health-insurance

Dean Baker: That Joke About Intergenerational Equity

August 10, 2010

The Washington Post and most of the important people in Washington want the United States to be like Kazakhstan. Unfortunately, this is not another Borat movie, this is about the central focus of economic policy in the United States today. Kazakhstan has a debt-to-GDP ratio of just 14.2 percent, one of the lowest in the world. By other measures, Kazakhstan doesn’t score so well. Its per-capita income is $11,800, just over one-fourth as much as the United States. Life expectancy for the people of Kazakhstan is just 68.2 years, putting it behind countries like Iraq and Honduras. By most measures, Kazakhstan looks like a rather unappealing place, but factors like the health and wealth of the population don’t matter to the policy elite in Washington. They care about budget deficits and debt, and by that standard Kazakhstan is golden. If there were ever any doubt about the absurdity of Washington economic policy debates, it was eliminated with the release of the 2010 Social Security and Medicare Trustees reports. Usually these reports do not differ much from one year to the next. They involve projections over a 75-year time horizon. Even a bad or terrible year, like 2009 or 2010, doesn’t make much difference in the context of a 75-year planning horizon. However, there was a big change in the 2010 reports. The Trustees decided that President Obama’s health care reform would substantially lower the growth trajectory for health care costs. (The chief actuary for Medicare strongly disagreed with this assessment, but that is another issue.) The change in projections has very direct implications for Medicare. The slower projected growth in costs eliminated more than 80 percent of the projected long-term deficit. The shortfall in Medicare over its 75-year planning horizon is now projected to be just 0.3 percent of GDP over this period. This is roughly equal to the annual cost of President Bush’s tax cuts to the wealthy. If these projections prove accurate, then Medicare is very much an affordable program long into the future. The assumption of lower health care costs also had implications for Social Security. In the last several decades, the portion of workers’ compensation that went to pay for employer-provided health insurance had been increasing at a rate 0.2 percentage points each year. This was the result of rising health care costs. The 2009 projections assumed that the cost of employer-provided health insurance would continue to rise. The 2010 projections assume that the cost will actually decline at the rate of 0.1 percent a year. This makes a small difference in improving the solvency of Social Security, since wages are subject to the payroll tax, while employer-provided health insurance is not. Therefore the new numbers means the taxable wage base is projected to increase more rapidly through time. However, the change in the projected growth of health care costs also has another much more important implication that went altogether unnoticed. It means that workers in the future will be considerably wealthier than we had previously believed. In other words, if healthcare reform will effectively contain cost growth without jeopardizing quality, then our children and grandchildren will be far wealthier than in a world without health care reform. The 2010 projections show the average worker’s wage will be 47.8 percent higher in 2040 than it is today. This is after adjusting for inflation, so the projections show that workers’ purchasing power in 2040 will be 47.8 percent greater than it is now. The new projected annual wage for 2040 is 6.3 percent higher than figure projected for last year. To understand the importance of this change in wage growth projections, suppose we told our children and grandchildren that the payroll tax would have to be raised by 3.0 percentage points to support Social Security (an extraordinarily large increase). They would have more money in their pockets with the tax increase under the current projections, than with no tax increase and the wage growth projected in the 2009 report. If the important people in Washington actually cared about our children and grandchildren and their living standards, then they all would have been celebrating the prospect of the higher living standards implied by the new projections. But that wasn’t the case. Not one of the big deficit fighters even mentioned the projected rise in living standards. So, let’s be really really clear. The deficit hawks don’t give a damn about the living standards of our children and our grandchildren. They just want to take away our (and their) Social Security and Medicare. This is a class war where the wealthy want to take away anything and everything they can from the people who are not rich. The story about intergenerational equity is just a bad joke.

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Richard (RJ) Eskow: Too Old to Rock ‘n’ Roll, Too Young to Die Ruin Social Security

August 7, 2010

Don’t Fear the Boomers. Despite the scaremongers’ attempts to incite generational war, people born between 1946 and 1964 are not going to destroy Social Security. The Baby Boom cohort isn’t going to be a crippling financial burden for Generation X, Generation Y, Generation XYY, or any other generation. It may be true that their descendants will be forced to listen to their greatest hits until the sun goes supernova (more cowbell, please!), but economically there’s nothing to worry about. Since I’m one of the dreaded boomers myself I guess I can’t be considered objective, so don’t take my word for it. Ask an actuary. Harry C. Ballantyne’s biography demonstrates that he’s the nation’s leading expert in forecasting Social Security trends. His career includes eighteen years as the Chief Actuary for the Social Security Administration (under Reagan, Bush I, and Clinton) and a degree in Physics – but no time whatsoever as the bass player for Jethro Tull. Actuarial certification is extremely hard to receive, and those guys know their stuff. (I know because when I was a young Boomer and numbers guy, my boss offered to finance my actuarial training. But I had small children at home, you gotta take a lot of really hard exams, yada yada yada … you know how flightly these boomers are.) What does Harry C. Ballantyne says about all the generational fear being whipped up today? A new report released yesterday by the Economic Policy Institute (EPI), co-authored by Ballantyne with EPI President Lawrence Mishel and economist Monique Morrissey, explains: “Social Security is running a surplus of $77 billion this year and amassing a trust fund large enough to last through the peak retirement years of the Baby Boomers.” Hey, kids! Leave them boomers alone! “Though modest changes will be needed to put Social Security in Balance over the 75-year planning period,” the report adds, “the projected shortfall is less than 1% of Gross Domestic Product.” Got that? Military expenditure is 4.7% of GDP. The Bush tax cuts can be reasonably be estimated (based on these figures ) to have been at least 2% of GDP. Senescent boomers playing In-a-Gadda-Da-Vida on old Stratocasters? Less than 1% … and, as the report observes, only “modest changes will be needed to put Social Security in balance.” No less a personage than Alan Greenspan (who probably refers to Boomers as “those young whippersnappers”) led the Commission that pretty much fixed the generational problem during the Reagan years, when Ballantyne first became Chief Actuary. That’s why we only need minor tweaks today. Sure, Social Security spending will increase from 4.8% or GDP to 6.1% in 2035. But since Social Security is forbidden from taking money from taxpayer revenues, all the Deficit Commission and America Speaks propaganda about those figures is only meant to confuse and manipulate. Here’s the bottom line: Those numbers don’t contribute to the Federal deficit. That’s the main point of the EPI paper, which is entitled “Social Security and the Federal Deficit: Not Cause and Effect.” As for the canard that Social Security is “going broke” — it’s not. If changes aren’t made, it will run out of assets (trust funds, etc.) in approximately 2037 and would have to cut benefits by 22%. We need to prevent that, but let’s put the “going broke” rhetoric in perspective: A lot of jobless Americans today would be thrilled to receive 78% of the income they had before the Great Recession. Anyone who can say that Social Security is “going broke” is lying, or else they ain’t never been “really broke.” (Or both; the two aren’t mutually exclusive.) So what went wrong? The EPI report explains the real reason for the shortfall (as detailed by Ballantyne and his actuaries back in the 1990′s): It’s “mostly the result of higher disability take-up, slower wage growth, a growing share of earnings above the taxable earnings cap, and a growing share of compensation going toward health insurance and other untaxed benefits.” Got that? That almost sounds like a four-point plan for fixing Social Security: Improve overall health and occupational safety. Boost wages and employment. Raise the earnings cap (which isn’t adjusted for wage inflation). And do more to control runaway health care costs. What isn’t necessary is to ship all the boomers off to Antarctica on wooden ships, as desirable some might find that option. (Speaking of which: These findings won’t reduce inter-generational snark like this from blogger Duncan Black, aka Atrios , who remarked upon seeing people older than himself at a gig featuring contemporary bands Arcade Fire and Spoon: “(G)ood for old people who don’t live in an endless nostalgia loop. Life goes on after The Eagles reunions end.” Whose reunions does he go to — Flock of Seagulls?) The worker-to-retiree ratio isn’t worse than projected, despite increases in life expectancy, thanks to a growing workforce. That growth is driven largely by increasing numbers of working women and (sorry, Tom Tancredo) immigrants. As for revenue, the EPI paper explains that this “modest shortfall” can be addressed by either raising tax rates or raising the cap on earnings. The latter is preferable because, as the paper says, “the lion’s share of increases in both earnings and life expectancy (emphasis mine) has gone to those at the top of the income distribution.” There’s more in the paper, including a firm rebuttal to some of the misstatements emerging from the Deficit Commission. But the key takeaways are this: Social Security does not contribute to the deficit (which is why the entire America Speaks exercise was deceptive), and Boomers are not the problem they’re made out to be. That’s really all there is to say on the subject, except to Duncan Black, to whom I would add: “On a dark desert highway, cool wind in your hair …” _______________________________________________________________ Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America’s Future. This post was produced as part of the Strengthen Social Security campaign. Richard also blogs at A Night Light . He can be reached at “rjeskow@ourfuture.org.” Website: Eskow and Associates

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Max Fraad Wolff: We Are Here: The State of the Economy

August 3, 2010

Amid the oil leaks, athlete/celebrity/politician scandals and partisan recrimination it is easy to lose sight of the pillars that support everyday economic life. Five central pillars of our economic existence are jobs, wages, benefits, credit and housing. This article and graphs just check in to see what condition our condition is in. It is hard to assess where you need to be going if you can’t tell where you are. Consumer spending accounts for about 70% of US economic activity, GDP. American consumer spending represents about 13% of world GDP. What condition the US consumer is in turns out to be very economically important. If that leaves you cold, you might find added interest in the fact that these numbers serve as the best predictors of the electoral success/failure in November. Hostility to immigrants, government and each other tends to ebb and flow with economic fortune. Opportunity and prosperity are social ties that bind in good times and get frayed under tough economic conditions. I last wrote to you in a similar vein 2 years ago. I don’t think I was wrong then? The above graph from the Bureau of Labor Statistics (BLS) details what you know. We are missing about 8.5 million jobs. Over 8 million jobs we had in late 2007 are no longer with us. Over the last two and half years our population has increased by 5 million people. We are missing almost one job for every man, woman and child in the state of New Jersey. Job losses are not evenly spread across regions, professions, genders, ages or ethnic backgrounds. About 6% of the folks who were working in 2007 have lost their jobs. With job losses we expect and have gotten losses in health insurance, pension coverage, tax payment and civic engagement. In 2009, US Government tax revenues were $463 billion, 18%, less than revenues in 2007. We have seen average hours worked and average hourly earnings decline. The below graph, also from the BLS, details the decline in average hourly earnings (AHE) and compares it to the CPI-U measure of price changes in urban areas. Average hourly earnings (AHE) are up less than the increase in prices (CPI-U). This tells us that we are able to afford less with our salaries. To this we must add that we have lost hours, jobs and benefits and that these losses are not reflected in raw job loss numbers. The average duration of those presently unemployed is 32 weeks. This suggests loss of skills, hope, erosion of savings and severe distress in millions of households. Whatever the GDP number are telling us, many families, communities and towns are depressed. Prices may be flat, but wages are flat. Jobs, hours and raises are hard to find. Benefits A third of the average American’s compensation comes in the form of benefits. We earn an average of $29 for full time work and $9 of this comes from benefits. Most famously this includes health insurance and retirement assistance. Benefits include sick days, paid leave, breaks, work conditions and other perks. 13% of the total compensation given to Americans comes from health and retirement benefits. We will concentrate on health insurance and retirement assistance. 86% of Federal, state and local employees have health and retirement benefits and 60% of private sector employees have health and retirement benefits. The vast reduction in state and local employment going on will lower the population with full benefits. 20% of Americans receive no health benefits and no retirement benefits. 15% of Americans receive either health or retirement benefits but not both sets of benefits. You will be shocked to learn that part time workers and those with the lowest salaries are far more likely to have neither medical nor retirement benefits. 68% of workers earning in the bottom 25% by income are missing health insurance, retirement benefits or both. Millions have seen benefits cut or reduced over the last few years. The newest data suggests that large and medium businesses reduced health and pension benefits by several percentage points over the last 2 years- in addition to millions of people leaving employment. Rising co-pays for medical treatment and erosion of coverage are reductions in pay. Likewise, declining options and reduced matching into 401k plans are reductions in compensation. Benefits are under pressure and have been for several years. Credit Consumer credit has been the first, last and intermediate option for millions of American households since the early 1990s. People have used credit cards, mortgage loans, refinancing, pay day lending, and friends/family to borrow. This was done as access to greater amounts of credit and historically low interest rates became substitutes for savings and social assistance programs. We saw vast, and vastly excessive, reliance on credit in each downturn since 1991. This pattern has broken and is presently running in reverse. The below graph illustrates the sharp recent decline in consumer credit. We have seen non-housing credit available to American households fall further and longer than ever before over the last few years. Mortgage borrowing has followed a similar pattern and is presently $250 billion below where it was in 2008. Less credit is available to American consumers and they are taking advantage of less of the reduced credit available. Yesteryear’s coping strategy- increasing consumer debt- has become a limiting factor. Credit is not going to be the crutch on which we hobble forward during this difficult economic period. Millions of households are struggling to repay old loans and the net stream of new loans has been negative for 2 years. Banks are worried about lending and have balance sheets bloated with deposits that they are not interested in lending. Low rates, loads of bank cash and few loans define the world of American housing. Housing Residential real estate remains the slow emergency of the US economy. I wish I could tell you that a lot has changed since 2007. As the first time home buyer’s credit abates, housing has shown clear signs of weakness. Over 18 million US residences are vacant. An inventory of unsold homes sits on the market that could satisfy all present housing demand for 10 months. We have built a huge shadow inventory of houses off the market that will be added if/when home prices rise. Foreclosure actions and delinquencies remain high. Realty Trac reported that more than 1.5 million residential properties received foreclosure and delinquency notices in the first 6 months of 2010. Foreclosure rates were up in 75% of urban areas over the first 6 months of 2010. Of late, banks are selling more houses than new home builders and this tells us clearly that the market remains defined by serious problems. All of this suggests that the tough times for housing and American households are not nearly over. The below Federal Housing Finance Agency graph clearly displays the recent trend in US home prices. Leading mortgage servicers and industry experts continue to report over 7 million mortgages are either delinquent, in default or in the foreclosure process. More than 9% of US mortgages are not current as this goes to press. Federal and private programs to assist those in or near default remain limited in scope and success. Recent reports on the success rates of government efforts suggest that slow progress is being made. Private modifications continue to fail more often than they succeed. A fraction of those in need are enrolling in assistance programs. These programs are slowly improving. We have learned that principle reductions and programs that address issues with credit card and auto loans as well as mortgage debt have higher success rates than programs that lower interest rates and extend loan durations. The bottom 75% of US households are experiencing real and long lasting economic distress. The numbers above do not capture people’s pain, plans changed, dreams deferred. The artistic community does a far better job of speaking to the individual, community and personal damage that a violent business cycle creates. A sense of what is going on must include an understanding of the economic landscape. To understand where to go, you have to know where you are. To make sense of the intensity of feeling on immigration, government, Wall Street, politicians, state workers, and taxes we must know the landscape of debate. That is what this article tries to do. It tries to provide us with a handy arrow that says- economically- we are here. Its important to check in and see what condition our condition is in. Endnotes Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2010 to 2020. P.126 Program Perspectives, Bureau of Labor Statistics July 2010. Volume 2, Issue 4. EBRI Data Book. The Employee Benefit Research Institute. April 2010. Chapter 4. Realty Trac. 15 July 2010. http://www.realtytrac.com/contentmanagement/pressrelease.aspx?channelid=9&itemid=9555 29 July 2010. Bloomberg. http://www.bloomberg.com/news/2010-07-29/foreclosure-filings-rise-in-75-of-u-s-cities-as-joblessness-hurts-owners.html Federal Housing Finance Agency News Release June 22, 2010. Figure 2. Housing Wire (Housingwire.com) July 06, 2010 and June 01, 2010.

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Tom Emmer, Anti-Gay Pol, Gets Donations From Target, Stirring Up Controversy

July 28, 2010

Over at The Awl, Abe Sauer has been documenting the rise to prominence of Tom Emmer , a Republican member of Minnesota’s State House of Representatives who is running to replace Tim Pawlenty as Minnesota’s governor. Most of you non-Minnesotans probably know Emmer as the guy who wanted to cut the minimum wage for service-sector workers who earn income based on tips . Another thing you might want to know is that he’s hostile to the rights of the LGBT community. Per Sauer : Emmer says marriage “is the union between one man and one woman” and he supports the constitutional marriage amendment defining marriage as such. As a point of his “values” position, Emmer has been married to just one (presumably biological) woman since 1985. Meanwhile, claiming that it infringes on individual rights, he opposed the state’s indoor smoking ban. Displaying a complete lack of self-awareness, Emmer called one of these two issues “social engineering.” Can you guess which one? Enter national mega-retailer Target, whose corporate headquarters is in Minneapolis. As Sauer reported last week, Target donated “$100,000 cash and another $50,000 of in-kind goods and services” to a political action committee named MN Forward. In turn, MN Forward has used those donations to run ads in favor of Emmer’s candidacy. Sauer called Target’s donations “surprising,” and it’s not hard to see why : Progressive compared to its peers, Target extends domestic-partner benefits to gay and lesbian employees. It has also openly sponsored Twin Cities Pride and other gay and lesbian events in the state. Target puts its name on Minnesota AIDS Walk, a move that many corporations, worried about religious consumer terrorism, are far too cowardly to even consider. Target’s been deservedly rewarded, receiving a top rating of 100 percent on the 2009 and 2010 Human Rights Campaign Corporate Equality Index and Best Places to Work for LGBT Equality, the 2009 Rainbow Families Award and the 2009 Lavender Pride Award–and a reputation amongst the LGBT community as a “good” big box retailer. In subsequent follow-ups, Sauer has documented that Target’s response to inquiries on this matter is based on two points . First: that its donations are based “strictly on issues that affect our retail and business interests.” Second: It continually insists that its “rating of 100% on the 2009 and 2010 Human Rights Campaign Corporate Equality Index further demonstrates the reputation our company has earned.” The Huffington Post reached out to the Human Rights Campaign today, to inquire about whether Target’s political donations in this instance would affect that pristine 100 percent rating on its Corporate Equality Index. The short answer: No, because political donations aren’t part of that index’s calculations. From HRC spokesman Michael Cole: Since news of Target’s contribution to MN Forward, an independent expenditure committee, became public last week, people have asked HRC if political contributions by companies are factored into a company’s score on the Corporate Equality Index (CEI). Unless the contribution is to a ballot initiative that is anti-LGBT (such as California’s Prop. 8 in 2008), political contributions are not factored into a company’s score for a number of good reasons. It’s important to understand that the CEI is a measure of the workplace practices of a company toward its own LGBT employees. We don’t believe that rating companies based upon their political contributions is an accurate reflection of their commitment to LGBT equality in the workplace. In fact, corporate America is leading the way on issues of equality: over 85% of Fortune 500 companies prohibit discrimination on the basis of sexual orientation and 40% include gender identity in their nondiscrimination policies; and 57% provide domestic partnership health insurance benefits. Companies most often contribute for reasons associated with their particular business. With respect to the CEI and political contributions, it would be difficult to develop criteria by which to judge companies. Virtually every company in the Fortune 1000 today has contributed to candidates (of both political parties) that have voted against issues important to the LGBT community. There are Democrats and Republicans alike, for instance, that voted against the repeal of DADT in the U.S. House of Representatives. Should a company that contributed to these incumbents get points deducted from their CEI score? As a rule, we don’t believe that political contributions to candidates make companies any less committed to a diverse and inclusive workforce. HRC does pledge to keep an eye on this issue, however: The advent of unlimited corporate political contributions as a result of a recent U.S. Supreme Court ruling is a subject of great concern to all progressive movements, ours included. We will continue to monitor its impact on issues of equality and will revisit the issue of whether and how to factor in the political contributions made by corporate America as new information becomes known to us. Over at the Village Voice , Jen Doll speaks to Target spokesperson Jessica Carlson, and gets a little bit further with Target’s side of this debate: So, why donate to someone who’s anti gay marriage if you call yourself a supporter of the gay comunity? Carlson : At this point what we’re sharing is what was in Gregg’s email. To be clear, we donated to a political action committee, the MN Forward, which is a bi-partisan group, and not directly to Emmer’s campaign. Carlson goes on to say that she “can’t speculate on the nature of where our donations will go” in the wake of this story. RELATED: Real America: Why Target Supports Tom Emmer [The Awl] Real America: Target CEO Chooses “Business” over Gay Rights [The Awl] Target Says “We Do Not Have a Political Agenda” [Runnin' Scared @ The Village Voice] [Would you like to follow me on Twitter ? Because why not? Also, please send tips to tv@huffingtonpost.com -- learn more about our media monitoring project here .]

