Health Plan Deductibles Grew Seven Times Faster Than Wages

HealthInsThe Kaiser Family Foundation just released its 2015 Employer Benefits Survey:

Single and family premiums for employer-sponsored health insurance rose an average of 4 percent this year, continuing a decade-long period of moderate growth, according to the Kaiser Family Foundation/Health Research & Educational Trust (HRET) 2015 Employer Health Benefits Survey released today. Since 2005, premiums have grown an average of 5 percent each year, compared to 11 percent annually between 1999 and 2005.

The average annual premium for single coverage is $6,251, of which workers on average pay $1,071. The average family premium is $17,545, with workers on average contributing $4,955.

Since 2010, both the share of workers with deductibles and the size of those deductibles have increased sharply. These two trends together result in a 67 percent increase in deductibles since 2010, much faster than the rise in single premiums (24%) and about seven times the rise in workers’ wages (10%) and general inflation (9%).

“With deductibles rising so much faster than premiums and wages, it’s no surprise that consumers have not felt the slowdown in health spending,” Foundation President and CEO Drew Altman said.

I would state that a little differently: It is consumers who are causing some of the slowdown, because they are increasingly sensitive to health spending. So, the movement to faster growing deductibles and slower growing premiums as a good thing. However, I have to qualify that remark: There is still too much price-fixing conducted between health insurers and providers, and not enough price formation by consumers and providers directly.

I would also quibble with the way the lead author describes the effect of the Cadillac tax, a punitive excise tax Obamacare will begin to levy on employers with health plans valued above a threshold in 2018:

“Our survey finds most large employers are already planning for the Cadillac tax, with some already taking steps to minimize its impact in 2018,” said study lead author Gary Claxton, a Foundation vice president and director of the Health Care Marketplace Project. “Those changes likely will shift costs to workers, but exactly how and how much will vary for individual workers.”

Like premiums, the Cadillac tax will be entirely borne by workers. Whether it is passed on as a hike in premium or a reduction in wage growth is a secondary matter.

The Employer Benefits Survey, which the KFF has sponsored for many years, continues to be an important and excellent resource. The whole survey is worth reading.

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For the pivotal alternative to Obamacare, see A Better Choice: Healthcare Solutions for America, by John C. Goodman (Independent Institute, 2015).

Time for Bond Investors, Especially in Chicago, To “Know What You Own”

Four U.S. cities went belly up recently, and all declared bankruptcy due to unaffordable government pension costs. The outcomes of these bankruptcies should make everyone think twice about lending money to cities with serious public pension debts.

The graphic below shows the outcome of the municipal bankruptcies in Vallejo, Detroit, Stockton, and San Bernardino, respectively.


Source: The graphic appeared in an excellent article on the status of public pensions in the United States by Ellie Ismailidou of MarketWatch titled “The Next Greece May Be In The U.S.

In Vallejo, Stockton, and San Bernardino (pending), the “plan of adjustment” left pension benefits intact. Pensioners were spared a haircut or even a slight trim.

Detroit was the exception. Motor City pensioners will take an 18 percent hit to their total benefits. This outcome should be worrisome to any current or future government retiree of a U.S. city with financial problems. But this 18 percent reduction is small change compared to the hurt inflicted on bondholders, who contested vigorously the final plans.

In Vallejo, bondholders were clipped 40 percent, while Stockton investors took a 59 percent hit. Detroit bond investors lost 88 percent of their holdings, while San Bernardino investors will likely be wiped out in the final agreement.

In Stockton’s bankruptcy, Franklin Templeton lost 59 percent of its holdings. In San Bernardino, Ambac Assurance Corp. and EEPK will likely lose 99 percent of their holdings.

Now let’s turn to Chicago, the nation’s third-largest city. On May 12, Moody’s Investors Service downgraded Chicago’s credit rating to junk status, making it the only major city to carry a junk bond rating from Moody’s. The downgrade applies to $8.9 billion of outstanding city debt, almost all of it general obligation bonds.

