The cost of family health coverage in the U.S. now
tops $20,000, an annual survey of employers found, a record high that has
pushed an increasing number of American workers into plans that cover less
or cost more, or force them out of the insurance market entirely.
“It’s as much as buying a basic economy car,” said
Drew Altman, chief executive officer of the Kaiser Family Foundation, “but
buying it every year.”
While employers pay most of the costs of
coverage, according to the survey, workers’ average contribution is now $6,000
for a family plan. That’s just their share of upfront premiums, and doesn’t
include co-payments, deductibles and other forms of cost-sharing once
they need care.
The seemingly inexorable rise of costs has led
to deep frustration with U.S. health care, prompting questions about whether a
system where coverage is tied to a job can survive. As premiums and
deductibles have increased in the last two decades, the percentage of workers
covered has slipped as employers dropped coverage and some workers chose
not to enroll. Fewer Americans under 65 had employer coverage in 2017 than in
1999, according to a separate Kaiser Family Foundation analysis of
federal data. That’s despite the fact that the U.S. economy employed 17 million
more people in 2017 than in 1999.
“What we’ve been seeing is a slow, slow kind of
drip-drip erosion in employer coverage,” Altman said.
Employees’ costs for health care are rising more
quickly than wages or overall economy-wide prices, and the working poor
have been particularly hard-hit. In firms where more than 35% of employees earn
less than $25,000 a year, workers would have to contribute more than $7,000 for
a family health plan. It’s an expense that Altman calls “just
flat-out not affordable.” Only one-third of employees at such firms are on
their employer’s health plans, compared with 63% at higher-wage firms, according
to the Kaiser Family Foundation’s data.
The survey is based on responses from more than 2,000
randomly selected employers with at least three workers, including private
firms and non-federal public employers.
Deductibles are rising even faster than
premiums, meaning that patients are on the hook for more of their medical
costs upfront. For a single person, the average deductible in 2019
was $1,396, up from $533 in 2009. A typical household with employer health
coverage spends about $800 a year in out-of-pocket costs, not counting
premiums, according to research from the Commonwealth Fund. At the
high end of the range, those costs can top $5,000 a year.
After years of pushing health-care costs onto
workers, some employers are pressing pause. Delta Air Lines Inc. recently froze
employees’ contributions to premiums for two years, Chief Executive Officer Ed
Bastian said in an interview at Bloomberg’s headquarters in New York last week.
“We said we’re not going to raise them. We’re going
to absorb the cost because we need to make certain people know that their
benefits structure is real important,” Bastian said. He said the company’s
health-care costs are growing by double-digits. The Atlanta-based company
has more than 80,000 employees around the globe.
And on that note…
marijuana use appears to be up.
WSJ – Daily Shot: Positive Testing for Marijuana in the Workplace 9/27/19
Insurance companies are uniquely exposed to these
sorts (climate) of changes. Tens of millions of businesses buy policies every
year to protect themselves from risks. As a result the industry is vast—last
year the premiums paid for property and casualty insurance worldwide reached
$2.4trn, according to Swiss Re, one of the big reinsurance firms on to which
consumer-facing insurers pass the risk of mega-losses. Insurance companies
spent $180bn on reinsurance premiums. Extreme events becoming the norm could
force insurers to fork out ever greater payouts to policyholders, as well as
lower the value of the assets they hold. The best case is that insurers
reinvent themselves, helping the world cope—risk is, after all, how they make
their money. The worst is that some fail and, more worryingly, that swathes of
the global economy become uninsurable.
Already, insurers are seeing disasters of
unprecedented scale. Earlier this month Hurricane Dorian, one of the two
largest storms ever known to have made landfall in the Atlantic, battered the
Bahamas and then the Carolinas. In July Hurricane Barry brought the heaviest
rainfall ever measured to Arkansas. The Indian Ocean basin has seen three huge
cyclones so far this year, one of which caused Mozambique’s severest flooding
since 2000. Last November California saw wildfires over the largest area ever
recorded.
Very costly disasters are becoming more frequent.
