Moneybox
A blog about business and economics.

March 8 2017 4:03 PM

Why Huge Chunks of the Health Care Industry Hate Ryancare

Business may like House Speaker Paul Ryan’s health care overhaul proposal—the Chamber of Commerce enthusiastically endorsed it after House Republicans unveiled it on Monday. But not the health care business. The American Hospital Association was first out of the gate to announce its opposition to the widely criticized plan, followed quickly by the main physicians trade group, the American Medical Association.

Businesses believe the plan could help relieve them of costs. Health care businesses, however, believe it will relieve them of customers, and therefore revenues. Which shows that Ryan, the earnest faux-wonk who claims to have a great understanding of the private sector, has very little clue about what has happened in the health care economy over the past several years.

Simply put, the U.S. economy is more leveraged to health care than it ever has been. Health care accounts for greater absolute and relative levels of economic activity. That’s in part because the baby boomers are getting older and because there’s inflation in health care. But it’s also because the Affordable Care Act vastly increased the number of people who have health insurance coverage, boosting the number of people accessing in-patient services, prescription drugs, and medical devices. In 2015, health care spending stood up at $3.2 trillion, up 5.8 percent from the year before, according to the Centers for Medicare and Medicaid Services. Health care spending accounted for 17.8 percent of the U.S. economy, up from 15.5 percent in 2005. In January, health care accounted for 15.6 million jobs, up from 13.6 million in January 2010. Health care employs more people than the manufacturing industry that the Trump administration hopes to revivify, and almost as many as retail trade. In Birmingham, Alabama, as is typical in many cities, 4 of the top 10 employers are health care operations.

And this larger health care industry is, in turn, highly leveraged to the Affordable Care Act. With its incentives, mandates, carrots, sticks, and investment, the ACA reshaped the health care industry, channeled money in certain directions and provided signals for the industry to invest where demand would rise. Everyone had to redo their financial models—for good or ill—based on the impacts. Hospitals could, for example, presume lower levels of charitable care that had to be written off. Venture capitalists plowed $400 million into Josh Kushner’s insurance startup Oscar, which sells policies on the ACA exchanges. MedStar Health, to cite one example, “poured millions into creating an extensive ambulatory care network across the region—most recently opening a major one-stop health shop in downtown D.C.” Hospitals have borrowed billions of dollars in bonds and constructed new facilities designed to capture ACA-related business. With Medicaid expanding significantly in Kentucky, clinics expanded their capacity to treat people suffering from substance abuse; the number of Bluegrass State Medicaid recipients seeking such services has risen 740 percent.

Sure, everyone in the health care value chain—insurers, doctors, device-makers—complains about regulation and reimbursements. That’s just how they roll. They still know that the repeal of the ACA would leave them high and dry. And they know that a huge amount of investment and debt now rests on the edifice they’ve built in the past seven years.

In drumming up support for the ACA, the Obama administration and congressional Democrats essentially bought off different sectors of the health care industry—or, if you prefer, engaged in interest-group politics. They convinced businesses to sign onto legislation by providing them with incentives and asking them to make some sacrifices. Insurers were promised more customers buying their products with subsidized funds; hospitals were promised cash to fund innovation and fewer patients showing up uninsured in emergency rooms; doctors were offered the prospect of more patients needing more treatment and procedures through the expansion of Medicaid.

As Paul Ryan and company put together their new plan, they offered sweeteners to one sector of the health care industry and told the rest of the value chain to stuff it. The plan contains plenty of sops for the insurance industry—people will be penalized for not buying plans, tax credits will subsidize the purchase of policies, and they’ll be able to charge more and be required to provide less. Which explains why insurers have been essentially mute about the proposal.

But for the other sectors of the business—doctors and hospitals, pharmaceuticals and medical technology companies—the plan effectively offers nothing. In fact, it offers less than nothing. Curtailing Medicaid and causing millions of people to lose or forgo insurance is a recipe for reducing consumption of health care services. Far from improving their margins, as the plan might do for insurance companies, it will make it harder to run many health care businesses. Imagine trying to pay off the bonds that supported construction of a new hospital if hundreds of thousands of people in your service area lose insurance. Imagine trying to pay the salary of a primary care physician in Kentucky if Medicaid is diminished.

