Mish's Global Economic Trend Analysis

Unwilling and Unable! Washington State Rejects Obama’s Proposal to Extend Canceled Policies
India Gold Premium Hits Record 21.6%
Scranton Unlikely to Make Required Pension Contribution; Mish Proposal: Offer the Union 35 Cents On the Dollar
Obama Changes His Mind (But Only For a Year); You Can Keep Your Plan IF Insurer Reinstates It; Democrats Revolt; Four Questions
French Recovery Fizzles, Germany Slows; OECD Warns France on Reforms

Unwilling and Unable! Washington State Rejects Obama’s Proposal to Extend Canceled Policies

Posted: 14 Nov 2013 10:04 PM PST

It did not take long for Obama's proposal as detailed in Obama Changes His Mind (But Only For a Year); You Can Keep Your Plan IF Insurers Reinstate Them to blow sky high.

Two hours, to be precise.

Washington State Rejects Obama's Proposal

The Seattle Times reports State insurance commissioner rejects Obama's proposal to extend canceled policies.

State Insurance Commissioner Mike Kreidler has rejected President Obama's proposal to allow insurance companies to extend health insurance policies for people who have received notices that their policies will be cancelled at the end of the year.

Within two hours of President Obama's news conference announcing the proposed administrative fix for Americans upset by their policy cancellations, Kreidler issued a statement rejecting the proposal.

"I understand that many people are upset by the notices they have recently received from their health plans and they may not need the new benefits [in the Affordable Care Act] today," he said. "But I have serious concerns about how President Obama's proposal would be implemented and more significantly, its potential impact on the overall stability of our health insurance market."

"I do not believe his proposal is a good deal for the state of Washington," Kreidler's statement continued. "We will not be allowing insurance companies to extend their policies."

Unwilling and Unable!

I found out about the above rejection from a Washington State Actuary who writes ...

Hello Mish

My dad introduced me to your blog a few years ago and I enjoy all your posts. In all the crazy nonsense that gets said today, I know I can come to your blog and find some common-sense thinking. Thank you.

I am an actuary at a health insurance company and the economic impact Obamacare will have on healthcare/health insurance is far from "Affordable". If anything, the Republicans should have asked for a name change on the bill.

I have experience in pricing policies on the individual market and for regulatory risk pools. When my company entered the individual market years ago, the best-selling plans were, by far, the higher deductible plans with the lowest premiums. It was what consumers could afford to buy. The government should not have been surprised at the feedback.

Obama today has relented to pressures by "allowing" insurers to bring the plans back for a year. He truly doesn't mean it. He wants to assuage the public without undermining his signature legislation.

Regardless, it is not uncommon for states to require a 60-day notice for filing prior to a plan launch. It's November 14th. Insurers have already passed the 60 day notification period to the states. I will be surprised if the insurers are even ABLE to re-instate plans;

Premiums would need to be developed, approved by the state, letters sent out, premiums collected, coordination with health providers, letters to the consumers. Unlike HHS, our IT teams have to go through UAT testing before any changes become live. These things take time. Obama may even be counting on it. Why? Because if the medically underwritten population stay on their "cancelled" policies, that means less traffic to the exchanges Obama wants to promote, and less cost-subsidization which will wreak havoc on exchange premiums in 2015.

Washington state has already declared they will not allow Obama's "fix" to go through. Rising premiums are only a symptom of the disease.

WSA

Yesterday's Recap

Sens. Mary Landrieu (D-La.) and Mark Udall (D-Colo.) introduced plans that would let people keep their plans even IF insurers cancel them.
My first set of questions are simple: How the hell is that going to work? Is government going to take over every existing plan that was dropped?

Still More Questions

While pondering the above questions, I have a few more to throw at you, this time assuming Obama gets his fix and "you can keep your plan" but only for a year, and only if the insurer reinstates it.

Will insurers bother?
For a year?
Why?
What incentives do they have?

