Political Calculations
Unexpectedly Intriguing!
March 31, 2015

Now that we've demonstrated that the passage of the Affordable Care Act has resulted in a declining quality of life for average Americans since 2009, we thought we'd next discuss how that outcome came to pass, but first, we thought we'd first illustrate the trade off that American consumers are being forced to make using a production possibilities frontier curve - perhaps the first time in living memory that such a curve has been developed using real life data!

Health Insurance (Guns) vs Entertainment (Butter) Expenditures, 1984-2013, Constant 2013 U.S. Dollars

A generic version of this curve is often presented in basic economics textbooks, where it is often referred to as the "Guns and Butter" curve, which is used to illustrate the trade offs that consumers have to make when they have limited resources and are forced to choose how much of two very different goods they can afford to obtain based on their cost.

We bet you never expected the choice to be between health insurance and entertainment! As the chart reveals, consumers in recent years have found themselves in the situation where they are being forced to give up entertainment because of the rising costs of health insurance. Because entertainment is always a voluntary expenditure, which people choose to do in their leisure time as they engage in their preferred activities, anything that negatively impacts their ability to consume entertainment-related goods and services can be considered to be something that negatively affects their quality of life.

In this case, the negative impact upon their quality of life is the result of the passage of the Patient Protection and Affordable Care Act (PPACA), which is alternatively known as just the Affordable Care Act (ACA) or more popularly as "Obamacare".

We'll demonstrate how the passage of Obamacare has resulted in a decrease in the quality of life for average Americans with the next several charts, in which we'll track how and why health insurance expenditures have changed in the period from 2005 through 2013. We selected this specific period of time because online health insurance brokerage firm eHealth has consistently published data indicating the average premiums that individuals have paid for their health insurance coverage by age group over this time, which helps explain the specific dynamics of why the cost of health insurance has increased so much following the passage of the Affordable Care Act into law on 23 March 2010.

Our first chart shows the annual average premiums for health insurance for the Age 18-24, Age 25-34, Age 35-44, Age 45-54 and Age 55-64 cohorts for each year from 2005 through 2013 - the typical costs paid by the non-Medicaid and non-Medicare eligible portion of the U.S. population who chose to buy health insurance policies for Single coverage during these years.

Average Health Insurance Premiums by Age Group, 2005-2013

In this chart, we see that the cost of health insurance is age dependent, with the youngest Americans paying the least and the oldest Americans in the market paying the most. That makes sense not just because the oldest age group of Americans will typically have health care expenses that are six times those of the youngest age group of Americans, but also because this demographic group has the third highest incomes and also the greatest wealth by a wide margin.

Never the less, we see that except for a brief decline from 2005 to 2006, the cost of health insurance has increased for each age group.

But as we'll show next, it has risen more for some age groups much more than others.

Percent Change in Individual Health Insurance Premiums Since 2005

In this chart, we've calculted the percent change in Individual health insurance premiums that have been recorded since 2005. What we find is that in the years from 2005 through 2009, the cost of health insurance paid by all age groups ranged from a low of -7% to -8% in 2006 to fall in a band from 0% to +7% in 2009.

But beginning in 2010, which saw the passage of the ACA in the first quarter of the year, the cost of health insurance began to increase greatly, as health insurers moved to comply with the new requirements imposed upon them by the law.

In explaining why so many people during this time had their previous health insurance coverage cancelled, attorney Jason Cheung of LegalMatch explains the aspects of the Affordable Care Act that really jacked up the cost of health insurance in the U.S. during these years:

Why Has My Insurance Policy Been Cancelled?

Under the Affordable Care Plan, health-care insurance plans must meet a minimal standard of coverage. In order for an insurance plan to legal under the Affordable Care Act, the insurance plan must contain essential health benefits and it must have limited cost-sharing. If a plan does not meet either of those requirements, that plan is subject to cancellation.

What Are Essential Health Provisions?

The essential health provision requires that the insurance plan must at least contain the following benefits:

  • Ambulatory Care
  • Emergency Care
  • Maternity Care
  • Substance Abuse Treatment/ Rehabilitate Services
  • Laboratory Services
  • Prescription Services
  • Children’s Dental and Vision Care
  • Mental Health Care
  • Preventative Services and Chronic Disease Management
  • Coverage of Hospitalization

The Affordable Care Act requires that all preventative services be covered with no out-of-pocket costs and that the mental health and substance abuse treatments meet federal standards. In addition, insurance companies cannot impose annual dollar limits on the coverage of any benefit considered "essential."

