Progressives believe that revisions to the ACA would not substantially improve health insurance. Centrists believe Medicare for All is fiscally unsustainable and could lead to unforeseen outcomes. Guess What! They both might be right.
Questions for Centrists: State health exchange markets created by the Affordable Care Act provides health insurance to roughly 5 percent of the working-age population. Employer-based health insurance remains the dominant provider of health insurance to this segment of the population. Do you favor reforms that would substantially expand the role of state exchanges in providing health insurance to more workers, especially workers at small firms? Would you acknowledge that a reform program that modestly increases the role of state exchanges but leave employer-based insurance as the dominant health insurance market will have a relatively modest impact on health insurance problems?
Many people have inadequate health insurance. Many health insurance policies have high deductibles and high out-of-pocket limits. Many health insurance policies only provide benefit in a narrow geographic area have narrow networks and often do not cover services rendered by an out-of-network provider working in an in-network facility. These problems with existing health care plans leave many people with unanticipated health care debt, cause some people to reduce retirement savings and cause other people to forego necessary medical procedures and prescribed medicines. What does your health plan do to improve coverage for people who currently have a comprehensive health plan?
Questions for Progressives:
The Medicare for All bill is entirely tax financed. Under Medicare for All, health care expenditures directly impact the budget. How would this program be insulated from budgetary pressures?
The Medicare for All bill creates a universal Medicare care trust fund? What is the purpose and what are the limitations of this trust fund? Have there been simulations of the long-term solvency of the universal health care trust fund?
Would general tax revenue and funds raised from bonds be automatically used to cover health care expenditures if funds in the trust fund did not cover all benefits?
Won’t future Congresses consider adjustments to health care expenditures and provider compensation rates based on the annual budget? Shouldn’t Congress be more concerned about the overall deficit and the trend of the debt to GDP limit than the status of the trust fund?
Could the Secretary of HHS in a fiscally conservative Administration reduce benefits and compensation rates?
What would happen to Medicare for All benefits when there is a government shut down or a debt limit problem? Who gets paid first people who need health care or people who own government debt?
The current bill exempts Medicare for All from the Hyde amendment. What would prevent a future Administration and Congress from applying the Hyde Amendment to Medicare for All; thereby eliminating all insurance payments for abortion services?
People who want to learn more about how these issues are playing out in the 2020 contest should go here.
Financial Tips: When should a person use an Individual Retirement Account rather than a 401(k) plan? When should a person leaving an employer convert her 401(k) plan into an IRA?
Analysis:
Most financial advisors believe that workers saving for retirement should invest in a 401(k). rather than an IRA. Many government rules favor 401(k) contributions over iRA contributions. First, employee contribution limits for 401(k) plans are around 3 times higher than limits for IRAs. Second employees are allowed to make additional contributions to 401(k) plans but are not allowed to make similar contributions to IRAs. Third, many employers routinely match employee contributions. Fourth, the IRS imposes limits on deductibility of some iRAs but not the deductibility of 401(k) plans. Fifth, the IRS restricts Roth IRA contributions for higher income households but does not restrict contributions to Roth 401(k) plans.
IRS rules allow 401(k) plans to automatically enroll workers who do not opt out. However, there are situations where people are better off investing in an IRA separate from their employer than in the firm 401(k) plan.
The main factor favoring IRAs over 401(k) plans is the higher administrative costs of 401(k) plans. Fees on 401(k) plans are applied to the entire 401(k) balance and are often between 1 percent or 2 percent per year. These fees can substantially erode a workers 401(k) balance over the course of the workers lifetime.
High 401(k) fees are more prevalent at small firms than large firms. People working at a firm offering a plan charging high 401k) fees and offering little or no employer contributions need to look at other investment options than their 401(k) plan. High 401(k) fees can substantially erode retirement savings. These fees can largely be avoided by using an IRA rather than a 401(k) plan to save for retirement.
I constructed a spreadsheet to estimate the impact of high 401(k) fees at retirement savings. The assumptions in a baseline analysis involved a person with a starting salary of $50,000 who works for 35 years and realizes wage growth of 2% per year over her entire career. This person contributes 10 percent of her salary to a 401(k) plan and earns an annual return of 7%.
When fees are 2 percent of the end-of-year 401(k) balance the total fees over the entire 35-year career are slightly more than $153 k compared to an ending balance of slightly less than $600 k.
By contrast, when 401(k) fees are 0.5 % (a reasonable fee structure that exists at many firms) total fees over the 30-year career are around $48 k and the ending balance is around $830 k.
Note the difference between ending balances of the two scenarios is much larger than the difference in fees because additional 401(k) income from the lower fee compounds at the average rate of 7 percent per year.
One possible strategy for a worker at a firm that match some employee 401(k) contributions is to make a small contribution to the 401(k) to take advantage of the employer match and then invest additional funds in an IRA. This strategy may or may not be feasible depending on IRS rules governing IRA contributions, deductibility of IRA contributions, and the individual’s household Adjusted Gross Income.
