Tidbits Quotations
To Accompany May 31, 2014 edition of Tidbits
Bob Jensen at Trinity University

My Free Speech Political Quotations and Commentaries Directory and Log ---

Remember, "accounting" and "accountability" have nothing in common
Caption of a New Yorker cartoon

If everyone is thinking alike, then somebody isn't thinking.
George S. Patton

It's better to walk alone than in a crowd going in the wrong direction.
Diane Grant

The secret is out
All good things in the VA health system are attributable to President Obama. All the bad things today are the fault President G.W. Bush.
Nancy Pelosi ---

Eat, drink, and make merry --- tomorrow we die!
Neil deGrasse Tyson: Don't Worry, Earth Will Survive Climate Change — We Won't
Carl Sagan recognized Professor deGrasse's talent when deGrasse was still in high school.

Is that all there is? ---

Democracy is Wrong for the World and Belgium is a Test Case ---

GAO: Fiscal Outlook & The Debt --- http://www.gao.gov/fiscal_outlook/overview 

Bob Jensen's threads on entitlements --- http://www.trinity.edu/rjensen/Entitlements.htm

Why The Heck Is Amtrak Still In Business After Losing Money 43 Years Straight?


Compound interest is the most powerful force in the universe.
Albert Einstein
Jensen Comment
That was in the old days Albert. In the 21st Century the Federal Reserve drove annual interest returns of savings like Certificates of Deposit to less than one percent. Compound interest is no no longer a force in the universe and shows very little sign of finding the spinach cure that gave Popeye all his strength. Compound interest is now pretty much useless when planning for retirement or saving for college.

Hi David,

When I was a kid my parents opened up a passbook savings account in my name in a small farm-town bank. After we moved to town from the farm I commenced working part time for $0.85 per hour washing cars to doing other odd jobs for a car dealer. The savings account made it very convenient for me to save almost all my wages and watch them grow with compound interest.

Now the banks don't even want you to have a passbook savings account. For the banks money is now virtually free such that they do absolutely nothing to encourage saving. It's unlikely that a kid will buy one or two shares of Exxon each month and pay the odd lot fee each time. Besides its not so much fun watching your investment go up and down with great uncertainty.

It's sad that the days of interest compounding are essentially over. Now when workers get serious about saving for their children and their own retirement the government forces them to take on financial risks with possibilities of losing all that they have invested.

For example, the biggest investment used to be their houses where they lived. Then the real estate bubble burst in 2006 and tens of millions of homeowners lost their homes in foreclosure.

Now its all about financial risk and gambling rather than safe saving. And our grandchildren will have to pay the underfunded Medicare for all the aging spendthrift generations that had a jolly time with no income taxes (50% of USA taxpayers pay no income taxes while the top 10% pay 70% of the income taxes).

It's a good life for us at the expense of future generations. Our children will not even inherit much since without compound interest us old folks are eating our seek corn --- consuming our capital rather than living on interest.

Those old folks who managed to keep their homes are now consuming the inheritances of their children with reverse mortgages.

Bob Jensen


NPR Launches Database of Best Commencement Speeches Ever ---

Jensen Comment
Despite all the publicity over commencement speaker withdrawals in 2014 the list of collegiate commencement speakers is not exactly dominated by the Michael Moore's and other leftist radicals.

Exhibit A is former Microsoft CEO Steve Ballmer who is the commencement speaker at the University of Washington.

Exhibit B is the General Motors CEO Mary Barra speaking at the University of Michigan commencement.

Exhibit C is 2012 GOP Presidential Candidate John Huntsman who is the commencement of speaker at left-leaning University of Wisconsin

The list is dominated by actors, musicians, and other performers who are more like Jay Leno and Wysnton Marseales than Sean Penn.

Peyton Manning is the commencement speaker at the University of Virginia

Early on I made the mistake of assuming that political correctness was becoming the number one criterion for being a commencement speaker in collegiate America. I apologize. There are still quite a few media lefties speaking at commencements, but it would seem that accomplishments above and beyond the competition are more important than political leanings in the 2014 selection of commencement speakers.

2014 Commencement Graduation Speakers List Compiled by: Cristina Negrut ---

Seven States Running Out of Water ---

Martin Feldstein --- http://en.wikipedia.org/wiki/Martin_Feldstein

"Piketty's Numbers Don't Add Up:  Ignoring dramatic changes in tax rules since 1980 creates the false impression that income inequality is rising," by Harvard's Martin Feldstein, The Wall Street Journal, May 14,  2014 ---

Thomas Piketty has recently attracted widespread attention for his claim that capitalism will now lead inexorably to an increasing inequality of income and wealth unless there are radical changes in taxation. Although his book, "Capital in the Twenty-First Century," has been praised by those who advocate income redistribution, his thesis rests on a false theory of how wealth evolves in a market economy, a flawed interpretation of U.S. income-tax data, and a misunderstanding of the current nature of household wealth.