Bonus Questions

Has anyone (on either side of the aisle) thought about how their alleged fix was going to work in real life?

What constitutional right does Obama have to unilaterally change the law of the land, even if it's "only" for a year?

An Answer and a New Question

It appears we have some answers. Even IF insurers want to extend their plans (which most won't for reasons stated by WSA), they may be unable due to time constraints, state regulations, or state mandates.

This raises another question: Shouldn't Obama or his team have known this?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

India Gold Premium Hits Record 21.6%

Posted: 14 Nov 2013 05:23 PM PST

With India's 10% gold import duty on top of other capital controls, the price one has to pay for gold in India has reached a record spread of 21.6% vs. what one has to pay in countries where there are no such controls or import duties.

My friend Nick at Sharelynx Gold pinged me earlier today with a chart that shows the premium one has to pay to buy gold in India.

click on chart for sharper image

If there was little demand for gold in India, the premium would be much smaller.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Scranton Unlikely to Make Required Pension Contribution; Mish Proposal: Offer the Union 35 Cents On the Dollar

Posted: 14 Nov 2013 12:12 PM PST

It is really disheartening to watch Scranton public officials make matters worse for city taxpayers.

I spoke about Scranton a couple days ago in Moody's Warns of Scranton Bankruptcy; Fitch Downgrades Chicago Citing Pension Problems; Liberal Fantasyland.

Here is a synopsis of the details.

Scranton has more than $195 million in outstanding debt, according to Moody's.
Scranton also faces more than $100 million in unfunded pension debt, on top of the $195 million in other debt owed.
Adding to Scranton's financial woes is the need to borrow another $28 million to pay a court-mandated settlement with the city's police and firefighter unions.

Unsolvable Mess

That is an unsolvable mess, except by shedding pension and other obligations in bankruptcy.

Meanwhile, the problem just got worse (how could it not), and city officials still do not see the light.

City Unlikely to Make Required Payment to Pension Fund

The Times-Tribue reports Scranton Unlikely to Make Required Payment to Pension Fund.

It's unlikely Scranton will make the required $6.3 million contribution to its pension plans by the end of the year, meaning city taxpayers will have to pay an additional $504,000 in interest into the composite pension fund.

The city has until Dec. 31 to make the payment, but its failure to secure a $27 million loan that's earmarked to pay that debt and a $21 million back-pay award to firefighters and police officers leaves little chance it can make good on the payment, Larry Durkin, solicitor for the city's composite pension board, told members Wednesday. The board represents the police, fire and non-uniform pension plans.

Mr. Durkin sent a letter to city officials on Tuesday, reminding them of the urgent nature of the matter.

"I know they are aware of this. I'm trying to convey to them this needs to be a priority payment. ... This has to be paid first" over other debts, he said.

Union Arrogance

Note the disgusting arrogance of union solicitor Larry Durkin who demands "pension debts be paid first". I suggest the first and foremost obligation of the city is health and safety of its citizens, not the union pension plan.

I am delighted the city was unable to borrow money to meet the obligation. Bond buyers stupid enough to buy Scranton bonds, deserve one hell of a haircut in bankruptcy court.

Head in the Sand Approach

My comment on Tuesday was "It is truly pathetic watching politicians flop like fish out of water trying to prevent something that was clearly inevitable long ago."

Union arrogance coupled with head-in-the-sand denial by city officials is seldom a good mix for taxpayers.

Board member John Hazzouri requested the city alter its mix of investments from a 60-40 mix of bonds and stock, to a 50-50 mix. "Mr. Hazzouri made the suggestion in hopes of increasing investment performance."

Fortunately, the city did not go along.

A Few Pertinent Facts

The market value of the portfolio is only $43.8 million
The fund returned 30% this year and the plan is still $100 million underfunded.
Stocks are in a bubble. Even if they weren't it's far too late to act because the crisis is now.