The 401(k) fees are applied to all assets in the 401(k) plan. In the current low interest rate environment, the expected return on government bonds adjusted for 401(k) fees is negative. In this circumstance, it may make sense to place more 401(k) funds in equity and accumulate debt investments outside of a 401(k) account where they are not subject to 401(k) fees. One alternative, which many people overlook, is direct investment in Treasury bonds and bill at Treasury Direct.
Firms like Fidelity, Schwab, and Vanguard aggressively ask people who leave their employer to convert their 401(k) plan to an IRA. This is the rare case where aggressive solicitation from financial firms is actually sound advice. Fees on well-designed IRAs are often near 0.2%. The decision to maintain funds in a dormant high-fee 401(k) plan could lead to a substantial loss in retirement savings.
One of the key selling points of conventional 401(k) plans is the ability of these plans to reduce current year tax obligations. By contrast, Roth 401(k) plans and Roth IRAs do not reduce current year tax obligation but do reduce taxes in retirement. A person with low current year tax obligations and the ability to reduce taxes through other means such as contributing to health savings account may choose to reduce or eliminate contributions to a conventional 401(k) plan. This person might instead invest through a Roth 401(k) plan if available at her firm or through a Roth IRA. The lack of a Roth 401(k) option may lead some investors who are concerned about tax obligation in retirement to consider a Roth IRA over a conventional 401(k) plan.
The issue of deciding between a 401(k) plan and an IRA is related to several other issues including – the choice between debt reduction and mortgage savings, the choice between investing in a health savings account or a retirement account, and the choice between a conventional and Roth IRA. Other financial tips on these related issues will follow shortly.
Discusses existing policies
and proposals on college financial aid and student debt and comes up with
several new solutions that promise to reduce the number of overextended
borrowers without imposing large burdens on taxpayers.
Defying Magnets:
Centrist Policies in a Polarized World
This generation of workers is
getting screwed – higher student debt, multiple problems with health insurance
coverage, and difficulties saving for retirement. Three policy primers discusses these inter-related
problems.
Things to Consider Before Purchasing Long Term Care
insurance
Most people can’t afford long
term care insurance. Insurance companies often raise premiums and
cut benefits, years after a policy is purchased. The possibility of needing Long term care is
a major risk. But you need to solve
other problems first. Best to minimize
debt, increase 401(k) savings, buy life insurance ahead of covering this troubling
risk.
Statistical Applications of Baseball
Book teaches introductory statistics
through baseball. A bit dated but
baseball is and statistics are constants and book has a number of Interesting
real world examples.
Most of the current health care debate in the
Democratic party revolves around the adoption of a single-payer health care
plan or the addition of a public option to the current system.
The Medicare for-all-option offered by Senator
Sanders is on paper a comprehensive solution fixing all health insurance
problems. While many countries have high-quality
public health insurance, there has never been an example of a country with an
advanced private system abruptly replacing it with a public system
The proposals to expand Medicaid or Medicare
currently circulating in Congress could help certain communities or
groups. The provision of Medicaid on state
exchange market places would be useful in several rural counties where few
private insurance companies choose to compete.
A reduction in the Medicare age or a Medicare buy-in option would
benefit older workers who do not have access to employer-based health insurance
coverage.
The adoption of a public option, unlike single-payer
proposals does not purport to be a comprehensive solution. The task of fixing health care system without
simply blowing up the current system is difficult. President Trump, famously observed “Nobody knew
that health care can be so complicated.”
There are multiple inter-related health problems with our current health care
system. A policy that fixes one problem (say
high premiums) can worsen another (say high out-of-pocket costs).
A centrist health care plan must do more than
shore up state exchange market places through new public options. The ACA expanded coverage to millions of
people but even after the enactment of the ACA many Americans lacked health insurance
and under the Trump Administration the number of Americans without health
insurance has increased.
This article reports that the uninsured rate
went from 10.9 percent in late 2016 to 13.7 percent in December 2018.
Moreover, even after the enactment of the ACA many Americans saw higher premiums, higher
out-of-pocket expenses, and reduced access to specialists. Increasingly, many Americans covered by insurance
choose to forego procedures rather or prescription drugs because of high out-of-pocket
costs. Simply adding a public option
does not fix these problems.
The remainder of this essay outlines health
care problems and centrist solutions.
Health Care Problems and Solutions
Problem
One The Erosion of the Individual Mandate: The ACA individual mandate was repealed in a
recent tax law. As a result, some people
with pre-existing conditions have an incentive to delay the purchase of health
insurance until they become sick. The
repeal of the individual mandate undermines state exchange market places and
increases health insurance premiums.
Potential
Solution: There
are two potential solutions to this problem.
The first potential solution involves the
reinstatement of the individual mandate.
Politically, this is a difficult option because the individual mandate
is unpopular and strongly opposed by libertarians and other conservatives who
believe that government has no right demanding people spend money in a particular way.
The second
approach involves creating new financial incentives in the form of tax
credits and other subsidies contingent on people holding continuous health insurance
coverage.
