By Chris Reed

California’s mainstream media is for the most part promoting Covered California’s spin that its implementation of Obamacare come Jan. 1 is going splendidly, and that insurance rates will be less than expected. Thankfully, smart blogger-experts have torn this myth to shreds. Rates will in fact soar for many groups of people, with the hardest hit going to be male non-smokers 40 and under.

Now David Hogberg, a health care policy analyst for the National Center for Public Policy Research, has detailed another big, related problem with an analysis headlined “California’s Coming Health Insurance Death Spiral.” Hogberg’s focus is on the likelihood that many young people skip purchasing health insurance because the fine for not having insurance is relatively small and the premium subsidies for the less affluent won’t help much in getting the young to buy coverage.

How Obamacare’s incentives will create an insurance ‘death spiral’

“The two most important regulations regarding whether younger and healthier people will participate are known as community rating and guaranteed issue.

“In its strictest form, community rating means that insurers must charge everyone the same premium, regardless of factors such as health status and age. ObamaCare uses a modified form that doesn’t allow insurers to vary rates based on health status.  …

“Guaranteed issue, in its strictest form, means that an insurer must sell a policy to a consumer anytime. …

“Both of these rules give young and healthy people big incentives to forgo insurance coverage altogether. Community rating means young people have a reduced incentive to buy insurance since they will pay a premium that is above the market rate. Guaranteed issue gives them even less incentive to buy insurance while they are healthy because when they get sick an insurer will have to sell them a policy.

“A handful of states tried to reform their individual markets this way in the early 1990s. Of course, many young and healthy people did drop out of those markets as a result. That meant that those who remained in the insurance pools were older and sicker, a factor that drove up the rate of premiums. As premiums rose, even more young and healthy people dropped their insurance. Insurance pools got even sicker and older, and rates continued to rise. The phenomenon became known as the ‘death spiral,’ and was chronicled in the late Conrad Meier’s monograph ‘Destroying Insurance Markets.^‘”

Some of sickest Californians in for sticker shock as well

Hogberg also focuses on a grim detail of Covered California’s plans that hasn’t gotten the attention it deserves.

“California officials treated some of their constituents less equally than others. People who need specialty drugs — high-cost drugs engineered to treat complex, chronic conditions — got the shaft. According to the Associated Press, ‘Such “specialty drugs” can cost thousands of dollars a month, and in California, patients would pay up to 30 percent of the cost. For one widely used cancer drug, Gleevec, the patient could pay more than $2,000 for a month’s supply, says the Leukemia & Lymphoma Society.’

“In response, Dana Howard, a spokesperson for Covered California, said ‘We are trying to keep the insurance affordable across the board. This is just part of trying to manage the overall risk of the pool.^‘

“As a list of specialty drugs from Express Scripts shows, those who need specialty drugs are some of the sickest of the sick, including (but not limited to) transplant recipients and those with blood cell deficiency, cancer, immune deficiencies, and multiple sclerosis.

“Presumably, these are the types of people for whom ObamaCare is supposed to provide the most protection against major health-care costs. So why did California officials — those generous, compassionate, concerned-only-with-the-best-interests-of-their-constituents officials — permit insurers to charge huge co-pays to very sick enrollees in order to keep premiums low?”

The frail and the medically ravaged won’t form picket lines

Hogberg suspects it’s because they’re unlikely to be much of a political headache to the politicians in Sacramento.

“… only about one in 100 users of commercial insurance need these expensive specialty drugs. … Most politicians will have little to worry about from people who take specialty drugs and who are looking to hold someone responsible for the shabby deal they get through Covered California.

“Furthermore, people on specialty drugs are probably too sick to engage in the sorts of activities necessary to make changes in policy –- activities such as get-out-the-vote drives, protests and lobbying. Thus, California’s officials probably don’t have to worry much about specialty-drug consumers stirring up trouble.

“There will undoubtedly be more examples of this inequity as ObamaCare unfolds, because, as government expands more and more into a health care system, the health care available is determined less by need and more by political clout. In general, the sicker one becomes, the less political clout one has. Few people get seriously ill each year, meaning that they are not a substantial number of voters. And most are in no physical condition to be actively engaged in politics.

“So when it comes time to cut costs, guess who is going to feel the brunt of it? Covered California just provided a prime example.”

At least it will deeply undermine faith in big government

The coming disaster that is Obamacare is going to do even more than the IRS and the spying-on-the-public scandals to undermine faith in big government. That will be a welcome development. But the price is going to be immense: costly chaos in health care.