Between 1980 and 2015 America saw an average of five events causing over $1bn
in damage (in current prices) each year. Between 2016 and 2018 the yearly
average was 15. In the 20th century, according to AIR Worldwide, a
climate-modelling firm, a hurricane on the scale of Harvey, America’s costliest
ever, would have been regarded as a one-in-2,000-year event. By 2017, when
Harvey blew in, that frequency was estimated at one in 300 years. By 2100, says
Peter Sousounis of AIR, it will be once a century, and tidal surges that used
to be classed as once-a-millennium events will be expected to strike every 30
years.
Catastrophes are also getting harder to predict.
Though newer models are starting to take account of climate change, most still
rely on crunching numbers from the previous few decades, which are already
obsolete. And insurers struggle to handle “compounding effects”—the mutually
reinforcing impact on each other of events associated with global warming.
Adding to the losses is the growing number of
properties being built in harm’s way, such as on flood plains and coasts.
Average annual insured losses from catastrophic events have grown 20 times,
adjusted for inflation, since the 1970s, to an average of $65bn this decade,
with a peak of $143bn in 2017. That excludes knock-on effects such as business
disruption. Last year the global figure totaled $85bn, the fourth-highest on
record, even though it was a year without a mega-disaster.
Climate losses can also come from the other side of
insurers’ balance-sheets: the investments they hold in order to cover potential
payouts and park any spare funds. Insurers (including life as well as property
and casualty) are the world’s second-largest institutional investors, with
$25trn under management. They often place chunky bets on multinational firms,
infrastructure and property—which are becoming riskier propositions as the
climate changes. Moreover, structural changes in the economy, such as the move
away from fossil fuels, could leave insurers’ portfolios exposed.
In the face of these threats, insurers are seeking to
future-proof their businesses models. Part of this is about financial
resilience. Most general policies are renewed annually, meaning firms can raise
premiums promptly. And since a spate of mega-disasters caught them off-guard in
the 1990s they have fortified their capital reserves. According to McKinsey,
the policy holder surplus (crudely, the excess of assets over liabilities)
available to pay claims in America’s property and casualty sector doubled in
real terms over the last 20 years. In 1992 Hurricane Andrew sent 11 insurers to
the wall. All survived the record hurricane season of 2017-18.
Regulators are doing more to prod insurers to hold
sufficient capital—typically they aim to ensure they can withstand losses
caused by the worst imaginable year in 200. But putting a figure on this is
hard, because nobody has thousands of years of data. And the worst possible
year is getting worse every year. The risks will keep rising long into the
future, says Paul Fisher, a former supervisor at the Bank of England. A
cataclysmic year could also hit markets, hurting insurers’ investments just
when they need them most. Some could be forced to sell assets to cover giant
payouts, pushing asset prices down further.
Most probably, payouts will continue to rise without
capsizing insurers. But that still creates a problem. To absorb bigger losses,
they must charge higher premiums. According to Marsh, a broker, global
commercial-insurance prices rose by 6% in the second quarter of this year,
compared with the previous quarter. That was the largest increase since records
began. In America property rates jumped 10%; in the Pacific region they soared
by nearly 18%. The rise is to meet the demands of reinsurers, which insure the
insurers. Average reinsurance rates are set to rise by 5% next year, according
to S&P Global, a rating agency—and in California, after the huge recent
wildfires, by 30-70%.
A few calm quarters would probably see some of those
increases unwound. But there is no doubt about the trend. And it cannot
continue forever without causing at least some customers to rethink whether to
buy insurance at all.
The global “protection gap” between total losses and
insured losses is already wide and growing. The research arm of Swiss Re
estimates that it more than doubled in real terms between 2000 and 2018, to
$1.2trn. Half of last year’s losses from natural disasters were uninsured. Nine
out of ten American homeowners have no flood insurance despite half of the
population living near water, says Erwann Michel-Kerjan of McKinsey. The share
of uninsured damage is especially high in developing countries, where infrastructure
and risk-mitigation measures are not keeping pace with economic growth.