Mr. Piketty's theoretical analysis starts with the correct fact that the rate of return on capital—the extra income that results from investing an additional dollar in plant and equipment—exceeds the rate of growth of the economy. He then jumps to the false conclusion that this difference between the rate of return and the rate of growth leads through time to an ever-increasing inequality of wealth and of income unless the process is interrupted by depression, war or confiscatory taxation. He advocates a top tax rate above 80% on very high salaries, combined with a global tax that increases with the amount of wealth to 2% or more.

His conclusion about ever-increasing inequality could be correct if people lived forever. But they don't. Individuals save during their working years and spend most of their accumulated assets during retirement. They pass on some of their wealth to the next generation. But the cumulative effect of such bequests is diluted by the combination of existing estate taxes and the number of children and grandchildren who share the bequests.

The result is that total wealth grows over time roughly in proportion to total income. Since 1960, the Federal Reserve flow-of-funds data report that real total household wealth in the U.S. has grown at 3.2% a year while the real total personal income calculated by the Department of Commerce grew at 3.3%.

The second problem with Mr. Piketty's conclusions about increasing inequality is his use of income-tax returns without recognizing the importance of the changes that have occurred in tax rules. Internal Revenue Service data, he notes, show that the income reported on tax returns by the top 10% of taxpayers was relatively constant as a share of national income from the end of World War II to 1980, but the ratio has risen significantly since then. Yet the income reported on tax returns is not the same as individuals' real total income. The changes in tax rules since 1980 create a false impression of rising inequality.

In 1981 the top tax rate on interest, dividends and other investment income was reduced to 50% from 70%, nearly doubling the after-tax share that owners of taxable capital income could keep. That rate reduction thus provided a strong incentive to shift assets from low-yielding, tax-exempt investments like municipal bonds to higher yielding taxable investments. The tax data therefore signaled an increase in measured income inequality even though there was no change in real inequality.

The Tax Reform Act of 1986 lowered the top rate on all income to 28% from 50%. That reinforced the incentive to raise the taxable yield on portfolio investments. It also increased other forms of taxable income by encouraging more work, by causing more income to be paid as taxable salaries rather than as fringe benefits and deferred compensation, and by reducing the use of deductions and exclusions.

The 1986 tax reform also repealed the General Utilities doctrine, a provision that had encouraged high-income individuals to run their business and professional activities as Subchapter C corporations, which were taxed at a lower rate than their personal income. This corporate income of professionals and small businesses did not appear in the income-tax data that Mr. Piketty studied.

The repeal of the General Utilities doctrine and the decline in the top personal tax rate to less than the corporate rate caused high-income taxpayers to shift their business income out of taxable corporations and onto their personal tax returns. Some of this transformation was achieved by paying themselves interest, rent or salaries from their corporations. Alternatively, their entire corporation could be converted to a Subchapter S corporation whose profits are included with other personal taxable income.

These changes in taxpayer behavior substantially increased the amount of income included on the returns of high-income individuals. This creates the false impression of a sharp rise in the incomes of high-income taxpayers even though there was only a change in the legal form of that income. This transformation occurred gradually over many years as taxpayers changed their behavior and their accounting practices to reflect the new rules. The business income of Subchapter S corporations alone rose from $500 billion in 1986 to $1.8 trillion by 1992.

Mr. Piketty's practice of comparing the incomes of top earners with total national income has another flaw. National income excludes the value of government transfer payments including Social Security, health benefits and food stamps that are a large and growing part of the personal incomes of low- and middle-income households. Comparing the incomes of the top 10% of the population with the total personal incomes of the rest of the population would show a much smaller rise in the relative size of incomes at the top.

Finally, Mr. Piketty's use of estate-tax data to explore what he sees as the increasing inequality of wealth is problematic. In part, this is because of changes in estate and gift-tax rules, but more fundamentally because bequeathable assets are only a small part of the wealth that most individuals have for their retirement years. That wealth includes the present actuarial value of Social Security and retiree health benefits, and the income that will flow from employer-provided pensions. If this wealth were taken into account, the measured concentration of wealth would be much less than Mr. Piketty's numbers imply.

The problem with the distribution of income in this country is not that some people earn high incomes because of skill, training or luck. The problem is the persistence of poverty. To reduce that persistent poverty we need stronger economic growth and a different approach to education and training, not the confiscatory taxes on income and wealth that Mr. Piketty recommends.

"A modern Marx:  Thomas Piketty’s blockbuster book is a great piece of scholarship, but a poor guide to policy," The Economist, May 3, 2014 ---

"Thomas Piketty: Marx 2.0," by Rana Foroohar, Time Magazine, May 19, 2014, pp. 46-49 ---

But "redistribute wealth" is a relative term.  Paul Krugman's review --- 
Jensen Comment
Especially note Krugman's point about how technology changed the structure of wealth in America to a point where Piketty's European world is not quite the same as the U.S. world of the wealthy in 2012. Piketty does not entirely overlook that in his book.

Ten ways to fight inequality without Piketty's Wealth Tax ---

Swiss Voters Reject $25/hour Minimum Wage ---

Jensen Comment
In terms of extraordinary housing and other living costs in Switzerland the $25 per hour would be a poverty wage if it were not for "free" health care, education, and other generous public benefits in Switzerland.

