Thursday, August 16, 2012

The Medicare Voucher Trap

If you understand parables, the object is to tell a story and be able to learn some useable facts that otherwise would be boring because we all like stories more than lectures. It works for people of all ages, but for some reason they stop being told when one becomes an adult.

This article is about Medicare and whether vouchers would be a good way to “save” Medicare from financial ruin sometime in the future. It does assume Medicare is in trouble if the pace of health care costs continue as they have unabated and if the Obamacare program fails in its promise to reduce costs. Nobody’s crystal ball is perfect on this so you will need to judge this based on the array of misinformation, partial facts, and lots of opinion. Good luck.

But we begin this story in Washington State. For many years, Washington State has been using state liquor stores as the way to sell hard liquor. For nearly just as many years, there have been proponents of getting government out of the liquor business and allow the many fine merchants to sell liquor as a complement to their wine and beer sales. It had been thwarted time and time again.

However, last year, with a concerted effort by many retailers, most notably Costco,  interested parties put together enough signatures to place an initiative on the state ballot to discontinue the state store sales and allow the purchase of hard liquor in larger retail stores. Keeping it out of small stores was, in the words of the proponents, to keep good control of liquor purchases. Apparently, they feel the smaller mom and pop stores and quickie outlets are bastions of illegal sales to minors and other questionable purchasers. My cynical little mind thinks it was more about greater opportunity for the large retailers to make out like bandits.

There were many “fluffy” items in this initiative that provided money to alcohol abuse programs, increase alcohol use awareness, and other saintly aspects to appear as responsible law. The word was the retailers were going to improve efficiencies that would lessen the cost because we all know government does a lousy job of containing costs. There was one more carrot for the state. Because this would impact a substantial hit to the state budget since the state would lose markup revenue, there would be a distribution fee and retailer fee that would equal out the loss of revenue to the state. This was important because in a state like Washington that does not have state income taxes, the loss of revenue could very well bring up the tender subject of state income tax or increase in other taxes.

The media blitzkrieg unleashed upon the public from the pro and con sides would make Mitt Romney’s effort in the Primary days in Iowa pale in comparison. With $35 million poured into both sides, you could not hear or see in any safe direction without some kind of message populating your senses. The pro initiative outspent the opponents by a two to one margin because, I guess, the big retailers have deeper pockets than the state and national distributors do.

The voters went to the polls and sold with the ideals of capitalistic competition and the shear volume of media placement, the I-1183 initiative passed with nearly a 60-40 margin. It just went into effect on June 1st.

So what happened after this anti-government pro-commerce initiative was placed into action? Prices went up on most items. To be fair, the pre-tax prices went down as expected. However, once the taxes were applied at the checkout stand, that is, the portion that goes to the state to make up for the lost state store revenue, most of the prices went up beyond the previous price with tax. Do you know who made out? Any or all liquor stores in the states of Idaho and Oregon that sit within short driving distance of Washington. They are reporting record sales because of the leakage from Washingtonian liquor purchases. 

The contingent against the measure tried to warn us, but we couldn’t hear it among the cacophony of the pro-measure advertising deluge. They did say that there would be price increases just because it is simple math: when you put another set of hands in between the manufacturer and purchaser, their efforts must be compensated. This initiative added an additional middleman and who doesn’t know what middleman do to the price of any goods sold. Prices go up from manufacturer to distributor. Liquor taxes are applied. Prices go up from distributor to retailer. Prices go up from retailer to purchaser. The difference between pre-initiative and post-initiative liquor distribution was that a middleman was added. Prior to I-1183, there was only one price increase between the distributor and purchaser because the state had the one markup for taxes and their needs and that was it.

Now we can turn our attention to the Medicare voucher program the GOP ticket is suggesting. Here is the theory: instead of the full scale payment by the government to providers for Medicare beneficiaries, the voucher program would take the government out of the loop except for a one-time payment per year that can be applied to an insurance policy. Romney and other conservatives say that by allowing each beneficiary to go out and negotiate an insurance policy with a carrier, the free-market efficiencies will improve the costs and allow a better competitive environment. Any future issues between your provider and payment will be done by the insurance company according to the terms in the policy negotiated. Like the liquor in the state of Washington, the government is not part of the transaction.

