The Congressional Budget Office is a federal agency within the legislative branch of the United States government that provides budget and economic information to Congress.The CBO was created as a nonpartisan agency by the Congressional Budget and Impoundment Control Act of 1974. Wikipedia.
Pelech D.,Congressional Budget Office
Journal of Health Economics | Year: 2017
This paper explores how provider and insurer market power affect which markets an insurer chooses to operate in. A 2011 policy change required that certain private insurance plans in Medicare form provider networks de novo; in response, insurers cancelled two-thirds of the affected plans. Using detailed data on pre-policy provider and insurer market structure, I compare markets where insurers built networks to those they exited. Overall, insurers in the most concentrated hospital and physician markets were 9 and 13 percentage points more likely to exit, respectively, than those in the least concentrated markets. Conversely, insurers with more market power were less likely to exit than those with less, and an insurer's market power had the largest effect on exit in concentrated hospital markets. These findings suggest that concentrated provider markets contribute to insurer exit and that insurers with less market power have more difficulty surviving in concentrated provider markets. © 2017
News Article | February 6, 2017
President Donald Trump has rolled out a new time window for the time it may take the administration to push out the replacement for the Affordable Care Act (ACA), popularly called Obamacare. Trump hinted in an interview that it will take that the administration time till 2018 before it pushes out a replacement healthcare plan for the U.S. citizens. "Yes, in the process and maybe it'll take till sometime into next year but we're certainly going to be in the process," he revealed. Trump has been advocating the repealing of Obamacare and replacing it with a plan that would ensure better facilities. Bernie Sanders, one of the strongest critics of the repeal, has stated in the past that the abolishment of the ACA would result in 36,000 deaths in the U.S. annually. Having paid attention to critics and also the opinion of the policy buyers, President Trump is believed to have devised a plan that would be much simpler and cost effective when compared to Obamacare. President Trump had disclosed in January that he wanted to present the replacement soon after he confirmed Tom Price as the secretary of health and human services. President Trump has not yet divulged much information about when his administration would be rolling out a new plan to replace ACA. He has asserted that people would do well to remember that Obamacare was a disaster. Trump added that it did not work which is why his administration was working on a new plan. President Trump is optimistic that the "rudiments" of the proposed plan should be in place by end 2017 and is confident that his administration would have something concrete "within the year and the following year." One of the aspects that President Trump plans to work on is minimizing the unwarranted regulatory and economic burdens of the ACA. He has already signed an executive order for the same. Even though the order doesn't require any specific actions, but at the same time it provides the Health and Human Services Department with authority to take appropriate action in easing out the regulatory requirements. Senator Lamar Alexander mentioned in one of his hearings that Obamacare could be considered as the collapsing bridge since it has not been able to gain much stronghold. However, the Congressional Budget Office noted that repealing Obamacare without any concrete substitute plans could leave more than 30 million Americans uninsured by 2026. While President Donald Trump has acknowledged that replacing the Obamacare is quite a complicated task, at the same time he will be ensuring that his team keeps working on it until its replacement gets done by 2018. © 2017 Tech Times, All rights reserved. Do not reproduce without permission.
News Article | January 19, 2017
President-elect Donald Trump has been pretty vocal that he intends to repeal Obamacare and replace it with a better healthcare plan that will offer "insurance for everybody." This move prompted Bernie Sanders to assert that the decision could lead to nearly 36,000 deaths in the U.S. Now according to reports, the "repeal and delay" strategy of the incoming U.S. government could cost millions of people their health insurance. According to an analysis conducted by the Congressional Budget Office (CBO), people who have insured for health under the Affordable Care Act (ACA), popularly called Obamacare, would not be able to receive any coverage after one year. The forecasts by the CBO are based on its evaluations of a bill that the Republicans passed but was vetoed in 2015 by Obama. The bill led to a part repeal of the ACA and it eliminated penalties for individuals who did not have any health insurance. The CBO is of the belief that the removal of the penalty could lead to an increase in the uninsured people number over time. "The number of people who are uninsured would increase by 18 million in the first new plan year following enactment of the bill. Later, after the elimination of the ACA's expansion of Medicaid eligibility and of subsidies for insurance purchased through the ACA marketplaces, that number would increase to 27 million, and then to 32 million in 2026," notes CBO. The analysis shares that a repeal of the ACA would impact all Americans, even those who do not lose the health insurance. Per the analysis, the first year of the repeal sans a replacement would lead to premiums rising by nearly 20 percent to 25 percent over the levels that have been estimated for ACA. The CBO report also divulged that with no government mandate necessitating people to purchase insurance, a few companies may altogether stop offering health insurance plans. As a result, nearly 10 percent of the American population may be residing in areas that do not have any insurer so that they can purchase insurance coverage. Alarmingly, come 2026, this number is expected to grow 75 percent. Despite steps for a partial repeal being taken by the Republicans, the marketplaces which have been established for Obamacare are still functional. However, the enrolment for the same ends on Jan. 31, 2017, barring some exceptions. Trump has asserted that he is looking to draft policies that are less expensive and it remains to be seen when these would come in to affect, along with the Medicare benefits for Americans. © 2017 Tech Times, All rights reserved. Do not reproduce without permission.