Businesses, we are told, crave certainty. The intent of the GOP’s plan, as currently constructed, is to inject a huge amount of uncertainty into the industry. It’s not surprising key sectors of it are getting very, very cranky.

March 8 2017 1:33 PM

An Important Insurer Says Paul Ryan’s Health Care Plan Fails at Its Only Goal: Making Coverage Cheaper

Aside from cutting taxes on the wealthy and choking off Medicaid, House Speaker Paul Ryan's health care plan pretty much had one job: make insurance cheaper. It wasn't supposed to expand coverage. It wasn't really supposed to add any new protections for consumers. It was just supposed to make it possible for insurers to sell bare-bones plans with lower premiums, which in turn might let Washington spend less money subsidizing coverage.

According to at least one important insurer, Ryancare, which is currently struggling to get traction in Congress, would fail miserably at that task. J. Mario Molina, CEO of Molina Healthcare Inc., told the Wall Street Journal that he believed the American Health Care Act “could help push individual-plan premiums up by 30% or more next year.”

How come? Because, as I wrote at length Tuesday, the legislation would almost certainly make it even easier for people to wait until they were sick to buy health insurance, which would be a disaster for insurers and the market. Ryancare would keep rules in place that force carriers to enroll people with pre-existing conditions. But it would junk the individual mandate that requires Americans to buy insurance, replacing it with a weak rule that says insurers can charge new customers 30 percent extra for a year if they have a gap in their coverage history. It's a fairly toothless rule that, if anything, may turn out to be counterproductive, since the surcharge could convince some young people to stay uninsured until they absolutely needed care. It almost certainly won't encourage enough healthy Americans to buy coverage to create a healthy insurance market.

Instead, the Republicans are proposing a recipe for chaos. Here's How Molina described things to the WSJ:

[He] believes that defanging the coverage mandate could help push individual-plan premiums up by 30% or more next year—and they could rise considerably more in the future, when the reduced federal assistance for low-income enrollees kicks in. That shift, he estimated, could shrink enrollment in ACA plans by three-quarters or more, leaving a smaller, less-healthy group of consumers.
“You’re going to see big rate increases, and you’re going to see insurers exit markets…this is going to destabilize the marketplace,” he said. Dr. Molina added that the proposal’s help for insurers, including the penalty for consumers who have gaps in their coverage, wasn’t enough to offset the negatives. Molina has said it is reconsidering its ACA marketplace offerings.

Molina isn't the only insurance executive sending warning signals in the WSJ's piece, but he's an interesting source. His company was one of the few carriers to make a profit on Obamacare's exchanges during their early rollout. However, it lost money on them in 2016 thanks to the health law's “risk adjustment” scheme—which forces companies that sign up a lot of healthy, profitable customers to pay into a fund that helps cover the costs of insurers that enroll too many sick individuals. He would like to see the ACA tweaked (preferrably in a way that would benefit his company) but thinks it's fundamentally sound.

So you could argue that Molina's warnings are just hyperbole from a CEO that's worried about losing his meal ticket. Or you could say they're the insights of a guy who has a pretty keen sense of how these markets actually work. I tend to think it's the latter, which suggests Republicans have produced legislation that would fail in its only ostensible policy goal.

You had one job, Paul. One job.

March 8 2017 1:22 PM

Nation’s Second-Largest City Makes Sound Decision to Build More Buildings

Measure S, the deceptive Los Angeles ballot initiative that purported to lower rents by stopping housing construction, was soundly defeated on Tuesday by L.A. city voters, 69-31.

As I wrote yesterday, Measure S was a radical proposal—opposed by both business and labor groups, and by both the city's Democrat and Republican establishments, it should never have had a chance. But in a low turnout March election (final turnout was just over 11 percent), the measure had the city on edge. The AIDS Healthcare Foundation, the primary sponsor (the rumor is that its chief, Michael Weinstein, is upset about a big project obstructing the view from his office), spent over $5 million on it; opponents spent over $8 million.

