Monday, October 28, 2013

Why Obamacare won't work

The whole premise of Obamacare is that it will get healthy young people to pay more than they should for health insurance to subsidize the medical care of older, sicker people. That goal is falling apart before our eyes. Apparently, young people, even those who voted for the idealistic mirage of Obama, are not willing to roll over and be the victim of his redistributionist utopia.

Headlines are dominated by stories of the ongoing disaster of the mismanaged web site development and weekly reports of hundreds of thousands more people dropped from their existing coverage due to Obamacare. But behind that, the fundamental infrastructure of Obamacare is failing to materialize. The bill, drafted in secret, rushed through Congress, and passed in spite of the author's acknowledgement that it was not written correctly, is still full of defects. But those defects only exacerbate the fact that the concept behind the bill was fatally flawed from the beginning.

The law does not require states to establish an exchange. It was assumed that states would be eager to set up an exchange, but clearly they were mistaken. Even rats know to jump off a sinking ship, not onto it. The subsidies, which are a key part of the redistribution effort, can only be distributed through state exchanges. States which don't have an exchange can not, according to the law, get those subsidies. The Obama administration is trying to find a way to give the subsidies to the 26 states sensible enough to not establish an exchange, but it is not clear that there is a legal way to do it.

But more devastating than that is the fact that young, healthy people are not eager to self-destruct for the greater good. How quickly that idealism fades when you recognize that you are expected to pay for it all.

To understand how the new law is working, lets examine the case of Joe. Joe is 26, single, and self-employed. He doesn't make a whole bunch of money, but he is doing alright, earning around $50,000. Joe bought his own individual medical insurance, a low cost catastrophic policy intended to protect him in case he got really sick.

Last week, Joe was one of several million people who got a letter from his insurance carrier indicating that his policy is being cancelled. It doesn't meet the requirements of Obamacare insurance. He can buy a different policy, or go to and buy insurance there.

Joe compares his options, and is surprised to find that the cheapest policy he can get costs almost twice what he was paying last year. And that policy still comes with a $6,000 deductible. Sure, it will pay for his yearly checkup, but he paid that last year out of pocket. It was $150, which is nothing compared to the increase in his monthly premiums.

Joe realizes that he would have to run up more than ten thousand dollars of medical bills before this insurance would be advantageous to him. His actual costs have never exceeded $500.

Joe looks into the fine for not buying insurance. It is $95 or 1% of his income, whichever is greater. Well, one percent of his income is a lot less than it would cost to buy insurance. So that seems like a good idea. But what if he gets seriously sick? He's pretty young to get cancer or heart disease, and he is very healthy, but things happen. Well, the pre-existing condition requirements mean that even if he has some long-term ailment, he can still buy insurance.

So there is really no reason for Joe to pay $400 per month for medical insurance which only benefits him after he pays an additional $6,000 to cover the deductible. He can pay for his routine medical bills out of pocket and come out way ahead. If he gets injured, emergency rooms can't deny him treatment. And if he gets really sick, he can buy always insurance.

Cost of buying insurance:
$4,800 in premiums

Cost of not buying insurance:
$150 for doctor visit
$500 Obamacare fine

As long as he doesn't have more than $4000 in unexpected medical costs, not buying insurance is money in the bank.

But it gets better. Obamacare specifies that the IRS can't do much to get the money that they say Joe owes for not being insured. They can't seize the money or put a lien on his property to get it, and they can't even garnish his pay to collect it. The only way they can take it is if they owe Joe a refund. In that case, they can subtract it from his refund. All Joe needs to do is make sure that he withholds less from his pay check than he actually owes in income taxes. Then, every year Joe will owe the IRS on April 15, and they will not be able to take the Obamacare penalty from him.

This makes it a total no-brainer. Joe is much better off to self-insure for the smaller medical costs, and only buy insurance if something huge happens to him.

It turns out that there are millions of people in Joe's situation, and the deal cut with the insurance companies was that they would sign up for overpriced insurance in droves, to pay for the costs of accepting older patients and patients with pre-existing conditions. Every day more and more of these people are figuring out that Obamacare is a raw deal, and they are not buying it.

Without them, Obamacare will collapse.

