By ROGER COLLIER
How to slow Medicare’s escalating costs has been the big health care policy issue this month, with Republicans and Democrats offering competing proposals, each part of broader plans for reducing the federal deficit—projected to be $1.5 trillion this year, with the government borrowing 40 cents for every dollar it spends.
Unfortunately, neither the Medicare proposal of Representative Paul Ryan’s House Budget Committee, nor that offered in response by President Obama, can be considered realistic.
Both proposals do have some merits. Representative Ryan’s plan for switching Medicare to a quasi-voucher premium support program in which beneficiaries would pay part of the premium for their choice of health plan could make seniors more cost conscious and introduce more competition among insurers. President Obama’s proposed strengthening of the Independent Payment Advisory Board provision of the ACA by lowering the trigger point for IPAB action would force further efforts to reduce costs, while doing much to remove Medicare policy from lobbyist-vulnerable political considerations. Both, if implemented, would effectively guarantee that federal Medicare expenditures would drop dramatically from current projections.
Neither, however, has any chance of enactment. The Congressional Budget Office’s projection of the average 65-year-old paying more than two-thirds of the cost of Medicare coverage by 2030—and more than twice as much as under the present program—almost certainly dooms Representative Ryan’s proposal. (The CBO’s assumption of the continuation of the differential between traditional Medicare and insurers’ equivalent offerings can be questioned, but it’s the forecast of the unfortunate 65-year-old’s 68 percent share of the tab that will resonate for seniors, their lobbyists, and their political supporters.)
President Obama’s proposal is just as unlikely to succeed. Senior Republicans were scathing in their criticisms of the original IPAB provision, as further increasing bureaucratic meddling in seniors’ care, and can be assumed to be even more opposed to any strengthening of IPAB. Political considerations aside, the President’s plan faces practical problems. The ACA severely limits the scope of IPAB recommendations, specifically excluding increases in beneficiary costs, benefit restrictions, changes to eligibility criteria, or any “health care rationing.” Since the ACA also forbids most targeting of hospital and hospice rates before 2020, the major cost-control option remaining is a severe cut in physician payments (and even that is excluded if a permanent fix to the sustainable growth rate problem is enacted), something that—even if it were politically feasible—would almost certainly lead to a wholesale exit of doctors from the program.
Both proposals suffer from another problem: each would shift costs onto Medicare beneficiaries and onto non-Medicare private sector insureds, although in slightly different ways.
Representative Ryan’s proposal would require beneficiaries to contribute to the cost of insurance coverage in excess of the government voucher value. To the extent that insurers respond to beneficiaries’ expected increased cost consciousness by squeezing provider rates, it’s likely that providers will try to recoup by increasing their charges to private sector payers.
President Obama’s proposal would require IPAB to impose cost reduction strategies to meet the targets prescribed in the ACA. Whether these are simply cuts in rates or more stringent applications of “evidence-based” medical criteria, each almost certainly resulting in providers leaving Medicare, the result is likely to be many beneficiaries paying out of pocket to obtain care, and—just as for Representative Ryan’s proposal—providers increasing charges to other payers .
The two proposals have one other feature in common: they each ignore history. Representative Ryan’s plan ignores the total failure of Medicare Advantage’s insurer competition model to reduce expenditures. President Obama’s plan ignores the almost equally total failure of CMS and its predecessors to bring Medicare costs under control in any significant way, other than by reducing provider reimbursement (and anyone who believes the current proposals for Accountable Care Organizations will achieve this cost control miracle would do well to read recent critiques by Ron Klar and Jeff Goldsmith [in www.healthaffairs.org/blog]).
Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies. He is editor of Health Care REFORM UPDATE.
Categories: Uncategorized
Can some one tell me the eligibility for the Medicare policy in US for non citizens !