"More on Justice Scalia's Critique of Legal Education," by Paul Caron, TaxProf Blog, May 21, 2014 ---

Following up on Saturday's post, Justice Scalia Rejects 2-Year Law School, Skills Training; Calls for Cutting Tuition and Faculty Salaries, Increasing Faculty Teaching Loads:



"DC Schools: $29,349 Per Pupil, 83% Not Proficient in Reading," by Terence P. Jeffrey, CNS News, May 14, 2014 ---

The public schools in Washington, D.C., spent $29,349 per pupil in the 2010-2011 school year, according to the latest data from National Center for Education Statistics, but in 2013 fully 83 percent of the eighth graders in these schools were not "proficient" in reading and 81 percent were not "proficient" in math.

These are the government schools in our nation's capital city — where for decades politicians of both parties have obstreperously pushed for more federal involvement in education and more federal spending on education.

Government has manifestly failed the families who must send their children to these schools, and the children who must attend them.

Under the auspices of the National Center for Education Statistics, the federal government periodically tests elementary and high school students in various subjects, including reading and math. These National Assessment of Educational Progress tests are scored on a scale of 500, and student achievement levels are rated as "basic," "proficient" and "advanced."

In 2013, students nationwide took NAEP reading and math tests. When the NCES listed the scores of public-school eighth graders in the 50 states and the District of Columbia, D.C. came in last in both subjects.

D.C. eighth graders scored an average of 248 out of 500 in reading, and Mississippi finished next to last with an average of 253.

Only 17 percent of D.C. 8th graders rated "proficient" or better in reading. In Mississippi, it was 20 percent.

In math, D.C. public-school eighth graders scored an average of 265 out of 500, and only 19 percent were rated "proficient" or better. Alabama placed next to last with an average math score of 269, with 20 percent rated "proficient" or better.

Some might argue it is unfair to compare, Washington, D.C., a single city, with an entire state. However, D.C. also does not compete well against other big cities.

The Department of Education's Trial Urban District Assessments program compares the test results in 21 large-city school districts, including Washington, D.C.

In these assessments, the scores of students from charter schools were removed and the average reading score for D.C. public school eighth-graders dropped to 245. That was below the national large-city average of 258, and tied D.C. with Fresno for seventeenth place among the 21 big cities in the TUDA.

Continued in article

Mr. Ravitch is the former lieutenant governor of New York and an adviser to the bankruptcy judge in Detroit.

Teaching Case
From The Wall Street Journal Accounting Weekly Review on May 23, 2014

More Detroits Are on the Way
by: Richard Ravitch
May 16, 2014
Click here to view the full article on WSJ.com

TOPICS: Generally accepted accounting principles, Governmental Accounting

SUMMARY: "The most significant step taken after New York City's near-bankruptcy in 1975 was to curb creative-accounting practices...accomplished...[t]hrough a state requirement that the city balance its budget in accordance with generally accepted accounting principles." So opines the "former lieutenant governor of New York [who is] an an adviser to the bankruptcy judge in Detroit." Various accounting and operating practice issues are raised in the article; Mr. Ravitch attributes choices in these reporting and operating activites to the fact that "no other local government chose to follow the example of New York City...." A recent report issued by the author and former Federal Reserve Chairman Paul Volcker entitled the Final Report of the State Budget Crisis Task Force" finds that most cities' and states' fiscal problems are structural, not cyclical (tied to economic cycles) and "the crisis is deepening."

CLASSROOM APPLICATION: The article may be used in a government accounting course.

1. (Introductory) What report has the author of this opinion-page article recently issued? Why was the report commissioned?

2. (Advanced) Cite one example of a way in which, according to the author, states and cities are practicing "creative accounting." In your answer, state whether you believe the accounting is in accordance with authoritative guidance and support your position.

3. (Advanced) The operating activities and reporting problems highlighted in the article include states borrowing to cover operating deficits. How is this done "indirectly" as described in the article?

Reviewed By: Judy Beckman, University of Rhode Island

Taking New York Back to the Bad Old Days
by Fred Siegel and Nicole Gelinas
May 20, 2014
Online Exclusive

"More Detroits Are on the Way," by Richard Ravitch, The Wall Street Journal, May 16, 2014 ---

The most significant step taken after New York City's near-bankruptcy in 1975 was to curb creative-accounting practices. How was that accomplished? Through a state requirement that the city balance its budget in accordance with generally accepted accounting principles. The city has not had a fiscal crisis since.

So it's not surprising that since the city's new mayor, Bill de Blasio, released his first budget last week, there's been intense public debate involving the comptrollers of both the city and the state about whether the deferral of payments contractually due city employees was properly accounted for. Between the scrutiny of the press, civic organizations and public officials, the city's record of 30 years without a fiscal crisis is likely to last.

Sadly, no other local government chose to follow the example of New York City, a choice that has led to chronic shortfalls. Earlier this year, former Federal Reserve Chairman Paul Volcker and I released the "Final Report of the State Budget Crisis Task Force" after nearly three years of study and analysis. The report sought to understand whether the states' current fiscal problems were cyclical—caused by the financial collapse of 2008 and likely to abate with economic recovery—or whether they were structural, the result of long-term revenue and spending imbalances. The report's main finding is that in most states and cities the problems are structural and the crisis is deepening.

