HEALTHCARE AMERICAN STYLE

There are signs the Affordable Care Act (Obamacare), enacted into law on March 23, 2010, is experiencing severe problems.  A recent revelation that three major insurers—Aetna, United Health and Humana—are sharply reducing the number of areas where they’ll sell individual health plans, doesn’t speak well for the program’s future.  The fact these well-established and experienced firms all experienced major losses on their plans is evidence of irreconcilable difficulties.

To add to the misfortunes, even more recently three other major health insurers in Tennessee—Cigna Health, Humana and Blue Cross Blue Shield—just received huge double-digit premium increases for 2017, amid a warning from the state’s insurance commissioner of the Obamacare market’s “very near collapse.”  Although the 36 percent boost in 2016 premiums caused consternation, the increases scheduled for the coming year should prove cataclysmic: Humana 44.3%, Cigna 46%, and Blue Cross Blue Shield a whopping 62%.

Perhaps you’re inclined to suggest these firms are merely using their market dominance to take advantage of an inexperienced bureaucracy.  If so, note that Blue Cross Blue Shield, which sold these health insurance policies statewide over the past three years, estimates it lost nearly $500 million during this time.  Is it even questionable whether they’d remain as participants in the system without a massive premium increase?

One of the most knowledgeable persons in the healthcare field is G. William Hoagland, a former executive of Cigna, who is now vice president of the Bipartisan Policy Center, a nonprofit organization which analyzes national problems in search of solutions.  Included in his comments are the following: “We’ve reached a point where the Affordable Care Act’s exchanges are not working . . . [These] companies are simply saying we can’t realistically offer plans that are required to meet ACA standards . . . and just admitting that this is not a market they can participate in.”

The reality of Obamacare in serious trouble is not lost on the person whose name the program bears, although his reason for its malfunction is focused in a somewhat different direction.  In a July 11, 2016 article published in the Journal of the American Medical Association, President Obama accused the Republicans of undermining the implementation of the healthcare law.  Nonetheless, while asserting "the ACA has succeeded in sharply increasing insurance coverage,” he acknowledged “too many Americans still face challenges securing affordable and quality health care” and admitted “the lessons enumerated may seem daunting.”

It’s probably accurate to say the “Patient Protection and Affordable Care Act” signed into law by President Obama on March 23, 2010, is the least bipartisan legislation ever enacted in our nation’s history.   It passed the Senate with the bare 60 votes required by prior congressional resolution: 59 Democratic and one cooperating Independent.  None of the 40 Republican senators approved the bill.  The final version approved by the House of Representatives on March 21, 2019, received not a single Republican vote.  Its approximately 2,700 pages of often undecipherable verbiage remained scarcely glanced at during the two days between final congressional approval and presidential enactment.

One of the more humorous episodes of the whole charade is the comment made March 9, 2010, by California Congresswoman Nancy Pelosi, then House Speaker, as she began her final windup by alluding to the controversies concerning the transparency of the process which produced the bill.  After saying “It’s going to be very, very exciting,” she then blurted out to the assembled officials that Congress “[has] to pass the bill so you can find out what’s in it…”  This, of course, is the same Nancy Pelosi who, weeks earlier, boasted about the transparency of the process creating the bill.

It’s true, of course, from its inception the Republicans in Congress have done everything in their power to destroy the program.  They came close on June 28, 2012 when the U.S. Supreme Court, in a five to four decision, rejected a challenge to invalidate a key provision of the law specifying an “individual mandate” by declaring it to be a “tax.  Had Supreme Court Chief Justice John Roberts not joined the four other justices philosophically disposed to the law’s intent, and fabricated this contrivance, Obamacare might well have ended then. 

This gets us to what we may describe as the bottom line.  With the financial problems regularly experienced and the number of healthcare recipients to be covered, is it likely Obamacare will survive and function as its originators intended?  There’s an answer to this.  No, it will not survive, and yes, it will function exactly as its originators intended.  How is this possible, you may ask?

I don’t believe for a moment that Nancy Pelosi, or then-Senate Majority Leader Harry Reid, or for that matter the bill’s sponsor, New York Congressman Charles B. Rangel, as well as the many members of the congressional staffs which assembled the 11,588,500 words which comprise the law, had no idea what they created.  That no one thought to do a cursory feasibility analysis defies rationality.  I firmly believe it was understood from the onset by the participants that the Affordable Care Act would be nothing more than a temporary expedient en route to a permanent healthcare solution—a single payer system, devoid of health insurance, regulated by the federal bureaucracy, in which all Americans would participate.  In short: a U.S. government HMO mandated for all.  Medicare and Medicaid will be gone, the medical insurance provider will be a thing of the past, physicians will be government employees and hospitals will be operated as federal agencies.  And best of all, no one will receive medical care that’s inferior to what’s received by someone else, for we all will receive equal care—third rate, of course, but most certainly, equal.

