family ownership of income-producing assets such as rental properties, bonds, etc.

The key point of these thresholds is that propping up a precarious illusion of consumption and status signifiers does not qualify as middle class. To qualify as middle class (that is, what was considered middle class a generation or two ago), the household must actually own/control wealth that won't vanish if the investment bubble du jour pops, and won't be wiped out by a medical emergency.

In Chris's phrase, "They should be focusing resources on the next generation and passing on Generational Wealth" as opposed to "keeping up appearances" via aspirational consumption financed with debt.

What does it take in the real world to qualify as middle class? Let's start by noting that real (adjusted for inflation) income has barely budged in 40 years, while household income has declined: Soaring Poverty Casts Spotlight on ‘Lost Decade’:

According to the Census figures, the median annual income for a male full-time, year-round worker in 2010 — $47,715 — was virtually unchanged, in 2010 dollars, from its level in 1973, when it was $49,065.Overall, median household income adjusted for inflation declined by 2.3 percent in 2010 from the previous year, to $49,445. That was 7 percent less than the peak of $53,252 in 1999.

Here is a chart of the real income of the lower 90% and the top 10%, which by definition cannot be "middle class":


The top 10% takes home 51% of all household income:



Here are my calculations based on our own expenses and those of our friends in urban America. We can quibble about details endlessly, so these are mid-range estimates. These reflect urban costs; rural towns/cities will naturally have significantly lower cost structures. Please make adjustments as suits your area or experience, but please recall that tens of millions of people live in high-cost left and right-coast cities, and millions more have high heating/cooling/commuting costs.

The wages of those employed by Corporate America or the government do not reflect the total cost of benefits. Self-employed people like myself pay the full costs of benefits, so let's "get real" and count *all* costs paid to maintain a middle-class lifestyle.

1. Healthcare. Let's budget $13,000 annually for healthcare insurance. Yes, if you're 23 years old and single, you will pay a lot less, so this is an average. If you're older (I'm 60), $13,000 a year only buys you and your spouse stripped down coverage: no eyewear, medication or dental coverage--and that's if your existing plan is grandfathered in. (If you want non-phantom ObamaCare coverage, i.e. a Gold plan, the cost zooms up to $2,000/month or $24,000 annually.)

Add in co-pays and out-of-pocket expenses, and the realistic annual total is between $15,000 and $20,000 annually: Your family's health care costs: $19,393 (this was before ACA).

Let's say $15,000 annually is about as low as you can reasonably expect to maintain middle class healthcare.

2. Home equity. Building home equity requires paying meaningful principal. Let's say a household has a 15-year mortgage so the principal payments are actually meaningfully adding to equity, unlike a 30-year mortgage. Let's say $5-$10,000 of $25,000 in annual mortgage payments is interest (deductible) and $15-$20,000 goes to principal reduction.

3. Savings. Anything less than $5,000 in annual savings is not very meaningful if college costs, co-pays for medical emergencies, etc. are being anticipated, and $10,000 is a more realistic number given the need to stockpile cash in the event of job loss or reduced hours/pay. So let's go with a minimum of $5,000 in cash savings annually.

4. Retirement. Let's assume $6,000 per wage earner per year, or $12,000 per household. That won't buy much of a retirement unless you start at age 25, and even then the return at current rates is so abysmal the nestegg won't grow faster than inflation unless you take horrendous risks (and win).

5. Vehicles. The AAA pegs the cost of each compact car at $6,700 annually, so $13K per year assumes two compacts each driven 15,000 miles. The cost declines for two paid-for, well-maintained clunkers. Average cost of auto ownership: $8,946 per year. let's assume a scrimp-and-save household who manages to operate and insure two vehicles for $10,000 annually.

6. Taxes. Self-employed people pay full freight Social Security and Medicare taxes: 15.3% of all net income, starting with dollar one and going up to $113,700 for SSA. Since an adjusted gross income (AGI) of $66,193 or more puts you in the top 25% of earners, let's use a base income (self-employed) of $68,000 to calculate our SSA/Medicare taxes: that's about $10,000 annually.

Property taxes: These are low in many parts of the country, but let's assume a New Jersey/New York/California level of property tax: $10,000 annually.

Income tax: Since the mortgage interest is only $5-$10K a year, itemized deductions are less than the standard deductions of around $18,000. One-half of the self-employment tax is deductible, as well as the health insurance and IRA retirement contributions, so that's another $30,000 in deductions. That leaves about $20,000 in taxable income and about $3,000 in Federal tax, and let's assume $2,000 in state and local taxes for a total of $5,000.

7. Living expenses: Some people spend hundreds of dollars on food each week, others considerably less. Let's assume a two-adult household will need at least $12,000 annually for food, utilities, phone service, Internet, home maintenance, clothing, furnishings, books, films, etc., while those who like to dine out often, take week-ends away for skiing or equivalent will need more like $20,000.