Thursday, October 24, 2013

Incompetence on parade

The ongoing train wreck that is Obamacare is just starting its chain reaction of destruction. This week alone, half a million more people were notified that their insurance policy is being dropped. Obama promised that "If you like your insurance, you can keep it." Well, not so much. The exchanges are the centerpiece of Obama's crowning legislative achievement, so you would think that he would make sure they were implemented flawlessly. He did throw $634 million at them, but he didn't take the most basic of steps to ensure that they would be ready for prime time on October 1.

More people have had their existing insurance coverage dropped due to Obamacare than have enrolled for new coverage in the Obamacare exchanges. And the deadline to avoid the individual mandate penalties, which fine uninsured people, is rapidly approaching.

Yesterday CBS ran an expose revealing that the teaser prices which visitors to the web site are quoted when they browse the system are often half of what the insurance actually ends up costing.

Insurance companies are complaining that the "applications" they receive from are unusable, with garbled, wrong, or missing data. One application listed the applicants four children as his "spouses".

The "Hub" of the insurance exchange system is responsible for verifying the eligibility of applicants and determining how much their policy will be subsidized by all of us, the taxpayers. Well, the Hub is not finished and won't be until sometime next year, so the web site quotes subsidies which may or may not actually exist. It remains to be seen who will be left holding the bag for subsidies which should not have been granted. I fully expect to cough up the money.

When the website first went live, the White House tried to spin the problems as being a result of the huge demand for "quality affordable health insurance." So many people flooded the web site that it could not keep up with the traffic, or so we were told. The fact that the web site didn't work was used as evidence of the importance of Obamacare. Yeah. Today's testimony indicates that in the days before the public debut of this $634 million debacle,  the people testing the system could not get it to work with even one user at a time. The traffic load didn't break it. It just doesn't work.

Twenty four days after the launch of the web site, it is still essentially unusable. Consumer Reports says to not bother trying to use the site. I've gone a few times to try it out. I encourage you to try it too. After five or six tries, I was able to create an account and verify my identity. Now I'm sure I'm me. But I couldn't get beyond that. I have not been able to do so much as view the insurance options, which is my real goal, let alone have an opportunity to apply or obtain insurance.

I'm not alone. A number of states have said that no one has been able to successfully obtain insurance through Most states have had a handful of hardy and persistent individuals who managed to navigate the klunky web site and apply for coverage. These people are being treated like celebrities by a media who seems to think that such attention will promote the rare success stories, but in reality it just emphasizes that the system does not work for the vast majority of visitors. Today it was pointed out that more people have booked one-way passage to Mars than have bought Obamacare insurance at

On Tuesday, Obama's Health and Human Services Secretary, Kathleen Sebelius, told CNN that Obama didn't know anything about the problems with the web site until after the site was launched on October 1, marking the fifth time that Obama has deployed the "I'm clueless and incompetent" defense this year. He is President, and these things are under his administration, so he ought to know what his own people are doing. That is doubly true in this case, where his reputation, credibility, and legacy are directly tied to the success of his signature accomplishment.

I have been involved in a number of software development projects, and I can tell you that with any level of project management, there should never be an unpleasant surprise for the people in charge at the end date of a project. This is not super-advanced stuff. It's project management 101. Central to any viable plan is a schedule with trackable, measurable milestones. Management can measure the progress at any point by looking at the milestones and asking "Are we meeting our dates?" and "Are we meeting our functionality and performance metrics?" If they identify a problem, they have time to address it, reallocate resources, or make adjustments to get back on schedule.

According to testimony in today's Congressional hearings, they never tested the system until a week before it went live nationwide. This is unbelievable. In the software industry this is called "Big Bang" integration, which is discussed in the chapter of "Software Development for Dummies" titled "What not to do". It means that they developed all of the pieces separately and then on September 23 when they put them all together for the first time, they were surprised that the whole system didn't magically work. A system of that size never works the first time you try it, and expecting otherwise was inexcusable.

Instead of a Big Bang integration, a continuous integration model is the industry standard. This means that two years ago they should have had the very most basic infrastructure of the system being tested. This would be the functionality that every user needs, like being able to create an account, log in, and access generic data. This would be tested and evaluated while the next layer of functionality was being developed. Next might be templates for different states, different insurance plans, and application data. As new functionality is added, it would be integrated into the working baseline, and every day automated regression testing would ensure that the new additions did not break the existing functions. At any point, management should be fully aware of the status, what works, what does not work, what is on schedule, and what is behind schedule. If Obama was not seeing demos of a working system six months ago, he should have been very concerned.

