Tag Archives: Incentives

The Problem With Obamacare

Health Care

Or at least two of them.

Cost and need.

First, consider cost:

For 2014, the penalty is either $95 per adult or 1% of family income, whichever results in a larger fine. (Income is defined as total income above the filing threshold, which is $10,000 for an individual and $20,000 for a family in 2013.) That’s still a lot less than premiums, which are generally $200 to $300 a month on average for a silver plan.

So a person making $50,000 would not be eligible for a subsidy and would pay full price — typically around $2,400 to $3,600 a year in premiums — for a plan. If he declined to get insurance, he would only be subject to a $400 penalty for the year.

A couple earning that amount would receive a roughly $1,300 subsidy, leaving them to pay about $4,750 in premiums for the year. But that compares to a $300 penalty.

For some folks, the economics just doesn’t make sense.    The penalty is the better way out.

Then there is the case of the need.  Young people generally don’t need the insurance.  Why?  Because they aren’t sick:

For some folks, health insurance just isn’t a good deal. Take Jessica Birge, 29, who is studying nursing and works as a medical assistant. Her job gives her $100 a month for medical expenses, though she does have dental and vision coverage through her employer. But she doesn’t have a lot of medical expenses since she rarely goes to the doctor, opting instead to go to a local clinic for her annual exams.

Though she knows she needs insurance in case she gets into an accident, she doesn’t think Obamacare is very affordable.

“I don’t really want to pay a penalty, but it’s more economical for me to pay $300 a year [in fines] than $200 to $300 a month for insurance I don’t use,” said Birge.

Now, you can argue that the young folks should contribute to the system in order that the elderly and the sick may obtain coverage.  And  I would argue that such a ideal is a noble one indeed.  But we’ve now moved away from an insurance conversation to one more properly defined as an entitlement conversation.

The fact is, Ms. Birge and millions like her are simply making the choice to self insure.  A choice that I myself made when I was that age as well.  Lookig back I wish that I had taken a catastrophe policy and matched it with an HSA.  Not that ever was sick or hurt, but it’s a curse of being older to look back on the mistakes of youth and shake your head.

Plus I would now have an HSA account that would have grown tax free over the last 22 years.

A Mile Away


Truly shocking news, but at least it’s being reported:

(Reuters) – U.S. businesses are hiring at a robust rate. The only problem is that three out of four of the nearly 1 million hires this year are part-time and many of the jobs are low-paid.

Employers say part-timers offer them flexibility. If the economy picks up, they can quickly offer full-time work. If orders dry up, they know costs are under control. It also helps them to curb costs they might face under the Affordable Care Act, also known as Obamacare.

People are responding to incentives.

Executives at several staffing firms told Reuters that the law, which requires employers with 50 or more full-time workers to provide healthcare coverage or incur penalties, was a frequently cited factor in requests for part-time workers. A decision to delay the mandate until 2015 has not made much of a difference in hiring decisions, they added.

“Us and other people are hiring part-time because we don’t know what the costs are going to be to hire full-time,” said Steven Raz, founder of Cornerstone Search Group, a staffing firm in Parsippany, New Jersey. “We are being cautious.”

Raz said his company started seeing a rise in part-time positions in late 2012 and the trend gathered steam early this year. He estimates his firm has seen an increase of between 10 percent and 15 percent compared with last year.

Other staffing firms have also noted a shift.

“They have put some of the full-time positions on hold and are hiring part-time employees so they won’t have to pay out the benefits,” said Client Staffing Solutions’ Darin Hovendick. “There is so much uncertainty. It’s really tough to design a budget when you don’t know the final cost involved.”

One hundred percent the result of an administration that has never had to “do” anything but win votes.

Obama will point to the fact that he’s delayed the mandate:

The delay in the Obamacare employer mandate “confused people even further,” said Bill Peppler, managing partner at Kavaliro, a technology staffing firm in Orlando, Florida. “When we talk to customers, I still don’t think anyone has a handle on this.”