In the end, it failed by an overwhelming margin, garnering only 70,000 votes in a city of almost 4 million people. It's a reassuring sign. The political problem with development is that while its costs are targeted—the man whose views are blocked, the woman who loses her parking spot—the benefits (pace developers) of expanding the housing supply are diffuse. The natural constituency for new housing in Los Angeles is the people who don't have housing in Los Angeles. They can't vote. A secondary constituency is people who pay high rents to live in the city's small supply of apartments. They draw only a tiny, marginal gain from each new project.

It's hard to read too much into an election in which hardly anyone voted. But regardless of how the populace really feels about Los Angeles growing up, the resounding defeat of Measure S does make it possible for the city to continue its evolution into a different kind of place.

March 7 2017 4:42 PM

The Republican Health Care Plan Isn’t Good for Much, Except Cutting Rich Folks’ Taxes

Pretty much everybody, from the wonky left to the wonky right, seems to agree that the Obamacare replacement that House Republicans rolled out on Monday is utterly useless as a piece of health policy—a worst-of-all-possible-worlds mashup of ideas that would destabilize the insurance markets and leave millions without coverage.

But there’s one thing that this legislation does beautifully: It would cut the sweet living heck out of rich people's taxes.

As part of their crusade to free Americans from the tyranny of a market-based, subsidized health care program, Republicans are planning to eliminate most of the levies that were used to pay for the Affordable Care Act and delay the Cadillac tax on expensive health plans until 2025. The total cost of their plan: $594 billion over 10 years, according to the Congressional Joint Committee on Taxation's estimates (collected here by the Committee for a Responsible Federal Budget).

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Nearly half of that expense would be due to the termination of just two taxes that primarily target upper-income households. Republicans would nix the 3.8 percent surtax on capital gains for high earners, at a cost of $158 billion over a decade. About 90 percent of that windfall would go to the top 1 percent of taxpayers, according to the Tax Policy Center. Meanwhile, the GOP would also kill off the 0.9 percent Medicare surtax, which only applies to couples making at least $250,000 a year. That's worth $117 billion.

So how are Republicans planning to pay for their rump of a health care law, you ask? The Congressional Budget Office hasn't scored the bills yet, but there's the Cadillac tax, for starters. Aside from that, it mostly looks like cuts to Medicaid carry the burden. Because as St. Paul once wrote, the only true way to be fiscally responsible is to yank health coverage from the poor. God bless.

March 7 2017 2:06 PM

The Republican Health Care Plan Is Kind of Like Obamacare, but Stingier and More Dysfunctional

Republicans have argued for months—for years, even!—that the Affordable Care Act is a disaster that must be repealed immediately to save the health insurance markets from imminent collapse. House Speaker Paul Ryan has been a particularly eager prophet of doom, suggesting on many recent occasions that the law's insurance exchanges were in the middle of a death spiral. "We are on a rescue mission to prevent Obamacare from making things even worse," he said in January.

On Monday, after stalling for six or so years, Ryan and the House GOP finally released their official plan to replace the ACA. In a lot of ways, it feels like the punchline to a slow-boiling joke. When it comes to the individual market, the legislation looks an awful lot like Obamacare, but with stingier benefits and weaker incentives that could exacerbate the very problems that Republicans claim they are trying to fix. It’s as if they're trying to repair a flat tire by stabbing it with jackknife.

Obamacare has often been described as a three-legged stool. First, it bars insurance companies from discriminating against patients with pre-existing conditions—meaning carriers can't reject customers or charge them extra just because they have melanoma or a weird allergy history. While these rules are extremely popular, they would be a disaster on their own. Americans would just wait until they were sick to buy a health plan, and insurers would bleed money, a problem known as adverse selection. That's why the ACA's architects created the individual mandate—leg two—which requires adults to purchase coverage every year or pay a tax penalty. That way, in theory, young people can't just opportunistically buy coverage when they need it, and the healthy help pay for the sick. Finally, the law also provides subsidies that help lower-income families pay their premiums, putting the affordable in the "Affordable Care Act."

