Category: Uncategorized

Midwest Hit With Tariffs & Shutdown Adds to Years of Recession – Needs A Heartland Venture Marshall Plan

On January 17, 2019

In Families, Farmers, Heartland Economics, Mobility, Opioid Crisis, Tariffs, Uncategorized

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Midwest farmers are declaring bankruptcy at a rate not seen since the Great Recession. As prices for corn, soybeans, milk and corn decline to decade lows, the Minneapolis Federal Reserve reports that Chapter 12 bankruptcy filings in 5 states of the Ninth District.

Sources: United States Courts – Fed Ninth District, Federal Reserve Ninth District, FedGazette – 11/14/18

The Federal Reserve notes that based on the level of bankruptcies and the trajectory of the increase that bankruptcies will only increase. The government shutdown is exacerbating farmland pain. The Trump administration announced last summer $12 billion in farmer subsidies. But, because of the shutdown many farmers applying for subsidies and loans to plan for spring planting are not receiving the money they need. Many farmers and agriculture businesses are affected by the Department of Agriculture shutdown versus coastal states as shown below.

China turned to Russia and Brazil for soybeans in particular in the 4^th Qtr of last year. US sales to China dropped to almost zero. As a negotiating tactic, China last week did pledge to buy more soybeans as traders in Chicago noted last week an increase in sales orders. However, when China switched purchases to major suppliers last year it will be difficult for US farmers to unhook those deals already in place. As one farm owner noted, “ it just seems like it’s one thing after another, over and over.”

Heartland challenges have actually been going on for years even before the Great Recession with the loss of millions of manufacturing jobs since China joined the WTO in 2000. The rural regions of the country have seen their wages grow at half the rate of metro areas. The opioid epidemic has cost thousands of young workers future careers, unemployment is twice what it is in the East and West. The digital internet infrastructure in rural areas is quite often at analog rates 4 times slower than broad band. Companies are at a disadvantage versus their metro competitors with slow bandwidth. Rural region hospitals are closing at an increasing rate leaving many rural people with hundred mile or more drives to the nearest emergency room. Life expectancy in Mississippi is the same as Libya. Heartland America has been left out the metro mainstream economy for the past 20 years. Our post – The Hallowing Out of Heartland America shows how rural regions have fallen behind in many infrastructure areas including: healthcare, Internet bandwidth, jobs, education with limited upward mobility for young people.

Next Steps:

The Heartland Venture Marshall Plan is similar in concept as the Marshall Plan deployed by the U.S. to rebuild the infrastructure of Europe after WWII, but instead of a government bureaucracy the Silicon Valley style innovation venture model is used. Venture development is designed to start small, build on successful prototypes and use multiple sources of funding to gain as much support as fast as possible to make the venture a success. Failure is part of the success fast, try several prototypes, do it, tweak it, try it again until it works or achieves the goals we set for the venture.

Here is a summary of the idea from our post of September 2017:

“We propose building a startup non-government organization. We are recommending a different approach by the Federal government to act as an investor in a non-government organization called a Heartland Development Center. An HDC acts as a central hub of critical services and infrastructure development while providing a continuous innovation system. The Heartland Development Center acts as a catalyst creating an innovation ecosystem to jumpstart local economics and social structures. HDCs would focus on all the key issues that a region needs to address to rebuild their economy and people’s lives: business formation, education and training, digital infrastructure, affordable housing, engaged local innovation media and health care.

The Federal government would seed the financing of these NGOs in key regions with additional funding from local and state governments, and major corporations who would benefit from the newly available job force tuned to their needs. HDCs would be ‘startup’ organizations installed at Land Grant universities bringing in leaders in their respective fields – ie. business formation – Y Incubator, preventive health – Cleveland Clinic, or training – Opportunity@Work as contractors to the HDC. These NGOs would establish continuously renewing innovation processes to stay in touch with their citizen – customers and businesses. Administration services would all be contracted using cloud software services for HR, Payroll, Training, Benefits and other internal systems to keep costs down. The HDC startups would be piloted in 3 non metro areas, where they would tune their business and socio economic models for maximum impact, then use those working models to implement HDCs in 25 or more other key regions for 5 – 10 years.”

Economists see the opportunity to invest in rural regions to jump start a part of the economy in innovative ways. Joseph Stiglitz, nobel prize winning economist for example advocates turning blue collar rural areas into ‘green collar’ hubs focused on developing innovative environmental technologies, systems and services.