Many of these "essential" benefits are actually unnecessary for many patients. Men typically do not want maternity care; some people will never have children, while some patients will never abuse substances. Many state plans do not include a benefit or two even though the benefit is considered "essential." If you feel that an "essential" benefit is not needed, you can either seek a grandfather plan exception or move to another state.

Mandated to provide previously unwanted levels of coverage to all health insurance policy holders, health insurers passed along their higher costs to health insurance consumers.

But that burden wasn't equally shared by all health care consumers. As our chart above confirms, the Age 55-64 cohort saw their health insurance costs go up the least during this time, which is due to another mandate in the law: the "community rating".

Here, the law was set up so that the highest premiums that would be paid by health insurance policy holders could be no more than three times the amount charged to those with the lowest premiums. As we noted early, the Age 18-24 group has the lowest premiums and the Age 55-64 group pays the highest premiums.

But to stay within that limit, health insurers had to increase the amount of premiums paid by all younger groups to compensate for the greater amount of health care consumed by this oldest age group. Our next chart reveals the ratio of each age group's health insurance premiums with respect to those paid by the Age 18-24 age group, who collectively pays the lowest premiums.

Ratio of Average Health Insurance Premiums by Age Group To 'Lowest' Cost Age 18-24 Average Annual Premium, 2005-2013

Here, we see that the health insurers satisfied the law's requirements for the community rating by a small margin (we should note that these ratios are based on average health insurance premiums paid - to stay inside the law's community rating mandate without triggering government penalties, health insurers would need that margin to accommodate their most costly policies.)

But because the premiums paid by those consuming the most health care services (the Age 55-64 group), satisfying the Affordable Care Act's community rating mandate requires health insurers to further jack up the costs paid by younger Americans - adding to their increased costs. This is very specifically why U.S. health insurers jacked up the cost of health insurance for the Age 18-24 group as sharply as they did after 2011.

That's how the implementation of Obamacare decreased the quality of life for average Americans by driving up the cost of health insurance. By forcing average American consumers to only be able to choose policies with unnecessary and bloated coverage and by forcing them to subsidize the demographically higher income and the wealthiest consumers of health care services through their premiums or else pay higher income taxes, the ACA is costing tens of millions of Americans hundreds and thousands of dollars each that they can no longer spend how they would rather choose.

No matter how you slice it, the passage of the Affordable Care Act has reduced the quality of life for average Americans. As we've just shown, the younger you are, the worse off you are.

Data Sources

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Multiyear Tables. 1984-1991. [Text Document]. Accessed 23 March 2015.

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Multiyear Tables. 1992-1999. [Text Document]. Accessed 23 March 2015.

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Multiyear Tables. 2000-2005. [Excel Spreadsheet]. Accessed 23 March 2015.

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Multiyear Tables. 2006-2012. [Excel Spreadsheet]. Accessed 23 March 2015.

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. 2013 Current Combined Expenditure, Share, and Standard Error Tables. Region of Residence. [Excel Spreadsheet]. Accessed 23 March 2015.

U.S. Bureau of Labor Statistics. Consumer Price Index - All Urban Consumers (CPI-U), All Items, All Cities, Non-Seasonally Adjusted. CPI Detailed Report Tables. Table 24. [Online Database]. Accessed 24 March 2015.

eHealth. Cost and Benefits of Individual and Family Health Insurance. Average Individual and Family Premiums and Deductibles (with Year-Over-Year Change) 2005-2013. [PDF Documents: 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013.] Accessed 30 March 2015.

Cheung, Jason. What Is the Affordable Care Act? LegalMatch. [Online Article]. 20 November 2014.

Labels: , , , , ,

March 30, 2015

Today, we're going to follow up an observation we made when we examined the major trends for how the consumer spending patterns of Americans has changed from 1984 through the present, where we observed that since 2009, increases in expenditures for health insurance are being paid for by the reduced consumption of entertainment.

