A simple resource for understanding the new healthcare law

When discussing healthcare reform, most of the media has focused on the political horse-race, and comparatively little effort has been put into actually describing the law. This has left most of us to rely on our chosen political camps for extremely biased “messaging” (that’s a phrasemonger of a word if ever there was one) about the actual contents. That seems to be changing, now that it has passed, but info is coming out in dribs and drabs. This is understandable, given the complexity and sheer size of the law.

But I’ve just discovered this summary of the healthcare bill published in the Christian Science Monitor early last week. When this was written, the bill had not yet become a law, but was already very close to its final form. This summary is a very readable; it seems to be written at a 4th grade reading level. I certainly don’t post it to insult my readers’ intelligence. It is the most concise description I’ve yet read in one place of the various components of the law.

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One point twenty-one gigawatts!!!

The LHC is on, running at 3.5 trillion electron volts (TeV). Protons have been smashed together, creating explosions that only house-sized sensors can feel. So far, no word of black holes eating all of France and Switzerland.

This does mean that the Tevatron at Fermilab, just outside of Chicago, has officially been out-gunned. I’ll bet the cows grazing above the Tevatron are pissed.

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One of many battles to come over minutae of the new healthcare law

This entry was originally posted on Monday, March 29, at 11:30pm.  I’ve UPDATED it at the end with a glance at the financial impact of this news on AT&T, Caterpillar, 3M, and Deere & Company.

So, I read this article and fully understand why people prefer phrasemongering. This shit is dull. But really, if you want to figure out whether healthcare is good or bad for people and employers, you’ve got to pay attention to this stuff. And, unfortunately, you sometimes might still need an interpreter. I’ll do my best to drop some MBA larnin on ya. Please feel free to comment if I get something wrong, or it isn’t clear.

As part of Medicare Part D, which provides supplemental drug insurance to seniors, companies that provide their retirees with their own prescription drug benefits get both a subsidy and a tax credit for providing the coverage. They get a tax credit, even though they aren’t paying the full cost of the benefit, because the government wanted to give them an incentive to keep seniors on private plans, off of Medicare Part D.

Starting in 2013, the subsidy to help companies pay for retiree prescription drug benefits will continue. But the tax credit will go away. So, yes, it will cost companies something in the form of higher taxes. It won’t cost them anything in cash until then.

But, accounting rules require that when there is a regulatory change like this, you have to estimate the total future cost and post it to your financial statements. Now. (Not the full dollar amount forever into the future; it gets discounted because it is cheaper to pay somebody a dollar in a year from now than it is to pay a dollar now–paying that dollar another year later makes it worth less, etc…) So what will be a cash cost in 2013 and later needs to be recorded as an expense today, but discounted because dollars in the future are worth less than dollars today. Got it?

So the companies need to reduce their paper profits today. That is what they are complaining about. Yes, even though we are only talking about paper profits, this is still cause for complaint, because it will eventually cost them some cash money in higher taxes.

But. How much it will cost them is very difficult for anybody to calculate. Actuaries calculate this, and it is important to understand that actuaries have to make assumptions about the future in their calculations. For one thing, they have to make an estimate, a highly educated guess, about when retirees will die.

A retiree’s lifespan will obviously have an impact on how long a company is paying the benefit, so a guess about when they will die is relevant. And there are other assumptions to make, too. The actuary’s job is to make assumptions with the best statistics and as little bias as possible, but in real life it doesn’t work that way. A chief financial officer might look at the actuary’s estimate, decide it is too low or too high, and ask the actuary to change the assumptions in order to tweak the outcome. And, since the CFO pays the actuary, how much do you think the actuary will fight the CFO? A little, for the sake of professionalism, but not enough to risk losing the CFO as a paying client.

So yes, these numbers that AT&T and Caterpillar are complaining about can be manipulated… or tweaked, to use a nicer word. Not only that, good financial analysts and smart investors (admittedly a small group, and I don’t include myself in it) automatically assume these calculations were manipulated. The manipulation can make the numbers look better or worse, depending on what the company needs to report that quarter.

And the fact that they have the numbers ready to go so fast means they were prepared ahead of time to drop this news at a calculated moment. If they really want this section of the healthcare law repealed, it is obvious that they will want to make this impact look really bad.

So will it really cost them what they say it will cost them? We don’t know, but I have my doubts. At the very least, these numbers reflect worst case assumptions. The timing of these announcements outs them as politically motivated. This isn’t automatically a bad thing. If I weren’t politically motivated, I wouldn’t be writing this blog! But just remember that you have to take these estimates on the future cost of healthcare policy change with several grains of salt. If we keep in mind their incentives to make it look worse than it is, and if we recognize that they have the ability to make it look worse than it is, we can be much better critical thinkers.