So far, Obamacare's three legs have been a little wobbly. The biggest weak point has always been that, in spite of the mandate, insurers haven't been able to attract enough youngish, healthy customers to make up for the number of older, iller patients they are required to cover by law. As a result, many companies have retreated from the individual insurance markets created by the ACA after losing a great deal of money insuring a sicker customer base than they expected. There are nearly 1,000 U.S. counties with just one insurer offering coverage now, up from 182 in 2016. The losses have also led companies to hike premiums and deductibles, a constant source of frustration among voters, many of whom feel like they're paying for insurance they can't use. Ryan, for his part, has suggested that the entire Affordable Care Act may be facing an adverse-selection death spiral, where rising premiums driven by sick patients eventually cause the whole market to shrink and crumble. That may or may not actually be happening—if anything, it may have been hastened by the uncertainty created by Donald Trump's presidential win and his saber-rattling about Obamacare repeal—but it's one of the main arguments for repeal.

So how are Ryan & co. planning to rescue the markets, which they believe are facing imminent peril? By making it easier for Americans to opt out of buying insurance, of course. The Republican replacement plan would still protect patients with pre-existing conditions from discrimination. But it wouldn't force healthy Americans to buy coverage in order to subsidize the sick, à la the individual mandate. Instead, it includes a sort of half-baked “continuous coverage” rule. If Americans go more than 63 days without a health plan, the next time they sign up during open enrollment their insurer will be allowed to charge them 30 percent extra for one year. After that, they'll be charged the same as everybody else in their age and market.

In the grand scheme of carrots and sticks, that's basically a twig. Young, healthy people who weren't spurred on to buy insurance by the individual mandate almost certainly aren't going to be herded into the market by the threat of paying a somewhat higher premium down the line. If anything, knowing that they'll face a surcharge might encourage them to hold off until the last minute.

“The late enrollment penalty may encourage relatively healthy but older or slightly higher risk folks to sign up,” Caroline Pearson, senior vice president of policy and strategy at health consultant Avalere, told me in an email.* “Basically, people who don’t have immediate health needs but do periodically consume health care services will be more likely to maintain continuous coverage. However, young and healthy individuals who very rarely see a doctor may continue to sit out of the market, even for minor health needs. They would probably wait until they had a serious health care need and then sign up for coverage and pay the penalty.”

The GOP's legislation does include a vague backup plan in the form of “market stabilization grants,” which are meant to help states cover the cost of insuring particularly high-cost patients. But it's not clear how much good that would do if young people simply stay on the sidelines as sick patients sign up for coverage. “I think there’s a real risk that this produces a less stable individual insurance market than the ACA,” Kasier Family Foundation senior vice president Larry Levitt told me in an email.

This all seems even more bizarre when you consider that the Republican plan would wind up cutting insurance subsidies to many young adults, possibly giving them even more reason not to buy coverage. That's because instead of targeting financial help at lower-income households who need the most assistance, as Obamacare does, the GOP legislation offers tax credits to help buy coverage that are only based on age, at least until they start phasing out for individuals that make $75,000 or more a year. Americans younger than 30 would be eligible for a $2,000 credit, significantly less than what many poorer twentysomethings qualify for now.

Republicans might argue that, by eliminating and loosening Obamacare's various insurance market regulations, their bill will push the cost of insurance so low that young people will be able to buy coverage for nothing but the cost of the tax credit. But it's far from clear that legislation would actually succeed at that goal. Even if it did, it wouldn't entirely solve the problem of adverse selection. Insurers would instead be encouraged to offer cheap and profitable catastrophic coverage aimed at the young rather than more substantial health plans favored by the old and sick.

The odd thing here is that Republicans are very much aware of just how important the individual mandate is to making the pre-existing conditions rules work. After all, they spent years attacking it through lawsuits in order to fatally undermine Obamacare, until Supreme Court Justice John Roberts shut them down. So why would they balance their own health reform effort on this bizarre, watered-down version?

There are really two answers. The first is politics. The public likes the ACA's pre-existing conditions rules. Town halls have filled up with voters testifying about how the regulations saved their lives, and lawmakers don't want to be blamed for kicking cancer patients to the curb. At the same time, the public deeply dislikes the individual mandate, which conservatives have spent years arguing is an assault on basic American liberties. And so the GOP has little choice but to do something, no matter how ill-conceived that something might be.

Republicans' hands are also tied thanks to the arcane procedural rules of the Senate. The party only controls 52 seats in the chamber, not enough to pass legislation over a Democratic filibuster. To skirt that roadblock, Republicans are planning to use a special process known as reconciliation, which can only be used to deal with budget matters. Unfortunately for them, that means they can't amend regulations, like the protections for pre-existing conditions, even if they wanted to. It's also unclear whether the continuous-coverage rule they've proposed would pass muster, but they may just be desperate.