In June, Chicago Public Schools (also downgraded by Moody’s) said it will borrow $1 billion to make a $688 million payment to the teachers’ pension plan. The Chicago Public School Teachers’ Pension and Retirement Fund is underfunded by $10 billion. Chicago’s six public pension plans are collectively only 40 percent funded with a combined unfunded liability of $30 billion. The public pension plans in Chicago would likely collapse if not for infusions of money from bond investors.

In its May 12 downgrade announcement, Moody’s said that it expected:

Chicago’s credit quality will weaken as unfunded liabilities of the Municipal, Laborer, Police, and Fire pension plans grow and exert increased pressure on the city’s operating budget. In the near term, Chicago’s administration must comply with a 179 percent contribution increase to its Police and Fire pension plans in 2016.

To shore up police and fire pension funds, Chicago Mayor Rahm Emanuel is now proposing “the largest city property tax increase in modern history,” according to the Chicago Tribune. But there is no guarantee the Illinois state legislature will approve the tax hike.

Given all we know, I don’t want to hear a single complaint from a bondholder—not a peep—after they get burned in the next Chicago fire: a financial meltdown of historic proportions. Everyone should now know the rule: You lose your principal if you lend money to a city whose finances implode because of overwhelming public pension costs. The old chestnut applies: “Know what you own.”

Be Prepared for Active Shooter Threats

More-Guns-Less-CrimeI received an email from with a link to this website that contains six videos on being prepared to respond to active shooter threats in a number of different situations. I’m not sure why I got the email, but I am a faculty member at Florida State University. (I have talked with several colleagues who told me they did not receive the email.)

The videos on how to deal with active shooter threats were made by various law enforcement organizations, and they all provide essentially the same message. Here it is, for those not inclined to watch the videos.

First, AVOID the shooter if you can. Run away. Leave the building. Climb out of windows if you have to. Just get away, to a safe place.

Second, if you cannot AVOID, HIDE from the shooter. Lock yourself in a room, turn out the lights and stay quiet. If that’s not possible, hide under furniture or behind objects so the shooter cannot see you.

Third, if you cannot AVOID or HIDE, DEFEND yourself from the shooter. You can fight back, using anything at your disposal. The videos show people using scissors, fire extinguishers, shovels, and other objects to attack and disable the shooter.

One video says that while active shooter threats are rare, you always want to “be prepared for the worst.” Keeping in mind that I got the links to the videos from, if you really want to be prepared for an active shooter threat, a good way to DEFEND against an active shooter would be to carry a gun yourself, something none of the videos suggested.

Florida has a population of about 20 million, and about 15 million Floridians are 21 or older, the age requirement to have a concealed carry permit. The state has about 1.4 million concealed carry permit holders, which is a permit for nearly one in ten adults in the state, so there are pretty good odds that in an active shooter threat in Florida, someone nearby will be a permit holder.

If people really should “be prepared for the worst,” as one video said, they should get a concealed carry permit and carry a gun. If you were facing an armed assailant, would you rather fight back with scissors, or a handgun?

If I were really preparing for the worst, I’d rather have a gun to DEFEND myself than any of the weapons the videos suggested, but the option is not open to me at work, because Florida universities are “gun-free zones.” Legislation is being considered to allow concealed carry on Florida campuses, but for now, it is illegal for citizens to use a gun to DEFEND against an active shooter on campus.

What do you think? Was it a serious oversight that none of these videos suggested that people consider carrying a concealed firearm to DEFEND themselves? Or, was it better for them not to suggest it?

“But They’re Illegal!” The Worst Argument Against Immigration

9679859_SA few weeks ago I wrote a piece titled, “An Apology to an Immigrant.” In the piece, I discussed my experience with thinking through the immigration debate, and offered sources that not only debunk many commonly-held myths regarding immigration, but also offer information on the benefits immigrants bring to the United States.

The response was about what I expected—people told me I was wrong, accused me of being a flaming lefty, etc. Many others agreed with me outright.

Some of the comments I read, however, gave me pause. It wasn’t because I agreed with them, or their sentiment made me question my position, but I was frankly shocked by their argument (or complete lack thereof). Many of the comments didn’t address my argument at all. In fact, many dissenters actually agreed with me that even illegal immigrants generate more benefits than costs!

Then came the line, “if someone is here illegally there has to be a punishment.”

