Category Archives: Investing and fiduciary requirements

Treasury Department Will Tap Federal Employee Pension Fund

From Health and Welfare news 12/27/2012, By  ,
U.S. will hit debt limit on Dec. 31, Treasury Department says

The U.S. government will hit the
$16.4 trillion federal debt limit Monday and turn to “extraordinary
measures” to continue borrowing, the Treasury Department said Wednesday,
beginning a countdown until Congress either passes legislation to allow
for more borrowing or the government defaults on its debt.

In a letter to Congress, Treasury Secretary Timothy F. Geithner
said that although the debt ceiling would be reached Dec. 31, the
government could buy roughly two months’ more time before it would be
unable to meet all its obligations.

The debate over the debt ceiling is likely to be another flash
point in the capital’s tumultuous negotiations over taxes and spending —
even if lawmakers are able to pass a measure to avoid a series of deep
spending cuts and sharp tax increases set to take effect at the end of
the year.

President Obama has demanded that the debt limit be
taken off the table as a negotiating point, but Republicans say it is an
important piece of leverage needed to force spending cuts and restrain
the growth of government. It was the debt-limit debate in the summer of
2011, when the nation came within days of default before a deal was
struck, that led to the legislation that has helped create the year-end
“fiscal cliff.”

How and whether the fiscal cliff is resolved will affect how much time the Treasury has in pushing back the date of default.

If
the nation goes over the fiscal cliff, two forces will work against
each other. Taxes would rise and spending would be cut, requiring less
U.S. borrowing and potentially delaying default. Higher unemployment and
a recession would also be likely, depressing tax receipts and requiring
more borrowing.

In contrast to the fiscal cliff, defaulting on
the debt would cause an immediate financial earthquake, probably causing
intense volatility in the markets given the special role played by U.S.
government debt.

The federal government borrows about
$100 billion a month, and Geithner’s letter to Congress said undertaking
“extraordinary measures” — as the Treasury did in 2011 — could create
about $200 billion of room to continue borrowing.

“However,” he
wrote to lawmakers, “given the significant uncertainty that now exists
with regard to unresolved tax and spending policies for 2013, it is not
possible to predict the effective duration of these measures.”

As
part of these efforts, the Treasury will suspend on Friday a program
that helps states and localities manage their borrowing, freeing up
$4 billion to $17 billion to spend elsewhere.

Then, after Monday,  Treasury can tap a range of federal funds that benefit government
employees — most critically, the money-market fund in which many federal
employees invest as part of their thrift savings plans. These efforts
could create $185 billion in borrowing space.

Federal employees would be unaffected, as long as Congress ultimately raises the debt limit by the final deadline.

Finally, the Treasury can tap a fund used to buy and sell foreign currencies
known as the exchange stabilization fund, which would open up about
$23 billion in headroom.

WHAT IF WE DO GO OFF THE CLIFF?

Will the economic stress be as severe as many assume?

Presented by Reeve Conover
What are the chances of a fiscal cliff deal?
Every day seems to bring a new assessment from the media. As Christmas
approaches, little progress has been made and the Senate is poised for a holiday
recess ending December 27. If a deal isn’t reached, what might result for the
economy and the markets?1
What’s the worst that could happen? For that scenario, we might as
well check in with “Dr. Doom.” That is the nickname for Nouriel Roubini, the
economist who famously predicted the 2008 Wall Street downturn. Earlier this
month, Roubini told Bloomberg TV that “there’s a highly likely chance we’re
going to go over the cliff.” Come January, “the market reaction is going to
force the two sides to reach an agreement.” Roubini thinks that even with an
agreement, our 2013 GDP will be about 1.7%. On a positive note, he feels that
“the [long-term] fundamentals of the U.S. are a lot stronger” than those of
other key world economies.2

