There is an interesting recent development which I expect will figure prominently in the health care reform debates in the US Congress scheduled for September 2009.
Recent estimates from the Centers for Disease Control (CDC) indicate that about half of the US population will be inflicted with swine flu in the 2009/2010 flu season and that there will be about 45,000 additional influenza related deaths in the US due to the swine flu in this flu season. Historically, with never enough vaccine for everyone, vaccination priority has been given to those most likely to die from the disease which is to say infants whose immune systems are not fully developed and seniors who frequently have other health issues and less robust immune systems. This approach can be referred to as the vaccinate "those at risk" vaccination strategy. Unusually, the experience with the swine flu so far is that the disease impacts seniors less severely than other segments of the population perhaps because many seniors have a limited immunity from past contact with a flu strain similar to the current swine flu.
A new study argues that vaccinating those most likely to spread a disease such as school age children and 30 to 40 year olds who are most likely to be working and in contact with a large number of customers and co-workers will result in fewer people becoming ill and fewer people dying from a communicable disease. In fact, this "vaccinate the spreaders" method of prioritization has been recommended by the CDC's advisory committee on immunization practices but the official recommendation from the CDC is still to "vaccinate those at risk".
In summary, prioritizing vaccinations for those most likely to spread the disease will result in fewer deaths, fewer people sick and less economic impact (fewer lost work days) to the US in total compared to prioritizing vaccinations for those at risk. However, this strategy will increase the chances of any individual senior or infant contracting the swine flu and dying. However, it should be noted that the experience with the swine flu thus far is that seniors unusually have less severe symptoms with the swine flu than younger flu victims perhaps because the seniors have previously been inflicted with a flu strain similar to the swine flu which has given them partial immunity.
Because of political issues rather than medical issues, I think that vaccine distribution will be prioritized based on the current 'at risk' method. However, the CDC has recently expanded the at risk definition to include young adults. For the greater good, seniors should be low on the priority list but for political reasons rather than medical reasons I expect that they will stay on the top of the list.
Where it gets interesting is that if the vaccine supplies are in sufficiently short supply so as to make it difficult for seniors to get vaccinated, which is likely, this will become a very vocal headline in the health care reform debate. There will be outcries that the government is rationing medical care and that the government is limiting care for seniors who are in some way less valuable than younger people. The issue will reinforce the "pull the plug on grandma" soundbite.
I would hope that the seniors keep everything in perspective and support a policy which provides for the greater good rather than the individual benefit. In other words, I would hope that we are good citizens but I am not hopeful.
Saturday, August 29, 2009
Friday, August 28, 2009
Are Prices Declining?
Many people read the monthly inflation or price change announcements with detached curiosity but for many, such as social security recipients or people with contracts with built in price escalators, the price changes have a real world income impact. The price change announced in August 2009 reported a 2.1% decline over the preceding 12 months. Sounds like good news since this indicates that we are paying less for what we buy compared to what we paid 12 months earlier. However, the reported price change did not match my experience and, I expect, doesn't match the experience of most people. I was notified in 6/09 that my medical insurance premiums were increasing by 14.4%, notified in 8/09 that my annual property taxes were increasing by 10.8%, my condo fees have increased by more that 10% over the last year and I haven't noticed any price reductions in the grocery store. For those of you interested in why the CPI probably doesn't match your experience, following is a brief explanation of why this might be the case.
The monthly price changes are calculated by the Bureau of Labor Statistics (BLS) which is part of the Federal Department of Labor. The headline inflation rate reported by the BLS is typically the CPI/U which is the consumer price index for urban areas and covers approximately 87% of all consumers. Following are some of the reasons why the CPI reported price changes might not reflect the experience of every consumer.
The CPI should be used to indicate price trends in general and it should be realized that the actual CPI will not accurately reflect the experience of any individual consumer. It is incredibly difficult to accurately measure prices and assign a dollar benefit to product quality which, I believe, should be reflected in the CPI. It also should be noted that a major benefit of the BLS data is to indicate changes in prices over time. Even if a better way was developed to measure prices, in order for this new price measurement to be of value, the data for previous years would need to be modified to reflect the new method in order to enable comparisons and doing this may be impossible.
The monthly price changes are calculated by the Bureau of Labor Statistics (BLS) which is part of the Federal Department of Labor. The headline inflation rate reported by the BLS is typically the CPI/U which is the consumer price index for urban areas and covers approximately 87% of all consumers. Following are some of the reasons why the CPI reported price changes might not reflect the experience of every consumer.
- The costs of buying and maintaining an owner occupied home is not included directly in the CPI. Rather, the BLS uses a concept called Owner's Equivalent Rent to indicate home ownership related costs. Essentially, BLS measures monthly rent for rental housing and assumes that the owner of the rental unit calculates rental rates to fully reflect all costs such as mortgage interest, taxes, insurance, etc. The assumption is that changes in rental rates will reflect the changes in the costs which are also experienced by home owners. However, over the last several years, with the housing bubble rapidly first inflating and then deflating which resulted in a significant over supply of rental units, rental unit owners priced rents for what the market would pay rather than to fully reflect their costs. Rental rates have been declining in most if not all markets which misrepresents the increasing costs experienced by most home owning consumers. For example, the CPI/U in July 2009 shows an annual price decline of 0.7%. However, if you live in your own home, especially if you have no mortgage or a fixed rate mortgage, I expect that your costs have not declined and may have increased significantly.
- The costs of medical care are measured based on the payments made to medical care providers such as doctors and hospitals and do not measure health insurance premiums. So, by example, if Blue Cross aggressively negotiates rates with providers and reduces payment to the providers but still raises the premiums charged to the insured, the CPI will show a decline in medical care costs even though you are paying more in premiums. BLS also measures health care insurers charges included in insurance premiums for reserves and profit but for some reason these studies are not published. The CPI/U for medical care in July 2009 shows an annual price increased of 3.2% which is much less than most health insurance premium increases.
- BLS staff collect price data for a basket of goods which includes almost everything that anyone might buy from pet food to TV's to medical care but most people will not buy everything in the basket of goods. For instance, many people who live in New York City don't own cars so changes in gasoline prices don't directly apply to them.
- BLS calculates a weight for each item in the basket of goods which represents the percent of total income spent on the indicated category by the typical consumer. For instance, home ownership and medical care represent 24.3% and 6.4% of the basket of goods. Consequently, an item with a large weight which has even a small price change can have a large impact on the CPI.
- BLS adjusts prices for an item to reflect changes in quality or function. Consequently, if an item doubles in price but also doubles in quality or function then the price will be included in the CPI as unchanged. As an example, TV prices in the CPI/U show declines of 24.0%, 17.4% and 3.3% in 2007 compared to 2006, 2008 compared to 2007 and the 12 months to July 2009 compared to the previous 12 months, respectively. We all know that due to the digital transition, we paid almost twice as much for an LCD TV with a digital tuner compared to the older tube TV's with an analog tuner since but the BLS calculated a significant improvement in quality and/or function the BLS price data shows a decline in price.