Congress sees the need as well, as Congressman Ro Khanna – D-17 California is working on legislation patterned after the land grant college Morrell Act of 1862 to make an investment in technology job development in rural sections of the U.S. Khanna has supported computer programming training in West Virginia and toured the Midwest with Silicon Valley executives and venture capitalists to encourage investments in the Heartland. He points out that there is no need to send jobs to China, Brazil or India when there are people in our Heartland who can do those jobs well and at lower cost than expensive coastal regions.

There is one indicator of the desperation that many rural people feel is the fact that the opioid epidemic has a 50 % greater incidence in the Heartland than in our metro or coastal cities. We need to be building bridges through programs like the Heartland Venture Marshall Plan between our coasts and the inland empire to bring together our people developing consensus and shared experiences. Each HDC would be staffed by a equal mix of apprentice and college graduates from local rural education systems and metro university graduates. They would comprise a ‘Heartland Service Corp’ modeled on the AmeriCorp program with a benefit of complete forgiveness of student debt for two to four years of service depending on the debt balance. We would be building shared experiences of our young people to bridge the gap between inland and coastal cultures. These young people can innovate new opportunities to create an economic future that works for all.

Where Is the Common Good? Our Families is a Good Place to Start

By Patrick Hill

On January 11, 2019

In Civic Virtue, Civil Discourse, Common Good, Corporate Reform, Families, Uncategorized

Everyone has a mother and father (even if they are not living with them now). Many of us have brothers, sisters, aunts, uncles, grandfathers and grandmothers. How about looking at local, state and federal government policies and laws through the eyes of our families. Does this healthcare insurance make sense for families? Does it provide for services, drugs and care from birth to death? How can we build families as a unit of government services?

Families are really the basic unit of our communities. A household is in an apartment, or home with a set of family members – as those members define their household. For many there are multiple generations in a household, aunts, uncles, grandpa and grandma. Can we start with family as an economic unit too. How do we support those who have jobs in the household? Can we support multiple family members having jobs? For example with child care so that Moms can work if they want to. Can we have more women friendly corporate policies such that a women can move from home to the work world and back without losing pay or career opportunities. Why not have paid parental leave like most developed countries of the world?

Children in the household need an education in the household to survive in this world. Why not make pre kinder programs available for all families not just wealthy ones. Why not offer public education that is equal across communities not just rich ones getting the good teachers and supplies? Why not offer a college education or high quality apprenticeship programs to all children regardless of community at no cost to the family or limited cost. When are we going to invest in our children to the level that we did in the 1970s when states spent 3 or 4 times what they spend now secondary and higher education.

When a household job holder is out of work what happens? How can we support that person get another job, offer health insurance when they need it between jobs as no additional cost. When will we make companies that layoff workers do so in an equitable way along with manager and executive layoffs? How do we get equitable pay for employees that is at a livable wage instead of 300 % less than executive pay. In the 1950s executive pay was 50 % higher than the average worker, it worked then why not now. Instead of allowing corporations to take the money they make off the hard work of employees, and funded by customers to throw stock buyback money down the drain – take those funds and fund equal education for all or healthcare for all.

Family time together needs to be supported, in Europe they have the full month of August off to be together with their families or friends. Instead, US workers work the most number of hours in a year of all workers in the world. Germany does fine with an economy that provides a good standard of living for all workers and they have 5 weeks off each year.

Today we have the highest level of wealth concentration since 1929, we know what happened after that year, the stock market crashed, companies went of business, unemployment was over 20 %, many people starved. Unless, we take dramatic steps to share the benefits of our economy for all, it will crash again, causing great pain and suffering to many for 5 to 10 years as the economy rebalances wealth and reverts to the mean of wealth for the past 88 years. Throughout history, societies become prosperous, the rich take control of government and resources and eventually those that are left out revolt or the economic model becomes too top heavy to work and deflation, depression and decline takes place. Then, as wealth rebalances the industrious are rewarded again and the society begins to grow again on a solid foundation. That foundation is the family. There is another benefit to putting families first. We are actually all part of the same family of humanity, maybe when we put the focus on families we will treat each other with respect, understanding and civility.

Corporate Debt Bubble Increases Probability of Recession

By Patrick Hill

On January 9, 2019

In Corporate Debt, Corporate Reform, Debt, Economy, Employees, Stock Buybacks, Uncategorized

S & P 500 corporations have been borrowing money to buyback stock and increase dividends to investors. Increasing their debt bubble could increase the probability of defaults. Research shows that defaults spike when the corporate debt to GDP ratio exceeds 44 %.