Subsidies that could be made available only to
people with continuous health insurance coverage include: (1) a tax credit for contributions to health
savings accounts, (2) a partial subsidy for high cost out-of-network treatments,
and (3) subsidies for some prescription drugs.
Note that a tax credit for health savings account contributions would
not even require an additional explicit linkage between the tax credit and
health coverage because under current law contributions to health savings
accounts are only available to people who have health insurance coverage.
Problem
Two: Distortions caused by growing use of health savings accounts and high
deductible health plans:
The growing use of health savings accounts coupled with high deductible
plans has exacerbated three problems – (1) higher out-of-pocket health care
costs, (2) increase in patients forgoing prescribed medicines and medical
tests, and (3) reduced funds placed in 401(k) retirement plans.
Potential
Solutions: The distortions
caused by the increased use of health savings accounts and high deductible health
plans can be mitigated by several policy changes.
First, lower income households would benefit
from a refundable tax credit for contributions to a health savings account. (Current law only allows deductibility of
contributions to health savings account, a feature that provides less benefit to
low-income low marginal tax rate households.)
Second rules governing contributions to health
savings account could be altered.
Current rules only allow contributions by people with a high-deductible
health plan. The revised rule would
allow health savings account contributions by people who have a plan with a lower
deductible but a high coinsurance rate.
(People with high coinsurance rate plans can have substantial cost sharing
obligations but may be less likely to forego needed treatments prior to the deductible
being met.)
Third, many existing high deductible health
plans now forego all payments on prescription drugs until health expenses exceed
the deductible. By contrast, many traditional
health plans with lower deductible pay some prescription drug costs prior to
the patient paying the deductible. The
combination of high deductible and absolutely no reimbursement for prescription
drugs until the deductible is met results in many people with chronic health
conditions like diabetes forgoing needed medicines. This worsens health conditions and increases
costs.
A rule requiring partial reimbursement for
prescription medicines needed to prevent expansion of certain diseases would reduce
the incentive for people to forego prescribed medicines. It might be possible for HHS to adopt this
rule change without input by Congress because the current ACA allows high-deductible
health plans to reimburse patients for certain preventive health care measures
prior to the deductible being met.
Problem
Three: The limited role of state exchange
market places.
State exchange health care markets are much smaller and much less robust
than the employer-based health insurance markets. Around 8 million people are covered by state
exchange market places compared to around 155 million people covered by
employer-based insurance.
Household
receiving health coverage from state exchange markets tend to be less affluent
than people obtaining health insurance from employer based market. Go to this post on my math blog for
statistics on this point.
There are relatively few young adults under
age 26 in state-exchange markets
compared to employer-based markets. Go
to this post in my finance blog for a discussion of this issue.
There is less choice and fewer high quality
products in state exchange markets than in employer-based markets. In some counties few health insurance
companies offer coverage and often there is concern that no health insurance
companies will offer health insurance in a county. There is evidence that state exchange
insurance policies are more likely to restrict access to certain hospitals and
specialists.
Potential
Solutions: It
should not be a surprise a small health insurance market with relatively few young
adults, and relatively few affluent households will provide less desirable outcomes
than a larger health insurance markets with more younger adults and a lot of
affluent people.
The characteristics and limitations of ACA state
exchange market places are largely a result of the rules laid out in the ACA.
First, the ACA contains an employer mandate,
which provides a financial penalty on employers with more the 50 full time equivalent
employees who do not provide health insurance to their employees. The employer
mandate could be modified to allow and encourage employers to pay for health
insurance on state exchange market places rather than offer a company-specific
plan.
Second, the ACA eliminates tax credits to
people once they obtain a position offering employer-based insurance
coverage. The rule eliminating tax credits
for people with employer-based health plans would be eliminated.
Third, state exchange market places do not
provide any preferential tax treatment for the 41 percent of American households
with income greater than 400 percent of the federal poverty line. Households in this income group receive
untaxed health insurance from their employer.
This rule reduces political support for state exchange marketplaces. Support for state exchange marketplaces could
be increased through an expanded tax credit.
A
Political Note on the Role of State Exchange and Employer-Based Health insurance
Marketplaces:
The introduction of state exchange market
places to compete with employer-based health insurance is the central aspect of
the ACA, a law that was strongly opposed by conservative economists and
Republican politicians. However, the
provision of health insurance through private markets separate from the employer
was an idea originated by conservative economists and supported by Republican
politicians. To be fair, there were
major differences between Republican proposals, which allowed underwriting of
premiums and denials of insurance for people with pre-existing conditions and
the ACA.
Republicans are on record of supporting reductions
in the use of employer-based health insurance.
In fact, a health care plan offered by Senator McCain replaces the
entire current employer based tax preference with a tax credit for the purchase
of health insurance through state market places.