The CPI should be used to indicate price trends in general and it should be realized that the actual CPI will not accurately reflect the experience of any individual consumer. It is incredibly difficult to accurately measure prices and assign a dollar benefit to product quality which, I believe, should be reflected in the CPI. It also should be noted that a major benefit of the BLS data is to indicate changes in prices over time. Even if a better way was developed to measure prices, in order for this new price measurement to be of value, the data for previous years would need to be modified to reflect the new method in order to enable comparisons and doing this may be impossible.
Monday, August 24, 2009
Healthcare Reform - Price Controls?
As I wrote on 6/24/09, I expressed a concern that the Administration had agreed not to negotiate Medicare drug prices in exchange for $80b from Big Pharma over 10 years in reduced prices for Medicare Part D recipients in the "doughnut hole". Now, unfortunately, there are rumors that this was indeed part of the agreement. I also suspect that there is also the possibility that the Administration has agreed not to pursue legislation that would prevent Big Pharma from extending the patents on brand name drugs or legislation that would prevent payments from Big Pharma to generic drug makers in exchange for the generic manufacturer agreeing to delay the production of low cost generics. It now appears that Big Pharma will gain much more than the $80 in price reductions and, what is of more concern, there is nothing that would prevent Big Pharma from increasing prices for everyone else not covered by the agreement.
The American Hospital Association has agreed to price cuts of $150b over 10 years if the reform includes universal coverage. Since hospitals had $34b in uncompensated charges in 2007 alone which will probably increase over the next 10 years, hospitals will get as much as $340b in exchange for $150b in cuts. Again, there is nothing in the current legislation that would prevent the hospitals from increasing other charges not covered by the agreement to recoup the $150b in cuts.
The private insurers have agreed to raise premiums by 1.5% less than the premiums would otherwise have increased if the reform includes universal coverage mandates in which case the private insurers have agreed not to charge a higher premium for pre-existing conditions or to reject applicants with pre-existing coverage. Again, there is nothing in the current legislation that would prevent the private insurers from raising the average premium to compensate for the higher costs related to the pre-existing agreement.
There have been few policy considerations designed to reduce costs and none of the changes being considered so far will reduce costs. For instance, changes to enable a private insurer to sell across state lines would probably increase costs. A private insurer moving into a new area would incur significant costs in establishing a provider network and negotiating prices with medical providers in the new area and would probably resort to acquiring a local insurer with consequent huge costs that would be passed on to the policyholders.
In summary, the major medical providers have made relatively minor cost concessions in exchange for significant profit increases with no restrictions on being able to shift the costs for the concessions to other areas. Perhaps it is worth considering the implementation of price controls for medical providers to be no more that the Bureau of Labor Statistics measured cost increases at least during the transition period of any major health care reform.
Every reform that would lead to significant price reductions have so far been excluded from consideration. Medicare prescription drug price negotiations, tort reform (at a minimum, any punitive damage awards should be paid in into the Medicare trust fund), taxing employer health benefits, higher co-pays, etc. have all been excluded.
Unfortunately, the current reform efforts look like they will produce higher profits for the providers and higher costs for the consumers. We lose.
The American Hospital Association has agreed to price cuts of $150b over 10 years if the reform includes universal coverage. Since hospitals had $34b in uncompensated charges in 2007 alone which will probably increase over the next 10 years, hospitals will get as much as $340b in exchange for $150b in cuts. Again, there is nothing in the current legislation that would prevent the hospitals from increasing other charges not covered by the agreement to recoup the $150b in cuts.
The private insurers have agreed to raise premiums by 1.5% less than the premiums would otherwise have increased if the reform includes universal coverage mandates in which case the private insurers have agreed not to charge a higher premium for pre-existing conditions or to reject applicants with pre-existing coverage. Again, there is nothing in the current legislation that would prevent the private insurers from raising the average premium to compensate for the higher costs related to the pre-existing agreement.
There have been few policy considerations designed to reduce costs and none of the changes being considered so far will reduce costs. For instance, changes to enable a private insurer to sell across state lines would probably increase costs. A private insurer moving into a new area would incur significant costs in establishing a provider network and negotiating prices with medical providers in the new area and would probably resort to acquiring a local insurer with consequent huge costs that would be passed on to the policyholders.
In summary, the major medical providers have made relatively minor cost concessions in exchange for significant profit increases with no restrictions on being able to shift the costs for the concessions to other areas. Perhaps it is worth considering the implementation of price controls for medical providers to be no more that the Bureau of Labor Statistics measured cost increases at least during the transition period of any major health care reform.
Every reform that would lead to significant price reductions have so far been excluded from consideration. Medicare prescription drug price negotiations, tort reform (at a minimum, any punitive damage awards should be paid in into the Medicare trust fund), taxing employer health benefits, higher co-pays, etc. have all been excluded.
Unfortunately, the current reform efforts look like they will produce higher profits for the providers and higher costs for the consumers. We lose.
Saturday, August 15, 2009
Recollections of Discrimination
How society deals with race relations specifically and discrimination in general changes over time and discrimination negatively impacts everyone including the segment of society that is doing the discrimination. Discrimination is a lose-lose proposition although there are some who say that dealing with adversity improves the moral character. On this last point, I was recently recollecting on my experiences with the issue of discrimination in an effort to determine what impact my experience as a white guy in his 50's had on my world view.
When I was about 5, I used to spend part of the summer with my grandparents who lived in a small community in the hills of Pennsylvania. Not that it came up often, but occasionally a black person would appear on TV or be in a newspaper photo and my grandmother would refer to them as 'darkies'. She never said it with any malice; it was just a term used by an older woman who, I don't think, had ever met a black person but I recall feeling without understanding why that the use of the term 'darkie' was wrong. In the section of Syracuse that I grew up in, there were very few blacks. I never really wondered why there were so few blacks and just assumed that since the section of Syracuse I lived in wasn't a particularly good neighborhood that the blacks just chose not to move there. My father bought a laundromat in the late 1950's which was located across the street from the 'projects' in Syracuse. As I recall, there were about 5 ten storey, red brick buildings entirely populated by blacks. The laundromat had a self service section in the front with coin operated machines and a drop off section in the back where people would drop off their dirty clothes and my father and 1 employee would wash, dry, fold and sometimes deliver the cleaned clothes. I recall going to work with him during the summers and on several locations finding that someone had started a fire in one of the machines or vandalized the business. No problem though. He filed claims with the insurer and fixed things up and was back in business. I just assumed that there were some bad people around and never saw it as a race issue. Eventually, however, his insurance was dropped due to the number of claims and then, during the race riots of the mid 60's, he was completely burned out, went out of business and over the subsequent years paid back the business loans out of his own pocket.