Sources: Bloomberg, S & P, The Wall Street Journal, The Daily Shot – 1/9/19

When companies take on so much debt defaults become a real possibility when sales fall, or profits are squeezed as debt payments become due. Apple recently announced that iPhone sales were falling in China and has decided to cut production of all iPhones by 10 %. Apple has plenty of cash, but their suppliers may not. Fedex in December announced plans to offer domestic employees buyouts because ‘global trade has slowed in recent months and the company expects trade to slow further.’ We can expect more reduced earnings and sales guidance beginning next week when 4^th quarter reports begin coming in.

Sources: Gavekal Data/Macrobond, The Wall Street Journal, The Daily Shot – 1/9/19

When corporate debt to GDP ratios close in on 44 % or exceed that level recessions are likely to follow as the chart above shows. There is much discussion in the financial press about whether there will be a recession or not. It seems quite possible that record corporate debt combined with a likely fall off of sales in the 1^st quarter of 2019 due to pull up buying by companies in the 4^th quarter of 2018, will cause an economic slowdown or recession. The slowdown is made much worse by corporations overindulging in debt to finance stock buybacks and dividend distributions. Plus, turning around these companies will be more difficult as defaults spiral downward, more companies are forced to close or layoff workers. As workers are laid off they reduce spending, then reduced spending causes broad sectors of the economy to experience sales and profit declines.

Next Steps:

Where is the oversight of spendthrift management policies? Directors are likely on stock bonus plans too, so they enjoy seeing the stock price goosed by share buybacks. Where is a voice of moderation looking out for the long term viability of the company for customers, employees, shareholders and communities going to come from? We need a national dialog on how to improve corporate governance taking into account the needs of all parties represented to reign in profligate borrowing . Certainly, corporate executives did not start the trade war but they have borrowed way too much placing their firms in peril. It is management’s responsibility to look out for the interests of all effected by company success or failure.

Drug Insurers Reap $9 billion Windfall from Overestimates

By Patrick Hill

On January 7, 2019

In Corporate Reform, Drug Companies, Drug Pricing, Health insurance, Medicare, Uncategorized

Major drug insurers like United Health Group, CVS Health, and Humana make estimate bids to Medicare for reimbursement for the cost of Part D prescription drug benefits. From 2006 until 2015 the Wall Street Journal examined industry records and found that insurers reaped an additional $9 billion from overestimates of drug insurance costs.

Sources: Centers for Medicare and Medicaid Services, The Wall Street Journal – 1/4/19

From 2010 to 2017 overall Part D spending rose faster than all other Medicare components by 49 %. The bids from insurers include their profit margins and administrative costs. Medicare reimburses the firms monthly. When the year ends, Medicare audits the estimate totals versus the actuals and requests the overpayments be returned. However, the way the payment terms are setup the insurers are not required by pay the full amount of the overestimate. In 2015 insurers overestimated their Part D costs by $2.2 billion and were allowed to keep $1.06 billion.

The size and continuous overestimate pattern seems unusual. The overestimates are extraordinary to the tune of a million to one according to Memorial Sloan Kettering analysts who completed record examinations for The Wall Street Journal. Peter Bach, director of Sloan Kettering’s Center for Health Policy and Outcomes, noted, “Insurance companies use heaps of data to predict future spending. If truly unpredictable events were blowing up their statistical models, the proportion of overestimates to underestimates would be closer to 50/50.” Dr. Bach concluded, “If they start missing in one particular direction over and over they are doing it on purpose.”

The chronic overestimates are particularly a problem in the direct subsidy part of the program as the following chart shows versus the reinsurance program where estimates are far more accurate.

Sources: Medicare, The Wall Street Journal – 1/4/19

Congress designed the program in 2003 where the federal government and seniors would pay for drug insurance while the program would be operated by private companies. Legislators were concerned that insurers would not want to participate so they allowed for companies to hold back overestimated reimbursement funds. The private companies bear all the risk in the direct subsidy program, yet in the reinsurance program for high cost drugs Medicare bears the risk on underestimates causing losses.

Insurers can gain major benefits by overestimating on the routine drug costs they cover. Companies can keep any overestimated funds up to 5 % of their guess. In some cases they can keep more than 5 % based on a Medicare formula. Medicare steps in if the insurers experience a greater than 5 % loss in their estimate.

Next Steps:

From 2006 to 2015 Medicare spent $652 billion on the Part D program, with its cost increasing by 49 % over that period. Costs must be controlled by private insurers to keep premiums low for seniors and cost overruns limited for the federal government. There is too much reward built into the present direct subsidy program. Why not do as many corporations do for contracts that estimate costs and then must be reconciled at the end of the year? Return all the funds that are overestimated. Chronic overestimating companies would be hit with a penalty for overestimating reimbursement based on the opportunity cost of funds over reimbursed monthly payments. Medicare should reward the accurate estimating companies with positive ratings on their prices, and make clear who the violators are. Making the programs more competitive would bring down costs and require that companies be more accurate in their drug reimbursement estimates.