For months there have been news reports indicating that the exchange would not be ready on time. Check out this one from Bloomberg back in June. I knew about it, and so did lots of people. How did Obama not know about it? This was the guy who was supposed to be the smartest, most competent President ever. He was playing 7-dimensional chess while everyone else in the room was playing checkers. Sorry Obama, fainting women in the Rose Garden will not distract us from the fact that you are not up to the job.

Friday, October 18, 2013

Et tu, Brute?

One has to admire the prescience of Judge Robert Yates, better known by his pen name, Brutus.

During the debates leading up to the ratification of the United States Constitution in 1788, a series of essays by "Brutus" ran in the New-York Journal and Weekly Register, making the case that the proposed Constitution concentrated too much power in the Federal Government, saying that "when the people once part with power, they can seldom or never resume it again but by force."

Brutus spent a great deal of time pointing out weaknesses in the Constitution's limitation of powers and phrases which could be exploited as granting broad authority which was never intended by the framers, concluding that "This government is to possess absolute and uncontrollable powers, legislative, executive, and judicial, with respect to every object to which it extends."

One such case is the "Welfare clause". Brutus predicted that its meaning would be expanded until it permitted Congress to do essentially anything, so long as it was claimed to be "providing for the General Welfare". Thomas Jefferson responded to this concern by claiming that it is absurd that anyone would claim such authority under the welfare clause. After all, he pointed out, the welfare clause specifies a purpose for which Congress may lay taxes, not a blank check grant of authority for any purpose. He went on to explain that it would not make sense to grant Congress unlimited authority to do anything and then to also explicitly enumerate the powers which Congress actually is granted. James Madison made a similar point: “If Congress can do whatever in their discretion can be done by money, and will promote the General Welfare, the Government is no longer a limited one, possessing enumerated powers, but an indefinite one, subject to particular exceptions.” It is clear that not only did the framers never intend the welfare clause to grant expansive power to Congress, they actually considered the idea so preposterous to not merit clarification in the text of the Constitution.

Similarly, he objected to the "Interstate Commerce" clause, suggesting that it might be used to justify most any intrusion into the private lives of the citizens. Jefferson and Madison both dismissed this concern as groundless and absurd as well. However, in the Supreme Court case of Wickard v. Filburn, the court ruled that Congress could limit the amount of grain that a farmer grew on his own land, even if that grain never left his property, and therefore did not enter interstate commerce. Since then, the interstate commerce clause has been used to grant vast, expansive powers to Congress far beyond what the framers intended or imagined.

Brutus also discussed his view of how the division of powers and system of checks and balances could break down as each branch of government naturally sought to expand its own power.

The fears expressed by Robert Yates, dismissed by the framers as unfounded and beyond the realm of possibility, have been vindicated by recent events in Washington DC.

The Constitution grants Congress the sole authority to appropriate money to be spent. The President can't spend a dime of the taxpayers money unless the House and Senate both vote to approve that spending. The appropriation process is separate and independent of the process of passing legislation into law. For example, in the 1980's Congress passed legislation to provide financial assistance to the Contra rebels in Nicaragua. However, the Boland Amendment cut off funding to that effort. Congress has repeatedly passed legislation mandating the construction of a secure border fence along the southern border of the country, but it has not funded that project, so the fence remains mostly unbuilt.

Prior to October 1 of this year, Congress had not appropriated money for Obamacare beyond October 1. To fund Obamacare it was necessary for the House and Senate to vote to approve the spending, and for the President to sign the bill. People who stated that the effort was futile because the President would not sign a bill defunding Obamacare were misinformed. No law needed to be passed to defund Obamacare. A law was required to fund it. Without the approval of Republicans in the House of Representatives, Obamacare would not be funded. Today that failed policy is only receiving funding because of the support of House Republicans.

Democrats objected that Obamacare is "established law" and that the budget process should not be used to block its implementation. Obamacare was passed through the budget process. Reconciliation rules in the Senate only apply to purely budgetary matters, so it was a large stretch to use those rules to pass Obamacare with only 51 votes, when normal Senate rules require 60 votes. But Democrats who passed Obamacare as a purely budgetary matter should not whine about it being treated as a purely budgetary matter. For being "established law", Obama himself surely has modified it a lot, as have justices on the Supreme Court.