I graduated from the State University of New York at Buffalo where I had an academic scholarship called a Regent's Scholarship from the State of NY which was based on my performance on a state exam. When I received the bill for my senior year, it no longer had a credit for the scholarship because, as it was explained when I asked, the Regent's Scholarship had been replaced with a grant program that was for women and minorities. I graduated from university in 1975 which was a time characterized by long gas lines and high unemployment. I went to a campus interview with one of the large banks, I don't recall which, and the interviewer said that although I had excellent credentials that he couldn't be promising. He explained that his company had cut back on hiring and he had been instructed only to refer women and minorities for company interviews.
While in Buffalo, I occasionally went into Canada. I never had any trouble getting into Canada but almost every time, I had a hassle getting back into the US. The US border patrol would pull me over to the side and do a search sometimes even putting a dog in the car. They never found anything wrong but seemed to enjoy giving us a hard time. I was a college student with long hair, had a 1959 Volkswagen bug on the hood of which I had hand painted the album cover from King Crimson album In the Court of The Crimson King. I wasn't an artist but did a pretty good. Someone carrying drugs or other contraband would have kept a lower profile but even then I knew that my paint job and long hair would attract the ire of those who for reasons unknown to me hated 'long haired hippies' with a passion. The irony was that I was an economics and political science major and was fairly conservative. I didn't have much money so saved on haircuts and really just liked the band King Crimson. I guess this was a type of profiling.
Upon graduating, since I couldn't find a position other than sales in private industry I decided to go for a federal civil service position. At that time, professional federal civil service jobs were filled based on, among other things, your score on an exam called a the PACE Exam. When I took the exam, since minorities were under represented in the federal civil service, minorities were awarded an extra 10 points out of a maximum 100 based on their minority service. I scored 99 or 100 in each of the sections and was hired by the Department of Labor (DOL) in Washington, DC.
While at the DOL, I parked my car in the basement parking garage which, although a government building, was operated by an independent contractor. One day, the supervisor of the parking garage assaulted me so I went to the DC district attorney and tried to have him arrested. The DA explained to me since the guy who punched me was black and that since I was in DC, the jury would be black and judge would probably be black and that since I was white there was no way that I could possibly win. I kept pushing it so they agreed to investigate and the guy who punched me gave them a list of 15 people who would testify that I had attacked him and his 2 friends. I weigh about 150 lbs and each of them was about 225 so it would have been stupid to do this. In any case, they contacted all 15 of the people on the list and every single witness either was fictitious or said that they were not a witness to the event. The DA decided to prosecute because, I think, that they were PO'ed that they had been lied to rather than that they believed that they could win. In any case, the black jury working under the instructions of a black judge found the black defendant guilty of assaulting the white guy.
The point of the above experiences, and they are many more, I didn't look at the issues as black/white issues. The blacks that burned my father's business were just bad guys who would most likely have been a problem even if my father had been black. The preferential gender/race policies that negatively impacted me were most likely developed by a bunch of white guys who were legitimately exercising their authority to correct a larger problem that my personal employment. The jurors who convicted the guy of assaulting me just happened to be black but were fair minded people who took their civic responsibilities seriously just like any other.
I think that many people take things that negatively impact them too seriously and consider the issue too narrowly. Sometimes, for the greater good, we have to look at the big picture and accept the fact that the world doesn't always function just for our individual benefit.
When I was about 5, I used to spend part of the summer with my grandparents who lived in a small community in the hills of Pennsylvania. Not that it came up often, but occasionally a black person would appear on TV or be in a newspaper photo and my grandmother would refer to them as 'darkies'. She never said it with any malice; it was just a term used by an older woman who, I don't think, had ever met a black person but I recall feeling without understanding why that the use of the term 'darkie' was wrong. In the section of Syracuse that I grew up in, there were very few blacks. I never really wondered why there were so few blacks and just assumed that since the section of Syracuse I lived in wasn't a particularly good neighborhood that the blacks just chose not to move there. My father bought a laundromat in the late 1950's which was located across the street from the 'projects' in Syracuse. As I recall, there were about 5 ten storey, red brick buildings entirely populated by blacks. The laundromat had a self service section in the front with coin operated machines and a drop off section in the back where people would drop off their dirty clothes and my father and 1 employee would wash, dry, fold and sometimes deliver the cleaned clothes. I recall going to work with him during the summers and on several locations finding that someone had started a fire in one of the machines or vandalized the business. No problem though. He filed claims with the insurer and fixed things up and was back in business. I just assumed that there were some bad people around and never saw it as a race issue. Eventually, however, his insurance was dropped due to the number of claims and then, during the race riots of the mid 60's, he was completely burned out, went out of business and over the subsequent years paid back the business loans out of his own pocket.
I graduated from the State University of New York at Buffalo where I had an academic scholarship called a Regent's Scholarship from the State of NY which was based on my performance on a state exam. When I received the bill for my senior year, it no longer had a credit for the scholarship because, as it was explained when I asked, the Regent's Scholarship had been replaced with a grant program that was for women and minorities. I graduated from university in 1975 which was a time characterized by long gas lines and high unemployment. I went to a campus interview with one of the large banks, I don't recall which, and the interviewer said that although I had excellent credentials that he couldn't be promising. He explained that his company had cut back on hiring and he had been instructed only to refer women and minorities for company interviews.
While in Buffalo, I occasionally went into Canada. I never had any trouble getting into Canada but almost every time, I had a hassle getting back into the US. The US border patrol would pull me over to the side and do a search sometimes even putting a dog in the car. They never found anything wrong but seemed to enjoy giving us a hard time. I was a college student with long hair, had a 1959 Volkswagen bug on the hood of which I had hand painted the album cover from King Crimson album In the Court of The Crimson King. I wasn't an artist but did a pretty good. Someone carrying drugs or other contraband would have kept a lower profile but even then I knew that my paint job and long hair would attract the ire of those who for reasons unknown to me hated 'long haired hippies' with a passion. The irony was that I was an economics and political science major and was fairly conservative. I didn't have much money so saved on haircuts and really just liked the band King Crimson. I guess this was a type of profiling.
Upon graduating, since I couldn't find a position other than sales in private industry I decided to go for a federal civil service position. At that time, professional federal civil service jobs were filled based on, among other things, your score on an exam called a the PACE Exam. When I took the exam, since minorities were under represented in the federal civil service, minorities were awarded an extra 10 points out of a maximum 100 based on their minority service. I scored 99 or 100 in each of the sections and was hired by the Department of Labor (DOL) in Washington, DC.
