Posts Tagged ‘economics’

Where is housing going ?

Sunday, March 9th, 2014

UPDATE: Megan McArdle has some doubts about house prices.

housing

The housing inflation seems to be limited to certain cities. How will this last in the poor (except District of Columbia) economy ?

I live in south Orange County and have noticed a huge amount of rental construction going on. This area has been mostly single family homes and condos since 1972 when I moved here. Now, we see big projects like this and others nearby that I don’t know the name of. These are big projects including hundreds and perhaps thousands of units. The builder is the Irvine Company which, in my previous experience, has built mostly homes and condos. Recently, I began to notice more rental projects in Irvine.

The Irvine Company Apartment Communities is dedicated to making it easy to find a home you’ll love with unsurpassed services meeting your every need. With approximately 122 exceptional apartment communities located throughout the prime California regions of Orange County, West Los Angeles, San Diego and Silicon Valley, we offer choices to fit every lifestyle and budget.

They seem to be going to rental property in a big way. Maybe this is the reason.

From reading the mainstream press all you hear are glorious signs of housing resurrection! Come one come all into the house of real estate where the almighty Fed will allow no harm to occur. Just sign and pray and the next thing you know you’ll be the next Donald Trump. The flipping, rehabbing, and housing shows are once again filling the space on a cable station near you. The perception of the Fed being this almighty protector of housing makes a bit of sense but where was the Fed in 2007?

I see lots of housing flips in southern California, not in Orange County so far.

foreclosure-completions

Even in 2013 we had 1.4 million properties with notice of defaults, scheduled auctions, and full on REOs taken on. Early in the crisis these stories were common since they were a novelty to the press. Now however, many of these properties are shifting over to large investors pushing inventory up. A clear consequence of this is a large pool of potential buyers that are unable to buy.

These may be the renters.

first-time-home-buyer

Yup. The would-be first time buyers have student loans and bad credit. They are renting.

The number of first time buyers is pathetic because household formation is weak and many young Americans are living at home with mom and dad. Forget about buying, they are having a tough time paying higher rents to the new feudal landlords. You would expect with the rapid rise in prices that existing home sales are off the charts but they are not.

Housing prices do NOT mean buyers who will be occupants. Look at mortgage applications !

mortgage-apps-for-purchase

Wow ! We are back to levels last seen nearly 20 years ago! Only difference is that we have 50,000,000 more people today walking the streets of the U.S. of A. than we did back then. Since access to middle class living is getting tougher thanks to weak income growth, more people are opting to rent:

rentals-vs-households

This is what I am seeing in Orange County. I have been looking in San Pedro for a small house near the ocean. I can no longer afford Orange County except condos. I sold my house four years ago and bought a house in the mountains. That was a bad move. I found that I could not tolerate the altitude. I had to sell into the bad market of 2012. That cost me a lot. Now, I have to lower my sights and may just stay a renter for a while. At my age, it may make better sense.

Putin, Crimea and Ukraine

Wednesday, March 5th, 2014

UPDATE: Michael Totten has an update on Crimea.

The new ruler is a former gangster whose street name was “Goblin.”

Lawmakers were summoned, stripped of their cellphones as they entered the chamber. The Crimean media was banished. Then, behind closed doors, Crimea’s government was dismissed and a new one formed, with Sergey Akysonov, head of the Russian Unity party, installed as Crimea’s new premier.

It if was a crime, it was just the beginning. Akysonov’s ascent to power at the point of a gun presaged all that has happened since — the announcement of a referendum on Crimean independence and the slow, methodical fanning out of Russian forces throughout the peninsula, ostensibly to protect Russians here from a threat no one can seem to find.

But here’s the most interesting bit: Aksyonov’s sudden rise as Moscow’s crucial point man in Crimea has revived simmering allegations of an underworld past going back to the lawless 1990s, when Akysonov is said to have gone by the street name “Goblin,” a lieutenant in the Crimean crime syndicate Salem.

Putin is dealing from a weak hand but Germany was near bankruptcy when Hitler invaded Poland. Holman Jenkins at WSJ, has a nice summary of where we are.

Vladimir Putin probably would not have spent 90 minutes on the phone with President Obama on Saturday if he intended to make a grab for eastern Ukraine. He would not have jawed twice on Friday and Sunday on the phone with German Chancellor Angela Merkel, who subsequently doubted his grip on reality.

He is not going to try to annex the eastern Ukraine where Russian speakers are alleged to be crying for rescue from The Ukraine.

He is even using fake videos like the Palestinians have done before to make his argument. The Russian speakers are not buying.

The Russian speakers are only about 17% of the whole Ukraine population.

