Nobody pays $384 for a physical therapy visit

The headline from a WaPo op-ed reads:

For a stiff neck, nearly $6,000 in physical therapy seemed too much

The author is a patient who had physical therapy prescribed for a simple musculoskeletal problem.

My insurance company sent me notification it was “seeking additional information about these charges,” which would mean a “delay in payment” for my PT treatments. My insurer had been billed $412 for my first appointment and $384 for the second. I can hardly blame the company for wanting to know the justification of such costs.

Now I understand why the front desk seemed so eager to have me use my maximum of 12 visits before the end of June: I was leaving nearly $5,000 worth of payments on the table. [bold mine-- Tony]

Notice the confusion of bills, payments and cost.

The author assumes that the insurance company gets no discount and will pay the full $384 billed for the physical therapy appointment and the thousands of dollars of visits. It's satisfying I suppose for health care consumers to read these bills and feel that they have found the real reason, the Holy Grail, of the health care cost crisis, -- $6,000 !!!! OMG!!!--so they fire off an op-ed finally enlightening all of us on the true nut of the issue.

Of course, it's way more complicated than $6,000 in bills. Every insurance company and payer, even cash payer, negotiates a discount to the amount billed. In fact, the amount billed, the $6,000 is a compete fiction. Stop talking about it. 

There's a discount. It might be $100 or $300 or $50.

For a nation ostensibly built on the notion of capitalism and finance I continue to be astounded at the lack of sophistication of the arguments regarding health care finance.

If the Washington Post can publish such an inane op-ed then there is no hope. We should be way beyond the griping about the $384 charged for a physical therapy visit. Nobody ever pays $384 for a physical therapy visit. The insurance company gets a discount. Medicare gets a discounts. Medicaid gets a BIG discount (if it's covered at all). Even cash customers negotiate a discount.

Maybe it's a problem that we really don't know how much is reimbursed for that visit. Fine. But nobody PAYS $384 for a physical therapy visit.

Let me say it again, nobody pays $384 for a physical therapy visit.

Nobody pays $384 for a physical therapy visit.

$384 was the CHARGE, not the payment, NOT the cost.

Get it?

Nobody pays $384 for a physical therapy visit.

Please, if you are an editor for the Washington Post, the USAToday, the Wall Street Journal, the New York Times, or a producer for any news network do NOT conflate charges with payments with costs. Don't embarrass yourselves by publishing op-eds and letters like this without explanation. You are morons.

Nobody pays $384 for a physical therapy visit.

The Cost of Prenatal Care

The New York Times has a lengthy article concerning the lack of price transparency in prenatal care and the apparent price gouging that occurs. This follows the theme of other news items covering the crisis is health care economics.

Like many reports on this topic, the NYT fails to differentiate adequately between costs and charges. The comments typically devolve into hand-wringing about the lack of “price” transparency and a flurry of opinions about how the system should be reformed.

Fine. But let’s define terms. “Charge” is the nominal amount on the price list by the hospital or doctor. This figure has almost no meaning since every insurance company and government entity negotiates a lower price for their members and risk pool. This refers to the upfront, non-discounted fee on the list.

“Cost” is the bottom line bare-bones amount of money needed to provide a service or supply, before profit. “Profit” is the net between what a good or service costs and the actual amount collected by the provider. I have no idea what "price" refers to.

The table shows the “amount paid” for prenatal care in the US versus other nations, but this is not completely accurate or at least only partially defined in the article. The table has a line below stating “amounts paid are the actual payments agreed to by insurance companies or other payers of services, and are lower than billed charges.” So far so good, but this still leaves out a clarification of how much disparity exists between payers, for example private insurance versus Medicaid. Who pays what amount?  Medicaid typically pays 50% of what private insurance would pay, so the $9775 figure is meaningless because the range might be $3000 to $15,000. And the actual cost, not addressed in this article or this chart, to the hospital/doctor might be $600 or $16,000. Who knows?

Another example of incomplete reporting is the discussion of obstetricians’ charges and collection. The NYT article says “[obstetricians] often charge a flat fee for their nine months of care, no matter how many visits are needed,... That fee can range from a high of more than $8,000 for a vaginal delivery in Manhattan to under $4,000 in Denver, according to Fair Health, which collects health care data.”

Useless reportage. They are referring to a charged fee and not the actual collected amount as negotiated by insurance companies and Medicaid (Medicare provides relatively little prenatal care since older and disabled women are less likely to get pregnant). How much is actually collected? Answer: it depends and varies A LOT. In my experience, our practice in Michigan charged $3600 global fee but then it would be discounted 40-75% with Medicaid paying less than $1000. Nobody ever paid $3600 because even the 1 or 2 cash paying patients every year got a steep discount negotiated upfront.