While at the DOL, I parked my car in the basement parking garage which, although a government building, was operated by an independent contractor. One day, the supervisor of the parking garage assaulted me so I went to the DC district attorney and tried to have him arrested. The DA explained to me since the guy who punched me was black and that since I was in DC, the jury would be black and judge would probably be black and that since I was white there was no way that I could possibly win. I kept pushing it so they agreed to investigate and the guy who punched me gave them a list of 15 people who would testify that I had attacked him and his 2 friends. I weigh about 150 lbs and each of them was about 225 so it would have been stupid to do this. In any case, they contacted all 15 of the people on the list and every single witness either was fictitious or said that they were not a witness to the event. The DA decided to prosecute because, I think, that they were PO'ed that they had been lied to rather than that they believed that they could win. In any case, the black jury working under the instructions of a black judge found the black defendant guilty of assaulting the white guy.
The point of the above experiences, and they are many more, I didn't look at the issues as black/white issues. The blacks that burned my father's business were just bad guys who would most likely have been a problem even if my father had been black. The preferential gender/race policies that negatively impacted me were most likely developed by a bunch of white guys who were legitimately exercising their authority to correct a larger problem that my personal employment. The jurors who convicted the guy of assaulting me just happened to be black but were fair minded people who took their civic responsibilities seriously just like any other.
I think that many people take things that negatively impact them too seriously and consider the issue too narrowly. Sometimes, for the greater good, we have to look at the big picture and accept the fact that the world doesn't always function just for our individual benefit.
Public Option will be Good for Private Insurers
Most of the private health care insurers and their supporters are strongly against a public option because they fear that a public option will reduce their business and profits and may, in the extreme, put them out of business. The private insurers are being short sighted and I think that a public option will actually increase the business and profits of the private insurers assuming that health care reform includes a tax credit for most people to help pay for insurance which is likely or requires health insurance for everyone.
The tax credit will help a large number of people keep medical insurance who would otherwise drop coverage due to cost. Every private interest group with a health concern will lobby their local politician to add covered medical services that private insurers don't include thereby increasing the cost of the public option. For instance, maternity care will probably be included in basic coverage (now this is an extra charge coverage that older people, single men, etc. don't need to include or pay for), extended home care, autism personal care without limit, unlimited psychological services, etc. will be included which will drive the premium cost much higher than the private insurers. The net result is that the private insurers will be able to raise prices significantly and still cost less than the public option and will have more policyholders due to the tax credits that will help many pay for their premiums. The private insurers will do even better if there is mandatory coverage for everyone. As far as being required to accept people with pre-existing conditions without a surcharge, they will be able to raise premiums for all of their policy holders to pay for the extra costs that would be expected.
The public option will be good for the private insurer's business.
As far as a health co-op which is being touted by Republicans and some Democrats as an alternative to the public option, no details of how a co-op would work have been provided. There are generally two different approaches to the operation of a co-op for health care which are:
1 - A buying co-op in which the co-op would negotiate premiums for pools of people looking for medical insurance. This would provide some of the same buying power that large organizations have in negotiating lower insurance costs for their employees. This may result in lower rates for individuals and small firms but, if the majority of the people in these pools are those people who have health problems significant enough to be declined by existing insurers, then rates will probably be higher than the rates for typical employee coverage.
2 - A health co-op modeled on existing agricultural co-ops where the co-op would own the health care provider facilities such as hospitals and the doctors, nurses and other health care providers would be employees of the co-op. This is probably the type of co-op that the Republicans have in mind when they talk about co-ops which is amazing because the Republicans have argued against a public option claiming that a public option is socialized medicine. A health care co-op more closely fits the definition of socialism and more closely resembles the health care system in Britain.
The tax credit will help a large number of people keep medical insurance who would otherwise drop coverage due to cost. Every private interest group with a health concern will lobby their local politician to add covered medical services that private insurers don't include thereby increasing the cost of the public option. For instance, maternity care will probably be included in basic coverage (now this is an extra charge coverage that older people, single men, etc. don't need to include or pay for), extended home care, autism personal care without limit, unlimited psychological services, etc. will be included which will drive the premium cost much higher than the private insurers. The net result is that the private insurers will be able to raise prices significantly and still cost less than the public option and will have more policyholders due to the tax credits that will help many pay for their premiums. The private insurers will do even better if there is mandatory coverage for everyone. As far as being required to accept people with pre-existing conditions without a surcharge, they will be able to raise premiums for all of their policy holders to pay for the extra costs that would be expected.
The public option will be good for the private insurer's business.
As far as a health co-op which is being touted by Republicans and some Democrats as an alternative to the public option, no details of how a co-op would work have been provided. There are generally two different approaches to the operation of a co-op for health care which are:
1 - A buying co-op in which the co-op would negotiate premiums for pools of people looking for medical insurance. This would provide some of the same buying power that large organizations have in negotiating lower insurance costs for their employees. This may result in lower rates for individuals and small firms but, if the majority of the people in these pools are those people who have health problems significant enough to be declined by existing insurers, then rates will probably be higher than the rates for typical employee coverage.
2 - A health co-op modeled on existing agricultural co-ops where the co-op would own the health care provider facilities such as hospitals and the doctors, nurses and other health care providers would be employees of the co-op. This is probably the type of co-op that the Republicans have in mind when they talk about co-ops which is amazing because the Republicans have argued against a public option claiming that a public option is socialized medicine. A health care co-op more closely fits the definition of socialism and more closely resembles the health care system in Britain.
Socialism and Capitalism Can Work Together
A major objection to the Obama's administrations public option in the health care reform debate is that a public option is socialized medicine and will take the US down the road to a socialist society similar to the former Soviet Union.
Socialism by definition is the ownership and administration of a business activity. Socialism is not necessarily something to be feared and the US currently has a significant part of its economy operating under socialism. Most of our roads, our military, most of our schools, the weather service, etc. are socialized in that they are owned and operated by the government. Capitalism even requires that some services be provided as socialized services. The economist F. A. Hayek who is a champion of capitalism and is frequently quoted by conservative commentators such as Larry Kudlow said that in cases where restrictions and regulations apply to all, capitalism does not argue against central control such as in the areas of food safety or working hours and that capitalism is not incompatible with the provision of social services. In general, Hayek says that legitimate areas of state control are where the payment of a price is ineffective such as most roads or where the cost of harmful effects of competition can not be confined to the owner that state regulation is required. Hayek specifically makes the case that the state is responsible for developing regulations that limit the negative impact of pollution and deforestation.