By Chris Reed

One of the best reasons to snort with derision over Gov. Jerry Brown’s claim to have whipped the state budget into shape is his decision to simply ignore the crisis posed by cost of unfunded health benefits for state retirees. This is from state Controller John Chiang in February:

“The unfunded actuarial accrued liability of providing health and dental benefits for state retirees is projected to be $63.84 billion over 30 years. ‘The current pay-as-we-go model of funding retiree health benefits is short-sighted and a recipe for undermining the fiscal health of future generations of Californians,’ Chiang said.  ‘However, today’s challenge won’t necessarily become tomorrow’s crisis if policymakers can muster the fiscal discipline to invest now so that we can pay tens of billions of dollars less later.'”

Yet another absurd flaw in the Affordable Care Act

So much for the controller’s plea. Brown includes zip for retiree health care in his 2013-14 budget. But maybe Jerry’s figured out something that only a USA Today columnist appears to have noticed so far: Obamacare is so incompetently crafted that it could allow states to offload retiree health-care obligations onto federal taxpayers.

“We already know that many state and local governments are in a financial hole that keeps getting deeper. A newly released report by the U.S. Government Accountability Office (GAO) makes clear that, absent significant reforms, the fiscal picture for most state and local governments will steadily worsen through 2060. A main cause, in addition to Medicaid, is the cost of health care for state and local government retirees. These largely unfunded obligations are similar to the pressures on the federal government to fulfill its unrealistic Medicare promises.

“But there is a critical difference when it comes to how state and local governments can approach these obligations compared to the federal government. State and local governments can’t print money and typically have balanced budget requirements. More often than not, retiree health benefits are not guaranteed under state constitutions, are not insured, and are not protected by federal law, which means the systems in place can be changed.

“States that offer extremely generous health benefits for government retirees, and which have little to no pre-funding for those benefits, could choose to move their retirees into the Affordable Care Act’s new exchanges. State and local governments would likely continue to contribute by paying some premium support to individual retirees for healthcare, but the federal government and/or participants in the exchanges would pick up much of the tab. For these states, the exchanges offer a chance to shore up their finances and relieve state taxpayers of some of the looming burden of financing all those retirees. It could be a huge opportunity for states and localities in desperate need of fixing their long-term finances, and one that they should seriously consider in the coming months.”

The poster child for Obamacare? More like the canary in a coal mine

This is richly hilarious. But other states — at least well-run states that don’t need to slough off their responsibilities on the federal government — aren’t likely to love bailing out California. Even then, the Golden State has a secret weapon: the Obama administration’s intent to make California the example that sells the rest of America on the glory that is Obamacare. This is from a Thursday online post by Sandhya Somashekhar and Sarah Kliff on the Washington Post Wonkblog:

“President Obama will try to allay anxiety over his signature health-care law Friday during a visit to California, a state that the White House is highlighting as proof that the law is working.”

The Post bloggers’ definition of “working,” of course, is built on the lies told by California Covered about low insurance premiums. But maybe California will get lots of love in the implementation of Obamacare in coming years if the White House really wants the Golden State as poster child for the law.

So maybe Jerry Brown really should think about trying to shift the $64 billion in unfunded state retiree health care costs to the federal government. That can be California’s price for being the canary in the coal mine — not the poster child — for Obamacare.

By Chris Reed

Last week, when the California agency that has the lead role in implementing Obamacare announced the rate structure for various insurance plans to be offered beginning Jan. 1, 2014, the media jumped to a lot of conclusions — conclusions flattering to Obamacare, as one would expect from a media that mostly waited until after the health care overhaul was adopted to point out its many immense flaws. (The New York Times put out a devastating analysis — but it was three weeks after Obamacare was signed into law!)

On California’s version of Obamacare, here was what the Los Angeles Times emphasized early in its story:

“‘These rates are way below the worst-case gloom-and-doom scenarios we have heard,’ said Peter Lee, executive director of Covered California, the state agency implementing the healthcare law.”

Here was what The New York Times’ Paul Krugman emphasized:

” … important new evidence — especially from California, the law’s most important test case — suggests that the real Obamacare shock will be one of unexpected success. … the California bids are in — that is, insurers have submitted the prices at which they are willing to offer coverage on the state’s newly created Obamacare exchange. And the prices, it turns out, are surprisingly low. A handful of healthy people may find themselves paying more for coverage, but it looks as if Obamacare’s first year in California is going to be an overwhelmingly positive experience.”

LAT and Krugman: What they didn’t mention

Not so fast, say two journalists who have written extensively about Obamacare, and not from inside the tank that houses the mainstream media.