We see the pricing of drugs via insurers and pharmacy benefit companies as being too opaque to clearly design a fair pricing system. Congress needs to pass a ‘simple pricing’ sunshine bill to make drug pricing clear and accurate for all consumers and the government. Medicare should be able to use its leverage covering millions of seniors to negotiate a reduction in drug and insurance costs. California announced today a policy just signed by the newly installed governor, Gavin Newson, authorizing the California Medicaid administration to negotiate drug prices for all 13 million patients enrolled as a block and invites private employers to join the block. Drug companies and insurers need to shift their focus to make pricing programs more equitable for patients and payers or the face increased calls for price regulation.

Only 27 % of Workers Received Raises in Past Year

By Patrick Hill

On December 18, 2018

In Corporate Power, Corporate Reform, Labor, Stock Buybacks, Uncategorized, Worker Wages

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Last month, Bankrate.com completed a survey of 1,000 workers from all income levels across the U.S. and found that only 27 % of existing full time and part time workers had received wage increases. For all the recent news about wage inflation, from the worker perspective they just aren’t seeing the wage increases. The wage inflation reported by government surveys is an average and does not take into account income levels. The higher paid workers are getting the raises so the average moves up.

Sources: Bankrate.com, Marketwatch – 12/14/18

If a worker changed jobs then the pay raise figure rises by 5 %, though from our perspective that still seems low. When workers change jobs shouldn’t they be receiving a raise in this tight labor market? This trend seems to indicate that wage leverage for workers is still quite low compared to the power businesses have over wage increases. As we have noted in the past businesses enjoy leverage over workers by automating jobs, Internet access to hundreds of candidates nationwide and outsourcing of non-core functions. Plus, executive power is increasingly concentrated with mergers and acquisitions cutting down the number of competitors that workers can chose to work.

Pew Research reports most pay raises going to the top 10 %,while non-supervisory and production workers barely received any wage increases.

Sources: U.S. Bureau of Labor Statistics, Pew Research – 8/7/18

Real wages (taking into account inflation) have risen 4.3 % since 2000 for the lower quarter in income. Yet, for the top 10 % wages have increased by 15.7 % or $2,112 per year. Some of the pressure employers feel is from increased health insurance costs and adding non-wage benefits to keep pace with competitors. The reality is that wages are what workers have to use to make the majority of their payments for housing, food, and necessities. Plus, wages for the top 10 % keep going up anyway, so why don’t workers get the same rate of wage increases?

Wage stagnation has been happening for years. Since 1964 an analysis of wages for production and non – supervisory workers by Pew Research shows that today’s wages have just not kept up with inflation.

Source: U.S. Bureau of Labor Statistics, Pew Research – 8/7/18

Next Steps:

For all the discussion in the financial media about a wage inflation spiral the reality is that structurally workers in the lower 80 % income bracket are not getting their fair share of the economic pie. While, there have been federal laws proposed for limiting CEO pay Portland, Oregon has passed a law with a limit for executives at 150 % of worker pay or tax penalties are paid. Regulating pay in this way seems to be micro managing pay scales. However, we have a fundamental issue with pure capitalism of the American economy not delivering wealth to the vast majority of workers. In the 1970s, 1980s workers were receiving wage increases at 6 %, 7 % and sometimes 8 %. After the Great Recession workers are just averaging 2 % to 2.5 % in wage increases. Globalization caused outsourcing of manufacturing jobs held by the working class which hallowed out good paying lower education jobs. Millions of manufacturing job have been lost and not replaced. Our economy is 70 % services based with highly educated knowledge workers receiving most of the benefits. Ending stock buybacks would certainly put more cash into corporate coffers to distribute to workers – but will executives raise wages? Raising wages is an expense on the corporate ledger, and executives are paid to increase profits not reduce them. Executives are at the pinnacle of their power. Yet, as a society we have to fundamentally rethink how we make the economy work for all not just the few at the top of the corporate pyramid.

Drug Companies Want a $4 Billion Break: No Way!

By Patrick Hill

On December 12, 2018

In Drug Companies, Drug Pricing, Stock Buybacks, Tax Bill, Uncategorized

Major drug companies are lobbying Congress to reduce the $4 billion increase in costs due to raising the discount for seniors purchasing drugs at the ‘donut hole’ level in Medicare Part D to 70 % from 50 %. The provisions for an increase in the discount was included in a spending bill passed by Congress last February.