A “charge” is completely without pertinence. Administrators and bean counters know the bare-bones “cost” of particular services and supplies down to the penny but they are loathe to make that information known.  

The other poorly kept secret is that privately insured patients subsidize Medicaid patients who are receiving steeply discounted prenatal care. As an aside, I always wonder why any young couple bother to get married and pay for benefits. Being frank, from a finance standpoint they’d be better off having their kids out of wedlock while the woman can qualify for Medicaid. The father could make a 5 or 6-figure income, let the state pay for the prenatal care, and pocket more money. Why the hell not? Actually I’m sure some do make that conscious decision...but that's a digression.

The most important figure is not the “price” or the “charge” but the actual “cost”. The supplies, IV bags, gloves, gown, the epidural, 8 hours in a labor room, nurses’ salaries, etc, all have known costs. From there we can determine how much profit can be reasonably tacked on: 2%, 5%, 50%? Let’s get the numbers.  Then they can be extrapolated over a population, knowing that c-section rates are 25% and NICU admissions occur at a certain rate, etc.

To put a table that says “amount paid” is useless and to talk about “charges” is less than useless.

How much this cost disclosure would help individual consumers of health care is debateable. Given all the asymmetric information  I doubt it would help much at all. The value to knowing the cost is for payers-- Medicaid, Medicare and insurers-- to negotiate pricing from a more meaningful vantage point. Like most medical services, prenatal care is not a product that can reasonably be purchased by an individual looking at a line item price list. The costs should be borne by the entire society as a risk pool. I don’t care how much cost disclosure is available, no individual would be able to anticipate all the possible outcomes in labor and pay out of pocket for a complicated hospital course and, say, 12 weeks of neonatal intensive care.

This topic of charges and cost and profit is pertinent to the entire health care debate, but the thought of healthcare as a free market that would benefit from individuals knowing “prices” is wishful thinking. There is no free market in health care. If the ER doctor says your chest pain warrants a cardiac catheterization you don’t shop around for the best price. It might seem like we are empowered if we use our HSA debit card to pay a hospital or doctor’s bill, but it’s all a ruse; the real costs, the big ticket items, cannot be negotiated by a single person with an HSA account.

The kicker is that there is an organization that really does know the costs and uses that information in the real world: Medicare. They have the largest database of costs and Medicare negotiates fees based on this vast knowledge, called the resource-based relative value scale, or RBRVS. This is why Medicare is so damn efficient compared to private payers and state-run Medicaid, but that's another topic for another day.

Wealth Tax. D'uh.

A while back I saw this video about the wealth inequality in the United States.  It reminded me of the old economic adage that if aliens had come to earth and collected all the wealth and evenly distributed it among humans and left for 50 years, when they came back the wealth would be concentrated into a few individuals. That's just a natural trait among humans: some are better at accumulating assets than others.



But there really is more to the story of wealth distribution. The way wealth is distributed varies depending on what is valued within the society at the current time. I doubt Bill Gates would have been as successful writing software had he been born in Mongolia under Genghis Khan 800 years ago. Charles Manson, on the other hand, might have parlayed his psychopathic conscious-less killing into a lieutenant-ship. Who knows?

Christopher at Christopher's Apologies had an odd take, a head scratcher. He presented the above video and basically shrugged off the epic wealth inequality, saying: 

"Just so we’re clear: there are no rules, laws, or regulations governing who can have money in this country or how much they can have.  So then what is it that prevents people from moving from one economic stratum to the next? Why is it so many people believe government needs to enter into the fray in order to level the playing field and redistribute wealth on behalf of the lowest income earners?"

Huh? Government redistributes wealth "on behalf of the lowest income earners"?  I have no idea what universe Christopher is observing. Did he even watch the video? Wealth is not being re-distributed to the lowest earners at all. That's the point. Nearly every single penny of efficiency squeezed out by the huge gains in worker productivity has been transferred directly into the bank accounts of the wealthiest 5%. I guess the Wal-Mart heirs deserve it all, Christopher is just sorry we cannot give them more.

We have socialized risks made by banks and oil companies and really every corporation, yet they keep their profits private. When they make money, great, they get to keep it, less of course some nominal income tax which is lower than mine....but when they lose money, oops, they need a bailout.  Nobody goes to jail, nobody even loses a bonus check. The laws are ALL in their favor.

Christopher adds, 

"My second problem with the video (and it’s premise) is that it stokes the fires of greed in people.  I won’t say that it creates greed in people since everyone has that flaw as part of their sinful nature, but media with this type of content pours gasoline on the greedy fire that burns in all of us."

While I'm not 100% sure his point here, I think he is concerned with "stoking" the greed of the less wealthy who are apparently pining for a free giveaway from the wealthy. The video is really just giving a blow-by-blow account of the statistics of the wealth distribution, and I think we can determine who has the greed and who doesn't. 