Republicans have backed themselves into a political corner where they are trying to keep the parts of Obamacare everybody likes while jettisoning the nasty but necessary parts responsible for making the popular pieces work as well as they do. There's a good chance the end result will resemble the kind of chaos we've seen in Obamacare's least successful markets.

The GOP says it’s on a rescue mission. Republicans may end up shooting the wounded instead.

*Correction, March 7, 2017: This post originally misspelled Caroline Pearson’s last name.

March 7 2017 1:16 PM

Will Los Angeles Vote to Raise Rents on Tuesday?

Last month, the owners of PSSST, a nonprofit art space in the East Los Angeles neighborhood of Boyle Heights, announced they would close their space in the face of “constant attacks” and “persistent targeting,” both online and in person, from anti-gentrification activists.

A pair of neighborhood groups, Defend Boyle Heights and the Boyle Heights Alliance Against Artwashing and Displacement, celebrated the shutdown. It was a victory in a long campaign waged by tenants groups in the predominantly Latino, working-class neighborhood against art galleries, which they see as the “shock troops of gentrification.” More broadly, it was a sign of just how high tensions over housing run in Los Angeles, which has by some measures the worst affordable housing crisis in the country.

On Tuesday, Angelenos vote on Measure S, which may be the most significant anti-development measure since voters opted in 1986 to freeze new building on the city’s low-slung, transit-rich commercial corridors. If it passes, the measure—also known as the Neighborhood Integrity Initiative—would essentially outlaw large, new developments in Los Angeles for two years, halting the city's evolution in its tracks.

March 2 2017 6:37 PM

The Republican Health Care Plan Is Especially Terrible for Trump Voters

The Republican plan to replace Obamacare is still very much a work in progress. But when an early draft of the legislation leaked to the press last week, it was immediately obvious that the blueprint conservatives had in mind would deal a blow to needy families, not just by cutting their aid, but by changing how the government doles out insurance subsidies.

Under the Affordable Care Act, Washington helps households pay their health premiums with tax credits that are more generous for lower-income households. The Republican plan would take a different approach by offering tax credits that simply rise in value with age, ranging from $2,000 for a twentysomething to $4,000 for those over 60.

It doesn't take a lot of calculation to figure out that many youngish, lower-middle-class Americans would lose out in that bargain. But thankfully, someone has done the math for us anyway. According to an analysis this week from the Kaiser Family Foundation, a 27-year-old earning $20,000 would lose $1,225 worth of premium subsidies. A 40-year-old making the same would forgo about $1,100, while a 60-year-old would be out $6,000. (Obamacare's premiums aren't technically based on age, but because they cap premiums as a percentage of income, they're more valuable for people who'd otherwise pay a lot for coverage, like the old.) None of this even includes the lost value of Obamacare's cost-sharing reductions, which limit out-of-pocket costs for lower-earning enrollees.

kff_graph1

As the graph shows, there are winners here, too. While Obamacare's subsidies are only available to Americans who make less than 400 percent of the poverty line, the Republican subsidies would be available to everybody in the individual market. So young and middle-age enrollees who get no or small subsidies today might end up getting more generous tax credits than they currently would.

That doesn't necessarily mean the Republican plan would be a better deal for them overall. That depends on what happens to their premiums and out-of-pocket costs—and gaming out how those changes might balance is a bit complicated. By reducing the number of services insurers will be required to cover, the Republican plan would likely bring down premiums for people who want more bare-bones coverage, but they could end up on the hook should they ever get sick. People with pre-existing conditions would also be subject to continuous coverage rules, or be forced to pay a penalty. Meanwhile, the GOP plan would kill the rules that currently limit how much more insurers can charge older customers than younger ones, meaning that premiums could shoot up especially high for the elderly.

To add just one more wrinkle to all this, Obamacare also adjusts its subsidies based on the local cost of insurance, which tends to be more expensive in low-population areas than in cities. The GOP plan wouldn't do that, meaning that people in rural Alabama are going to be hit a lot harder than, say, aspiring actors living in Los Angeles.

