Obama in his address once again bashed health insurance insurers, self-righteously deciding he wasn't willing to accept the rationale of insurers, particularly in the individual coverage market, regarding their "unjustifiable" rate increases. He further rails about "abusive" practices, e.g., canceling policies, filtering on the basis of preexisting conditions, etc.
Please, enough of this nonsense and state of denial already, Obama. You've never administered an enterprise other than in your current capacity, and in your very first year, you ran up the biggest deficit in American history. Most companies can't run trillion dollar deficits like you have during periods of dropping revenues. What has your response been? Postponing consideration of trillion dollar programs until we have a more robust economy? Freezing or cutting the federal payroll? Putting government projects on the back burner? Shutter superfluous government offices?
Let me point out the facts of life. [Let me note at the outset I am not a direct shareholder for a health insurer.] Health care insurers operate off fairly narrow margins (e.g., 2 to 3%), just like supermarkets. Progressive demagogues deliberately try to obfuscate the issue by dishonestly shifting the frame of reference, e.g., to aggregate profits, cherry-picked baseline years, executive salaries, etc. [The progressives are hypocrites; we don't see them making similar arguments against businesses in other industries or even more profitable sectors within health care.] But we don't scapegoat supermarkets for passing along their cost increases due to things like random climate events, e.g., frosts affecting the Florida orange crop or drought periods affecting Midwest crops or Brazilian coffee exports. On the other hand, industries which have cut deals with the Obama Administration, e.g., pharmaceuticals and medical device companies, operate with far more generous margins.
Health insurers also are getting attacked in misleading ways on rate increases, e.g., Anthem Blue Cross (CA)'s average overall increase in the INDIVIDUAL COVERAGE market, which progressives have referenced by the upper bound of 39% (versus average overall of about 25%). In fact, health care insurance cost factors are rising at a core 10-15% a year, much higher than overall inflation. The individual coverage market is different from the group market (e.g., for businesses), with a number of healthier risks (such as younger people) balking at higher premiums in tough economic times and opting out. The higher risks, of course, don't opt out; the problem is the bulk of expenses must be shared across a smaller group of people. Health insurers are not charities; they need to operate with fundamentally strong actuarial principles and sufficient cash flows to operate as a going concern. They also know that their pool of target consumers shrink if and when they have to increase premiums.
There are specific actuarial reasons why one needs to look at preexisting conditions, individuals with catastrophic health conditions and the like. Obama doesn't seem to understand since he doesn't have to live within a budget. Of course, he has scapegoated banks (versus the GSE's, the auto companies and AIG). One problem which, of course, Obama fails to address in any meaningful way: health insurers and banks are heavily regulated. How does he expect us to believe if supposedly the banks and the health insurers have somehow (which he doesn't articulate) worked around state and/or federal regulators, that THIS TIME even more regulation is the solution that WILL work? Is this the result of some meta-analysis of comparative public sector regulatory studies? Any lessons learned from regulatory gaps? The question is why we need to establish a whole new level of regulatory infrastructure rather than address whatever deficiencies exist with CURRENT state/federal regulatory frameworks.
The "solution" of business or individual mandates is little more than a related Obama notion that "it's good to spread the wealth of low-risk health risks around", forcing people with healthier lifestyles and lower group risks to subsidize the cost of higher-risk lifestyles (e.g., smoking, drug abuse, or obesity) or groups (older people, etc.)
Health insurers have a responsibility to their existing policyholders and owners to minimize the number of below-cost policyholders. Unless you have effectively reinsure or control against catastrophic policyholder losses, those costs can overwhelm any residual aggregate profits. Obama cannot wish away catastrophic losses and higher component costs; price controls don't work. Companies which can't pass along their costs go out of business, and progressives are then left with even fewer companies and less competition to scapegoat. In fact, maybe that's Obama's real goal; perhaps he is not as incompetent as his rhetoric implies, and this is a Trojan horse back door power play to a default single payer system.
Trillion Dollar Deficits As Far As the Eye Can See...
The Hill yesterday pointed out that the CBO notes we are on course to replicate or top last fiscal year's record $1.42T deficit; spending has leveled, but federal budget inflows have dropped considerably. The CBO has estimated an average $976B vs. the Obama Administration $853B deficit over the coming decade, largely based on lower tax receipts and slower economic growth. The CBO is expecting $45T in federal spending and just over $35T in federal inflows over the coming decade with an average GDP growth of 4.4%. If we consider the best recent inflows were roughly about $2.5T (see chart below), I consider the federal revenues rather optimistic, especially given Obama's anti-business growth policies, and I think the entitlement spending numbers, particularly if ObamaCare passes, significantly understated; I don't think the Medicare cuts are sustainable, a shrinking private sector in health insurance will not be able to to subsidize expanding numbers of Medicaid and Medicare patients, and increased patient loads and limited resources will intensify inflationary pressures.
Now I did some basic spreadsheet analysis from GDP (gross and real/adjusted 2005 dollars) figures from the Bureau of Economic Analysis. Using a simple year over year average since 1929 (i.e., 100*((year 2/year 1) - 1)) and then computing a simple average of the annual growth rates, I get something like a nominal/current dollar growth rate of 6.6% or an adjusted rate of 3.51%. Now if I look at nominal GDP growth since 1993, keeping in mind we experienced two asset bubbles during that period, we get just under 5%. Given a more competitive global economy, I do not believe that the GDP numbers from the CBO or the White House are realistic.
The Bunning/Rangel Coverage Kerfuffle
Media Research Center, a conservative media watchdog organization, made an interesting observation this week, noticing that ABC News spent under a minute discussing the most powerful committee chairman in Congress, Ways and Means chair Charlie Rangel (D-NY), stepping aside under a House ethics probe, but almost 5 minutes discussing retiring Kentucky Republican Senator Bunning's decision to block a stop-gap bill for extending unemployment benefits under an "emergency" status (in essence, a bypass of current PAYGO policy). If you recall, Bunning was objecting not to the bill itself, but Majority Leader Reid's abuse of "emergency" status, the kind of business-as-usual, drunken-sailor spending the Democrats have done since regaining power in 2007. I personally didn't watch the ABC coverage, but I wouldn't be surprised if the liberal mass media failed to research Jim Bunning's voting record on funding unemployment (Bunning said he was willing to vote for funding the increase out of the Democratic Party Stimulus Bill). And I wonder, especially given the recent press coverage that has focused on the use of the filibuster and cloture votes, whether ABC raised the issue of whether there were ways to bypass the Bunning block and why Reid wasn't using them.
Political Cartoon
IBD cartoonist Michael Ramirez points out even the legendary Jefferson Smith would have been found guilty under Reid's flip-flop interpretation of Senate rules against the rights of the minority.
Quote of the Day
The hero is the one who kindles a great light in the world, who sets up blazing torches in the dark streets of life for men to see by. The saint is the man who walks through the dark paths of the world, himself a light.
Felix Adler
Musical Interlude: More Rain Songs
Eurythmics, "Here Comes the Rain"
Barry Manilow, "I Made It Through the Rain"
The Carpenters, "Rainy Days and Mondays"
Brook Benton, "Rainy Night in Georgia"