Concerns

Board members are concerned about a financial hit the fund will take based on the back pay award for police and firefighters. The award will affect the pension because retirees are entitled to a portion of all pay increases. The amount owed to retirees has not yet been calculated, but it is expected to be at least several million dollars, Mr. Durkin said.

Obvious Solution

The obvious solution is to tell Durkin "go to hell" (politely of course). The polite way is to file bankruptcy, then not pay another dime to the pension plan.

Then the city can sit down with the union, and work out a plan based on simple math.

Simple Math

Plan assets: $43.8 million
Plan liabilities: $143.8 million
Plan funding: 30.45%

Generous Offer

The city should offer the union 35 cents on the dollar. That would be a generous offer given the plan only has assets of 30.5 cents on the dollar. In fact, 35 cents on the dollar may be extremely generous depending on plan rate-of-return assumptions.

No doubt the city is worried bankruptcy would destroy its credit rating.

So what? The solution is for Scranton to live within its means and not spend more (or make more promises) than collections allow.

If the city does that, its credit rating would quickly improve.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Obama Changes His Mind (But Only For a Year); You Can Keep Your Plan IF Insurer Reinstates It; Democrats Revolt; Four Questions

Posted: 14 Nov 2013 10:17 AM PST

With pressure from Democrats, Obama has relented. He again says you can keep your plan. This time he really means it, but only for a year, and only if the insurer is willing to bring the plan back.

Politico has the details in Obamacare Fix: Keep Plans

President Barack Obama offered a proposal Thursday aimed at making it easier for Americans whose health insurance plans were slated to be cancelled at the end of the year keep the same coverage through 2014.

Obama's announcement is an attempt to head off a mounting push from moderate and red state Democrats who are threatening to attempt an end-around the White House on health care. It's also a response to the reaction to his repeated claims that people would be allowed to keep their current health care plans.

"I completely get how upsetting this can be for Americans … I hear you loud and clear," Obama said in the White House briefing room, before laying out his proposal, which allows insurers to "extend plans that would otherwise cancelled into 2014."

Facing a growing rebellion from members of his own party, Obama chose to put the onus back on insurance companies by encouraging them to reinstate plans that they had already told customers they planned to cancel heading into 2014.

Insurers can re-enroll only those whose plans were slated to be cancelled, and not take in new customers, as Rep. Fred Upton (R-Mich.) has proposed in a bill slated for a Friday floor vote.

Insurers, meanwhile, will be informed that they have the option of choosing to reach out to consumers whose plans have been cancelled and offer to provide them for an additional year. Risk pools would be adjusted to offset the change.

Sens. Mary Landrieu (D-La.) and Mark Udall (D-Colo.) have introduced bills that would allow people to keep their health plans if insurers cancel them — an attempt to codify a repeated vow of Obama's that "if you like your health care, you can keep it" under Obamacare.

The administration is also seeking to prevent a swell of Democratic defections when the House votes Friday on the Upton bill, which House Speaker John Boehner (R-Ohio) has acknowledged is a step toward repealing the ACA. "The only way to fully protect the American people is to scrap this law once and for all. There's no way to fix this," Boehner said just before Obama spoke, as details of the president's fix were widely reported. "I'm highly skeptical they can do this administratively."

Some Democrats indicated Thursday that they aren't on board with an administrative fix and are insisting that any changes must be done through legislation.

At a closed-door caucus meeting, Rep. Bill Pascrell (D-NJ) said he would support a GOP bill on the cancellations Friday.

"I am beginning to think members of the administration haven't read the bill," Pascrell said, according to a source in the room. "I am voting for Upton tomorrow." Rep. Mike Doyle (D-Penn.) expressed similar sentiments.

Democrats Revolt

The revolt, by Democrats, shows just how badly house speaker John Boehner blew it during the budget negotiations.

Common sense shows all Republicans had to do was sit back and wait for Democrats to bitch about Obamacare problems.