The protections for pre-existing conditions
and the limitations on underwriting of premiums increase access to health
insurance for many people who would otherwise be uninsured. (The election results of 2018 indicate the
Democrats largely won this debate.) There
is some Republican support for moving the purchase of health insurance from the
employer to private markets. Could Republicans
support proposals that move more people from employer-based insurance to
current ACA state exchanges?
Problem
Four The introduction of short-term
bare-bones health plan has increased household financial risk and undermined state
exchange market places. The Trump Administration has enacted rules that
allow use of short term health plans.
These health plans often do not cover many services that are considered
essential health benefits in an ACA plan. The coverage gaps result in unanticipated
bills and financial exposure. The short
term option reduces demand for ACA policies.
Potential
Solutions:
There are two way to address problem caused by the introduction of ACA
plan.
The first approach is to repeal the Trump era regulation
and return to a system where short term health plans are prohibited. Repeal creates a situation where people who
took out short term health plans will either lose coverage or purchase an ACA
plan with a higher premium.
The second approach involves modifying short
term plans to allow for an annual cap but to require coverage of all essential
health benefits. People with expenditures
over the annual cap would get automatic Medicaid coverage once the cap was
reached.
This policy essentially converts Medicaid into
a reinsurance program responsible for health care costs over the annual limit. I loosely describe this approach in a 2008
paper on SSRN. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1162887)
Problem
Five: Lack of access to elite out-of-network
hospitals and specialists. Typically,
narrow network HMOs provide excellent health care and charge lower premiums. However, people who get extremely sick with
certain illnesses require treatment by specialists that are only offered at certain
hospitals. This is called the “breaking
bad” problem as portrayed by the fictional high school chemistry teacher who
chooses to make meth to pay for his cancer treatments.
Potential
Solutions: The “breaking
bad” problem can be solved by having the government share part of the costs of expensive
specialized out-of-network care. Having the
government pay for a portion of complex treatments that could only be handled in
sophisticated out-of-network hospitals would reduce premiums for limited network
HMO plans. This reduction in health care
premiums would also reduce tax subsidies on health care purchases both on the
ACA state exchange subsidies and the employer-based health insurance subsidies.
This proposal offers two benefits – lower premiums
on basic narrow-network health care and access to more expensive out-of-network
care should the narrow network be unable to treat certain health conditions.
Problem
Five: A lack of
affordable health coverage for people nearing the end of their careers who are
not eligible for Medicare.
Potential
Solution: One approach to
this problem is to allow the purchase of Medicare by individuals 50 or over without
an offer of employer-based health.
An expanded Medicare option for people over the
age of 50 could be combined with a higher (old-young) age-rate premium ratio to
lower costs for younger households.
Problem
Six: Limited State Exchange Offerings and
High Premiums for Certain Counties. Some counties have few health insurance
companies offering ACA coverage. It has
been reported that in 2018 around half of counties had only insurance company offering ACA coverage.
Heritage Foundation article on counties with
limited health insurance coverage
Potential
Solution:
Senator Schatz’s health insurance bill allowing states to offer health
insurance on state exchanges would create another option in many counties with
only one or relatively few ACA providers
Go here for a description of the Schatz-Lujn legislation:
A comprehensive centrist health care plan
might both expand and improve health insurance coverage. It would lower premiums and reduce
out-of-pocket expenses. The simultaneous
achievement of these two goals is often difficult because many policy changes that
reduce premiums increase out-of-pocket costs while policies that reduce out-of-pocket
costs often increase premiums.
Here are some aspects of the plan:
Link
all new tax subsidies and the standard deduction to a requirement that people maintain health care coverage.
Change
rules governing health savings accounts to allow for contributions by people
who have high-cost sharing plans even if the plan has a low deductible.
Create
tax credits for contributions to health savings accounts
Require
partial insurance coverage for prescription drugs used to treat chronic health
care conditions prior to health expenses exceeding plan deductible.
Modify
the employer mandate to encourage businesses to subsidize state exchange
insurance rather than choose and administer an employer-based policy.
Modify
rules governing tax subsidies for insurance on state exchanges to allow people
to keep their state exchange policy after obtaining offers of employer-based
coverage.
Repeal
current short-term bare bones health plans.
Create
health plans with an annual cap while guaranteeing Medicaid coverage once
health expenditures exceed the cap.
Create
a new subsidy for out-of-network costs for people with narrow-network plans who
require procedures not covered in the narrow network.
Allow
people over 50 without access to employer-based health plan the right to buy into
Medicare.
Modify
the age-rate premium formula to lower costs for younger households.
Allow
states to authorize the sale of Medicaid policies on state exchanges.
Authors
Note: A lot
of these ideas and proposals are discussed in greater detail in the second chapter of my policy primer “Defying
Magnets: Centrist Policies in a
Polarized World”
Defying Magnets: Centrist Policies in a Polarized World
The first chapter of the book examines student
debt policies. The third chapter
examines retirement income.
I believe you will find the analysis and
proposals innovative, potentially useful, and drastically different than what
is being offered in Washington.