The crisis has many elements but a few stand out. First, contributions to employee pension funds are often well below the levels needed to ensure the payment of the benefits that are contractually or constitutionally guaranteed, let alone those that past trustees and legislatures added on a discretionary basis. Sometimes the contributions are not made at all for years at a time. Everyone with a role in determining these contribution levels has an incentive to keep them as low as possible. Politicians don't like to raise taxes to meet future obligations, while public unions would rather take the long-term risk of underfunding rather than face immediate layoffs or benefit reductions.

The largest single expenditure in most state budgets is for Medicaid. Unfortunately, health-care costs have been rising faster than either inflation or state and local tax revenues, and most economists believe they will rise even faster in the next few years.

But the most critical piece of the states' fiscal dilemma is that they are borrowing to cover their operating deficits. They do this directly—by issuing debt securities—but also indirectly. Some states, like New York, make contributions to their pension systems in promissory notes rather than cash. States and cities also sell assets and treat the proceeds as operating revenues, in effect selling off the family silver to stay afloat.

In 2009 Arizona sold its capitol buildings for more than $700 million. In 2008 Chicago leased its parking meters for 75 years for nearly $1.2 billion. In 1991 New York sold Attica Prison for $200 million to itself through a bond issuance, providing a temporary revenue boost but costing taxpayers far more in the long run in interest. While state constitutions contain various balanced-budget clauses, they generally don't define revenues or prevent such creative accounting.

The consequences of our state and municipal fiscal crises are plain: We are drastically underinvesting in physical infrastructure—roads, bridges, ports, etc.—the necessary underpinning of future growth. Just as important, we are also underinvesting in human infrastructure, most notably our children's ability to compete. No one is satisfied with the output of our educational system, yet states spent over half a billion dollars less on prekindergarten education last year than they had the year before.

Permitting states and municipalities to continue these practices will result—indeed, has already begun to result—in harmful service cuts and a failure to fund promises made to creditors, public employees and the beneficiaries of essential public services, including elderly people without minimal levels of financial support. What this means is we can expect to see more Detroits. Last July the Motor City filed the country's largest municipal bankruptcy after racking up $18 billion in promises it could no longer afford to keep.

Meanwhile, the federal government is facing understandable pressure to rein in spending and reduce deficits. One proposal is to reduce health-care spending by raising the age of Medicare eligibility to 67 from 65. Yet this would greatly increase the spending burden on state and local governments currently obligated to fund health care for some 19 million retirees until they are eligible for Medicare. Worse, we can only guess the scale of such impact since there is currently no mechanism in the federal government that properly measures the effects of federal proposals on the states.

No one seriously argues that when credit markets won't allow more state or local government borrowing, Washington should write checks to get them through their crises. Even if an administration proposed such a Band-Aid, it would be politically impossible for Congress to approve it. Yet if the number of cities and states in extreme distress were to grow significantly, the political pressure to do something would increase inexorably. The ultimate cost would be staggering.

It is time for the federal government to take the steps needed to avoid the social and financial crisis that must be expected if nothing changes. Washington now provides almost 30% of what the states spend annually and already imposes many mandates on states and localities in return for its largess. The federal government could condition its continued financial support on states and local governments adopting budget systems that would require recurring expenses to be matched by current revenues.

Continued in article


How to Mislead With Statistics
Gini Coefficient of Poverty

Jensen Comment
The Gini Coefficient is one of the most misleading statistics in economics. It supposedly measures the gap between the rich and poor in any nation. However, the terms "rich" and "poor" are highly relative. For example, the USA has a high Gini Coefficient indicating a gap between the rich and poor. However, South Sudan has very nearly the same Gini Coefficent where the poor of the USA would be considered well off in South Sudan. Think of how rich a person would be in the South Sudan with housing subsidies, food stamps, Medicaid, vehicles, HDTV, and welfare.

Chile is a high Gini Coefficient nation with about the same score as Zambia, but the poor in Chile are not nearly as desperate as the poor in Zambia. The level of income for the poor in Chile is the highest in all of Latin and South America ---

At one point Canada and North Korea had about the same Gini Coefficient, although the index is no longer computed for North Korea ---

"Countries With the Widest Gap Between Rich and Poor," by Alexander E.M. Hess, Vince Calio and Thomas C. Frohlich, Business Insider,  May 20, 2014 ---

Jensen Comment
Denmark has the lowest (best) Gini Coefficient but its public education and health care systems are lacking and rank below those of Morocco ---

Other measures of inequality and poverty ---

"The IRS Scandal, Day 379," by Paul Caron, TaxProf Blog, May 23, 2014 ---

. . .

Continued in article

USA Media Ignores Savage Attack on the Jewish Museum in Belgium (three dead and others injured) ---

Democracy is Wrong for the World and Belgium is a Test Case ---

Really difficult environmental decisions should be studied from the standpoint of decision theory

"California Drains Reservoirs in the Middle of a Drought:  The state desperately needs water, yet federal policy sends huge 'pulse flows' into the Pacific to benefit fish," by Tom McClintock, The Wall Street Journal, May 23, 2014 ---

Jensen Comment
There are two environmental benefit and cost factors going on where accountants and economists really do not have good answers about measurement.