Pharma companies and major corporations with billions of dollars stashed overseas said that if tax rates were cut on dollars transferred to the U.S they would raise wages, increase R & D spending and reduce prices. Most companies did not deliver on their promises or benefits to patients either. Instead, they increased the size of their stock buybacks by 4 to 5 times in the case of the largest stock buyback company, Amgen.

Sources: SEC, The Wall Street Journal – 12/6/18

Only two of the top ten companies actually reduced share buy backs since January of this year. Corporations overall are expected to complete over $1 trillion of stock buy backs by December 31^st Goldman Sachs estimates.

Over a dozen Democratic members of the House ofRepresentatives sent letters to five top pharma companies with data showing new increases in drug prices while increasing share buy backs. The drug industry responded that they were reducing prices, increasing R & D spending and raising employee wages. Merck, CEO, Kenneth Frazier said in a reply, “We view the legislation (tax cut) as providing us with more flexibility to deploy capital in support of our strategy to invent new medicines that address key unmet medical needs, ultimately benefiting patients.” The reality is that prices for the most popular drugs are still going up.

AbbVie raised the price of Humira by 9.7 % in January the Democrats pointed out in their letter to the firm. Inflation for this past year is 2.4 % that drug increase is nearly 4 times the rate of overall consumer price increases in the U.S. economy. AbbVie sent a reply to the Congressmen outlining many programs using their tax cut funds including: a $1000 salary increase to non-executive employees, plans to invest $2.5 billion in capital projects in the U.S. over the next five years, $100 million healthcare and housing for people in Puerto Rico, an $100 million to the Ronald McDonald House to fund lodging for pediatric cancer patients and their families.

Next Steps:

Drug costs hit seniors particularly hard because they need the medication, and they are on fixed incomes. Drug companies have to do better by ending what the SEC called, “stock price manipulation”, before the Safe Harbor policy in 1982 allowed stock buybacks. Billions of dollars are wasted to goose the price of stocks to benefit executives and big investors. Investors are misled by earnings reports using fewer stock shares to compute earnings per share, often used to assess company performance. Patients are hurt by price increases, Humira costs patients $50,000 per year for the standard treatment if they have no insurance coverage. Stock buybacks by pharma companies must stop, the price gouging of patients and insurers needs to end.

Another economy that drug companies should adopt is to end direct-to-consumer advertising of prescription drugs. Over 150 countries do not allow prescription drug advertising, only the U.S. and New Zealand allow advertising directly to patients to create “pull” sales from patients requesting a drug from their doctor. According to Kantar media, drug manufacturers spent $6 billion on direct to consumer television advertising in 2017, a 64 % jump from 2012. The billions being spent on DTC advertising are better spent on reducing drug prices. We applaud the moves by AbbVie in raising employee salaries, donations to Puerto Rico and Ronald McDonald house, these are excellent steps. Many drug firms have foundations that offer patients with low incomes a way to obtain their medicines for free or little cost. The difficult aspect of most of these drug-for-free programs is they require large volumes of paper work, with major time delays when the patient needs to the drug immediately. Drug company executives need to see the light on what is happening, the price gravy train and waste of stock buyback funds gleaned from patients needs to end. Why wait for legislation? We appeal to CEOs – make the right moves now. See that taking responsibility for solving the cost crisis you have created will be far better for your firm, patients and insurers. You may get a solution you don’t want if you wait for Congress to pass legislation.

Statesmen Envision, Create and Sustain: The Common Good

By Patrick Hill

On August 31, 2018

In Uncategorized

Photo: wikipedia.com

With the passing of Senator John McCain, it is a good time to reflect on our leaders who understand, believe and create the Common Good by their actions. Senator McCain was certainly such leader in the two major areas: campaign finance reform and his deciding vote to keep Obamacare (‘policy should be decided in good order’). The way he loved this country and reached out to members of both sides of the isle in Congress is an example we could all hope to emulate in focusing on the Common Good above all else. In a fitting tribute we publish the letter he asked to be read after this passing:

“My fellow Americans, whom I have gratefully served for sixty years, and especially my fellow Arizonans,

“Thank you for the privilege of serving you and for the rewarding life that service in uniform and in public office has allowed me to lead. I have tried to serve our country honorably. I have made mistakes, but I hope my love for America will be weighed favorably against them.

“I have often observed that I am the luckiest person on earth. I feel that way even now as I prepare for the end of my life. I have loved my life, all of it. I have had experiences, adventures and friendships enough for ten satisfying lives, and I am so thankful. Like most people, I have regrets. But I would not trade a day of my life, in good or bad times, for the best day of anyone else’s.