Nate yes where are you getting your $500 NRI
Nate yes where are you getting your $500 MRI. I wonder if Exxon likes making 10% of $25 or $100 barrel of oil, similarly do insurance companies and brokers prefer 20% or 2% of $100 or $1000 a month health insurance? Where is the incentive to control costs? How do I as a physician cope with filing claims with 1000 insurance companies if competition is opened country wide and through the internet when I am not coping with the 100 I presently deal with, admittedly perhaps 20 account for 90% of claims and best of all Medicare is mostly just to one billing agency. I desperately want to see a monthly statement for the home health services that I sign daily! Transparency is what I seek and the public has no idea where the money is going. That means how much of my premiums goes to each provider and for what and how much goes to administrators fat salaries and stock dividends. Let me at least see what I am paying for in premiums and taxes for those whom I am supporting via CMS.
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“Democrats have been studying, spending money, and reforming healthcare since 1965, how’s that worked out?”
Can’t say, but in Canada they seem to be doing a pretty good job.
http://www4.hrsdc.gc.ca/.3ndic.1t.4r@-eng.jsp?iid=7#M_1
if the rest of this garbage is like the first couple pages its not worth the pixels its represented with.
477 billion more calculated how? Maybe becuase no other country has 300 million people they are comparing to? Are they really comparing total spend of a nation with 300+ million to countries with 30-50 million?
We provide Rx not available in many other nations, very very expensive drugs, another meaningless comparison.
if you want to debate post facts not opinion graphs. You can’t take surveys across different nations on matters like this. Expections vary, people in the US wouldn’t tolerate waits that they have in Europe. A 3 day wait here would be surveyed as unaccaptable while a 3 day wait in canada would be considered excellent. Liberals and their junk science
I am running for President in the 2012 elections as an Independent candidate. Here are my health care policies:
He says Obama Care does not go far enough, and proposes a completely new healthcare plan he calls “Americare,” which will provide government healthcare for everyone from cradle to grave.
“Americare will pay for the needs of all United States citizens and allow healthcare providers to be compensated according to their skill set. It will replace Medicare, Medicaid, and all private insurance. I believe that all private insurance companies are criminal organizations, because they make profits by delaying and denying care which could in many instances cause unnecessary deaths and suffering to people who rely on private insurance,” explained Abramson.
Abramson wants the liquidation of all private insurance companies, moving their administrative workers into Americare jobs. He wants to offer forgiveness of all medical indebtedness for anyone with debts resulting from the previous healthcare system. He said the cost of Americare will be paid from the savings obtained through military budget cuts.
“That they’re studying, working and spending money on reducing wait times ”
Democrats have been studying, spending money, and reforming healthcare since 1965, how’s that worked out?
“What are you trying to say with the links?”
That they’re studying, working and spending money on reducing wait times – after all it’s free and there are no wait time for emergencies. As well wait times are regional and by city, so the “average” doesn’t mean much. The link to the study was to show that Canada is not just throwing money at it, they’re trying to figure out the best access/cost direction. Nate, you complain about how U.S. system is overused but then scorn Canada that attempts to control use. If impatient Canadians want an MRI so bad then they can go to the U.S. and pay cash, such as Buffalo.
http://www.buffalomri.com/CanadianPrivatePayPatients.aspx
Meanwhile the Canadian system costs about half the U.S. system with no co-pays and deductibles. If Canadians want their system to cost more to provide more then they only need to lobby their politicians for more tax money going to it. In the U.S. it appears lobbying for cost reduction goes on deaf ears.
http://www.buffalomri.com/CanadianPrivatePayPatients.aspx
What are you trying to say with the links? That canada has unacceptable wait times and haven’t solved the problem, they ration by denial of care via insufficient resources?
Wouldn’t an HMO or insurer in America with these wait times be sued? A point people making the we spend twice as much complaint don’t even seem to factor in.
non hospital owned is the key words these days, you can easily save 60%+ by having it done outside the hospital.
“Plus, where can you get a full MRI for $500.”
Matt M. –
A little over a year ago, I had a brain MRI. The non-hospital owned imaging center billed $1,800 but it accepted $475 from my insurer, Highmark Blue Cross, as full payment of which I paid 20% or $95. The test was done in New York City – lower Manhattan to be precise.
A college friend of my wife’s lives in Southwestern Ohio. An imaging center near her offers virtually any MRI to even those without insurance for $600. The imaging center at Ohio State University Medical Center charges 4 to 5 times as much for the same thing and actually collects close to that from some insurers. The world of healthcare really is nuts in a lot of ways.