But this will HELP employees:

Some businesses are holding their headcount below 50 and others are cutting back the work week to under 30 hours to avoid providing health insurance for employees, according to the staffing and payroll executives.

Under Obamacare, any employee working 30 hours or more is considered full-time. An effort to trim hours might have helped push the average work week down to a six-month low in July.

“As organizations and companies reduce the hours of part-time workers, they still have to replace the capacity, so they go out and hire additional part-time workers,” said Philip Noftsinger, president of CBIZ Payroll in Roanoke, Virginia, which manages payroll for more than 5,000 small businesses.

This is a train wreck.  And we’re all in for the ride.

More Destruction From Obamacare


So, the carnage resulting from Obamacare continues to mount:

The nation’s largest movie theater chain has cut the hours of thousands of employees, saying in a company memo that ObamaCare requirements are to blame.

Regal Entertainment Group, which operates more than 500 theaters in 38 states, last month rolled back shifts for non-salaried workers to 30 hours per week, putting them under the threshold at which employers are required to provide health insurance. The Nashville-based company said in a letter to managers that the move was a direct result of ObamaCare.

Hope and Change people, Hope and Change.

North Carolina GOP – Unemployment Benefits

Another legislative agenda for the state’s republican dominated state government:

 Tens of thousands of unemployed workers receiving federal emergency unemployment will likely lose their benefits starting July 1 as legislators overhaul the program.

Legislative leaders said this week that they will push ahead with a July 1 start to cuts in weekly benefits for unemployed workers. The measure would put the state in violation of the recently passed federal relief package that would have provided benefits to laid-off workers through December 2013. The federal legislation specifically forbid the states from altering the weekly benefit amount, which the General Assembly is poised to do as it returns to session Wednesday.

The reason for the change?  Well, it turns out that the federal government funded the North Carolina’s unemployment payments.  Funded to the tune of nearly $2.5 billion.  And until that debt is paid, North Carolina businesses are required to higher federal unemployment taxes, or FUTA.  In fact, each year that there is an outstanding balance, businesses in NC have to shell out an additional $21 per employee per year, cumulative.

As a response to this ever growing tax burden faced by employers, the idea is to reduce the scope of the state’s UI payout to reduce the normal tax payed.

Is it popular?

Worker advocates called the measure unnecessary and shortsighted.

“This will push thousands and thousands of North Carolinians off an artificial cliff and deny hundreds of millions in dollars to businesses and communities. That money adds nothing to our debt and had already been appropriated,” said Harry Payne, former labor commissioner and worker advocate for the North Carolina Justice Center.

The extended benefits was being funded entirely by the federal government. Each week, that program funnels $25 million in benefits to about 85,000 laid-off workers.

“If anyone wants an example of thoughtlessness, I’ll hold this piece up high,” Payne said. “This is about not understanding what people are going through.”

Certainly not.

However, as the tax per job increases, more and more NC businesses will look to get out of the way of those taxes.  And the only way to do that is to constrain jobs.  Something we certainly don’t wanna do.  Further, by reducing the size of the UI check, the incentive to look for work increases, driving more and more people into the labor force.

Homeless – Help Out or Help Up and Out

I saw the story the other day of that cop who took his own money and bought that guy a pair of boots:

After Officer Lawrence DePrimo knelt beside a barefoot man on a bitterly cold November night in Times Square, giving him a pair of boots, a photo of his random act of good will quickly took on a life of its own — becoming a symbol for a million acts of kindness that go unnoticed every day and a reminder that even in this tough, often anonymous city, people can still look out for one another.

Those boots cost him a hundo.

I like stories like this for two reasons:

  1. I think too often we’re inundated with only bad shit going on in the world.  That everybody is out to get everybody.  More good news would be a good thing.
  2. People ARE capable of giving individually.