Republicans are seeking to
repeal and replace the affordable care act, even as Republican candidates for
office profess support for many parts of the act including protections for
people with pre-existing conditions. The primary Republican achievement since
2016 involves a tax law that repealed the individual mandate and a Texas
federal court ruling currently under appeal that voided the entire law because
of the individual mandate repeal.
Democrats have robustly
opposed Republican efforts to repeal the ACA but are now split between fixing
the Affordable Care Act or moving towards a single-payer system. Many 2020 Democratic candidates have
endorsed Medicare for all without fully considering details of and implications
of their proposals.
Some Democrats are now
advocating proposals that would allow some private firms or some individuals to
buy into Medicare or Medicaid. One advantage of adding a government (Medicare
or Medicaid) option is that these options allow people to keep private
insurance.
This section starts with a
review of the current health care policy debates. The analysis reaches the following
conclusions.
Republican efforts to repeal the ACA would substantially
increase the number of uninsured people in the United States.
Democratic Medicare for all proposals have not
been fully vetted, would leave many people with private insurance worse off and
would be more expensive than anticipated.
The combination of a decrease in the
eligibility age for Medicare combined with a higher ratio of insurance premiums
for older households relative to younger households could decrease the number
of uninsured people in all age groups.
The section contains
discussions of three technical health insurance issues with important
implications for health insurance markets that have not received attention
during the debate over repeal of the ACA.
The first issue involves
modifications of rules governing health savings accounts and high deductible
health plans. Proposals designed to
mitigate problems created by the increased use of health savings accounts and
high deductible plans include:
Creation of a tax credit for contributions to
health savings account by low-income and mid-income households.
Expansion of the type of health plans, which
allow contributions to health savings accounts.
Require high deductible health plans pay a
portion of prescription drugs used for chronic diseases prior to deductible
being met.
The second issue involves
modification of rules and incentives governing the use of employer-based
insurance versus state exchange insurance.
Proposals designed to
strengthen state exchange insurance and to allow more firms to replace
employer-based coverage with state exchange coverage include:
An expansion of the tax credit for premiums on
health insurance policies purchased through state exchanges.
An alternative to the employer mandate for
employers subsidizing the purchase of health insurance on state exchanges.
Financial incentives for young adults to leave
their parent’s health insurance policy and obtain health insurance on state
exchanges.
The third issue involves how
to mitigate financial distortions caused by extremely expensive and complex health
care cases. Proposals designed to
mitigate problems associated with the most expensive health care costs include:
Government and private firms sharing health
care expenses over a certain threshold.
Automatic Medicaid enrollment for people
purchasing a health plan with an annual benefit cap once expenditures exceed
the cap.
Government assistance for certain health care
cases that are difficult to treat in narrow-network HMOs.
The health care debate is
eerily analogous to the student loan debate with each side taking extreme
positions. Republican efforts to repeal
the ACA would increase the number of uninsured.
Democratic initiatives would crowd out private insurance for many households
that are well served by the existing system.
The road to improving health care like the road to reduce student debt
problems involves the analysis of arcane rules and incentives and the design of
economically efficient alternative regulations.
Presidential candidate Elizabeth Warren is proposing anti-trust action against major tech firms including Google, Facebook, Apple and Amazon. This proposal if enacted would increase prices and reduce options to consumers. The main beneficiary of rules restricting Big Tech would be Walmart, other larger brick and mortar stores, Cable Television firms, and large established brands. Smaller companies that are attempting to enter markets and compete with larger older firms with the assistance of Google, Amazon or Facebook will have fewer opportunities and higher costs.
One element of her plan designates on-line firms with more than $25 billion as Internet Utilities. These Internet Utilities would be prohibited from selling both their own products and products of their competitors on the same web site. This would most immediately impact Amazon, Google and Apple but could also in a very short period of time impact Netflix.
A second element of her plan involves reversing mergers, which have contributed to the growth of the tech giants. These mergers include Amazon’s purchase of Whole Foods and Ring, Google purchase of Waze, Nest and Double Click, and Facebooks purchase of Instagram and WhatsApp.
Let’s start our discussion by observing that Walmart has larger revenues than Amazon. In 2018 Walmart revenue was around $500 billion compared to around $233 billion for Amazon. Amazon obtains a larger percent of revenue by partnering with third-party businesses. Partnerships with small firms are less important to Walmart than Amazon.
Amazon purchased Whole Foods sparking fears that Amazon would take over the grocery sector. There are at least five firms with grocery sales larger than Whole foods. Walmart has the largest market share of the U.S. grocery market with a 14.5 percent market share. Kroger is second with market share around 7.2 percent. The market share for Whole Foods — around 1.2 percent.
Amazon is now actively promoting its own private label groceries on line, a strategy which would be hampered by Warren’s new rules. What firms are threatened by the Amazon private label? According to Wall Street research firm Bernstein (no relation to me) J.M Smuckers and Mondelez are the two firms most threatened by Amazon’s private labels.
I suspect that Amazon may purchase and fund small jam and snack producers to bolster their private label. Explain to me why this is anti-competitive.