8. Donations, church tithes, community organizations, adult education, hobbies, etc.: Let's say $2,000 annually at a minimum.

Note that this does not include the cost of maintaining boats, RVs, pools, etc., or the cost of an annual vacation.

Here's the annual summary:

Healthcare: $15,000
Mortgage: $25,000
Savings: $5,000
Retirement: $12,000
Vehicles: $10,000
Property taxes: $10,000
Other taxes: $15,000
Living expenses: $12,000
Other: $2,000

Total: $106,000

Oops. That's more than double the median household income. OK, let's assume the mortgage is a bit high, ditto the property taxes. Let's say we need "only" $96,000.

Oops again: our tax calculations were based on $68,000 in self-employed net earnings. To earn $96,000, our taxes are going to skyrocket, as we're still paying the full 15.3% SSA/Medicare taxes while we'll jump into the 25% tax bracket when our taxable income exceeds $35,000. Since we'll be paying at least $15,000 more in SSA and income taxes, then we're up to $111,000 as the minimum household income to maintain a middle class lifestyle for two self-employed adults.

An individual earning $111,000 is in the top 10% of all wage earners. A household earning $111,000 is in the 80%-90% income bracket--the lower half of the top 20%. This suggests that the "middle class" has atrophied into the 10% of households just below the top 10%. Households in the "bottom 80%" are lacking essential attributes of a middle class lifestyle that was once affordable on a much more modest income.

Note that this $111,000 household income has no budget for lavish vacations, boats, weekends spent skiing, etc., nor does it budget for luxury vehicles, SUVs, large pickup trucks, etc. There is no budget for private schooling. Most of the family income goes to the mortgage, taxes and healthcare. Savings are modest, along with living expenses and retirement contributions. This is a barebones budget.

If costs had stagnated along with wages, it would take a lot less to maintain a middle class lifestyle. But costs for most middle class essentials have skyrocketed. I was struck by something I read recently in a history of the Tang Dynasty in China, circa 700-900 A.D. When costs are cheap, goods and trade are abundant and prosperity is widely distributed. Once costs rise, trade declines and living standards stagnate. Poverty and unrest rise.

Here are a few charts that illustrate the pressures on the middle class:
Wages have risen modestly while debt has increased enormously.




Social Security taxes have skyrocketed:



So have property taxes: they rose right through the last recession even as property values tanked:



Labor's share of national income has plummeted:



Interest income has fallen through the floor (thank you, Federal Reserve):



The bedrock of Main Street, small business, has cratered:



Net worth of the middle income households has been reduced to a sliver:



As costs have risen faster than incomes for decades, households have been priced out of the middle class. By standards of previous generations, the middle class has been stripmined of income, assets and purchasing power.

Of related interest:

Financialization and Crony Capitalism Have Gutted the Middle Class (July 13, 2012)

Healthcare "Reform": the State and Plutocracy Stripmine the Middle Class (Again)(November 9, 2009)


If You Seek Practical Gifts, Consider These Everyday Kitchen Tools 

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The Nearly Free University and The Emerging Economy:
The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?


We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Read the Foreword, first section and the Table of Contents.

print ($20)       Kindle ($9.95) 

---

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.
Kindle: $9.95       print: $24 

Thank you, Troy T. ($50), for your splendidly generous contribution to this site-- I am greatly honored by your support and readership.

Read more...

Looming U.S. Retail Implosion: DeGrowth 2014

Overbuilding and overconsumption as models of "growth" have reached exhaustion.

I recently addressed the bogus model of "growth" based on adding retail space and the DeGrowth movement, which is based on a sustainable model of doing more with less.

The American Model of "Growth": Overbuilding and Poaching November 19, 2013

Have a Merry DeGrowth Christmas--Boycott Black Friday November 20, 2013

Gordon Long invited me to discuss these topics with him, and the result is this 25-minute video of informative slides and our unscripted discussion of the exhaustion of the consumerist/expanding retail space model of growth.



LOOMING US RETAIL IMPLOSION: An Urgent Re-Think Required

Various propaganda attempts are being made to air-brush lackluster holiday spending into a happy story of strong "growth," but the over-all picture is of stagnation, not "growth."

The propaganda will soon shift to predicting "strong after-Christmas sales" and gift card redemptions in January; if after-Christmas sales are the foundation of "growth" and earnings, the U.S. economy is in real trouble.

Santa, Please Let This Be the Last Christmas in America That "Saves" the U.S. Economy(December 19, 2012)
Santa, please, please, please strangle the idiotic fantasy that Americans buying a bunch of junk (or gift cards for after-Christmas purchases of junk) will "save" the U.S. economy. 

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The Nearly Free University and The Emerging Economy:
The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?


We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Read the Foreword, first section and the Table of Contents.

print ($20)       Kindle ($9.95) 

---

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.
Kindle: $9.95       print: $24 

Thank you, Dan R. ($10), for your most-welcome generous contribution to this site-- I am greatly honored by your support and readership.

Read more...