$75,000 seems a lot until you have to live on it with a family. Plus, where can you get a full MRI for $500.
I don’t need to check google I have the cashed checks and contracts, FYI who cares what they were charged what did they pay?
Aren’t you supposed to be in the insurance business? MRIs in the US don’t cost $500 anywhere. That doesn’t even cover the radiologist fee (which was included in the France MRI).
Try Google: “I recently had a lumbar spine MRI with and without contrast. My insurance company was charged $4,307 plus an additional $700+ for the radiologist’s fee.
why can someone making 75,000 a year not afford a $500 MRI?
really? Just becuase someone hasn’t read you a story about their financial problems doesn’t mean they aren’t happening.
“In June 2010, the French government announced that it was to cut healthcare spending by EUR600mn (US$826mn) in 2010 in order to rein in mounting budget deficits. Cost containment measures to be employed included reducing drug prices by EUR100mn (US$138mn), a EUR180mn (US$247mn) freeze in government support to hospitals and retirement homes, and the freezing of EUR105mn (US$145mn) of funds allocated to the upgrade of health facilities. ”
“The U.S., the U.K., France and Germany must control spending on pensions and health care to keep their debt burdens stable over the long term, Moody’s Investors Service said.”
“France and Germany recorded significant debt increases, but have on balance moved toward deficit reduction, France less aggressively so than Germany,” Moody’s said.
And no the French aren’t volunterring to pay higher taxes to cover it;
“New York, N.Y. – July 14, 2010 – A new Financial Times/Harris Poll finds that when it comes to reducing deficits and public debts, cutting spending is definitely preferred to raising taxes by adults in the five largest European countries and the United States. Half of French adults (50%), just over two in five Italians (45%), Spaniards (44%) and Germans (41%), and just under two in five Americans (37%) and one-quarter of Britons (25%) all would prefer spending cuts to paying higher taxes. Around two in five in each of the six countries (between 37% and 46%) would prefer a mixture of the two, with spending cuts bearing the bigger part of the burden.”
France is preparing new spending cuts to help deliver the €100bn in savings needed to … to local authorities; and slower growth in healthcare spending.
Seems French are having to cut back all around
“This number far exceeds the percentage of people who have reduced medical spending in other countries, including 7.6 percent in Britain, 5.3 percent in Canada, 10.3 percent in Germany, and 12 percent in France.”
Except they won’t be able to afford it so might as well have no access.
I had a friend who went skiing in France. Fell and needed an MRI. Had the MRI immediately. Cost was $250 (as an uninsured out of country visitor it was paid in cash). (She’s doing fine now.)
This illustrates just how corrupt our US health care system is… grossly overpriced services… and how France does a much better job of controlling cost and providing access.
couple hours, 24 tops unless they are very rural, geography is a major part of access
Nate, can you tell me the wait times for U.S. uninsured for MRI?
Three links about CDN wait times and MRI.
http://www.healthnewstrack.com/health-news-1093.html
http://news.nationalpost.com/2011/01/21/3-2m-investment-may-improve-mri-wait-times/
http://www.cihi.ca/CIHI-ext-portal/internet/en/Search/search/search_main_en?q=mri%20wait%20times&client=all_results&start=0&num=10&filter=0
unless they go the NHS or Canada route and you wait weeks until the few machines have free time or you just don’t get the MRI you need.
Couple years old but;
“The median wait for an MRI across Canada was 10.1 weeks. Patients in Ontario experienced the shortest wait for an MRI (7.8 weeks), while Newfoundland and Labrador residents waited longest (20.0 weeks).”
Is this where we are headed?
“Derby’s hospitals trust is earning £100,000 a year from doing MRI scans for fee-paying patients despite year-long waiting lists for its NHS patients who face waits of up to two years for magnetic resonance imaging scans. Now we have discovered the MRI scanner, based at Derbyshire Royal Infirmary, is used on a Saturday for “three or four” scans on patients who are charged £300 to £600 each, amounting to £100,000 a year.”