When the individual mandate, a provision which punishes people for being uninsured, was found to not pass Constitutional muster, the Supreme Court took on the mantle of the Legislature and modified the law. They ruled that Congress does not have the authority to force people to buy a product and to punish them if they don't, a power they claimed under the interstate commerce clause. However, the Court found that Congress does have the power to force people to buy a product and tax them if they don't. So instead of sending the law back to Congress to fix, the Court redefined the individual mandate as a tax, in spite of repeated and emphatic statements from the authors of Obamacare that the mandate is not a tax. Congress could not have passed Obamacare as a tax, and the Supreme Court could not uphold it unless it was a tax. So the Supreme Court did the legislating.

Since then, Obama has altered the law more than a dozen times, delaying provisions which had statutorily mandated start dates, ignoring other portions of the law, and granting waivers arbitrarily to his cronies and campaign donors. If Obamacare is established law, Obama might start acting like it. But even so, Congress alters, amends, funds, defunds, and repeals existing law with regularity.

But the most disturbing grab at extraconstitutional power came near the end of the recent debt ceiling standoff. President Obama framed the debate in terms of defaulting on America's debt, suggesting that if Congress did not allow him limitless borrowing authority, America would default. As I explained earlier, the Treasury collects more than enough money each month to cover its debt obligations. In fact, 9% of the monthly tax revenue is required for debt service. The Fourteenth Amendment requires that paying our debts is the first priority, so by law, Obama must take the first 9% of the tax revenue and use it to pay the interest and principle as required. The only way we could default is if Obama made the political decision to take that money and spend it on other things. Doing so would be his choice, but it would also be a violation of his oath of office and of the Constitution, a law far higher than even Obamacare. It is certainly true that being unable to borrow more money would force him to make some budgetary priorities. There would not be money available to continue his profligate spending binge. But the only way we would default is if Obama decided to default.

So Obama's talk of default was a threat, pure and simple. Obama was demanding that Congress give him all of the money and all of the borrowing authority that he wants, or else he will destroy the full faith and credit of the United States. And he had the Alinskyite gall to do it while calling House Republicans, who rightfully possess the power they were exercising, arsonists, terrorists, anarchists, and blackmailers negotiating with a bomb strapped to their chest.

This is a new low for demagoguery. Normally, a demagogue will suggest that if he does not get his way, someone else will do something harmful, as in Joe Biden telling a predominantly black group of voters that if Mitt Romney is elected, Romney will reinstitute slavery. Obama's threat was that if he didn't get everything he demanded, Obama himself would cause grave harm to America, and then blame Republicans for it, backed up by a media which had already bought the lie.

It may seem preposterous to suggest that the President would consider the various options for dealing with the debt ceiling and deliberately choose the most damaging course for the nation. But stop for a moment and consider how Obama managed the sequestration and the government shutdown. In both cases he decided to make the cuts as damaging as possible. He specifically instructed that air traffic controllers be furloughed due to the sequestration, a petty act intended to disrupt as many people's lives as possible. During the partial government shutdown he blocked payments to the families of American soldiers killed in Afghanistan and shut down trials of new cancer treatments for kids dying of cancer. Also, Obama barricaded monuments and national parks, and actually used rangers to make sure that people didn't pull off a road to look at Mount Rushmore. He spent more money trying to close the World War II monument than it would have cost to leave it open. So Obama's record of being vindictive with his execution of laws he does not like is well established.

Congress caved to that lawless threat, completing Obama's usurpation of the authority to borrow and spend. We no longer have a system of divided powers. Obama is consolidating power to himself to impose his statist fundamental transformation of America against the will of the people for whom he works.

Robert Yates was right.

Thursday, October 10, 2013

Demagoguery is their default

Attention all of you who believe that the Federal Government is about to default on its debt. Obama has made the claim repeatedly, so it must be true, right? I've got an offer for you which is too good to pass up.

Don't get stuck with a handful of worthless Treasury Bills. Next week they won't be good for anything more than lining your birdcage. Sell them to me! I'm offering two thirds of the bond's present value, cash money on the spot, no questions asked.

If you believe your glorious leader, this is the best deal you are going to get.