News Article | February 27, 2017
In the 25 years that John Boehner served in Congress, the former House speaker said on Thursday in his eye-opening moment of candor, “Republicans never, ever, one time agreed on what a health care proposal should look like. Not once.” The happily-retired Ohioan was explaining to a health-care conference in Orlando why he believed his party would fail to deliver on its longstanding pledge to repeal and replace the Affordable Care Act. Boehner’s prediction, which was reported by Politico, captured the headlines, but the history lesson that accompanied it shouldn’t have come as a surprise: Not only have Republicans never agreed on health care, the modern conservative movement has never before seen it as a priority to reform the entire U.S. system. That’s one of the many reasons why the GOP is struggling so mightily to replace Obamacare now. While Democrats famously tried and failed to enact universal healthcare for decades before the ACA finally won approval in 2010, the only GOP proposals that have advanced in Congress have been far more limited in scope, like the creation of a new prescription-drug program under President George W. Bush in 2003. For Republicans seeking an Obamacare replacement now, the challenge is growing with each passing day. Re-energized Democrats are defending the ACA with a ferocity unseen in past years, and new polls show that the law is becoming more popular than ever before. The release of repeal legislation has been delayed, most recently because of a reportedly unfavorable cost estimate from the Congressional Budget Office (though Politico got its hands on a draft bill Friday). And House and Senate Republicans remain divided over how quickly they should scrap the law and how much of it they need to immediately replace. But the biggest hurdles for Republicans have centered on the vexing policy questions that pit the political imperative to match the benefits of the Affordable Care Act against their ideological opposition to government involvement in the market. How much will it cost? How will they pay for it? How many people will be covered? And what will happen to the parts of the current law that people like the most? Recommended: Can Customs and Border Protection Agents Demand to See Your ID on a Domestic Trip? Democrats paid for the new benefits and programs in the Affordable Care Act by raising taxes on wealthy individuals, medical devices, even indoor tanning salons. They also capped the tax deduction for the most expensive employer-sponsored insurance plans—a provision that became known as the “Cadillac tax.” Republicans denounced all these new charges, and conservatives have demanded that they be eliminated right alongside the repeal of the broader law. But other lawmakers want to keep at least some of the taxes in place to pay for the policies in the GOP replacement plan, like funding for high-risk insurance pools and tax credits for expanded health savings accounts. “The revenue is essential,” Senator Bill Cassidy of Louisiana told reporters as he introduced a compromise plan last month, explaining that without revenue from Obamacare’s taxes, Republicans can’t hope to fulfill President Trump’s own request for a healthcare plan that provides “insurance for everybody.” Yet the hardline House Freedom Caucus has already vowed to oppose any bill that keeps the ACA tax hikes. One option under consideration is for Republicans to scrap the current regimen of taxes but replace them with a version of the Cadillac tax that Congress already repealed as part of the ACA. The policy under discussion, according to The New York Times, would limit the tax break that allows people to deduct the cost of health insurance off their federal taxable income. That’s a proposal that health economists have advocated for years, but it has been nearly impossible to implement because of the popularity of the tax break; the scaled-back Cadillac tax was so unpopular that Democrats eventually agreed to get rid of it. Recommended: How Does Donald Trump Think His War on the Press Will End? The fate of Obamacare’s taxes is directly related to another crucial question for Republicans: How much will their bill cost? The new tax revenue meant that that Affordable Care Act actually shrunk federal deficits over a decade, and because of that, the Congressional Budget Office has projected that previous GOP repeal bills would have raised the deficit by several hundred billion dollars. Republicans have disputed these estimates, but for a party that attacked former President Barack Obama for presiding over a steep increase in the debt, it’s a big political problem. In January, Senator Rand Paul of Kentucky cited the deficit impact as a reason he voted against the budget resolution that Republicans passed to lay the groundwork for repeal. And according to The Hill, a House committee is pushing back its consideration of repeal-and-replace legislation because some elements of the bill received a poor score from the CBO. Nothing about the ACA has divided Republicans across the country more than its expansion of Medicaid. The party won a rare legal victory in 2012 when the Supreme Court ruled that states could choose not to receive extra federal support for an expansion in the program that covers poor and disabled Americans. But several Republican-led states opted for expansion anyway, and their governors are now lobbying Congress to maintain their federal funding. They’ve taken credit for reductions in the uninsured rate in their states and for Medicaid reform they’ve been able to negotiate with the Obama administration. As with Obamacare’s taxes, however, conservatives in the House are adamant that any repeal scrap the Medicaid expansion, which they consider a costly endorsement of government-run healthcare. They also want to be sure that the federal funding formula doesn’t reward states that expanded Medicaid at the expense of states—like their own, in many cases—that didn’t. “Some people in Congress want my state to pay for someone else’s Medicaid expansion,” Representative Raul Labrador of Idaho told reporters earlier this month. At the other end are Republicans like Senator Lisa Murkowski of Alaska, who vowed to oppose repeal of the Medicaid expansion as long as her state’s Legislature wanted to keep it. One of the key talking points for supporters of the ACA is that the approximately 22 million people who gained health insurance under the law stand to lose that coverage if it is repealed. Trump