2 year wait would answer a lot of medical questions at no cost, if you still need the MRI after that long obviously something is wrong.
Margalit –
If in the future, the PCP is a salaried employee of an ACO and the ACO is paid a risk adjusted capitated rate to provide all appropriate care for a patient population, then the current fee for service based arrangement will become irrelevant. Most hospitals will always need to have radiology equipment, including MRI machines, onsite to handle inpatients and emergencies. If there is additional capacity to handle outpatient procedures, the marginal costs to perform those tests will be low. If there is a need for additional capacity to handle the non-emergency cases and a non-hospital or non-ACO owned imaging center can do the job at lower cost, the ACO will have an economic incentive to outsource those tests. Moving away from fee for service would completely change the incentive structure and I would expect ACO’s to respond accordingly in both how they organize themselves and how they evaluate and review their salaried providers with respect to care quality, utilization of resources and patient satisfaction.
In the new order of employed PCPs, they will have to refer to the facilities of their employer and it won’t be the free standing center, no matter how good and how cheap it is.
Also if MLRs are fixed, insurers will have even less financial incentive to reduce spending. And I’m not saying that the solution is to let insurers pocket the difference.
3-4 years ago imaging centers were all the rage for investors, every issue of forbes and fortune had adds.
How do we get that radiology group who already has a relationship with the hospital? Why after decades working with the hospital would they switch to us?
How much are you and I going to want to make on our money and how quickly are we looking for a return? A doctor who can self refer has much less risk then you and I would.
Not to say it can’t and doesn’t work but its not a clear cut solution and wont guarantee better results then provider owned.
The population managed by PCPs is pretty small, 20% ish and concentrated on the coast. What might work for the coast probably wont work in the middle.
Investor owned imaging centers also are prone to excessive use, so you still need pre-auth or some sort of management. The common theme no matter who owns it is to manage medical necessity. Why waste time on ownership, just do a good job overseeing usage
Nate –
I appreciate your comment about having several ways to combat excessive utilization but it’s hard to create competition where none exists. It is well known, though, that doctors who own their own imaging centers order more tests than those that don’t. I remember seeing a McKinsey study a couple of years back that claimed utilization between two and eight times higher than doctors who don’t own their own equipment. However, I think others besides doctors could open and operate a stand alone imaging center.
Suppose you and I organized a group of investors to put up the capital for such a center. We buy the equipment and hire the appropriate techs, administrative people and anyone else we might need to staff the facility. We establish a relationship with a nearby radiology group to interpret the images and deliver a report to the referring doctor. We advertise that our center will do any MRI that takes 30 minutes or less of machine time for $600 while those that take longer will be billed at a higher rate of, say, $300 for each additional 15 minutes or fraction thereof.
Insurers with tiered networks could encourage members to come to our center by offering a lower co-payment than they would pay if they go to the local hospital owned facility. The difference in co-pay could be substantial – as much as $400 or $500 which at least one insurance plan in the Boston area is doing. The bottom line is that if there is an opportunity to disrupt the imaging market by offering comparable or better quality and service for a lower price, there should be a market for it, at least if insurance plans are structured to encourage their members to take advantage of it and/or make them pay a penalty if they don’t. Meanwhile, if PCP’s were being paid on a capitated basis or at least having their referral utilization tracked carefully and evaluated vs. their peers, they would have a clear incentive to send their patients to us as well as long as we offered good quality and service using up to date equipment, well trained techs and affordable prices.
I never care for his studies, they always seem to lack applicability. For example look at how linear his line is. That makes no sense at all. As disposable income increases the line should shoot up. If your making 15K a year after you put a roof over your head and feed the family you have no money to spend. if you make 150,000 a year once you pay the necessities then you can consume all sorts of extra care, even care of poor value. If you take an extra week of vacation or spend $3000 on a wellness check up at Mayo it doesn’t matter. The greater our wealth the more I would expect we spend on protecting our health, where this study claims we spend 41% more then expected. Statistically it might be set up correctly but it lacks any recognition of human nature.