Anyway, as I read the story, like I said, I felt good.  But I have to admit that when I got to the cost of the shoes I kinda reacted with a “Uh-oh.”

Sadly, as the story continues, we find that the boots are gone:

Since Mr. Hillman’s bare feet became famous, other people reported seeing him without shoes — one even after Officer DePrimo’s gift — and one woman said she had bought him a pair of shoes a year ago. Whatever the case, Mr. Hillman seemed accustomed to walking the pavement shoeless.

Now, I don’t know Hillman’s story, of course.  The life he leads is violent and full of crime; those boots may have been stolen.  Or, Mr. Hillman may have reacted rationally and decided that the money gained from the shoes was more valuable than the shoes themselves, so he sold or returned ’em.  Again, I don’t know.

But it got me to thinking on the best way to help the folks who have found themselves in the precarious condition of living on the streets.

When I moved to Seattle all those years ago, my buddy and I asked the logical first question, “Where do we go out?”  Everyone told us Pioneer Square.  So we hit that neighborhood 4-5 or 6-7 nights that week.  It was a blast.  Rocking music scene, walking neighborhood with restaurants, bars, shopping and whatnot.  It was great.

But, during that week I was exposed to the folks on Seattle’s streets.  I suspect I had seen homelessness during my time at the University of Minnesota, but I was literally off the farm in rural Minnesota; Right on the Banks of the Plum Creek.  This was new to me.

Over the course of those nights there were two men who were always at the same corner, right in the best place and always seeming, I don’t know – comfortable.  So my buddy and I got to know ’em.  I smoked then and we would sit down and share a smoke.  When it was time for a slice of pizza or a sausage, we’d buy an extra couple and eat with ’em.  I never drank with those guys or gave ’em money, but we got to know them.

I would get a job in that neighborhood and would often walk out of my place and bring them food, take time to smoke and always stop and talk.  To say that we were “friends” probably wasn’t accurate; we never hung out or did anything together.  But then again, when “grandpa” didn’t show up for “work” one night, I found he’d been taken to the hospital.  I told my boss I had to go, she agreed, and I went to visit him.  So, eh, not friends but certainly a connection was present.

One afternoon I was talking to the younger man, slightly older than me at about 30 or so.  I told him that I thought he carried himself well, his conversations displayed a nimbleness and that he was funny and easy to like.  Finally I said that if he needed to, I’d “borrow him” the money for clothes, a tie and jacket and some shoes.  He could use my address and phone number and I’d take messages and I would run him through practice interviews.  “Just puttin’ it out there…..”

He kinda looked at me, not funny – after all, this wsn’t the random act of kindess of a stranger, but still.  And he shook his head, “Naw man, I don’t wanna job.  I’d have to punch in and punch out, do stuff other people told me to do, and then I’d just come here anyway.  I don’t mind my life, I’m not hungry or cold, I have friends and I make enough money – heck, I make 60-80 bucks a night.”

“But you don’t have a home,” I said.

He corrected me, “I don’t have a house.”

Point taken.  And so it was that he decided to live there.  On the corner.  Eating with strangers and other passerbys.  I kept on eating with him, smoking with him.  We remained “friends” until I move, or until I quit working full time down there in the square.  But it was a little different after that talk.  It was different in that he had made a choice.  In the same way I made a choice, to go to school, then to work and to pay rent and all that stuff.

I’m sure that he’s the exception to the rule, I’m sure that the 636,017 folks out of homes today would rather not be out that home.  That they would want to be back in a secure place, warm fed and safe.  And I know that, my friend’s place was unique.  Seattle is a remarkably safe city, hell, I’d walk home, 1-2 miles at 03:00 AM with a bartender’s take of cash in my pocket right THROUGH the heart of the city.  Not once did anything happen.