Take it altogether, and a sort of ironic picture unfolds. “The typical person who is going to lose the most in this scenario is a lower-income person in their 60s who lives in a rural area, where the person who gains is the affluent millennial urbanite,” Cynthia Cox, an analyst at the Kaiser Family Foundation, told me. In other words, the Republican plan doesn't just screw the poor. It screws Trump voters in particular, while giving a hand to a lot of young people who probably voted for Hillary. Go figure.

March 2 2017 3:15 PM

Snap Is Public. Will It Ever Be Profitable?

Snap Inc., the parent company behind Snapchat, went public Thursday. The shares were priced at $17 and got a nice pop, starting trading at about $24, giving it a market capitalization of $33 billion. Which is an impressive start (Facebook was worth $100 billion when it went public).

This could be the beginning of an epic stretch of value creation or the beginning of an epoch of disappointment. Sentiment is split. As investors clamored to get in, Pivotal Research Group slapped an “early sell” rating on the stock, saying it’s only worth $10.

The Snap IPO may not have a full-on fin de siècle feeling to it, but it definitely gives off a late-cycle aura. Part of it has to do with the late baroque, mannered stage of its contempt for public shareholders. The cheeky assertion that it’s a camera company. (Um, no. It’s a company that, for now, sells ads against text and video. Last month, I labeled Snap the Donald Trump of IPOs for its aggressive flouting of norms and shirking of accountability. Snap doesn’t make a profit, isn’t sure when it will, and the shares it sold Thursday don’t carry any voting power. Its CEO is emperor for life—and then some.

The inevitable pop culture response also indicates a certain toppiness. The good folks on CNBC posed Thursday morning in Snap spectacles—a product I’m pretty sure they don’t and won’t use and that nobody who watches the channel ever will. Then there’s Joel Stein’s cover story on Time, out (online) Thursday morning. I’ve long held it as an article of faith that when a business or economic phenomenon appears on the cover of a mass-circulation newsweekly, then it’s officially the top. (Unless I penned the story in question.)

Stein’s thesis is worth considering: Snap is an incredibly valuable phenomenon because it is the vehicle through which millions of people define themselves and is hence integral to the identities of its users.  The commercial possibilities inherent in such a product are endless. That’s undoubtedly true. I see it in my own household.

But these are teenagers and adolescents we’re talking about here. This is a demographic that has been known to change its mind—just as they start spending real money and becoming more desirable to advertisers. (The Disney Channel alumni network is littered with a long list of people who were beloved by a teen audience but never made the leap to appreciation from a more mature audience. Remember Drake and Josh, or Miranda Cosgrove?) It’s entirely possible that, as they age and go to college and get jobs and have real human relationships and children of their own, today’s power Snap users may ultimately decide to stop spending their free time taking selfies and writing texts on them. Or they might switch to a more compelling, easier-to-use platform. (Hello, MySpace!)

Yes, yes, I know fuddy-duddies expressed skepticism about the high valuations accorded Google and Facebook on their first days of trading. And they were wrong. That’s because both companies matured and grew greatly as public companies—both in their reach and their ability to turn profits. Soon after its IPO, Facebook embarked on a pivot largely unparalleled in modern media history—from having essentially no mobile advertising to becoming a dominant player in the field in a remarkably short period of time.

Not every really popular social media platform can pull off such a transition at speed. Some platforms simply aren’t as sticky, or conducive to advertising and storytelling as people think. And not every platform can continue to put up impressive user growth numbers. In its most recent quarter, for example, Twitter reported that both revenue and user growth were largely flat.

In 2016, Snap’s expenses were more than twice its revenues. The company certainly has more room to grow. But in some respects, it resembles Twitter more closely than it does Facebook. Snap’s revenue grew 29 percent sequentially in the fourth quarter of 2016. That’s great for a company that just started to monetize. But it needs a higher rate of growth on its increasingly higher base if it hopes to make a profit.

The ultimate test of whether you are a lasting cultural phenomenon isn’t whether you get a Time cover, or if people on TV wear your silly glasses. For apps, website, and media companies, the test is whether increasingly large numbers of people use the product—and if the money follows. We know the potential user base for an app these days is 7.5 billion. Facebook has an astonishing 1.2 billion daily active users, and that number keeps growing significantly off this very high base.