350px-Russians_Ukraine_2001

They are concentrated in the eastern portions which are also the poorest and least productive. Ukraine could do without them except for the precedent set.

Western leaders are a risk-averse, short-term-minded lot, but if their decisions are dictated by a conviction of Mr. Putin’s iron grip on Russia, they make a mistake. Many sanguine voices, in fact, already note how the U.S. shale revolution has weakened Mr. Putin’s hand. If Western leaders were so inclined, they might surprise themselves at how vulnerable Mr. Putin’s petro-dependency makes him.

Ukraine has signed contracts with western oil firms to explore what seems to be a large area of oil shale. This is a big threat to Russia’s sole export and prop of its declining economy.

Withdraw Europe’s support for pipelines Mr. Putin wants to build. These, by way of the Black Sea and the Baltic Sea, aim to reduce Ukraine’s leverage as transit path for gas exports that generate much of his regime’s income. Mr. Putin might like to shut off the gas but he can’t. He needs the money.

Get moving on the pending U.S. trans-Pacific and trans-Atlantic trade partnerships, which grant member countries automatic approval of U.S. liquefied gas exports. The mere prospect of U.S. exports has already eroded Russia’s pricing power.

Let Exxon and other Western oil firms queuing up to explore Siberia and Russia’s Arctic know their efforts are not currently appreciated. A single caustic hearing on Capitol Hill should do it.

They could do as well in Ukraine.

Ukraine, with its control of strategic pipelines, moving toward energy independence and even energy competition with Russia (it recently signed shale deals with Shell and Chevron ) was not acceptable.

Most of all, “Putin lost Ukraine” would have been a powerful meme in the hands of his enemies, who are numerous and don’t actually care about Ukraine.

The West followed down his path, which bears passing resemblance to the petro-regime of Saddam Hussein, because Russia has nuclear weapons and Mr. Putin seemed preferable to chaos. The West may eventually get chaos anyway. Secretary of State John Kerry managed to put his finger on a truth. Mr. Putin knows no more about the true sources of 21st-century wealth and power than a swordfish knows about macramé. No, the Cold War is not returning. Russia does not have the heft to sustain a Cold War even against placid Europeans or a strategically listless President Obama. His current Western enablers just hope Mr. Putin self-destructs on somebody else’s watch.

The Russian speakers in east Ukraine are not convinced this is the right course.

But in Monday’s survey, 82% of his party’s loyalists rejected any such generosity. Even the adherents of the Communist Party, who tend to feel entitled to all of Russia’s former Soviet domains, said with a broad majority — 62% — that Russia should not jump into Ukraine’s internal crisis.

Putin’s captive media in Russia can convince Russians in Russia that the west was behind the coup in Ukraine.

Moreover, 45% blamed western influence for bringing people on to the streets of Kiev, where the “Euromaidan” protests that were originally in favour of further European integration later turned into a general condemnation of the corrupt regime.

The results are still in doubt.

Ukraine

Saturday, February 22nd, 2014

UPDATE: Max Boot, who I also respect, adds some thoughts.

The Orange Revolution failed because of corruption and inertia in the economy. What now?

This is, after all, the second popular uprising against Yanukovych, the first being the Orange Revolution of 2004-2005. Although thwarted in his attempt to steal that election, Yanukovych returned to power in 2010, managing to win a fair election after his political adversaries failed to show results while in office.

This is a second chance for the pro-Western parties in Ukraine to deal with the deep-seated malaise of the economy, the pervasive corruption, and all the other ills that afflict this troubled land. They had better do better than last time–and all the while fending off what are sure to be determined attempts at sabotage emanating from Moscow.

What to do about Ukraine ? Michael Totten has some ideas.

Ukraine's Day Infamy

He has several suggestions about other sources. I pretty much rely on him as he has been all over and has a good eye.

I spent a week in Ukraine a few years back when I traveled by car from the Polish border through Lviv to Kiev and down to Odessa and Yalta. I wrote about it at length in my book, Where the West Ends. So I feel obligated to write about it now that the capital is on fire.

Kiev is a magnificent city, and it pains me to see it like this, but I should not be surprised. Almost every country I’ve ever written about is either in hell, has only recently recovered from hell, or is on its way to hell. I hoped when I visited Ukraine that it was on its way out, but I did not have a good feeling about it, as you’ll recall if you read my book.

From his recommended source,

First let’s consider the bad reasons for a breakup—Ukraine’s diversity in general and the regional, ethnic, confessional, and cultural divisions between its “West” and “East” in particular. A good place to start is a recent article by Orlando Figes, professor of history at Birkbeck College, University of London, “Is There One Ukraine?” Figes, who should know better coming from the UK, writes about Ukraine’s divisions as if they were unique and as if diversity alone justified or led to breakup. He’s wrong on both counts. Ukraine’s diversity is pretty much the norm for all stable states everywhere.