From the NYT:

A common statistical measure of inequality is the Gini coefficient, a number between 0 and 100 that rises with greater disparities. From the late 1970s through the early 1990s, the Census Bureau recorded Gini coefficients for income in the low 40s. Yet by 1992, the Gini coefficient for wealth had risen into the mid-70s, according to data from the Federal Reserve.

Since then, it has risen steadily, to about 80 as of 2010. In 1992, the top tenth of the population controlled 20 times the wealth controlled by the bottom half. By 2010, it was 65 times. Our graduated income-tax system redistributes a small amount of money every year but does little to slow the polarization of wealth.

These are stunning changes. The global financial crisis did make a dent in the assets of the wealthiest American families, but its effects for the bottom half were utterly destructive; the number of owner-occupied homes has fallen by more than a million since 2007. People in different socioeconomic strata are living ever more different lives, with dangerous results for society: erosion of empathy, widening of rifts and undermining of meritocracy.

History tells us that at some point the fabric of society deteriorates when a few have all the wealth-- think Czarist Russia or France circa 1790. Maybe we're not close to that point but that's the question. How soon until the the aliens come back to see how we've reallocated the wealth? I'm not clear at all on how greedy tendencies of the poor are a problem.

Robert Reich echos the New York Times on this topic, calling for a wealth tax just like property taxes that we all pay. Why not?



Instead we tax income and not wealth. We give a  negative incentive to work and produce, but Paris Hilton gets a pass. I can hear all the Rand-bots predicting that the wealthy will "Go Galt" and move their wealth off-shore and property values will sink and the apocalypse will commence. Really? Where else are the wealthy going to put their assets to be safe and their families protected? Mali? 

I comment not because I see anybody addressing the wealth inequality which is growing in logarithmic fashion-- we know who makes the rules. I just find it interesting that given all the insanity that has occurred with trillions in bailouts and transfers from our Treasury to the connected corporate elite, S&P profits at record levels, stock prices reaching new all-time highs, the wealthy getting wealthier and the poor getting poorer, yet we cannot collect enough to balance our budget...and we can STILL find apologists like Christopher who see nothing wrong here...move along.   

And, oh yeah, the poor are greedy.

The Most Important Chart...

This chart depicts the result of class warfare, a war that only one side is fighting. 

Quote:

Shortly after 2000, the lines diverged. The economy hummed along, but many Americans, the ones politicians typically refer to as the middle class, stopped feeling the benefits. There are many reasons for the change, and some of them are open to economic debate... Part of the shift can be attributed to increased income inequality owing to globalization and new technology — the wealthy becoming much wealthier, while the rest stayed the same. Part of it can be attributed to increased corporate profits, as new markets opened overseas and new technology lowered costs. Some of it has to do with how the figures are calculated. But the most important political takeaway of the chart is that at the turn of a new century, much of the U.S. stopped feeling the benefits of a growing national economy.

We have record corporate profits, record executive salaries, continued rise in per capita GDP and employee productivity. US companies are making more money than ever before, yet inflation-adjusted incomes have stagnated.


If you are reading this, chances are you have lost the class war.

We're about to transfer more public wealth to health insurers.

Ahhhh, now I get it.

Digby has unearthed a key point in the circle jerk about raising tax rates and cutting entitlements. Avik Roy, Forbes blogger and one of Romney's health care advisers, floats the notion that all the talk of raising Medicare eligibility to 67 years is really about working towards the eventual privatization of Medicare.

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Roy says:

"I have to respond to this interesting hyperbole about Medicare death sentence. If you raise the retirement age for Medicare, we have the Affordable Care Act as the backstop. Everybody under 400% poverty level is still covered with the affordable care act in place. So what we are really talking about is means testing Medicare by raising the retirement age. People who are upper income, above 400% of the poverty level won't be subsidized if they're younger retirees. It's where entitlement reform should go, to expand it into the retiree population."

Here's the deal. Raising the eligibility age for Medicare doesn't save taxpayers any money since the vast majority of those individuals will qualify for the Affordable Care Act subsidy to purchase health care from the private insurers or get Medicaid. Even though they won't be on Medicare these folks will still have government supported health care, only a more expensive form. Roy knows this.

In other words, instead of paying for care directly through Medicare, the US taxpayers will be transferring revenue to the likes of Aetna and United Health Care to act as middlemen for the administration of health care. This adds another layer of unnecessary bureaucracy. Medicare already has very low administrative costs so why add insurers to the administrative mix?