“I owe that satisfaction to the love of my family. No man ever had a more loving wife or children he was prouder of than I am of mine. And I owe it to America. To be connected to America’s causes – liberty, equal justice, respect for the dignity of all people – brings happiness more sublime than life’s fleeting pleasures. Our identities and sense of worth are not circumscribed but enlarged by serving good causes bigger than ourselves.

“‘Fellow Americans’ – that association has meant more to me than any other. I lived and died a proud American. We are citizens of the world’s greatest republic, a nation of ideals, not blood and soil. We are blessed and are a blessing to humanity when we uphold and advance those ideals at home and in the world. We have helped liberate more people from tyranny and poverty than ever before in history. We have acquired great wealth and power in the process.

“We weaken our greatness when we confuse our patriotism with tribal rivalries that have sown resentment and hatred and violence in all the corners of the globe. We weaken it when we hide behind walls, rather than tear them down, when we doubt the power of our ideals, rather than trust them to be the great force for change they have always been.

“We are three-hundred-and-twenty-five million opinionated, vociferous individuals. We argue and compete and sometimes even vilify each other in our raucous public debates. But we have always had so much more in common with each other than in disagreement. If only we remember that and give each other the benefit of the presumption that we all love our country we will get through these challenging times. We will come through them stronger than before. We always do.

“Ten years ago, I had the privilege to concede defeat in the election for president. I want to end my farewell to you with the heartfelt faith in Americans that I felt so powerfully that evening.

“I feel it powerfully still.’

“Do not despair of our present difficulties but believe always in the promise and greatness of America, because nothing is inevitable here. Americans never quit. We never surrender. We never hide from history. We make history.

“Farewell, fellow Americans. God bless you, and God bless America.”

John McCain: August 29, 1936 – August 25, 2018

Health Providers Not Paying Care Workers Enough, Administrators Too Much

By Patrick Hill

On August 27, 2018

In Drug Companies, Drug Pricing, Health, Health insurance, Medicaid, Medicare, Uncategorized

Photo: aarp.org

There are 3.5 million direct health care workers in the workforce today. The Bureau of Labor Statistics estimates that another 1 million direct health care workers will be hired by 2024. Direct healthcare workers include mostly all the assistant positions except a registered nurse: personal care workers, home health aides, and nursing assistants.

Sources: Bureau of Labor Statistics, Vox – 7/3/2017

Direct care workers often receive a wage below $15.00@hr. About 90 % of personal assistants receive $30,000 or less per year in income. One reason wages are so low is that 70 % of all long term care costs are paid by Medicare and Medicaid. These agencies reimburse care providers on a fixed cost basis. There is another reason. A high number of administrators are being hired rather than physicians, nurses or direct care workers.

Sources: Bureau of Labor Statistics, National Center for Health Statistics – 2010

When viewed from the perspective of healthcare spending per capita, administrator hiring was about 650 % more than overall per capita services. Healthcare is a lucrative sector for business, so they focus on hiring more administrators and managers rather than nurses and direct care workers. Healthcare providers can take the wages they pay too many administrators and give caregivers the wages they need to take are of themselves and their families. The byzantine way the healthcare industry is structured with insurance companies between the providers and workers when we only need one government agency to manage insurance is a good example. Most providers have who departments devoted to interacting with insurers and Medicare staff, which expensive to staff with specialized expertise due the idiosyncrasies of insurance policies.

Next Steps:

We clearly need to use computer systems and software to reduce the number of administrators and overhead in the system to the norm of per capita costs. End the use of private insurers except as contractors to a single government agency, use a standard reimbursement procedure with no middle layers of pharmacy benefit managers and end go to middle managers for insurance companies.

In previous posts we have recommended:

“The core need is to provide low cost effective health insurance for all people (like all developed countries do), so when illness strikes patients receive high quality care and become healthy again. Why do we need multiple insurance payers – private and the federal government? If we were running a corporation we would not have two accounts payable departments? We need to transition to individual health accounts that stay with the patient regardless of employment status beginning at birth. Here are ideas on how this transition could work.

Complete Analysis of ACA – We need to learn from the public exchanges that work – California’s public exchange has been quite successful covering new patients, and keeping costs reasonable for low income patients. Yet, we also need to look at why those exchanges like Oregon are not working well and expensive. Let’s summarize the analysis and publish the results so we can build a consensus around the solution, extending what works and recommendations for changes.