This is from Avik Roy of Forbes:

“If you’re a 25 year old male non-smoker, buying insurance for yourself, the cheapest plan on Obamacare’s exchanges is the catastrophic plan, which costs an average of $184 a month. (That’s the median monthly premium across California’s 19 insurance rating regions.)

“The next cheapest plan, the ‘bronze’ comprehensive plan, costs $205 a month. But in 2013, on eHealthInsurance.com (NASDAQ:EHTH), the average cost of the five cheapest plans was only $92. In other words, for the average 25-year-old male non-smoking Californian, Obamacare will drive premiums up by between 100 and 123 percent.

“Under Obamacare, only people under the age of 30 can participate in the slightly cheaper catastrophic plan. So if you’re 40, your cheapest option is the bronze plan. In California, the median price of a bronze plan for a 40-year-old male non-smoker will be $261. But on eHealthInsurance, the average cost of the five cheapest plans was $121. That is, Obamacare will increase individual-market premiums by an average of 116 percent.

“For both 25-year-olds and 40-year-olds, then, Californians under Obamacare who buy insurance for themselves will see their insurance premiums double.”

This is from Peter Suderman of Reason:

“… this good news is not as good as it might sound, because it’s based on a misleading comparison: next year’s individual market rates with this year’s small-employer plans. A more useful comparison would be with this year’s individual-market premiums. And what that comparison reveals is that rate shock is real, and that the hikes are far larger than the comparison with small-group rates would suggest.”

Karma time: Bay Area to be hardest hit

The good news here is that as much as the media has been cheerleading for Obamacare, it remains highly unpopular — even before it kicks in. When people actually have to pay much more for insurance than they used to, the backlash is likely to reach a whole new level.

And here in California, the hardest-hit will be Obama’s biggest fans. Karma, baby! Avik Roy of Forbes says Obamacare’s impact on premiums for 40-year-olds “is steepest in the San Francisco Bay area, especially in the counties north of San Francisco, like Marin, Napa, and Sonoma.”

More from Roy:

“Supporters of Obamacare justified passage of the law because one insurer in California [Anthem Blue Cross] raised rates on some people by as much as 39 percent. But Obamacare itself more than doubles the cost of insurance on the individual market. I can understand why Democrats in California would want to mislead the public on this point. But journalists have a professional responsibility to check out the facts for themselves.”

If only California journalists lived up to that professional responsibility.

By Joseph Perkins

Employees at Chevron’s San Ramon corporate headquarters received an unexpected email yesterday. It notified them that a quarter of their jobs are being moved from California to Texas.

The oil giant, the Golden State’s largest corporation, offered no detailed explanation for the mass transfer. But I suspect it had something to do with California’s decidedly unfriendly business climate.

Indeed, Forbes magazine this month ranked California one of the 10 worst states for business based on six factors: business costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life.

“California is littered with problems,” the magazine decries.

It ranks last, Forbes noted, in Pollina Corporate Real Estate’s study of the states with the best financial incentive programs and state economic development efforts. Moody’s rates California’s bonds A1, the second lowest of any state. And a study by the Mercatus Center, “Freedom in the 50 States,” ranked California’s regulatory climate the fourth worst among the states.

Meanwhile, California has the fourth-highest tax burden, according to a study by the Tax Foundation. And energy costs here in the Golden State are 33 percent above the national average.

What amazes is that lawmakers in Sacramento don’t think the state’s business climate so bad. They actually think that California is a great state for business.

Chevron obviously disagrees. That’s why it’s transferring 800 jobs from San Ramon to Houston. And the oil giant’s move is no aberration. Corporations are fleeing California for states that don’t view big business as a necessary evil.

Leaving

Indeed, Forbes noted that Comcast shut down its Northern California call centers this year, citing “the high cost of doing business in California.” Some 1,000 workers lost their jobs.

It also mentioned Campbell’s Soup, which padlocked its Sacramento factory, displacing some 700 workers. The company decided to move production to Texas, North Carolina and even Ohio of all places.

That’s not to say there are no benefits to doing business in the Golden State. Indeed, Forbes lists several.

The state has a $2 trillion economy, the world’s ninth largest, which is projected to expand 3.6 percent annually over the next five years (Lord willing and the creek don’t rise).

Some 10 percent of the nation’s 1,000 largest public and private companies are based in California. And they are staffed at the highest levels by very well educated workers, many of whom are products of the state’s first-rate universities.

Venture capital

California’s venture capital community continues to spur innovation, investing some $36 billion in promising home grown companies over the past three years, four times the total of any other state.

And, of course, California has the best weather in the country.

