Fair warning, my family just received a 61.5% increase in our healthcare insurance premium of 2017, on top of last year’s 24.8% increase, so I am quite annoyed at the moment. For my non-US readers, perhaps what follows will interest you as a means of understanding how and why Donald Trump came to be elected President. I am going to be channeling some of my inner crank today.
If you want to understand why Trump won the recent US presidential election, you can’t overlook the economic data. If you do, his victory may look mighty confusing, alarming even. But once you understand the degree to which the average US family and the entire Gen-X and Millennial generations are being completely hosed economically, everything starts to take shape.
As most struggling Americans can tell you, real household income has gone nowhere for more than 20 years:
In August, Mohnish Pabrai took part in Brown University's Value Investing Speaker Series, answering a series of questions from students. Q3 2021 hedge fund letters, conferences and more One of the topics he covered was the issue of finding cheap equities, a process the value investor has plenty of experience with. Cheap Stocks In the Read More
This multi-decade burden of “running ever faster just to stay in the same place” is what led many US voters to reject Hillary Clinton, the establishment candidate, and instead roll the dice on the iconoclast promising to upend the system.
But if Trump’s plan to “make America great again” means a return to the 1980s and 1990s when median real incomes climbed smartly, he’s not going to be able to pull that rabbit out of the hat, I’m afraid. None of the conditions in place then are with us today including cheap, abundant energy (remember, oil was $10 a barrel in 1998); not to mention that we were riding the tailwinds produced by all of the gains from the early, explosive stage of the technology and internet revolutions.
Instead, we’re at a stage where the pie is no longer expanding — it’s now a zero-sum game where those with power are using their advantage to continue to increase the size of their slice at the expense of the rest of us. The US now routinely subjects its citizens to racketeering, charging excessive prices that are increasingly cumbersome to avoid. One example among thousands; a Viagra pill that costs less than $1 in India, costs over $38 in the US:
Cell phone plans in the US are 2x to 3x more expensive (and more limited in terms of both data and speed) than any of the other countries I’ve traveled to in the past few years. A phone bill from AT&T in Hong Kong is a single page long and clearly explains how your unlimited high speed plan ended up costing you around $30/mo. In contrast, my bill from the same company in the US runs about 30 pages, and seems intentionally opaque in helping me understand why I’m spending over $100/mo for a limited data plan with much slower speeds.
There’s no good reason for this except that in the US, companies have learned they can get away with predatory tactics by “wearing down” customers with gigantic, indecipherable billing statements.
This is pure racketeering. Your phone carrier is counting on your cable company to be running the same complexity scam. Ditto especially for all of your insurance providers whom you just know, in your heart, you’ll have to battle ferociously with for what you’re owed should you ever need to really use that coverage.
And it’s not just corporations; the government is in on the action, too. The US tax code is now over 74,600 pages in length, and the IRS cannot even get close to answering questions accurately. Yet the citizen is on the hook for getting everything exactly right or else incurring stiff penalties, necessitating the use of expensive CPAs — which is still no guarantee that an auditor’s subjective judgment might go against you.
Fun fact: during the first 26 years of its existence, the US income tax code grew by 104 pages. Over the past 30 years, it has grown by 50,000 pages.
While our politicians to expand the tax code, as far as I know nobody from any US government agency has been at all interested in the obvious price collusion displayed in this chart:
Believe it or not, there are two price lines on this chart (one red, one blue) from supposedly independent companies who are allegedly competing with each other — but most clearly are not. Humalog and Novalog are both manufactures of injectable insulin.
Insulin is an absolutely vital, non-substitutable necessity for people with diabetes and these companies saw fit to collude and jack up the prices over 1000% in ten years, from $25 a vial to over $250.
Why would two separate companies maintain the exact same price for their competing products for 20 years? I don’t have any other explanation except for collusion.
In any sane, rational and caring nation this wouldn’t have happened. But under Bush, and then Obama, such predatory behavior went completely uninvestigated let alone punished.
So it’s no wonder then that so many people looked at the ‘status quo’ candidacy of Hillary Clinton and said No thanks. Many families cannot afford more years of status quo predation by the unchecked rapaciousness of US cartels — er, corporations — and their government protectors.
Look, we all knew that the faux recovery seen over the past seven years had to end sometime, sooner or later. A “recovery”, mind you, that never actually happened except in the fantasy press releases of the government’s statistical fabricators, lovingly reproduced by unquestioning “journalists” working for corporate entities harboring deep conflicts of interest.
But the “little people” (hereby defined as those occupying the bottom 95% of the socioeconomic ladder) have long known they’ve been getting screwed. Sadly, it’s just getting worse.
The Obamacare Disaster
Obamacare (a.k.a. the Affordable Care Act) is a disaster. We always knew it was going to be. Why? Because it represents the single largest give-away to the health insurance industry in our lifetime.