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Unemployment Benefits Bill Approved By House, 272-152

July 22, 2010

WASHINGTON — Federal checks could begin flowing again as early as next week to millions of jobless people who lost up to seven weeks of unemployment benefits in a congressional standoff. President Barack Obama on Thursday signed into law a restoration of benefits for people who have been out of work for six months or more. Congress approved the measure earlier in the day. The move ended an interruption that cut off payments averaging about $300 a week to 2 1/2 million people who have been unable to find work in the aftermath of the nation’s long and deep recession. At stake are up to 73 weeks of federally financed benefits for people who have exhausted their 26 weeks of state jobless benefits. About half of the approximately 5 million people in the program have had their benefits cut off since its authorization expired June 2. They are eligible for lump-sum retroactive payments that are typically delivered directly to their bank accounts or credited to state-issued debit cards. Many states have encouraged beneficiaries to keep updating their paperwork in hopes of speeding payments once the program was restored. In states like Pennsylvania and New York, the back payments should go out next week, officials said. In others, like Nevada and North Carolina, it may take a few weeks for all of those eligible to receive benefits. The 272-152 House vote Thursday will send the measure to the White House, where Press Secretary Robert Gibbs said Obama would sign it as soon as it arrived. The House vote came less than 24 hours after a mostly party-line Senate vote Wednesday on the measure, which is just one piece of a larger Democratic jobs agenda that has otherwise mostly collapsed after months of battles with Republicans. “Americans who are working day and night to get back on their feet and support their families in these tough economic times deserve more than obstruction and partisan game-playing,” Obama said Wednesday night. The measure is what remains of a Democratic effort launched in February to renew elements of last year’s economic stimulus bill. But GOP opposition forced Democrats to drop $24 billion to help state governments avoid layoffs and higher taxes, as well as a package of expired tax cuts and a health insurance subsidy for the unemployed. Wrangling over the larger measure consumed about four months. The jobless benefits portion picked up enough GOP support in the Senate – Maine moderates Susan Collins and Olympia Snowe – only after it was broken off as a stand-alone bill. It would have passed last month were it not for the death of Robert Byrd, D-W.Va.; Byrd’s replacement, Democrat Carte Goodwin, cast the key 60th vote Tuesday to defeat a GOP filibuster. Most Republicans opposed the measure because it would add $34 billion to a national debt that has hit $13 trillion, arguing that it should have been paid for with cuts to other programs, such as unspent money from last year’s economic stimulus bill, which is earning mixed grades at best from voters as unemployment stands at 9.5 percent nationwide. Thirty-one House Republicans, about one in six, voted for the measure Thursday, while 10 Democrats opposed it. “The other side says that these unemployment benefits stretching to almost two years are needed and must be added to the $13 trillion debt, even as they claim their trillion-dollar stimulus plan has been a success at creating millions of jobs,” said Rep. Charles Boustany, R-La. “It makes you wonder if they’re looking at the same jobs data as the rest of us.” Opposition marked a change of heart for many Republicans who had voted for deficit-financed unemployment benefits in the past, including twice during George W. Bush’s administration. Earlier this year, Republicans twice allowed temporary unemployment measures to pass without asking for a roll call vote. Opinion polls show that deficits and debt are of increasing concern to voters, especially Republicans’ core conservative supporters and the tea party activists whose support the GOP is courting in hopes of retaking control of Congress. Republicans winced in February when Sen. Jim Bunning, R-Ky., blocked a temporary benefits measure for several days, only to relent amid a wave of bad publicity. But just a few weeks later, all but a handful of Republicans were opposed to renewing benefits unless they were paid for with cuts elsewhere in the $3.7 trillion federal budget. Democrats countered that many economists say unemployment benefits boost the economy since most beneficiaries spend them immediately. But any such effects are likely to be modest when measured against a $14.6 trillion economy. “Unemployment benefits protect those who have lost their jobs through no fault of their own but would lead to more jobs, higher wages and a stronger economy for all Americans,” said Speaker Nancy Pelosi, D-Calif. “The money will be spent immediately on necessity, injecting demand into the economy, creating jobs.” The program is being renewed through the end of November. The White House signaled earlier this week that another extension may be sought if the jobless rate remains high, as many expect.

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Charles Kolb: The Value(s) of Wall Street

July 20, 2010

On January 22, 2008, the day when the Federal Reserve began to lower interest rates to address a looming economic downturn, the New York Times ran a Tiffany & Co. ad on page three. The ad featured a lovely pair of diamond teardrop earrings for $230,000. For most Americans, $230,000 is a lot of money. To put that figure in perspective: in 2007, the median American house price was $218,900, and the estimated average income for a family of four in 2008 was $65,900. An average American shopping for real value can have those earrings — or a house — by sending every cent earned for the next six years (after taxes) to Tiffany rather than feed and clothe the family. On Wall Street, however, at least until recently, $230,000 was not even chump change: it represented but a small fraction of the base pay and bonuses of the people who created the Great Recession. Many observers would have you think that the resulting liquidity crunch was the direct result of the economic illiterates who made the unwise decision to take out subprime mortgages on homes they could not afford. In reality, today’s problems are the result of decisions made by economic sophisticates who pushed these loans and dumped them in secondary markets where they were repackaged in mortgage-backed securities and other esoteric, synthetic instruments. Michael Lewis writes of a Mexican strawberry picker in California making $14,000 a year who qualified for a $720,000 home with not a penny down. Where, then, does the blame really lie? Not with the strawberry picker. The initial collateralization was helpful (as is the case with most normally functioning secondary markets which provide liquidity), but further spreading the risk through opaque financial instruments served only to fragment, and further obscure, the value and the risk of what was being sold. Wall Street’s reigning philosophy at the time, according to one former hedge fund trader, was “pump and dump”: pump out as much paper as quickly as possible, collect the origination fees, and then dump it at a discount somewhere else. The fundamental problem now facing our economy is not the value of the initial subprime mortgages (after all, those mortgages are still backed by tangible, real property) but rather the value of some of the financial paper that was ultimately spawned by the mortgage practices: the collateralized debt obligations, structured investment vehicles, and derivatives. Although our financial system is mending, this paper still has uncertain (but certainly low) value, and it inhibits a return to normalcy. Many holders fear that if they sell now, the value of the paper would still be so low that they would face undercapitalization coupled with an immediate requirement to obtain more funds from a still risk-averse system to avoid bankruptcy. It may take years to unravel these complex relationships and bring some value out of transactions which, from the outset, offered very little, if any, real value creation. How did this happen to our economy? Part of the answer has to do with Wall Street’s — and the country’s, for that matter — fixation on short-term values. Long-term value creation was replaced by an obsession with quarterly earnings and, ultimately, the short-term speculative frenzy that marks the end of a bubble. Our capital markets began to operate as casinos rather than as vehicles for providing capital that invested in America’s future. CEOs and others who bought into all of this were lavishly compensated by their boards, based on short-term indicators such as quarterly earnings. Most CEOs now stay in their jobs for far less time than they did 20 years ago. Among some, there’s a sense of “get in, get mine, and get out.” We’ve all seen the comparative figures: 30 years ago, average CEO pay was approximately 40 times the average worker’s compensation. In 2009, the CEOs of America’s 500 largest companies earned an average of $9.25 million apiece, roughly 319 times the average earnings of the American worker (and 140 times the earnings of that family of four). Ten years ago I had lunch in New York with a CEO who is now a principal at a prominent private-equity firm. We discussed CEO compensation, and he was worried then — long before the problems of Enron and Worldcom appeared — that if CEOs didn’t manage to police themselves, the federal government would step in and do it for them. When he proposed to some of his fellow CEOs that they meet to discuss possible voluntary action they might take, no one could find the time, a few doubted whether their views would matter, and one said, in essence, “you got yours; when I get mine, let’s talk.” Economists know that a price — whether for a currency, a stock, a commodity, or CEO talent — signals a measure of value, and that value ultimately rests on a level of confidence. The deleveraging in our financial markets signals, among other things, a loss of confidence in the underlying value of the paper generated by America’s housing market bubble. Value scales are being upended dramatically, and it is important that corporate leaders understand that “deleveraging” must, and will, apply to them too. The compact that existed 30 years ago between employers and employees no longer exists. Back then, the gap between the highest and lowest paid was much narrower, health care benefits were available through the workplace, and retirement security through defined benefit pension plans was far more commonplace. America’s business leaders need to drop their short-term fixation on immediate profits and, instead, focus on their companies’ long-term performance, recognizing that doing so also includes the long-term well-being of their employees and the communities in which those employees live. Their ability to do so will send an important signal about the value of long-term thinking, planning, and investing. This signal can, in turn, help move the entire country away from short-term behavior towards making the necessary investments in education, our physical infrastructure, our health care system, energy independence, and information technology. Dark as the headlines have been, there exists a silver lining. For much of the last decade, American business has been playing a defensive game and has earned increasingly lower approval ratings. Such negative views of business are bad for the country, for our economy, and for the entire business community. Smart CEOs and their boards will recognize an enormous opportunity to correct this problem immediately by demonstrating sincere concern for another kind of value: the important public policy issues now facing the country that will also impact long-term corporate profits. Forward-thinking CEOs like General Electric’s Jeff Immelt (taking GE “green” through “Ecomagination”), former Wal-Mart CEO Lee Scott (reorienting the company internally and externally on health insurance and prescription drugs), Safeway’s Steve Burd (championing a healthy workforce), PepsiCo’s Indra Nooyi (” Performance with Purpose “), and PNC Bank’s Jim Rohr (devoting $100 million of company money to its early education ” Grow Up Great ” initiative) understand the importance of repositioning business away from short-term thinking to a longer-term investment approach that benefits shareholders, employees, communities, and the country. We need more CEOs and boards to follow their examples. Only when that happens can we be certain that the values that have led to short-term economic bubbles have really changed for the better.

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Jerry Chautin: IRS Will Audit 6,000 Businesses and Some May Owe Lots of Money

July 14, 2010

Employers are uncertain about the economy and are waiting for clearer signs of recovery before hiring new employees. Meanwhile, productivity, sales and even profits continue to nudge forward. As a result, businesses are hiring temporary workers and outsourcing tasks to independent contractors. Independent contractors are paid to complete specific assignments. At the end of their assignments, the contractors are given the Internal Revenue Service form 1099 depicting the amount paid for the task. By contrast, employees are paid wages and get IRS W-2 forms. There are no payroll taxes deducted from independent contractors. Furthermore, unemployment tax and workman’s compensation insurance premiums are not deducted because it is not the employer’s responsibility to pay them. So if the contractor gets hurt on the job, it will not cause the employer’s workman’s compensation premiums to increase. Likewise, if the contractor is “fired,” the employer will not get its unemployment tax raised. Independent contractors do not receive health insurance, 401(k)s, paid vacations or other benefits being given to salaried workers. Even the new health-care bill gives some small-business owners an incentive to hire independent contractors instead of salaried employees. That is because starting in 2014, the new law requires employers with more than 50 employees to either provide health insurance for their salaried workers or pay a penalty of $750 per year for each of them. But before you decide to convert all of your employees to independent contractors, you need to know the difference as defined by federal and state law. What is more, the IRS is gunning for businesses that mischaracterize employees to avoid payroll taxes. Last year, IRS announced a three-year program to audit 6,000 businesses at random. They are hoping to find employee misclassifications in order to collect back taxes owed along with interest and penalties. They plan to add $7 billion to the agency’s collections over the next 10 years. Consequently, it is time for you to bone up on what is required for IRS to classify your worker as an independent contractor. A written “Independent Contractor’s Agreement” is not enough. IRS is more concerned with how much control you exert in the relationship than what is in the written agreement. They look at three categories: behavioral control, financial control and the type of relationship of the parties. You can download an IRS pamphlet explaining how to classify your workers. Just when you have mastered IRS’s requirements, the Department of Labor comes knocking with its own set of requirements. It is concerned with violations of the Fair Labor Standards Act, such as the minimum wage requirements. For more information the Department of Labor’s fact sheet . Most states have additional regulations. In Florida, for example, the state categorically eliminated the classification of “independent contractor” in the construction trades, for the purpose of worker’s compensation compliance. Instead, Florida requires sole proprietors in the construction trades to form LLCs or corporations. Otherwise, an unincorporated, sole-proprietor tradesperson may be classified as your employee under Florida law. In that case you may have to provide workman’s compensation insurance for her and will otherwise be liable for injuries occurring while she is in your employ. To be safe in Florida, ask for proof of her business entity before hiring a construction tradesperson. Lastly, check with a labor lawyer and tax professional if you are in doubt about how to classify your workers. Jerry Chautin is a volunteer SCORE business counselor, business columnist and SBA’s 2006 national “Journalist of the Year” award winner. He is a former entrepreneur, commercial mortgage banker, commercial real estate dealmaker and business lender. You can follow him at www.Twitter.com/JerryChautin

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Tears Of A Bull: Wall Street Complains Over Mistreatment

July 9, 2010

Despite this year’s large spike in corporate profits and strong stock market performance, major political donors on Wall Street are abandoning the Democratic Party in large numbers in reaction to a perceived anti-business bias from Congress and the White House. This “revolt among big donors on Wall Street is hurting fundraising for the Democrats’ two congressional campaign committees, with contributions from the world’s financial capital down 65 percent from two years ago,” the Washington Post reported . This fundraising free fall from the New York area has left Democrats with diminished resources to defend their House and Senate majorities in November’s midterm elections. Although the Democratic Senatorial Campaign Committee and the Democratic Congressional Campaign Committee have seen just a 16 percent drop in overall donations compared with this stage of the 2008 campaign, party leaders are concerned about the loss of big-dollar donors. Obama administration officials have responded by arguing emphatically that they’re not out to get big business — indeed, they say, Wall Street has much to be thankful for . In a Thursday interview, White House chief of staff Rahm Emanuel argued that rather than recoiling against Obama, business leaders should be grateful for his support on at least a half-dozen counts: his advocacy of greater international trade and education reform open markets despite union skepticism; his rejection of calls from some quarters to nationalize banks during the financial meltdown; the rescue of the automobile industry; the fact that the overhaul of health care preserved the private delivery system; the fact that billions in the stimulus package benefited business with lucrative new contracts, and that financial regulation reform will take away the uncertainty that existed with a broken, pre-crash regulatory apparatus. Treasury Secretary Tim Geithner took a similar line, telling CNBC this week , “We have a pro-growth agenda. Part of the agenda is growing exports. They’re central to our future. … [W]e’re going to be committed to making sure we’re that we’re expanding opportunities for American business everywhere. Now, this president understands deeply that governments don’t create jobs, businesses create jobs. And our job as government is try to make sure we’re creating the conditions that allow businesses to prosper so they can hire people back, get this economy going again.” Writing in Friday’s New York Times, Nobel Prize-winning economist Paul Krugman argues that the cries of woe aren’t coming from businesses but rather from business lobbyists : “peddling scare stories about what Democrats are up to is a large part of what organizations like the [Chamber of Commerce, the major business lobby] do for a living.” So why are we hearing so much about the alleged harm being inflicted by an antibusiness climate? For the most part it’s the same old, same old: lobbyists trying to bully Washington into cutting taxes and dismantling regulations, while extracting bigger fees from their clients along the way. Beyond that, business leaders are, as I said, feeling unloved: the financial crisis, health insurance scandals, and the catastrophe in the Gulf of Mexico have taken a toll on their reputation. Somehow, however, rather than blaming their peers for bad behavior, C.E.O.’s blame Mr. Obama for “demonizing” business — by which they apparently mean speaking frankly about the culpability of the guilty parties. Well, C.E.O.’s are people, too — but soothing their hurt feelings isn’t a priority right now, and it has nothing at all to do with promoting economic recovery.

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Dave Johnson: Too Old For A Job, Too Young For Medicare Or Social Security

July 7, 2010

This post originally appeared at Campaign for America’s Future (CAF) at OurFuture.org . I am a Fellow with CAF. Tell us your own story in the comments, please! Here is a fact: There. Are. No. Jobs. I’m in Silicon Valley where the official unemployment rate dipped in May to 11.2%. This dip was, of course, because of so many people just giving up trying to get a job, certainly not because of some wave of hiring. The under employed figure, known as “U-6,” is 21.7% in California , 16.7% nationally. You have to know someone to get a humiliating job standing on a corner waving a sign. And if you are over 40, things are even worse than that . Don’t give me any conservative Rush Limbaugh-Ayn Rand dehumanizing nonsense about parasitic lazy people who won’t look — there are no jobs. I know so many people here who are over 40, were laid off in the 2000-era dot com crash, still haven’t found a regular job and aren’t going to. They have had occasional “contract” positions–which means no benefits, no security, a 15% “self-employment” tax and no unemployment check when the job ends. And now, 10 years later they’re a lot over 40 and are not going to find a job because so many employers here won’t hire people over 40. And now there are so many more who lost their jobs in the mass layoffs of 2008-2009 and can’t find a job. So many of them are also over 40. In fact, many were laid off in obvious purges of over-40 workers, offered a small severance that they could only receive if they promised to take no age-discrimination action against the employer. (I don’t say “company” because some of these worked at nonprofits.) Most of these people will not find another job, but are too young for Medicare and Social Security. One Person’s Story I ran into a friend this weekend who I hadn’t seen for a couple of years. He had been a computer engineer who had been making 6 figures in the dot-com years. Laid off in the 2000 crash, he moved in with his parents back in the Midwest and worked in a bakery. He came back out here when things picked up a bit and worked in one “contract” job after another. (Contracting is just a scam to get around employment laws–but the government doesn’t enforce the rules.) But now he just can’t find anything. He managed to get unemployment but now that is running out. He has no health insurance. He can’t afford a place to live; he “house sits” for people or visits friends, and doesn’t know what he is going to do even two days from now. What is he going to do? Can you tell me? He has gotten a few interviews, and when they are computer-related is always told he is way overqualified, doesn’t seem energetic, probably won’t be willing to work 20 hours a day, doesn’t look like he is up to date on things that are happening with computers, etc. (How many ways can you say “too old?”) He’s about 45. If things pick up he will get another job. But people just a few years older will not. Blatant Age Discrimination Age discrimination is a thing with me because it is so blatant here. It’s the culture here, some even say that for programmers it is “35 and out.” At various times looking for work I’ve been told I “seemed tired” and things like that. I was even told once that I wouldn’t be able to market some software because I “wouldn’t be able to get my mind around” how it worked– when I had designed and written part of it in a previous life. One company here is said to have only 200 over-40 employees out of 20,000. But it certainly is not a problem that only exists in Silicon Valley. Tell your own story in the comments, please, get this discussion going! What are people supposed to do? You can’t get Medicare until you are 65, and Social Security until 67. But it’s near-impossible to get a job or health insurance if you are over 50. I wonder what the effect would be if the government started again enforcing its own rules on age discrimination and contracting. Among other things Congress needs to get things going by passing the George Miller “Local Jobs for America Act .” Sign up here for the CAF daily summary .

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Sen. Dianne Feinstein: Urgent Action Necessary to Stop Health Insurance Corporation Greed

July 1, 2010

Once again, a major health insurance company has been forced to rescind plans for double-digit rate hikes on California consumers after an independent investigation discovered “errors” in the formulas used to calculate the figures. Aetna has scrapped plans for rate hikes of nearly 20 percent, just two months after Anthem Blue Cross — a subsidiary of WellPoint, Inc. — was forced to cancel controversial plans for rate hikes of nearly 40 percent. (Yesterday, Anthem submitted a new proposal for rate increases of up to 20 percent .) Aetna and Anthem are passing these discrepancies off as honest mistakes, but I think the fact that two of California’s four major health insurance companies were caught using flawed formulas to calculate rate is something that raises serious questions. How could two separate multi-billion dollar companies make the same kind of mistakes — miscalculations that nearly resulted in major increases in the cost of health insurance premiums? How many more errors will be found, in California and across the nation, if independent investigations were conducted on a wider sample of health insurance companies? At a time of great hardship for many Americans, it is unconscionable that these mega-corporations can simply misplace a few decimal points and quickly rack up millions in unjust profits. Given the recent instances of corporate malfeasance that have shaken Wall Street to its core and created a disaster of historical proportions in the Gulf of Mexico, these actions beg for more scrutiny. I believe it is time to shine a bright spotlight on how health insurance companies calculate the need for rate hikes. Two bills — one pending in the United States Senate, and another awaiting action by the California state legislature — would allow for greater scrutiny and oversight of the health insurance industry. In March, I introduced legislation that would create a Health Insurance Rate Authority to empower the U.S. Secretary of Health and Human Services to review rate hike proposals and reject any that are not justified. States where the Insurance Commissioner already has authority to review and block rates would not be affected by this law. In states where insurance companies do not need approval to impose rate increases, this law would prevent unjustified rate hikes between now and 2014, when new health insurance exchanges go into effect. Unless we take action, we can expect for-profit health insurance corporations to inflate premium rates as much as possible during this interim period. President Obama supported my proposal and sought to have it included in the health insurance reform that passed into law, but Senate procedural rules resulted in its exclusion from the final package. I am continuing to work across party lines in Washington to build support for a version of the bill, but this is a painstaking process in a Senate chamber that is more divided than I have ever seen it. California’s state leaders, however, can take immediate action to protect the state’s consumers from unfair rate hikes by supporting Assembly Bill 2578, which was passed by the Senate Health Committee last week. AB 2578, authored by Assemblymen Dave Jones and Mike Feuer, would require health insurance companies to receive state approval before increasing premium rates. If the bill is signed into law, California would become one of those states – like New York and some 25 others — where Insurance Commissioners have the power to protect consumers from greedy rate hikes. The decision by Anthem and Aetna to withdraw their flawed rate hike proposals provides a temporary reprieve for hundreds of thousands of Californians, but they only halted the hikes after their bad math was revealed. This problem is not going away — and it may be more widespread than we imagine. There’s only one way to find out. We must grant the Secretary of Health and Human Services — or the state insurance commissioner — the power to review and reject unfair rate hikes. Without independent actuarial reviews of Anthem and Aetna, Californians would have overpaid their health insurance premiums by tens of millions of dollars. We must plug the Rate Hike Loophole. I will continue to work on a national solution to the problem in Washington, but state leaders must act with urgency to protect Californians from health insurance corporation greed. Too many Californians are struggling to pay their bills and make ends meet, and they shouldn’t have to worry about losing their health insurance because they can’t afford it. They need, and deserve, urgent action to protect them from unjust rate hikes.