The public option being discussed by the Obama administration would not be a business owned or operated by the government and therefor would not be socialist. Britain has socialized medicine in that the hospitals are owned by the government and the doctors are employees of the government. The public option being advocated by the Obama administration would not be socialized medicine in that the doctors, hospitals, pharmacies, etc. would remain private businesses. The public option would pay medical bills for its policyholders with money collected in the form of premiums from its policyholders. The public option would be governed by an independent board of directors working under the same state and federal regulations that private insurers work under and would therefor be similar to the US Post Office (USPS). Like the USPS, the public option would compete for business with privately owned competitors. The only real differences are that like the USPS, a public option would not be operated for profit, would not need to pay some of the money collected in premiums to shareholders, would not use premiums to pay sky high salaries or to fund mergers and acquisitions. Keep in mind that some of the existing private insurers such as Blue Cross are not-for-profit firms owned by their policyholders. Also, it appears that some people who object to the public option do not make a distinction between the terms public option and single payer. Every private health insurer is a single payer mini-system. In the case of my Blue Cross insurance, all of my medical bills (after the considerable calendar year deductible) are paid by Blue Cross.
Although there may be many good arguments against the proposed public option, a claim that the public option is taking us down the road to communism is not a valid argument.
Socialism by definition is the ownership and administration of a business activity. Socialism is not necessarily something to be feared and the US currently has a significant part of its economy operating under socialism. Most of our roads, our military, most of our schools, the weather service, etc. are socialized in that they are owned and operated by the government. Capitalism even requires that some services be provided as socialized services. The economist F. A. Hayek who is a champion of capitalism and is frequently quoted by conservative commentators such as Larry Kudlow said that in cases where restrictions and regulations apply to all, capitalism does not argue against central control such as in the areas of food safety or working hours and that capitalism is not incompatible with the provision of social services. In general, Hayek says that legitimate areas of state control are where the payment of a price is ineffective such as most roads or where the cost of harmful effects of competition can not be confined to the owner that state regulation is required. Hayek specifically makes the case that the state is responsible for developing regulations that limit the negative impact of pollution and deforestation.
The public option being discussed by the Obama administration would not be a business owned or operated by the government and therefor would not be socialist. Britain has socialized medicine in that the hospitals are owned by the government and the doctors are employees of the government. The public option being advocated by the Obama administration would not be socialized medicine in that the doctors, hospitals, pharmacies, etc. would remain private businesses. The public option would pay medical bills for its policyholders with money collected in the form of premiums from its policyholders. The public option would be governed by an independent board of directors working under the same state and federal regulations that private insurers work under and would therefor be similar to the US Post Office (USPS). Like the USPS, the public option would compete for business with privately owned competitors. The only real differences are that like the USPS, a public option would not be operated for profit, would not need to pay some of the money collected in premiums to shareholders, would not use premiums to pay sky high salaries or to fund mergers and acquisitions. Keep in mind that some of the existing private insurers such as Blue Cross are not-for-profit firms owned by their policyholders. Also, it appears that some people who object to the public option do not make a distinction between the terms public option and single payer. Every private health insurer is a single payer mini-system. In the case of my Blue Cross insurance, all of my medical bills (after the considerable calendar year deductible) are paid by Blue Cross.
Although there may be many good arguments against the proposed public option, a claim that the public option is taking us down the road to communism is not a valid argument.
Tuesday, August 11, 2009
What is Palin Planning?
Palin has resigned prior to the end of her first term as Governor of Alaska and has not explained why she resigned early or what her future plans are. I think that her resignation is the first step in her plan to run for president in 2012. By resigning now, she is able to campaign for Republicans in the 2010 mid-term elections without risking ethics charges as she would expose herself to if she were still Governor of Alaska. She commands support from the extreme right wing fringe who make up for what they lack in numbers with enthusiasm which she will be able to direct to the candidates she supports. By campaigning in the mid-term elections, she will pocket political IOU's and have some influence on the platforms of the candidates she supports. Given her animosity to the media, she will not announce that she is planning to run for president in 2012 until the early 2012 so as to limit media coverage of her activities. Given that primaries are usually decided by the most extreme supporters of both political parties, she stands a good chance of winning the Republican Primary although there is almost no chance that she would be able to win the general election. She will use the next few years to build her base and collect the IOU's that she will call in during the primaries as well as to earn money for her personal needs. Unfortunately, she won't use the time to become better versed on the issues as I expect that she believes that everything she needs to know is in the bible or written between the lines of Obama administration policy. Her between the lines reading of the current administration's policy results in pure fiction and her supporters believe it with a passion. Obama is not a citizen, health care reform will lead to the euthanization of the elderly and feeble, Obama is a Moslem and other beliefs are all clearly a fiction but Palin's supporters accept them as fact without reservation. I'm sure that the policies which will result from the Obama administration's first term which will include some flavor of health care reform, some immigration reform which will probably include a path to citizenship for some illegal immigrants and probably at least one court case that limits gun ownership will provide more than enough incentive to get Palin's supporters to actively support her.
The 2012 presidential elections will be the ugliest that we have ever seen but the election of Palin as the Republican candidate will be a gift to Obama which will make it almost impossible for him to loose re-election.
The 2012 presidential elections will be the ugliest that we have ever seen but the election of Palin as the Republican candidate will be a gift to Obama which will make it almost impossible for him to loose re-election.
Benjamin Franklin Deserves More Credit
George Washington is frequently referred to as the father of our country having served as the Commander of the Continental Army in the War of Independence and as the First US President. It was George Washington's wisdom that shaped the form of government in the US and arguably ensured that the new nation survived the birth. He was instrumental in establishing the balance of power between Congress and the Executive branch refusing to making significant decisions without the participation of Congress. He refused to accept a 3rd term as president and assiduously avoided imbuing the presidency with the trappings of a monarchy most famously instructing those he came in contact with to refer to him as Mr. President rather than as 'Your Highness' as many were inclined to do so. He set the tone and the rest is, as we say history.
Benjamin Franklin was instrumental in forging a consensus in the drafting of the US Constitution and without him, if less wise and hotter heads had prevailed, it is unlikely that the Constitution would ever have been finished at least in the form that has proven so robust over the centuries. In addition to guiding the development of the US Constitution, we have Franklin to thank for establishing much of the infrastructure that would serve is so well of the centuries. Franklin established the first public lending library, the first fire department and what would become the US Post Office.
However, there are perhaps more important accomplishments to credit to Franklin. Arguably, Benjamin Franklin deserves as much if not more credit than George Washington for the military success against the British without which the US would never have been born. I am comfortable in saying that without Franklin's contribution, the US would have lost the War of Independence with the British and remained a colony.
Benjamin Franklin is almost solely responsible for arranging the support of France for the War of Independence. Without the support of France, the US would almost have certainly lost the war. Over a period of about 2 years, Franklin used his considerable skills of planning, communication, argument and leveraging his rock star like status in France to win French support. In the 18th century, scientists were accorded the fame that rock stars and performers are now accorded. Franklin was known as the "man who tamed lightening" for his experiments with electricity and kites with which every schoolchild is familiar with and the development of lightening rods which saved many buildings from lightening damage.