at one point vowed “insurance for everybody,” but his appointees have since backed off that promise by instead claiming that the goal of the administration’s plan is to ensure “access” to healthcare for all—an important distinction and a much looser standard to uphold, as my colleague Olga Khazan explained in January. The truth is that because Republicans are committed to spending less on government assistance and to eliminating Obamacare’s mandates that individuals purchase insurance and that most employers provide it, their plan will almost certainly cover fewer people. As Bloomberg reported on Friday, some Republican lawmakers are beginning to acknowledge as much. GOP leaders have said that their priority is giving consumers more choices in insurance coverage, including the option not to have any at all. They’ve said the focus on how many people have insurance under Obamacare is misplaced because the plans come with such high deductibles that people can never actually use the coverage they’re paying for. At the same time, Republican proposals rely on these same kind of high-deductible plans, except in many cases they offer fewer benefits for lower costs. And as they seek to prevent instability in the insurance market, party leaders are now trying to reassure Americans covered on the ACA that they won’t “have the rug pulled out from under them.” Democrats learned the hard way that promising people they’ll be able to keep their insurance plans is a lot easier than making it a reality. Republicans are likely to find that the more people they hope to cover, the more money they’ll have to spend to do so. If Democrats have succeeded in selling any part of the Affordable Care Act, it’s the provision that prevents insurance companies from discriminating against consumers with pre-existing medical conditions. Now, Republicans from Trump on down are pledging that their plan will protect these people, even if it stops short of a complete federal ban on insurers. But like so much else about healthcare policy, this is easier said than done. The GOP bill is expected to call for states to set up high-risk pools to cover people with pre-existing conditions, but the big question will be whether Republicans appropriate enough money to sustain them. They face a similar bind with other popular parts of Obamacare, like the ban on lifetime coverage limits and the requirement that insurers allow adult children to stay on their parents’ plan until age 26. Insurance companies acquiesced to these rules in large part because the employer and individual mandates guaranteed them enough customers to make it work financially. But as Republicans strike those more controversial mandates, they’ll find it more difficult to guarantee the more popular consumer protections survive. Read more from The Atlantic: I Was a Muslim in the Trump White House—and I Lasted Eight Days Why the Battle for Leadership of the Democratic Party Mattered How to Build an Autocracy This article was originally published on The Atlantic.
News Article | February 23, 2017
WASHINGTON--(BUSINESS WIRE)--Today, Citizens Against Government Waste (CAGW) named House Minority Leader Nancy Pelosi (D-Calif.) its February 2017 Porker of the Month for her long history of misinformation and hyperbole regarding Obamacare. During a CNN town hall on January 31, 2017, Leader Pelosi made a startling claim about the Affordable Care Act (Obamacare): “It’s three purposes were to increase coverage, expand those who got healthcare; to improve benefits, and to lower costs, and it has succeeded in every way.” This whopper is in desperate need of a fact-check. A January 2017 Congressional Budget Office (CBO) projection found that Obamacare covers less than half of the original estimate of 30 million. While 14 million Americans have enrolled since the law was fully implemented, 11.8 million, or 84 percent, are covered under Medicaid, not private insurance. Like all Medicaid recipients, the new enrollees’ access to quality care is sparse. A 2014 Merritt Hawkins study found that 55 percent of doctors reject Medicaid beneficiaries, which is a 10 percent jump since 2009. Many Obamacare enrollees who did receive new private health insurance are finding that their high-deductible plans leave them just as vulnerable when they become ill. David Reines, a 60 year-old former hardware salesman from Jefferson Township, New Jersey with chronic knee pain, told The New York Times on November 14, 2015, that, “The deductible, $3,000 a year, makes it impossible to actually go to the doctor. We have insurance, but can’t afford to use it.” The skyrocketing cost of Obamacare has caused insurers to either drastically increase premiums or withdraw from the marketplaces altogether as Humana and Aetna announced within the last year. In 2017, insurers plan to triple the premium prices in 38 states, and 70 percent of U.S. counties only offer one or two health insurance choices. Leader Pelosi, who famously quipped that Congress would have to pass the healthcare bill so that Americans could see what was in it, is clearly wrong when she says the law “has succeeded in every way.” She parroted former President Obama’s patently false claim in 2009 that if Americans liked their healthcare plan and doctor that they would be able to keep them. She described Obamacare as “Affordable, affordable, affordable, affordable,” in 2014. She outrageously said that attempts to reform the broken law were acts of “cowardice,” and fear-mongered that Obamacare repeal would lead to “grandma living in the guest room.” CAGW President Tom Schatz said: “Leader Pelosi is perhaps the most vocal and hyperbolic proponent of the broken Obamacare system. Her utter and complete disregard for facts and the efforts of healthcare reformers to rescue the millions of Americans who are victimized by this law is shameful. Leader Pelosi should renounce her past false statements defending Obamacare, and pledge to help build a healthcare system that truly offers more choice and greater access at a lower cost to both consumers and taxpayers.” For repeatedly peddling false claims to the American people about Obamacare, CAGW names House Minority Leader Nancy Pelosi its February 2017 Porker of the Month. Citizens Against Government Waste is a nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government. Porker of the Month is a dubious honor given to lawmakers, government officials, and political candidates who have shown a blatant disregard for the interests of taxpayers.