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Health Insurance Premiums Jump 20 Percent In Individual Market: Survey

June 21, 2010

INDIANAPOLIS — People who buy their own health insurance have been hit lately with premium hikes that far exceed increases in premiums for employer-sponsored coverage, according to a new survey from the Kaiser Family Foundation. The nonprofit foundation, which is separate from health insurer Kaiser Permanente, said recent premium hikes requested by insurers for individual coverage averaged 20 percent. Some customers were able to switch plans and pay less, so people paying on their own actually wound up paying 13 percent more on average. That tops last year’s average 5 percent annual increase for employer-sponsored family coverage and almost unchanged premiums for employer-sponsored single coverage, though foundation Vice President Gary Claxton said the comparisons come with qualifications. The individual insurance survey asked respondents for their most recent premium increases, and those can happen more or less frequently than the annual increases mostly seen in the group market, he noted. In the online poll, Kaiser queried 1,038 randomly selected people who pay for their own coverage. Individual health insurance premiums generally rise faster than group coverage rates. They can be affected by variables like a person’s age. They also can be affected by rising medical and drug costs and are more vulnerable when a bad economy makes healthy people drop coverage. That can leave an insurer with a higher concentration of sick people who keep coverage because they need it more and thus generate more claims. The market also appears to be cyclical, with a big increase following a couple years of smaller ones, said Robert Laszewski, a health care consultant and former insurance executive who wasn’t involved with the Kaiser study. But even with a sizable average increase, individual premiums still span a wide range from no increases to huge hikes. “There is no real consistency,” Laszewski said. Guy Gooding of Sobieski, Wis., who is 59, said premiums for his and his wife’s health coverage have risen 73 percent from 2007. They now pay about $646 per month, compared with $374 in 2007. He said he has kept up with the increases because he doesn’t want to sacrifice the quality of his coverage. But he’d like more of an explanation from his insurer, Anthem Blue Cross and Blue Shield. “They’re very vague on why the increases have been as much as they have been,” he said. Insurers drew heavy criticism earlier this year after requesting premium increases of 20 percent or more from their individual customers in several different markets. Analysts who follow the insurance industry say reports of those increases helped re-ignite the health care reform debate. Congress then passed in March a reform bill that aims to offer health coverage to millions of uninsured people and help people buy individual coverage through exchanges that will be launched in 2014. About 14 million Americans under age 65 receive health insurance through the non-group or individual market, according to the foundation. In contrast, about 157 million U.S. residents get their coverage through an employer. Kaiser conducted the survey in March and April. The results had a margin of error of 4 percentage points. ___ Online: http://www.kff.org/kaiserpolls/8077.cfm

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BP Claims Process: Government Poised To Seize Damage Reward Process From Company

June 15, 2010

PENSACOLA, Fla. (AP) — President Barack Obama is reassuring people in Gulf Coast states that he’s up to the enormous job of helping them recover from the disastrous oil spill, laying the groundwork for a prime-time speech Tuesday night. His chief spokesman said Obama is poised to seize the handling of damage claims from BP, if necessary. Spokesman Robert Gibbs appeared on morning news shows Tuesday as Obama prepared for a second day of briefings – this time in Florida – and as the president prepared to give an address at Pensacola Naval Air Station and fly back to Washington for the 8 p.m. address from the Oval Office. The aim of wresting claims-handling from BP, Gibbs said, would be to make individuals and businesses “whole.” The claims issue is among several difficult problems that Obama will address directly in the speech, his first from the Oval Office. Voicing increasing confidence in his ability to confront the nation’s worst environmental crisis, Obama was ready to outline a comprehensive response and recovery program and was set to assure not only the people from the afflicted region, but all the country as well, that the administration will see to it that America surmounts this crisis. On the matter of the disputed damage payments, Gibbs said, “We have to get an independent claims process. I think everyone agrees that we have to get BP out of the claims processes and, as I said, make sure that fishermen, hotel owners have a fast, efficient and transparent claims process so that they’re getting their livelihoods replaced.” “This disaster has taken their ability to make a living away from them,” he said. “We need to do this quickly, and we have to make sure that whatever money goes into that – that in no way caps what BP is responsible for. Whatever money they owe to anybody in the Gulf, they’re going to have to pay regardless of the amount.” He noted in one interview that Obama “has the legal authority” to make the claims process independent. And Gibbs said “the best way to prevail upon BP is to take the claims process away from BP.” “The president will either legally compel them,” he said, “or come to an agreement with BP to get out of the claims process, give that to an independent entity.” Obama’s address to the nation sets the stage for his showdown White House meeting Wednesday with top BP executives. BP leased the rig that exploded April 20 and led to the leak of millions of gallons of coast-devastating crude. It’s part of an effort by Obama, who’s been accused of appearing somewhat detached as the oil spill disaster has unfolded, to convince a frightened Gulf Coast and a skeptical nation that he is in command. Obama was to deliver the speech upon his return from a two-day swing through Mississippi, Alabama and Florida, his fourth trip to the Gulf since the Deepwater Horizon drilling rig explosion that set off the disaster, but his first outside the hardest-hit state of Louisiana. The trip gave him ammunition for the speech and for his meeting with BP executives where he intends to finalize the details of a victims compensation fund. He visited vacant beaches in Mississippi where the threat of oil had scared off tourists, heard the stories of local employers losing business, watched hazmat-suited workers scrub down boom in a staging facility in Theodore, Ala., and took a ferry ride through Mobile Bay and then to Orange Beach, Ala., where oil has lapped on the shore. He was beginning the day Tuesday in Pensacola, Fla., where he was to attend a briefing and then make remarks at Naval Air Station Pensacola. “We’re gathering up facts, stories right now so that we have an absolutely clear understanding about how we can best present to BP the need to make sure that individuals and businesses are dealt with in a fair manner and a prompt manner,” the president said Monday. “I am confident that we’re going to be able to leave the Gulf Coast in better shape than it was before,” he said. That pledge was reminiscent of George W. Bush’s promise to rebuild the region “even better and stronger” than before Hurricane Katrina in 2005. Bush could not make good on that promise, and Obama did not spell out how he would fulfill his. Tuesday’s speech will give him the chance. Presidents reserve the Oval Office for rare televised addresses. When they take their place behind the desk, it’s a time for solemnity and straight talk – often a moment of history. There is a sense of gravity. One man by himself before one television camera speaking to the nation. Oval Office addresses typically aren’t lengthy discourses like a State of the Union, but if a president has to go for broke, this is where he does it. Bush addressed the nation from the Oval on the evening of Sept. 11, 2001. Ronald Reagan spoke there after the space shuttle Challenger explosion. John F. Kennedy grimly explained the Cuban missile crisis. Richard Nixon announced his resignation. Obama hasn’t used it yet. Not even during the worst economic crisis since the Great Depression. Not to explain painfully high unemployment rates. Or bank and auto company bailouts. Not to speak of terrorism threats. Even when his health insurance plan was in peril, he did not speak from the Oval Office to rally support or explain to Americans why he considered it vital. Gibbs appeared on ABC’s “Good Morning America,” CBS’s “The Early Show,” NBC’s “Today” show and CNN.

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Sebelius Warns Employers Not To Jack Up Health Care Costs

June 14, 2010

WASHINGTON — The Obama administration had a message Monday for employers who want to keep federal bureaucrats from rewriting the rules for their company medical plans: Don’t jack up costs for workers, and you won’t have to worry about interference from the new health care law. “What we don’t want is a massive shift of costs to employees,” said Health and Human Services Secretary Kathleen Sebelius. She announced a new regulation that spells out how health plans that predate the health overhaul law can avoid its full impact. Meant to deliver on President Barack Obama’s promise that people who like their current health coverage can keep it, the rule sets limits likely to become increasingly important as medical costs keep rising. Plan changes that would cause a health plan to lose its “grandfathered” status and trigger new federal requirements include: _ Dropping coverage for a particular health problem, for example, diabetes. _ Increasing the proportion of insurance paid by workers, for example from 20 percent of the hospital bill to 25 percent. _ Cutting back the share of premiums that the company pays by more than 5 percent. _ Significantly increasing annual deductibles or co-payments paid by workers. For example, if an employer raises a $1,000 deductible by $500 over the next two years. Workplace coverage is the mainstay of the nation’s health insurance system, and will remain so under the new law. Consumer advocates said the regulation gives employers the flexibility to make needed changes, while protecting workers. “If a plan changes in some significant way, or if it increases cost-sharing amounts, then that results in a very different plan – and it should not be grandfathered in,” said Ron Pollack, executive director of Families USA, an advocacy group that supports the overhaul law. Employers are wary. “It’s a big unknown,” said Steve Wojcik, vice president of the National Business Group on Health, which represents human resources managers at major companies. “It definitely sets boundaries where plans have been used to considering all kinds of changes to both improve quality and control costs.” For example, Wojcik said it’s unclear whether a plan would lose its protected status by making a change such as requiring counseling and dieting before approval of weight-loss surgery. And converting from traditional health insurance to a policy with a health savings account might lead to problems because the latter have significantly higher deductibles. The administration’s own analysis suggests it may not be easy for current plans to keep their special protected status. By 2013, two-thirds of small employer plans will have to relinquish their “grandfathered” status, along with 45 percent of large company plans, according to regulators’ projections. Those plans will have to comply with a range of federal requirements on benefits. The rule, effective immediately, is “a key part of a balanced approach” that will “provide Americans who like their plans with stability,” Sebelius said. It won’t be a free ride for workers, said Wojcik. “Part of the bargain is that employers will be facing higher costs,” he said. “The percentage share of the premiums will remain the same, but costs are going to go up for both sides in terms of dollars.”

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Sebelius Warns Employers Not To Jack Up Health Care Costs

June 14, 2010

WASHINGTON — The Obama administration had a message Monday for employers who want to keep federal bureaucrats from rewriting the rules for their company medical plans: Don’t jack up costs for workers, and you won’t have to worry about interference from the new health care law. “What we don’t want is a massive shift of costs to employees,” said Health and Human Services Secretary Kathleen Sebelius. She announced a new regulation that spells out how health plans that predate the health overhaul law can avoid its full impact. Meant to deliver on President Barack Obama’s promise that people who like their current health coverage can keep it, the rule sets limits likely to become increasingly important as medical costs keep rising. Plan changes that would cause a health plan to lose its “grandfathered” status and trigger new federal requirements include: _ Dropping coverage for a particular health problem, for example, diabetes. _ Increasing the proportion of insurance paid by workers, for example from 20 percent of the hospital bill to 25 percent. _ Cutting back the share of premiums that the company pays by more than 5 percent. _ Significantly increasing annual deductibles or co-payments paid by workers. For example, if an employer raises a $1,000 deductible by $500 over the next two years. Workplace coverage is the mainstay of the nation’s health insurance system, and will remain so under the new law. Consumer advocates said the regulation gives employers the flexibility to make needed changes, while protecting workers. “If a plan changes in some significant way, or if it increases cost-sharing amounts, then that results in a very different plan – and it should not be grandfathered in,” said Ron Pollack, executive director of Families USA, an advocacy group that supports the overhaul law. Employers are wary. “It’s a big unknown,” said Steve Wojcik, vice president of the National Business Group on Health, which represents human resources managers at major companies. “It definitely sets boundaries where plans have been used to considering all kinds of changes to both improve quality and control costs.” For example, Wojcik said it’s unclear whether a plan would lose its protected status by making a change such as requiring counseling and dieting before approval of weight-loss surgery. And converting from traditional health insurance to a policy with a health savings account might lead to problems because the latter have significantly higher deductibles. The administration’s own analysis suggests it may not be easy for current plans to keep their special protected status. By 2013, two-thirds of small employer plans will have to relinquish their “grandfathered” status, along with 45 percent of large company plans, according to regulators’ projections. Those plans will have to comply with a range of federal requirements on benefits. The rule, effective immediately, is “a key part of a balanced approach” that will “provide Americans who like their plans with stability,” Sebelius said. It won’t be a free ride for workers, said Wojcik. “Part of the bargain is that employers will be facing higher costs,” he said. “The percentage share of the premiums will remain the same, but costs are going to go up for both sides in terms of dollars.”

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Obama Warns Of ‘Massive Layoffs Of Teachers, Police, And Firefighters’

June 13, 2010

WASHINGTON (AP) — If Chuck Lacasse had gotten his pink slip four days earlier, Uncle Sam would have covered most of his family’s health insurance while he looked for a new job. But Congress allowed emergency health care assistance for unemployed workers to expire May 31, and seems unwilling to renew it despite pleas from President Barack Obama. On Saturday night, the White House released a letter Obama sent to congressional leaders of both parties asking for nearly $50 billion in emergency aid to state and local governments to fend off “massive layoffs of teachers, police and firefighters” and to prevent a possible double-dip recession. “We are at a critical juncture on our nation’s patch to economic recovery,” the president warned. “It is essential that we continue to explore additional measures to spur job creation and build momentum toward recovery, even as we establish a path to long-term fiscal discipline. At this critical moment, we cannot afford to slide backwards just as our recovery is taking hold.” In an interview with the Washington Post, White House Chief of Staff Rahm Emanuel “said the letter is intended to settle the growing debate over the opposing priorities of job creation and deficit reduction and ‘ where you put your thumb on the scale .’” Not three months after lawmakers passed his $1 trillion insurance overhaul, Obama is facing a rare defeat on health care at the hands of his own divided Democrats. So-called “moderates” have rebelled against adding billions more to the deficit in a treacherous election year. “The same Congress that spent all this political capital trying to get people health insurance is going to take a crucial benefit away from unemployed people,” said Andrew Stettner, deputy director of the National Employment Law Project, which advocates for the unemployed. On June 4, Lacasse lost his job as advertising director for a company that makes nutritional supplements. He’ll soon have to pay the entire $1,500 monthly premium to keep his family covered under his former employer’s health insurance plan. Until May 31, under Obama’s economic stimulus law, the government provided a 65 percent subsidy. That would have lowered his cost to $525. “This really isn’t about welfare,” said Lacasse, 40. “It’s about buying people some time. In a position as specialized as mine, it would have been nice to know that I had some time to look for the right job.” He lives near Green Bay, Wis., with his wife and two children. Democratic Sens. Bob Casey of Pennsylvania and Sherrod Brown of Ohio have introduced a measure that would allow the program to continue helping people who get laid off through Nov. 30. That would cover Lacasse. The lawmakers, who are seeking a vote this coming week, want to attach their nearly $7 billion provision to must-pass legislation that would extend unemployment benefits and make changes in dozens of federal programs. But a similar proposal was dropped from the House-passed bill, and Senate Democratic leaders also omitted it from their version. “I’m concerned about it,” said Washington Sen. Patty Murray, a member of the Democratic leadership. “There will be people who fall through the cracks.” Under a 1980s law known as COBRA, laid-off workers generally can stay on their former employers health plan for up to 18 months, provided they pay the full premium plus a small administrative charge. But with family premiums averaging about $13,500, the cost is prohibitive for most people. That changed under the 2009 stimulus bill and subsequent expansions, which provided a 65 percent federal subsidy for up to 15 months. Workers laid off through May 31 can qualify for the benefit through their former employer. “It has been a significant program and it has helped many middle-class families to keep their health insurance at a time when maintaining health insurance was difficult because of the high rate of job loss,” said Alan Krueger, the Treasury Department’s chief economist. Official statistics on how many people were helped have yet to be compiled, but Krueger estimates that as many as one-third of eligible unemployed workers enrolled in subsidized coverage. Melanie Miller, 34, who suffers from debilitating neurological problems, said the COBRA program allowed her to maintain her independence after losing her ad agency job. “Without the subsidy, I probably would have had to move back and live in my mother’s house in the basement,” said Miller, an artist who lives in Philadelphia. With the unemployment rate hovering just under 10 percent and with 15 million people looking for work, advocates say it’s premature to withdraw assistance. “We’re recovering, but we haven’t recovered fully,” said Casey. “Now is not the time to pull up the ladder on people who are hanging on, in some cases to the last rung.” Some conservative Democrats, however, say they don’t understand why the government should subsidize workers who lose jobs with employer coverage and not others who are equally deserving – for example self-employed people priced out of the private market. “You’re paying 65 percent of (one) family’s health care costs, but the neighbor next door, there’s no help for,” said Rep. Dennis Cardoza, D-Calif. “So we’re picking and choosing. There’s an inequality there between our constituents.” Not to mention that Congress has treated the program as emergency spending, adding its cost to the deficit. In Marietta, Ohio, boiler operator Neil Davis is facing the loss of his job as the coal-burning power plant he works at prepares to shut down for good. Davis, 33, has marketable skills but he’s unsure how quickly he’ll be able to find comparable work. His wife is a stay-at-home mom raising two elementary-age children. “Being able to have coverage at an affordable rate, we wouldn’t be afraid to take the kids to the doctor if they get sick,” said Davis. “The economy might be getting better some place, but I don’t know where at.”

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Government Workers Earn $12 MORE Per Hour Than Their Private Counterparts

June 11, 2010

Government jobs may not sound lucrative, but state and local government employees make $12 more per hour than private workers, according to a recent report from the Bureau of Labor Statistics (BLS). Comparing total compensation – wages plus benefits – the average private sector worker makes $27.73 per hour, compared to $39.81 for the average government worker. Unsurprisingly, the bulk of the government worker’s compensation comes from benefits like paid leave, insurance and retirement. Governments pay an average of $3.16 per hour for its employees’ retirement and savings plans, compared to 96 cents for private workers. Meanwhile the government spends $4.52 an hour for its employees’ health insurance, compared to a measly $2.08 for private workers. The thin silver lining for private industry peons is that you can actually touch (and spend) a greater chunk of your total compensation than public servants. After all, 70.6% of a private worker’s compensation is in the form of wages and salaries, compared to only 65.9% for government employees. For more information on government job openings, check out USAJobs .

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Layoff Victims Now Ineligible For Health Insurance Subsidy

June 7, 2010

Jim Sullivan lost his job as a manager at a wholesale distributor in June 2009, but he kept his health insurance thanks to the stimulus bill, which lowered his monthly premium from $638 to $223. “If I didn’t have this insurance I’d be screwed,” said Sullivan, who is 52 and lives in Lansdale, Pa. He said he suffers thyroid disease and has had two hernia operations since his layoff, and that as far as he could tell his condition would make the individual insurance market ridiculously expensive. “When you’re only making $2,300 a month on unemployment and the mortgage and rent is over $1,000, and you got a car payment and other bills, it’s probably one of the things you forgo.” Unfortunately for anyone laid off after May 31, deficit-weary House Democrats decided to forgo reauthorizing the 65 percent subsidy for COBRA, the federal program that allows laid off workers like Sullivan to continue their former employer’s health insurance for 18 months. Without the subsidy, COBRA is prohibitively expensive in most cases. According to a new report from Families USA , unemployed workers who choose to buy health insurance via COBRA have to hand over 84.3 percent of their monthly unemployment benefit, on average. “The elimination of COBRA subsidies means that people losing their jobs will also lose their health care coverage,” said Families USA director Ron Pollack in a statement. “Such a loss of health coverage flies in the face of the recently enacted health reform legislation that is intended to expand health coverage to tens of millions of people.” The Treasury Department reported in May that 15 percent of people receiving unemployment benefits are taking advantage of the subsidy. That’s roughly 1.5 million people ( 67 percent of the 15 million unemployed receive benefits). “[T]he subsidy appears to have been especially important for maintaining health insurance coverage for middle-class families during the recession,” said Treasury’s report, which noted that families earning between $30,000 and $134,000 accounted for most of the people using the subsidy. “Indeed, the availability of the program may have significantly slowed the growth of the uninsured population, which had been skyrocketing through February 2009.” Conservative Democrats in the House, by pushing for the removal of the COBRA subsidies from a “tax extenders” bill to reauthorize several other expiring domestic aid programs, shaved less than $8 billion from the bill’s original $123 billion impact on a federal budget deficit expected to reach $1.5 trillion or so this year. The Senate will take up the legislation on Monday night. House Speaker Nancy Pelosi (D-Calif.) said she planned to revisit the COBRA and Medicaid funding provisions soon. “It’s obscene,” said Rep. Dave Obey (D-Wisc.) of the COBRA cut, which happened as the House approved the bill at the last minute before its Memorial Day recess. The Senate adjourned before the House even finished the bill; several programs, including subsidies for doctors who take Medicare patients and extended unemployment benefits, lapsed during the break along with the COBRA subsidies. “It is essential that the Senate put the COBRA subsidy back into the bill it will be considering this week,” said Judy Conti, a lobbyist for the National Employment Law Project. “Without this subsidy, it is unlikely that many unemployed workers and their families could continue their health insurance as COBRA premiums for a family can easily exceed the sum of monthly unemployment checks. “Equally important is the symbolic value of fighting for the COBRA subsidy — last week’s jobs report shows us that now is NOT the time to start cutting back our support of those who are unemployed through no fault of their own,” Conti said. “If we allow COBRA to slip this time, who knows what could be next.” Democrats also jettisoned $24 billion to help states with Medicaid costs. “As a result, states across the country are likely to exacerbate the Medicaid cuts already planned,” says Families USA. “The additional state cuts are likely to include cuts to Medicaid benefits, increases in the out-of-pocket health costs that low-income families must bear, and lower payments to health providers, thereby making needed care unaffordable and/or unavailable.” The rebellion among conservative Democrats signaled that Congress is shifting from fighting the jobs crisis to worrying about the deficit, even though the unemployment rate is higher now than when the expiring programs were created.

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Layoff Victims Now Ineligible For Health Insurance Subsidy

June 7, 2010

Jim Sullivan lost his job as a manager at a wholesale distributor in June 2009, but he kept his health insurance thanks to the stimulus bill, which lowered his monthly premium from $638 to $223. “If I didn’t have this insurance I’d be screwed,” said Sullivan, who is 52 and lives in Lansdale, Pa. He said he suffers thyroid disease and has had two hernia operations since his layoff, and that as far as he could tell his condition would make the individual insurance market ridiculously expensive. “When you’re only making $2,300 a month on unemployment and the mortgage and rent is over $1,000, and you got a car payment and other bills, it’s probably one of the things you forgo.” Unfortunately for anyone laid off after May 31, deficit-weary House Democrats decided to forgo reauthorizing the 65 percent subsidy for COBRA, the federal program that allows laid off workers like Sullivan to continue their former employer’s health insurance for 18 months. Without the subsidy, COBRA is prohibitively expensive in most cases. According to a new report from Families USA , unemployed workers who choose to buy health insurance via COBRA have to hand over 84.3 percent of their monthly unemployment benefit, on average. “The elimination of COBRA subsidies means that people losing their jobs will also lose their health care coverage,” said Families USA director Ron Pollack in a statement. “Such a loss of health coverage flies in the face of the recently enacted health reform legislation that is intended to expand health coverage to tens of millions of people.” The Treasury Department reported in May that 15 percent of people receiving unemployment benefits are taking advantage of the subsidy. That’s roughly 1.5 million people ( 67 percent of the 15 million unemployed receive benefits). “[T]he subsidy appears to have been especially important for maintaining health insurance coverage for middle-class families during the recession,” said Treasury’s report, which noted that families earning between $30,000 and $134,000 accounted for most of the people using the subsidy. “Indeed, the availability of the program may have significantly slowed the growth of the uninsured population, which had been skyrocketing through February 2009.” Conservative Democrats in the House, by pushing for the removal of the COBRA subsidies from a “tax extenders” bill to reauthorize several other expiring domestic aid programs, shaved less than $8 billion from the bill’s original $123 billion impact on a federal budget deficit expected to reach $1.5 trillion or so this year. The Senate will take up the legislation on Monday night. House Speaker Nancy Pelosi (D-Calif.) said she planned to revisit the COBRA and Medicaid funding provisions soon. “It’s obscene,” said Rep. Dave Obey (D-Wisc.) of the COBRA cut, which happened as the House approved the bill at the last minute before its Memorial Day recess. The Senate adjourned before the House even finished the bill; several programs, including subsidies for doctors who take Medicare patients and extended unemployment benefits, lapsed during the break along with the COBRA subsidies. “It is essential that the Senate put the COBRA subsidy back into the bill it will be considering this week,” said Judy Conti, a lobbyist for the National Employment Law Project. “Without this subsidy, it is unlikely that many unemployed workers and their families could continue their health insurance as COBRA premiums for a family can easily exceed the sum of monthly unemployment checks. “Equally important is the symbolic value of fighting for the COBRA subsidy — last week’s jobs report shows us that now is NOT the time to start cutting back our support of those who are unemployed through no fault of their own,” Conti said. “If we allow COBRA to slip this time, who knows what could be next.” Democrats also jettisoned $24 billion to help states with Medicaid costs. “As a result, states across the country are likely to exacerbate the Medicaid cuts already planned,” says Families USA. “The additional state cuts are likely to include cuts to Medicaid benefits, increases in the out-of-pocket health costs that low-income families must bear, and lower payments to health providers, thereby making needed care unaffordable and/or unavailable.” The rebellion among conservative Democrats signaled that Congress is shifting from fighting the jobs crisis to worrying about the deficit, even though the unemployment rate is higher now than when the expiring programs were created.

