Monday, February 08, 2010

Did you get a 25% raise this year?

I'm paraphrasing the Timewarner vs. Fox ads to point out that propane prices have exploded here in Upstate NY again. According to NYSERDA propane prices have gone up 26% vs. the same time a year ago.

02/01/2010 $3.24 vs $2.57 last year up 26%!

Understanding the way most propane operators deliver their fuel expect them to be topping off all of their "at market" customers this week. Many customers don't feel this pinch because they lock in pricing for the winter during the summer. However, some people -- influential bloggers included -- chose to avoid a lock-in this year expecting propane and oil prices to remain depressed due to weak economic prospects.

The last time propane was in this range, oil was trading around $140/barrel. Today oil is trading at about $70 (propane is a by-product of crude oil refining and nat gas processing so the price of oil should be a major determinant in the price of propane). The cold weather is a factor but how can propane be roughly where it was when oil was twice as high (a similar question - when oil was $140 gas was $4.20 but today oil is $70 and gas is $3.00 - how does that math work? Shouldn't gas be about $2.10?).

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Speaking of raises - Anthem Blue Cross raises premiums up to 39% - this is for individual buyers of insurance, but if individuals are getting hit, I imagine it will only be a matter of time before the group insurance rates get slammed (especially as companies trim payrolls that means fewer participants so rates must increase).

"There aren't any other parts of our society where people have no regard for inflation rate and increase their prices this much. I can't imagine anything in the world that's going up 39 percent," said Josh Libresco, 54, of San Rafael, as he grappled with the news that his family premium will go from $858 per month to $1,192 - and that's with a $5,000 deductible."

Our health system is broken in the US and no one has the guts to fix it. We need

1) An honest discussion of end of life care - we need to give families alternatives for pain management and stop needlessly testing 85 year olds for possible hip replacement.

2) An honest discussion on health care coverage for lifestyle choices. If you chose to go to Elephant Buffet in Vegas for the $3.99 All you can eat breakfast every day you should pay a huge premium. If you smoke, you should pay a huge premium. If you drink excessively you should pay a huge premium. The days of living a life free of consequences are in the rear view mirror.

The health care "reform" being pushed isn't going to reform anything, in my opinion. We have about 10 years to fix health care and Social Security.

Social Security is an easy fix -
  • Anyone over 50 can retire at 65
  • 30-50 you can retire at 70
  • Under 30 you can retire at 72.
  • Done

Health care is a more difficult fix and honestly given the paralysis griping Washington, I'm not confident that we will fix it. Our government at all levels seems comfortable kicking the can down the road for someone else to deal with the problem (see Oregon below). However, this is how I'd fix the system.

A national tax (yes, I said the dreaded "T" word) on every citizen that pays for your national health card. If you'd like you can still pay for your own insurance, but that's up to you and it's going to cost your a fortune. Your annual tax would be based on a score given by a panel of doctors that review your chart - Is your BMI too high, you pay 35% more. Is your lung capacity impaired by smoking, you pay 50% more. Is your liver function impaired by all of those $5 eye openers you bought at Jeremy's Ale House, you pay 35% more.

We'd have to put 80-90% of the nations doctors on the government's payroll and pay them like doctors around the world - the premium US doctors receive is obscene. The remaining doctors can still work for the small percentage of the population that will pay a premium for premium treatment -- Four Season's Hospitals will pop-up.

This would likely be a self-funding program and it would ultimately control costs. After your first monster National Health Bill (deducted from your weekly paycheck like Social Security) you might decide to join a gym and stop smoking.

Again, this would NEVER happen because it smells of SOCIALISM and GOVERNMENT INTERFERENCE, but at least it's an idea. Right now the Democrats are trying to tweak a failing health care system and the Republicans are just acting like a stubborn 2 year old shouting "No! No! No!" to every proposal.

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Oregon decides the sun will come out tomorrow and the tooth fairy will help fund their pension plan through the sale of excess unicorns.

First a quick primer: Pensions are funded by contributions which are invested. The investments are assumed to have a certain return and that's how pensions determine what they can pay out. However, if stocks and bonds underperform there is large gap between what is owed to pension plan participants and what it is in the pension. See this story

"Under current rate-setting rules, public agencies and the taxpayers that support them face a 170 percent spike in biennial pension contributions starting in 2011 -- a collective $1.5 billion budget hit -- to start digging out of the pension fund's actuarial hole.

The market plunge lopped $17 billion off the value of the Oregon Public Employee Retirement Fund. Despite a strong recovery last year, the $51 billion fund still has a shortfall of approximately $14 billion, with 75 cents in assets for every $1 in liabilities."

The depressing reality in Mercer's models is how little the increased contributions under either the current or revised policy actually budge the system's funded status. Even if the pension fund's investments earn 8 percent annually for the next decade, the system's funded status only reaches the 80 percent level in 2019.

If that's the case, employers will face further rate increases in 2013 and 2015. "Even if market consistently deliver strong returns, we're moving to a higher level of contributions for the next decade," said PERS board chairman James Dalton, a former Tektronix executive. "It's going to take a long time to recover. It's a different environment."

If, on the other hand, returns are closer to the system's average over the last 10 years -- 4.5 percent -- the actuarial deficit will grow precipitously.

I've seen this coming for years. Public pensions overestimate what they will earn through their investments and then differ the hard choice - either tell pension plan participants that their payout is going down or tell taxpayers that their contribution is going up. Oregon chose the "kick the can" strategy by delaying any pain and crossing their fingers for brighter days.

Crazy.

2 comments:

Anonymous said...

Regarding Social security, your proposed fixes are only part of the solution. Two additional fixes:

1. Remove the cap on income, i.e. the tax is paid on your entire income and not stopped after you reach $97,500 dollars. As it stands currently it's another give away to the wealthy.

2. Raise the tax rate by .5. or 1% for both the employer and employee.

The Artful Blogger said...

Removing the cap on income is a good idea that is an easy fix.

Unfortunately, the # of people making over $97,500 seems to be tumbling at a pretty good clip (see the story about 10% of prime jumbo loans behind on their payments).

Thanks for the feedback.