Those attributes keep many California corporations from following the examples of Chevron, Comcast, Campbell’s Soup and numerous others that have moved some or all their operations to more business-friendly states.

But even those California loyalists may eventually decide to flee if Sacramento continues to raise taxes, impose regulations and otherwise pursue policies that make it prohibitive to do business in the Golden State.

By KATY GRIMES

In a poignant and often funny talk, Forbes Magazine Publisher Rich Karlgaard believes this economic recession could have and should have been avoided, and the worsening U.S. economy is a man-made crisis thanks to the media, political events, as well as some serious leadership missteps.

Karlgaard gave an optimistic and economically stimulating talk about the state of the U.S. economy Monday night for the Sacramento Speaker Series, as well as honing in on California’s economic decline.

Discussing where we are in the economy, why this is not the Great Depression and how the crisis happened, Karlgaard shared an anecdote about U.S. Treasury Secretary Hank Paulsen’s ironic statement in 2007, that the U.S. and global economies were in the best shape he had seen in his life. Getting a moan from the audience, Karlgaard explained that Paulsen wasn’t entirely incorrect – the global economies were doing well in 2007 even with the U.S. declining.

It wasn’t until September 2008, in what Karlgaard described as a man-made economic downturn caused by many “political events and missteps,” that the U.S. economy really showed signs of financial sickness. The failure of Lehman Brothers and Bear Sterns signaled to the global economy that the U.S. was in trouble. In no uncertain terms, Karlgaard placed blame on the media as they helped engender mass economic fear, particularly when Time Magazine put a photo from the Great Depression on the October 2, 2008 cover for a story called “The End of Prosperity?”

Karlgaard first outlined the mood during the Depression in 1938-1942 when many Americans thought the American experiment was over. He then contrasted the 1970’s with today, politically and economically, drawing comparisons between former President Jimmy Carter and President Barack Obama who both ran as reformers. The stock market in the 1970s dramatically dropped, political scandals abounded, not the least of which involved President Nixon and Vice President Spiro Agnew, the oil embargo was headline news, and in 1974 Jerry Brown was elected the “Boy Governor” of California at the age of 36, events which Karlgaard says feel familiar today. Even more dramatic is the national tax revolt that is currently taking place with the Tea Parties, took place in California in 1978 with taxpayer revolt Proposition 13, said Karlgaard.

Yet according to Karlgaard, even with one of the worst financial decades, there were business start-ups that have endured; Federal Express, Microsoft, Apple Computer, Genentech and Oracle all started in the 1970’s. And, explained Karlgaard, this is happening again but on a global level and mostly in the technological markets.

Asked why California is the worst state in which to do business, Karlgaard acknowledged that California is in a tough spot and “must grow, and not tax the way out.”

Karlgaard was asked to rationalize the bonuses that bankers are receiving to which he quickly replied that government control is not the answer. Karlgaard explained that government no doubt will drive banking out of the U.S. through over regulation if they try to interfere, since banking markets are already international.

Eventually, the talk turned to the California governor’s race. Karlgaard, a California resident, was asked what he thought of Meg Whitman and her CEO style. “She’s as competent as can be,” Karlgaard emphatically replied. He added that Jerry Brown may have Whitman in charisma, but this is not a normal year in which Brown might win on his charm.

Karlgaard predicted that the Republicans may capture the 2010 elections, but he is not sure how this would play out in the 2012 elections unless President Obama becomes more of a centrist the way Bill Clinton did after the 1994 elections, when Newt Gingrich and the Republicans took over Congress.

Inevitably, he was asked about the political future of Steve Forbes, Karlgaard’s boss and friend. Karlgaard said that he thinks Forbes should be appointed treasury secretary or Fed chairman someday, but for the time being, Forbes prefers being a political agitator since his areas of expertise are economic history, military history and politics, all of which would serve him well in such a position.

Rounding out the talk was education. Karlgaard discussed teachers and low SAT scores, a topic he said is normally considered politically incorrect. He was not talking about the SAT scores of students, but of today’s teachers whose SAT scores have been in decline over the years.

Karlgaard addressed that in decades past and before women were prevalent in law firms and corporate America, schools benefited from really smart woman as teachers. Once business opportunities opened up for women, many gravitated to businesses for work instead of teaching, thereby lowering the quality of teachers. Karlgaard opined that good elementary and high school teachers should make six figures. However, he did not address public employee unions or the teachers union in the state, which would have greatly added to the discussion.

In his column on Forbes’ blog, “Digital Rules,” Karlgaard writes about technology, entrepreneurship, regional economic development, and the future of business and work.