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Jobs Crisis Persists As Dems Lose Appetite To Fight It

June 4, 2010

A dreadful unemployment report showing that the private sector barely hired anybody in May suggested Friday that the jobs crisis in America is not really subsiding. What is subsiding, however, is congressional Democrats’ appetite for helping the unemployed. Last week, conservative House Democrats rebelled against a bill to reauthorize several expiring domestic aid programs, including extended unemployment benefits, because the bill would have added $123 billion to a federal budget deficit expected to reach $1.5 trillion this year. Why do more deficit spending, they asked, if the recovery is already underway? “A year ago we were in the midst of the worst recession in 80 years and desperately trying to find ways to climb out of it,” said Rep. Gerry Connolly (D-Va.), president of the freshman class, who credited the stimulus bill with turning the economy around. “We did the right thing and it’s working. Now, a year and four months later, it’s a very different situation. We are now managing a recovery and trying to sustain it.” “We’ve had four straight months of job growth,” said Rep. Jason Altmire, a Blue Dog Democrat from Pennsylvania. “At some point you have to take a step back and look at the relative value of unemployment benefits versus people looking for jobs.” Opposition from conservative Dems delayed a vote on the bill, the American Jobs and Closing Loopholes Act, until the end of the week, and when leadership finally agreed to chop stuff out of the package, including a month of extended unemployment benefits and health insurance subsidies for laid-off workers, it was too late — the Senate had already adjourned for the Memorial Day break. Several programs, including extended unemployment benefits, lapsed Tuesday and won’t be reauthorized until sometime after June 7, when the Senate returns from its vacation. And that, if it happens, may be the final reauthorization: Though unemployment is higher now than when Congress gave the jobless an additional 18 months of benefits, Democrats are unwilling to commit to doing more when the extended benefits expire again at the end of the year. This week, according to the Department of Labor, 19,400 people prematurely exhausted their unemployment benefits because of the lapse. There’s no indication the Senate will move quickly when it returns next week, when the number of premature exhaustions will climb to 323,400. By the end of the month the number will reach 1.2 million. Friday’s jobs report from the Labor Department showed the economy added 431,000 jobs in May, but 411,000 of those came from temporary Census hiring. The unemployment rate fell from 9.9 to 9.7 percent, in part because the labor force shrank as some jobless people gave up looking for work. The number of long-term unemployed inched up by about 47,000, to 6.76 million. That’s 46 percent of the 15 million jobless Americans. It’s the programs to help them that are on the chopping block. Sixty-seven percent of the unemployed received benefits; without the extensions Congress has passed since the recession, only 35 percent of the 15 million unemployed would be receiving benefits. While Congress struggles to preserve the existing programs, no help whatsoever is forthcoming for the hundreds of thousands who have already exhausted the 99 weeks of unemployment benefits available in some states. “Today’s jobs report proves we are still in desperate straits in terms of our jobs recovery,” said Judy Conti, a lobbyist with the National Employment Law Project. “For anybody in Congress to suggest that now is the time to start pulling back our supports for people who are unemployed through no fault of their own proves that they are out of touch with reality at best and heartless at worst.” Progressive economist Dean Baker, co-director of the Center for Economic and Policy Research, said the unimpressive jobs report “actually is good news in that it should shut up the dingbats who thought the economy was recovering just fine.”

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Healthscope Gets Two $1.5 Billion Bids, Topping Offer From Blackstone, TPG

May 30, 2010

By Simeon Bennett May 31 (Bloomberg) — Healthscope Ltd. received two additional takeover offers that value Australia’s second-biggest hospital owner at A$1.84 billion ($1.6 billion) and top a bid by Blackstone Group LP and its partners. The new proposals, both of A$5.80 a share, are 11 percent above Healthscope’s May 28 closing price. The board considers the offers to be at least equal to an earlier A$5.75-a-share bid, the Melbourne-based company said in a statement today. Last week, Blackstone joined TPG Capital and Carlyle Group in bidding for Healthscope, according to a person familiar with the matter. Healthscope, whose profit has grown an average of 36 percent over the past nine years, said it’s allowing the new bidders to review its financial accounts. Selling the pathology business and putting its hospitals in a real estate fund could value the shares at as much as A$7 each, UBS AG said. “A breakup makes most sense,” said Andrew Goodsall , a health-care analyst at UBS in Sydney, in a telephone interview. Healthscope’s managers “are solid operators,” he said. “If there’s earnings upside to be had, they would have had it.” Healthscope shares advanced 5 percent to A$5.49 as of 12:34 p.m. local time, headed for a two-year high. The S&P/ASX 200 Index slipped 0.3 percent. KKR Bid The stock has climbed 22 percent on the Australian stock exchange since first announcing a takeover approach on May 14. Concern among investors that the deal may not proceed is preventing the shares rising further, said John Hester , a health-care analyst at Linwar Securities Ltd. in Sydney. “These are non-binding offers,” Hester said in a telephone interview. “There’s potential for these bids to all fall over. If I was a significant holder, I’d certainly be looking to reduce my position.” Hester rates the stock “market perform.” Kohlberg Kravis Roberts & Co. may make a bid for Healthscope tomorrow, the Australian Financial Review reported today, without saying where it got the information. KKR may bid with another firm and offer about A$6 a share, the report said. Healthscope, which is being advised by Goldman Sachs JBWere Pty and Lazard Ltd., hasn’t given the names of any of its bidders. One may be a U.S.-based private hospital operator being advised by Citigroup Inc., the Australian Financial Review said in a separate report today, without identifying the company or saying where it got the information. Private hospital groups in Australia, including Healthscope’s larger rival Ramsay Health Care Ltd. , are benefiting from increasing demand from an aging population and government measures aimed at boosting private coverage. Uptake of health insurance reached a 27-year high in March and one in two Australians have hospital policies, Health Minister Nicola Roxon said this month. Healthscope owns or operates 43 hospitals in Australia, including the Prince of Wales Private Hospital in Sydney’s eastern suburbs and Melbourne Private Hospital on the fringe of the city’s central business district. It also runs the Gribbles pathology chain in Australia, New Zealand, Malaysia, Singapore and Mauritius. To contact the reporter on this story: Simeon Bennett in Singapore at sbennett9@bloomberg.net

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Robert Reich: Why the Finance Bill Won’t Save Us

May 24, 2010

The most important thing to know about the 1,500-page financial reform bill passed by the Senate last week — now on he way to being reconciled with the House bill — is that it’s regulatory. If does nothing to change the structure of Wall Street. The bill omits two critical ideas for changing the structure of Wall Street’s biggest banks so they won’t cause more trouble in the future, and leaves a third idea in limbo. The White House doesn’t support any of them. First, although the Senate bill seeks to avoid the “too big to fail” problem by pushing failing banks into an “orderly” bankruptcy-type process, this regulatory approach isn’t enough. The Senate roundly rejected an amendment that would have broken up the biggest banks by imposing caps on the deposits they could hold and their capital assets. You do not have to be an algorithm-wielding Wall Street whiz-kid to understand that the best way to prevent a bank from becoming too big to fail is preventing it from becoming too big in the first place. The size of Wall Street’s five giants already equals a large percentage of America’s gross domestic product. That makes them too big to fail almost by definition, because if one or two get into trouble — as they did in 2008 — their demise would shake the foundations of the financial system, even if there were an “orderly” way to liquidate them. Because traders and investors know they are too big to fail, these banks have a huge competitive advantage over smaller banks. Another crucial provision left out of the Senate bill would be to change the structure of banking by resurrecting the Depression-era Glass-Steagall Act and force banks to separate commercial banking (the classic function of connecting lenders to borrowers) from investment banking. Here, too, the bill takes a regulatory approach instead. It includes a provision barring banks from “proprietary trading,” or making market bets with their own capital. Even if this regulation were tough enough (and the current Senate bill requires various delays and studies before it’s applied), it would not erode the giant banks’ monopoly over derivatives trading, adding to their power and inevitable “too big to fail” status. Which brings us to the third structural idea, advanced by Senator Blanche Lincoln. She would force the banks to do their derivative trades in entities separate from their commercial banking. This measure is still in the bill, but is on life-support after Paul Volcker, Tim Geithner, and Fed chair Ben Bernanke came out against it. Republicans hate it. The biggest banks detest it. Virtually every major Wall Street and business lobbyist has its guns trained on it. Almost no one in Washington believes it will survive the upcoming conference committee. But it’s critical. For years the big banks have relied on taxpayer-funded deposit insurance to backstop their lucrative derivative businesses. Obviously they want the subsidy to continue. Bernanke argues that “depository institutions use derivatives to help mitigate the risks of their normal banking activities.” True, but irrelevant. Lincoln’s measure would allow banks to continue to use derivatives. They just could not rely on their government-insured deposits for the capital. Requiring banks to do derivative trading in separate entities would force them to raise extra capital. But if such trading is so useful, banks should foot the bill, not taxpayers. Bernanke and others say the measure would give foreign banks a competitive advantage. Even if he is right, since when is it up to taxpayers to guarantee profitability at America’s largest banks relative to foreign ones? The trading of derivatives is not so crucial to the US economy that taxpayers should subsidize the practice. If the past two years have taught us anything, the lesson is just the opposite. Derivatives can generate huge risks unless carefully regulated. Wall Street’s lobbyists have fought tooth and nail against these three ideas because all would change the structure of America’s biggest banks. The lobbyists won on the first two, and the Street has signaled its willingness to accept the Dodd bill, without Lincoln’s measure. The interesting question is why the president, who says he wants to get “tough” on banks, has also turned his back on changing the structure of American banks — opting for a regulatory approach instead. It’s almost exactly like health care reform. Ideas for changing the structure of the health-care industry — a single payer, Medicare for all, even a so-called “public option” — were all jettisoned by the White House in favor of a complex set of regulations that left the old system of private for-profit health insurers in place. The final health care act doesn’t even remove the exemption of private insurers from the nation’s antitrust laws. Regulations don’t work if the underlying structure of an industry — be it banking or health care — got us into trouble in the first place. Wall Street’s big banks are just too big, and their ability to draw on commercial deposits for investment banking activities, including derivatives, will make them even bigger. It will also subject the economy to greater and greater risks in the future. No amount of regulation can cure that. Similarly, the underlying system of private for-profit health insurance is a key driver of America’s bloated and ineffective health care delivery. We can try to regulate it like mad, but no amount of regulation will cure this fundamental problem. A regulatory rather than structural approach to deep-seated problems in complex industries like banking and health care is also vulnerable to the inevitable erosion that occurs when industry lobbyists insert themselves into the regulatory process. Tiny loopholes get larger. Delays get longer. Legislative words are warped and distorted to mean what industry wants them to mean. Both Senate and House financial reform bills exempt “customized” derivatives from the exchanges, for example, but leave it to regulators to define what contracts will be excused. Yet many of the derivatives that caused the most trouble (read: Goldman Sachs and other banks’ deals with AIG) might well be thought of as customized. Another potential problem: in assigning consumer protection to the Fed, the bill puts it under Fed chiefs who in the past displayed a patent disregard of such safeguards (read: Alan Greenspan). Inevitably, top regulators move into the industry they’re putatively trying to regulate, while top guns in the industry move temporarily into regulatory positions. This revolving door of regulation also serves over time to erode all serious attempt at overseeing an industry. The only way to have a lasting effect on industries as large and intransigent as banking and health care is to alter their structure. That was the approach taken to finance by Franklin D. Roosevelt in the 1930s, and by Lyndon Johnson to health care (Medicare) in the 1960s. So why has Obama consistently chosen regulation over restructuring? Because restructuring Wall Street or health care would surely elicit firestorms from these industries. Both are politically powerful, and Obama did not want to take them on directly. A regulatory approach allows for more bargaining, not only in the legislative process but also, over time, in the rule-making process as legislation is put into effect. It’s always possible to placate an industry with a carefully-chosen loophole or vague legislative language that will allow the industry to continue to go on much as before. And that’s precisely the problem. This post originally appeared at RobertReich.org .

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Health Insurers Say They’ll End Rescission Policy Dropping Sick Patients

April 29, 2010

By Drew Armstrong April 29 (Bloomberg) — Health-insurance customers won’t risk losing their coverage when they become sick under an industrywide ban beginning in May on the practice known as “rescissions.” WellPoint Inc. and UnitedHealth Group Inc. , the biggest U.S. health insurer by sales, said earlier this week they would no longer cancel customer policies without evidence of fraud or intentional misrepresentation. Companies will end the practice beginning in May, Karen Ignagni , chief executive officer of America’s Health Insurance Plans, the industry’s lobbying group, said yesterday in a letter. The health law signed by President Obama in March would have required insurers to stop all rescissions in September. “Our community is committed to implementing the new standard in May 2010 to ensure that individuals and families will have greater peace of mind when purchasing coverage on their own,” Ignagni said. This is the second time in a month that health-insurance companies have opted to act before the law’s requirements and implement new regulations from the health care overhaul. Earlier in April, insurers announced that they would immediately begin a policy letting dependents under the age of 26 stay on their parents’ plans. White House Push The companies have done so partly at the prodding of Democrats in Congress and the Obama administration. On April 27, Democratic chairmen of three House health committees wrote a letter asking the insurers “to end any such abusive practices immediately.” The letter went to WellPoint, based in Indianapolis, Indiana, UnitedHealth Group, based in Minnetonka, Minnesota, Kaiser Permanente, based in Oakland, California, Assurant Inc. , based in New York, Humana Inc. , based in Louisville, Kentucky, the Blue Cross Blue Shield Association, based in Chicago, and Aetna Inc. , based in Hartford, Connecticut. House Ways and Means Committee Chairman Sander Levin , a Michigan Democrat, was one of the lawmakers who urged insurers to stop rescissions early. “There is a lesson to be learned here. These companies have seen the writing on the wall and decided to align their practices with the law of the land even before they are required to do so,” Levin said in a statement responding to insurers’ announcement. The White House applauded the move, as well. “It’s heartening to see that the insurance companies who employed these terrible practices — and fought reform — are coming around doing the right thing by instituting the ban right away,” Nancy-Ann DeParle , director of the White House Office of Health Reform, said in an e-mailed statement. “We’ll be watching closely and holding them to their word.” To contact the reporter on this story: Drew Armstrong in Washington at darmstrong17@bloomberg.net .

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Wellcare Director Herzlinger Resigns, Says Board Didn’t Do Job `Properly’

April 23, 2010

By Pat Wechsler April 23 (Bloomberg) — Harvard Business School professor Regina Herzlinger said she was forced off the board of WellCare Health Plans Inc. , an insurer specializing in Medicare and Medicaid benefits, by directors acting against shareholders’ interests. Herzlinger said the insurer faces “serious challenges” and has underperformed its competitors. Two board panels chose not to nominate her again in light of her “vigorous and uncompromising pursuit” of the shareholders’ interests, she said in a resignation letter filed today by WellCare. The insurer called Herzlinger’s charges a “mischaracterization of facts and motive” in its filing. WellCare settled federal and state charges last year that it had kept money owed to the government and used it to inflate earnings. Herzlinger said the board needs directors with extensive experience in health insurance accounting to ensure continued proper oversight. “I have been committed to remaining on WellCare’s board to help address these and other challenges,” she said in her letter. WellCare insured 2.32 million people as of Dec. 31, according to its Feb. 18 earnings statement. That included 1.35 million in Medicaid programs for the low-income and 972,000 more in Medicare plans for the elderly and disabled. To contact the reporter responsible for this story: Pat Wechsler in New York at pwechsler@bloomberg.net

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Jeannette Smith: Clean up Sodexo: a Worker Speaks Out

April 22, 2010

This week, Vice President of Employee & Corporate Relations at Sodexo did an interview with Fox Business News saying, the “Our employees tell us that Sodexo is a great place to work… the majority of our employees recognize even where they’re active recognize they don’t need that union to create opportunities for themselves at Sodexo.” But, food service workers with Sodexo across the U.S. are fighting for the right of workers to come together to raise standards. Just last week, Sodexo workers were joined by students and community activists for actions in 11 states and nearly 20 campuses. As a Sodexo food service employee for 6 years, and someone who has worked in this industry for over 16 years, I have a lot to say about my job and the working conditions my coworkers and I experience under Sodexo’s watch. All across the country, Sodexo employees like me have come together for better conditions like respect, a voice at work, wages that can support our families, and affordable health plans. For too many of us, making ends meet is a daily struggle on Sodexo’s low wages–and health insurance is out of reach. I rely on Section 8 to subsidize my housing costs and some of my other coworkers must also turn to government assistance for housing, food stamps, and health care. I work at Tulane University in New Orleans. I took this job with hopes of advancing into management–in fact that’s what I was told would be possible. I received the “employee of the month” award last year and I was promoted to an entry level management position. I felt my dreams were coming true. But I soon discovered opportunity without training is still a missed opportunity. I requested training and help, but after being ignored I just did the best I could though we were short staffed and often couldn’t complete all our duties. In my experience, Sodexo does not want their employees to form a union despite what they say to the press. My manager told us the union wasn’t good. Then my manager asked me forcefully if I signed up to join the union and that if other managers found out I was as good as fired. I felt threatened when she did this and don’t think anyone should have to go through that. I know this is not right and the federal government is investigating whether Sodexo violated my civil rights When I saw what Sodexo said in their blog and on TV I was hurt. It was like they were completely ignoring everything we’ve been bringing to their attention for months now. It was like we didn’t even exist. Where is the affordable health insurance? Where is our opportunity to form a union without management intimidation at every turn? Where are the full time hours and advancement? I wish what Sodexo says is true–but it is not the reality for the front line Sodexo employees. Last week, I was excited to see Sodexo workers, students, and other supporters all stand together across the country. Even workers from France and Britain came to participate, Workers are willing to do whatever it takes to be heard, to stop being mistreated, and to win respect. I’m proud to be a part of this effort to “clean up Sodexo,” and create better jobs that we need so badly right now. Learn more about the fight for worker rights at CleanUpSodexo.org.

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Lawrence H. Summers: Relief for Middle Class Families

April 15, 2010

One of the central economic challenges that candidate and then President Obama identified was that, even before the recent economic crisis, middle class families had faced nearly a decade of stagnant wage growth, while the cost of things like paying our health care and for the education of our children have skyrocketed. Incomes have become more unequal. Tax burdens have been shared less equally. The animating spirit of economic policy in President Obama’s Administration has been a vision of America’s future in which sustained economic growth, built by sound investment and skilled and productive workers, creates good jobs and rising incomes and spreads opportunity and economic security for all Americans. The President’s focus on providing relief of the middle class has been at the heart of his agenda. It was a central element of the Recovery Act, in the jobs tax credits passed since then, and in health reform. Federal taxes have been reduced by $173 billion this year. As a result of these policies, the average tax refund paid thus far has been about $3,000 per family, an increase of nearly 10 percent. That is largely due to the American Recovery and Reinvestment Act, signed into law last February. Through the Recovery Act, working families and small businesses are benefiting from more than $160 billion in tax relief. Take just one example: the Recovery Act’s Making Work Pay tax credit provided a tax cut to 95 percent of working American families. Thanks to Making Work Pay, individuals are collecting $400 more through their paychecks, and married couples are collecting an additional $800. In addition to Making Work Pay, as a result of the Recovery Act millions of Americans this year benefited from new tax credits including: * Up to $2,500 for families to help cover rising college tuition expenses, a down payment on the education of the next generation of Americans; * Up to $8,000 for first time home buyers to help new families purchase their first home and to help stabilize the housing market; * Up to $1,500 for homeowners to make energy-efficiency improvements to their home; and * Up to $600 for working single parents through an increase in the Earned Income Tax Credit Providing tax cuts and refundable tax credits to American families puts more money in people’s pockets and encourages them to spend. In an economy facing a substantial shortfall in aggregate demand, increased consumer spending can go a long way toward spurring growth, creating jobs, and promoting a sustainable recovery. The tax relief program that the President has promoted is critical for Americans working to make ends meet. It is also good for business. Last month, the President signed a jobs bill that will encourage businesses to create jobs and help put Americans back to work. It forgives payroll taxes for businesses that hire someone who has been out of work at least two months and it provides tax refunds to small businesses for investments in equipment. In that way, the tax relief the President has supported does more than ease the burdens on the middle class — in these hard times, it also constitutes good macroeconomic policy. Another crucial set of policies to provide tax relief to middle class families has been the health insurance reform bill recently signed into law by President Obama. Health reform includes the largest health care tax cut in history for middle class families. For the millions of American households benefiting from that relief, health insurance will become much more affordable. Many of those measures, crucially, help reduce the cost of hiring. They are important tools in encouraging businesses to create jobs, to expand, and to invest in their future. Small businesses, in particular, benefited through a tax credit covering up to 35 percent of health insurance premiums that small businesses pay to cover their workers this year and increasing to 50 percent in 2014. In building a new foundation for economic growth, President Obama also recognizes that, for too long, irresponsible fiscal policies have placed our country in a serious fiscal situation. For this reason, he put forward a budget that brings back common sense, fiscally responsible principles. The budget includes a commitment to allow the Bush tax cuts to expire for those at the very highest income level, the top 2 percent of U.S. households, bringing rates back to the levels of the 1990s – a period of strong, consistent growth and income increases across the board. It has been a trying time for Americans since the recession began nearly two and a half years ago, and we still have a long way to go. We have provided much-needed relief to middle class families. That relief is indispensable to our efforts to return the economy to health and lay a new foundation for our future prosperity.