If you go back to the study the incidental economist based his post on its just as bad. Based on the numbers they use its accurate but lacks any perspective or applicablity. For example they slightly address cosmetic dentistry, and in passing cosmetic care in general. I don’t see any adjustments to their numbers for these facts. If your discussing broad spending then fine leave it in, but once you start discussing the value or expected care from one country to the other this needs factored in. Are we really going to tare down the US healthcare system becuase we get more boob jobs? How does IE’s linear line not show any expected increase in cost once people are able to afford cosmetic care?
generically I would respond what effect does the doctor working for the hospital that owns the facilities have on utilization, I would expect that to drive up cost. I know an outpatient MRI cost $1500 to $1800 when done at the hospital. I can direct a member to a freestanding MRI center for $600 or less. If I outlaw doctors owning MRI centers then who will put up the money to build a free standing center to compete with the hospital? I rather pay for an extra MRI or two at $600 then pay $1800 for every MRI.
Further I can require pre-auth on MRIs and combat excessive referrals. I can implement cost sharing so the member questions the need for the MRI. I can pay for second opinions to assist the member in deciding if they need an MRI. I have numerous ways to combat excessive utilization, I don’t have any way to create competition when none exist.
Steve, whats your username and password so I can read the studies and respond?
You write:
“… program in which beneficiaries would pay part of the premium for their choice of health plan could make seniors more cost conscious and introduce more competition among insurers.”
Why do all you politicians and consultants write things like the sentence above that imply that Medicare beneficiaries do not currently pay part of the premium for their choice of health plan today? Everyone pays a Part B premium. In Massachusetts at least (and I think in all other states), after paying the Part B premium about half of seniors pay an additional premium for private Medigap insurance or for Medicare Part C. The other half of seniors in Massachusetts apply for welfare to pay for their Medigap or Part C supplement (and some even get welfare to pay for their Part B).
For those that don’t know
http://www.youtube.com/watch?v=ssl5yb7FewA
One West Bank paid the FDIC 70 percent of the principal balance of all current residential loans
One West Bank paid the FDIC 58 percent of the principal balance of all HELOC’s (Home Equity Lines of Credit)
The FDIC agreed to cover 80 – 95 percent of One West’s loss on an Indymac loan as a result of a short sale or foreclosure.
The kicker is, according to the video, is that the “loss” is computed based upon the original loan amount and not the amount One West paid for the loan.
On the video the hosts give an example of an “actual scenario” showing how the deal worked, below is a recap:
One West Bank approved a short-sale of $241,000 on one of the Indymac loans it purchased from the FDIC (the total balance owed by the borrower at the time was $485,200).
Based upon the terms of the loss sharing agreement, One West “lost” $244,200 on this transaction, 80 percent of which ($195,360) was paid to One West by the FDIC.
So, One West received $241,000 from the short sale and $195,360 from the FDIC for a total of $436,360 on a loan they bought from the FDIC for $334,600, thereby resulting in a profit of $101,760 on the loan to One West.
One last kicker, the video claims, in addition to making over $100,000 on the loan, since the house was sold for less than what the borrower owed, One West also made the borrower sign a promissory note for $75,000 of the short-fall.
Wonder why One West Bank never did modifications and instead made sure people always lost their home….oh thats right Washinton paid them to take homes away.
If your going to discuss the benefactors of the housing boom I think you underblamed local and state government and to some extent federal. They were addicted to the taxes. Don’t forget every time a house sells you have large tax payments made. At the local level you had recording fees and taxes as well. The inflated values also made mortgage brokers, real estate agents and others more money then they ever would have made otherwise which lead to taxable incomes they would never make otherwise.
One reason the recovery is so slow is that income will probably never be replaced. Most of those people will never make money like that again any time in their life.
“As for basing rental income to achieve ROI in single family, it’s just not there without rising property values”
How many rental homes do you own Peter? That comment is BS in every state I work or know people that work. I’ll use some terms I’m sure you don’t understand but that just proves the point.
In NV, CA, AZ, FL you can buy below replacement cost.