News Article | February 8, 2017
It’s a good idea for the U.S. Environmental Protection Agency (EPA) to rely on the best, most up-to-date science in making its decisions. Seems like a fairly basic point — but recent legislation aims to thwart EPA’s ability to do so. Rep. Lamar Smith’s (R-TX) “Secret Science Reform Act” will reportedly be back again this year and soon be on the move. The bill would prohibit EPA from finalizing an action unless “all scientific and technical information relied on to support” the action is “publicly available online in a manner that is sufficient for independent analysis and substantial reproduction of research results.” Like so many misleadingly-named bills of the past, this bill tries to sound like common sense – but in fact, it would do great damage to human health and the environment, as well as to a predictable regulatory environment for business. Here’s the first problem: to make informed decisions, some of the data EPA needs to use can’t be made public without doing damage to real people or to businesses. Almost all of EPA’s work touches on issues of human health — relying, for example, on research that uses health records of asthma sufferers and their asthma attacks to see if they are associated with air pollution. Data that involve private medical records of individual patients cannot – ethically or legally – be made fully public. Here’s another example: businesses sometimes claim that information about their operations is legally protected from public release because it is “confidential business information.” But under this legislation, EPA would be barred from relying on any study or any analysis unless they made all the underlying information publicly available. What would be the real-world result for the safety of our air and water and the products we use? Under this legislation, EPA decision-making would grind to a halt. For instance: EPA properly relies on peer-reviewed scientific research, and industry studies and data, to inform its efforts to protect public health and the environment. Particularly for health research, studies often involve confidential data that researchers are prohibited by law from disclosing. This legislation would force EPA to pretend that none of this valuable research exists when making substantial agency decisions. The end result? Our health and environment is put at risk. Congressional Budget Office Says It Will Cost Hundreds of Millions of Dollars to Implement Here’s a second problem: even setting aside the enormous confidentiality problems in this legislation, it would be extremely costly to implement. The “Secret Science” bill authorizes just $1 million in expenditures per year. But the Congressional Budget Office (CBO) estimates that implementing this bill would cost approximately $1 billion to implement over the next four years — and that’s their middle estimate. CBO estimates that EPA relies on about 50,000 scientific studies every year to accomplish its mission — so providing public online access to all of the underlying data and information is an expensive proposition. Alternatively, if EPA presses ahead on the basis of a smaller number of studies, EPA protections would be less well-informed and may not reflect the latest science. They could also be inaccurate or incomplete — and thus more vulnerable to legal challenges that would delay the implementation of important public health protections or timely decisions affecting industry operations. The challenges of meeting these huge expenses are enormous. They’re even more daunting in light of simultaneous efforts by EPA’s opponents in Congress to dramatically curtail the agency’s budget. Here’s a third problem: the bill would prohibit EPA from finalizing an action unless all information relied on is “publicly available in a manner that is sufficient for independent analysis and substantial reproduction of research results.” Yet for many key health studies, it could take years — decades even — to “reproduce” some key research. Some of the most rigorous, crucial health studies are based on health data that is collected over many years — for example, studies that follow a group of people over time to understand how their health is affected by environmental conditions. Such data is how we recognized that smoking causes cancer, to cite just one example. By their very nature, results from such “longitudinal studies,” which may involve thousands of people, cannot be readily and rapidly “reproduced” as a laboratory study on mice might be. Yet such studies, when carefully designed and executed, can be among the most powerful in shedding light on how pollution impacts our health. The troublingly vague language in this bill could be interpreted to mean that research results can only be used if time has been allowed for reproduction of research results. This presents EPA with an array of bad options: incurring enormous delay and expense to reproduce even the most sound, rigorous studies, even when other research already supports their findings; moving ahead on the basis of limited science and ignoring crucial health insights from the latest research and from longitudinal studies; or moving ahead with the benefit of insights from these studies—but facing needless uncertainty and litigation risk due to the troublingly vague language in the bill. Whichever way, EPA’s ability to protect human health and the environment would be undermined. Why would anyone support this legislation that would force EPA to rely on less science at more cost to taxpayers? Well, it would benefit big polluters who would be handed more ways to pick apart EPA safeguards in court — or stop their creation in the first place. But for the rest of America’s businesses, it could increase uncertainty and economic challenges, because EPA would be hindered in using the industry’s own information in making decisions. And for American families, who would be put at risk by less informed safeguards, the “Secret Science” bill is a bad idea for science and for public health. It’s just plain wrong to suggest that EPA relies on “secret” data. EPA depends on the best, most up-to-date science – including university research and industry analyses that are available to the public, but that rely on confidential data and information properly protected from disclosure under the law and under common decency.