Where risks become uninsurable, states and firms may
work hand-in-hand. In Britain, where a sixth of homes are at risk of flooding,
government and insurers have set up Flood Re, a reinsurer of last resort that
enables insurers to offer affordable premiums on 350,000 homes in flood plains.
Every firm selling home insurance in the country pays into the scheme,
spreading the costs across hundreds of thousands of policies. To avoid perverse
incentives, houses built in high-risk areas after 2009 are excluded.
Developing countries are underinsured partly because
the risks they face are poorly understood. And many are urbanizing fast, which
means cities change from year to year, making the value at risk hard to track.
More research would help deepen insurance markets, and making models publicly
accessible would also enable officials and development financiers to evaluate
mitigation measures. Above all, insurers need to take the lead in publicizing
the growing risks posed by climate change, and the need for cover. According to
Alison Martin of Zurich Insurance, often people do not take out insurance
because they think the worst will not happen. Talking of one-in-2,000-year
events is not very helpful, she says, “because many people would think we’re
safe for another 1,999”.
It would be hard to think of a business that is
on the face of it quite as dull as Norinchukin Bank. A co-operative, it was
founded almost a century ago to take deposits from and lend to Japanese
farmers. Yet Norinchukin came blinking into the spotlight earlier this year
when it emerged that it had been a voracious buyer of collateralized loan
obligations (CLOs)—pools of risky business loans used to finance buy-outs by
private-equity firms. At the last count, in June, Norinchukin owned
$75bn-worth.
The escapades of Norinchukin offer a parable. One
part of its lesson is that when interest rates are stuck near zero for a long
time, as they have been in Japan, banks’ normal source of profits comes under
pressure. The other part is the lengths to which they must go to boost those
profits, in this case by buying exotic foreign securities with attractive
yields. Norinchukin is not alone. Japanese banks and insurance companies have
been big buyers of the triple-A-rated tranches of CLOs, as well as other
sorts of investment-grade corporate debt.
For this, blame negative bond yields. When the Bank
of Japan’s board meets on September 19th, it is not expected to reduce its main
interest rate, currently -0.1%. But any increase in interest rates seems a long
way off. And as long as rates are at rock-bottom in Japan, it is hard for them
to rise in other places. Bond-buying by desperate Japanese banks and insurance
companies is a big part of what keeps a lid on yields elsewhere.
Japan’s sway on global asset markets has been felt
ever since it liberalized its capital account in 1980. Later that decade
Japanese investors snapped up trophy properties in America, such as the
Rockefeller Centre in New York and Pebble Beach golf course in California. In
the 1990s they piled into American tech firms. Both forays ended badly, but
Japan’s stock of foreign securities has kept growing as its surplus savings
have piled up.
Japan is already the world’s biggest creditor. Its
net foreign assets—what its residents (government, householders and firms) own
minus what they owe to foreigners—are worth around $3trn, or 60% of its
annual GDP. And that understates Japan’s influence on global asset
markets. Since 2012 both sides of its national balance-sheet have grown
rapidly, as Japanese investors borrowed abroad to buy yet more assets.
Japan’s impact is felt most keenly in
corporate-credit markets in America and Europe. Its pension and insurance
firms, which need to make regular payments to retirees, are at least as hungry
for bonds with a decent yield as are their peers elsewhere. But the grasping
for yield is made all the more desperate by the struggles of Japan’s banks. It
is hard to make money from lending to the government when bond yields are
negative. In ageing, high-saving Japan, private-sector borrowers are scarce. So
bank profits have suffered. A report last year by a financial regulator found
that half of Japan’s regional banks lost money on their lending businesses.
Though yields in Europe are lower than in America,
they are nevertheless attractive to Japanese buyers who hedge their currency
risk. Most currency hedges are for less than a year and many are for three
months. The cost of such hedges is linked to the cost of short-term borrowing
in the foreign currency. A rising yield curve thus gives the best
currency-hedged returns: the yield is high at the long end but short rates are
low. For that reason, currency-hedged Japanese investors have preferred to buy
corporate bonds or other credit securities in Europe rather than in America,
where short-term interest rates are relatively high.