He has some excellent points. One is about The Party of Regions.

What is unusual about contemporary Ukraine is that it’s exploited by a criminal gangster regime—Yanukovych’s— in cahoots with another criminal gangster regime—Putin’s. Many countries have the misfortune of being misruled by homegrown camarillas. Many countries have the misfortune of being dominated by predator states. Ukraine has the double misfortune of being misruled at home and “mis-dominated” abroad.

The president, who has now fled Kiev, is described a a “criminal madman.”

Remove the southeast and Ukraine’s treasury experiences an immediate boon; its demographics, energy consumption, and health improve; and its politics automatically become more democratic and less corrupt.

Although lopping off the Donbas would benefit the rest of Ukraine, Yanukovych’s mafia regime desperately needs Ukraine to be whole. If Luhansk and Donetsk were to split away, their rust-belt economy would collapse without Kyiv’s financial support and the Regionnaires, trapped in their polluted bailiwick, would have nothing to steal. And what would Yanukovych’s multibillionaire pal, Rinat Akhmetov, do without easy access to Ukraine’s resources?

There appears to be no good solution to Ukraine, including partition although that may be what will happen.

The moral for the democrats is simple. If and when they return to power, the democrats should call the Regionnaires’ bluff. Next time the Regionnaires threaten to leave, the democrats should point to the door, and say, “Don’t call us. We’ll call you.”

The same might apply to Quebec.

The Wall Street Journal had a good piece yesterday comparing Ukraine with Georgia 5 years ago.

The West dragged its feet on financial sanctions against the Yanukovych circle, but on Thursday last week a move by the EU—after 77 protesters were shot dead in broad daylight—helped bring down the Ukrainian leader. Fearing for their assets and visas, his cronies quickly dropped him.

and: At every opportunity, Mr. Saakashvili says that Ukraine’s best defense against Russian pressure is a successful move to European-style rule. This is what the revolution was about. “Change must come fast,” he says. “I’m worried about Crimea, but I’m more worried about Kiev. If Kiev goes into protracted political crisis, then everything else will explode.”

If Ukraine starts to go after its oil and gas reserves with fracking, a lot may change.

Is Venezuela collapsing ?

Friday, February 14th, 2014

UPDATE: More on the role Cuba is playing in Venezuela now.

Belmont Club has a good post today on the collapse of Venezuela. The car manufacturers have announced they are closing their plants.

Toyota Motor Co. said it would shut down its assembly operations in Venezuela due to the government’s foreign exchange controls that have crippled imports and made it impossible to bring in parts needed to build its vehicles.

The country’s other car manufacturers, including General Motors and Ford, haven’t even started operations this year, while waiting for needed parts to arrive.

The oil field workers left years ago when the Chavez government cut oil workers’ pay.

Workers’ protests continue at Venezuela’s Puerto La Cruz refinery, in the northeastern state of Anzoátegui. The oil workers are requesting the payment of their contractual benefits. Workers gathered and had some meetings in the refinery and handed out fliers. These actions will continue until the authorities of state-run oil company Petróleos de Venezuela (Pdvsa) meet each of their requests. Oil workers complained that the oil industry has violated 80% of the current collective bargaining agreement.

Army officers had no such limit on pay raises.

[They] got a 40 % raise last year. So let’s see, they get a 40 % raise in 2010, and a 50 % raise in 2011, and meanwhile oil field workers, the ones who create the wealth the government uses to give these obscene pay raises to the military, are protesting low pay and lack of legal payments they are supposed to get.

The oil workers who could, all left for Canada. That was about the time that the Alberta oil sands fields were coming on line. Those workers, and especially the engineers, are not going back to Venezuela any time soon.

Welcome to Hugo Chavez’s Venezuela, a country with the fifth largest oil reserves in the world and absolutely broke. It’s a remarkable achievement for Chavismo. A just-wow moment. Socialism is useless at everything except for smashing things in record time. There it excels. It’s hard to imagine that as late as the 1980s Venezuela had the highest standard of living in Latin America. But then in 1960 Detroit was the richest city in the world in per capita income. Now it’s well … Detroit.

Cuba is helping the post-Chavez government to cope.