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UnitedHealth, WellPoint Fight Obama’s Mandate on Medical Costs

April 13, 2010

By Drew Armstrong April 13 (Bloomberg) — A U.S. mandate forcing insurers led by UnitedHealth Group Inc. and WellPoint Inc. to spend 85 percent of revenue from premiums on medical care is the newest front in the battle between the Obama administration and companies over industry profits. In 2009, UnitedHealth spent 82.3 percent of revenue from premiums to pay customers’ medical expenses and WellPoint spent 82.6 percent, according to company filings. While individual insurers now decide what categories to include in this ratio, the health law signed in March demands that all companies define medical costs the same way beginning in 2011. Many insurers include only customer claims in their current ratios. They want to keep the number low to impress investors, said Sandy Praeger , of the National Association of Insurance Commissioners . Under the new law, lobbyists would include technology expenses, wellness programs and pay-for-performance incentives. That would make it easier to reach the 85 percent threshold, and free up revenue to boost profit. “This has the potential to be a big issue for the industry next year,” said Carl McDonald , an analyst at Oppenheimer & Co. in New York, in an April 8 note to clients. “Because the details of the calculation are left up to an administration that has been blatantly anti-managed care, it will be difficult for many commercial plans to outperform until this is cleared up.” The law sets two thresholds for 2011: 85 percent for policies involving large companies, and 80 percent for small groups and individuals. Input From States State officials represented by the Kansas City, Missouri- based insurance commissioners’ group, or NAIC, were initially asked by U.S. regulators to recommend by the end of 2010 what should be covered under the thresholds. That timing was shortened yesterday to June 1. Lobbyist organizations led by America’s Health Insurance Plans, or AHIP, a Washington-based group representing 1,300 insurers, and the Chicago-based Blue Cross and Blue Shield Association, with 39 members, are negotiating over how to shape the bill, Praeger said. “We’ve begun the discussions with some of the industry, or they’ve begun the discussion with us, because they’re nervous about how this is going to be defined,” Praeger said in a telephone interview. “They want to be able to say — when they go to Wall Street — that they’re really reserving a lot for profit. When they come to us they want to say the reverse, that they’re paying a lot for medical.” Final regulations for the provision will be approved by Health and Human Services Secretary Kathleen Sebelius . Company Shares UnitedHealth, based in Minnetonka, Minnesota, was unchanged at $32.26 in New York Stock Exchange composite trading yesterday. The company, the biggest U.S. insurer by sales, jumped 35 percent in the last year, boosted by the law’s promise to add millions of customers. WellPoint rose 8 cents to $61.34. Insurers believe wellness programs and technology systems to manage records should be categorized as medical care because they help improve overall health, said Justine Handelman, executive director for policy for the Blue Cross group. Robert Zirkelbach , a spokesman for AHIP, said his group’s members are concerned that refusing to include wellness programs under the thresholds may lower interest among companies in supporting these efforts, hurting consumers rather helping them. “We want to make sure that, however the regulations are structured, they aren’t going to disrupt those types of initiatives,” Zirkelbach said. Insurers have already made some changes in how they classify costs on their own. WellPoint Change WellPoint , the largest U.S. insurer by enrollment, last month announced it would count nurse call-in centers and wellness programs as medical costs. That move increased the Indianapolis-based company’s projected ratio to 84.3 percent in 2010 from 82.6 percent in 2009, the company said. Kristin Binns , a spokeswoman for WellPoint, said in an e- mail that company officials are “closely watching the NAIC recommendation process, and are looking at the impacts depending on how various expenses are classified.” UnitedHealth spokesman Tyler Mason said the insurer was “following discussions closely.’ He declined further comment.      Cigna CEO David Cordani said he was confident the administration will allow insurers to count spending on nurses who advise customers as a medical expense. Sebelius and congressional staff indicated a willingness to do so in conversations over the past six weeks, Cordani said in an interview yesterday. More Patient Value Democrats want to use the new rules to deliver on their promise that patients will get more value from their premiums, Senator Jay Rockefeller , a West Virginia Democrat, has said. President Barack Obama and Democrats in Congress repeatedly criticized insurers in the run-up to the law’s signing last month. They attacked WellPoint’s proposed 39 percent premium increase on some California customers as a preview of what might happen if the overhaul wasn’t passed. The regulations will require “insurance companies to dedicate more of the premiums dollars they collect to actual care instead of profits, bonuses, advertising and other overhead costs,” said Nicholas Papas, a Sebelius spokesman, in an e- mailed statement. Robert Laszewski , a Washington, D.C. policy analyst who consults with the industry, predicts that the insurance commissioners’ recommendations won’t put excessive pressure on industry profits. “This medical-cost ratio is a game,” he said. “What the regulators are now going to do is come up with rules of the game,” Laszewski said. “Hire some lobbyists and make some really good arguments.” No Political Pressure Praeger said there has been no political pressure from the Obama administration to squeeze insurers. “We would not do that,” she said. “We want to be accurate and the authority and the expert. We can’t get caught up in the political side.” The insurance commissioners will focus their recommendations on making sure there is a consistent and fair definition, she said, that “doesn’t get gamed.” To contact the reporters on this story: Drew Armstrong in Washington at darmstrong17@bloomberg.net .

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U.S. Senate Moves Toward Passage of Bill Extending Benefits for Unemployed

April 13, 2010

By Brian Faler April 13 (Bloomberg) — The U.S. Senate took a step toward reinstating unemployment benefits to tens of thousands of Americans whose aid was ended following a partisan dispute over how to pay the cost. Legislation providing a one-month extension of the benefits cleared a procedural hurdle 60-34 yesterday, and Democratic leaders aim for a final vote by the end of the week. The measure, designed to buy lawmakers time to debate a longer-term extension, was passed by the House last month. Benefits for thousands expired April 5 after Republicans blocked an extension because its $9 billion cost would be added to the government’s budget deficit, which reached a record $1.4 trillion in the fiscal year that ended last September. Republicans called for the cost to be offset by cuts elsewhere in the budget, while Democrats argued that fighting the deficit shouldn’t come at the expense of the jobless. About 212,000 Americans will see their benefits disrupted for every week the measure is delayed, according to the National Employment Law Project . The bill would extend provisions offering as many as 99 weeks of assistance to the unemployed. The extension would be retroactive to the day the benefits ended. The measure would also renew subsidies to help unemployed people buy health insurance and forestall a 21 percent cut in Medicare reimbursements to doctors. Republicans this year have twice blocked otherwise routine extensions of jobless benefits because of the cost. The legislation includes $1 million to provide back pay to 2,000 Transportation Department workers who were briefly furloughed because of the previous delay. To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net .

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GE Sees `No Material Effect’ From Health-Care Law, Doesn’t Expect Charge

March 27, 2010

By Rachel Layne March 27 (Bloomberg) — General Electric Co. said it doesn’t anticipate taking a charge tied to changes in the tax treatment of Medicare subsidies in the health-care law signed by President Barack Obama . GE, the world’s biggest maker of jet engines, power-plant turbines and locomotives, doesn’t see any “material effect” from the law and is unlikely to take a charge, spokeswoman Anne Eisele said today. U.S. companies such as AT&T Inc. , Caterpillar Inc. and AK Steel Holding Corp. said this week they are recording non-cash expenses against earnings as a result of the law. Health-care costs may shave as much as $14 billion from U.S. corporate profits, according to an estimate by benefits consulting firm Towers Watson. GE, like other companies, previously received a tax-free benefit from the government to subsidize health-care costs for retirees, who would otherwise have to buy drug benefits through insurers. Because GE contracted administration of its plan to a third party last year, it no longer qualified for the subsidy, and didn’t account for the direct benefit starting in 2011, according to a regulatory filing. Companies such as AT&T said they were taking charges because they will no longer get that tax benefit under the new law. Benefits In 2008 and 2009, GE received a benefit of $83 million for helping pay for retirees’ Part D prescription benefits under Medicare, the federal health insurance plan for the elderly, according to a note in the filing. This year, the company had expected to receive about $70 million and $5 million each year after that, according to the filing. At the end of 2009, GE had about 220,000 retirees under its health- and life-insurance plans, the filing said. On March 23, the president signed a bill that would provide health-care coverage for millions of uninsured Americans, place fees on health-care companies and provide hundreds of billions in Medicare savings. It’s projected to cost almost $1 trillion. Fairfield, Connecticut-based GE employed 134,000 workers in the U.S. as Dec. 31, according to the regulatory filing. It’s also the world’s biggest maker medical-imaging equipment and provider of aircraft leasing. Other products include appliances, lighting, credit cards, lending to mid-and small-size companies and factory-automation software. To contact the reporter on this story: Rachel Layne in Boston at rlayne@bloomberg.net .

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Obama Said to Name Health Scholar Berwick as Head of Medicare, Medicaid

March 27, 2010

By Hans Nichols and Viola Gienger March 27 (Bloomberg) — President Barack Obama plans to nominate Donald Berwick , a Harvard University health-policy professor, to oversee the Medicare and Medicaid programs, an administration official said. As head of the Centers for- Medicare and Medicaid Services, Berwick would run nation’s health insurance programs for the elderly and the poor. The agency, part of the Department of Health and Human Services, will play a large role in implementing the president’s health care overhaul. The position requires Senate confirmation. Obama announced plans today to install 15 nominees to other administration positions by recess appointments, which bypass the need for Senate confirmation. Berwick wasn’t on that list because he hasn’t yet been nominated by the president, said the official, who spoke on the condition of anonymity. Berwick is a pediatrician and health policy expert who runs the nonprofit Institute for Healthcare Improvement in Cambridge, Massachusetts. To contact the reporter on this story: Hans Nichols in Washington at hnichols2@bloomberg.net

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Obama Dares Republicans to Attempt Repeal of Landmark Health-Overhaul Bill

March 25, 2010

By Edwin Chen and Roger Runningen March 25 (Bloomberg) — President Barack Obama returned to the Midwestern city where he first outlined his health-care proposal and dared Republicans to attempt a repeal of the measure he signed into law two days ago. “They’re actually going to run on a platform of repeal in November,” Obama said in the text of a speech he’s delivering to a crowd at the University of Iowa Field House. “Well I say go for it,” Obama said in Iowa City, Iowa. “If these congressmen in Washington want to come here to Iowa and tell small business owners that they plan to take away their tax credits and essentially raise their taxes, be my guest.” Having gained a victory for the most sweeping change in the U.S. health-care system in four decades, Obama is campaigning to promote the benefits of the law to a public that remains split on the issue. Republicans have vowed to make passage of the law on a strictly party-line vote an issue in the elections later this year that will determine control of Congress. While Obama signed the legislation March 23, the Senate and House are still working on adjustments to the law that were required to win passage after a year of debate and negotiations. Shortly after Obama began speaking, the Senate passed the changes 56-43 with no Republican support. The final step, a vote in the House, may come later today. Health-Care Overhaul The almost $1 trillion health-care overhaul will require Americans to have proof of health insurance, expand coverage to an estimated 32 million uninsured people and impose new regulations on insurers that boost consumer clout. Obama accused Republicans of seeking to pull back benefits such as preventative care for millions of Americans. “If they want to have that fight, I welcome that fight,” Obama said in the text. Voters won’t “put the insurance industry back in the driver’s seat. We’ve been there already and we’re not going back. This country is ready to move forward.” Senate Republican leader Mitch McConnell of Kentucky, two hours after Obama signed the law, said Republicans would fight “fight until this bill is repealed and replaced with common- sense ideas that solve our problems without dismantling the health-care system we have.” It was in Iowa City on May 29, 2007, that Obama laid out his proposal for revamping the U.S. health insurance market during his nascent presidential campaign. Iowa’s Importance Iowa’s precinct caucuses in January 2008 gave Obama a critical first victory that propelled him to the Democratic nomination later that year. He won the state in the November general election with 54 percent of the vote. The president’s approval ratings in the state have tracked a national decline. A Jan. 31 to Feb. 3 poll for the Des Moines Register found 46 percent of Iowa residents approved of how Obama is handling his job. The administration is counting on a rebound with passage of the health-care legislation. According to Robert Gibbs , the White House press secretary, 16,500 people had signed up on-line as of yesterday for tickets to today’s event at an arena with a capacity for 3,000. In his 2007 speech, Obama vowed to cut overall costs, seek universal coverage, and abolish insurance industry practices that discriminate against people with pre-existing conditions. Then a first-term Illinois senator, Obama said the health- care system had become “a disease care system” that was too expensive and too inaccessible for millions of Americans. Campaigning for Support Even though Obama signed the health-care bill into law on Tuesday, Gibbs said, the president believes “it’s important to continue talking about the many aspects of the law.” The health-care overhaul is coming under criticism from one of Iowa’s largest manufacturing employers. Farm machinery maker Deere & Co ., with headquarters across the Mississippi River in Moline, Illinois, said in a statement today that the law will increase its expenses by $150 million this fiscal year. Peoria, Illinois-based Caterpillar Inc ., the world’s largest maker of construction equipment, said yesterday it expects to record a charge of about $100 million as a result of the law. Both companies were signatories of a December letter to Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi warning that a change in the subsidy for retiree drug benefits under Medicare Part D in the legislation would cause reductions in their earnings statements. Gibbs told reporters traveling with Obama that the changes close a loophole in the Medicare drug benefit that provided a 28 percent subsidy for businesses that offer retiree drug coverage. Under the law, the subsidy is subject to tax as part of the plan to pay for the health-care overhaul. As Air Force One was taking off for Iowa, the state’s Republican Party chairman said Iowans are concerned about the costs of Obama’s health-care plan. The party chief, Matt Strawn, cited the Deere statement. “Iowans know that we can’t afford this health care bill,” Strawn said on a conference call with reporters. “This is not the change that Iowans voted for.” To contact the reporters on this story: Edwin Chen in Iowa City, Iowa at EChen32@bloomberg.net ; Roger Runningen in Washington at rrunningen@bloomberg.net

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Health-Care Changes to Start Taking Effect This Year (Correct)

March 24, 2010

By Shannon Pettypiece and Alex Nussbaum (Corrects effective date in first paragraph. Story first moved March 23.) March 23 (Bloomberg) — Indoor tanning salons will charge customers a 10 percent tax beginning in July in one of the changes Americans will see as a result of the U.S. health-care overhaul signed into law by President Barack Obama . Insurers will be required by September to begin providing health coverage to kids with pre-existing illnesses and allow parents to keep children younger than 26 on their plans as the clock has begun ticking on many of the law’s provisions. Medicare recipients will receive a $250 rebate for prescription drugs when they reach a coverage gap called the donut hole if the Senate passes and the president signs companion legislation approved March 21 by the U.S. House. The $940 billion overhaul subsidizes coverage for uninsured Americans, financed by Medicare cuts to hospitals and fees or taxes on insurers, drugmakers, medical-device companies and Americans earning more than $200,000 a year. Many of the changes in the bill of more than 2,400 pages, such as requiring most people to have health insurance and employers to provide coverage, will take at least two years to go into effect. “Most of the major public policy changes embodied in the health care reform legislation will become effective only after the next presidential election in 2012,” said Maury Harris , an economist with UBS AG , said in a research report. High-Risk Pools Within 90 days, the law will provide immediate access to high-risk insurance plans for people who can’t get insurance because of a pre-existing medical problem, Harris said. These high-risk pools will be funded by $5 billion in federal grants. Companies led by Minnetonka, Minnesota-based UnitedHealth Group Inc. , the largest health insurer, will be banned within six months from dropping a person’s coverage because of severe illness and from limiting lifetime or annual benefits. Participants in Medicare, the U.S. government’s health coverage for those 65 and older, are expected get a $250 rebate toward prescription drugs once their benefits run out — a coverage gap know as the “doughnut hole.” The benefit is part of the package of amendments to the legislation now pending in the Senate. Drugmakers led by New York-based Pfizer Inc. will have to offer discounted drugs to Medicare recipients next year, according to an analysis of the legislation by the Kaiser Family Foundation, a nonprofit group based in Menlo Park, California In 2013, individuals whose annual income is more than $200,000 and couples making more than $250,000 will see an increase in Medicare payroll taxes. Those taxes will also be expanded to cover dividend, interest and other unearned income. Employer Coverage In 2014, employers with more than 50 employees will be required to provide health coverage and most people will be required to have health insurance, Harris said in his report. A tax on high-cost “Cadillac” policies won’t go into effect until 2018. The insurance industry also faces about $60 billion in additional fees under the health bill through 2018, and more beyond, though it was able to postpone the levy until 2014. By 2019, the bill is expected to have expanded health insurance coverage to 32 million people, according to UBS’s Harris. The U.S. Health and Human Services Department will have two years to set penalties on hospitals with high readmission rates and longer to test new payment systems for Franklin, Tennessee- based Community Health Systems Inc. , the largest U.S. chain, and its rivals. Financial Disclosure Insurers also will have to reveal how much of members’ premiums they spend on medical care, as opposed to executive salaries or other administrative costs. Next year, they’ll owe a rebate to customers if the insurers spend less than 80 percent on benefits for people in individual or small-group plans. Starting in 2014, states have their say. The legislation leaves it to them to set up and run the online marketplaces, known as exchanges, where customers will comparison-shop for coverage. Among other powers, the exchanges will be able to banish plans for premium increases deemed to be unjustified. The legislation also creates an Independent Payment Advisory Board to suggest cuts in spending by Medicare, the government health program for the elderly and disabled, that could threaten payments for drug and device-makers. Starting in 2014, the panel’s recommendations would take effect unless federal lawmakers substitute their own reductions. To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net ; Shannon Pettypiece in New York spettypiece@bloomberg.net

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Health-Care Changes to Start Taking Effect This Year (Correct)

March 24, 2010

By Shannon Pettypiece and Alex Nussbaum (Corrects effective date in first paragraph. Story first moved March 23.) March 23 (Bloomberg) — Indoor tanning salons will charge customers a 10 percent tax beginning in July in one of the changes Americans will see as a result of the U.S. health-care overhaul signed into law by President Barack Obama . Insurers will be required by September to begin providing health coverage to kids with pre-existing illnesses and allow parents to keep children younger than 26 on their plans as the clock has begun ticking on many of the law’s provisions. Medicare recipients will receive a $250 rebate for prescription drugs when they reach a coverage gap called the donut hole if the Senate passes and the president signs companion legislation approved March 21 by the U.S. House. The $940 billion overhaul subsidizes coverage for uninsured Americans, financed by Medicare cuts to hospitals and fees or taxes on insurers, drugmakers, medical-device companies and Americans earning more than $200,000 a year. Many of the changes in the bill of more than 2,400 pages, such as requiring most people to have health insurance and employers to provide coverage, will take at least two years to go into effect. “Most of the major public policy changes embodied in the health care reform legislation will become effective only after the next presidential election in 2012,” said Maury Harris , an economist with UBS AG , said in a research report. High-Risk Pools Within 90 days, the law will provide immediate access to high-risk insurance plans for people who can’t get insurance because of a pre-existing medical problem, Harris said. These high-risk pools will be funded by $5 billion in federal grants. Companies led by Minnetonka, Minnesota-based UnitedHealth Group Inc. , the largest health insurer, will be banned within six months from dropping a person’s coverage because of severe illness and from limiting lifetime or annual benefits. Participants in Medicare, the U.S. government’s health coverage for those 65 and older, are expected get a $250 rebate toward prescription drugs once their benefits run out — a coverage gap know as the “doughnut hole.” The benefit is part of the package of amendments to the legislation now pending in the Senate. Drugmakers led by New York-based Pfizer Inc. will have to offer discounted drugs to Medicare recipients next year, according to an analysis of the legislation by the Kaiser Family Foundation, a nonprofit group based in Menlo Park, California In 2013, individuals whose annual income is more than $200,000 and couples making more than $250,000 will see an increase in Medicare payroll taxes. Those taxes will also be expanded to cover dividend, interest and other unearned income. Employer Coverage In 2014, employers with more than 50 employees will be required to provide health coverage and most people will be required to have health insurance, Harris said in his report. A tax on high-cost “Cadillac” policies won’t go into effect until 2018. The insurance industry also faces about $60 billion in additional fees under the health bill through 2018, and more beyond, though it was able to postpone the levy until 2014. By 2019, the bill is expected to have expanded health insurance coverage to 32 million people, according to UBS’s Harris. The U.S. Health and Human Services Department will have two years to set penalties on hospitals with high readmission rates and longer to test new payment systems for Franklin, Tennessee- based Community Health Systems Inc. , the largest U.S. chain, and its rivals. Financial Disclosure Insurers also will have to reveal how much of members’ premiums they spend on medical care, as opposed to executive salaries or other administrative costs. Next year, they’ll owe a rebate to customers if the insurers spend less than 80 percent on benefits for people in individual or small-group plans. Starting in 2014, states have their say. The legislation leaves it to them to set up and run the online marketplaces, known as exchanges, where customers will comparison-shop for coverage. Among other powers, the exchanges will be able to banish plans for premium increases deemed to be unjustified. The legislation also creates an Independent Payment Advisory Board to suggest cuts in spending by Medicare, the government health program for the elderly and disabled, that could threaten payments for drug and device-makers. Starting in 2014, the panel’s recommendations would take effect unless federal lawmakers substitute their own reductions. To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net ; Shannon Pettypiece in New York spettypiece@bloomberg.net

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Health-Care Overhaul Changes to Start Taking Effect This Year

March 23, 2010

By Shannon Pettypiece and Alex Nussbaum March 23 (Bloomberg) — Indoor tanning salons will charge customers a 10 percent tax beginning today in just one of the changes Americans will see as a result of the U.S. health-care overhaul signed into law by President Barack Obama . Insurers will be required by September to begin providing health coverage to kids with pre-existing illnesses and allow parents to keep children younger than 26 on their plans as the clock has begun ticking on many of the law’s provisions. Medicare recipients will receive a $250 rebate for prescription drugs when they reach a coverage gap called the donut hole if the Senate passes and the president signs companion legislation approved March 21 by the U.S. House. The $940 billion overhaul subsidizes coverage for uninsured Americans, financed by Medicare cuts to hospitals and fees or taxes on insurers, drugmakers, medical-device companies and Americans earning more than $200,000 a year. Many of the changes in the bill of more than 2,400 pages, such as requiring most people to have health insurance and employers to provide coverage, will take at least two years to go into effect. “Most of the major public policy changes embodied in the health care reform legislation will become effective only after the next presidential election in 2012,” said Maury Harris , an economist with UBS AG , said in a research report. High-Risk Pools Within 90 days, the law will provide immediate access to high-risk insurance plans for people who can’t get insurance because of a pre-existing medical problem, Harris said. These high-risk pools will be funded by $5 billion in federal grants. Companies led by Minnetonka, Minnesota-based UnitedHealth Group Inc. , the largest health insurer, will be banned within six months from dropping a person’s coverage because of severe illness and from limiting lifetime or annual benefits. Participants in Medicare, the U.S. government’s health coverage for those 65 and older, are expected get a $250 rebate toward prescription drugs once their benefits run out — a coverage gap know as the “doughnut hole.” The benefit is part of the package of amendments to the legislation now pending in the Senate. Drugmakers led by New York-based Pfizer Inc. will have to offer discounted drugs to Medicare recipients next year, according to an analysis of the legislation by the Kaiser Family Foundation, a nonprofit group based in Menlo Park, California In 2013, individuals whose annual income is more than $200,000 and couples making more than $250,000 will see an increase in Medicare payroll taxes. Those taxes will also be expanded to cover dividend, interest and other unearned income. Employer Coverage In 2014, employers with more than 50 employees will be required to provide health coverage and most people will be required to have health insurance, Harris said in his report. A tax on high-cost “Cadillac” policies won’t go into effect until 2018. The insurance industry also faces about $60 billion in additional fees under the health bill through 2018, and more beyond, though it was able to postpone the levy until 2014. By 2019, the bill is expected to have expanded health insurance coverage to 32 million people, according to UBS’s Harris. The U.S. Health and Human Services Department will have two years to set penalties on hospitals with high readmission rates and longer to test new payment systems for Franklin, Tennessee- based Community Health Systems Inc. , the largest U.S. chain, and its rivals. Financial Disclosure Insurers also will have to reveal how much of members’ premiums they spend on medical care, as opposed to executive salaries or other administrative costs. Next year, they’ll owe a rebate to customers if the insurers spend less than 80 percent on benefits for people in individual or small-group plans. Starting in 2014, states have their say. The legislation leaves it to them to set up and run the online marketplaces, known as exchanges, where customers will comparison-shop for coverage. Among other powers, the exchanges will be able to banish plans for premium increases deemed to be unjustified. The legislation also creates an Independent Payment Advisory Board to suggest cuts in spending by Medicare, the government health program for the elderly and disabled, that could threaten payments for drug and device-makers. Starting in 2014, the panel’s recommendations would take effect unless federal lawmakers substitute their own reductions. To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net ; Shannon Pettypiece in New York spettypiece@bloomberg.net