The support of France was essential to the winning of the war. The Battle of Yorktown was the decisive and last major battle of the War of Independence after which the British withdrew from America. It was a French General who persuaded Washington not to attack the heavily fortified New York City but rather to attack the British in Yorktown. During the battle, there were almost as many professional French soldiers attacking Yorktown as there were militia under Washington. 90% of the gunpowder and many of the weapons used in the Battle of Yorktown were supplied by the French as the US did not have a military manufacturing capability at the time. It was the French Fleet that prevented the British fleet which was en route to Yorktown to relieve the British with supplies, additional troops and to provide naval artillery support. The consequence of the French support was that the US won and defeated Cornwallis taking about 8,000 British prisoners as well as significant quantities of British military equipment and supplies.
Without Franklin and the support of France that he had arranged, the US could not have won the war. We repaid our debt to the French people with the liberation of France from Germany during World War II but we still owe a dept of gratitude to Franklin that is generally not recognized much less expressed.
Benjamin Franklin was instrumental in forging a consensus in the drafting of the US Constitution and without him, if less wise and hotter heads had prevailed, it is unlikely that the Constitution would ever have been finished at least in the form that has proven so robust over the centuries. In addition to guiding the development of the US Constitution, we have Franklin to thank for establishing much of the infrastructure that would serve is so well of the centuries. Franklin established the first public lending library, the first fire department and what would become the US Post Office.
However, there are perhaps more important accomplishments to credit to Franklin. Arguably, Benjamin Franklin deserves as much if not more credit than George Washington for the military success against the British without which the US would never have been born. I am comfortable in saying that without Franklin's contribution, the US would have lost the War of Independence with the British and remained a colony.
Benjamin Franklin is almost solely responsible for arranging the support of France for the War of Independence. Without the support of France, the US would almost have certainly lost the war. Over a period of about 2 years, Franklin used his considerable skills of planning, communication, argument and leveraging his rock star like status in France to win French support. In the 18th century, scientists were accorded the fame that rock stars and performers are now accorded. Franklin was known as the "man who tamed lightening" for his experiments with electricity and kites with which every schoolchild is familiar with and the development of lightening rods which saved many buildings from lightening damage.
The support of France was essential to the winning of the war. The Battle of Yorktown was the decisive and last major battle of the War of Independence after which the British withdrew from America. It was a French General who persuaded Washington not to attack the heavily fortified New York City but rather to attack the British in Yorktown. During the battle, there were almost as many professional French soldiers attacking Yorktown as there were militia under Washington. 90% of the gunpowder and many of the weapons used in the Battle of Yorktown were supplied by the French as the US did not have a military manufacturing capability at the time. It was the French Fleet that prevented the British fleet which was en route to Yorktown to relieve the British with supplies, additional troops and to provide naval artillery support. The consequence of the French support was that the US won and defeated Cornwallis taking about 8,000 British prisoners as well as significant quantities of British military equipment and supplies.
Without Franklin and the support of France that he had arranged, the US could not have won the war. We repaid our debt to the French people with the liberation of France from Germany during World War II but we still owe a dept of gratitude to Franklin that is generally not recognized much less expressed.
Wednesday, August 5, 2009
Medical Insurance - $14 Million for 1 Salaried Doctor
I have medical insurance through Blue Cross and I have read my policy and I always review the benefit statements for medical services processed on my insurance. A few months ago I had a routine screening colonoscopy because of my age and everything was fine until I received the bills.
Since I have a private policy, i.e. not a group policy, I have a fairly high calendar year deductible. However, I was aware that my policy pays 100% of the allowed charges for a screening colonocsopy every 10 years which is to say that Blue Cross waives the calendar year deductible and should pay everything. The allowed charge is the price that Blue Cross negotiates as payment in full with a service provider.
When I received my benefit statement, I noticed that there were two charges for anesthesia - one with a list price of $602 and an allowed charge of $133 and the the second with a list price of $595 and an allowed charge of $133. Thinking this was a billing error and a duplicate charge, I called the doctor's office who explained that the $602 charge was for an anesthesiologist who prescribed the anesthesia and was available in case there was a problem, the second charge was for the anesthesia nurse who actually administered the anesthesia and monitored my vitals and that I was only charged for the actual time that they spent with me which was 22 minutes. First, I spent about 3 minutes with the anesthesiologist who asked my weight, whether I had any allergies and then presumably wrote the prescription for the anesthesia. Based on the number of procedure rooms, I would estimate that this anesthesiologist supervises 6 anesthesia nurses. One of my 1st thoughts was how could the anesthesiologist accept such a significant discount for Blue Cross patients? But then I did the numbers. Assuming that the anesthesiologist works 50 weeks per year, 8 hours per day, supervises 6 anesthesia nurses who each perform 2 colonoscopies per hour, then the total annual billing for her services at $602 per procedure would be $14.4 million! Even at the lower negotiated rate of $133 per procedure, the total annual billing would be $3.2 million. Note that there was also a facility charge at $1,295 and the doctor who performed the procedure billed separately. $14.4 million per year in charges for 1 doctor's time is outrageous. For the anesthesia nurse, using the same assumptions, the total annual billing would be at least $2.4 million at the list price or $532K at the Blue Cross price. I know that nurses are paid well but again this is ridiculous.
Getting back to the benefit of knowing what is in your policy, as I explained above, per my policy I was only responsible for the allowed charges (not the list price) and Blue Cross waived the deductible for this procedure so I was surprised that I received a $250 bill for the Outpatient Surgery Center where the procedure was performed and another bill for $200 for the doctor who performed the procedure. After a number of questions, it turned out that the doctor coded the Blue Cross claim incorrectly, he corrected the claim and Blue Cross paid him the additional amount that he had billed me for. The 1st Blue Cross claims representative said that the Outpatient Surgery Center charges were not part of the Colonoscopy and that I was responsible for the $250 co-pay. I called back again, spoke to another rep who agreed with me and setup the paperwork to refund the $250 co-pay that I had already paid. If I hadn't read my policy I would have paid $450 more so reading the policy was time well spent.
Since I have a private policy, i.e. not a group policy, I have a fairly high calendar year deductible. However, I was aware that my policy pays 100% of the allowed charges for a screening colonocsopy every 10 years which is to say that Blue Cross waives the calendar year deductible and should pay everything. The allowed charge is the price that Blue Cross negotiates as payment in full with a service provider.