Priority One Cover the 9 Million Uninsured – those not covered by insurance need insurance now, we need to figure out how to cover 100 % of our citizens immediately. Offering a public option on the exchanges for basic health services and drug coverage would be a good start.

End State by State Coverage – state pools not large enough to make insurance work for all. With 360 million people in the US we can make our health insurance pool work to reduce costs. Plus, legislation needs to be passed to reverse the Supreme Court decision to allow states to opt out of subsidies. For example, Texas opted out on $10 billion subsidies leaving many low income families without insurance or very high premiums they cannot afford. Interestingly, a few months ago I talked with a small business office manager in Texas, she complained that ACA was not working (her firm did not offer health insurance), for her hourly staff. Obviously, one reason is that Texas opted out of the subsidy program. Using a national pool would help to spread out the disparities between regions in terms of the rising cost of insurance versus stagnant wage increases.

Create Individual Health Accounts – funding can be setup via a payroll tax, accrued to a personal national health insurance account when working (if they don’t have employer options – to be transitioned later). For individuals or families below the regional poverty level they would pay no health payroll tax. For those individuals who are not contributing to their health account, the federal government would fund a basic health and drug account by progressive taxes on wealthy individuals over $250k and the increase taxes on corporate profits. Corporations can offset the increased tax, by offering lower cost insurance, medigap plans or encouraging their employees to move to the basic national health insurance program.

End COBRA – by setting up health accounts regardless of being employed, there is no need for COBRA plans. Otherwise, for those unemployed to continue coverage often they have to pay soaring COBRA premiums up to 400 % of their employed premium rate. For this author, two major illnesses occurred when I was unemployed, often with the stress of being unemployed is the time we need health insurance. COBRA is another example where health insurers are charging outrageous rates to those who need the insurance badly but can least afford it. For the unemployed they could rely on basic health coverage in their individual health account.

Transition Employer Plans – convert employer plans over 4 years into a national personal health care account. Rollovers can be accomplished in a similar way to 401K to IRA rollovers (without the penalty for early withdrawal). Ending employer programs will cut a layer of administration in benefits departments that more rightly belongs to the individual regardless of employment status.

End Penalties For No Insurance – we want to to tax behavior we don’t want and support or subsidize behavior we do want. All Americans who have Social Security numbers should be able to enroll in a personal health insurance account, if they do not have a employer sponsored program. Parents can apply for a SSN for their child to be covered. A public insurance option should be offered to all those families not in employer sponsored programs. The public option run by Medicare is a basic health insurance program run similar to basic Medicare for seniors with medigap plans to cover the other 80 % of coverage needed.

Use the Medicare Drug Formulary – we don’t need multiple formularies and tiers of drug coverage. Medicare already provides one formulary which should be used as the industry formulary. We need to empower Medicare to negotiate all drug prices and health procedures with providers with provision for regional differences on procedures. A critical medication list can be created by Medicare for life threatening (Epipens) or serious chronic conditions (diabetes) capped at 5% profit for drug manufacturers.

End Stock Buybacks by Insurers – insurers need to end stock manipulation and the waste of stock buybacks. Companies like Aetna have spent billions of dollars on stock buybacks which would go a long way to reducing premiums and costs to patients.

Pricing needs to be transparent – similar to a mortgage disclosure statement. The explanation of benefits and drug claim form needs to be clear about the provider or drug price, any discounts and rebates, the price the insurer is paying, the price the provider is actually requiring, the price the pharmacy is paying and the exact out of pocket cost to the patient, with patient accruals in out of pocket and co pays toward insurance coverage.

Do it Without Waiting – let’s get progressive investors to back drug manufacturers that adhere to drug cost reasonable, critical med list, transparent pricing innovative insurance, publicize get more investors on board. Work with Wall Street to setup an ETF stock to focus on companies adhering to the progressive national health programs demonstrating good returns.

Awareness of What Works – A media campaign with surrogates, leadership in Congress, interest groups like the AMA, and the insurers to bring the American people along on the solution journey and to put pressure on Congress to pass the necessary legislation.

Health insurers would focus on medigap plans, taking risk out of innovative drugs to help speed them to market, vision and integrative medicine, personalized medicine, telemedicine – taking their layer out with reduce costs dramatically. They can be contractors to Medicare for transition to health accts. Or insurers can be contract administrators to Medicare, keeping costs low and utilizing their expertise.

Lets establish a lifetime health insurance program that provides good quality care, and low cost medications for all Americans.”

Wage Increases Evaporate Due To Inflation Again

By Patrick Hill

On August 14, 2018

In Uncategorized

Image: industryweek.com

As we have noted in past posts, worker wage increases have been stagnant for decades and most recently for the 80 % working class since the last recession while 90 % of income increases have gone to the top 10 %.