The violence against unarmed citizens is reminiscent of the April 11, 2002, bloodletting, when 17 individuals who were part of a peaceful opposition march in the streets of Caracas were similarly gunned down by snipers. That was the day the head of the military told Hugo Chávez that he would not move against the crowd and that he was removing Chávez from office. Chávez prevailed, in part due to U.S. dogma against “a coup” and in part because the opposition bungled what ought to have been a transition to democracy.

Obama is a friend of Venezuela and will oppose any attempt to overturn the tyranny. He showed his true colors in El Salvador by rewarding the bad behavior of the current government.

What we see today in El Salvador is a government heading in the opposite direction from those core principles. In 2000, El Salvador was ranked as the 11th-freest economy in the world, according to the annual Index of Economic Freedom co-published by The Heritage Foundation and The Wall Street Journal. Today, it is 53rd and has registered declining scores in six of the 10 economic freedoms, including investment freedom, the management of public spending, labor freedom, and freedom from corruption. El Salvador’s performance in other world economic indices has also plummeted.

Obama’s friends seem to have dodgy records on civil liberties.

The deterioration in central and south America continues apace . There is an interesting pattern.

‘There are two Latin Americas right now. The first is a bloc of countries—including Brazil, Argentina and Venezuela—that faces the Atlantic Ocean, mistrusts globalization and gives the state a large role in the economy. The second—made up of countries that face the Pacific such as Mexico, Peru, Chile and Colombia—embraces free trade and free markets.’

The results are becoming clear.

Stifling bureaucracy, protectionist trade barriers, widespread corruption, lack of investment in infrastructure and the limited scope of economic reforms have been piling up like wood on a bonfire for a number of years. Inflation and weak government finances have provided the starter fluid and it maybe that lower demand for commodities will be the spark.

The divide has been developing for years. As Luhnow reports, ‘ A key moment in creating the two Latin Americas came in 2005, when Brazil, Argentina and Venezuela (then led by Mr. Chávez) lined up to kill the proposed Free Trade Area of the Americas—a free-trade zone stretching from Alaska to Patagonia and promoted by President George W. Bush. Troubled by the FTAA’s demise, the Pacific Alliance set out to create its own free-trade area, eliminating tariffs on 90% of goods and setting a timetable to eliminate the rest.’

Obama seems more interested in the Atlantic states.

The genius of the Left — Chavez’s for example — is that it destroys things from the inside out. They pervert religion, collapse the mores, abolish the family, shred the constitution and gradually expropriate the property. The differences from one day to the next are apparently imperceptible, but it is harder and harder to go back until finally there is no reversal of ‘progressive gains’ possible at all. The public is finally faced with the stark choice between chaos or authoritarianism. And most people will chose the Boss over the Mob.

Does any of that sound familiar ?

Most people are spurred into resistance by a crisis. But they remain lulled into complacency while the crisis remains imperceptible. Progressive tyranny benefits from image management, and takes great pains to keep crisis from view. The most insidious thing about a secret police is its very secrecy, because the mayhem it wreaks is upon the intangibles, among things we call legitimacy. So it goes until only a facade is left. Until the day of death the victim is largely asymptomatic, except for a gradual weakening. When the onset comes he discovers that his immune system is completely gone and the end is sudden.

And Iran is allying itself with Venezuela.

The curtain is briefly drawn aside.

Sunday, December 15th, 2013

I try not to be too pessimistic but, these days, it hard to be too pessimistic. Recently, we had a preview in Cyprus. Cyprus banks had served as money laundering devices for Russian and other oligarchs.

Cyprus and its international lenders have agreed to convert 47.5 percent of deposits exceeding 100,000 euros in Bank of Cyprus to equity to recapitalize it, banking sources said on Sunday.

Under a programme agreed between Cyprus and lenders in March, large depositors in Bank of Cyprus were earmarked to pay for the recapitalisation of the bank. Authorities initially converted 37.5 percent of deposits exceeding 100,000 euros into equity, and held an additional 22.5 percent as a buffer in the event of further needs.

This means that, if you had a large deposit in a Cyprus bank, you were assumed to be a money launderer. Of course, if you are a small depositor, your bank account is not safe.

Shannon Bruner of Indianola logged on to her checking account Monday morning, and found she was almost 800 dollars in the negative.

“The first thing I thought was, ‘I got screwed,’” she said.

(more…)

Here comes 1933.

Saturday, November 23rd, 2013

images

The Depression did not really get going until the Roosevelt Administration got its anti-business agenda enacted after 1932. The 1929 crash was a single event, much like the 2008 panic. It took major errors in economic policy to make matters worse. Some were made by Hoover, who was a “progressive” but they continued under Roosevelt.

James Taranto has a good take and quotes a couple of lefty commentators. Like Ezra Klein.