Bernstein finds e-commerce makes up around 1 percent of packaged food sales. This may rise to 5 to 6 percent in a few years. This does not strike me as anti-competitive. Really bad news for some older established firms but hardly anti-competitive.
The Apple app store serves to provide updates for many items that are sold with a phone, computer, or IPAD. I doubt that direct sales of Apple products in the App store are a large source of profit for Apple. Apple might respond to the mandate for separate third-party and Apple-only App store by increasing purchases of third-party apps from developers or increased in-house App development.
Many people come to the Amazon site or the App store to either buy products sold directly by the sponsor of the site but end up buying a product or service created by a third party. The creation of separate web sites for the big tech firm and for third parties could decrease traffic towards third-party offerings.
Google has purchased Nest giving this product a potential advantage over its several competitors including Carrier, Ecobee, Honeywell and several other smaller firms. Is this a big problem? There are several smart thermostats available in the market. I haven’t seen a case made that Nest has market power over its rivals. Any case for divesting Nest from Google should be based on actual evidence monopoly power, which may not exist.
Amazon and Apple may both enter this field because home thermostats can connect with Alexa and Siri. Should entry by Apple and Amazon be prohibited because their Alexa and Siri give Tech firms an advantage over older non-Tech competitors?
Amazon buys ring and hooks it up to Alexa, gaining an advantage of existing security companies. This is all good news for consumers. Any existing problems could be solved with modest regulations rather than a broad anti-trust action.
Google owns both Google Maps and Waze creating a challenging situation for Apple Maps. Does Apple really need government help?
Currently, Google appears to have a monopoly or near monopoly on search and Facebook has a monopoly or near monopoly on social networks. Both industries and both firms are young. Both monopolies are contestable. A new superior search engine could give Google a run for its money. A new social network with a different look and policies could do the same to Facebook.
Google and Facebook and Amazon, while in different narrowly defined industries, are all in competition. All three firms are competing for ad revenue from businesses who are marketing their goods and services to the world. It may be tempting to stop Facebook from purchasing Instagram and other Apps to level the competition between Facebook and other social networks like Snap. However, this could adversely impact the ability of Facebook to get advertisers and compete with both Amazon and Google, two much larger powerful firms.
The clearest potential harm caused by Warren’s proposal involves the possibility that Netflix and maybe Hulu would be treated as utilities and prohibited from producing their own content. Netflix revenue could soon rise above 25 billion and become subject to Warren’s rules on Internet utilities. Netflix is the main competition to cable companies, an industry that exerts monopoly pricing power in local markets. The availability of Netflix allows people to cut the cord and save hundreds of dollars a month. Netflix is an example of private industry fixing an anti-competitive situation. This could all be undone by Senator Warren’s proposal.
Senator Warren is a highly skilled lawyer and candidate who has made useful contributions to discussion of several issues including bankruptcy reform, the safety net, taxes, inequality health insurance and student debt. I admire her and readers of my blog and my books know that I share her much of her outlook and priorities. However, her attack on Big Tech is not supported by economics and may derail her candidacy.
Author Notes: The Trump Administration is accelerating its war on student borrowers. It had previously proposed the elimination of subsidized student loans and the public service loan program. The new budget proposes the elimination of income contingent loan programs and loan forgiveness programs.
The Democrats seem fixated on free college a proposal that most experts believe is unaffordable. My book Innovative Solutions to College Debt Problems considers benefits and costs of making the first year of college free. The book also proposes several different ways to assist overextended borrowers that are more sustainable than Income Contingent Loan Programs.
Liberals appear to be dominating the contest for new ideas for the Democratic Presidential nomination. Amy Klobuchar gets some points for honesty, an attribute that used to be expected. However, honesty does not by itself solve problems. Centrists need to put forth bold proposals that will reduce student debt, improve health insurance, and expand retirement income.
Pragmatic centrist solutions to these problems are outlined in my book.
Defying Magnets: Centrist Policies in a Polarized World.
Many financial planners maintain that long term care insurance (LTCI) is an essential purchase. Many policy makers and politicians believe that the Medicaid long term care benefit needs to be reduced and that private long term care insurance is a viable substitute for Medicaid. Let’s agree that the political issue of how to reform Medicaid is separate from the personal decision on how you should prepare for retirement. In my view, private LTCI is not a suitable investment for most individuals preparing for retirement. Furthermore, private LTCI may not be a viable product.
Many households have insufficient levels of liquid asset and insufficient savings in their retirement accounts. Studies conducted before the financial crisis indicated that only around one half of the baby generation were adequately preparing for retirement. These households need to focus on increasing their saving rate rather than divert savings towards an illiquid asset.
Comprehensive multi-year LTCI insurance with inflation protection is extremely expensive. Ironically, even most LTCI purchasers have only a few years of coverage and must rely on Medicaid for long stays in the nursing home.