–UPDATE follows–

The point of my post above is that managers are not going to give us an objective read on the effect of politically charged policy changes. So, what about investors? Investors lack the depth of information that managers have, but they are motivated to make money. Their political views are usually not reflected in the bid-ask spread for a security. I’m certainly not saying that investors are unbiased. But their biases are going to be different.

AT&T (ATT): Stock price closed 0.11% higher on Friday, Mar 26, than it opened on Monday, Mar 22. That’s basically flat. AT&T’s market capitalization is $1.21B. I couldn’t make out the timing of AT&T’s announcement on Google Finance.

Caterpillar (CAT): It was a big week for CAT; the stock price climbed 5.17% (mostly on Monday and Tuesday, along with many other industrials on the basis of economic recovery optimism).  They made their healthcare tax cost announcement on Wednesday, March 24, and the market, apparently, said “meh.” No significant losses.

3M (MMM): 3M posted non-trivial losses  of 1.17% last week. Most of those losses were incurred on Thursday. The biggest Thursday news from 3M was that their CEO’s pay increased 21% in 2009 (all in bonus and options), and they spent $440,000 in lobbying in the Q4. Their announcement about healthcare charges was widely reported at the end of the day on Friday. The company said the tax change cost them 12 cents/share, which is a lot. The market didn’t seem to agree.

Deere & Company (DE): Deere gained 2.66% over the week. They made their healthcare charge announcement on Thursday, at the beginning of the day. They lost some ground at the end of the day. If those losses were related to healthcare charges, this was an uncharacteristically slow reaction in the market.

What to make of the effects of the tax change on these companies? Here’s a general recap from Market Watch. It makes sense.

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The cognitive difficulties to competing with phrasemongers

I’ve heard about these studies before–the ones that demonstrate how woefully inept we humans are at integrating information that contradicts our existing opinions or beliefs. I’ve heard about it before, even studied this confirmation bias, as psychologists refer to it, in school, but still, this op-ed in the NY Times seems designed to make me conclude that my whole blog is a waste of time. I’m actually asking people to coldly and rationally consider the evidence when forming opinions on controversial issues? Is this some sort of martyr complex?

I actually do believe that we have the capability to debias ourselves, dial down the rhetoric and dial up the fact-checking. It takes effort, but I think it is well worth it. What about you? Do you think this is a worthwhile approach? Or would I be, strategically, more effective just making up facts to convince people to agree with what I think?

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Some things never change: hysterical scaremongering vs. healthcare

Keep America Committee flyer, 1955

I found this flyer on a post at Millard Fillmore’s Bathtub. I wanted to know more about the “Keeping America Committee,” so I did a little lazy, wiki-based research. It appears that the third evil plot listed in the flyer refers to a past attempt at federal provision of mental healthcare, the Alaska Mental Health Enabling Act of 1956 (Alaska was still a territory).  The Act was opposed as a Communist/internationalist/UN plot by a familiar-sounding coalition:

…a nationwide network of activists began a vociferous campaign to torpedo the Alaska Mental Health Bill. The campaigners included, among other groups and individuals, the white supremacist Rev. Gerald L. K. Smith; Women for God and Country; the For America League; the Minute Women of the U.S.A.; the right-wing agitator Dan Smoot; the anti-Catholic former US Army Brigadier General Herbert C. Holdridge; and L. Ron Hubbard’s Church of Scientology, which had been founded only two years earlier.   (see link for full wiki)

If you have time, the wiki is a chilling read, particularly section 3. The cast of characters reminds me of the Tea-Partiers in their increasingly bigoted, violent hysteria (note the reflexive mention of anti-Semitism in the flyer), and the rhetoric could have been written by today’s Republican Party. And what were they protesting? The establishment of an Alaskan mental health care system, by land-grant of the federal government, to stop the outsourcing of care to a cost-padding hospital contractor in Portland. More specifically, they were protesting the establishment of a panel that could commit mental patients. Never mind that such panels already existed elsewhere–this would be on federal territorial land, funded with federal territorial resources. The land grant was therefore obviously the first step toward a Siberian gulag in the USA, intended to purge UNESCO critics. What else could it be?

10 years ago, I would have laughed at this loose coalition’s willingness to out-McCarthy Joe McCarthy and make themselves a particularly sorry, fringy footnote in the history books. But now, after a year of healthcare reform debate, it just sounds tiresome and far too familiar.