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Health-Care Overhaul Bill Signed by Obama to Start Taking Effect This Year

March 23, 2010

By Shannon Pettypiece and Alex Nussbaum March 23 (Bloomberg) — Indoor tanning salons will charge customers a 10 percent tax beginning today in just one of the changes Americans will see as a result of the U.S. health-care overhaul signed into law by President Barack Obama . Insurers will be required by September to begin providing health coverage to kids with pre-existing illnesses and allow parents to keep children younger than 26 on their plans as the clock has begun ticking on many of the law’s provisions. Medicare recipients will receive a $250 rebate for prescription drugs when they reach a coverage gap called the donut hole if the Senate passes and the president signs companion legislation approved March 21 by the U.S. House. The $940 billion overhaul subsidizes coverage for uninsured Americans, financed by Medicare cuts to hospitals and fees or taxes on insurers, drugmakers, medical-device companies and Americans earning more than $200,000 a year. Many of the changes in the bill of more than 2,400 pages, such as requiring most people to have health insurance and employers to provide coverage, will take at least two years to go into effect. “Most of the major public policy changed embodied in the health care reform legislation will become effective only after the next presidential election in 2012,” said Maury Harris , an economist with UBS AG , said in a research report. High-Risk Pools Within 90 days, the law will provide immediate access to high-risk insurance plans for people who can’t get insurance because of a pre-existing medical problem, Harris said. These high-risk pools will be funded by $5 billion in federal grants. Companies led by Minnetonka, Minnesota-based UnitedHealth Group Inc. , the largest health insurer, will be banned within six months from dropping a person’s coverage because of severe illness and from limiting lifetime or annual benefits. Participants in Medicare, the U.S. government’s health coverage for those 65 and older, are expected get a $250 rebate toward prescription drugs once their benefits run out — a coverage gap know as the “doughnut hole.” The benefit is part of the package of amendments to the legislation now pending in the Senate. Drugmakers led by New York-based Pfizer Inc. will have to offer discounted drugs to Medicare recipients next year, according to an analysis of the legislation by the Kaiser Family Foundation, a nonprofit group based in Menlo Park, California In 2013, individuals whose annual income is more than $200,000 and couples making more than $250,000 will see an increase in Medicare payroll taxes. Those taxes will also be expanded to cover dividend, interest and other unearned income. Employer Coverage In 2014, employers with more than 50 employees will be required to provide health coverage and most people will be required to have health insurance, Harris said in his report. A tax on high-cost “Cadillac” policies won’t go into effect until 2018. The insurance industry also faces about $60 billion in additional fees under the health bill through 2018, and more beyond, though it was able to postpone the levy until 2014. By 2019, the bill is expected to have expanded health insurance coverage to 32 million people, according to UBS’s Harris. The U.S. Health and Human Services Department will have two years to set penalties on hospitals with high readmission rates and longer to test new payment systems for Franklin, Tennessee- based Community Health Systems Inc. , the largest U.S. chain, and its rivals. Financial Disclosure Insurers also will have to reveal how much of members’ premiums they spend on medical care, as opposed to executive salaries or other administrative costs. Next year, they’ll owe a rebate to customers if the insurers spend less than 80 percent on benefits for people in individual or small-group plans. Starting in 2014, states have their say. The legislation leaves it to them to set up and run the online marketplaces, known as exchanges, where customers will comparison-shop for coverage. Among other powers, the exchanges will be able to banish plans for premium increases deemed to be unjustified. The legislation also creates an Independent Payment Advisory Board to suggest cuts in spending by Medicare, the government health program for the elderly and disabled, that could threaten payments for drug and device-makers. Starting in 2014, the panel’s recommendations would take effect unless federal lawmakers substitute their own reductions. To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net ; Shannon Pettypiece in New York spettypiece@bloomberg.net

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Health-Care Overhaul Bill Signed by Obama to Start Taking Effect This Year

March 23, 2010

By Shannon Pettypiece and Alex Nussbaum March 23 (Bloomberg) — Indoor tanning salons will charge customers a 10 percent tax beginning today in just one of the changes Americans will see as a result of the U.S. health-care overhaul signed into law by President Barack Obama . Insurers will be required by September to begin providing health coverage to kids with pre-existing illnesses and allow parents to keep children younger than 26 on their plans as the clock has begun ticking on many of the law’s provisions. Medicare recipients will receive a $250 rebate for prescription drugs when they reach a coverage gap called the donut hole if the Senate passes and the president signs companion legislation approved March 21 by the U.S. House. The $940 billion overhaul subsidizes coverage for uninsured Americans, financed by Medicare cuts to hospitals and fees or taxes on insurers, drugmakers, medical-device companies and Americans earning more than $200,000 a year. Many of the changes in the bill of more than 2,400 pages, such as requiring most people to have health insurance and employers to provide coverage, will take at least two years to go into effect. “Most of the major public policy changed embodied in the health care reform legislation will become effective only after the next presidential election in 2012,” said Maury Harris , an economist with UBS AG , said in a research report. High-Risk Pools Within 90 days, the law will provide immediate access to high-risk insurance plans for people who can’t get insurance because of a pre-existing medical problem, Harris said. These high-risk pools will be funded by $5 billion in federal grants. Companies led by Minnetonka, Minnesota-based UnitedHealth Group Inc. , the largest health insurer, will be banned within six months from dropping a person’s coverage because of severe illness and from limiting lifetime or annual benefits. Participants in Medicare, the U.S. government’s health coverage for those 65 and older, are expected get a $250 rebate toward prescription drugs once their benefits run out — a coverage gap know as the “doughnut hole.” The benefit is part of the package of amendments to the legislation now pending in the Senate. Drugmakers led by New York-based Pfizer Inc. will have to offer discounted drugs to Medicare recipients next year, according to an analysis of the legislation by the Kaiser Family Foundation, a nonprofit group based in Menlo Park, California In 2013, individuals whose annual income is more than $200,000 and couples making more than $250,000 will see an increase in Medicare payroll taxes. Those taxes will also be expanded to cover dividend, interest and other unearned income. Employer Coverage In 2014, employers with more than 50 employees will be required to provide health coverage and most people will be required to have health insurance, Harris said in his report. A tax on high-cost “Cadillac” policies won’t go into effect until 2018. The insurance industry also faces about $60 billion in additional fees under the health bill through 2018, and more beyond, though it was able to postpone the levy until 2014. By 2019, the bill is expected to have expanded health insurance coverage to 32 million people, according to UBS’s Harris. The U.S. Health and Human Services Department will have two years to set penalties on hospitals with high readmission rates and longer to test new payment systems for Franklin, Tennessee- based Community Health Systems Inc. , the largest U.S. chain, and its rivals. Financial Disclosure Insurers also will have to reveal how much of members’ premiums they spend on medical care, as opposed to executive salaries or other administrative costs. Next year, they’ll owe a rebate to customers if the insurers spend less than 80 percent on benefits for people in individual or small-group plans. Starting in 2014, states have their say. The legislation leaves it to them to set up and run the online marketplaces, known as exchanges, where customers will comparison-shop for coverage. Among other powers, the exchanges will be able to banish plans for premium increases deemed to be unjustified. The legislation also creates an Independent Payment Advisory Board to suggest cuts in spending by Medicare, the government health program for the elderly and disabled, that could threaten payments for drug and device-makers. Starting in 2014, the panel’s recommendations would take effect unless federal lawmakers substitute their own reductions. To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net ; Shannon Pettypiece in New York spettypiece@bloomberg.net

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Obama Signs Landmark Health Bill After Year Marked by Partisan Struggles

March 23, 2010

By Roger Runningen March 23 (Bloomberg) — President Barack Obama signed into law a sweeping rewrite of U.S. health-care policy that will touch every American and affect one-sixth of the economy, marking a victory that appeared beyond reach two months ago. “Today, after almost a century of trying, today after over a year of debate, today after all the votes have been tallied, health insurance reform becomes law in the United States of America,” Obama said before putting his signature on the measure. The East Room, the largest in the White House, was packed for the ceremony with Democratic lawmakers who supported the bill and advocates for the cause of revamping the health-care system. They included Victoria Kennedy , the widow of Senator Edward Kennedy , who made enacting the legislation one of his central goals. Obama spent a year and much of his political capital pushing the legislation through Congress. That struggle, which some Democrats have compared to the fight for civil rights legislation in the 1960s, is likely to shape Obama’s presidency as well as the makeup of Congress next year. The law passed Congress without getting a single Republican vote, a partisan divide promises to make health care the defining issue in November’s elections. The coming fight “will make last August look like a love fest,” said Senator Judd Gregg , Republican of New Hampshire, said yesterday, referring to town hall meetings that drew protests over Obama’s health-care package, the largest revamp in 45 years. Republican Objections House Republican leader John Boehner , of Ohio, said in a statement that by signing the bill Obama “is abandoning our founding principle that government governs best when it governs closest to the people.” The law will have “devastating consequences,” he said. The new law, phased in over several years, extends coverage to tens of millions uninsured Americans, imposes new taxes on the highest wages earners, calls for fees on health-care companies, provides hundreds of billions in Medicare savings and would cost almost $1 trillion. As part of the bargain for passage in the House, the law must be accompanied by a series of legislative repairs now pending in the Senate, where Republicans vow to offer dozens of amendments to force changes and reduce its costs. Marking the Occasion As a measure of the historic nature of the event, some lawmakers and guests posed for pictures at the front of the room before Obama entered. The crowd stood and applauded upon the arrival of Michigan Democratic Representative John Dingell , who has been advocating for universal health-care coverage since coming to Congress in 1955. Representative Patrick Kennedy , the son of Edward Kennedy, showed attendees a copy of his father’s original bill calling for national health insurance in 1970. “My dad’s first national health insurance bill,” he said to reporters. When the president and Vice President Joe Biden came into the East Room, the crowd broke into applause and began chanting an Obama campaign slogan, “Fired up, ready to go.” “To state the obvious, this is a historic day,” Biden said. He credited Obama’s “fierce advocacy” on behalf of his health-care proposal for delivering on a campaign promise. ‘Made It Happen’ “You’re the guy that made it happen,” Biden said to Obama. “You’ve done what generations, not just ordinary but great men and women have attempted to do.” In his remarks, Obama cited the line of U.S. presidents and lawmakers who have championed expanded health care coverage for Americans from Teddy Roosevelt to Kennedy. He also said he recognized that many Democratic members of Congress “took their lumps” during the debate. That prompted one lawmaker to shout from the audience “Yes, we did,” provoking laughter. The president is following up the signing ceremony by giving an address at the Interior Department to about 600 lawmakers, cabinet members and people in the health-care industry, including doctors, nurses, advocates and consumers who face rising premiums or insurance-coverage problems. To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net

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Obama to `Spread the Wealth Around’ as Health-Care Bill Imposes New Taxes

March 22, 2010

By Ryan J. Donmoyer March 22 (Bloomberg) — President Barack Obama said on the campaign trail in October 2008 that he wanted to “spread the wealth around.” With Obama on the verge of signing sweeping health-care overhaul legislation, he’s about to do just that. High-income investors would pay higher Medicare taxes, tax breaks for out-of-pocket medical deductions would be curtailed, and it would cost insurance companies more to pay executives millions of dollars. Those levies will help fund expansion of Medicaid services for the poor and subsidize health insurance to cover millions who don’t currently have benefits. “It’s very clear that taxes are levied on the wealthy and the benefits will spread across the entire income distribution, with a lot going to expanded Medicaid distribution and expanding health insurance,” said Roberton Williams , an economist at the Tax Policy Center , a Washington research institute backed by the Urban Institute and Brookings Institution. “One couldn’t claim he didn’t keep that promise” to “spread the wealth around.” In all, the bill would generate $409.2 billion in additional taxes by 2019, according to an analysis by the congressional Joint Committee on Taxation, a nonpartisan agency. The bill also imposes about $69 billion more in penalties for individuals and businesses who don’t meet mandates to buy insurance, according to the Congressional Budget Office , another nonpartisan agency. Higher Medicare Taxes Most of the revenue would come from higher Medicare taxes on about 1 million individuals earning more than $200,000 and about 4 million couples filing jointly who make more than $250,000. The legislation would for the first time apply Medicare taxes to investment income received by these households beginning in 2013. The 3.8 percent rate would apply to unearned income such as realized capital gains, dividends, interest, rents, and royalties. It wouldn’t apply to other income subject to income taxes, including interest from municipal bonds and retirement accounts such as 401(k) plans until funds are withdrawn. Obama’s budget proposes to allow the existing 15 percent tax rate on dividends and capital gains to rise to 20 percent in 2011 for the same high-earners. Layering a 3.8 percent Medicare tax on top of that would mean a new top rate on dividends and capital gains of 23.8 percent. The top tax rates on interest and rental income would rise to as high as about 44 percent, assuming other Obama tax increases on high-earners are enacted. The bill also increases the individual’s share of Medicare tax currently imposed on salaries starting at $200,000 for individuals and $250,000 for couples to 2.35 percent, from 1.45 percent currently. Cost to Couples The combination of the new Medicare taxes and Obama’s budget proposals, if they were in place this year, would cost a married couple with a household income of $5 million an extra $287,100 in taxes, according to analysis by the consulting firm Deloitte Tax in Washington. The Medicare taxes superseded an earlier Senate proposal to tax high-value employer-provided insurance coverage, dubbed “Cadillac plans.” That 40 percent excise tax was delayed until 2018, when it would begin to apply to benefits over $10,200 for individuals and $27,500 for couples. Those thresholds would be indexed to inflation, which grows at a slower pace than the cost of health care, meaning more employers would likely face the levy over time. Other provisions likely to affect higher-income individuals would scale back tax preferences associated with paying out-of- pocket medical expenses. Starting in 2013, Americans under 65 won’t be able to deduct medical expenses until they exceed 10 percent of income, up from 7.5 percent now; retirees would keep the lower threshold. Savings Accounts The bill in 2011 places new restrictions on what can be purchased using special savings accounts funded with pre-tax dollars including health savings accounts. Improper withdrawals from the accounts also would be hit with a new 20 percent tax. And the legislation for the first time would place a $2,500 limit on what can be contributed to employer-sponsored flexible spending accounts, another type of account funded with pre-tax dollars that can be used to pay for medicines, co-payments, and other expenses. Employers currently set their own limits, typically between $3,000 and $5,000 in the absence of a government cap. This change would cost an average worker about $625 in tax savings, according to WageWorks Inc ., a San Mateo, California, company that administers 1.5 million accounts. Tanning Salons Consumers who frequent tanning salons would pay a 10 percent excise tax, and those who buy devices such as wheelchairs would pay a 2.9 percent excise tax. Drugmakers may pass on a $3 billion annual fee. Insurers would be denied deductions for executive pay over $500,000. Under the reconciliation bill, individuals who don’t purchase insurance would be subject to a fine of $325 in 2015 and $695 in 2016. Individuals may be subject to a charge equal to as much as 2.5 percent of their income in 2016, if the total is greater than the flat payment. Employers with 50 or more workers would pay $2,000 per worker if they don’t offer health insurance. The legislation offers a small business tax credit to help pay for employer- provided premiums. To contact the reporters on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net ;

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Obama to `Spread the Wealth Around’ as Health-Care Bill Imposes New Taxes

March 22, 2010

By Ryan J. Donmoyer March 22 (Bloomberg) — President Barack Obama said on the campaign trail in October 2008 that he wanted to “spread the wealth around.” With Obama on the verge of signing sweeping health-care overhaul legislation, he’s about to do just that. High-income investors would pay higher Medicare taxes, tax breaks for out-of-pocket medical deductions would be curtailed, and it would cost insurance companies more to pay executives millions of dollars. Those levies will help fund expansion of Medicaid services for the poor and subsidize health insurance to cover millions who don’t currently have benefits. “It’s very clear that taxes are levied on the wealthy and the benefits will spread across the entire income distribution, with a lot going to expanded Medicaid distribution and expanding health insurance,” said Roberton Williams , an economist at the Tax Policy Center , a Washington research institute backed by the Urban Institute and Brookings Institution. “One couldn’t claim he didn’t keep that promise” to “spread the wealth around.” In all, the bill would generate $409.2 billion in additional taxes by 2019, according to an analysis by the congressional Joint Committee on Taxation, a nonpartisan agency. The bill also imposes about $69 billion more in penalties for individuals and businesses who don’t meet mandates to buy insurance, according to the Congressional Budget Office , another nonpartisan agency. Higher Medicare Taxes Most of the revenue would come from higher Medicare taxes on about 1 million individuals earning more than $200,000 and about 4 million couples filing jointly who make more than $250,000. The legislation would for the first time apply Medicare taxes to investment income received by these households beginning in 2013. The 3.8 percent rate would apply to unearned income such as realized capital gains, dividends, interest, rents, and royalties. It wouldn’t apply to other income subject to income taxes, including interest from municipal bonds and retirement accounts such as 401(k) plans until funds are withdrawn. Obama’s budget proposes to allow the existing 15 percent tax rate on dividends and capital gains to rise to 20 percent in 2011 for the same high-earners. Layering a 3.8 percent Medicare tax on top of that would mean a new top rate on dividends and capital gains of 23.8 percent. The top tax rates on interest and rental income would rise to as high as about 44 percent, assuming other Obama tax increases on high-earners are enacted. The bill also increases the individual’s share of Medicare tax currently imposed on salaries starting at $200,000 for individuals and $250,000 for couples to 2.35 percent, from 1.45 percent currently. Cost to Couples The combination of the new Medicare taxes and Obama’s budget proposals, if they were in place this year, would cost a married couple with a household income of $5 million an extra $287,100 in taxes, according to analysis by the consulting firm Deloitte Tax in Washington. The Medicare taxes superseded an earlier Senate proposal to tax high-value employer-provided insurance coverage, dubbed “Cadillac plans.” That 40 percent excise tax was delayed until 2018, when it would begin to apply to benefits over $10,200 for individuals and $27,500 for couples. Those thresholds would be indexed to inflation, which grows at a slower pace than the cost of health care, meaning more employers would likely face the levy over time. Other provisions likely to affect higher-income individuals would scale back tax preferences associated with paying out-of- pocket medical expenses. Starting in 2013, Americans under 65 won’t be able to deduct medical expenses until they exceed 10 percent of income, up from 7.5 percent now; retirees would keep the lower threshold. Savings Accounts The bill in 2011 places new restrictions on what can be purchased using special savings accounts funded with pre-tax dollars including health savings accounts. Improper withdrawals from the accounts also would be hit with a new 20 percent tax. And the legislation for the first time would place a $2,500 limit on what can be contributed to employer-sponsored flexible spending accounts, another type of account funded with pre-tax dollars that can be used to pay for medicines, co-payments, and other expenses. Employers currently set their own limits, typically between $3,000 and $5,000 in the absence of a government cap. This change would cost an average worker about $625 in tax savings, according to WageWorks Inc ., a San Mateo, California, company that administers 1.5 million accounts. Tanning Salons Consumers who frequent tanning salons would pay a 10 percent excise tax, and those who buy devices such as wheelchairs would pay a 2.9 percent excise tax. Drugmakers may pass on a $3 billion annual fee. Insurers would be denied deductions for executive pay over $500,000. Under the reconciliation bill, individuals who don’t purchase insurance would be subject to a fine of $325 in 2015 and $695 in 2016. Individuals may be subject to a charge equal to as much as 2.5 percent of their income in 2016, if the total is greater than the flat payment. Employers with 50 or more workers would pay $2,000 per worker if they don’t offer health insurance. The legislation offers a small business tax credit to help pay for employer- provided premiums. To contact the reporters on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net ;

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Overhaul Gives Drugmakers, Insurers Millions of Customers, Stricter Rules