I’ll conclude with this final comment.  If there’s one positive thing to be said, it’s that America’s indigents will receive a boost in health services.  Those persons who in the past suffered from an almost complete absence of viable care will at last receive something.  It’s also likely, unless enforceable laws prevent it, the wealthy will be able to supplement their care by paying out-of-pocket for what they may need or want.  The true losers will be the vast middle class of all ages who will find themselves in much the same category as the current Medicaid patients.  Lines will be long; waiting periods for all sorts of services equally long; and a system of healthcare rationing, overseen by appointed boards, will become the norm.  I can think of only one appropriate greeting to usher in our new system: Welcome to the brave new world.

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If you enjoy this weekly Straight Talk by Al Jacobs, you’re invited to check out my monthly Financial Newsletter, as well as my new book, The Road to Prosperity

Click onto http://www.onthemoneytrail.net/

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EXCELLENCE AT A PRICE

The article by two accounting professors describes the critical shortage of science, technology, engineering and math (STEM) graduates.  The U.S. creates 1.3 million new openings in this field each year, but produces fewer than 600,000 candidates to fill these jobs.  Leave it to the accountants to put their finger on the economics of the shortage: Student debt now exceeds $1.3 trillion; education expenses are increasing while educational excellence is decreasing.

So what are we doing to correct the problem?  Apparently not much.  The government offers student loans, with unsophisticated youths becoming hopelessly locked into debt, so that fewer and fewer opt for the demanding science majors.  The fact this nation permits such a vital resource as STEM graduates to be caught up in the general student loan debacle is unconscionable.

I have a suggestion: Full government scholarship, with no repayment requirements for these students, is called for.  I realize what I’ve just proposed won’t go over well, particularly because the students selected must, by necessity, be those with high prior academic performance.  But in the crafting of the legislation establishing the program, there’ll be claims of discrimination by those who invariably champion the causes of those groups which traditionally display low academic performance.

  However, as we know, the U.S. has been subsidizing countless giveaways for all sorts of purposes.  Last year the Department of Agriculture provided food stamps to 46.5 million persons, while the Department of Housing and Urban Development distributed $110 billion in rental housing vouchers to “deserving recipients.”  Is it improper if a program with the potential to be vitally beneficial to the nation is added to the list?  I think not.  Perhaps what is best for the country will, for a change, win out.

Let me add a final thought:  If America is to continue to thrive in a competitive and increasingly technological world, it must encourage, and if necessary subsidize, its more talented citizens to strive for achievement in the physical sciences.  It’s a hostile world we inhabit; we must generate the scientists and technicians we need if we’re to survive.

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If you enjoy this weekly Straight Talk by Al Jacobs, you’re invited to check out my monthly Financial Newsletter, as well as my new book, The Road to Prosperity

Click onto http://www.onthemoneytrail.net/

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SELECTING YOUR FINANCIAL ADVISOR

The article’s title makes it “must reading”: Steps to find a qualified financial advisor.  Its author is Kathryn Hauer, a certified financial planner (CFP) and holder of an MBA degree, with more than 30 years in the advisory field.  I anticipated advice on how to choose a fully competent professional to guide a client through the investment maze so to insure financial success.

I acknowledge Ms. Hauer presents certain useful information.  I’m now aware of methods to learn whether an advisor is in good standing with industry regulators.  I also understand certain persons in the field may be designated as “fiduciaries,” requiring they must only recommend what is in their clients’ best interests.  Lastly, she described procedures to determine if an advisor has incurred complaints, lawsuits or criminal charges.  These are certainly worthwhile things to know.  However, the real question not answered relates to how you find an advisor who will truly advance your economic well-being.  In short, who may you trust with both expertise and your best interests at heart?

With this said, I too have a few thoughts on selecting a financial advisor.  As a first concern, you’ll note the reference to a fiduciary, relating to the “clients’ best interests.”  This is a term dating back to15th Century English common law.  A person acting in this capacity is one who assumes a relationship of trust and confidence with another.  It literally requires this designee not be in a situation where personal interests conflict in any way with the interests of the client.  Brought down to more present times and relating to financial advisors, it becomes a bit hazy.  For many years councilors who receive their compensation through fees on their clients’ gross assets, and who refer to themselves as “financial planners,” have been trying to eradicate their chief competition, licensed brokers, whose remuneration comes from brokerage commissions on the purchase and sale of securities.  The former normally subscribe to the fiduciary code whereas the latter do not.  It’s gotten pretty ugly these past few years, with the U.S. government now running interference for the financial planners by having enacted legislation which will prohibit non-fiduciaries from servicing retirement accounts.