When I received my benefit statement, I noticed that there were two charges for anesthesia - one with a list price of $602 and an allowed charge of $133 and the the second with a list price of $595 and an allowed charge of $133. Thinking this was a billing error and a duplicate charge, I called the doctor's office who explained that the $602 charge was for an anesthesiologist who prescribed the anesthesia and was available in case there was a problem, the second charge was for the anesthesia nurse who actually administered the anesthesia and monitored my vitals and that I was only charged for the actual time that they spent with me which was 22 minutes. First, I spent about 3 minutes with the anesthesiologist who asked my weight, whether I had any allergies and then presumably wrote the prescription for the anesthesia. Based on the number of procedure rooms, I would estimate that this anesthesiologist supervises 6 anesthesia nurses. One of my 1st thoughts was how could the anesthesiologist accept such a significant discount for Blue Cross patients? But then I did the numbers. Assuming that the anesthesiologist works 50 weeks per year, 8 hours per day, supervises 6 anesthesia nurses who each perform 2 colonoscopies per hour, then the total annual billing for her services at $602 per procedure would be $14.4 million! Even at the lower negotiated rate of $133 per procedure, the total annual billing would be $3.2 million. Note that there was also a facility charge at $1,295 and the doctor who performed the procedure billed separately. $14.4 million per year in charges for 1 doctor's time is outrageous. For the anesthesia nurse, using the same assumptions, the total annual billing would be at least $2.4 million at the list price or $532K at the Blue Cross price. I know that nurses are paid well but again this is ridiculous.
Getting back to the benefit of knowing what is in your policy, as I explained above, per my policy I was only responsible for the allowed charges (not the list price) and Blue Cross waived the deductible for this procedure so I was surprised that I received a $250 bill for the Outpatient Surgery Center where the procedure was performed and another bill for $200 for the doctor who performed the procedure. After a number of questions, it turned out that the doctor coded the Blue Cross claim incorrectly, he corrected the claim and Blue Cross paid him the additional amount that he had billed me for. The 1st Blue Cross claims representative said that the Outpatient Surgery Center charges were not part of the Colonoscopy and that I was responsible for the $250 co-pay. I called back again, spoke to another rep who agreed with me and setup the paperwork to refund the $250 co-pay that I had already paid. If I hadn't read my policy I would have paid $450 more so reading the policy was time well spent.
Tuesday, August 4, 2009
Larry Kudlow - Soap Box Jockey
Although there many TV commentators that I disagree with, Larry Kudlow is one of the few that cause me to change the channel when I encounter him. I don’t know why he even bothers having guest specialists and commentators on his CNBC show that disagree with him because he usually treats the show as his personal soap box, interrupts constantly, talks over everyone else, and is generally rude and trite. Rather than educated economic analysis, he is prone to trite summary judgments and is constantly applying juvenile labels such as “bubble head” or “Bailout nation” and is constantly shouting warnings that the US is headed towards socialism. He has never encountered a tax or government regulation that he supported and constantly cites unbridled capitalism as the cure for every economic situation. Larry "buy more stock" Kudlow doesn't seem to realize that Capitalism is a system in which capital is only one of the input factors and requires other inputs such as an educated labor force, an efficient infrastructure, etc. to work well. He responds viscerally to any suggestion that the stock market is overbought or that investors should stop buying stocks calling anyone with a message of caution a 'doom monger".
His economic analysis, when he even bothers to refer to some economic principle, is almost always wrong. He doesn't seem to recognize that the economic landscape has changed over the last 200 years from an economy based on agriculture and trade primarily in commodities and low value added manufactured goods. In 2007, he belittled anyone who suggested that we were heading towards a recession and up to mid 2008 denied that the US was in a recession. In June 2002, he actively argued for the US to invade Iraq in order to help the stock market arguing that “a lack of decisive follow-through in the global war on terrorism is the single biggest problem facing the stock market”. There are a number of justifications for putting the life of soldiers on the line but keeping the DOW index high is not one of them. He has without exception supported every Bush era economic policy without reservation. Mr. Kudlow’s economic philosophy is essentially classical economics which has consistently proven to be too limited of a theory to be of any value to planning economic policy. One of his favorite economists is Friedrich von Hayek who he cites often to support his contention that current government policy will lead the US to socialism. Mr. Kudlow is a conservative while Hayek, using contemporary terminology, is a libertarian and would have argued equally strongly against Mr. Kudlow’s economic prescriptions as he would against current Democratic policies. Ironically, Hayek says that regulation by the state is required in areas where the payment of a price is inefficient such as with most roads or where the cost of harmful effects of competition can not be confined to the owner such as air pollution. Kudlow would use Hayek to argue against Cap and Trade legislation while Mr. Kudlow’s hero Hayek would have said that such legislation was indeed the responsibility of the state.
I really don’t understand how Mr. Kudlow has been able to acquire such high level positions including the head economist for Bear Stearns (from which he was fired for substance abuse) and numerous high level government positions with only a BA in Economics. If you want unbiased business and economic analysis based on sound economic reasoning then I would suggest that you look elsewhere.
His economic analysis, when he even bothers to refer to some economic principle, is almost always wrong. He doesn't seem to recognize that the economic landscape has changed over the last 200 years from an economy based on agriculture and trade primarily in commodities and low value added manufactured goods. In 2007, he belittled anyone who suggested that we were heading towards a recession and up to mid 2008 denied that the US was in a recession. In June 2002, he actively argued for the US to invade Iraq in order to help the stock market arguing that “a lack of decisive follow-through in the global war on terrorism is the single biggest problem facing the stock market”. There are a number of justifications for putting the life of soldiers on the line but keeping the DOW index high is not one of them. He has without exception supported every Bush era economic policy without reservation. Mr. Kudlow’s economic philosophy is essentially classical economics which has consistently proven to be too limited of a theory to be of any value to planning economic policy. One of his favorite economists is Friedrich von Hayek who he cites often to support his contention that current government policy will lead the US to socialism. Mr. Kudlow is a conservative while Hayek, using contemporary terminology, is a libertarian and would have argued equally strongly against Mr. Kudlow’s economic prescriptions as he would against current Democratic policies. Ironically, Hayek says that regulation by the state is required in areas where the payment of a price is inefficient such as with most roads or where the cost of harmful effects of competition can not be confined to the owner such as air pollution. Kudlow would use Hayek to argue against Cap and Trade legislation while Mr. Kudlow’s hero Hayek would have said that such legislation was indeed the responsibility of the state.
I really don’t understand how Mr. Kudlow has been able to acquire such high level positions including the head economist for Bear Stearns (from which he was fired for substance abuse) and numerous high level government positions with only a BA in Economics. If you want unbiased business and economic analysis based on sound economic reasoning then I would suggest that you look elsewhere.
Sunday, August 2, 2009
Health Care Reform - Myths and Disguises
It is difficult enough to evaluate such a complex issue as health care reform without the misinformation that is beginning to flood the media. Following are some of the most significant claims, myths and intentional misdirection that I have recently noticed.