This is the exact opposite of what we should be doing. The more cost-effective solution is to lower the eligibility age for Medicare to age 55 years, with these younger individuals who choose Medicare paying the risk-adjusted cost plus some margin. This does a couple things:

1. It immediately adds healthy, paying people to Medicare, increasing it's solvency.

2. It provides a comparison of younger Medicare patients with private insurance customers for head to head analysis to see once-and-for-all which payer method is more cost-effective. My bet is on Medicare with its economies of scale and huge market power to drive costs down.

3. It allows soon-to-be retired workers to have health insurance independent of their employer, thus allowing more part-time work, mobility, and also relieving employers from having older members in their insurance risk pool.

If my hypothesis is correct, such an experiment would show that Medicare operates better than private insurers and we could eventually allow even younger workers to participate. Of course, the last thing corporate health insurance executives want to occur is such a comparison, and their mouthpieces in Congress will gladly trade higher marginal income tax rates in order to privatize Medicare.  Somewhere Grover Norquist is groaning.

Much to our dismay it appears that some Grand Bargain will be made to annul the "fiscal cliff" and that bargain will include the beginnings of a privatized Medicare system and the resultant huge transfer of public wealth to private health insurance companies via the Affordable Care Act subsidies. 

Pro-tip: If such a Grand Bargain includes raising the Medicare age, shares of United Healthcare (UNH), Aetna (AET), Wellpoint (WLP) and Cigna (CI) should all do well. 

Howard Dean: "We've got to do something about the deficit in this country"

Finally, a voice of reason in the budget sequester/ tax hike debate. Howard Dean, former governor, former DNC Chair and former presidential candidate, appears to be the only adult in the discussion. We already have a bipartisan budget deal, it's been in place for 18 months, so let it play out.

Here is a defense contractor CEO whining about having to cut her budget. Gov Dean points out that there have been no substantive defense budget cuts in 30 years and the greatest risk to our national security is not some outside threat but rather the federal deficit that is approaching 100% of our GDP.



Hickton, the defense contractor CEO, states that the budget deal has no direction and is unfair to the defense industry. Bullshit. It's an across the board reduction in spending, and it's only $600 billion. The direction is clear: we will be spending less money. It's no secret that these projected cuts have been in place for over a year. What have these companies been doing to prepare? Hoping? Ugh.

CNBC leaves no doubt that they want some other deal than what has been passed.. In fact, I have yet to see or read anything in the mainstream media that likes the budget deal that was enacted in 2011 and is about to take place. Too much austerity, too many tax hikes, blah, blah, blah.  Now we have toi endure the "we will not be safe with defense cuts" hysteria?  Please.

The fact remains that this was a bipartisan deal with the goal of eliminating the need for any debt ceiling debate every 8 or 9 months.

Gov Dean states the obvious: we'll get a recession. So? Clean out all the detritus from the economy, the creative destruction that should have happened 4 years ago.  One advantage is that the US dollar would get stronger, helping savers and workers in necessary industries.  

At the end of this clip, Mandy fatuously parrots the mantra that "we need a deal". No we don't.  We already have a deal. Let Congress go on vacation now.

Let's go over the cliff...

A couple weeks ago I said that the hardest job in DC was Boehner's, and I stand by it.

Obama is playing 11-dimensional chess and the GOP thinks it's checkers. They don't even know the game.

Disclosure: I don't give a damn how or even if the fiscal cliff (god how I hate that term) is resolved. My taxes are going up regardless, and I'll lose nothing from government cuts, so who cares? Cut defense by 1/3. Fine with me.

My financial adviser at Edward Jones sent me an email about the fiscal cliff (Ugh that term!)) and it shows that in the long run we may be better off if nothing is done. If the GOP wants a balanced budget and austerity, this is the way to do it. Let the Bush tax cuts expire, cut federal spending and.... voila!  

Recession now but it's short-lived and we get better GDP by 2014

The deficit hawks in the GOP should love going over the fiscal cliff

If the Republicans want to hold US workers' tax cuts hostage, there's nothing the president can do about it. At some point after January 1, Boehner and McConnell are going to realize how difficult it will be running for re-election after they've raised income taxes on everyone. The president offered to rescind the tax hikes for 98% of taxpayers, but McConnell in his infinite ignorance "laughed" at it. Psychopathic reaction.

And Boehner has yet to offer any plan. From the Guardian:

Boehner was then asked: Do you think the White House is trying to squeeze you? Boehner said he was always ready to work with the other party. But when asked what the GOP wanted to see cut from entitlements, Boehner was no more forthcoming than usual:

"You can look at our budget for the last two years, there are plenty of specific proposals."

A reporter then pointed out that even under the fabled Paul Ryan budget plan, cuts to Medicare wouldn't take affect for years, and didn't Boehner want something more quickly? Boehner did not answer.

And why on earth would President Obama, or the GOP leadership for that matter, sign onto a Ryan budget plan that was rejected by voters in the recent election? 