There’s a lot of upside for Republicans in how this went down. It came at a time when Republicans control the House and are likely to do so for the duration of President Obama’s second term, so the weakening of the filibuster will have no effect on the legislation Democrats can pass. The electoral map, the demographics of midterm elections, and the political problems bedeviling Democrats make it very likely that Mitch McConnell will be majority leader come 2015 and then he will be able to take advantage of a weakened filibuster. And, finally, if and when Republicans recapture the White House and decide to do away with the filibuster altogether, Democrats won’t have much of an argument when they try to stop them.

As Taranto puts it:

“”The political problems bedeviling Democrats” is a marvelous bit of understatement. The abject failure of ObamaCare has made the prospect of a Republican Senate in 2015 and a Republican president in 2017 much likelier. Thus even from a purely partisan standpoint, rational Democrats would have been more cautious about invoking the nuclear option when they did than at just about any other time in the past five years.”

The filibuster maneuver by Reid is not a demonstration of strength. It is an admission of weakness. The idiots at HuffPo and the LA Times are beating their chests in joy at the prospect of eternal Democrat majorities that can ignore those pesky Republicans.

In fact, what Reid is acknowledging is that the Democrat majority in the Senate is going away and now is the time to pack the courts and regulatory agencies with ideologues and get all the anti-business regulations in place while they can. The hard left, which believes in magic and Cargo Cults, is cheering them on.

Bloomberg sees what happened, too.

“Under any administration, federal agencies seek to implement the president’s policies by developing regulations,” Jeff Holmstead, a lawyer at Bracewell & Giuliani LLP in Washington who has represented coal-heavy utilities, said. “But in most cases, the judges on the D.C. Circuit are the people who decide whether those regulations comply with federal law.”

I fully expect to see anti-fracking regulations roll out soon, once the Obama appointments get confirmed by the rump Senate. However, what goes around, comes around.

It is our understanding that the Supreme Court exception was included to satisfy pro-abortion extremists, the most active and basest part of the activist base. The Wall Street Journal’s Laura Meckler reported yesterday that the two biggest such groups, Planned Parenthood Federation of America and NARAL Pro-Choice America, both declined comment on the nuclear move, “leaving it unclear whether they are concerned about their ability to block future objectionable”–i.e., Republican–”nominees.”

The abortion lobby sees the future better than giddy leftists who think government creates wealth and jobs.

Building the airplane during takeoff.

Tuesday, November 19th, 2013

Henry-Chao

We are now learning that a large share of the Obamacare structure is still unbuilt. This is not the website but the guts of the system.

The revelation came out of questioning of Mr. Chao by Rep. Cory Gardner (R., Colo.). Gardner was trying to figure out how much of the IT infrastructure around the federal insurance exchange had been completed. “Well, how much do we have to build today, still? What do we need to build? 50 percent? 40 percent? 30 percent?” Chao replied, “I think it’s just an approximation—we’re probably sitting between 60 and 70 percent because we still have to build…”

Gardner replied, incredulously, “Wait, 60 or 70 percent that needs to be built, still?” Chao did not contradict Gardner, adding, “because we still have to build the payment systems to make payments to insurers in January.”

This is the guy who is the chief IT guy for CMS.

If the ability to pay the insurance companies is not yet written, how can anybody sign up ?

Gardner, a fourth time: “But the entire system is 60 to 70 percent away from being complete.” Chao: “There’s the back office systems, the accounting systems, the payment systems…they still need to be done.”

Gardner asked a fifth time: “Of those 60 to 70 percent of systems that are still being built, how are they going to be tested?”

The answer was the same way the rest was tested.

We are halfway down the runway and the engineers are still bolting on the engines.

Of course, the unions will resist any payment for “risk corridors”

Risk Corridors are plans to bail out insurance companies that are put at risk by Obama’s “fix” by stopping the mandate penalties.

If they decide to un-cancel some plans and end up taking a beating financially from the adverse selection that results, Uncle Sam will be there to make everything right. I must have read three dozen blog posts yesterday wondering how O would be able to keep insurers on his side, working together with the White House to implement Healthcare.gov and the rest of the law, now that he’s gone and made them scapegoats for the cancellation mess. Turns out the answer’s simple. He’s going to buy them off.

Part of this is the “reinsurance” plan. The unions want nothing to do with this.

A provision in Obamacare would collect a fee from health insurance companies and third-party administrators (TPAs) of administrative services only (ASO a.k.a. self-insured) group health plans, to fund a reinsurance program to help “stabilize” premiums available through the exchanges. A significant number of unions are self-insured. Unions were pissed they had to pay this fee of between $60 and $80 per insured (now said to start at $63 and reduce in following years), and as recently as last week were demanding President Obama change the law. Obama caved.