- A number of US Senators and Representatives have been stating that if a public option is part of the health care reform, “About 88.1 million workers would see their current private, employer-sponsored health plan go away and would be shifted to the public plan”. They attribute this conclusion to a report from the Lewin Group which is characterized as a research firm. What they don't tell you is that the Lewin Group is owned by a company named Informix which is a wholly owned subsidiary of the United Health Group. United Health is a major health care insurer in the US with about 27 million policy holders which might be negatively impacted by a public option. I doubt that United Health can be relied upon for an unbiased opinion.
- You may have seen the TV commercial or web site from a group called Americans Against Food Taxes which claims to be a coalition of concerned citizens. The commercial and web site argue against imposing a tax on soda and juice drinks which has been discussed as one way to fund health care reform.The web site and commercials have been developed by Goddard Claussen which is a public relations firm that advocates for anyone who pays them. This ad campaign is being financed by the American Beverage Association rather than a coalition of concerned citizens. The group claims that “taxes never made anyone healthy”. Oh really? Wasn’t this the argument that was made to justify additional taxes on tobacco, i.e., that higher cigarette prices would cause people to stop smoking thereby making them healthier? Another argument made to justify higher tobacco taxes was that the taxes would help fund the additional health care costs attributable to smoking related diseases. Soda, fruit drinks, candy and similar foods have contributed significantly to the explosion in rates of obesity, type 2 diabetes, heart disease, etc. that are chronic life long diseases which cost significantly more in terms of health care than smoking related diseases which typically develop in old age.
- The claim has been made that a public option will pay medical providers the same low rates as Medicare does which will put them out of business. Yes, Medicare typically but not always does reimburse at a lower rate than private insurers. However, when you consider that Medicare is designed to only reimburse 80% with the remaining 20% coming from the patient’s secondary insurance or patient’s pocket, Medicare patients in total frequently reimburse more than private insurance.
- The claim has been made that if a public payer option is included in health care reform that administrators in Washington will determine what medical services you can get and limit your options. However, with a private insurer, an administrator with the carrier will determine what care you can get and private insurers who are motivated by profit margins are more restrictive than Medicare. Dr. David Scheiner, a Chicago-based doctor who was Obama’s primary care doctor before he became president, said that Medicare is not restrictive enough and permits almost anything while he constantly battles with private insurers to authorize medically necessary treatments.
Cash for Clunkers Program Benefits
Although most commentators have commended the Cash for Clunkers program, there have been a few notable exceptions such as John McCain who is threatening to filibuster the extension of the program in the US Senate. The acclaim for the program has been in general terms and, since I haven't seen the program benefits quantified, below is my estimate of what the program actually will deliver. You can download the spread sheet used to calculate the benefits and modify the assumptions if you like. The benefits below are based on the initial program funding of $1 billion and you should triple the benefits if the $2b extension is passed by the US Congress.
SUMMARY OF BENEFITS (Remember to triple #'s if program extension passes)
DETAILED BENEFIT ESTIMATES FROM PROGRAM
$250,000,000 Additional sales tax to states & counties
3,567,447 BBLS of oil saved per year @ 19.5 gallons gas per 42 gallon barrel. Remainder of 42 gallons other products and/or lost in process.
1,656,315 BBLS of oil saved per year @ 42 gallons gas per 42 gallon barrel. Actual conversion factor is 19.5 gallons per 42 gallon barrel.
$231,884,058 Annual reduction in payments for oil to foreign countries @ 19.5 gallons of gas per 42 gallon barrel.
$107,660,455 Annual reduction in payments for oil to foreign countries @ 42 gallons of gas per 42 gallon barrel.
$16 Billion Annual increase in GDP
341,450 Number of jobs created or saved as a result of program
$3,680,000,000 Annual increase in IRS income tax receipts
ASSUMPTIONS/VALUES USED TO DERIVE BENEFIT ESTIMATE
250,000 # of new cars purchased in initial Cash for Clunkers program.
8 Avg MPG improvement
15 Avg MPG of clunker
23 Avg MPG of new car
5.00% Avg sales tax rate
$20,000 Avg cost of new car purchased
12,000 Avg miles driven per year from Federal EPA estimates
4 Money Velocity
23.00% Avg Federal Marginal Tax rate from the National Bureau of Economic Research
80.00% Domestic content of new vehicles
$65 Cost of barrel of oil
$46,859 2008 US GDP per capita from IMF
- Sales tax receipts by state and local governments will not result in increased expenditures.
- All consumption resulting from new car purchases will be spent on domestically produced goods and services.
- All consumption resulting from new car purchases will be spent rather than saved.
SUMMARY OF BENEFITS (Remember to triple #'s if program extension passes)
- Since the US consumes 20 million barrels of oil per DAY, a savings of 1.6 to 3.6 million barrels of oil per YEAR will not significantly reduce dependence on foreign energy imports.
- The program will generate a one time benefit of about $250 million in increased tax revenues to financially strapped state and local governments.
- The program will save or add 341,000 jobs.
- The program will result in additional federal income tax receipts of $3.7 billion per year.
- The program will add 0.11% to US GDP.
DETAILED BENEFIT ESTIMATES FROM PROGRAM
$250,000,000 Additional sales tax to states & counties
3,567,447 BBLS of oil saved per year @ 19.5 gallons gas per 42 gallon barrel. Remainder of 42 gallons other products and/or lost in process.
1,656,315 BBLS of oil saved per year @ 42 gallons gas per 42 gallon barrel. Actual conversion factor is 19.5 gallons per 42 gallon barrel.
$231,884,058 Annual reduction in payments for oil to foreign countries @ 19.5 gallons of gas per 42 gallon barrel.
$107,660,455 Annual reduction in payments for oil to foreign countries @ 42 gallons of gas per 42 gallon barrel.
$16 Billion Annual increase in GDP
341,450 Number of jobs created or saved as a result of program
$3,680,000,000 Annual increase in IRS income tax receipts
ASSUMPTIONS/VALUES USED TO DERIVE BENEFIT ESTIMATE
250,000 # of new cars purchased in initial Cash for Clunkers program.
8 Avg MPG improvement
15 Avg MPG of clunker
23 Avg MPG of new car
5.00% Avg sales tax rate
$20,000 Avg cost of new car purchased
12,000 Avg miles driven per year from Federal EPA estimates
4 Money Velocity
23.00% Avg Federal Marginal Tax rate from the National Bureau of Economic Research
80.00% Domestic content of new vehicles
$65 Cost of barrel of oil
$46,859 2008 US GDP per capita from IMF
- Sales tax receipts by state and local governments will not result in increased expenditures.
- All consumption resulting from new car purchases will be spent on domestically produced goods and services.
- All consumption resulting from new car purchases will be spent rather than saved.
Subscribe to:
Posts (Atom)