Obama and the DC politicians crafted the Affordable Care Act as a monstrously large bill. And they failed to take on the biggest source of fat in the entire system: the healthcare insurance companies themselves. Of course, these companies have very well-funded lobbyists and pushing back against them on would have required real leadership and possibly cost some political capital. So they were left entirely alone, with all of the massive increases in healthcare premium costs left to be borne by “somebody” other than them.
Well that “somebody” has turned out to be pretty much everybody:
Obamacare Benchmark Premiums to Rise 25% in Sharpest Jump Yet
Oct 24, 2017
Monthly premiums for benchmark silver-level plans are going up by an average of 25 percent in the 38 states using the federal HealthCare.gov website, the U.S. Department of Health and Human Services said in a report today.
Last year, premiums for the second-lowest-cost silver plans went up by 7.5 percent on average across 37 states.
Now what’s both fascinating and part of the electorate anger is that the same government that forced Obamacare on everyone is also the same government that swears that health care inflation is running at only 2.5% to 3.5% per year over the past few years. Here are the governments numbers:
I find myself wondering what country (or planet?) those numbers are for. Because for those who actually pay for their health insurance, the answer for sure isn’t either “America” or “Earth”.
In total, US health care premiums have fully tripled since 1999.
But for fun, using the government’s own CPI-Med data from the table above, if healthcare premiums had tracked the government’s stated rate of inflation between 2006 and 2015 then they would be some $2500 less today than they actually are:
People are angry because they are being lied to. Or more accurately: lied to while being robbed.
Even worse, while the rate of health care inflation is being understated at the individual premium level shown above, it’s also wildly understated in the larger inflation statistic used to level-set everything from cost-of-living adjustments (COLA) to pay raises across the country.
As explained in the Fuzzy Numbers chapter of The Crash Course, even though healthcare spending is nearly 18% of GDP, for some reason healthcare comprises only 5.85% of the CPI basket:
[C]urrently CPI-MED accounts for 5.825% of the overall CPI. Increases in the share of medical expense paid by individuals (as opposed to their insurers), will not affect CPI levels.
U.S. health care spending grew 5.8 percent in 2015, reaching $3.2 trillion or $9,990 per person. As a share of the nation’s Gross Domestic Product, health spending accounted for 17.8 percent.
Does it make any sense to record something that’s nearly 18% of GDP as only 5.8% of your inflationary experience? Nope, it sure doesn’t. Unless your desire is to mask the actual rate of inflation.
In simple terms, just healthcare’s share of inflation alone comes to (0.25)*(0.18) = 4.5%. That’s more than twice the rate of the supposed total inflation we are experiencing all by itself. Throw in rising rents, car prices, and energy and it’s far more likely that an urban consumer is experiencing total price inflation closer to 6% or more per year.
Now, if you were a government bean-counter who want to mask the impact of a rapidly-rising factor within the nation’s inflation rate, presumably to blunt the statistical damage and make things look rosier than they actually are, all you need do is weight that item less in the basket used to calculate inflation.
For example, if the vegetables making up 18% of the cost of your shopping cart have gone up in price by a whopping 25%, that’s going to leave a mark.
But what the government does is pretend that your shopping cart only has 6% vegetables, and is increasing at a much lower annual rate — say 3.2%. Voila! Reported price inflation for carrots and celery is now much lower: (0.06)*(0.032) = 0.12%.
Even though you’re forking out 4.5% more at the grocery counter, the government is loudly telling everyone you’re only seeing an increase of 0.12%
This is infuriating, of course.
Here’s what this looks like in chart form. Total inflation is being sold to us as low – “too low” and “dangerously low” even. But I’ve helpfully included where the chart would show the total rate if were only what we’re seeing with health care costs:
Imagine how much higher it would be if we added in the actual inflation observed in other costly sectors like food, housing and education. Obviously there’s something desperately wrong going on here.
This is statistical lying and weaseling of the worst sort, which of course everyone can see through because it gets harder and harder each year to balance the family budget. If you’re alarmed by fake news, perhaps you should be more alarmed by fake data, something the US government has perfected and continues to perpetuate.
All of this is deeply unfair. And — surprise! — people really get annoyed when they’re constantly lied to. Eventually their trust goes right out the window. Is it any wonder that a profoundly status quo candidate (HRC) could not sway the voters in rural America, where these trends and insults are even more acutely felt than in urban areas? The status quo is figuratively and literally killing these people.
As mentioned earlier, my family’s health care plan premium went up over 60% in cash costs alone this year. The rate of increase is an even larger when the plans’ reduced benefits and increased deductibles are factored in. The out-of-pocket amount for my family will be pretty close to $30,000 this year before any insurance actually kicks in.
In other words, I’m subsidizing somebody.
Unfortunately, that somebody is probably not a lower-income person up the street who badly needs coverage, but rather someone in the C-suite at one of the major heath companies.
Check out the 2013 compensation packages for the CEOs of the major US health insurers. They’re truly breathtaking:
Maybe 2013 was a standout year, and is an errant data point. Maybe things moderated in 2014?