Locals lament that high-quality European and American
corporate bonds are treated as safe assets, akin to sovereign bonds. Analysts’
efforts to work out which companies are more or less likely to default, and so
which bonds are more or less valuable, seem almost quaint. “The Japan bid is
not driven by credit risk,” complains one analyst. “It is all about headline
yield.”
Some see Japan as a template: its path of ever-lower
interest rates one that other rich, debt-ridden economies have been destined to
follow and will now struggle to escape. But Japan’s troubles also have a direct
influence on other countries. This makes itself felt through the country’s
considerable sway over global capital markets. The outworkings are strange and
unpredictable. Who would have thought that the rainy-day deposits of Japan’s
farmers and fishermen would be used to fuel leveraged buy-outs in America and
Europe?
The headline from the U.S. Census
Bureau’s report this week on health insurance coverage was that the
ranks of the uninsured swelled by almost 2 million Americans in 2018. But the
larger trends illustrated in the report are more consequential — and more
positive — for the U.S. economy.
The upshot is this: The number of uninsured is
growing because more people are moving out of poverty and thus losing Medicaid
coverage.
That’s consistent with another piece of good news in
the report. The average incomes for those in the second quintile — a proxy for
the working-class — rose faster than any other group. Indeed, over the last
five years incomes for all quintiles have risen nearly in unison, with incomes
for the working class slightly edging out all other groups.
This could be a run of good luck, of course. But
there is reason to believe that it reflects fundamental changes in the economy.
Over the same period, U.S. workers’ compensation as share of GDP has been
rising or stable. That’s the longest such period since this figure peaked in
1970.
Taking the long view, the census data on income
distribution tells a mostly positive story, albeit with some twists and turns.
From 1967 (the earliest date for which there is data) to 1980, incomes rose for
all groups, but the most for those at the very bottom of the income scale.
By the late 1970s, however, incomes were stagnating.
Then came nearly two decades of neoliberal reforms, including tax cuts,
deregulation and an emphasis on inflation control by the Federal Reserve. Real
incomes exploded from 1981 to 1999 — but so did inequality. The entire
population did better, but the top 20% outstripped the rest.
Then came the China shock. In 2001, China became a
member of the World Trade Organization. From then until roughly 2012, Chinese
exports grew at double-digit rates, transforming both China’s economy and
the rest of the world’s. Economists often downplay the role of China,
suggesting that the decline in U.S. manufacturing in particular was driven
primarily by technological progress. That undoubtedly played a role, but it’s
impossible to overstate the impact of the introduction into the world trading
system of a huge and rapidly industrializing nation. It strained the U.S.
economy to the breaking point.
Every income quintile lost ground. Once again,
however, the poor and the working class were hardest hit. The financial crisis
accelerated the process, and the overall downward trend was only briefly
interrupted when the housing boom raised incomes in the mid-2000s.
Since then, however, the trajectory of U.S. income
has changed fundamentally. All quintiles are rising roughly together, and the
working class is doing particularly well.
Much of the populist anger in U.S. doesn’t
stem from inequality per se. Instead, the current obsession with
inequality is a hangover from the shock of the first decade of the 21st
century, when falling incomes were widespread but especially crushing for those
at the bottom. That created very real pain and justifiable outrage at the
system.
Now the economic tide has turned. The working class
is doing better, not just in real terms but relatively. This is news worth
recognizing — and celebrating.
It’s not your imagination: Concert ticket prices are
going through the roof.
And not just for the super wealthy who pay thousands
of dollars to see the best acts from the front row. Fans of all types are
paying more to see their favorite musicians.
The average price of a ticket to the 100 most popular
tours in North America has almost quadrupled over the past two decades, from
$25.81 in 1996 to $91.86 through the first half of this year, according to
researcher Pollstar. Along with pro sports and Broadway shows, concert prices
have far outpaced inflation.
Some of that increase was out of necessity. As piracy
eroded music sales, artists began to lean heavily on concerts. Stars like
Beyonce and Taylor Swift can make more in a couple nights onstage than they can
from a year of album sales. But something else was going on, too. Ticket
sellers like Ticketmaster and AEG’s AXS began adopting technology that showed
fans would pay almost any price for their favorite acts, especially stars who
only come around every few years.