But Snap’s Daily Active User base is far smaller than Facebook’s (and even Twitter’s). And in an ominous sign, it’s already showing signs of running into a Twitter-esque plateau. Snap went from zero users in 2011 to 147 million users in the second quarter of 2016. Remarkable. But in the third quarter of 2016, the number of daily active users had crept up to just 153 million, an increase of 6 million, or 4 percent. In the fourth quarter of 2016, a quarter Snap says is typically characterized by higher levels of activity, it added only 5 million daily active users, an increase of 3.3 percent. That’s perilously close to flatlining.

March 1 2017 2:27 PM

Republicans Are Trying to Build a Welfare State That Sucks for Everyone but Mutual Fund Managers

If Republicans get their the way, the future of the American welfare state might start to look a lot like your retirement account. As in your 401(k)—that lovely, tax-advantaged savings vehicle that you always feel vaguely guilty for not diverting enough money into each year.

Consider the matter of health care. The GOP's various factions still fiercely disagree about how to repeal and replace Obamacare. But they do share a unanimous desire to greatly expand the use of health savings accounts, which let people put away, invest, and spend money to cover their medical costs tax free.

Donald (or Ivanka) Trump's child care proposal also leans heavily on private savings by creating a new tax-free “dependent care savings account.” It would work a lot like an HSA, except families would be able to use it on things like day care, after-school expenses, or even college tuition, and the government would match some deposits from low-income families.

Of course, Americans already have an alpha-numeric soup of private savings accounts to sort through. There are 529 college plans. There are Flexible Spending Accounts, or FSAs, for medical expenses, which everybody already confuses with HSAs. Aside from 401(k)s, there are IRAs and Roth IRAs to consider. It's as if the entire conservative hive mind is made up of people who get amped about selecting the right retirement target-date fund.

But building a welfare state around these sorts of accounts would also have some profound consequences. To list just a few, it would leave lower-income working families to fend for themselves while gratuitously funneling money to the financial services industry and eroding our tax base.

Let's start with who benefits from these things. Savings accounts aren't particularly useful unless you have money to save, which is why tax-preferenced vehicles tend to be most helpful for relatively wealthier households. According to the left-wing Economic Policy Institute, the median family aged 32 to 61 had just $5,000 in a retirement account as of 2013; at the 90th percentile, families had $274,000. College savings accounts have offered grossly unequal benefits as well: Among Americans on the bottom half of the income distribution, only 0.3 percent of families had a 529 in 2013, and the average balance was just $3,800, according to the Federal Reserve. Among the highest earning 5 percent of families, 16 percent had an account, and the average balance was $152,000. HSAs have also tended to work out best for high-income employees, as Ron Liebman wrote at the New York Times last week.

As these accounts multiply, they also create competing priorities. Do you save for retirement in a 401(k), or put money into a 529 for your child's education? Do you add to your HSA, just in case illness strikes, or put cash in your Ivankacare child savings account? If you're wealthy enough, it might not be a question—just max out your contributions to one account, then start adding to another. But if your family takes home $45,000 a year, you have to choose among these concerns.

Some people might snark that making those sorts of decisions is just what it means to be an adult. But in the end, all of us are just guessing when it comes to our future financial needs, and life tends to make a mockery of our carefully laid plans—even when they're crafted with the sage advice of a high-priced financial adviser. Asking people to look at a crystal ball and pick between health care and college savings is sort of inherently absurd.

That brings us to another classic problem associated with these accounts: They shift the risk of something going wrong from society onto the individual. Conservatives, who love to preach the gospel of personal responsibility, may see this as a feature, rather than a bug. But there's not much you can personally do if the stock market crashes after you retire or the year your child heads to college.

These failures might be acceptable if private savings accounts delivered on their policy promises. But they don't. The rise of 401(k)s hasn't made us into a nation of attentive savers; instead, we're heading for a retirement crisis as just 32 percent of Americans are putting money into workplace retirement accounts. Health savings accounts are supposed to bring market forces to bear on medicine, by encouraging people to shop around before paying out of pocket for basic services and doctors' visits, while relying on high deductible insurance plans for truly catastrophic events. But that doesn't seem to happen. Instead, recent research has shown that employees who use an HSA and high-deductible coverage combo just skip care altogether to avoid spending money.