My question to those who hold this line of thinking is, “why?” Why does the mere fact that something is illegal require a punishment, especially if the actions in question generate outcomes that are positive on net?

The fact that something is legal doesn’t make it moral. Nor does something being illegal make it immoral. Legal does not necessarily mean ethical. Illegal doesn’t necessarily imply unethical. For example, most would probably agree that adultery is immoral, but it’s not illegal. We might also agree that smashing out a car window on a hot day to rescue a dog inside is moral, but in many places such an act would be illegal (you’d be destroying private property).

Some argue that the fact illegal immigrants enter the country illegally is indicative of some larger criminal tendency. This is complete nonsense. Not only have countless studies debunked this myth, but this logic is positively farcical.

How many times have you j-walked across the street? What about drinking or smoking underage? Have you ever gone over the speed limit? Made an illegal turn? How about playing poker with your friends for money? Bet on a football game or joined a fantasy league with your friends? Did you fail to update your license after you moved? Remember to keep your dog or cat up to date on their license or vaccinations? Are you one of the nearly 50 percent of Americans who has illegally smoked marijuana? How about cohabitate with a member of the opposite sex? Had sex outside of marriage? Depending on the state, you could be jailed for such uncouth, illegal behavior! In fact, in the course of a given day, you probably commit three felonies.

The answer is, yes. You have done at least one, if not many of the things above. All are illegal, but you’d argue that all of these actions generated no negative consequences. In fact, you and others benefitted from many of them. They allowed you to get where you were going, enjoy time with friends, made paying bills easier by living with your significant other, and allowed you to spend time with the one you love. None of these activities are indicative of some larger criminal nature. You bet on a football game? You’re obviously going to turn in to a loan shark. Smoked pot? Call the DEA, because you’re clearly the next Pablo Escobar.

You’d say that such a logic jump is silly–and you’d be right. But this is exactly what people say about illegal immigrants. Illegal immigrants break the law by crossing some imaginary line in the dirt. This doesn’t imply criminality any more than the time you rolled through a stop sign, probably while talking on your cell phone (which is also illegal in many states). The vast majority of immigrants, illegals included, come here to make their lives better and in the process lift themselves and countless others out of poverty and, oh yeah, generate benefits that we all enjoy.

The idea that, “if someone breaks the law they should be punished” has additional problems. In fact, there are provisions built into our legal system to specifically avoid punishing someone who people can look at and say, “but he broke the law!” It’s called jury nullification. In such cases, a jury can acquit a person based on the fact that they believe the law is unfair, silly, or just that the person shouldn’t be punished. They acknowledge that the person “broke the law,” but recognize that such a fact alone does not necessarily justify criminal penalties.

In debating issues of immigration, it’s important we get our facts right. When it comes to issues of criminality, “draining the system,” taking jobs, etc., countless studies have found time and again that such arguments are not only incorrect, but that the opposite is true. Immigrants, illegal and legal alike, create jobs, contribute greatly to the country to which they immigrate, and are less likely to be in jail or use public assistance than their native counterparts. Claiming that “they broke the law” as the basis for punishment should be a swan song for any immigration argument. If not, you should turn yourself in the next time you are going 40mph in a 25mph speed zone.

Freedom, Fairness, and the Transitional Gains Trap

choice_180x270During the many years I have written about liberty, among the most common criticisms I’ve encountered has been that freedom, including a free market, is unfair.

That conclusion always struck me as backward. How is a system fundamentally based on self-ownership and voluntary arrangements unfair? It certainly meets the traditional definition of justice, which is “to give each his own.” Besides, the alternatives unfairly violate self-ownership and individuals’ power to make voluntary arrangements.

How does a system that is fair get tarred as unfair? Gordon Tullock offered an important reason four decades ago, one that also explains why government is seldom able to end even obviously inefficient and unfair programs designed to benefit particular groups at the expense of virtually everyone else. He argued that a “transitional gains trap” undermines the fairness of undoing things that shouldn’t be done in the first place, leaving no fair way out.

Tullock’s main illustration involved taxi “medallions,” or permits. It remains a good illustration, in that current melees about Uber largely originate in his trap. Here’s how it works.