Check mate. 

The Dollar

Now here's something you'll never see on Fox Business channel, or any business channel for that matter.

GDP and job growth in the 2000's was due exclusively to dollar devaluation.

During the election season all we heard about was jobs, jobs, jobs. Why aren't there any jobs?

The real question rather is why was there any job growth at all from 2001 to 2008? The answer is clearly because the dollar was devalued 41% over the decade.

It's not magic: unless you have some innovation like the internet in the 1990's to increase your GDP you get no economic growth and no growth in jobs. The only way out is to devalue the dollar so the jobs that are created are paid with relatively worthless currency.  The upshot is that not only the new workers, but ALL workers are paid with the devalued dollar.

Only when the world was ending in 2008 was the free fall in dollar value halted. Now we are Japan: with a rising cohort of dependent pensioners and a currency that cannot be devalued any further. Okay, we aren't as bad off as Europe, but relative to the last two decades we have a lot more drag on the economy.

The 1990's saw GDP growth due to the internet boom, so the US dollar was spared.

Modest Proposal:

We need a new growth industry.  One of the few things the US does with any competitive advantage is provide military firepower. I suggest we monetize this by contracting our services to global bidders for a price. Why provide it for free?  There was a time when global security was the loss leader: we made the world safe so that our industries could sell to the world markets, but that advantage is dwindling. Now we are making the world safe so that our competitors can compete with us and out-sell us.

Security is expensive. Why is the US bearing the burden for free? If our UN and NATO partners don't want to pony up then maybe we should accept bids from other potential customers.

Just sayin'.

Where did the debt come from?

My comments:

1. Assuming that McCain had been elected in 2008, the stimulus which accounts for 6% of the current deficit might have been lower than the $800B, but it still would have substantial given the Great Recession, so that  amount would still be in the 4% range conservatively.

2. The needed increased spending on entitlements was completely foreseeable in 2001, and ignored. Reforming entitlements today is merely stealing defined benefits from future retirees because of poor fiscal management over the past decade. Paul Ryan is the worst in this regard, doing nothing for 10 years and then lopping off Medicare.

3. Bush was a Grade A moron, no question, and Dick Cheney's "deficits don't matter" mantra was criminal crony capitalism, taking our Treasury and transferring it to his buddies in the defense and oil industries.  But the Democrats share most of my wrath because they are after all the authors and de facto guardians of our social safety nets. Most Democrats went along with war funding year after year as well as Medicare Part D and many signed onto the Bush tax cuts.  The Democrats need to be more vigilant of the robber barons who inhabit the Republican party; they cannot enable the grifters and then cry foul when the system breaks down.

The media is not liberal, they're liars

Maria Bartiromo is interviewing the president of the Service Employees International Union (SEIU), one of the world's largest labor unions. Maria is touting a couple of her favorite themes: class warfare and taxes.



1. The look on Maria's face tells it all as Ms Henry answers the question about class warfare. "No, really? Oh, wow", as if to say, "I can't believe someone would could not see class warfare."  Her disgust is obvious. Bartiromo's implication is in reference to the Occupy Wall Street crowd. My take: Yes there is class warfare in this country and the rich are only side waging it. Why else would we see bailouts for bankers and not homeowners? The average Wall Street salary is $362,950 per year while the average nurse makes $73,000. 

The wealthy have their media outlets carrying water for them, convincing the working class to disarm themselves in the class war. The result is that we see nothing wrong with CEO's making an unprecedented almost 400X the average worker's salary; we see no ill effects with the highest 1% accumulating 30% of the nation's wealth, the most since the gilded age. Maria wants the union president to apologize for negotiating fair wages and working conditions. Please. Nobody in this discussion is begrudging the wealthy and high income earners their fortune, but to beat up a union leader and imply she is waging class warfare is absurd and untrue.

Now we have a leveraged buy-out specialist within a hair's breadth of the presidency. 

2.  Ms Henry notes that "we all pay taxes" and Maria clarified that she meant "income taxes, and not everybody pays income taxes." Under Maria's definition Mitt Romney would be part of the "47% who don't pay taxes" since his taxes were capital gains on the carried interest loophole and not income taxes. 

Every employed worker has 12% of their compensation contributed to payroll taxes and since this money is put directly into the general revenue fund it is treated no differently than income tax. Bartiromo's argument would be valid if payroll taxes were sequestered as a true pension and health care fund, i.e., Al Gore's lockbox that was so damn funny back in 2000. There is no lockbox; our social security and Medicare was spent in Iraq and on TARP. Our pension goes to fund wars and roads and corporate welfare for Exxon just like all other revenue; therefore, Bartiromo is making a false differentiation between payroll tax and income tax. 