So have today’s conservatives just temporarily reverted to 1955?  I’m afraid not. As you no doubt know, in one of the less believable sorties against healthcare reform the Republican National Committee Chairperson, Michael Steele, claimed that fighting the Democratic healthcare bill was really about defending Medicare. This is an interesting 180° turn for the Republicans, given the amount of scaremongering against Medicare when it was established in the 1960’s. You might recognize the narrator of this screed, as he was our President for 8 years and is the patron saint of the Republican Party. Here is the Gipper, trying to scare the shit out of our parents and grandparents.

(On a side note, just for the sake of exposing hypocrisy, there is an excellent summary here of attempts by conservative Republicans to eviscerate Medicare over the past 30 years. With defenders like this…)

But let’s get back to another one of those 3 scary devices of the Red Menace in the flyer at the top of the post. The polio vaccine as Communist infiltration tool is too ridiculous to even address, but what about the scourge of fluoridated water? Now, as exceptionally backward and ludicrous as the flyer appears, there is a fringe community in the US that still believes fluoridated water is a mind-control device. Alex Jones was pursuing the fluoride hysteria just two years ago in the name of Ron Paul, and apparently he thought the flyer was pretty good evidence that people have known about this all along. Whether or not fluoride in our water helps our teeth, it obviously hasn’t worked so well at mind-control, or we wouldn’t have such a polarized political climate, would we?

I have friends who object to the healthcare plan for honest, conservative reasons. Too bad they can’t make their voices heard above the lunatic fringe.

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“Chicago School” economists on the crash

If you have some time, here is something worthy of it. http://freakonomics.blogs.nytimes.com/2010/01/20/chicago-economists-on-the-crisis/

I did my MBA at the University of Chicago, and I concentrated in economics and finance. But the econ you get in the MBA curriculum is really Chicago School Lite. So, I am no expert.  But I did take classes from three of the guys interviewed for this series, one neo-classicist (Murphy), one cautious pragmatist (Rajan), and one behaviorist (Thaler). They were all brilliant, but I think for advice in a financial crisis, I’d go with Rajan.

Whatever you might think about the Chicago School, know this. The current economics and finance faculty at the U of C is a very diverse group. You can see that in these interviews.

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Phrasemongery galore!

First, we have the Texas Board of Education, mongering the history books. Then, we have an outraged pundit who seems to want us to think that the Texas Board of Education is making their decisions at Klan meetings. Nice one. Thanks for not helping at all. It seems far more likely that the Texas Board of Education is a group of in-over-their-heads amateurs making embarrassing calls on the basis of haste and ignorance.

Anyhow, two more tic marks in the bad-for-public-discourse column.  Here’s one on the good side: Chris Cillizza’s 5 Myths column in this coming Sunday’s Washington Post. We appear to be time traveling, reading a column about healthcare reform THREE DAYS INTO THE FUTURE! Cleverer and cleverer.

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New blog about Chicago Theater

I’ve started a second blog, Chicago Theater on $20 per Week. This new blog is born out of the budget that my wife and I just prepared, giving ourselves $20 each, every week, to see theater or other live performance. I’m going to write about what we see. See more at http://twentydollarplays.wordpress.com/ Please feel free to comment, argue, throw verbal tomatoes…

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Again? Really?

The Large Hadron Collider is going to be down for another year, namely 2012, so they can make it more robust and failsafe. In other words, they’re shutting it down for a year to avoid another 14-month shutdown like that of 2008-09. They won’t start running it at 7 trillion electron volts (that’s 1.21 gigawatts, more or less, right?) until 2013 at the earliest.

That gives the crafty, elusive Higgs boson a couple years to figure out its next obfuscation strategy.

CORRECTION: The LHC is scheduled to run at 7 TeV very soon (the Fermilab Tevitron tops out at 1 TeV).  After the year off, they plan to get it up to 14 TeV, as it was designed to do.

ANOTHER CORRECTION? The most recent thing I found says it is just now running at 3.5 TeV, and will get up to 7 TeV after the one year shutdown. But really, at this point, who cares? I know that the Pacific Ocean is a lot deeper than Lake Michigan, but if you drop me in the middle of either one, I ain’t makin’ it to shore.

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LHC: back from winter break

Here we go again.  Get ready for wacky hijinks!

The Large Hadron Collider was built to examine suspected phenomena such as dark matter, antimatter and ultimately the creation of the universe billions of years ago, which many theorize occurred as an explosion known as the Big Bang.

“We’ve started up again,” said Sutton.

http://bit.ly/9qNLXs

More on the LHC here.

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