The unions are not stupid. They want no taxes on their plans.

The tax, known as the reinsurance fee, requires self-insured organizations, such as unions and some large companies, to pay $63 for each covered member and an additional $63 for each additional family member on a health plan.

Curiouser and curiouser. Some of these guys have read the small print.

Now, it’s gotten even worse. Obama is trapped !

What happens now ?

Wednesday, November 13th, 2013

healthcaregal

The Obamacare web site now has lost its happy photo of the Obamacare girl. The fact that she is a non-citizen seems appropriate. The web site is supposed to be fixed by November 30. Will that happen ? Well, maybe not.

On Friday, the man tasked with the digital fixes said the site “remains a long way from where it needs to be” as more and more problems emerge.

“As we put new fixes in, volume is increasing, exposing new storage capacity and software application issues,” Jeff Zients told reporters on a conference call.

And at Tuesday’s White House Press Briefing, Press Secretary Jay Carney again said there was “more work to be done” on repairing HealthCare.gov.

Carney, along with Zients and other administration officials, have repeatedly said the November 30 deadline is to get the health care website working for a “vast majority” of Americans looking to enroll in the Obamacare exchanges.

So, what happens December 2, the Monday after the “glitches” are fixed ? First, they won’t be fixed. The contractor that designed the program, not just the web site, has a terrible record.

CGI Federal’s parent company, Montreal-based CGI Group, was officially terminated in September 2012 by an Ontario government health agency after the firm missed three years of deadlines and failed to deliver the province’s flagship online medical registry.

The online registry was supposed to be up and running by June 2011.

Officials at the U.S. government’s Centers for Medicare and Medicaid Services awarded six technology contracts worth $87 million to CGI Federal for Obamacare website work, according to the U.S. Government Accountability Office.

So, assuming the program isn’t working, what next ?

First, Democrats are jumping ship already.

Sen. Dianne Feinstein (D-Calif.) has decided to co-sponsor legislation from Sen. Mary Landrieu (D-La.) that would require insurance companies to continue offering their existing health care plans, becoming the most high-profile non-red state Democrat to buck party lines on the Affordable Care Act.

I don’t think that approach will work.

the “Keeping the Affordable Care Act Promise Act” would “grandfather” in all health insurance plans that existed as of Dec. 31, 2013, not March 23, 2010, meaning that insurers could continue to offer a number of plans that they have been forced to cancel under the Affordable Care Act.

The insurance industry is not going to change all this for a temporary and uncertain law change.

Even Bill Clinton is jumping ship, no doubt in the interest of Hillary’s 2016 campaign. I doubt that will help except among her most devoted followers. After all Hillarycare is the grandmother of Obamacare.

I have previously speculated on what might come next and that was early in the disastrous rollout, which I anticipated. I wasn’t the only one.

Moreover, data from existing surveys indicates that employers are quickly moving to high-deductible plans with health savings accounts, away from more expensive plans with high premiums, but low deductibles and co-pays. Notably, when employees are offered a “defined contribution” – a fixed amount of money from their employers with which to shop – they also (although not always) opt for more high-deductible options.

I think this may be the way the country copes with the ongoing disaster of Obamacare. Allow the system of high deductible insurance and health IRAs to expand. Legislation can do this. No Congress can bind another Congress.

What to do about those with pre-existing conditions ? Well, maybe the problem was slightly exaggerated.

12 million people purchased private direct purchased health insurance on the eve of Obama Care. Insurance industry studies show that one in eight applicants for private health insurance have preexisting conditions that affect their eligibility or premiums. This gives a total of 1.5 million Americans who were denied health insurance or paid higher premiums due to pre-existing conditions.

The Washington Post, of course, bought the Obama administration lie without a blink.

But must we change our whole health care system to handle a problem that affects one half of one percent? If we gave a $10,000 subsidy to each person denied coverage or paying a higher premium, we could keep our existing health-care system and solve pre-conditions for one tenth the projected cost of Obama Care.

There are other questions about motives.

You tout the Affordable Care Act as a triumph over special interests, but the stock prices of the insurance industry have enjoyed a huge run-up. Isn’t this because your program, boiled down, just throws more tax dollars at an unreformed health-care system that every analyst, including you, says spends resources inefficiently?

Insurance companies have never been enthusiastic about health insurance. I’ve worked in the insurance industry. They were co opted by Obama because they were promised (with a wink and a nod) that they would be administering a government funded program and would have “no skin in the game.” That’s what the employer health plans are and that’s what they understood to be the plan. The recent vilification of insurers risks some getting off the reservation.