  1. Accountants and economists are not good at measurement when their are externalities (non-convexities) that blow up their simplistic models ---

  2. Accountants and economists are not good at measurement of long-term costs and benefits. The water for fish versus farms illustration above is a perfect example of where food prices for the most people in the short term are helped by diverting water to Sacramento Valley farmers but the resulting long-term harm to fishing may be more costlly in the long term. Also, with El Nino becoming more likely, perhaps the rains might come in time to save the farmers but not the fisheries (but I'm just guessing here).

I don't fault accountants and economists for being so hapless when it comes to measuring environmental benefits and costs. Some problems just cannot be solved in today's world.

I once wrote a research monograph for the American Accounting Association with the title Phantasmagoric Accounting which was critical of misleading simplistic benefit and cost modeling that can be more misleading than helpful.
Scroll down to Volume 14 at

"Hawaii’s ObamaCare exchange most costly in nation," by Malia Zimmerman, Fox News, May 15, 2014 ---

Hawaii’s ObamaCare exchange, the Hawaii Health Connector, costs the nation’s taxpayers the most per enrollee, according to a new study by Kaiser Health. Hawaii’s exchange, which has just more than 8,500 people registered, has a tab of about $23,899 per person. Former U.S. Rep. Charles Djou, D-Hawaii, noted Hawaii’s enrollment cost is 26 times the national average, 2 1/2 times the cost for the second most expensive state, North Dakota. According to the study, just 8,500 Hawaii residents signed up for the Hawaii Health Connector, while 150,000 people are needed to make the program self-sustainable.

"Doctors Think Emergency Room Visits Are Going To Explode Under Obamacare, by Brett LoGiurato, Business Insider, May 22, 2014 ---

One of the major selling points of the Affordable Care Act was its theoretical potential to reduce costly emergency room visits, given the law's access to coverage. 

But a new survey shows that so far under the healthcare law, more people are going to the emergency room. The survey, conducted by the American College of Emergency Physicians, found that since Jan. 1 — the day coverage went into effect for millions of Americans — 46% of emergency physicians have experienced jumps in patients. Half that percentage reported a decrease, and 27% of physicians said the influx has stayed about the same.

And even though it was one of the points President Barack Obama and Democrats used to sell the law ahead of its passage, doctors said they've been expecting this all along.

"We told you this was going to happen. We don't mind that it has. But we'd sure appreciate some support," Howard Mell, a spokesman for the ACEP and an emergency care physician, told Business Insider on Wednesday. 

Emergency physicians only expect it to get worse over the next few years. Eighty-six percent of emergency physicians expect there to be a slight or "great" increase in the amount of visits to their departments over the next three years. Moreover, 77% of these doctors think their facilities are not prepared for the expected influx of patients.

Emergency care physicians also expect payments for ER visits to sharply reduce. They think access to emergency care will improve overall, but that doesn't mean quality care will follow — a plurality of emergency physicians expect the ACA to have a negative effect on quality and patient safety. 

Part of the increase can be expected. Emergency room use is a covered benefit, and when people get insurance, the use of those benefits would be expected to increase somewhat.

But here's the problem: Though the healthcare law has helped get more people insured, it doesn't guarantee care. ACEP says there is an overall shortage of primary care doctors.


Many of the millions who qualified for coverage under the expansion of the federal Medicaid program could also be out of luck, since many primary care doctors do not accept Medicaid patients. Because Medicaid coverage pays so little, it is the main problem, whereas more than 8 million people signed up for private insurance through exchanges established by the law.

The Obama administration said the study comes too soon to draw any long-term conclusions. 

"This survey, looking at only the first three months of coverage, cannot speak to the long-term effects of expanded coverage, which will be shaped by our continuing efforts to help people use their new primary care and preventive care benefits and to invest in innovative approaches aimed at improving our nation’s system of primary care," a Department of Health and Human Services told Business Insider in a statement.

Still, according to the Association of American Medical Colleges, there will be a shortage of about 30,000 too few primary care physicians to keep up with patient demand next year. And the problem is expected to grow — over the next decade, according to the study, primary care physicians will rise by only 7%.

Combined with the fact the American population is getting older — a 36% increase in the American population over 65 — ACEP is warning the U.S. is on something of a "collision course."

"Emergency visits will increase in large part because more people will have health insurance and therefore will be seeking medical care," said Alex Rosenau, the president of ACEP. 

"But America has severe primary care physician shortages, and many physicians do not accept Medicaid patients, because Medicaid pays so low. When people can't get appointments with physicians, they will seek care in emergency departments.  In addition, the population is aging, and older people are more likely to have chronic medical conditions that require emergency care."

A classic example of where the problem continues to manifest is with a patient who has asthma but waits until an emergency to seek coverage. As Mell explains, a primary care doctor should be able to solve the health problem in its infancy — for example, prescribing an inhaler to an asthma-inflicted patient. Instead, the patient will wait until they have an asthma attack. That means $50-$100 worth of medicine becomes thousands of dollars in emergency care.