There are so many problematic avenues to take with this discussion, like the fact that you must convince your insurance company to pay and how the very elderly or sickly are not going to afford a policy, but let’s focus on the nature of transactions in the purchase of the policy. Currently, you don’t purchase a policy unless it is for the Advantage program or purchase a supplemental policy to cover the costs not covered by Medicare. When a doctor or hospital visit is necessary, the beneficiary submits a Medicare card and they get reimbursed by the government according to the payment schedule the care provider agreed to via enrollment. From what I understand, the reimbursement schedule isn’t the most lavish amount to the extent some providers stay away from Medicare because they view it as insufficient.

The voucher program would have the beneficiary purchase their own policy with money from the government. The beneficiary pays for it and hopes the care costs are covered through them. Here is the point; just like the people in Washington hoping the competitive environment keeps liquor costs low, the rest of the Medicare population hopes the voucher pays for enough coverage. The only problem is, we have now handed our money over to a money-making enterprise. They expect a cut to run their business. They have shareholders to satisfy. They pay dividends to reward the shareholders. Where does that money come from? Why, from you, of course!

The voucher program creates a new middleman, the insurance company, and they expect some amount of payment. The government has overhead in the Medicare program that amounts to about 2% of the total cost. Private insurance companies vary, but remember, prior to the passage of Obamacare, they were balking at the prospect of returning anything over 20% of non-care related expenses as the Obamacare program requires. The difference of these two percentages will be the portion that comes out of our pockets. These will be additional dollars paid that have nothing to do with the payment of the actual health care costs.

For the insurance companies, this is quite a boondoggle. Look at all the new business they can get because the government with its restrictive rates and large number of beneficiaries now must fend for themselves in the health care insurance market. Free customers! But for many of us, I'm afraid we will experience the same thing Washington State liquor purchases found out the hard way; the same old goods have new higher prices that we will have to pay.

The free enterprise system is a great tool as long as there is a level playing field and businesses do the responsible actions of honoring their commitments. But we have seen time and time again, the health care insurance field has some predatory vultures that will practice extreme reimbursement avoidance in order to increase profits. We need to examine this issue and make the best possible choice as if our life depended on it. Because, simply enough, one day it will.

Friday, August 10, 2012

Why Romney’s Effective Tax Rate Is NOT The Issue

The cry over Mitt Romney releasing his taxes prior to tax year 2010 has been a boon to political pundits of all kinds. Because of Mitt’s reticence, we have all imagined that his prior taxes are hiding a low or no tax rate that would be bad for his standing as a presidential candidate. It could possibly be illegal, or at least enter a grey area that is questionable. It has been interesting to watch, but the Dems have milked this enough.

Actually, I don’t think there is anything in his tax reforms that shows any quirky hanky-panky and I wouldn’t be surprised if he at least paid some level of taxes, maybe on the high side of single digit percentage of his income, but certainly not zero percent. But, there is something there that I don’t think he wants anyone to see and it isn’t his effective tax rate. I’m willing to bet any amount of money that the one thing he doesn’t want media and opponents to paw over is HOW he was able to keep the rates down.

Now, it is important to understand that the “How” is probably legal according to our current tax laws. But we need to remember that people of Romney’s level of wealth have an abundance of tricks up their sleeves that even the typical small business man or well-off professional don't have to reduce their tax level. 

Let’s think about this. If you are a home owner, then one of the biggest tax breaks the home owner receives is the mortgage interest deduction and reduction from property income taxes. Even people with modest homes get to itemize these deductions that possibly save the owner a few thousand dollars of taxation. At one time when houses were a lower portion of a person’s living wage, a home loan typically was 10 or 15 years years at low interest rates. Now, loans have scaled to where many people have $200,000 in home loans over 30 years and adjustable rates. Take a look at what this has done to the amount a home owner pays in interest:

In this example, a current home owner will pay over $230,000 during the thirty years of ownership. The good news is you can deduct this each year. The additional good news is that during the first part of the loan, the amount paid in interest is about $12,000 in the first year. It will decline over succeeding years, thankfully.