Stocking A.,Congressional Budget Office
Journal of Environmental Economics and Management | Year: 2012
Price controls established in a cap-and-trade allowance market are intended to reduce cost uncertainty by constraining allowance prices between a ceiling and floor; however, they could provide opportunities for strategic actions by firms that would lower government revenue and increase emissions. In particular, when the ceiling price is supported by introducing new allowances into the market, firms could choose to buy allowances at the ceiling price, regardless of the prevailing market price, in order to lower the equilibrium price of all allowances. Those purchases could either be transacted by firms intending to manipulate the market price or be induced through the introduction of inaccurate information about the cost of emissions abatement. Theory and simulations using allowance elasticity estimates for U.S. firms suggest that the manipulation could be profitable under the stylized setting and assumptions evaluated in the paper, although in practice many other conditions will determine its use. © 2011 .
News Article | March 1, 2017
When you listen closely to debates over California climate change policy, it becomes clear that the disagreements are along two dimensions: what is the best approach to meeting the state’s goals and what exactly are those goals. I think the differences are increasingly about different goals, rather than about different methods of achieving those goals. Setting aside those who think climate change isn’t happening, isn’t man-made, or just isn’t a problem, participants in California’s climate policy debate often speak of four intertwined goals: B. Demonstrating to the world that a state (or country) can significantly reduce GHG emissions without significant economic cost C. Creating new knowledge and technologies that lower the cost of reducing GHGs globally I wrote about local pollutants in my January blog. I still believe that it is important for both ethical and political reasons to address local pollution at the same time, though not with the same policies, as GHGs. So, I will focus here on A, B and C. Most of the discussion in Sacramento is around goal A, hitting California’s GHG emissions target, but that is undoubtedly the least important for three reasons: First, as I’ve talked about before California is just over 1% of global GHG emissions, and global emissions are all that matter for climate change. Climate science does not dictate any one numerical reduction goal that California “must” meet. For the foreseeable future, more reduction is always better, so long as it doesn’t cost too much. Second, the difficulty of meeting California’s emissions target will depend greatly on a host of unpredictable factors that are unrelated to the state’s emissions reduction policies, such as the growth rate of the state economy and the price of oil, as co-authors and I showed in a study released last August. Advances in low-GHG technologies will also reduce the cost of meeting a numerical goal, and advances in extracting fossil fuels, such as fracking, will increase the difficulty of lowering GHGs. Third, reducing California’s contribution to climate change requires more than reducing GHG emissions from inside California. We buy all sorts of goods from out of state whose production generates GHGs. With the exception of a very imperfect attempt to account for out-of-state electricity (and, to some extent, transportation fuels), the GHG impact of imported goods are not counted in the state’s reduction goals. Just as with carbon offsets, real change depends on “additionality”, or in this case what might be called “subtractionality”: is a reduction of GHG emissions from one source actually reducing worldwide GHG or is it moving emissions to another location? Subtractionality is also central to goal B, credibly demonstrating that reducing GHGs needn’t significantly harm an economy. It’s clear that outsourcing our GHG emissions to other states or countries isn’t a model that can be scaled up to reduce global GHGs. So, honestly measuring leakage and reshuffling – even in cases where California may not be able to control it or penalize it — will be critical to convincing other governments of California’s success. The demonstration goal also weighs against expensive or non-replicable approaches to GHG reduction, even if they help reach a numerical target. Demonstrating that other economies can grow on a low-GHG path is also the basis for goal C: innovating to lower the cost of reducing GHGs. Knowledge creation of this sort necessarily means experimentation which, by its very nature, means some disappointments. But knowledge creation is where California has the most to contribute. The state is known for its innovative and risk-taking knowledge economy. Knowledge creation and innovation means much more than extending the science of renewable energy and storage technologies, though those are big pieces of the puzzle. It also means figuring out how to operate a reliable grid with a high share of intermittent resources, such as wind and solar. And developing technologies and programs that lower the cost of efficient demand-side participation in electricity markets. And it means creating business models for electric vehicle charging that maximize the value of having EVs on the grid. All of that seems like a lot to ask from California’s