Some health-policy experts think much of the increase can be mitigated by educating patients about their healthcare options. Many people who just gained insurance for the first time are simply used to routinely going to the emergency room for their healthcare needs.

"Part of the need in this new environment is to teach people who have not had insurance at all or very often in the past how best to use it and the best ways to access care," said Linda Blumberg, a senior fellow at the Urban Institute. "That is, they need help to understand the importance of identifying and using a usual source of care outside of the ER for non emergent situations."

Continued in article

Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm

Redirecting Innovation in U.S. Health Care: Options to Decrease Spending and Increase Value ---

From the CFO Journal's Morning Ledger on May 27, 2014

Health-law costs snarl union contract talks
Labor talks nationwide are becoming more challenging as unions and employers butt heads over who should pick up the tab for new costs associated with the Affordable Care Act
, the WSJ reports. Coverage for dependent children up to age 26 is already an issue, but future costs, like a tax on premium health plans that starts in 2018, are also coming up. Labor experts say the law doesn’t take into account that health benefits have been negotiated over decades, and that rewriting plans to meet end requirements can affect wages and other labor terms.

Jensen Comment
Many firms like Walgreen have already dropped employee health insurance plans.

On a separate matter, the Obama Administration recently ruled that salary increases to replace employer-funded  medical insurance contributions with ACA private exchange plans will not be tax deductible.  This complicates payroll and tax accounting for business firms.  Of course this will not matter to government agencies and other non-profit organizations since they do not seek tax deductions..

From the CPA Newsletter on May 27, 2014

IRS sets high penalties for companies that send employees to ACA health exchanges
According to an Internal Revenue Service ruling, employers that move employees to health insurance exchanges by reimbursing them for their premiums do not satisfy the requirements of the Affordable Care Act. Companies that send workers to the exchanges face a tax penalty of $100 a day, or $36,500 a year, per employee. The New York Times (tiered subscription model) (5/

"I.R.S. Bars Employers From Dumping Workers Into Health Exchanges," by Robert Pear, The New York Times, May 25, 2014 ---

Many employers had thought they could shift health costs to the government by sending their employees to a health insurance exchange with a tax-free contribution of cash to help pay premiums, but the Obama administration has squelched the idea in a new ruling. Such arrangements do not satisfy the health care law, the administration said, and employers may be subject to a tax penalty of $100 a day — or $36,500 a year — for each employee who goes into the individual marketplace.

The ruling this month, by the Internal Revenue Service, blocks any wholesale move by employers to dump employees into the exchanges.

Under a central provision of the health care law, larger employers are required to offer health coverage to full-time workers, or else the employers may be subject to penalties. Many employers — some that now offer coverage and some that do not — had concluded that it would be cheaper to provide each employee with a lump sum of money to buy insurance on an exchange, instead of providing coverage directly.

But the Obama administration raised objections, contained in an authoritative question-and-answer document released by the Internal Revenue Service, in consultation with other agencies.

Continued in article

IRS Ruling Prohibits Employers from Dumping Workers into Exchange May 27, 2014

The Obama administration is out with a new rule (May 2014) that prohibits large groups from giving tax-free contributions to employees in an attempt steer them into the Exchange. According to the new rule, employers caught “dumping” employees into the Exchange could face fines up to $100 a day ($36,500 per year) for each employee who goes into the individual marketplace. [Jensen Comment:  I don't think these fines are tax deductible by the employer}

The Affordable Care Act requires large employers to either offer affordable group coverage or pay a fine. The deadline to do this varies according to the size of the large group. This requirement is called the Employer-Shared Responsibility provision (or the “employer mandate” or “pay-or-play”).

For more information on the new ruling, head to the IRS website.

Eventually, large employers may opt to pay the fine for not providing health insurance and leave their workers to get coverage in the exchanges. Doing so might even save them money.
"Obamacare Increases Large Employers' Health Costs," by Sally Pipes, Forbes, May 19, 2014 ---

Employer-provided health insurance may not be long for this world. According to a new report from S&P Capital IQ, 90 percent of American workers who receive health insurance from large companies will instead get coverage through Obamacare’s exchanges by 2020.

For that, patients — many of whom no doubt like the insurance they currently have — can blame Obamacare. The law’s many mandates, fees, and taxes will increase health costs for large employers to the point that providing health benefits at work is financially unsustainable.

Consider some of Obamacare’s most burdensome new levies. For instance, one fee on group plan sponsors is intended to fund the Patient Centered Outcomes Research Institute (PCORI), a government-sponsored organization charged with investigating the relative effectiveness of various medical treatments. Medicare may consider the Institute’s research in the determining what sorts of therapies it will cover.

Set aside the fact that the government — as paymaster for half of the health care delivered in this country — will have a significant incentive to twist the findings of such research so that older, cheaper therapies seem just as effective as more expensive, cutting-edge ones.