LTCI almost always costs more than anticipated at the time the policy is purchased. Insurance firms cannot raise premiums on a policy simply because a person claims benefits. However, an insurance company can raise premiums on an entire class of policies if actuaries determine that the sum of premiums and investment income will not cover benefits. Premium increases, even among the strongest and most conservative firms, are now commonplace only a few years after a policy is issued.
Premium increases are in part attributable to poor investment returns and low interest rates. Perhaps premium increases will be less prevalent in the future. However, current premium increases are occurring when individuals can least afford them, when their own portfolios are down in value.
Many of the better-run insurance companies are currently leaving the industry altogether. (MetLife left the industry and I believe Prudential stopped selling on the individual market.) This is what Fitch had to say about LTCI in a recent report.
“In addition to higher than expected claims, historically low interest rates have negatively affected LTC results. We believe the long-tail nature of the product and future renewal premiums make the LTC business more vulnerable to interest-rate risk. Low rates continue to curb investment income needed to help fund LTC benefits.
We believe mispricing of the LTC product will continue to weigh on the insurers’ earnings and capital, but we note the current in-force individual LTC business accounts for less than 2% of industry reserves and premiums.”
There is one LTCI product that intrigues me. Many states participate in the LTCI partnership program. Individual who purchase a partnership policy can keep assets equal to their amount of coverage and still qualify for Medicaid.
It is highly likely that if you live long enough you will need long term care. You need to prepare. However, for most of us the purchase of LTCI is not the appropriate option. More on my views on LTCI can be downloaded on Kindle. The article can be purchased for $4.99 or borrowed for free.
My view on student debt problems is somewhere between Bernie Sanders and Hillary Clinton. I don’t believe that free college is economically feasible but my evaluation of statistics on the growth of student debt, the growth in overextended borrowers, and the growth in the number of elderly with unpaid student loan balances convinces me the college debt problem cannot be solved with minor adjustments.
My book “Defying Magnets: Centrist Policies in a Polarized World” attempts to find progressive centrist (not an oxymoron) solutions in three areas — student debt, health insurance, and retirement income.
The analysis in this book leads me to propose substantial increases in financial assistance concentrated on first-year students, changes to student loan contracts, and changes in programs and policies designed to assist overextended student borrowers. The overview of the student debt section of my book is below.
Overview of Student Debt Issues
The Republicans and Democrats are far apart on their approach to student debt and the increasing cost of college.
The Trump Administration and many Republicans in Congress are more interested in reducing taxpayer costs than assisting students borrowing for college. Their current proposals include — the repeal of subsidized student loans, the elimination of the public service loan program and major modifications to income contingent loan programs. Their administrative actions and enforcement decisions almost always favor loan servicers and for-profit schools over students.
The Democrats have been advocating free-college or debt-free college at public universities. Democrats also favor the Income Contingent Loans, a program that links loan payments to income and offers to forgive unpaid loan balances at the end of the loan term.
The analysis presented here indicates that Trump Administration proposals would adversely impact many students. Proposals by Democrats to offer free or debt-free college are expensive and inefficient. Moreover, Income Contingent Loan programs are not the most effective way to assist overextended borrowers.
Proposals are presented for additional financial assistance, which are designed to reduce the growth of student debt. These proposals include:
Provision of additional assistance for first-year students.
Allocation of a modest sum to a program that funds college internships at start-up firms.
Proposals are offered to assist overextended borrowers and reduce the reliance on Income Contingent Loan programs. These approaches include:
Interest rate reductions on student loans after 15 years of payments
Limits on increased student loan interest rates when general interest rates rise.
Limits to the liability of parents on PLUS loans and cosigned private student loans and other alterations to the PLUS loan program.
Provision of priority to student debt over consumer loans in chapter 13 bankruptcy
Allowing discharge of private student loans in bankruptcy
Revisions to the Public Service Loan Program
The proposals presented here have the potential to expand access to education and improve the financial condition of student borrowers entering the workforce. Additional subsidies are carefully crafted to assist people who might not otherwise try higher education or would experience severe payment problems.
The proposals presented here also will be less costly to taxpayers than many current policies and policy proposals.
The Trump Administration is proposing the elimination of subsidized student loans for low income borrowers. The main advantage of subsidized loans is the government pays all interest while the borrower is enrolled as a full-time student. Do you support or oppose the elimination of subsidized student loans?
The Trump Administration is proposing the elimination of the public service loan forgiveness program. Do you support the elimination of this program? Are there any changes that you would like to make to the public service loan forgiveness program?
The Trump Administration is considering changing the undue hardship provision in the bankruptcy code to allow for some discharges of student debt in bankruptcy? Do you support this idea? What changes to the undue hardship rule would you support?
Chapter 13 bankruptcy payment plans generally treat student debt and other unsecured consumer loans in the same manner. Should Chapter 13 bankruptcy rules be altered to give priority to student debt over other unsecured consumer loans? How would you alter these rules?
The number of Americans over age 60 with a student debt rose from 700,000 in 2005 to 2,800,0000 in 2015. The average amount of student debt held by borrowers over age 60 rose from $12,100 to $23,500 in the same period.[1] What policies are needed to reduce the number of older Americans nearing retirement with substantial student debt?