Whether this new law will actually benefit retirees is questionable.  In fact, it’s no longer clear what constitutes conflict of interest.  Perhaps an advisor who receives fees based upon the value of a client’s assets might claim to have “no personal interest conflict in any way with the interests of the client.”  What, however, if the advisor then recommends to his clients of all ages, as does a most prominent CFP who champions his fiduciary designation, that their homes be mortgaged to the hilt, with the proceeds to be delivered to the advisor for further investment?  Do you detect a slight conflict of interest?  Of course, regardless of the vows and pledges, the reliability of a fiduciary is only as good as his or her moral character.  The notorious swindler Bernie Madoff qualified as a fiduciary, but he perpetrated the most massive financial fraud in our nation’s history.

As an aside, recognize what is the practical effect of incurring mortgage debt with the funds delivered to your investment advisor.  Very simply, you’re borrowing to invest—normally referred to as leverage.  You must pay the mortgage loan; you may or may not profit from the investment.  This concept led to the 1929 stock market crash, followed by the greatest depression in U.S. history.  Leverage is fine in a rising market; it can be a disaster in a falling market.  I’ve found over the years that it invariably pays to hedge your bet.

Before we try to zero in on our advisor of choice, let’s take a look at what you will find as you survey the world of financial functionaries.  First of all, be aware there’s a multitude of salespersons, posing as investment advisors, simply trying to eke out a living as best they can.  Insurance agents are pumping annuities; precious metals dealers will assure you there’s no finer investment than gold and silver; even timeshare reps will try to induce you to dump a few of your bucks into one of those losers.  You’ll also encounter stock brokers who will assure you they can systematically outperform the market.  Perhaps they can—perhaps not.  And finally you’ll be accosted a varied assortment of self-styled entrepreneurs and confidence artists, who’ll do their best to coerce you into investing in whatever they have available at the moment.  Understand this is a hostile world, and without some defenses you may expect to be eaten alive.

The greater likelihood is you’ll wind up with a financial planner, certified or otherwise, who will place you into the conventional index funds which are now the investment by default for most Americans.  The rationale is as follows: As the historical stock averages, such as the Dow Jones Industrial Average (DJIA), consistently rise over the decades, you may expect your portfolio to do the same.  You will therefore be invested into whatever funds your advisor recommends.  Inasmuch as the DJIA does not experience the overhead fees skimmed by both your advisor and the fund management, nor is it subject to state and federal capital gains taxes from rebalancing, as will your portfolio, you’ll not enjoy the predicted return.  Naturally, these details will not be shared with you.  Instead, you’ll be assured, regardless of any short term volatility, and irrespective of any boilerplate slogans suggesting “Past performance is no guarantee of future results,” that your long-term future is secure.

This gets us back to our starting point: How do you find a qualified financial advisor?  Although, unlike Ms. Hauer, I’m neither a CFP nor the holder of an MBA degree, I’ve developed some pretty firm convictions on this subject.  If you’re reasonably astute and organized, there’s no finer advisor than the face in your mirror.  No one else will match your interest in your own well-being.  Investment concepts can be learned and with trial and error you’ll soon get the hang of it.  If, for example, corporate securities are your choice, you’ll devote time and effort in selecting specific corporations with lower price-earnings ratios, that show consistent profits, and which pass a portion on as quarterly dividends.  You then review your personally-managed portfolio regularly, disposing of those failing to meet these requirements.

On the subject of financial advisors, I’ll leave you with this final thought: Ideally, your advisor shouldn’t profit unless you do.  However, as members of the advisory trade don’t operate this way, there’s usually nowhere else to go.  If you suspect the face in your mirror is not quite up to the task, your best bet is a financially astute friend or relative who provides counsel gratis, often inviting you to join in as a fellow investor.  I’ve involved myself in this fashion for many years and it works well.

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If you enjoy this weekly Straight Talk by Al Jacobs, you’re invited to check out my monthly Financial Newsletter, as well as my new book, The Road to Prosperity

Click onto http://www.onthemoneytrail.net/

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THINGS TO COME

My 43-year-old niece, Roberta, just lost her job of eight years.  As a high school graduate with a year of community college to her credit, she worked as the sole employee in a 400-square-foot property management office as receptionist, file clerk and general office do-it-all.  Though she performed well for her boss, he told her the job no longer existed.  The reason: He set up an office in his home, went electronic on his files and reports, and relegated the telephone to automation.  In doing so, human endeavor is replaced by a set of machines . . . at a monetary savings, of course.