Happy Birthday, US Department of Education...Now Go Away

DeparmentOfEducationLogoNext month marks the 36th anniversary of the establishment of the U.S. Department of Education.

Proponents insisted that such a department would improve federal education spending efficiency as well as student achievement. Opponents countered that there is scant (if any) evidence that increasing federal control over education would achieve either.

Turns out, they were right.

Focusing on just elementary and secondary education, on-budget federal education appropriations increased more than 490 percent in real terms between fiscal years 1965 and 2014, from $13.5 billion to $80.1 billion.

Meanwhile, elementary and secondary enrollment increased by about only 30 percent over the same period, from 42.2 million students to 55 million students (see here and here).


The Fed’s Interest Rate Hike Is Overdue

FederalReserveI am not the only one who thinks the Federal Reserve should have raised its target federal funds rate at its September 17 meeting, as they suggested they would do months ago, although opinion was mixed on whether the Fed would raise the rate, and whether it should.

The Fed is holding the federal funds rate near zero, which is holding all interest rates down. The argument is that the economy is still showing weakness so the low rate is needed to shore up a sagging economy.

First, let’s look at the facts. The Fed has been holding interest rates down since 2008, and the federal funds rate has been near zero (below 0.2%) since 2009.

Now, let’s look at the Fed’s argument. They have been holding interest rates down for well over half a decade now to stimulate the economy, and it hasn’t worked. So, they are going to keep trying that same policy that has not worked in the past.


Clinton’s Pitching $350 Billion in “Free” College

College_AnimalHouseEarlier this month we learned that the Class of 2015 posted the lowest SAT college entrance exam scores in more than 40 years. Yet Hillary Clinton says college is an entitlement—not an opportunity that’s earned.

Clinton will host a community forum today on college affordability in Durham, New Hampshire. We’ll recall that last month Clinton unveiled her “New College Compact,” stating:

College is supposed to help people achieve their dreams, but more and more paying for college actually pushes those dreams further and further out of reach...That is a betrayal of everything college is supposed to represents [sic].

Under Clinton’s compact the federal government would “incentivize” the states to offer “no-loan tuition at four-year public colleges and universities” through grants.

Higher education should be a right, not a privilege for those who can afford it,” according to a video promoting Clinton’s plan.

Along with her promise of debt-free four-year degrees, Clinton is also pledging to make two-year community college degrees “free.”

So how much is all this “free” going to cost? Approximately $350 billion over the next 10 years.


Some Constitution Day Reflections about Government’s Role in Education

ConstitutionSquareToday is the 228th anniversary of the signing of our Constitution—not that you’d know it from most news headlines. The big story today is yesterday’s Republican presidential debate. The headline from Politico grabbed my attention for lamenting that education was a “no-show”:

Education didn’t just take a backseat during [last] night’s GOP presidential debate—it wasn’t invited along for the ride. There were zero questions about education over the course of the second, three-hour debate hosted by CNN. And none of the Republican candidates focused on the issue in any substantial way.

Rather than lamenting, we should be celebrating.

Presidents have no business meddling in K-12 curricula through Common Core (see here and here), interfering with parents’ preschool and child care choices (see here and here), or micromanaging our higher education options (see here, here, and here).


Ronald Coase and the Battle of Breastfeeding

momPeople pay to make them bigger and smaller and there is an entire store in the mall dedicated to them. Every year, thousands of people walk to cure them of cancer. If there are 7 billion people in the world, this means about 3.5 billion people have them. What am I talking about?

Today, I’m talking about boobs.

For something so common, it seems like this part of the body generates a lot of controversy. If you don’t believe me, ask people to talk about Super Bowl halftime shows. I’d bet within five minutes someone mentions “Nipplegate,” referring to 2004 Super Bowl halftime show in which Janet Jackson (with an assist from recording artist Justin Timberlake) had her nipple exposed for less than a second on live TV. Pandemonium ensued.

What came to be known as the world’s most famous “wardrobe malfunction” isn’t the only time an exposed breast has caused problems. It seems as though at least once a week I come across a story online or on television regarding breastfeeding in public. Every time the story is the same, a woman is asked to cover up while feeding an infant in public, takes to the internet to share her grievance, and comment thread chaos ensues (see here, here, and here for examples).