In those 4 states plus OK, the midwest and New England the rental market is better then it has been for a long time, for the past 10 years ANYONE with a good job and stability was buying houses not renting, there is a better crop of renters now then in a long time.
I have not seen a single market in the US except maybe DC, NYC, and some select cities where you can’t rent for 25-50% profit. In most cities cash investors are scooping up houses and making a killing.
To add to Barry’s list of how the government made this worst.
In the start of the crisis they outlawed Negative Am, ARMs, and the loans they blamed for the mess. Loans are like guns, loans don’t cause foreclosure using them wrong does. There was plenty of experienced investors who knew what they were doing that had the rug pulled out from under them and forced into foreclosure becuase the government killed the marlet they needed to ride things out.
Capping the number of properities, before you could get loans for 10 plus properities. Then it was 4 then 2 then they started raising it again. First thing this did was anyone with more then 4 houses was F’d. If you had an arm or a bad loan you were stuck there was no way to refinance becuase the government once again killed the market. If an investor lost one house because of this then they were not eligibile to refinance any others. Instead of no houses being foreclosed and the professional investor riding it out entire portfolios were foreclosed. Worst case maybe they needed to lose 1-2 houses but thanks to government and all their brillance they lost all 10. Obviously the more houses on the market the bigger and deeper the problem gets.
The above rule in the start of the crisis also locked ou the professional buyers while leaving it open for the small time buyers who ran in to soon and didn’t have the resources to weather the further decline. That is how you had the same house being foreclosed 3-4 times, people where chasing bottom.
Like the great depression 50-75 years from now scholars and historians will look back on this and ask what the hell was Washington thinking. Every decision they made they got wrong. Politicians like they always do turned what would have been a 6-12 month slow patch into an all out 3+ year disaster.
Their friends and Contributors got rich though, I assume you heard how Soros makes money from the taxpayor everytime he forecloses on someone right?
“Barry, are you blaming HAMP?”
Peter – I’m placing a lot of the blame for slowing the housing recovery on modification efforts generally. In 1982, we had a severe recession when then Federal Reserve Chairman, Paul Volcker, raised interest rates sharply to break the back of inflation. Mortgage rates were well into the double digits and the unemployment rate peaked at over 10%. Yet, when the economy started to recover, the recovery was sharp and fast and was led by housing.
If you are an investor in single family homes and are buying either for resale or to rent them out, then you know more about that aspect of the market than I do because I never invested that way. I’m a stock and bond market guy. While I’ve invested in REIT’s and own a couple of them today, my single family housing investing experience is limited to my primary residence which I’ve lived in the for the last 38 years.
“However, it’s the federal government’s various efforts to force banks into mortgage modification experiments rather than just foreclose and move on that is not allowing the housing market to clear.”
Barry, are you blaming HAMP?
As for basing rental income to achieve ROI in single family, it’s just not there without rising property values (unless you’re into the slum lord market), you’ll need to be in this for the long haul and hope that rental deterioration (declining value) is compensated for fast enough by rising values based on disposable income. Multi-family rental is a different business.
Peter –
There are two issues embedded in your last comment – what caused the housing crisis and what do we do about it now?
With respect to the cause, there is plenty of blame to go around. The two fundamental mistakes made by all parties were (1) they assumed house prices would continue to increase pretty much indefinitely and (2) If they did decline, it would only happen in a few places, not everywhere at once.
Banks, of course, made lots of money from fees and interest rate spreads as they made more loans. Mortgage brokers, many with little education, made far more money than they could make anywhere else. Wall Street investment banks profited handsomely from securitizing mortgage loans. Individual and institutional investors were greedy for the higher returns than they could have earned on plain vanilla Treasury securities while rating agencies created the impression that these securities were safer than they turned out to be. The government pushed Fannie Mae and Freddie Mac to lower their lending standards in order to encourage broader home ownership. Greedy individuals bought more house than they could afford and then tapped the equity for personal consumption expenditures when prices rose. Real estate investors thought they could make easy money by flipping houses to a greater fool. When the music stopped, they all got burned and took the broader economy down with them.