Let's start first by focusing just on the trends in consumer spending for the larger categories of Health Care and Entertainment. The chart below shows that from 1984 through 2009, the share of average annual total expenditures for both these items were less than one percent of total spending different from one another. But after 2009, that difference grew beyond that margin as something clearly changed to cause spending on the Health Care category to increase at the expense of the Entertainment category.

Health Care and Entertainment as Percent Share of Average Annual Total Consumer Expenditures per Consumer Unit, 1984-2013

The Consumer Expenditure Survey provides some details on the components of spending that make up both the general Health Care and Entertainment categories. Focusing on the period since 2008, we've identified and broken those items out in the following chart, in which we've calculated the actual change in the dollar values of each of these components since 2008:

Change in Average Health Care and Entertainment Expenditures per Consumer Unit Since 2008, 2008-2013

What we observe is that since 2008, consumer expenditures for health insurance has begun growing at an exponential rate, which we observe in the curving up trajectory of this category of spending, to where by 2013, average consumer expenditures for health insurance has increased by nearly $600 above their recorded 2008 level.

We also see that spending has increased by much lesser amounts in two other components of the general Health Care category, Medical Services and Medical Supplies. Both however are within $100 of what the average expenditures were for each in 2008. Meanwhile, we observe that spending for drugs, such as prescription medication, has been essentially flat since 2008.

By contrast, we see that average consumer expenditures for all components of the general Entertainment category have declined by anywhere from $40 to $120 per category, indicating a broad-based decline for Entertainment-related goods and services as a whole.

In our next chart, we focus just on Health Insurance expenditures and the combined Entertainment expenditures to find out the extent to which consumers have offset the exponential growth of health insurance costs beginning in 2009 with reductions in their expenditures for Entertainment.

Change in Average Health Insurance and Entertainment Expenditures per Consumer Unit Since 2008, 2008-2013

In this chart, we find that through 2013, the total reduction in average Entertainment expenditures per consumer unit has offset $353 of the $576 increase in Health Insurance expenditures since 2008, or 61% of the increase. American consumers have offset the remaining 39% of the exponentially increasing cost of health insurance from 2009 onward through reductions in other categories of consumer expenditures, most likely those that have already established declining trends over the long term, such as those for Apparel and other Miscellaneous goods and services. We also identify the cause of the increase in average health insurance costs per American consumer unit: the Patient Protection and Affordable Care Act, which became law early in 2010.

Since we have already demonstrated that the real level of average annual total consumer expenditures has not significantly changed in the last 30 years, what this result means is that the documented increase in health insurance costs from 2009 onward as a consequence of the Affordable Care Act is in large part being paid for by Americans cutting back on their expenditures for these other categories of consumer goods and services.

This direct evidence strongly indicates that Obamacare, as the Affordable Care Act (ACA) is more popularly known, has directly led to a decline in the quality of life of American consumers since its passage, as American consumers are now much less able on average to consume other goods and services to the same extent they were prior to the passage of the law.

Data Sources

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. 1984-2013. [Online Database]. Accessed 14 March 2015.

Previously on Political Calculations


Labels: ,

March 27, 2015

Last week, we explored the history of the right triangle. This week, we're going to add an extra side and two extra dimensions as we consider the four dimensional cube!

Four Dimensional Cube

Or, as Phys.org would describe it: "A rotating two-dimensional projection of the four-dimensional tesseract. The projection appears to change as it rotates even though the four-dimensional polytope is symmetrical because it is warped by the loss of two dimension[s]. [Image] Credit: Wikimedia Commons."

Here's hoping we all don't lose two dimensions and become asymmetrically warped this weekend!

Labels:

March 26, 2015

Some time ago, we recognized that the number of companies acting to cut their dividends each month seemed to be a very good and simple predictor of the near real time state of the U.S. economy. Today, we're going to compare our performance against the supposed best economic forecasters of the world: the U.S. Federal Reserve and the Blue Chip Economic Indicators!

How we'll do that is pretty novel. We'll compare what our simple indicator was signaling once a month about the state of the U.S. economy throughout the first quarter of 2015 against the evolution of the actual range of forecasts offered by the Blue Chip Economic Indicators and the Federal Reserve's GDPNow forecast, as documented by the research department at the Federal Reserve Bank of Atlanta as of Wednesday, 25 March 2015.