On this home owner’s taxes, that $12,000 is an itemized deduction that will save a person with a 20% effective rate about $2400 in taxes. This may be a little different because of the particulars in the itemized deductions and other deductions, but it should be close. Add a few thousand dollars of property taxes and the tax bite just got a whole lot shorter.

Why does this matter as far as Romney and his taxes? One of Romney’s stated goals is to reduce tax rates across the board by eliminating the ever-present “loopholes” that exist in the tax code. He has also stated that these tax rate reductions will be “revenue neutral”, meaning, the total amount of revenue from taxes won’t change and therefore won’t negatively impact the deficit. Oh, by the way, the mortgage interest deduction is clearly a “loophole” even if a goodly number of middle class people use the loophole.

Mitt hasn’t said what loopholes will be eliminated, but given that the mortgage deduction amounts to billions in tax relief for millions of home owners across the country, it will be a nugget that will be hard to ignore. If Romney is elected, I would plan on seeing this one phased out over time. To drop it completely would be a hardship on most and would guarantee a national outcry.

Mitt Romney and the other one-percenters (or .001 percenters like him) will lose this tax benefit also. They aren’t worried about that comparatively small loss of tax relief. While mega-millionaires have more lavish homes costing millions of dollars, this isn’t the loophole they are worried about. So, which loopholes are they worried about? Easy, the loopholes that Mitt Romney has in his taxes that he won’t release!

This may be the big secret. This is the information Romney does not want out. Yes, he has released ONE tax form from 2010 tax year and people have been combing all over it to find out how he has been avoiding tax payments. Ones that exist like the $100 million IRA that is using a portion of the tax code so limited, that one must be in a special situation - like Mitt - to use it. Can you imagine the special little prizes that are in the last five to ten years of tax returns? I would bet my last doughnut there are some real goodies in there. We already knows he put in a mega-million dollar company in a Roth IRA that is supposed to be limited to $5000/yr to allow withdraws tax-free. What else is there?

So Mitt will chase after the meaningful tax loopholes and reduce the rates which will keep the tax revenue about the same. But, do you REALLY think he and his tax cutting buddies in Congress will eliminate the ultra-tax loopholes designed for the very wealthy? Of course not, that would hurt the “job creators” and will not generate jobs (to use their particular parlance). He will be able to do this because unless you are a tax accountant or someone with a high income, you don’t know about these special tax features favoring them. Of course those that do know have no interest in revealing the tricks; they make a living on it after all. And, of course, the public won't see them unless the tax forms are released.

In the end, the tax code may be revenue neutral (possibly), but a lion’s share of the taxes will shift to the middle class. Too many will not realize the loss of their tax loophole will increase the tax burden while giving the wealthy a double benefit. The wealthy get a rate cut AND keep their loopholes.

This is truly a case of Romneyhood; he will take from the poor(er) and give to the rich. Worse, he’ll do it with a slight of hand manner by seemingly reducing tax rates. Get ready for the lie.

Wednesday, August 1, 2012

When It Comes To The Health Care Act, Those Using Religious Exemption Will Be Paying

Is every trigger point date going to be like this? Today, August 1st, is the beginning of the women’s health mandate requiring employers to cover specific health issues through the Affordable Care Act, otherwise known as Obamacare. It covers things like gestational diabetes and HIV screenings, breast-feeding supplies, family violence coverage, plus a few other things, most notably, FDA approved contraceptives. That is a good thing if you are part of a family of child-bearing age but aren’t ready to have a child.

So is this a problem? Evidently it is to the extent that it compares to the 9/11 disaster, at least according to Mike Kelly, congressman from Pennsylvania:

"I know in your mind, you can think of the times America was attacked," he said at a press conference on Capitol Hill. "One is Dec. 7, that's Pearl Harbor Day. The other is Sept. 11, and that's the day the terrorists attacked. I want you to remember Aug. 1, 2012, the attack on our religious freedom. That is a day that will live in infamy, along with those other dates."