But it has always made me wonder how is it best to help the folks that find themselves down on their luck?  How many cases are there of otherwise fully capable functioning families or individuals who just got hit with a random life event that knocked ’em off their feet for a sec?  And yes, literally a free apartment, some food, clothes and a razor would get them back on track.  How many would need more than that, perhaps less?  I’m sure that a ton are mentally ill and unstable; there is no amount of money or care that will allow a hope at a traditional functioning life spent working, paying rent and caring for a self and a home.  But what then? And, of course, there is my “friend” in Seattle.  He has made a clear and rational decision to live on those street and finds himself in a perfectly happy place.

I don’t think anyone questions that “we” give assistance through “entitlements”.  Maybe I speak for myself, but I ask the question, “What is the most effective form of aid?  How will we know it’s working?  What will we do when it hasn’t?  Are we prepared to stop providing the assistance in the event it isn’t fulfilling our goal?”

Those are the questions I have.

Another Government Creation, Another Bailout?

In the same way that government created the housing bubble, the government has created the college-loan bubble.

Once upon a time, government officials decided it would help them keep their jobs if they could claim they had expanded the middle class.  Unfortunately, none of them really understood economics or even the historical factors that led to the emergence of the middle class in the first place.  But they did know two things:  Middle class people tended to own their own homes, and they sent their kids to college.

So in true cargo cult fashion, they decided to increase the middle class by promoting these markers of being middle class.  They threw the Federal government strongly behind promoting home ownership and college education.  A large part of this effort entailed offering easy debt financing for housing and education.  Because the whole point was to add poorer people to the middle class, their was a strong push to strip away traditional underwriting criteria for these loans (e.g. down payments, credit history, actual income to pay debt, etc.)

We know what happened in the housing market.  The government promoted home ownership with easy loans, and made these loans a favorite investment by giving them a preferential treatment in the capital requirements for banks.  And then the bubble burst, with the government taking the blame for the bubble.  Just kidding, the government blamed private lenders for their lax underwriting standards, conviniently forgetting that every President since Reagan had encouraged such laxity (they called it something else, like “giving access to the poor”, but it means the same thing).

What are the chances that we bail out all those kids who’ve majored in such “in demand” course work as Art History, Religious Studies, Women’s Studies and others?

I’d say pretty high.

Oil Spills – Oil Companies – BP

BP has been issued a bill for the oil spill in the Gulf back in 2010:

NEW ORLEANS — BP said Thursday that it will pay $4.5 billion in a settlement with the U.S. government over the disastrous 2010 oil spill in the Gulf of Mexico and plead guilty to criminal charges related to the deaths of 11 workers and lying to Congress.

The day of reckoning comes more than two years after the nation’s worst offshore oil spill. The figure includes nearly $1.3 billion in criminal fines — the biggest criminal penalty in U.S. history — along with payments to certain government entities.

The settlement, which is subject to approval by a federal judge, includes payments of nearly $2.4 billion to the National Fish and Wildlife Foundation, $350 million to the National Academy of Sciences and about $500 million to the Securities and Exchange Commission. The SEC accused BP of misleading investors by lowballing the amount of crude spewing from the ruptured well.

Now, I’m all for BP having to pay for the cleanup to all agencies that were harmed by the spill.  I think that allowing companies to poison rivers that does nothing to harm the company is a moral hazard that creates problems for everyone.*

And I don’t mind that government sets the amounts of those fines.  What I DO object to is the nature in which these fines are arrived at; politics, deal making and more than likely cronyism.

If we want to protect ourselves from oil spills we have to acknowledge two things:

  1. We can not prevent a spill from ever happening again.  The only thing that we can hope for is to increase the mean time between failure and decrease the meant time to repair.
  2. What we really object to is the damage done by the spill, not that there was a spill per se.  Therefore, if we can quantify the dollar cost to restore the damage, we should be alright with the transfer of that cost.

If we’re able to do this, and codify it so that the rules are clear and understandable, the oil companies will understand this and include it in their business models.  In fact, I suspect that the fines will be significantly high that those companies will have to take out insurance policies to protect them in the event of a spill.  And this is a good thing.