Making matters worse, the federal government is forcing private firms to underwrite its dirty work. For plan years ending after September 30, 2013, and before October 1, 2014, employer sponsors must pay the feds a PCORI fee of $2 per covered life. And for plan years between October 1, 2014, and October 1, 2019, they’ll have to pay an amount adjusted for national health inflation.

Large employers also have to pay a Temporary Reinsurance Fee to help “stabilize” premiums in the individual insurance market. In an American Health Policy Institute (AHPI) survey of businesses with more than 10,000 employees, one company estimated that this fee could cost it $15.3 million from 2014 to 2016.

Then there’s the 40 percent excise tax on expensive insurance plans — those with premiums greater than $10,200 for individuals and $27,500 for families — which goes into effect in 2018. One company in the same survey said that this tax could cost it $378 million over five years.

Large employers like these cover 59 percent of private-sector workers, according to the Employee Benefit Research Institute. So many firms will likely face the same tax-motivated cost increases as these two.

Obamacare doesn’t just tax employers directly. Its many coverage mandates also raise the cost of benefits indirectly.

Effective 2015, the law’s employer mandate requires employers with 100 or more full-time employees to provide health insurance to full-timers or pay a fine. In 2016, those with 50 to 99 employees will have to follow suit. The law originally intended for both groups to comply with the mandate in 2014.

Obamacare also orders plans to cover adult children on their parents’ policies until they’re 26 years of age. This “slacker mandate” has already raised employer health insurance costs by 1 to 3 percent. One firm told AHPI that the mandate could cost it almost $69 million over ten years.

Obamacare also requires employer-sponsored health plans to cover 100 percent of preventive care services, such as immunizations, contraceptive care, and depression screening. One large employer reported that full coverage of contraceptive care on its own could cost $25.6 million over ten years.

It’s no wonder that large employers expect their health bills to escalate in the years to come. The AHPI survey revealed that Obamacare could increase their health costs by 4.3 percent in 2016, 5.1 percent in 2018, and 8.4 percent in 2023.

Those percentages equate to real dollars. Over the next ten years, Obamacare could cost large employers $151 billion to $186 billion. That’s about $163 million to $200 million in additional cost per employer — or $4,800 to $5,900 per employee — solely attributable to the health reform law.

Employers will likely pass along these costs to their workers. According to a recent Mercer survey, 80 percent of employers are considering raising deductibles — or have already done so.

Eventually, large employers may opt to pay the fine for not providing health insurance and leave their workers to get coverage in the exchanges. Doing so might even save them money.

The care for an employee with hemophilia, for example, can cost a company $300,000. That could end up being a lot more expensive than the $2,000 per-employee fine for not offering insurance.

Firms could also continue furnishing insurance to most of their workers — but nudge their costliest ones onto the exchanges by making the company insurance plan unattractive to them. A company could shrink its network of doctors, raise co-payments, or even offer a chronically ill employee a raise to opt out of the employer plan.

In so doing, the company would save money. The employee would be able to secure better coverage through the exchange. And if a raise covered the cost of the exchange policy, both parties would benefit.

Others in the exchange pool — and the taxpayers subsidizing them — won’t be so lucky. Exchange enrollees are already sicker than their counterparts outside the government insurance portals. Indeed, the exchange pool fills prescriptions for the sorts of specialty drugs associated with chronic disease at a rate that’s 47 percent higher than for folks outside the exchanges.

Adding even more high-cost individuals to the exchanges could cause insurers to hike premiums. And higher premiums require greater taxpayer subsidies. Already, the Congressional Budget Office projects that the federal government will spend $1.03 trillion on exchange subsidies and related spending from 2015 to 2024.

If employers dump their sickest employees into the exchanges, that number could go spiral even further upward.

Continued in article

"Best of the Web Today: No 'Dumping' Obama acts to protect workers from ObamaCare," by James Toronto, The Wall Street Journal,

Two months ago Ezekiel Emaunel, one of the designers of ObamaCare, predicted that one long-term effect of the so-called Patient Protection and Affordable Care Act would be the near-abolition of employer-provided health insurance. On balance, he argued, the law's incentives would induce employers to drop their plans and instead increase cash compensation so that employers could buy plans on the ObamaCare exchanges.

This column was skeptical. Our argument was that the horrors of the exchanges would give workers newfound appreciation for their employer plans, increasing the pressure on both companies and politicians to preserve the existing system. To judge by this story in the New York Times, we were right:

Many employers had thought they could shift health costs to the government by sending their employees to a health insurance exchange with a tax-free contribution of cash to help pay premiums, but the Obama administration has squelched the idea in a new ruling. Such arrangements do not satisfy the health care law, the administration said, and employers may be subject to a tax penalty of $100 a day--or $36,500 a year--for each employee who goes into the individual marketplace.

The ruling this month, by the Internal Revenue Service, blocks any wholesale move by employers to dump employees into the exchanges.

The key word here is tax-free: Employers can give raises in lieu of medical insurance, but the former, unlike the latter, are taxable income. "The I.R.S. is going out of its way to keep employers in the group insurance market and to reduce the incentives for them to drop coverage," Richard Lindquist, president of a benefits software company, tells the Times.