climate policies, and it would be if we could only deploy one policy. But, California has multiple climate policies, which suggests a plan of attack that could make progress on all three goals. First, recognize the reality that the state’s emissions goal is a goal, not a line in the sand. Commit to aggressive policies that are expected to meet targeted emissions levels under the most likely scenarios, but recognize that actual emissions will be higher or lower depending on unpredictable factors. This gives the state’s cap-and-trade program the flexibility to maintain a minimum price when emissions are on track to come in below the cap and enforce a credible ceiling price when emissions are not going to get down to the cap. This would make the cap and trade program both more effective and more politically credible. Second, create a full-economy consumption-based accounting of California’s GHG emissions. This would include sectors that are not part of the cap and trade program, such as agriculture, as well as out-of-state production in sectors that are under cap and trade, such as oil refining. This measure would include all imports, and would exclude all exports. It would not be intended to be a device for enforcing policy, but rather a scorecard for honestly assessing how well the state is reducing its overall contribution to climate change. Ideally, such a scorecard would be calculated by an entity that is not politically invested in the answer, the equivalent of a Congressional Budget Office for California’s climate policy. If California is going to demonstrate the ability to reduce emissions without harming the economy, it needs this sort of all-encompassing and independent accounting. Third, focus complementary policies on the areas where the market mechanism — cap and trade — is least effective, where specific market failures are identified. Probably the most important such case is in developing new knowledge and technologies. “Complementary policies” should include support for basic science to develop new technologies, as well as mandates for using specific technologies, such as the state’s electric vehicle mandate. But, importantly, every dollar spent or mandate enacted should be clearly tied to a need for policy intervention beyond the price in the cap and trade market. By the way, I would include in this knowledge creation policy the experiment that we are now running as the state ramps up the use of intermittent renewables. Complementary policies may also be justified where market prices are shown not to be effective, such as with some energy efficiency programs where buyers of appliances, houses, or other goods do not accurately incorporate energy prices. As the California legislature discusses how to extend the state’s climate programs beyond 2020, we have an opportunity to learn from the experience so far and adjust policies in order to improve their impact in California and, more importantly, in the rest of the world. Now is the time to make the big changes we need, before we lock in for another decade or more.
News Article | February 15, 2017
Wilmington Trust has released its annual Capital Markets Forecast titled “Uncharted Waters: Will Political Riptides Threaten Portfolio Returns?” The outlook from Wilmington Trust’s investment team focuses on three main themes: the U.S. economy, income inequality, and emerging markets opportunity. “The election of Donald Trump as president of the United States has proved a boon to the markets, but can the rally be sustained?” said Tony Roth, chief investment officer for Wilmington Trust. “Risk, uncertainty, and slow growth persist, but President Trump’s growth-stimulating policies could boost the economy in the short-term. However, the long-term impact of those stimulus programs on national debt keeps our investment team up at night. “Lack of sleep notwithstanding, we’re fairly optimistic about 2017. Our advice to investors is to stay nimble and be prepared to pounce on opportunities and steer clear of hazards as we continue to navigate economic chop.” The U.S. economy stands at a crossroads. Entering the eighth year of tepid economic recovery, it remains to be seen if President Trump’s pro-growth programs, promised during the campaign, will come to fruition. Key economic proposals include lowering income taxes, eliminating estate and corporate alternative minimum taxes, repatriating corporate earnings, increasing trade restrictions, and reducing business regulations. Despite the Republicans’ bicameral majority in Congress and control of the executive branch, their fiscal conservative nature may water down the proposals that do come to fruition. Still some stimulative policy changes are likely to be enacted, which will positively affect the labor market, wages, and consumer spending. Additionally, American companies would benefit from a lower corporate tax rate and a simpler tax system. Wilmington Trust is optimistic for the U.S. economy, but longer-term concerns include a shrinking labor force due to lower birth rates, as well as the mounting federal deficit. Debt as a share of gross domestic product has already doubled (from 35% to 74%) since the recession and is projected to rise to 86 percent in 10 years according to the Congressional Budget Office. If President Trump’s near-term pro-growth policies are deficit-financed, the debt problem will be exacerbated. President Trump’s fiscal policies