So who does win out from the proliferation of private accounts? Fidelity Investments and Charles Schwab, for one. A major selling point of these tax-free vehicles is that families can invest the money in them in stocks or bonds and let the returns compound. Of course, that means more cash pouring into the pockets of mutual fund managers and financial advisers who stand ready to help poor, befuddled families figure out how to sort out and prioritize their jumble of accounts. Conveniently, the Trump administration appears to be ready to gut the Department of Labor's fiduciary rule, which required retirement advisers to act in their clients' own best financial interests, rather than direct them into products that earn the advisers higher commissions.

One might almost say that Republicans are trying to rewrite the social contract in such a way as to maximize the profits of the financial services industry.

Emphasizing private accounts could also set the stage for major changes to the tax code. Many conservatives would love nothing more than to end taxes on capital gains. But doing so is hard, since cutting taxes on wealthy stock and bond investors isn't politically popular, and because it would cost the government a lot of money. Shifting more stocks and bonds into tax-advantaged savings accounts would remove them from the tax base, reducing the government's revenue capital gains, and making it cheaper to finally kill off taxes on investments altogether one day down the line. To be clear, I have no idea whether any conservatives have actually gamed this process out that far, but it seems like an obvious long-term strategy. You whittle down the tax until it's small enough to drown it in a reconciliation bill.

Tax-preferenced savings accounts haven't always been a conservative pet project. In the past, they've been a fondly regarded object of bipartisan consensus, the sort of thing that Bill Clinton used to champion. But at a moment, it seems to be the GOP carrying the torch forward, since the idea fits more neatly into an ideology where individuals should all bear their own risks, and high earners should pay the least amount in taxes. Unless you happen to be a mutual fund manager, it's a pretty ugly vision of the future. After all, a welfare state that doesn't help people who have trouble saving or pick them up when disaster strikes isn't a welfare state at all.

March 1 2017 12:13 AM

The Heartless Cruelty of Donald Trump’s Continued Promises to Coal Miners

President Donald Trump did not say anything particularly new or novel about his economic agenda during Tuesday evening’s not-a–State of the Union address to Congress. He did, however, offer the clearest, most succinct version of his basic promise to voters throughout the country’s hollowed-out industrial towns. Under his leadership, he said, “Dying industries will come roaring back to life.” Period.

This is the distilled essence of Trump’s whole economic message. The dead shall rise again. Sheets of American steel will roll like they did when the Bee Gees were on the radio. Coal will be pulled from the ground and burned for power. Americans will drive cars full of parts made north of the Rio Grande. Somehow, all of this will be accomplished through great new trade deals.

This promise has always been cruelly hollow. Some old-line heavy industries may see small bumps thanks to Trump’s policies, but the jobs they once provided are not coming back. Insofar as the president’s supporters have really pinned their hopes for a revival on his flimsy pledges, they are about to be utterly let down. Consider coal, which Trump has said he will resuscitate by ending Obama-era environmental regulations. That plan is bound to fail, since coal is dying largely thanks to market competition from cheap natural gas. Given that Trump has also promised to expand fracking, his administration may end up exacerbating coal’s problem. Even Senate Majority Leader Mitch McConnell, who has pedaled the “war on coal” narrative for years, has finally started to admit that easing environmental rules might not fill the mines back up with workers.

In a world where even China has managed to reduce its coal use three years in a row, nothing is going to bring Appalachian mines “roaring back to life.”

I don’t know whether Trump secretly realizes that. Maybe he believes his own rhetoric about economic renewal. Or maybe he really is heartless enough to con vast stretches of coal country and the Rust Belt with empty schtick, like a classroom full of Trump University students. (This certainly is the go-to assumption on the left.)

My question is about what happens when those voters realize Trump’s promises aren’t coming true, when three years from now the mills are still closed and the mines are still shuttered. Will voters give him credit for merely trying to help by weakening environmental regs and taking a slightly tougher stance on trade? Has he won their loyalty by speaking their language? Or will people hold him accountable for results? I don’t know the answer to those questions—but in a lot of ways, our country’s political future depends on them.

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