March 22, 2010

By Meg Tirrell March 22 (Bloomberg) — Drugmakers and health insurers will gain millions of customers under legislation overhauling the U.S. medical system. The industry also will pay new fees to the government, and face stricter rules that may narrow profit margins and fuel mergers. The bill that the House passed on a 220-211 vote yesterday expands coverage to 32 million uninsured Americans, according to Congressional number crunchers. That means more sales for Pfizer Inc. , the world’s largest drugmaker; UnitedHealth Group Inc. , the largest health insurer; and a cluster of companies led by Amerigroup Corp. that specialize in managing services through Medicaid, a program that will grow in the remake. The revamp will cost $940 billion over 10 years, with industry fees and taxes helping defray the cost of adding to the ranks of customers who can afford to pay their doctors, drugstores and hospitals. Because the legislation creates pressure to curb medical costs, companies may merge as a way to lower expenses, said Paul H. Keckley , executive director of the Deloitte Center for Health Solutions, a Washington-based research firm. “You have some that are able to manage more efficiently and strategically and some that can’t,” Keckley said by telephone March 19. “You’ll see an acceleration of acquisitions .” Fees, Rebates Drugmakers, who took part early in negotiations with the Senate Finance Committee and the White House, may have the most to gain. More health-care coverage “makes a difference in demand for drug products,” said John L. Sullivan , an analyst at Leerink Swann & Co. in Boston. People won’t have to skip doses of medicines as frequently to save money, he said. And while the industry pays $28 billion in fees over nine years to help the elderly afford drugs, it avoided requirements to have complicated pricing agreements with the government in Medicare, the program for the elderly and disabled, said Ramsey Baghdadi , a researcher at the analysis firm Prevision Policy LLC in Washington who specializes in pharmaceutical and biotechnology policy. Pfizer, based in New York, gained 6 cents to 12.59 euros at 10:11 a.m. in German trading. The Bloomberg Europe Pharmaceutical Index , which tracks 18 European drugmakers, fell 0.6 percent to 167.80. Subsidy Cuts For health insurers, the potential increase in customers will be tempered by subsidy cuts for custom Medicare Advantage plans offered to the elderly, and the prospect of new regulations. The industry, through its trade group America’s Health Insurance Plans, argued as recently as March 18 that the legislation won’t control costs and that people will still wait until they’re sick to buy coverage. UnitedHealth rose 10 cents to 25.52 euros in German trading , while Amerigroup rose 85 cents, or 3.4 percent, to 22.87 euros. Biotechnology companies , a group led by Amgen Inc. , based in Thousand Oaks, California, won 12 years of protection from generic medicines derived from proteins. The generics industry, led by Mylan Inc. , based in Canonsburg, Pennsylvania, and Teva Pharmaceutical Industries Ltd. , based in Petah Tikva, Israel, won a reprieve from a proposed ban on legal settlements in which the drugmakers are paid by brand-name manufacturers to delay introduction of the cheaper copies. Teva rose 1.5 shekels to 236.90 shekels in Tel Aviv trading. Amgen fell 6 cents to 43.82 euros in German trading. Hospitals, Devices Hospitals, a group led by Community Health Systems Inc. , of Franklin, Tennessee, will have more paying customers and less bad debt as a result. Still, that won’t happen until 2014, Keckley said, meaning hospitals will look for mergers. Makers of medical devices, Medtronic Inc. of Minneapolis among them, are likely to benefit the least, said Sullivan at Leerink Swann. The industry will pay a 2.3 percent excise tax on certain devices starting in 2013, and may not gain the same revenue boost as pharmaceutical companies, insurers and hospitals, he said in a telephone interview March 19. “The hospital industry is a winner,” Sullivan said. “The drug industry is probably a bit better off. The device industry could be a bit worse off. The biotech industry is relatively unscathed. And for managed care I think it’s a function of what happens with the individual mandate and how easy or hard it is to keep healthy people in the insurance pool.” No Republicans The Standard & Poor’s index of 51 health-care stocks has risen 5.1 percent from this year’s low on Feb. 8, the day President Barack Obama announced he was inviting Democratic and Republican lawmakers to the White House to discuss ways to get the overhaul through Congress. No Republicans voted for the measure yesterday. The measure is a modified form of legislation passed in December by the Senate, which takes up the revised bill as soon as this week under a procedure that keeps Republicans from mounting a filibuster. The 10-year bill would set in motion the biggest change in health care since the 1965 creation of Medicare. The legislation requires Americans to get insurance, offering government aid and new purchasing exchanges to help. Insurers such as Minnetonka, Minnesota-based UnitedHealth would get millions of new policyholders, while being required to accept all customers, even with pre-existing conditions. Pfizer and smaller drugmakers will benefit because broader access to insurance means more people can afford to keep taking their medicines, Sullivan said. ‘Doughnut Hole’ The bill also closes a coverage gap in Medicare payments known as the “doughnut hole,” which caused some patients to skip doses of medicines or switch to generics from brand-name products to cut costs, said Baghdadi at Prevision Policy. “The method of payment for closing the doughnut hole is a big win for pharma,” Baghdadi said in a March 18 research note. Drugmakers will pay about $3 billion a year for nine years to close the coverage gap rather than participate in a “rebate scheme on Medicare drugs,” he said. A rebate program exists in Medicaid, the state-federal program for the poor. “The industry did not want to sign on to that type of approach again,” Baghdadi said. He said it may be easier for the industry to fight expansions of fees “than try to unwind a rebate program.” Insurers may start to merge as well as they’re required to take on sicker patients in addition to healthy ones, Keckley at the Deloitte Center said. Risks Ahead To pay for the higher-cost patients with more medical needs, managed-care providers need large numbers of young, healthy people in their pool “to help spread the costs more effectively,” he said. For that reason, “consolidation in the insurance industry looks very inevitable,” he said. It won’t be easy sailing for the insurance industry, said Matthew Borsch , an analyst with Goldman Sachs Group Inc. in New York, in a research note March 18. The legislation “entails significant risks,” and the companies that sell Medicare Advantage policies face subsidy cuts. America’s Health Insurance Plans, the Washington-based trade group, says $200 billion will be carved from those plans. He recommends companies that will sell more insurance through exchanges or operate through Medicaid. That would include Amerigroup , based in Virginia Beach, Virginia. Also, the 2014 date for the insurance exchanges to start “leaves 3 ½ years to work through, and potentially modify, provisions that might undermine successful coverage expansion,” Borsch said. Carl McDonald at Oppenheimer & Co. in New York sees that period fraught with risk. “Much of what is included in the health reform bill is what is referred to as enabling legislation,” meaning the Health and Human Services secretary works out the details, he said in a note dated March 17. That is Kathleen Sebelius , who has “spent much of the past month trying to prove that managed care CEOs would deny a claim from their own mothers in order to improve their quarterly financial performance.” To contact the reporter on this story: Meg Tirrell in New York at mtirrell@bloomberg.net .

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Michael Sigman: Exec Bonuses/Newsroom Outsourcing a Virtueless Circle

March 20, 2010

In the early ’80s, shortly after I’d started working at LA Weekly , we began to pay 100 percent of health insurance premiums for full-time staffers. There was nothing heroic about this; the paper was in the black, everyone was underpaid and it cost all of 50 cents an hour or so per employee. But when word got out, the collective sigh of relief in the building was almost audible. Even some of the nihilists and anarchists — a significant percentage of the staff — were thrilled. The decimation of the media industry, and particularly the newspaper business, has meant the elimination of health insurance benefits not only for the tens of thousands thrown out of work but also for the many writers, designers and others now forced to freelance. Media companies have to make cuts to stay in business, and some outsourcing is inevitable. But rewarding execs with big bonuses for, in effect, taking away workers’ health insurance is unconscionable. A public filing shows Gannett paid its CEO Craig Dubow $4.7 million — including “premiums paid by the Company for supplemental medical coverage” — for 2009, a year in which the newspaper giant laid off more than six thousand employees and cut the pay of many who survived. His $1.5 million bonus could have covered non-supplemental coverage for quite a few, and even more could be saved by a fraction of the $19.3 million Dubow will pocket the day he leaves Gannett . Then there’s News Corp. CEO Rupert Murdoch, always portrayed as a man who, despite his flaws, “loves newspapers.” This mega-mogul, who’s presided over deep newsroom cuts for years while his Fox News and Fox Business Channel rail against health-care reform and financial deregulation, was paid a mere $18 million last year. Completing the virtueless circle, the WSJ — owned by News Corp., natch — noted that “Mr. Murdoch’s biggest hit (ital mine) was in his bonus, which fell following the company’s plunge in earnings and stock price amid the global financial crisis and economic downturn.” Finally, a company — and not just any company — punishes its CEO for poor performance! From $17.5 million the prior year, Murdoch’s bonus plummeted to — are you ready? — a paltry $5.4 million. Take that, Rupe. And what about the bonuses raked in by execs at the giant health insurers? Well Point recently paid at least $1 million each in bonuses to 39 execs while its subsidiary Blue Cross announced rate hikes of up to 39 percent. (Could the number 39 be an unconscious reference to the evil, clandestine organization “The 39 Steps” in Hitchcock’s thriller of the same name?) Carolinas HealthCare chief Michael Tarwater made $3.4 million in 2009, including $1.9 million in bonuses. And the list goes on. The massive profits of these firms — the top five netted $12.2 billion last year while insuring 2.7 million fewer Americans — assure there’s plenty of dough left over to help convince government officials to kill the health-care reform that would require them to perform simple acts of fairness like accepting applicants with preexisting conditions. While executives laugh all the way to the bank(!) and business types argue about how to rejigger bonuses to make them sound more palatable, some, like McGill University professor Dr. Henry Mintzberg, argue it’s time to get rid of bonuses altogether. Health insurance for all and bonus systems that don’t cheat and insult Americans should be no-brainers. If health-care reform — the current bill is way better than nothing — and financial reform with teeth — the Dodd bill isn’t much better than nothing — don’t get passed, and passed soon, we need a law prohibiting Congress from using the word “government” to describe what they do. Only, who would pass it?

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Cigna Gives $110.9 Million Compensation Package To Ex-CEO

March 20, 2010

The insurance giant Cigna last year gave compensation packages worth more than $120 million to two executives who left the company, according to a filing with the SEC on Friday. The vast majority of that total went to former chairman and CEO H. Edward Hanway who left his post with a retirement package worth $110.9 million — which included $18.8 million in executive compensation for 2009, as well as a healthy pension plan, deferred compensation and stock options. With more than $19 billion in revenues reported in 2008, Cigna remains one of the most profitable insurers in the country. Though, unlike some of its competitors, it does not appear to have raised premiums on customers in an effort to improve somewhat sagging recent profits. The company is part of America’s Health Insurance Plans (AHIP), which has lobbied heavily against health care reform. In drumming up opposition, the industry group has warned that reform legislation will adversely affect the market as a whole and Cigna’s bottom line in particular. Hanway’s retirement package is sure to provide fodder to reform proponents, who insist that too much money and resources are wasted on the excesses of the private insurance industry — often at the expense of consumers. In addition to Hanway, former Cigna Executive Vice President and CFO Michael Bell received a $10.9 million executive compensation package in 2009. Bell left the company abruptly that year — no reason was given for his departure . Cigna’s current president and CEO, David M. Cordani, earned a salary of more than $6.5 million in 2009, according to the SEC filing.

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Democrats Gain Support as They Move on Health Vote

March 19, 2010

By Laura Litvan and Kristin Jensen March 19 (Bloomberg) — U.S. House Democrats, who cleared a big hurdle in their effort to overhaul the health-care system by producing compromise legislation, are picking up fresh support for a showdown vote this weekend. Democrats need about six more votes from House members to pass the 10-year, $940 billion bill, Obama administration officials said today. President Barack Obama and Democratic leaders aim to sway some in a pool of 14 or 15 undecided lawmakers to get to the 216 votes needed to pass the measure, according to the officials, who spoke on condition of anonymity. “We are going to have the votes, when the roll is called,” House Majority Leader Steny Hoyer told reporters today. A vote is scheduled for March 21, leaders said. Obama has met or called about three-dozen lawmakers in the last five days and cleared his schedule today for more last- minute appeals, including a rally in Fairfax, Virginia. At least four Democrats agreed to switch their votes to back the bill this week. House Speaker Nancy Pelosi may need more to make up for defections by Democrats concerned about issues ranging from the cost to whether restrictions on abortion funding are strong enough. Senate Version Democrats say the legislation will cover 32 million uninsured Americans, curb medical costs and reduce the federal budget deficit. “This is history,” Pelosi said yesterday. The Senate, which passed its own version of the legislation in December, will take up the revised measure next week. House members objected to key provisions of the Senate bill, and Democratic leaders unveiled a compromise measure yesterday that was crafted to settle the differences. The legislation represents the most significant health-care revamp since the creation of the Medicare program for the elderly in 1965. Americans would benefit from more access to preventive care and young adults could stay on their parents’ insurance until age 26, Democrats said. Insurers such as Indianapolis-based WellPoint Inc. would get millions of new policyholders while being required to accept all customers. Cutting the Deficit Democrats got a boost yesterday when the Congressional Budget Office said their bill would cut the deficit , a critical element for winning support. New taxes, industry fees and savings in Medicare more than make up for the extra costs, the CBO said. Republicans are universally opposed and have vowed to block the plan. They say it uses budgeting gimmicks because much of the expansion of insurance coverage comes later in the life of the bill, and that it costs too much. “They can tweak this thing and tweak it,” House Republican Leader John Boehner of Ohio told reporters. “Still, it’s a trillion dollars they are going to spend.” Business groups are mounting a last-minute lobbying campaign against the legislation, and Caterpillar Inc. sent a letter to Pelosi and Boehner saying the bills would raise its costs by $100 million in the first year alone. “We can ill afford cost increases that place us at a disadvantage versus global competitors,” wrote Gregory S. Folley, vice president and chief human resources officer at Peoria, Illinois-based Caterpillar, in the March 18 letter. Lobbying Lawmakers Obama says the U.S. can’t afford not to overhaul the health-care system, and yesterday he postponed a trip to Indonesia and Australia to lobby lawmakers. Ohio Representative John Boccieri today told reporters he will support the new legislation after voting against a version passed by the House in November. The White House yesterday released a statement saying that Tennessee Democrat Bart Gordon also switched sides. So did Colorado Representative Betsy Markey , said her spokesman, Ben Marter. Ohio Democrat Dennis Kucinich , who voted “no” on the earlier House bill, said on March 17 that he will support the new legislation. And Representative Dale Kildee , an anti- abortion Michigan Democrat, said he decided to support the new bill after consulting a Roman Catholic priest. The Democrats lost one vote today. Representative Dan Lipinski, an Illinois Democrat, who voted in favor of the original House bill, said today he’s switching his vote to “no,” citing concerns about abortion. The original House bill passed 220-215 in November. Since then, Democrats lost four “yes” votes because of vacancies and a switch by the only Republican who supported the bill. Abortion Fight All told, 37 sitting Democrats voted “no” on the original bill. Another 40 supported the measure while also voting “yes” on language calling for stricter controls on federal abortion funding that was put forth by Michigan Democrat Bart Stupak . Some of their votes might waver because the Senate bill’s language is less stringent. Stupak says he can’t support the new legislation without changes on abortion. Others are undecided, including Indiana Democrat Brad Ellsworth . While abortion remains a concern, he said parts of the bill are good. “It meets most of my requirements,” he said. House and Senate lawmakers designed the bill that will make changes to the Senate legislation under a process called reconciliation. It will allow the Senate to pass the revised bill with a simple majority after the House passes the original Senate measure and the changes. Under the reconciliation bill, individuals who don’t purchase insurance would face lower fines than in the original Senate bill. Angering Insurers That’s likely to upset insurers , who objected to any weakening of the insurance mandate, saying that only sick people would seek coverage and insurance rates would rise. The plan also requires the industry to pay $58.8 billion in fees from 2014 to 2018, with adjusted levies afterward. “This legislation will drive up health-care costs by adding billions in new health-care taxes and encouraging people to wait until they are sick before getting insurance,” said Karen Ignagni , the president and chief executive officer of the trade group America’s Health Insurance Plans, in a statement. To contact the reporters on this story: Laura Litvan in Washington at llitvan@bloomberg.net ; Kristin Jensen in Washington at kjensen@bloomberg.net

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Obama, Democrats Push Ahead on Health-Care Legislation in Face of Hurdles

March 14, 2010

By Kristin Jensen and Laura Litvan March 15 (Bloomberg) — Democrats say they are poised to move forward with legislation calling for the broadest changes to U.S. health care in more than four decades after a year of partisan wrangling and missed deadlines. White House senior adviser David Axelrod predicted the House of Representatives will approve the overhaul by the end of this week in what would be a victory for President Barack Obama , who has made the legislation a top priority. “I am absolutely confident that we are going to be successful,” Axelrod said yesterday on NBC’s “Meet the Press” program. Still, a close vote is certain, with Republicans vowing to do all they can to stop the bill and House Democratic Whip James Clyburn of South Carolina saying yesterday that “as of this morning” supporters don’t yet have the votes. Clyburn voiced confidence the Democrats will succeed, and House Speaker Nancy Pelosi has signaled the balloting may come this week, saying “members are eager to pass a bill.” Obama, who plans to speak on health care today in Ohio, moved back a scheduled trip to Asia by three days to March 21 so he could lobby lawmakers. He’s pushing the House and Senate to finish before they leave March 26 for a two-week recess. The House Budget Committee will kick off the legislative process this afternoon, with a meeting at 3 p.m. ‘Don’t Have the Votes’ Pelosi probably has to win over some lawmakers who opposed the original House bill, which passed by a five-vote margin in November, while overcoming concern about issues from abortion funding to the addition of a student-loan provision to the legislation. “If she had 216 votes, this bill would be long gone,” House Minority Leader John Boehner , an Ohio Republican, said on CNN’s “State of the Union” program. “They tried to pass it in September, October, November, December, January, February. Guess what? They don’t have the votes.” Democrats want to enact the biggest changes to health insurance since the Medicare program for the elderly was established 45 years ago. They would require Americans to obtain coverage, offering new purchasing exchanges and subsidies to help. Insurers such as Hartford, Connecticut-based Aetna Inc. would get millions of new customers, while being forced to accept everyone who seeks coverage. Reconciliation Maneuver House leaders are preparing to push two sets of legislation through their chamber. Democrats first have to approve a 10- year, $875 billion bill the Senate passed in December and then clear a set of changes to that measure through a process called reconciliation. The changes are needed because House Democrats object to parts of the Senate bill. The Senate then would pass the reconciliation measure. Democrats are using reconciliation, which is designed for budget-related matters, because it only requires a simple majority vote in the Senate. Most major legislation needs 60 votes, and Democrats control 59 seats. House members are seeking assurance the changes will be passed after the Senate parliamentarian decided that Obama would first have to sign the Senate bill into law. “Members of the House are being asked to trust an untrustworthy body,” said Representative Anthony Weiner , a New York Democrat. Pelosi said many members don’t trust the Senate because so much House-passed legislation has languished there. ‘A Little Faith’ “It will take a little faith,” said the California Democrat. House Democrats particularly want to scale back a Senate- passed excise tax on high-end insurance benefits that is opposed by labor unions and eliminate special aid to Nebraska in favor of extra help for all states to cover costs for the Medicaid program for the poor. Since the House passed its version of the legislation 220- 215 in November, Democrats have lost four yes votes through vacancies and a switch by the one Republican who backed the bill, Louisiana Representative Joseph Cao . They may lose more over abortion. Michigan Representative Bart Stupak said a dozen Democrats might defect because they don’t think the restrictions on federal funding are strong enough. “I don’t think we’ll lose a dozen votes,” said the No. 2 House Democrat, Steny Hoyer of Maryland. “We may lose some.” Student Loans Another question lies in the student-loan plan. The head of the House education committee, California Representative George Miller , pushed to add a House-passed measure that would allow the government to provide college loans directly while eliminating federal guarantees and subsidies to lenders such as Reston, Virginia-based SLM Corp., or Sallie Mae . Several Senate Democrats, whose states are home to private lenders, have resisted that measure. Those debates, coupled with the Republican pledge to throw up hurdles, are leading some House Democrats to counter their leaders’ optimism. “This is not on a fast track, because there’s still too many questions on reconciliation,” said Representative Bill Pascrell , a New Jersey Democrat. White House officials said those obstacles can be overcome. “We do believe that, a week from today, we’ll be talking about a bill that has passed the House, not being considered by the House,” Obama spokesman Robert Gibbs said on CBS’s “Face the Nation” program. To contact the reporters on this story: Laura Litvan in Washington at llitvan@bloomberg.net ; Kristin Jensen in Washington at kjensen@bloomberg.net

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Jobless Aid Passed by U.S. Senate, Sending $138 Billion Measure to House

March 10, 2010

By Brian Faler March 10 (Bloomberg) — The U.S. Senate approved a $138 billion measure that would extend unemployment benefits and provide additional aid to states in the second major effort this year by lawmakers to boost the economy. The chamber voted 62-36 to approve the legislation, which would also extend dozens of expiring tax cuts, ease corporate- pension requirements and head off cuts in Medicare reimbursements to doctors. The bill, partially financed by offsetting savings, would add $97 billion to the deficit, according to the Congressional Budget Office. “This has been and continues to be a horrific recession,” said Senator Bob Casey , a Pennsylvania Democrat. “In addition to aiding families who are desperately in need of putting food on their tables and a roof over their heads, an extension of the unemployment insurance has a direct impact on our nation’s economy.” The vote sends the bill to the House. Increased unemployment benefits are one of the best ways of providing short-term stimulus to the economy because the cash-strapped are likely to quickly spend any aid, which boosts overall demand in the economy, according to CBO. The Labor Department today reported the unemployment rate in January climbed in 30 states and decreased in nine. Sixteen states had jobless rates topping the nationwide 9.7 average unemployment rate. Unemployment in California, Florida, Georgia, North and South Carolina and the District of Columbia climbed to the highest levels since records began in 1976. Hiring the Jobless Congress’s earlier effort to help the jobless, an $18 billion plan offering companies a tax break for hiring people who have been unemployed for at least 60 days, is awaiting final approval in the Senate. The bill approved today would extend until Dec. 31 expiring provisions in the law that offer as many as 99 weeks of unemployment checks, along with a 65 percent subsidy to help buy health insurance through the Cobra program. The legislation would prevent millions from exhausting their benefits, though it would not spare all. According to the National Employment Law Project, a half-million Americans may burn through all of their allowable assistance by August. Senator Dick Durbin of Illinois, the chamber’s No. 2 Democrat, said, “We’re trying to give enough time to people on the chance they find something, but we know how hard it is.” “These poor people — I can’t imagine what lies ahead for them,” Durbin said. “In my state, there are not many options out there and they’re all awful; people end up homeless, some of them struggle in soup kitchens and pantries trying to survive.” Aid to States The bill would send $25 billion to states struggling with slack tax revenue to help prevent layoffs of teachers, police officers and other public service employees. It would spend $6 billion to prevent for seven months a 21 percent scheduled cut in Medicare reimbursements. The measure would renew a series of tax breaks for businesses and individuals that expired Dec. 31, including a research credit backed in the past by Microsoft Corp., Amgen Inc. and Boeing Co. It would renew a break that allows companies like General Electric Co. to defer U.S. taxes on profits from financing sales of equipment in overseas markets. For individuals, the bill would renew a deduction for state and local sales taxes that could be used instead of the deduction for state and local income taxes. Some states, including Texas and Florida, don’t have an income tax. Deduction for Teachers It would extend a $250 deduction for teachers who buy their own classroom supplies, as well as tax credits for installing energy-efficient windows, doors and skylights that meet 2010 Energy Star standards. To help offset its cost, the bill would give the Internal Revenue Service more tools to attack tax shelters by more precisely defining when tax-avoidance transactions lack economic substance. It also would prevent paper companies from claiming a tax credit for producing fuel from a byproduct of the pulp-making process known as “black liquor.” The IRS issued a ruling last year that congressional analysts said opened the door for abuses, although companies have expressed little interest in claiming the credit. To contact the reporters on this story: Brian Faler  in Washington at   or bfaler@bloomberg.net ; Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net

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Obama Takes On Health Insurers’ Premiums in Push for Overhaul Legislation