Later, in discussing how he would pay for expanding health-insurance coverage, he alluded to his plan to cut the subsidy payments private insurers receive for administering Medicare advantage plans. “I would rather be giving that money to the young woman here who doesn’t have health insurance than giving it to insurance companies that are making record profits”

Then, a man who said he makes a living selling individual health-insurance plans asked Obama, “Why is it that you’ve … decided to vilify the insurance companies?”

We know he was lying. His lips were moving.

What about the poor ? Most of those signing up on the exchanges are, in fact, signing up for Medicaid.

More than 55,000 people in Washington state enrolled in health coverage in October — most in Medicaid . In fact, almost all of the people who have “signed up” for Obamacare have signed up for expanded Medicaid. They will not contribute to the risk pool; they will only draw more tax payments. Is Medicaid the best choice for the poor ? Avik Roy doesn’t think so. I have reviewed his book on the site and disagree with his proposed solution but his data is correct.

I have previously suggested the French system as a model for us. France is a large country, larger than most of the other European examples, and its system, unlike the British NHS, works well. It has been put under enormous pressure by the French unemployment problem but it still does a better job than any other I know of. The German system is older and more bound up in German traditions.

I doubt that this sort of reform is an option any longer. I think the catastrophic insurance and health IRA is the best choice for a transition now.

Update on cash medical practices.

Tuesday, October 29th, 2013

Titanic; Vancouver; 1912

I can’t resist this graphic as a metaphor for the present health care crisis.

Some time ago, in fact several years ago, I posted a piece on coming changes in health care. I didn’t necessarily recommend this for reform but it was something I saw coming.

Perhaps more than most people, Reitz, a senior HIV?AIDS scientist with the Institute of Human Virology in Baltimore, appreciated the need to be examined quickly. And thanks to a recent trend to help personalize physician care, he got an appointment the same day — but not because of his professional status.
Reitz, like any patient of Dr. Philip Henjum, can get a same-day appointment because Henjum and his partner, Dr. Robert Fields, practice retainer medicine in their Olney office.
Their patients pay a $1,500 annual retainer fee to see them as soon and as many times as they need to. They also make house calls.
As it turned out, Henjum diagnosed Reitz with Lyme disease, an infection from a tick bite, and prescribed antibiotics. If not diagnosed and treated early, Lyme disease can lead to severe headaches, muscle pain and serious heart problems.
Fields and Henjum are two of about a dozen doctors in Maryland and an estimated 600 nationally who won’t take insurance coverage. Instead, they charge a yearly or monthly retainer. Some work out of comfortable medical office such as Fields and Henjum, next to Montgomery General Hospital.

That was 2009. I added another post on Chicago Boyz in 2010. Here it is.

The reason why I believe this trend is growing rapidly is that some states, like Massachusetts, plan to pass laws requiring doctors to accept Medicare as a condition of licensure. If they were not worried, why write a law about it ? Medicare has a provision that they determine the price and there are no extra charges allowed.

A participating physician agrees that payment for Medicare services based on the fee schedule represents the approved and full charge. This means a physician cannot collect or balance bill an amount in excess of the approved charge listed on the fee schedule for services furnished to Medicare patients.

That, plus the rationing, drives most primary care doctors out of the field or, more recently, out of Medicare. Those who remain, hire Physician Assistants or Nurse Practitioners to see Medicare patients. That works for a while but PAs and NPs are still expensive.

With the passage of Obamacare, Forrest says he’s seeing more physicians aggressively search for alternatives, as he once did. Over the years, he’s helped a couple of dozen offices open across the country, and he’s started speaking at industry conferences about his practice. But in recent months, he’s been flooded with inquiries from fellow doctors. “Since the health care reform bill passed, you wouldn’t believe the number of doctors who have said they’ve had it and want to operate outside the system,” he says.

Now, Obamacare is here and we are seeing the first glimmerings of the problem coming into focus.

This was a week ago.

Health plans are sending hundreds of thousands of cancellation letters to people who buy their own coverage, frustrating some consumers who want to keep what they have and forcing others to buy more costly policies.

The main reason insurers offer is that the policies fall short of what the Affordable Care Act requires starting Jan. 1. Most are ending policies sold after the law passed in March 2010. At least a few are cancelling plans sold to people with pre-existing medical conditions.

By all accounts, the new policies will offer consumers better coverage, in some cases, for comparable cost — especially after the inclusion of federal subsidies for those who qualify. The law requires policies sold in the individual market to cover 10 “essential” benefits, such as prescription drugs, mental health treatment and maternity care. In addition, insurers cannot reject people with medical problems or charge them higher prices. The policies must also cap consumers’ annual expenses at levels lower than many plans sold before the new rules.