“We all undervalued tickets for many, many years,”
said Joe Killian, who runs a media consulting firm and founded a concert series
in New York’s Central Park.
Higher prices have been good for the concert
business. The live-music industry surpassed $8 billion in revenue in 2017, and
is on pace for another record in 2019. Live Nation Entertainment Inc., which
owns Ticketmaster, touts its ability to charge higher prices.
It’s not just tickets, either. Music fans also face
skyrocketing prices for food, beverages and merchandise. The average fan spent
$20 at events in 2016 staged by Live Nation, the world’s largest promoter. This
year, that figure is expected to reach $29, an increase of almost 50%.
If artists’ growing reliance on live music has led to
any guilt about appearing greedy, the rise of ticket resale sites like StubHub
took care of that. For years, entertainers watched as scalpers vacuumed up
tickets and resold them for far more on such exchanges. Agents took this as
proof that tickets were underpriced — and their artists underpaid.
Ticketmaster and others have since developed the
ability to change pricing at any moment, enabling artists to charge more
upfront and keep more of the dollars that went to scalpers. They can also
reduce prices closer to show time if tickets aren’t selling, or create special
windows for true fans.
Not every artist has embraced the new philosophy. Ed
Sheeran booked the highest-grossing tour of all time while charging less than
$100 a ticket, making him one of the cheapest of the top tours. He is adamant
that his show be affordable to all his fans.
After a record-breaking rally in bond markets, all of
Germany’s government debt now trades at sub-zero yields. That raises an
important question: what kind of investors are happy to hoover up bonds that
guarantee a loss if they are held to maturity?
One answer is that investors — in the sense of fund
managers seeking to generate a return on their clients’ money — do not actually
own very much of the German bond market.
An analysis by Union Investment, a Frankfurt-based
asset manager, shows that the overall value of Bunds outstanding has
been falling slightly since 2014 thanks to Germany’s aversion to
running budget deficits. But the volume of freely tradable Bunds on the market
has fallen much more sharply, and is expected to drop below €70bn by 2024 down
from more than €600bn a decade earlier.
The precipitous drop has been caused by the rise of a
class of bondholders typically indifferent to the level of yields. These
include foreign reserve managers at central banks, financial institutions that
since the crisis have had to hold ever larger piles of government bonds to meet
regulatory requirements, and the German central bank itself. The Bundesbank
holds more than €350bn of Bunds as a result of the European Central
Bank’s quantitative easing program.
Given the paucity of Bunds, it is not surprising that
Berlin is under growing pressure to borrow more, particularly with the German
economy seemingly headed for recession. But the modest scale of fiscal
loosening plans — finance minister Olaf Scholz has discussed a
€50bn stimulus package — seems unlikely to alter the dynamics of the
Bund market, for now.
More than most other places in the world, this
southern African nation with a long history of monetary
dysfunction has staked its financial system on mobile money, which allows
funds to change hands through the touch of a few buttons on an old-school
cellphone or through a smartphone app.
But now, amid power cuts lasting for up to 17 hours a
day, EcoCash breaks down frequently. The outages are blocking everyday economic
activity and exacerbating a financial crisis that has left Zimbabwe’s
government bankrupt and some five million people, about a third of its
population, in need of food aid.
Eight out of 10 transactions in Zimbabwe—from buying
milk to filling up a car or settling a utility bill—are done via cellphones,
almost exclusively on EcoCash.
“We are more or less a cashless economy,” said Ashok
Chakravarti, an economist based in Harare who believes that the EcoCash outages
will hurt Zimbabwe’s gross domestic product, which the International Monetary
Fund expects to shrink by 5.2% this year.
A government austerity program and limits on issuing
T-bills haven’t stopped the new Zimbabwean dollar from losing value. Inflation
spiked to 176% in June. Last month, the finance minister announced Zimbabwe’s
statistics agency would stop publishing annual inflation data until February,
saying it was distorted by the reintroduction of a local currency.