carry inflationary risks, which could lead the Federal Reserve to quicken the frequency of interest rate hikes. While not the base case scenario, this series of events could, ironically, reverse economic recovery. Despite stronger near-term economic growth, investors remain stuck in a slow-growth, low-return environment. Coupled with sharply rising market rates, this creates peril within income-oriented asset classes, which could drop in value. A flatter yield curve seems likely to evolve in 2017. Investors will need to plan carefully to boost portfolio returns to deal with a one-two punch of rising interest rates and inflation. Rising inflation bodes well for Treasure inflation-protected securities (TIPS). Wilmington Trust’s preference is for shorter-duration TIPS, as a longer term increases the risk of interest rate movements. Additionally, rising interest rates could prove difficult for taxable and tax-exempt investment-grade markets, as their lower yield levels provide little protection against diminishing principal values. On the stock front, dividend-thirsty investors have pushed up market prices to a level that is now vulnerable to significant price depreciation in the face of rising interest rates. Especially susceptible are rate-sensitive utilities and consumer staples sectors, which have underperformed since the election. In contrast, the earnings recession now appears to be in the rearview mirror, and Wilmington Trust expects solidly higher earnings in 2017. International stock markets might be another place where income plays a bigger role in total return. With growth rates in Europe and Japan likely to remain challenged in the year ahead, price gains in stocks should be somewhat limited. These markets do generally provide greater dividend yields than U.S. stocks, and with their relative cheapness, they remain reasonably attractive. In emerging markets, a sustained expansion of the purchasing power of middle-class consumers continues. This is particularly evident in Asian economies, especially China and India. This presents many opportunities for emerging markets companies as consumer demand for their products and services surges. “Old economy” heavy industries that focused on metals, oil and gas, chemicals, power production and the like, are receding at a pace faster than Wilmington Trust predicted in last year’s forecast. Inversely, “New economy” industries are experiencing rapid growth as we predicted last year. The majority of new economy companies, like e-commerce, mobile hardware, and consumer financial services, are less dependent on infrastructure and less sensitive to commodity volatility, The pace of emerging markets growth gained momentum in 2016, due in part to commodity prices leveling off, the Fed’s decision to slowly raise rates, and improved political stability. Emerging markets initially reacted negatively to the U.S. election outcome, but the slump was not severe, and in certain respects, improved buying opportunities. Despite fears over a trade war and a strong U.S. dollar, Wilmington Trust doesn’t believe the emerging markets space will be hindered by those influences. China has restored some calm to its domestic stock and currency markets, and stimulated its economy by boosting the expansion of business credit, enabling growth toward the end of 2016. Sino-U.S. trade, however, faces a real threat from President Trump’s proposed trade policies, such as a 45-percent tariff on Chinese imports. Pain would be shared by both two countries since China is the largest source of U.S. imports and the third-largest recipient of American exports. U.S. consumers could expect to pay higher prices for goods as an outcome of a trade war with China. More economic insights can be found in Wilmington Trust’s 2017 Capital Markets Forecast commentary, as well as related videos and materials at http://www.WilmingtonTrust.com/CMF. ABOUT WILMINGTON TRUST Wilmington Trust’s Wealth Advisory offers a wide array of personal trust, financial planning, fiduciary, asset management, private banking*, and family office services designed to help high-net-worth individuals and families grow, preserve, and transfer wealth. Wilmington Trust focuses on serving families with whom it can build long-term relationships, many of which span multiple generations. Wilmington Trust also provides Corporate and Institutional services for clients around the world. Wilmington Trust has clients in all 50 states and in more than 90 countries, with offices throughout the United States and internationally in London, Dublin, Amsterdam, Luxembourg, and Frankfurt. For more information, visit http://www.WilmingtonTrust.com. Wilmington Trust is a registered service mark. Wilmington Trust Corporation is a wholly owned subsidiary of M&T Bank Corporation. Wilmington Trust Company, operating in Delaware only, Wilmington Trust, N.A., M&T Bank and certain other affiliates, provide various fiduciary and non-fiduciary services, including trustee, custodial, agency, investment management and other services. International corporate and institutional services are offered through Wilmington Trust Corporation's international affiliates. Loans, credit cards, retail and business deposits, and other business and personal banking services and products are offered by M&T Bank, member FDIC. *Private Banking is the marketing name for an offering of M&T deposit and loan products and services.