March 8, 2010

By Kate Andersen Brower and Kristin Jensen March 8 (Bloomberg) — President Barack Obama pressed his case for an overhaul of the U.S. health-care system, saying insurers keep raising rates because of a lack of competition. Insurance companies have made a calculation that higher premiums can more than make up for the loss of customers who can’t afford coverage, Obama said today at Arcadia University in the Philadelphia suburb of Glenside, Pennsylvania. They “ration” care based on who can pay and who is healthy, he said. “We can’t have a system that works better for the insurance companies than it does for the American people,” Obama said. He cited rising premiums including a proposal by WellPoint Inc ., the largest provider by membership, for a 39 percent rate increase for some policyholders in California. Obama is calling for the biggest changes to U.S. health care in 45 years. He is pressing House Democrats to approve a bill that already has passed the Senate and make changes using a tactic known as reconciliation, which would require a simple majority of votes in the Senate. Democrats control the Senate with 59 of the 100 seats. “Those of us in public office were not sent to Washington to do what’s easy,” Obama said. “I don’t know how passing health care will play politically, but I do know that it’s the right thing to do.” Back From Brink While Obama has brought the effort back from the brink of failure, he still faces hurdles. Republicans are united in opposition, and Democratic lawmakers unhappy with the legislation won’t be reassured by polls showing that a majority of Americans oppose it. In a statement, House Republican leader John Boehner of Ohio said the president’s remarks were “heavy on snake oil and light on the harsh reality Americans would face under his plan: higher taxes, reduced Medicare benefits and lost jobs.” Today’s speech was part of an effort to rally public support that will also include a trip to the St. Louis area on March 10. Just more than half of Americans oppose the Democrats’ plans to remake U.S. health care, compared with 41 percent who support them, according to an average of polls on the political Web site Real Clear Politics . Industry Reaction The insurance industry trade group, America’s Health Insurance Plans, said Obama needs to focus more on ways to reduce medical costs and less on attacking insurers. “The men and women in our industry are working hard every day to make the health-care system better, and they do not deserve to be vilified for political purposes,” said the group’s spokesman, Robert Zirkelbach . Obama’s plan is designed to cover 31 million uninsured Americans while curbing medical costs . All Americans would be required to get insurance, with new purchasing exchanges and subsidies to help people afford coverage. Insurers such as Indianapolis-based WellPoint would be required to accept all clients, even those with preexisting conditions, and get millions of new customers. Hospital companies such as Naples, Florida-based Health Management Associates Inc. would benefit from more insured patients. “Reform faces an uphill battle,” analysts at CRT Capital Group LLC wrote in a note to investors on March 4. “We are reluctant, however, to call reform dead because the issue has an uncanny knack of getting resurrected.” Analysts at Wells Fargo Securities LLC put the odds of passage at 40 percent. To contact the reporters on this story: Kate Andersen Brower in Philadelphia at Kandersen7@bloomberg.net ; Kristin Jensen in Washington at kjensen@bloomberg.net

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Obama’s Path on Health Care May Face `War’ With Congressional Republicans

March 4, 2010

By Laura Litvan and Catherine Dodge March 4 (Bloomberg) — When Republicans used a legislative maneuver called budget reconciliation in 1995 in a bid to wipe out the U.S. deficit and transfer some social programs to states, they ran into a wall of resistance. The Senate parliamentarian struck some 300 provisions from the legislation before debate even began, mostly because they didn’t relate to the federal budget. Opponents raised 43 other objections to the bill, and he agreed with 38 of them. And when the House and Senate finally passed the bill with the simple majorities that reconciliation allows, the president vetoed it. It “was just a war,” said Bob Dove , who was parliamentarian at the time. With Democrats now likely to use reconciliation to sidestep Republican opposition and try to push through the most sweeping U.S. health-care legislation in more than four decades, the 1995 experience underscores how unpredictable and acrimonious the path can be. Republicans plan to submit “dozens” of amendments to stymie the process, said Senator Judd Gregg of New Hampshire, the top Republican on the Budget Committee. Even some Democrats are balking, fearing Republicans will attack them for “jamming” the bill through. President Barack Obama yesterday called on Congress to take an up-or-down vote on health care in the next few weeks. While Obama never used the word reconciliation, he cited examples of when it was used in the past, singling out everything from the 1996 welfare overhaul to President George W. Bush ’s tax cuts. “Let’s get it done,” Obama said at a White House event. Simple Majorities Republicans are unified against the health plan and want to start the process over. Reconciliation — a procedure created in 1974 as a tool to trim the federal budget — allows legislation to pass in the Senate with 51 votes rather than the 60 normally required in the 100-seat chamber, as long as the bill directly concerns taxes and spending. Democrats have 59 Senate votes after losing a Massachusetts seat to Republican Scott Brown in a Jan. 19 special election. The likely plan would be for the House to pass the legislation the Senate approved with 60 votes on Christmas Eve. Then both chambers could approve by simple majorities a reconciliation measure to change provisions that House Democrats dislike. Republicans argue that reconciliation was never intended to be used for such comprehensive and complicated legislation. Aetna, Merck At stake is a plan that would give insurers such as Hartford, Connecticut-based Aetna Inc. and drugmakers including Whitehouse Station, New Jersey-based Merck & Co. millions of new customers while requiring them to contribute to the revamp. The plan would require Americans to get insurance with the aid of purchasing exchanges and subsidies. The White House said a proposal Obama offered on Feb. 22 would cost about $950 billion over 10 years and cover 31 million uninsured Americans. The Congressional Budget Office hasn’t put a price tag on Obama’s plan. Some changes outlined by Obama that may be in a reconciliation measure include a scaled-back tax on health benefits, higher fees on companies such as New York-based drugmaker Pfizer Inc. and a Medicare tax on capital gains. A potential pitfall is the Senate parliamentarian can rule provisions out of order; he can be overruled — with 60 votes. Parliamentarian Alan Frumin won’t indicate which way he’s likely to lean until the measure is on the floor, said Senator Max Baucus , a Montana Democrat. ‘Fraught With Complications’ “You have to listen to the music as well as the words and read between the lines when you talk to the parliamentarian,” Baucus said. The process is “fraught with complications.” Reconciliation has been used 22 times, by both parties, since Louisiana Senator Russell Long first employed it in 1975 to push a tax bill through the Senate. Republicans relied on it in 1981 to cut spending on food stamps under President Ronald Reagan . In the 1990s, Democratic President Bill Clinton revamped welfare with it. Bush’s tax cuts in 2001 and 2003 passed under reconciliation. Health measures have also become law under reconciliation. Those include 1997 legislation creating the Children’s Health Insurance Program. ‘Railroad the Senate’ The tactic was also used to create Medicare Advantage, which provides enhanced Medicare benefits to more than 10 million seniors through private insurers. Reconciliation is “clearly an attempt to railroad the Senate,” said Gregg. Gregg has a picture of a bottle of snake oil with a label, “Majority’s Natural Remedy,” on the panel’s Web site linking to a document describing why reconciliation shouldn’t be used. Senator Charles Grassley , an Iowa Republican who helped pass the Bush tax cuts under reconciliation, said health care is different. “So much of it doesn’t have a dollar figure tied to it, or taxes tied to it, so you can’t include that,” he said. Democrats have gotten so much criticism over reconciliation from Republicans that House Speaker Nancy Pelosi wouldn’t even use the term in a March 2 news conference. “We are talking about a process where we use the simple majority to pass the legislation,” Pelosi said. “Without any fancy names, a simple majority.” To contact the reporters on this story: Catherine Dodge in Washington at cdodge1@bloomberg.net Laura Litvan in Washington at llitvan@bloomberg.net

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Aetna’s Chief Cites Costs to Answer White House on Health-Insurance Rates

March 4, 2010

By Nicole Gaouette and Alexandra Thomas March 4 (Bloomberg) — Aetna Inc. ’s chief executive officer answered criticism from President Barack Obama ’s top health official over surging rates by saying unnecessary medicine is helping drive up costs. The CEO, Ronald A. Williams , told Health and Human Services Secretary Kathleen Sebelius at the White House today that “we do things that don’t need to be done in terms of paying for procedures and not paying for results.” Sebelius called the meeting with executives of the top health insurers after WellPoint Inc. , the largest health insurance company by membership, proposed a 39 percent rate increase for some policy holders in California. Obama described the proposal from the Indianapolis-based company as “just a preview” of what would happen if Congress fails to pass health- care legislation. The increases are marketwide and Americans are worried “they’re next,” Sebelius said today. At the same time, she said the CEOS and state insurance commissioners were meeting “to see what kind of ideas we can share.” Williams, whose company is based in Hartford, Connecticut, said there are “issues” in the market for health-care policies for people who must buy insurance on their own and said expanded access would help. All parts of the industry must work to hold down costs, he said, citing unnecessary medical tests as a reason health-care costs are increasing. Obama has pushed Congress to stop debating health-care and yesterday urged lawmakers move to “a final vote” on the biggest changes in the nation’s medical system in 45 years. To do so, Democrats are likely to use a parliamentary maneuver called reconciliation that requires a simple majority in the Senate. Republicans have enough votes to stop a measure under the body’s typical rules. While it has often been used to pass health legislation in the past, reconciliation faces unanimous opposition from Republicans and some Democrats say they are wary as well. Williams and Sebelius spoke before the meeting was closed to reporters. To contact the reporters on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net ; Alexandra Thomas in Washington at athomas48@bloomberg.net .

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Senate Democrats Introduce $150 Billion Plan to Extend U.S. Aid to Jobless

March 1, 2010

By Brian Faler March 1 (Bloomberg) — Senate Democrats unveiled a $150 billion measure that would reinstate unemployment benefits that expired yesterday. The legislation would spend $81 billion to extend the unemployment benefits, including so-called Cobra subsidies to help the jobless buy health insurance, for the rest of this year. It also would send $25 billion to state governments to help prevent layoffs. Jobless benefits for thousands of Americans expired yesterday after Senator Jim Bunning , a Kentucky Republican, blocked a one-month continuation designed to keep checks from being interrupted. Bunning complained that the $10 billion cost would be tacked onto the $1.6 trillion budget deficit. “I am exercising my right as a senator duly elected from Kentucky to object,” Bunning said today as Democrats tried again to pass the short-term extension. About 400,000 people will lose unemployment benefits in the next few weeks if Congress doesn’t act, according to the Department of Labor. The agency also estimated that 500,000 Americans will lose access to Cobra by the end of this month. The program allows the jobless to buy health insurance through their former employer, with the government paying 65 percent of the cost. Transportation Workers The Transportation Department also said today that it was putting 2,000 employees on furlough because highway money included in the legislation blocked by Bunning was being delayed. Senate Finance Chairman Max Baucus , a Montana Democrat, said the need for the bill was “urgent” and that it would “put cash in the hands of Americans who could spend it quickly, boosting economic demand.” It would provide unemployment benefits retroactively to March 1. The Senate aims to send the bill to the House for approval this week or next. The measure includes provisions unrelated to job creation, including a $7 billion plan to prevent, for seven months, a 21 percent scheduled cut in Medicare reimbursements to doctors. The bill would also extend a package of miscellaneous tax cuts, including a $1-per-gallon tax credit for biodiesel fuel and a $6.6 billion credit promoting corporate research and development programs. It would also temporarily ease corporate pension-funding requirements. The bill revives a number of provisions Senate Majority Leader Harry Reid , a Nevada Democrat, dropped last month from an $85 billion jobs plan created by Baucus and his committee’s ranking Republican, Senator Charles Grassley of Iowa. $15 Billion Jobs Plan Reid, who said their bill included too many provisions unrelated to creating jobs, instead put a scaled-back $15 billion plan before senators that was approved last month. House Majority Leader Steny Hoyer , a Maryland Democrat, said he hopes his chamber will pass that bill this week. The measure would offer companies a tax break for hiring new workers. “I think we all would see that as round one of what we would expect to be a series of bills on jobs,” said Representative Chris Van Hollen , a Maryland Democrat, in a conference call today with reporters. To contact the reporter on this story: Brian Faler  in Washington at   or bfaler@bloomberg.net .

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AIG Sells Asian Unit to Prudential Plc for $35.5 Billion to Pay Back U.S.

March 1, 2010

By Kevin Crowley and Zachary R. Mider March 1 (Bloomberg) — Prudential Plc , Britain’s biggest insurer, agreed to buy an Asian life insurance unit from American International Group Inc. for $35.5 billion in cash and stock to gain more than 20 million customers in the region. Prudential will pay $25 billion in cash and $10.5 billion in stock and other securities for AIA Group Ltd., the London- based insurer said in a statement today. The insurer said it plans to raise $20 billion in a rights offering and sell about $5 billion of bonds to finance the cash part of its offer. The purchase is Chief Executive Officer Tidjane Thiam’s first since he took over five months ago, and is the biggest announced by any company worldwide this year, according to data compiled by Bloomberg. Prudential is trying to boost sales in Asia as growth in the U.K declines. By acquiring AIA, Thiam gets a business with more than 90 years in Asia and more than $60 billion of assets in 13 markets in the region. The price is about 50 percent greater than Prudential’s market value. “It shows the company is very bullish on the Asia market,” said Luo Yi , a Shenzhen-based analyst at China Merchants Securities Co. “The Chinese market has vast potential.” Prudential shares fell 13 percent to 525.5 pence as of 12 p.m. in London trading. The stock has more than doubled in the past year, giving the insurer a market value of 15.3 billion pounds before the purchase was announced. AIG advanced 9 percent to $27 in early trading at 7:01 a.m. in New York. Faster Than IPO The sale would be AIG’s largest since it received a U.S. government bailout in 2008. AIG had planned an initial public offering for the Hong Kong-based unit to help repay its $182.3 billion rescue. AIG will own about 11 percent of Prudential following the transaction, Thiam told reporters today. “We decided that a sale to Prudential enables AIG to realize value on a faster track to repay U.S. taxpayer,” AIG CEO Robert Benmosche said in a statement today. The insurer is paying about 1.69 times the embedded value of AIA in 2009. Chinese insurers are trading for about 2.9 times embedded value, and Axa Asia Pacific Holdings trades at about 1.7 times, according to Thiam. Embedded value estimates a company’s net worth excluding new business. ‘The Right Move’ The acquisition of AIA, founded in Shanghai in 1919, gives Prudential a business with 20,000 employees and 250,000 agents in markets spanning China to Australia. AIA sells life, accident and health insurance policies, and private retirement planning and wealth management services, its Web site shows. McKinsey & Co. has estimated Asia will deliver around 40 percent of global life insurance premium growth over the next five years. “Strategically it’s probably the right move” for Prudential, said Justin Urquhart Stewart , who oversees about $3.3 billion at 7 Investment Management in London, including Prudential shares. “It puts them into a different league.” The insurer plans to list its shares on both the Hong Kong Stock Exchange and the London Stock Exchange following the transaction. It will keep its headquarters in London. Thiam said in a Feb. 17 interview that he wants to raise the proportion of sales from Asia to 80 percent by 2015 from 50 percent now. Prudential and AIA combined would have had about 60 percent of new business profit from Asia in 2009, he said today. ‘One-Off Opportunity’ “This transaction is hugely exciting and a one-off opportunity,” Thiam said in a statement. “It puts us in a strong leadership position in all the critical growth markets in the region.” Credit Suisse Group AG, JPMorgan Cazenove and HSBC Holdings Plc agreed to underwrite the $20 billion rights offer in full. The shares are likely to be sold for 40 percent less than today’s price, Thiam told reporters today. Prudential will pay about $1 billion in fees and other costs related to the offer. The offering would be the biggest since Lloyds Banking Group Plc’s 13.5 billion pounds ($20.4 billion) sale in December, still the U.K.’s largest. “If you’ve got backing from a few banks and a few major shareholders, there will be a way to make this deal happen,” said Marcus Barnard , a London-based analyst at Oriel Securities Ltd. with a “sell” rating on the stock. “The question is the cost and the risk involved.” The insurer may be forced to sell assets in India and China to comply with local foreign-ownership regulations, he said. India, China Talks Thiam said Prudential is in talks with regulators in India and China. The insurer intends to keep its stake in a joint venture with China’s Citic Group, he said. In India, where both Prudential and AIG have separate joint ventures, regulators have told the company it can’t have two licenses, Thiam said. AIG said last May that it would pursue an IPO of AIA after an auction of the business failed to turn up bids that matched what AIG executives thought the company was worth. That included a bid from Prudential that valued AIA at about $15 billion, one of the people said. The sum raised in the sale would exceed the total of more than 20 other asset sales announced by AIG, which has struck deals to raise more than $12 billion by selling units, including a U.S. auto insurer and equipment guarantor. AIG had a fourth-quarter net loss of $8.87 billion, narrower than the insurer’s $61.7 billion loss the previous year, which was the biggest in U.S. corporate history. Alico, AIA AIG gave a $9 billion stake in American Life Insurance Co., known as Alico, and $16 billion in AIA, its biggest non-U.S. life insurance units, to the Fed in December. AIG will redeem the Fed’s $16 billion interest in AIA with proceeds from the sale and repay about $9 billion more on the credit line , the insurer said today. The $10.5 billion in securities obtained from Prudential will be sold “over time, subject to market conditions, following the lapse of agreed-upon minimum holding periods,” AIG said in a statement. “All net cash proceeds from the monetization of these securities will be used to repay any outstanding debt” to the Federal Reserve Bank of New York. AIG owed about $25 billion on the line as of last week. The insurer had drawn more than $40 billion before reducing the sum in December. The Fed agreed last year, as part of AIG’s fourth bailout, to allow the company to pay down its debt with an equity interest in the life units before completing a sale. The plan reduced pressure on AIG to sell in early 2009 when potential bidders were hobbled by losses and the inability to raise funds. Fed Plan AIG’s bailout includes a $60 billion Fed credit line, an investment of as much as $69.8 billion from the Treasury Department and $52.5 billion to buy mortgage-linked assets owned or backed by the insurer. MetLife Inc. has said it is in talks to buy Alico, which operates in more than 50 countries outside the U.S. The insurers are discussing a price of about $15 billion, according to people with knowledge of the matter. Citigroup Inc. and Goldman Sachs Group Inc. advised AIG. Prudential Plc has no relation to Newark, New Jersey-based Prudential Financial Inc. and operates in the U.S. through its Jackson National Life Insurance Co. unit. To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net ; Zachary Mider in New York at zmider1@bloomberg.net

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Prudential Plc Will Buy AIG Unit to Gain 20 Million Customers Across Asia

March 1, 2010

By Kevin Crowley and Zachary R. Mider March 1 (Bloomberg) — Prudential Plc , Britain’s biggest insurer, agreed to buy American International Group Inc. ’s Asian life operations for $35.5 billion in cash and stock to gain more than 20 million customers in the region. Prudential will pay $25 billion in cash and $10.5 billion in stock and other securities for AIA Group Ltd., the London- based insurer said in a statement today. The insurer said it plans to raise $20 billion in a rights offering and sell about $5 billion of bonds to finance the cash part of its offer. Prudential Chief Executive Officer Tidjane Thiam is trying to boost the insurer’s sales in Asia as growth in the U.K declines. By acquiring AIA, Thiam gets a business with more than 90 years in Asia and more than $60 billion of assets in 13 markets in the region. The purchase price is about 50 percent more than Prudential’s market value. “If you look at the price, it shows the company is very bullish on the Asia market,” said Luo Yi , a Shenzhen-based analyst at China Merchants Securities Co. “The Chinese market has vast potential.” Prudential shares fell 11 percent to 537.5 pence as of 10:49 a.m. in London trading. The insurer said it will seek to list its shares on the Hong Kong Stock Exchange following the transaction. The sale would be AIG’s largest since it received a U.S. government bailout in 2008. AIG had planned an initial public offering for the Hong Kong-based unit to help repay its $182.3 billion rescue. Faster Than IPO “We decided that a sale to Prudential enables AIG to realize value on a faster track to repay U.S. taxpayer,” AIG CEO Robert Benmosche said in a statement today. Prudential’s offer may tempt rivals to bid for AIA, especially if AIG were prepared to lower its asking price, said Eamonn Flanagan , a Liverpool-based analyst at Shore Capital Group Plc who has a “buy” rating on Prudential stock. The insurer is paying about 1.69 times the embedded value of AIA in 2009. Embedded value estimates a company’s net worth excluding new business. The acquisition of AIA, founded in Shanghai in 1919, gives Prudential a business with 20,000 employees and 250,000 agents in markets spanning China to Australia. AIA sells life, accident and health insurance policies, and private retirement planning and wealth management services, its Web site shows. McKinsey & Co. has estimated Asia will deliver around 40 percent of global life insurance premium growth over the next five years. ‘The Right Move’ “Strategically it’s probably the right move” for Prudential, said Justin Urquhart Stewart , who oversees about $3.3 billion as director of 7 Investment Management in London, including Prudential shares. “It puts them into a different league.” Thiam said in a Feb. 17 interview that he wants to raise the proportion of sales from Asia to 80 percent by 2015 from 50 percent now. Prudential and AIA combined would have had about 60 percent of new business profit from Asia in 2009, he said today. “This transaction is hugely exciting and a one-off opportunity,” Thiam said in a statement. “It puts us in a strong leadership position in all the critical growth markets in the region.” Prudential has a market value of 15.3 billion pounds. The stock has more than doubled in the past year. Credit Suisse Group AG, JPMorgan Cazenove and HSBC Holdings Plc agreed to underwrite in full the $20 billion rights offer. That would be about equal to Lloyds Banking Group Plc’s 13.5 billion pounds ($20.4 billion) sale in December, still the U.K.’s biggest. ‘Risk Involved’ “If you’ve got backing from a few banks and a few major shareholders, there will be a way to make this deal happen,” said Marcus Barnard , a London-based analyst at Oriel Securities Ltd. with a “sell” rating on the stock. “The question is the cost and the risk involved.” The insurer may be forced to sell assets in India and China to comply with local foreign-ownership regulations, he said. AIG said last May that it would pursue an IPO of AIA after an auction of the business failed to turn up bids that matched what AIG executives thought the company was worth. That included a bid from Prudential that valued AIA at about $15 billion, one of the people said. The sum raised in the sale would exceed the total of more than 20 other asset sales announced by AIG, which has struck deals to raise more than $12 billion by selling units, including a U.S. auto insurer and equipment guarantor. Biggest U.S. Loss AIG had a fourth-quarter net loss of $8.87 billion, narrowing from $61.7 billion a year earlier when the insurer recorded the biggest loss in U.S. corporate history, the company said Feb. 26. The insurer gave stakes in American Life Insurance Co., known as Alico, and AIA, its biggest non-U.S. life insurance units, to the Fed in December. MetLife Inc. has said it is in talks to buy Alico, which operates in more than 50 countries outside the U.S. Citigroup Inc. and Goldman Sachs Group Inc. advised AIG. Prudential Plc has no relation to Newark, New Jersey-based Prudential Financial Inc. and operates in the U.S. through its Jackson National Life Insurance Co. unit.

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