Bartiromo knows this and she is using this interview with a union boss to purposely deceive the viewers and spew her venom towards working people. Her disdain is unveiled. This shrill demeanor is not new for CNBC, the home of Rick Santelli's teaparty rants. 

Bill Griffiths sits and watches the trainwreck, wishing like hell he had not come out of retirement.

NFL Refs: Call it Maybe

It looks like I picked a good year to give up NFL football, resigning from my fantasy league. The game has become too violent, with too many thug athletes, and now inept officiating.

Disclosure: I did watch the last quarter of MNF last night...a thing of beauty, pure poetry: the Packers coach (not) whining and Aaron Rodgers looking like the winsome 40 year-old virgin at his post-game presser after the team from Wisconsin got jobbed by non-union refs. Karma.

Maybe Roger Goodell should add Scott Walker to the labor negotiation team.

APM's Marketplace estimates that last night's blown call  will cost the town of Green Bay millions of dollars when adding the lost revenue of a home play-off game with concessions, parking, hotels, etc. And that's not including the perhaps quarter of billion dollars that were transacted in sports books.

According to Jonathan Mahler at Bloomberg, the referees want an increased salary and to continue their defined benefit plan, which would cost a few million dollars-- a mere "rounding error" to the $9 billion NFL. As Mahler points out, this is not a dying Midwestern city, it's the most popular sport in the wealthiest nation on earth.

The NFL will cave, as they should, after all this is football we're talking about, not just whiney school teachers.

Macroeconomics and STRUCTURAL risk

Jon Stewart interviews Austan Goolsbee, economics professor from the University of Chicago and former Obama adviser. This clip summarizes the idea of risk mitigation in macroeconomics better than anything I've seen on television. No matter your politics I think this is educational.  Do we lower tax rates on high income earners to incentivise risk taking, or do we provide structural safety nets to incentivise workers to take risks such as going back to school or moving across the country for a better job? This is a fundamental question about the structure of our economy.

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This morning on CNBC Rick Santelli interviews James Bianco about the latest employment numbers that show we are not creating enough jobs to keep up with our growing work force. (The video link is here in case the embed doesn't work.) Note the reference to structural economics problems.



Santelli has been vociferous in his condemnation of current economic policy, note the self-sure smirk as he gladly reports on the lousy employment statistics.  But also note that he and Bianco agree that the macroeconomic problems are "structural" yet offer no other remedy. Granted, this is a short clip and we cannot expect Santelli to offer a lengthy solution (here is a more full-throated diatribe) but his mantra has always been that we should "cut spending" while leaving out specifics, and he has bemoaned for years that federal spending will lead to inflation and high interest rates...to the detriment of any investor/ trader who has taken his advice.

MY COMMENT: There are no easy solutions; financial meltdowns take years-- maybe a generation-- to fix. This is not a mere oil shock like the 1970's. The structural problems in our economy need structural solutions. Central banks do have a role to play, issuing monetary easing to keep us treading water while we educate the next generation in useful jobs, while Europe digs out of their fiscal crises and begins to collect taxes for a change, while we re-build our debilitated infrastructure and repair our housing market, reduce our dependence on foreign oil, etc.  Structural.

Santelli is concerned about the value of the dollar, but he needs to get over it. Fiat currencies ALWAYS lose value-- that is what governments are supposed to do to spur investment and inhibit stockpiling currency-- but actually the US dollar has not lost any value in the current crisis, rather, it has gained value versus other currencies. US Treasuries have outperformed and are at multi-generational low rates. This is the clearest evidence that world markets have confidence in US policy. Can this change? Yes, in fact it definitely WILL change eventually. The best thing that could happen is that interest rates climb, which would be a sign that people are taking on risk in the equity markets and leaving the safety of US bonds.  

Structure, baby.

The Social Contract is Void

From CWE:



Wages as a percent of the economy are at an all-time low. This is both cause and effect. One reason companies are so profitable is that they’re paying employees less than they ever have as a share of GDP. And that, in turn, is one reason the economy is so weak: Those “wages” are other companies’ revenue.
~Business Insider

The chart below shows corporate profits.  You may notice that regulations and the fear of taxes are not inhibiting business profits.  You may also note that conservatives are pushing for further tax breaks for large corporations and espousing the view point that somehow too much government intervention is making it difficult to be profitable.  Right.

The chart below shows the rate of credit (red) vs. the rate of the economy (blue).  We are a credit driven economy.  Some could call that a House of Cards.

This chart shows American GDP when you subtract out what we borrow to fuel the economy.  WOW.

MY COMMENT: We borrow to pay for wars, we borrow to drill for oil, we borrow to pay for unemployment benefits, we borrow to finance tax cuts, we borrow to maintain consumer spending, we borrow for everything.  