News Article | February 19, 2017
Medicaid has essentially functioned the same way for half a century. Eligibility for the program has changed, most notably when Obamacare extended an option to states to expand coverage to all low-income adults. But once they are enrolled, beneficiaries are entitled to guaranteed coverage, with their home states and the federal government splitting costs with no upper limit. This open-ended, shared funding structure is vital for covering the kinds of people Medicaid tends to cover. Almost two-thirds of Medicaid costs come from low-income elderly and disabled people with serious—and thus expensive—health-care needs. Republicans have long hankered to change that structure to cut costs to the federal government, and a new plan from House GOP leadership shows that they might use the debate over Obamacare repeal to do so. The new policy brief for their Obamacare repeal plan was presented Thursday by Speaker Paul Ryan, flanked by House committee leadership and the new secretary of health and human services, Tom Price, who indicated the plan had the seal of approval from President Trump. It came after the House Freedom Caucus revolted against dithering among Senate Republicans about the specifics and drawbacks of a repeal. Accordingly, the House brief—which outlines a collection of policy ideas Republicans want to achieve with repeal—neatly sidesteps some of the issues that have bedeviled Senate Republicans: namely, how to balance the market-destabilizing effects of keeping Obamacare’s pre-existing conditions ban while eliminating the individual mandate to purchase insurance. The plan is short on specifics, including the mechanics of its implementation, and looks like a watered-down combination of some existing Republican repeal plans, including Ryan’s and Price’s. It would repeal Obamacare’s taxes and mandates, and replace the tax subsidies for purchasing insurance on the exchanges with tax credits and incentives for health-savings accounts. The details of those tax credits are not provided, save that they would be age-rated and refundable but not adjusted by income. In order to control some costs, the plan mentions “state innovation grants” for creating high-risk pools of sicker individuals and for funding preventative care. The plan would also roll back enhanced federal funding to states for the Medicaid expansion, although there would be an unspecified “period of stability … to ensure we are not pulling the rug out from underneath states or patients.” Recommended: Conservative Outlets Gave Their Audiences a Very Different View of Trump's Press Conference The exact effects of the House repeal plan on coverage and costs won’t be known until more details are unveiled and the policy is rated by the Congressional Budget Office. It does appear likely to sharply reduce the number of people covered, since it rolls back funding for the Medicaid expansion, ends subsidies, and eliminates the mandate to purchase insurance. Their tax-credit policy would invert Obamacare’s progressive financing scheme. Under current law, subsidies increase as income decreases, but the Republican plan would flatten that tax advantage, thus no longer proportionally increasing affordability for low-income people. It would age-rate the credits, granting more affordable coverage to older people, who tend to be sicker than younger Americans, but would not control for costs among poorer individuals, who also tend to be sicker and more prone to disability than their middle- and upper-class counterparts. The logic behind block grants and per capita caps on federal funding is that they force states to be efficient with Medicaid dollars. The House brief is somewhat clearer when it comes to Republicans’ plan for changing the fundamental funding structure of the Medicaid program. Some specifics are still elusive—the policy start date, for example, is listed as “at a year in the future.” But, in general, it would establish a per capita cap on federal Medicaid funding for individuals based on state economic and health factors, as well as the category of beneficiary (whether they are aged, blind and disabled, children, or otherwise able adults). That reform erases the open-ended funding of Medicaid and essentially replaces it with a set annual allotment of federal funds to each state. The brief would allow states to receive that funding as a block grant, provided that they “transition” people covered under the Obamacare Medicaid expansion to other programs. That block grant appears to come with rather significant relaxation on states’ requirements to meet eligibility standards and provide comprehensive services for Medicaid enrollees, so long as certain required services for the “most vulnerable elderly and disabled individuals” are covered. The per capita cap and block-granting scheme would certainly save the federal government money. The main appeal of universal spending caps is not only that they promote thrift among states, but that pegging them to economic factors, at the start of a prescribed “base year,” basically underfunds them in the future. But this scheme might also work against the ability of Medicaid to effectively cover people. A report from the Kaiser Family Foundation shows that such a policy could “lock in” funding to states based on their position in the base year, and would create long-term “winners” and “losers” in states. States would no longer be able to react in real time to crises like drug epidemics, disasters, or job crunches, and funding would not respond to demographic changes. In essence, people might be blocked from receiving care simply based on where they live. That this problem recreates the geographic incoherence of the current Obamacare Medicaid expansion—where people covered under the expansion in some states will lose coverage if they move to non-expansion states—is no small irony. The logic behind block grants and per capita caps on federal funding is that they force states to be efficient with Medicaid dollars since they’re on the hook after that money is gone. But there are no guarantees that states wouldn’t simply create that “efficiency” by dropping people from coverage, diminishing the services covered, or reducing payments to providers. In fact, the House plan appears to encourage just that, as it only specifies coverage of mandatory services for disabled and elderly people in its requirements for block grants. The ensuing system, then, would no longer be a safety-net entitlement for all people who need care, but one where many of the riskiest patients with the most pressing issues might simply be forced to do without. That’s a strong departure from the underlying logic of the program, outlined when President Lyndon Johnson railed against “the injustice which denies the miracle of healing to the old and to the poor” when he signed the amendment to the Social Security Act, which gave the country Medicare and Medicaid in 1965. The prospects of the House Republican plan are murky at the moment, as the Senate still appears to be much more cautious in its approach to repealing or replacing Obamacare, and the actual coverage details when released might not bode well at district town halls. Still, the structural changes to Medicaid have endured a decade or more as the dominant Republican health-reform strategy, and seem one of the likeliest changes to occur at some point over the next few years if they maintain control in Congress. Unfortunately, the losers of that strategy will tend to be the people for whom the country built the safety net in the first place. Read more from The Atlantic: Why Trump Can't Answer Questions About Anti-Semitism How to Build an Autocracy 100,000 National Guardsmen Mobilized to Deport Immigrants? The Anatomy of a News Cycle This article was originally published on The Atlantic.