The Department of Labor announced last week that inflation has completely wiped away any worker wage increases from July 2017 to July 2018.

Sources: Bureau of Labor Statistics, The Wall Street Journal – 8/10/18

Inflation went up during the 12 month period by 2.9 % while wages were up only 2.7 %. Since the Great Recession workers have not left out of the economic recovery. In 2000, the share of corporate sector income going to workers was 82 % now it has slipped to 77 %. The benefits of the Tax Cut, which were supposed to raise worker wages has mostly gone to stock buy backs raising the compensation for executives by juicing the price of their stock holdings. Goldman Sachs estimates that nearly $1 trillion will be spent this year on stock buy backs, and many analysts believe that stock buy backs are holding the U.S. stock markets up in the midst of a worldwide decline in share prices. Stock buybacks mean that necessary capital expenditures in productivity programs, innovation and new plant and equipment are forgone. Economists note that investments in key long term projects are crucial to increasing productivity which has been at an all-time low of 1.7 % over the past ten years. Increased productivity will support raising wages without increasing costs.

Next steps:

Let’s start with the fundamental reason employees do not receive raises beyond inflation – management has no incentive to raise wages. Wages are accounted for as a cost in the books of the company, executives receive major bonuses to increase profits not costs.

The next major factor is automation. Automation of jobs, and work process activities increases profits reduces salaries, benefits and is easier to manage than staff. Automation has continued to give management the upper hand in any wage negotiation. Most job losses over the past ten years have been due to automation. As robots and computer software become more sophisticated with artificial intelligence even more jobs will be lost. For example, while Amazon announces hiring 100,000 workers over the next ten years, at the same time they are installing 40,000 robots to permanently perform many of the those jobs.

Other factors play a major role, corporate mergers reducing the number of companies in major industries, there are 50 % fewer public companies on the stock exchanges than ten years ago. The gig economy employs almost 33 % of all workers, contracting is cheaper and companies can contain costs with flat fixed based contracts with no benefits. Executive pay is 300 % of the average worker pay, so there is less money to go around for raises. Workers have lost union representation over the past 50 years when 33 % of all workers were in unions in 2015 only 10 % were represented. Finally, job market automation, the Internet has provided employers with a vastly larger pool of candidates which they can play off each other. Sites like LinkedIn were designed for corporate recruiters to look at candidates – not with the needs of candidates in mind. We examine all these factors in more depth in our blog: Wages Are Stuck, Here’s Why and What to Do About It. Here is a summary of our recommendations:

The Action:

Place Workers on Boards– as Germany has so effectively setup, engaging management with required representation of workers on Boards.
End Outsourcing– corporations would pay 50 % tax on each job moved overseas making the move costly, encouraging corporations to move jobs to low cost or inland areas of the US, or innovation economic zones (special tax geographies) and to invest in worker training to receive training tax credits.
End Low Cost H1-B Visas– the practice of importing inexpensive labor to drive down wages in US markets would be ended.
Offer Lower Taxes on Repatriated Funds– only if the profits from overseas are invested in productivity actions, increasing wages of workers (not executives), reducing costs or innovation. Stock buybacks or dividends would be prohibited.
End Stock buybacks– these funds are totally wasted, mislead investors on earnings reports and only serve to increase compensation for executives and shareholders. These funds are better allocated to increase worker wages or increase productivity so workers can receive higher wage increases.
Breakup Oligopolies– breakup market concentrations in key sectors: information technology, banks and financial services, health insurers, airlines, hospitals and clinics, entertainment, media and distribution and others as deemed in the public interest.
Balance Job Market Process– require companies over 100 employees to offer information on their website for contacts, phone numbers, job listings with identified contacts, and to let the candidate know the status of his consideration, and candidate introductions held monthly for F2F communication.
Balance Worker and Executive Pay– tax corporations 25 % surcharge on any corporate income where any executive makes greater than 150 % than any the average worker wage – this would force executives to share their income with workers while not increasing costs. End federal tax deductions on corporate income taxes for executive stock compensation above $1 million. End golden parachute packages by taxing 50 % of every dollar received above $1 million. Severance packages for workers would have to be in proportion to the highest executive package ie, executive receives 10x of monthly salary a worker would receive 10x of his/her monthly salary.
Fund Worker Training and Increase Wages – for each robot employed, the corporation would be required to offer training, skills development for the displaced worker to find a comparable job within the company or outside. Where automation software or technology is deployed 10 % of the realized cost benefit would be used to raise the wages of all workers in the company.