Let's start with our own analysis, with the snapshot we took of the U.S. economy at the end of 2014, which we posted on 7 January 2015:

In December 2014, the number of publicly-traded U.S. companies announcing that they would reduce their dividend payments jumped up to 25, a level that we believe is consistent with contractionary distress being present within the U.S. economy.

From our observations of the limited data available, having 10 or more companies announce that they are cutting their dividend payments in a single month is sufficient to indicate that there are recessionary conditions in the U.S. economy. When that figure rises above 20 per month, it tends to coincide with some degree of contraction within the U.S. economy, which can impair the nation's GDP.

That's not to say that level of contraction qualifies as a full-bore recession - from all indications, it's more a sign that there is an increased degree of distress within the U.S. economy that is, as yet, too limited in scale, scope or duration to qualify as an official period of recession as might be determined by the National Bureau of Economic Research, which we describe being in a state of microrecession.

Next, here's our first look at how the U.S. economy was performing in the first month of the first quarter of 2015, which we posted on 3 February 2015:

Going by the number of publicly-traded companies that acted to cut their dividends in January 2015, the U.S. economy didn't just experience recessionary conditions during the month. Instead, it outright contracted.

Monthly Number of Public U.S. Companies Announcing Dividend Cuts, 
January 2004 through Present (January 2015)

Or perhaps a better description of what happened is that the U.S. oil industry's efforts to push its luck as far as it could has run out of good luck to push.

By that, we're referring to the consequences of falling oil prices, which are forcing an increasing number of companies tied to oil extraction activities in the United States to take the dramatic step of slashing their dividends. With 57 U.S. companies taking that action in January 2015, the number of companies taking that action in a single month is consistent only with previous months in which the U.S. economy either experienced contraction or in response to major dividend tax rate hikes.

January 2015 saw no major tax rate hikes on dividends, so contraction it is.

Our last snapshot of the state of the U.S. economy was posted on 3 March 2015 and takes us through the month of February 2015, where once again, we find that the U.S. economy was undergoing contraction.

Following its apparent contraction in January 2015, it appears that the U.S. economy continued to contract in February 2015.

We're basing that assertion on the number of publicly-traded U.S. companies that announced they would be reducing their cash dividend payments to their shareholders during the month of February 2015. With 38 companies taking that action, the number is lower than the 57 firms that took similar actions in January 2015, but is still well elevated above the number that would appear to correspond to a shrinking economy.

So there we are. On record as having described the U.S. economy as either experiencing or being in contraction at the beginning of each month in 2015-Q1.

We won't have the data for March 2015 until after the month has ended, but our early indication from our tracking of the actual announcements of firms that have acted to cut their dividends during the month is consistent with an ongoing period of contraction in the U.S. economy. We continue to believe the data indicates that the U.S. entered 2015 experiencing contraction and that it has experienced negative economic growth during the first quarter of 2015.

Now, let's see how that compares with the forecasts of the Blue Chippers and the evolution of the Fed's GDPNow indicator as it stood on 25 March 2015:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2015 was 0.2 percent on March 25, down from 0.3 percent on March 17. Following this morning's advance report on durable goods manufacturing from the U.S. Census Bureau, the nowcasts for real equipment investment and real inventory investment declined slightly.

Evolution of Atlanta Fed GDPNow real GDP forecast for 2015: Q1 - 25 March 2015

Here, we see that back in mid-to-late January 2015, which is consistent with where it entered the year, the "Blue Chip Consensus" forecast ranged from a low of 2.5% to a high of 3.4%, and was centered on a GDP growth rate of 3.0%. By the time of our second observation in early February, in which we declared that the U.S. economy was contracting, the range of the Blue Chip forecasts had widened to run from 2.1% to 3.5%, with the mid-range consensus set at 2.7%. One month later, as we indicated that the U.S. economy was continuing to experience contraction in 2015-Q1, the Blue Chippers were indicating the likely range for annualized GDP growth was now anywhere from 1.6% to 3.2%, with an overall consensus of 2.5%.

By contrast, the Fed's GDPNow forecast always ran to the low side of the range of the Blue Chip forecasts, starting at about 2.1% at the time of our contraction call in early February 2015 and falling to 1.2% at the time of our "continued contraction" call in early March 2015. Now at the end of the month, it is just 0.2% away from agreeing with our long-established assessment that the U.S. economy has been undergoing a period of economic contraction.