See, if the oil company requires insurance they’ll have to get it from another company that sells insurance.  These insurance companies, being rational, will not issue said policy UNLESS the oil company can demonstrate adequate safety processes.   In short, the insurance will drive increased safety and prevention.  And it will do it in a mostly free market way.  Today prevention agencies are government run and filled with execs from oil companies that are named based on politics.  These agencies aren’t adequate in writing and enforcing the rules.  But if insurance companies are in charge of that, we can be MORE sure that the whole thing is more modern and appropriate.

So, hell yeah BP should pay.  But the fine should have been known and predictable up front.  If it was, I claim that the next oil spill will occur further in the future than it otherwise would and be restored much quicker and wit less overall damage to the environment.

* I do NOT object to the poisoning of rivers that DOES harm the polluter.  In this case “rivers” is the name I’m giving to the general environment.

Elections Have Consequences

It’s simple, really.  When there is an incentive to save money, there should be no surprise that incentives will drive behavior.  Consider Community College of Allegheny County:

To Community College of Allegheny County’s president, Alex Johnson, cutting hours for some 400 temporary part-time workers to avoid providing health insurance coverage for them under the impending Affordable Health Care Act is purely a cost-saving measure at a time the college faces a funding reduction.

But to some of the employees affected, including 200 adjunct faculty members, the decision smacks of an attempt to circumvent the national health care legislation that goes into effect in January 2014.

“It’s kind of a double whammy for us because we are facing a legal requirement [under the new law] to get health care and if the college is reducing our hours, we don’t have the money to pay for it,” said Adam Davis, an adjunct professor who has taught biology at CCAC since 2005.

Temporary part-time employees received an email notice from Mr. Johnson on Tuesday informing them that the new health care act defines full-time employees as those working 30 hours or more per week.

As a result, the college as of Dec. 31 will reduce temporary part-time employee hours to 25 per week. For adjuncts, the workload limit will be reduced from 12 to 10 credits per semester.

The decision affects only temporary part-time employees and not permanent part-time employees who already are eligible to participate in the college’s health care plan.

My hope is that the folks impacted voted for Obama; you should reap the rewards of the decisions you make.

But that’s not all:

Darden Restaurants Inc. — parent of the Red Lobster, Olive Garden and Capital Grille eateries in Colorado and elsewhere — is cutting back hours of workers at some of its locations in an apparent effort to reduce insurance costs related to the new health-care reform law.

The Orlando, Fla., Sentinel newspaper reports that the Orlando-based company (NYSE: DRI) “has stopped offering full-time schedules to many hourly workers in at least a few” of its locations.

The Sentinel quotes the company as saying it plans to limit employees at some restaurants in four unidentified markets to 28 hours a week. Darden said the move is intended “to help us address the cost implications health care reform will have on our business.”

Under the federal Affordable Care Act, the health-reform law that some call Obamacare, companies with at least 50 employees must provide health insurance, starting in 2014, to all those who work at least 30 hours a week. Those that don’t will pay a penalty.

I suspect that this will play out across America more and more.  As the ramifications of electing Obama continue to see the light of day, more and more we are going to see this reaction by business.  Fewer people hired, higher ratios hired as part time employees, more efforts to drive productivity by more and more automation.

It really is important to understand that there really aren’t solutions; only tradeoffs.

Want healthcare?  Lose jobs.  Sacrifice growth, accept higher unemployment.

If you voted for Obama, this is on you.  This is what you wanted, this is what you explicitly put into motion.

We warned you.


Fire Departments And Homeowner Insurance

A few years ago the fire department in South Fulton, TN made national news when rushed to the scene of a house fire and —

Let the thing burn to the ground.

It turns out that the family hadn’t paid their $75 annual fire protection fee:

Firefighters aren’t afraid to break down windows and doors to douse flames, but a Tennessee family’s failure to pay a $75 fee stopped firefighters dead in their tracks last week as a home burned to the ground.