In the House, it will be interesting to see how many Democrats vote for the Upton provision allowing insurers to offer allegedly substandard programs to new customers.

And in the Senate, things look even worse for Obama. Sens. Mary Landrieu (D-La.) and Mark Udall (D-Colo.) introduced plans that would let people keep their plans even IF insurers cancel them.

My first set of questions are simple: How the hell is that going to work? Is government going to take over every existing plan that was dropped?

Still More Questions

While pondering the above questions, I have a few more to throw at you, this time assuming Obama gets his fix and "you can keep your plan" but only for a year, and only if the insurer reinstates it.

Will insurers bother?
For a year?
Why?
What incentives do they have?

Bonus Questions

Has anyone (on either side of the aisle) thought about how their alleged fix was going to work in real life?

What constitutional right does Obama have to unilaterally change the law of the land, even if it's "only" for a year?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

French Recovery Fizzles, Germany Slows; OECD Warns France on Reforms

Posted: 14 Nov 2013 12:45 AM PST

The Yahoo!Finance headline states French recovery fizzles, German growth slows.

I am wondering "what recovery was that?" Others might be wondering "since when does one quarter of growth constitutive a recovery?"

Those are reasonable questions, so let's take a look at details of the stalled "recovery".

The French economy contracted by 0.1 percent, snuffing out signs of revival from robust growth in the previous three months. It had been expected to post quarterly growth of 0.1 percent and has now shrunk in three of the last four quarters.

German growth slowed to 0.3 percent, from 0.7 in the second quarter, but Europe's largest economy clearly remains in much better shape. Its performance matched forecasts.

Spain reported last month that it had pulled clear of recession in the third quarter, albeit with quarterly growth of just 0.1 percent, putting an end to a recession stretching back to early 2011.

A senior Italian official told Reuters this week the euro zone's third largest economy probably contracted by 0.1 or 0.2 percent in Q3 but would return to growth in the last three months of the year, expanding by as much as 0.5 percent and ending nine quarters of slippage.

On Wednesday ECB chief economist Peter Praet raised the prospect of the bank starting outright asset purchases if things got too bad, although Bundesbank chief Jens Weidmann took the opposite tack, saying interest rates should not stay at record lows for too long.

OECD issues warning on French economy

To understand why the French economy is not going anywhere, just take a look at Hollande's policies. For further clues, please consider OECD issues warning on French economy.

France is lagging behind other European countries in reforming its economy and needs to take comprehensive steps to restore its competitiveness, a stark report from the OECD, the club of rich countries, has warned.

In one of the most wide-ranging critiques by an international institution of France's competitive weaknesses, the 87-page report sent a clear message to President François Hollande's Socialist government that it has not done enough to overhaul Europe's second-largest economy.

The report listed a catalogue of remaining structural problems that contributed to France's greater loss of global market share than that seen by other big economies since 2000.

It cited France's high minimum labour costs (80 per cent above the OECD average), high cost of public services (27.4 per cent of gross domestic product), heavy tax burden on employment (50 per cent of wage costs) and millefeuille of central and local government (including 36,700 municipalities) as among the factors holding back French competitiveness.

The report acknowledged the government's move to give companies a €20bn tax break to lower labour costs. But it said this only dealt with half of the gap between the "tax wedge" in France – the difference between labour costs to the employer and the employee's take-home pay – and the OECD average.

On pensions, the report said the government should consider "more ambitious measures focused on spending cuts". It specifically called for lower indexation of pensions, more rapid introduction of longer contribution periods and a higher statutory retirement age – all measures rejected by Mr Hollande in his pensions reform earlier this year.

The Financial Times says "the 87-page report sent a clear message to President François Hollande's Socialist government that it has not done enough to overhaul Europe's second-largest economy."

I suggest warning French socialists about needed economic reforms is about as useful as warning rocks about mosquitoes.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mish's Global Economic Trend Analysis

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