Gee, Hurricane Katrina didn’t rate? Now, it isn’t necessary to re-hash old arguments on this topic whether the freedom of religion is being trounced by the mandate or even if it applies. I’m certainly not going to bring up that Rick Santorum spoke on this topic during his campaign by blaming contraception on our economic woes, something about contraception is the reason we don’t have enough working people to support Social Security. Oops! I said it. Sorry.

But I think there is a very lost argument on this issue. It has nothing to do freedoms and rights, which are notable and worthy items in this discourse. It has to do with how an organization will end up buying contraception aids whether they want to or not. In the end, they cannot avoid it. How can this be, you may ask. After all, religious organizations, such as Catholic-run hospitals are certainly not going to pay for it, right? You want to bet?

Allow me to present a totally fictitious conversation between a 25 year-old RN and the HR representative at a totally fictitious Catholic-run hospital.

“Well, Ms. Drizzle, we have all your information on your work history and training for the RN-2 position we have here at Our Lady of the Sacred Heart hospital and it appears you have exemplary qualifications. We would be happy to extend an offer to you at this time.”

“Thank you, Ms. Abernathy! This facility seems to be first-rate and the people are very friendly. It would be a pleasure to work here.”

“I don’t mind telling you that finding good available talent is a chore in the medical field. Nurses are in high demand. For your particular grade, we could start you at $78,000 a year.”

“That sounds fair, Ms. Abernathy. How about some of the fringe benefits such as vacation time, savings plans, and health plans?”

“Well, Ms. Drizzle”, said Ms. Abernathy beaming, “we have one of the most competitive plans available in the area. Standard vacation time is accrued at a rate of five weeks a year and our 401k plan matches right away up to 5%.”

“That sounds very good! And the health plan covers everything?”

Ms. Abernathy draws a slight frown and says, “Of course, no plan offers complete coverage of everything. There are co-pays and the first $1000 is covered by 60%, but then everything after that is covered at 100%.”

Ms. Drizzle says brightly, “Oh, that is very reasonable. How about preventive and contraceptive costs, are they covered completely?”

Ms. Abernathy now has a disconcerting look on her face. “All preventive costs are paid for, but since we are a Catholic-run hospital, we don’t believe in paying towards your contraceptive needs. That would be against the Church’s beliefs. You would need to purchase that on your own.”

Now it is Ms. Drizzle’s turn to be concerned. “You know, I’m married, and right now we don’t want to start a family. If I pay for birth control pills outside a medical plan, it’s going to cost me $1000 or more. That is a big expense!”

Ms. Abernathy sympathetically nods, “I know. I wish there was something I could do about it. But you can set aside the money in an HSA so you don’t pay tax on it.”

“How about if I decide I don’t want children any longer? Does the health plan cover the cost?” asked Ms. Drizzle.

Ms. Abernathy solemnly shakes her head. “It’s against the Catholic doctrine to pay for a sterilization procedure.”

Ms. Drizzle begins to ponder. “You know, I got a real good offer from another hospital at a similar wage. I liked this one better because of the staff and facilities, but they were going to pay for all the health care you do and include contraception costs. I think I need to think about taking this position.”

“Maybe we can do something about it,” Ms. Abernathy replies. “With your qualifications, we can bump you to a RN-2 step 2 position which will bump your pay from $78,000 a year to $80,000 a year. That will cover any additional costs you feel that must come out of your pocket. Would that be acceptable?”

“I’m confused,” Ms. Drizzle says. “You won’t pay for my contraceptives through your medical plan that most certainly doesn’t cost the amount I would pay out of pocket, but you are will to increase my pay so I don’t have to eat the cost? Does this make sense?”

“Probably not,” says Ms. Abernathy slyly, “but as long as the Church doesn’t pay for your contraceptives, everything is fine! Besides, that’s what it takes to remain competitive.”

“If you say so!” says Ms. Drizzle.

Eventually, organizations that site religious reasons for not providing coverage on contraceptives will eventually need to compensate accordingly or face hiring only men or women not of child-bearing ages. At that point if becomes an issue that the left hand of the church doesn’t care what the right hand does.