After the meltdown, the issue became what do we do now? All the efforts at mortgage modification have been largely unsuccessful. A high percentage of those who received a modification defaulted again in a short time. The majority of foreclosures were concentrated in just four states – CA, NV, AZ and FL. One more, MI, was hurt more by the collapse of the auto industry. Banks can’t easily negotiate rents or reduced payments to reflect current values because if they did it for those who defaulted, the much larger number of people who are still paying and can afford to pay will want a similar deal. Many banks are allowing non-payers to stay in their homes for the time being because at least the house is maintained rather than deteriorate if vacant for a long time. By the way, the robo signing of documents, while unfortunate, was due to the huge surge in transactions that needed to be processed. This is more of a form over substance issue due to a lack of personnel to handle the sudden increase in paperwork but hardly any homeowners were wrongly foreclosed on. Virtually all of them did actually default. The pace of the foreclosure process varies by region, by the capital strength of the banks in those areas and by local regulations that determine how cumbersome or streamlined the foreclosure process is. However, it’s the federal government’s various efforts to force banks into mortgage modification experiments rather than just foreclose and move on that is not allowing the housing market to clear.
Finally, as for determining value, if you’re a real estate investor who buys residential properties to rent out as opposed to resell, if you have a good feel for what the property will command as a rental and what the expenses are for property taxes and upkeep, it should be pretty easy to determine what you’re willing to pay to achieve your target rate of return. Indeed, in areas with lots of foreclosures, especially CA, a large a number of homes are being sold for cash to private investors. Compared to the issues related to healthcare, housing is relatively straightforward.
“Unfortunately, we don’t. In the current environment, government has the housing market so fouled up; it’s not being allowed to clear. That could be fixed by letting mortgage foreclosures move ahead and let the banks sell the homes or rent them out.”
Barry, I agree that the housing ball and chain is dragging the economy, but don’t say government “fouled it up”. Don’t forget that the housing fiasco is what drove the market in the first place. When I saw people re-mortgaging their homes to buy cars and vacations, and appraisers conspiring with RE agents and lenders to inflate value, I knew it would not take long for it to unravel, even not knowing the securitizing lies of the Wall Street investment houses. As for foreclosures that is a continuing monster with not enough lender reserves set aside for it. Don’t forget that the banks were moving foreclosures through but they were doing it illegally largely by creating non-existent title documents with forged signatures, that in their hast to make money (at reduced tax rates), they did not have legal title in the first place because they never had the documents. The states’ attorneys-general are now investigating lender foreclosure fraud (not to mention all the other fraud they’re not investigating). Lenders are refusing to re-negotiate with borrowers and keep the home occupied thereby generating income, or at least negotiating to rent the home to the people they want to foreclose on. I drive around and see all sorts of vacant foreclosed homes not being maintained that lenders are clinging to perceived value rather than take their lumps for bad investment decisions and reduce the price to move the property. Home value (present & future) is now largely unknown for many investors (which includes me), or at least it’s unstable, and buyers need to be extremely careful about the price they pay, who the appraiser works for, and how honest they are. On REO properties the appraiser works for the bank and will appraise the property to whatever the bank wants – the fraud continues. On a larger scale if broad based disposable income is not “floated” with wealthy tax cuts then people are going to get it back from somewhere – right now housing value is one of places seen as a way to even things out. If we could also get healthcare costs down or stabilized then that would generate more disposable income to help other sectors of the economy recover and expand. As Roger Collier points out way back at the beginning of this discussion both parties are not being realistic about health cost. So, what will happen is we’ll have to wait for a collapse to shake it all out, just like the housing market was left to fester because everyone was making so much money they buried their heads wanting to believe it would go on forever.
Sorry Nate, I though I was having a discussion with a rational person. You’re just ranting now. You have lost me completely.
as long as your GDP is growing everythng is fine? Interesting measure, ignore the riots and deaths and pretend the debt isn’t an issue as long as GDP grows all is good. If you borrow 1 billion and spend it that would increase your GDP by at least 1 billion if not 7 billion to 20 billion. By that logic mark we should just borrow 10 trillion and blow it all in one year and watch our GDP explode….and everything in the world would be good.