The difference, of course, is that we got there months ago with our very simple national economic health indicator.

Going back to 7 January 2015, you really have to feel sorry for the people who relied upon "most economists" or President Obama's Council of Economic Advisors to get their sense of the state of the U.S. economy going into the first quarter of 2015.

Labels: ,

March 25, 2015

We've been exploring data found in the U.S. Bureau of Labor Statistics and U.S. Census Bureau's Consumer Expenditure Survey, which has provided a window into the annual consumer expenditures of American households (or rather, "consumer units") since 1984. Today, we thought it was time to take a look at how the major categories of that spending has evolved over the thirty years for which we have data.

Our first chart shows the average annual amounts that American households spend on things like housing, transportation, food and alcoholic beverages, life insurance and pension savings (IRAs, 401(k), Social Security), health care, apparel and other consumer products and services, entertainment (including reading), education and also how much they donate to charitable organizations.

Average Annual Expenditures per Consumer Unit, 1984-2013

Next, we calculated the percentage share of these major categories with respect to the average annual total expenditures of U.S. consumer units, which reveals how much Americans have changed how much they spend on these major categories over the thirty years from 1984 through 2013:

Percent Share of Average Annual Expenditures per Consumer Unit, 1984-2013

Because we've already demonstrated that in real terms, the total amount of money that the average American household spends on their annual expenditures has been essentially flat over the past 30 years, this chart reveals how Americans have shifted their spending over that time, increasing the share of money they spend on housing, life insurance and pension savings, health care, charitable contributions and education, while reducing the share of money the spend on transportation, food and alcoholic beverages, apparel, and other products and services, and entertainment.

Speaking of which, note the trends for health care and entertainment, which are nearly equal to one another from 1984 through 2008, but which diverge beginning in 2009. It is as if Americans are increasingly paying their increasingly higher health care insurance bills and expenses with money they might previously have spent on entertainment related expenditures, which means that the efforts of so many Hollywood celebrities to push Obamacare onto financially illiterate consumers has backfired on their industry.

Our final chart stacks these percentage shares to reveal how they fit into the whole of annual consumer expenditures for the average American household:

Major Categories of Consumer Expenditures as Share of Average Annual Total Expenditures per Consumer Unit, 1984-2013

In this chart, we've ranked the major categories from greatest percentage share reduction at the top (in green) to greatest percentage share increase at the bottom (in purple) from 1984 through 2013.

Data Sources

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Multiyear Tables. 1984-1991. [Text Document]. Accessed 23 March 2015.

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Multiyear Tables. 1992-1999. [Text Document]. Accessed 23 March 2015.

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Multiyear Tables. 2000-2005. [Excel Spreadsheet]. Accessed 23 March 2015.

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Multiyear Tables. 2006-2012. [Excel Spreadsheet]. Accessed 23 March 2015.

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. 2013 Current Combined Expenditure, Share, and Standard Error Tables. Region of Residence. [Excel Spreadsheet]. Accessed 23 March 2015.

If you're one of those people (such as "Seeking Alpha commenters") who would like to see any the data we've presented above in real terms, you're welcome to do that math yourself. All you need is the data from the original sources we've linked above and the relevant Consumer Price Index data, which we've linked below, to do the math you want to do - it's super easy!

U.S. Bureau of Labor Statistics. Consumer Price Index - All Urban Consumers (CPI-U), All Items, All Cities, Non-Seasonally Adjusted. CPI Detailed Report Tables. Table 24. [Online Database]. Accessed 24 March 2015.

Labels: , ,

About Political Calculations



blog advertising
is good for you

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

Thanks in advance!

Recent Posts

Applications

This year, we'll be experimenting with a number of apps to bring more of a current events focus to Political Calculations - we're test driving the app(s) below!

Most Popular Posts
Quick Index

Site Data

This site is primarily powered by:

This page is powered by Blogger. Isn't yours?

Visitors since December 6, 2004:

CSS Validation

Valid CSS!

RSS Site Feed

AddThis Feed Button

JavaScript

The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.

Other Cool Resources

Blog Roll

Market Links
Charities We Support
Recommended Reading
Recommended Viewing
Recently Shopped

Seeking Alpha Certified

Archives
Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.