That is right. I'll give you sixty seven cents on the dollar. See, I even rounded that two thirds of a cent up, all because I'm that great of a guy. If we were equally sure of our position, a fair offer would be fifty cents on the dollar, but because I am twice as confident as you, I'll go two to one. Act quickly, as this offer only lasts until America defaults on its debt. Why, might you ask, am I so brimming with confidence that we are not headed for a default? The monthly cost to service our debt is right around $20 billion. It varies a bit and is generally increasing over time, but for a ballpark figure, that is the current cost. Every month the Treasury collects well over $200 billion in taxes.

It requires nine percent of the money being collected to pay the interest on the debt. For the mathematically challenged Democrats out there, that leaves ninety one percent of the money to spend on Food Stamps, Medicaid, Social Security, Defense, Welfare, etc. Some Treasury Bills will come due, and the Treasury can issue new bonds to replace them without increasing the total debt. So there is absolutely no reason that the government has to default on its debts. As a matter of fact, the 14th Amendment requires the government to pay its debts as a first priority, so even if Obama wanted to spend the money and blow raspberries at our creditors, he could not legally do so.

When you hit the credit limit on your credit card, it doesn't mean you stop making the monthly payments. It means you can't keep charging new stuff.

So why does Obama keep saying it? A demagogue is gonna demagogue. He wants to scare people, plain and simple. He can't win on fact, so he is trying to get people to panic and demand that Congress give him what he wants: more money to spend on his failed policies. What is really at stake is Obama being forced to set some budgetary priorities. He doesn't want to do this because it means saying "No" to someone's demand for Federal money, and no one is ever happy when their money is cut back. Obama's greatest horror is that he might be forced to balance the budget and live within our means. That, not the possibility of default, is why Obama can't permit the debt ceiling to be reached.

Reality is that we can't afford the current levels of spending, so cuts have to be made somewhere. If the results of this mess is some small step towards fiscal sanity, it will all be worthwhile. Seeing Obama's hypocrisy on clear display is just a bonus.

So I repeat my offer. If you believe the demagoguery, get in line to take me up on this deal. I'll give you two thirds of the present value of any outstanding US Treasury Bond. It's better than your President is offering.

Wednesday, October 09, 2013

Putting the "Limit" in Debt Limit

We are back exactly where we were last year, and the year before that. Once again we are bumping up against the debt limit, and Congress is considering raising or not raising the limit, or looking for what concessions they can get from the other party to get their way. In the end, the debt limit will be raised and business as usual will continue. In the past it has always been raised, and if things go on unchanged, it will continue to always be raised, which means that the nation's debt will continue to mount.

Right now our debt stands at 73% of GDP. On our current trajectory, debt will exceed 100% of GDP within 20 years, and could be 150% of GDP by 2038.

The debt ceiling as it exists now is not functioning to control the rate of growth of debt. As we rack up debt at ever-increasing rates, Congress just has to raise the ceiling more often, or raise it further. It has been suggested that we should simply do away with the debt ceiling, allowing the President to borrow as needed to achieve the spending approved by Congress. The Constitution gives Congress the power to authorize borrowing, and that authority should not be casually handed over to the Executive Branch.

Either way, there is a disconnect between revenue and spending. A responsible fiscal policy must look at the available revenue and set spending priorities to function with the money available. This is how a household or a business functions, and it is how the Federal Government must function as well.

The debt ceiling could be used in a way which would function as a true limit, constraining government spending and creating a link between revenue and spending. Instead of setting a dollar amount, the debt ceiling should vary on a fixed, predetermined schedule based on a percentage of GDP. This schedule should be designed to start out close to our current level of 73% of GDP, but in the coming decades, gradually bend that curve downward. Instead of growing the debt to 150% of GDP by 2038, we should reduce it to 60%. This would still be a larger dollar amount than we have today, but it would back us away from the brink of the debt spiral and financial collapse which we will certainly reach within our lifetime on the current course.

The real debt ceiling comes when interest on the debt outpaces economic growth, causing creditors to demand much higher interest rates, driving up the cost of servicing the debt, and ending our ability to continue spending money without any consideration of how we will pay it back. The choice is ours. We can control spending and debt now in a controlled, gradual way or it will be done for us in a much more painful manner in the not so distant future.