But the cancellation notices, which began arriving in August, have shocked many consumers in light of President Barack Obama’s promise that people could keep their plans if they liked them.

Just for curiosity, I did a search on cash medical practice in Orange County CA.

The results were interesting. Among other things, I found a bunch of family practices for sale.

I also found a long list of practices that accept cash. Quite a few have good Yelp reviews. For example:

regular physician normally does! And I was only charged $75 for the visit! (To put that in perspective, my PPO insurance copay would have been $60 had I waited another week for an appointment.

There are 15 pages of reviews. Children’s Hospital is even listed as taking cash: for his recent cold. Parking is underground $7 they take checks and cash only. Parking distance from emergency entrance is very close. We checked in soon after we were called, minimal wait… No mention of costs here but a good review.

The possible outcome of all this, and I don’t believe that employer health plans will survive, is a new system of cash payment for primary and routine care plus insurance for insurable events. That’s what we had in 1950 and it worked well. Doctors didn’t get rich but they often ran their offices with one person helping, sometimes the wife. I remember an orthopedic surgeon and family friend whose office had one large waiting room and telephone person for about 30 doctors. He was later the team physician for the Chicago White Sox so he was no slouch. He also did the first cup arthroplasties in Chicago. One of them was on my aunt.

The medical world will be changing.

Where health care may be going.

Wednesday, October 23rd, 2013

Titanic; Vancouver; 1912

I couldn’t resist this graphic. It’s so appropriate for the moment.

I have watched the failed rollout of Obamacare this past three weeks and wondered where it was going. I have some suspicions. There is a lot of talk about delaying the individual mandate, as Obama did with the employer mandate. Megan McArdle has a post on this today. I think it is too late to fix or delay Obamacare.

With Nov. 1 storming toward us and the health insurance exchanges still not working, we face the daunting possibility that people may not be able to sign up for January, or maybe even for 2014. The possibility of a total breakdown — the dreaded insurance death spiral — is heading straight for us. The “wait and see if they can’t get it together” option no longer seems viable; we have to acknowledge that these problems are much more than little glitches, and figure out what to do about them.

She has already described the insurance death spiral. I think it is here.

Am I exaggerating? I know it sounds apocalyptic, but really, I’m not. As Yuval Levin has pointed out, what we’re experiencing now is the worst-case scenario for the insurance markets: It is not impossible to buy insurance, but merely very difficult. If it were impossible, then we could all just agree to move to Plan B. And if it were as easy as everyone expected, well, we’d see if the whole thing worked. But what we have now is a situation where only the extremely persistent can successfully complete an application. And who is likely to be extremely persistent?

Very sick people.

People between 55 and 65, the age band at which insurance is quite expensive. (I was surprised to find out that turning 40 doesn’t increase your premiums that much; the big boosts are in the 50s and 60s.)
Very poor people, who will be shunted to Medicaid (if their state has expanded it) or will probably go without insurance.

Levin points out: It is now increasingly obvious to them that this is simply not how things work, that building a website like this is a matter of exceedingly complex programming and not “design,” and that the problems that plague the federal exchanges (and some state exchanges) are much more severe and fundamental than anything they imagined possible. That doesn’t mean they can’t be fixed, of course, and perhaps even fixed relatively quickly, but it means that at the very least the opening weeks (and quite possibly months) of the Obamacare exchanges will be very different from what either the administration or its critics expected.

The insurance industry is already reacting to Obamacare and this will quickly become irreversible. This article is from September.

IBM, Time Warner, and now Walgreens have made headlines over the past two weeks by announcing that they plan to move retirees (IBM, Time Warner) and current employees (Walgreens) into private health insurance exchanges with defined contributions from employers.

The article calls it “maybe a good thing” but that supposes the exchanges will function. What if they don’t for a year or more ? What will health care look like in November 2014 ?

What happens next — as we’ve seen in states such as New York that have guaranteed issue, no ability to price to the customer’s health, and a generous mandated-benefits package — is that when the price increases hit, some of those who did buy insurance the first year reluctantly decide to drop it. Usually, those are the healthiest people. Which means that the average cost of treatment for the people remaining in the pool rises, because the average person in that pool is now sicker. So premiums go up again . . . until it’s so expensive to buy insurance that almost no one does.

Will that be apparent a year from now ? I’m sure the administration, and the Democrats, will do almost anything to avoid that. What can they do ? They’ve already ignored the law to delay the employer mandates. It’s too late to delay the individual mandate because individual policies are being cancelled right now.

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