Revolt of the Rich

Revolt of the Rich, in the American Conservative, by Mike Lofgren.  Excerpt:

"The objective of the predatory super-rich and their political handmaidens is to discredit and destroy the traditional nation state and auction its resources to themselves. Those super-rich, in turn, aim to create a “tollbooth” economy, whereby more and more of our highways, bridges, libraries, parks, and beaches are possessed by private oligarchs who will extract a toll from the rest of us. Was this the vision of the Founders? Was this why they believed governments were instituted among men—that the very sinews of the state should be possessed by the wealthy in the same manner that kingdoms of the Old World were the personal property of the monarch?

"Since the first ziggurats rose in ancient Babylonia, the so-called forces of order, stability, and tradition have feared a revolt from below. Beginning with Edmund Burke and Joseph de Maistre after the French Revolution, a whole genre of political writings—some classical liberal, some conservative, some reactionary—has propounded this theme. The title of Ortega y Gasset’s most famous work, The Revolt of the Masses, tells us something about the mental atmosphere of this literature.

"But in globalized postmodern America, what if this whole vision about where order, stability, and a tolerable framework for governance come from, and who threatens those values, is inverted? What if Christopher Lasch came closer to the truth in The Revolt of the Elites, wherein he wrote, “In our time, the chief threat seems to come from those at the top of the social hierarchy, not the masses”? Lasch held that the elites—by which he meant not just the super-wealthy but also their managerial coat holders and professional apologists—were undermining the country’s promise as a constitutional republic with their prehensile greed, their asocial cultural values, and their absence of civic responsibility.

"Lasch wrote that in 1995. Now, almost two decades later, the super-rich have achieved escape velocity from the gravitational pull of the very society they rule over. They have seceded from America."

Mike Lofgren served 16 years on the Republican staff of the House and Senate Budget Committees. He has just published The Party Is Over: How Republicans Went Crazy, Democrats Became Useless, and the Middle Class Got Shafted. 

Free Market Medicare Reform Won't Work

Vice-Presidential candidate, Rep. Paul Ryan (R-WI)

Health care is not a free market; never has been and never will be. There are too many competing interests with asymmetric information. Doctors, pharmaceutical companies, medical device manufacturers, hospitals, outpatient facilities, etc. are paid according to necessarily complex formulae. Patients are simply not equipped to make reasonable decisions with any kind of expertise. They just aren't.

The reason Medicare functions is because it is heavily regulated to the point that market forces are expunged. Providers are paid according to a formula and are expected to deliver a product that conforms to a rigid set of standards. The patient is not expected to know if his/her medication is efficacious or his/her surgeon is competent, federal and state regulatory bodies ensure quality. Some decisions are left to the discretion of the physician, but most individuals would be surprised at the lack of freedom doctors have to perform tests or surgery. Strict criteria need to be met before Medicare will pay, and disciplinary action is meted out if the standard of care is not met. For a provider to lose the ability to bill Medicare is professional or business death.

The notion that patients, especially old and debilitated ones, can navigate a "free" health care market is delusional. And the notion that this would save money is downright insane. How do we know this? From the failure of Medicare Advantage, a tiny piece of free marketing, to cut costs or improve quality. On a larger scale, free markets in Medicare would be disastrous.

Peter Orzag summarizes how Paul Ryan's Medicare fix would work. Seniors would have a choice to enroll in a commercial insurance plan, or if too expensive, fall back to traditional Medicare. This is a boon for insurance companies. Like Medicare Advantage, the private carriers will select the healthiest and wealthiest and leave the poor and sick to the government-financed Medicare plan. Orzag:

In 2012, Medicare Advantage bids have come in on average a bit below traditional Medicare costs, analysis by the Medicare Payment Advisory Committee shows. Even more relevant to the revised Ryan plan is that, in 2009, the second-lowest bid in each U.S. county -- which is what the new plan would be based on -- was an average of 9 percent below traditional Medicare, a new analysis in the Journal of the American Medical Association shows.

As [National Review columnist Reihan] Salam wrote, “we have new research which finds that had competitive bidding been in place in 2009, it would have reduced Medicare expenditures by at least 9 percent while preserving access to the Medicare defined benefit for all beneficiaries.” The Wall Street Journal editorial page cited the same analysis and made the same point. Case closed?

No, because there’s very good reason to believe that the 9 percent differential is a mirage -- and that experience to date does not support claims that private plans in Medicare lower costs.To see why, imagine two beneficiaries. One has medical expenses amounting to $150 and the other, $50. The average cost is $100. Now imagine that a private plan bids $90 to cover beneficiaries, so it looks to be about 10 percent cheaper than traditional Medicare. That plan, however, while it is designed to be very attractive to the $50 beneficiary, isn’t appealing to the $150 one, so that person stays in traditional Medicare.