There’s more to this little happening than the loss of a single job by one salaried employee.  What we just witnessed is transpiring across the nation at all income levels.  If you pay attention to the statistics, you know the official unemployment rate for July 2016 is 4.9%.  And if that number is accurate, my niece will be quickly reemployed.  However, the U.S. Labor Department rigged the system so by its selected method, categorized as U-3, only “persons without jobs who have actively looked for work within the past four weeks” are counted as unemployed.  If every employable individual without meaningful employment is counted, the rate would more likely run closer to 20%.  The odds are, Roberta will probably be out of work for a long time.

The replacement of human workers by machines is nothing new.  If we flash back two hundred years to England, we see an Industrial Revolution in progress, with hand production replaced by machine tools and the rise of factories.  And as you’d expect, the transformation caused upheaval.  With textiles as one of the dominant industries, workers in that trade, who found their jobs threatened, did not take it kindly.  One such man was Ned Ludd, of Leicestershire, who in 1799 smashed two stocking frames in a fit of rage, while proclaiming: “Progress may have been a good idea once, but it has outgrown its usefulness.”  With that, the anti-modernization Luddite movement developed where, over the next decade, organized mobs actively participated in the destruction of machinery of all sorts.  Not until 1813, when the British government harshly suppressed the Luddites, executing some of its participants, did it finally end.

Somewhat more recently, and closer to home, we see the effects of technological advances coupled with the maturing international economy.  Over the past several decades, manufacturing in the U.S.—for over a century the mainstay of the nation’s economy—became less and less viable.  Our problems don’t seem correctable.  With the market for our products now worldwide, we must be able to match our competitors in both price and quality.  But how can our products compete when our employees receive a $15 per hour wage, while a competing firm in China pays only $1.26 per hour—or in Bangladesh, 24¢ per hour?  It’s no surprise that virtually every electronic product on the shelves of my local Kohl’s department store bears the label “Made in China.”  Does it lead you, as it does me, to ask the rhetorical question: Where are the U.S. workers who did not have a hand in manufacturing any of these items?

While we’re lamenting the loss of jobs to low-paid foreign workers, let’s take a closer look at some of the jobs being created here in America.  Over the past several years I’ve marveled at the number of massive facilities I’ve observed springing up in the nearby Inland Empire (these are the counties of San Bernardino and Riverside in Southern California which house a mostly lower income blue collar population).  Many of these structures are major corporate warehouses, some containing hundreds of thousands of square feet, and obviously built to take advantage of low land costs.  I’ve presumed the sheer size of these buildings, with the staffs they must hire, create employment opportunities for many local residents and improve the area’s economy   I now admit, having never actually inspected any of these operations, my presumptions were badly off base.  I’ve since learned few persons are needed to operate these warehouses.  Almost everything going on inside their walls is performed by machines, with only a handful of technicians required to handle the controls.  So once again, man takes a back seat to the machine.

If you’ve tuned into the ongoing presidential campaign, you see the economy is of vital concern for both major candidates.  Understandably, large numbers of tax-paying citizens without secure employment can be a potent source of votes.  This no doubt explains why the Republican nominee, Donald Trump, began his campaign by announcing that, if elected, he will deport millions of undocumented aliens and build a wall to keep out any more from entering.  It doesn’t matter whether such a project is even possible; it certainly influenced many votes.  In addition, he’s vowed taxes will be cut so citizens will keep more of their own money.  These messages registered well with the Republican electorate, enough so he beat out 16 competing candidates.

This gets us to the question which deserves to be asked and answered: How will America’s workers fare in the coming years?  Will our government conduct its affairs to encourage the traditional virtues of hard work, systematic savings and independence from government controls?  Perhaps so . . . and perhaps not.

I’ll not conclude this with a prediction of the election outcome or the economic future of millions of our fellow citizens—mainly because my predictions are often wrong.  Instead, I’ll simply provide a 2012 quotation from a past Republican presidential candidate, Mitt Romney, that may give a hint as to how our nation is evolving.  With this, you may decide whether the future appears bright.

“There are 47 percent of the people who will vote for the [Democrats] no matter what . . . who are dependent upon government . . . who believe they are victims . . . that government has a responsibility to care for them . . .that they are entitled to health care, to food, to housing, to you name it . . . that's an entitlement . . . and they will vote for [Democrats] no matter what.  These are people who pay no income tax . . . so our message doesn't connect. “

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If you enjoy this weekly Straight Talk by Al Jacobs, you’re invited to check out my monthly Financial Newsletter, as well as my new book, The Road to Prosperity

Click onto http://www.onthemoneytrail.net/

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