The word that got our attention, though, is dump. It appears in the headline, too: "I.R.S. Bars Employers From Dumping Workers Into Health Exchanges." If the New York Times were our only source of news, we'd be very confused right now. (Well, OK, we'd be very confused almost always.) For months the Times has been touting the quality of ObamaCare policies, scoffing at those who liked their previous plans and were victimized by President Obama's fraudulent promise that they could keep them.

Now all of a sudden the exchanges are a garbage dump? Or is it that the exchanges are a pristine wilderness into which workers are the garbage being dumped?


"Health-care fraud in America:  That’s where the money is How to hand over $272 billion a year to criminals," The Economist, May 31, 2014 ---

MEDICAL science is hazy about many things, but doctors agree that if a patient is losing pints of blood all over the carpet, it is a good idea to stanch his wounds. The same is true of a health-care system. If crooks are bleeding it of vast quantities of cash, it is time to tighten the safeguards.

In America the scale of medical embezzlement is extraordinary. According to Donald Berwick, the ex-boss of Medicare and Medicaid (the public health schemes for the old and poor), America lost between $82 billion and $272 billion in 2011 to medical fraud and abuse (see article). The higher figure is 10% of medical spending and a whopping 1.7% of GDP—as if robbers had made off with the entire output of Tennessee or nearly twice the budget of Britain’s National Health Service (NHS).

Crooks love American health care for two reasons. First, as Willie Sutton said of banks, it’s where the money is—no other country spends nearly as much on pills and procedures. Second, unlike a bank, it is barely guarded.

Some scams are simple. Patients claim benefits to which they are not entitled; suppliers charge Medicaid for non-existent services. One doctor was recently accused of fraudulently billing for 1,000 powered wheelchairs, for example. Fancier schemes involve syndicates of health workers and patients. Scammers scour nursing homes for old people willing, for a few hundred dollars, to let pharmacists supply their pills but bill Medicare for much costlier ones. Criminal gangs are switching from cocaine to prescription drugs—the rewards are as juicy, but with less risk of being shot or arrested. One clinic in New York allegedly wrote bogus prescriptions for more than 5m painkillers, which were then sold on the street for $30-90 each. Identity thieves have realised that medical records are more valuable than credit-card numbers. Steal a credit card and the victim quickly notices; photocopy a Medicare card and you can bill Uncle Sam for ages, undetected.

It is hard to make such a vast system secure: Medicare’s contractors process 4.5m claims a day. But pointless complexity makes it even harder. Does Medicare really need 140,000 billing codes, as it will have next year, including ten for injuries that take place in mobile homes and nine for attacks by turtles? A toxic mix of incompetence and political gridlock has made matters worse. Medicare does not check new suppliers for links to firms that have previously been caught embezzling (though a new bill aims to fix this). Fraud experts have long begged the government to remove Social Security numbers from Medicare cards to deter identity thieves—to no avail.

Start by closing the safe door

One piece of the solution is obvious: crack down on the criminals. Obamacare, for all its flaws, includes some useful measures. Suppliers are better screened. And when Medicaid blackballs a dodgy provider, it now shares that information with Medicare—which previously it did not. For every dollar spent on probing health-care fraud, taxpayers recover eight. So the sleuths’ budgets should be boosted, not squeezed, as now.

But the broader point is that American health care needs to be simplified. Whatever its defects, Britain’s single-payer National Health Service is much simpler, much cheaper and relatively difficult to defraud. Doctors are paid to keep people well, not for every extra thing they do, so they don’t make more money by recommending unnecessary tests and operations—let alone billing for non-existent ones.

Too socialist for America? Then simplify what is left, scale back the health tax-perks for the rich and give people health accounts so they watch the dollars that are spent on their treatment. After all, Dr Berwick’s study found that administrative complexity and unnecessary treatment waste even more health dollars than fraud does. Perhaps that is the real crime.



Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm

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Current and past editions of my newsletter called Fraud Updates ---

Enron --- http://www.trinity.edu/rjensen/FraudEnron.htm

Rotten to the Core --- http://www.trinity.edu/rjensen/FraudRotten.htm

American History of Fraud --- http://www.trinity.edu/rjensen/FraudAmericanHistory.htm

Bob Jensen's fraud conclusions ---

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Shielding Against Validity Challenges in Plato's Cave ---

·     With a Rejoinder from the 2010 Senior Editor of The Accounting Review (TAR), Steven J. Kachelmeier

·     With Replies in Appendix 4 to Professor Kachemeier by Professors Jagdish Gangolly and Paul Williams

·     With Added Conjectures in Appendix 1 as to Why the Profession of Accountancy Ignores TAR

·     With Suggestions in Appendix 2 for Incorporating Accounting Research into Undergraduate Accounting Courses

Shielding Against Validity Challenges in Plato's Cave  --- http://www.trinity.edu/rjensen/TheoryTAR.htm
By Bob Jensen

What went wrong in accounting/accountics research?  ---

The Sad State of Accountancy Doctoral Programs That Do Not Appeal to Most Accountants ---


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Tom Lehrer on Mathematical Models and Statistics ---

Systemic problems of accountancy (especially the vegetable nutrition paradox) that probably will never be solved ---

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