The result is that total costs rise from $200 ($150 for the expensive beneficiary plus $50 for the inexpensive one) to $240 ($150 for the expensive beneficiary plus $90 for the inexpensive one). So even though the plan “looks” like it saves money, it doesn’t. It overpays to cover the $50 beneficiary. (And that’s not even taking into account another factor: that if Medicare’s purchasing power is splintered, its negotiating leverage will be reduced. So the prices it must pay could rise. That would drive up the cost of covering the $150 beneficiary, pushing the total above $240.)

To counteract the selection effect on Medicare Advantage plans, a risk-adjustment process is used. The system has improved over time, but evidence suggests it still does not work very well. The models used to adjust payments can account for only about 10 percent of subsequent cost variation; even the most optimistic estimates suggest they could account for only 20 percent to 25 percent of the variation. This gap allows plans that can better predict beneficiary costs to game the system by selecting beneficiaries who are expected to cost much less than their risk-adjusted payments. (Plans do not always want the least-expensive beneficiaries, but rather those who are the least expensive compared with their risk-adjusted payment. The implication is the same, though: Plans can beat the risk adjustment, and be overpaid.)

How big is this selection effect in Medicare Advantage? The evidence suggests it’s huge. The most careful analysis was reported in a 2011 National Bureau of Economic Research paper by Jason Brown of the Treasury Department, Mark Duggan of the University of Pennsylvania, Ilyana Kuziemko of Princeton and William Woolston of Stanford University. In 2006, Medicare Advantage plans were overpaid by more than $3,000 per beneficiary because they were able to select beneficiaries who cost less than their risk-adjusted payments. About $1,000 of that overpayment reflects what the plans were paid, rather than what they bid. So relative to their bids, the plans were overpaid by $2,000 per beneficiary -- or roughly 25 percent of the bid, on average.

It's all about selection. Traditional Medicare today is actually run fairly efficiently, mainly because they have pricing power with providers and the administrative costs are lower than private insurers. Physicians accept 80% of their customary fee to see Medicare patients because to do otherwise would close their practices to a large swath of the patient population. Likewise for drug companies, hospitals, etc. Under Ryan's plan, the healthiest seniors would opt for a commercial plan-- at a higher cost-- and leave the sickest seniors to the traditional Medicare. With only the few sick seniors enrolled in traditional Medicare, the program will certainly lose money.

Furthermore, Ryan's plan changes Medicare from a defined benefit program to a defined contribution program. There is no guarantee that costs will be controlled, in fact there is pretty good evidence that costs will skyrocket as per the above example, with the difference made up by either patients paying more or the government funding the shortfall.

Investment tip: If Romney/Ryan win in November, buy United Healthcare (UNH) stock, especially if the GOP controls both houses of Congress. Cha-ching!

QOTD

Quote of the Day

"We've got the message, but my college kid, the baby sitters, the nails ladies -- everybody who's got the right to vote -- they don't understand what's going on. I just think if you're lower income -- one, you're not as educated, two, they don't understand how it works, they don't understand how the systems work, they don't understand the impact."

                         ~Romney Campaign Donor at $75,000 per couple Hamptons Event, refused to give her name.

We are so-o-o-o fortunate that the plutocrats have our best interests at heart, we the unwashed laborers who are just too damn ignorant to "get the message."   Because, after all, it was we, the nails ladies and babysitters-- I resemble this class much more than that of the plutocrats' class-- who broke the world.

How come I'm not reassured by knowing that this woman "understands how the the systems work" better than I do?  I'm certain she does know how the "systems work" better than I do and maybe it just means that we need to change the "systems."

The world’s dumbest bank has the world’s dumbest bank customer.

America's bank. I'm so proud.

Question 1: If you successfully rob a bank of $1.5 million in small bills do you:

a) charter a boat to Paraguay or some other country with no US extradition treaty

b) hide it under your house and spend it slowly over the rest of your life

c) blow it all within hours at the nearest casino

________________________________________

Question 2: If you are in charge of computer security for one of the largest banks in the world, what would be the maximum daily withdrawal limit for a customer who has an average daily balance of $100?

a) $20

b) $50

c) $312,000
________________________________________

If you answered “c” to both questions, then you can ignore the rest of this story because you fully understand the rank ignorance of humanity and its institutions.

Apparently, a “glitch” at Bank of America allowed a retired auto worker to have unlimited ATM withdrawals over an 18 day period.  WTF?  It’s such a good thing we bailed out those bozos. They obviously are taking their fiduciary responsibilities very seriously.

It gets better. The moron takes this money and immediately plays it away-- all $1.5 million-- at Michigan casinos.  Immediately. 


My brain hurts.

Millionaire for a week, moron for the rest of his life.