Nope. Everybody apparently deserved an even more massively large payout:
You have to wonder how much care was denied to patients in order to afford those executive salaries. It also bears mentioning, that some of these CEOs ‘earned’ more by 10:30 a.m. on the first day of 2014 than the median household did during that entire year.
Put a different way, in order to pay out the compensation for Stephen Hemsley, the United Health CEO for 2014, nearly 4,000 families had to pay the full $16,351 amount for healthcare that year. In what sort of world should 4,000 families have to pay close to a third of their total income to a single individual simply for the pleasure of having health insurance?
Greedy doesn’t begin to cover what’s going on here. If ever there was any sort of ‘social contract’ between these companies and the public, it’s now utterly broken by the rewarding their upper management with tens of millions of dollars – each! – and then jacking up healthcare premiums on families simply because they can. And now, thanks to the “Affordable” Care Act, you can now be fined for not forking over whatever insane price increases the healthcare cartel decides to dream up from their government protected boardrooms.
Bizarrely, the healthcare insurance options in many states have been vastly reduced as carriers claiming losses, while massive premium increases have been justified also on the basis of losses and reduced profits. I say “bizarrely” because you’d imagine, being a regular person, that such losses should show up in actual profit declines for the insurers.
Making a killing under Obamacare: The ACA gets blamed for rising premiums, while insurance companies are reaping massive profits
Oct 28, 2016
While Americans continue to be hammered by rising health care costs, and while congressional lawmakers (with their taxpayer-subsidized health care) do nothing to lower the cost of pharmaceuticals and medical care, one group is reaping a windfall in profit: health insurance companies and their investors.
On Thursday, Aetna reported $734 million in profit on $15.8 billion in revenue for the three months that ended Sept. 30. The nation’s third-largest health insurer by revenue handily beat Wall Street estimates for the quarter.
Aetna’s earnings report came a week after UnitedHealth reported a 12 percent jump in revenue to $46.3 billion for the three months that ended Sept. 30 compared with the same period the previous year. The company collected $36.1 billion in insurance premiums, a sum 11 percent higher than for the year-ago quarter, while profits increased 29 percent to $1.98 billion.
A Salon analysis of regulatory filings found that the top five health insurers — UnitedHealth, Anthem, Aetna, Humana and Cigna — have doled out nearly $30 billion in stock buybacks and dividends from 2013 to 2015. (The Supreme Court ruled in favor of the Affordable Care Act in 2012.)
Similar strong results were noted for Humana in their last earnings release. So how can it be that all these companies are both reporting the need for massively higher premiums while also booking higher and higher profits?
Well, when you live in a country that routinely subjects its citizens to racketeering, this is exactly the sort of disconnect you have to live with. They say one thing; but you see with your own eyes, or experience with your own wallet, something completely different.
Obama’s main failing in the ACA was in not going directly after the powerful insurance industry and forcing its players to participate in the reduction of waste, and sharing in the costs. Instead, they got more than a free pass: they got millions of new enrollees with the right to ‘withdraw’ from any markets and exchanges where they felt their massive profits might take a ding.
And withdraw they did, with 2 million people losing their coverage for 2017 due to major carriers pulling out of state exchanges.
Just looking at the cost of healthcare alone, we can detect massive fraud and deceit being foisted on the American public today. What emerges from these many rackets is a corrosion of the social contract. In a word, these arrangements are abusive.
The enormous pressures we see across the globe, with the rise of what the mainstream news outlets (aka “largest purveyors of fake news”) are trying to label as ‘nationalism,’ are really in large measure simply a reaction to the economic oxygen having been sucked away from the populace of various countries and delivered into the hands of a very tiny elite.
Yes, that elite still controls the ‘news’ and therefore the narrative; but increasingly people are waking up and deciding for themselves that ‘something is wrong’. Not unlike a person slowly becoming aware that they have somehow fallen into and been the victim of an abusive relationship.
Let me be clear: if we do not somehow find the courage and appropriate leadership to begin righting these wrongs, this trajectory ends in tears. And it shouldn’t be up to a government body to have to regulate proper action; the insurance companies themselves should have nobody but themselves to blame if they fail to self-regulate.
Ditto for every major corporation that is running various rackets using a combination of predatory pricing, overly complex practices, and regulatory capture to operate as a cartel.
If the elites don’t manage to figure out how to contain their greed, then an angry electorate is just the beginning of their troubles. Anybody seeking to understand the political landscape really just needs to spend a little time on the eroding prosperity of the bottom 99% over the past 20 years.
In Part 2: How To Fix The Future we lay out how a critical movement is arising at this time in history. Each of us can assume a role to play in its formation and development, and therefore its eventual success or failure. It’s my personal belief that we are past the time where we can avoid major disruption, so each of us must be personally prepared as best we can for upheaval, while also working towards building a new and better narrative to live by.
Do you have the courage to participate?