Nate, Nate, Nate…
You really should make at least some effort to gather some actual facts before you go off spouting irrelevant anecdotal “evidence”.
The real US GDP annual growth over the past three years has been 1.46%. All of these countries had higher growth over the past three years:
Hungary
Canada
United Kingdom
Sweden
Belgium
Germany
Norway
Ireland
Spain
Switzerland
Netherlands
Austria
Australia
Mexico
Finland
Greece
Iceland
Luxembourg
Turkey
Korea
Chile
Estonia
South Africa
Israel
Brazil
Czech Republic
Slovenia
Indonesia
Poland
Russian Federation
Slovak Republic
India
China
Most of these countries have significantly higher tax burdens than the US. I don’t think there is any relation between tax burden and economic growth but if you want to establish a correlation, I think it would point to high taxes equal high growth.
Margalit –
If we ever reach a bipartisan agreement to deal with our long term debt and spending issues, I have absolutely no doubt that the package will include a revenue component. We will see higher taxes for the wealthy and, most likely, the middle class as well. What I object to is Democrats, led by President Obama, trying to suggest that if we just raise taxes on the rich, by letting the 2001 tax cuts expire, the middle class and the elderly won’t have to make any sacrifices. There just aren’t enough rich people to square that circle and to suggest otherwise is pure demagoguery. If taxes are to go up for higher income people, I prefer to do it in a way that does the least economic harm. That’s why I prefer a broader base and lower rates or, at minimum, a broader base with current rates. I get the impression that liberals would like a broader base and higher rates. If capital gains rates were raised to 25%, which was the level that prevailed in the 1950’s and 1960’s, they would be in line with Germany’s. If they went to 28%, which is where they were in the late 1980’s when the economy performed fine, that would be OK with me as well.
I’ve met numerous economic experts over the years from both political parties, mainly at Washington conferences for investors that I’ve attended. I asked quite a few of them how high federal taxes would have to rise as a percentage of GDP before it clearly hurt the economy’s ability to grow over the long term. None could give a definitive answer. Since there are numerous factors that affect economic performance, it’s impossible to isolate the impact from taxes alone. Personally, I think there is probably some room for taxes to increase without hurting long term growth potential. However, some taxes do more economic harm than others. The worst are high marginal income tax rates. I think the Simpson-Bowles Commission plan had taxes gradually rising toward 21% of GDP from the post World War II average of about 18%. If it were coupled with substantive and credible structural changes to Social Security, Medicare and Medicaid and defense spending declines as the wars wind down, we can probably dig ourselves out of the hole we’re in. A national ID card program, like the 9/11 Commission recommended, could also help to reduce fraud in social programs. People who apply for benefits under these programs should at least be prepared to prove that they are who they say they are. If, in addition, we rein in pension and healthcare benefits for state and local unionized workers and retirees, that would further enhance our fiscal credibility and boost the confidence of investors, both foreign and domestic.
“You thesis” ? Your Thesis? I never saw the point of such pettyness, just doesn’t do anything for me.
It is not my thesis, its an observation of history.
” tax revenues are much higher (40% – 50%) and that these countries are doing just fine. ”
These countries doing fine, those would be countries like Greese, Portugal, Ireland, Spain? I also seem to recall some French austerity riots recently, did you not hear about those? Actually I can’t think of a single country besides Germany that is doing fine, who did you have in mind? Even Germany undertoom their biggest Austerity plan since WW2.
“Some benefits have already been reduced – including jobless benefits and health care. Plus, the retirement age has been raised and many say it will continue to go up. ”
“Among the measures agreed were a plan to slash 30bn euros from the welfare budget, including a cut in subsidies to parents who stay at home.
Up to 15,000 government jobs could be cut over four years,”
How is history wrong?
“I believe these magnates and these corporations have a debt to pay and an investment to make.”
This is usually an either or and sums up the difference between political parties. If you over tax them they don’t have money to invest.
http://www.youtube.com/watch?v=661pi6K-8WQ&feature=player_embedded
We can take all their wealth and pay for one year of Obama’s spending or we can make it attractive for them to invest, and everyone benefits long term. History