South Fulton, Tenn., firefighters stood on the sidelines, watching as flames engulfed Gene Cranick’s Obion County home. They refused to help because Cranick had not paid an annual “pay to spray” subscription fee.

“I just forgot to pay my $75,” homeowner Gene Cranick said. “I did it last year, the year before. … It slipped my mind.”

The city of South Fulton charges that $75 fire protection fee to rural residents who live outside the city limits. When a household has not paid the fee, firefighters are required by law to not respond.

It turns out that when you live within the city limits you pay taxes that support things like fire departments.  But when you live outside those city limits, and avoid paying those taxes, you do not get to enjoy things that those taxes pay for.  Things like fire stations.

The outrage was all the rage at the time.  My liberal talk show hosts couldn’t stop talking about it for days.

Not surprisingly, I took the Libertarian approach:

If you want fire station protection, you should pay for it; if you don’t, then don’t.

Continue reading

Government Mandates: Biofuel Additives

I’m a big believer in markets.  Which is another way of saying that I’m a big believer in incentives.  As the demand for lemonade goes up, the demand for sugar, waters and lemons go up.  As the demand for sugar, water and lemons go up, the price of those items goes up as well.  As the price f sugar, water and lemons go up, so do the price of the finished products that also contain those ingredients.  At this point there will be conflict.  Conflict as the rising price of two or more products compete in the market.  In time, over time, the demand of lemonade will level out as the cost hits a limiting level.

Even more fun is the impact that these higher costs of goods have down stream.  As the price of lemons goes up, farmers increase lemon  production.  They do this by engaging useful farmland into lemon trees.  By doing this, they stop the productive activity they WERE engaging in as they move to higher and higher lemon production.  Say, for example, peaches.  Lemon trees are planted in favor of peach trees and we see the ration of lemons to peaches increase.  This leads to price fluctuations between peaches and lemons.  As these forces are spread through geography and time, the price will reflect the demand of the society on both peaches and lemons.

And this will be natural.  This is what allows most people in a group, even a large group, to get what it wants.  Are there going to be winners?  Sure, there will be people who love lemons and hate peaches and will benefit by the increase production of lemons.  Losers?  You betcha!  Peach lovers but lemon haters may lament the rising prices and availability of peaches.  But on the whole, the demands and wants of the society are served.

Can you image the infrastructure required, the sheer magnitude of size required, if the government wanted to set up an office that measure and dictated the proper allocation of lemon and peach production?  For us in America it is relatively uncommon.  But in Soviet Russia, not so much.  In an effort to make sure the economy was controlled and the people fed, the State dictated means of production.  And no one was fed.

Point.  Sorry.

So, I get frustrated when I see the government mandate something.  Mandate health insurance.  Mandate light bulbs.  Mandate farm subsidies.  All of it.  All of it creates a ripple affect down the line resulting in unwanted consequences.   But I have to admit, when the state mandates a product that doesn’t exist, I am more amused than frustrated:

WASHINGTON — When the companies that supply motor fuel close the books on 2011, they will pay about $6.8 million in penalties to the Treasury because they failed to mix a special type of biofuel into their gasoline and diesel as required by law.

But there was none to be had. Outside a handful of laboratories and workshops, the ingredient, cellulosic biofuel, does not exist.

In 2012, the oil companies expect to pay even higher penalties for failing to blend in the fuel, which is made from wood chips or the inedible parts of plants like corncobs. Refiners were required to blend 6.6 million gallons into gasoline and diesel in 2011 and face a quota of 8.65 million gallons this year.

“It belies logic,” Charles T. Drevna, the president of the National Petrochemicals and Refiners Association, said of the 2011 quota. And raising the quota for 2012 when there is no production makes even less sense, he said.

The government is mandating a product that doesn’t exist.

Classic example of government heavy handedness.