One recent study revealed that around 28 percent of direct student loans are now Income Based Replacement loans.[2] The study also found the lifetime cost of the IBR loan subsidy for loans originated in 2014 was around $11.0 billion. Is the IBR program the most economically efficient way to assist overextended students?
The Income Based Replacement program is complex. Several loan servicers have been accused of making it difficult to enroll in IBR. Student borrower finances change over time and as a result many students who initially enroll in IBR end up with larger student loan payments. Does this program need to be modified?
Should student loan interest rates be automatically reduced 15 years after repayment is initiated? Would this approach be a more effective way to assist overextended borrowers than Income Contingent Loan programs or other loan forgiveness programs?
Several candidates support laws allowing people to refinance their student debts at lower interest rates. However, many economists believe that interest rates will soon rise. Wouldn’t this proposal be of limited value in a rising-rate environment?
Current student loan interest rates are linked to the value of the 10-year Treasury bond. Do you support changing the student loan interest rate formula to cap potential increases in student loan rates if Treasury rates rise?
Currently lenders do very little underwriting or credit checks on PLUS loans. (Why should they? The loans are insured by the government and not discharged in bankruptcy.) Do you support stricter underwriting standards on PLUS loans to graduate students and parents? Do you support the discharge of PLUS loans in bankruptcy ten years after loan origination?
Do you support debt-free or free four-year public college proposals?
The Tax Policy Center a highly reputable think tank concluded that one free public college program would cost $807 billion over a decade.[3] These cost estimates were based on favorable assumptions – no increase in college attendance, no switches from private to public schools and no tuition increases at public schools. Do you agree with these conclusions? Are cost estimates for your proposal consistent with the work by the Tax Policy Center?
Around 28 percent of students drop out after their first year of college and around 12 percent of first-year students transfer to another institution.[4] Almost half of students with debt who dropped out of college are in default on their student loans.[5] Should programs to reduce debt incurred by first-year students take priority over proposals to spread additional debt over the entire population of students?
Do you support efforts to eliminate debt incurred by first-year college students at four-year institutions? How much should the government spend on such efforts?
[3] Tax Policy Study includes an assessment of cost of free college proposals. https://www.taxpolicycenter.org/sites/default/files/alfresco/publication-pdfs/2000786-an-analysis-of-senator-bernie-sanderss-tax-and-transfer-proposals.pdf
[5] A statistic on percent of student who have dropped out in default can be found here. https://lendedu.com/blog/college-dropouts-student-loan-debt/
Authors Note: I have written a book on how a progressive centrist (not an oxymoron in my view) would deal with student debt, health insurance and retirement income. Go here for the book.
Publishers Note: I am taking polls. The current polling question — what is your first choice and second choice candidate for the Democratic Nomination for President — can be found here.
Senator Klobuchar gave an honest and realistic response to a question on free college at the New Hampshire town hall. Free college for all is unaffordable and would end up burdening the nation with higher debt or taxes.
Senator Klobuchar proposes additional assistance for students at two-year colleges and for additional Pell grants and loans. These proposals are not likely to substantially reduce the trend growth of student debt or the number of overextended student borrowers.
The percent of borrowers leaving school with more than $50,000 in student debt rose from 2 percent in 1992 to 17 percent in 2014.[1]
The number of Americans over age 60 with a student debt rose from 700,000 in 2005 to 2,800,0000 in 2015. The average amount of student debt held by borrowers over age 60 rose from $12,100 to $23,500 in the same period.[2]
Two-year colleges are a good and less expensive option for many students. However, student debt is skyrocketing for students at four year schools. Many students who start a four-year college drop out or transfer after the first or second year. These students often have substantial repayment problems. The most effective way to reduce this problem is increased assistance for first-year students. The increase in first-year assistance will also reduce total debt for students who complete their degree.
Many overextended students are counting on Income Contingent loans, which have substantial problems. Alternative ways to assist overextended borrowers need to be considered including:
Interest rate reductions on student loans after 15 years of payments
Limits on increased student loan interest rates when general interest rates rise.
Limits to the liability of parents on PLUS loans and cosigned private student loans and other alterations to the PLUS loan program.
Provision of priority to student debt over consumer loans in chapter 13 bankruptcy
Allowing discharge of private student loans in bankruptcy
Revisions to the Public Service Loan Program
I recognize that many people who have repaid their loans and many taxpayers oppose debt relief to overextended student borrowers. However, some people get substantially overextended and need assistance. The debt relief proposals presented here attempt to establish a balance between assisting overextended borrowers and protecting the interests of taxpayers.
Kudos to Senator Klobuchar for recognizing the obvious fact that free-college is unsustainable. She need to develop a more extensive set of policies to mitigate student debt problems.
One place to find these policies is my book Defying Magnets: Centrist Policies in a Polarized World. This book proposes centrist solutions to student debt, health care and retirement income.
Defying Magnets: Centrist Policies in a Polarized World