Roubini’s forecast is far from the worst out there. In its gloomiest scenario, UBS sees a
2% contraction in GDP for the first half of 2013 with the S&P 500 trading
at 1,000-1,100, demand for the dollar soaring, and prices of metals and energy
futures sinking. Morgan Stanley thinks there could be as much as a 5% hit to
GDP given that the payroll tax holiday will also likely expire; Bank of America
sees anywhere from a 2.5%-4.6% impact on 2013 GDP, with a multi-stage fix for
the problem on Capitol Hill wrapping up by April. The Congressional Budget
Office’s worst-case scenario includes a recession and 9.1% unemployment.3
Could we merely see a fiscal slope, or a fiscal pothole?
If a deal is deferred until late January, the economic impact might not be as
bad as feared. Congress could end up retroactively preserving the Bush-era tax
cuts for most Americans, and the tax increases resulting from the cliff could
be struck down.
Here’s why it looks like a slope rather than a cliff: the so-called sequester (the
$1.2 trillion in planned federal spending cuts) will occur gradually over the
next decade rather than instantaneously. If no deal occurs, next year’s
across-the-board federal spending cuts will total only $109 billion, and they
could even be smaller if Congress hastily opts for a package of selective cuts
rather than a real fix; one proposal circulating around Capitol Hill this fall only
called for slashing $55 billion in 2013, according to Reuters.4
In the fiscal pothole scenario offered by analysts at UBS, small concessions are made
on Capitol Hill as 2012 ends (i.e., the payroll tax holiday and long-term
jobless benefits expire while taxes increase temporarily), pursuant to a “grand
bargain” in 2013 that cuts at least $4 trillion off the deficit in ten years.3
What sector would be hit hardest if there is no deal?
As an article at TheStreet.com mentions, the consumer discretionary sector may
be significantly impacted without a fiscal cliff fix for 2013. The automotive,
apparel and entertainment industries in particular might see waning consumer
demand.5

If the economy does fall off the cliff, the effect will probably be felt gradually by
businesses large and small. The sudden shock may occur on Wall Street, which in
the glass-half-full scenario prices the fall in without bulls fully retreating.

Now is a good time to evaluate your options in case a deal doesn’t happen in
Washington. A talk with a financial services professional could give you more
insight into the choices you have for 2013.

Reeve Conover can be reached at reeve@reevewillknow.com, or 877-423-9990.

This material was prepared by
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Citations.

1
– news.yahoo.com/reid-u-senate-return-dec-27-no-pre-180003533–business.html [12/20/12]

2 – blogs.marketwatch.com/thetell/2012/12/14/u-s-will-go-over-the-fiscal-cliff-and-markets-will-force-a-deal-nouriel-dr-doom-roubini/
[11/14/12]

3
www.businessinsider.com/fiscal-cliff-worst-case-scenario-2012-11?op=1
[12/13/12]

4 – www.reuters.com/article/2012/10/22/us-usa-congress-fiscalcliff-idUSBRE89L0YB20121022
[10/22/12]

5 –
business-news.thestreet.com/thestreet/story/3-hardest-hit-industries-if-us-goes-off-fiscal-cliff/11797229
[12/20/12]

Atlanta Hospital systems to form their own insurance company

Is this a sign of things to come?  Probably, as it is hard to envision all of the competitive changes that will occur in the marketplace over the next two years…- Reeve

By Carrie Teegardin | The Atlanta Journal-Constitution 12/17/12

Piedmont and WellStar, two of Atlanta’s largest hospital systems, said Monday they
are forming an insurance company — a bold move in a rapidly changing
health care marketplace.

By elbowing their way into the domain of
Blue Cross Blue Shield, Aetna and United Healthcare, the hospital
systems could dramatically increase the competition in the state’s
insurance marketplace. The move could also change the way patients get
care, because the hospital systems will have a financial stake in
keeping patients healthy and controlling costs.

The impact could
be especially significant if the Piedmont-WellStar health plan is
included on the health law’s insurance exchange, where many Georgians
will shop for plans and qualify for federal subsidies to help pay for
their coverage in 2014.

“The reason this is such a big deal is
that it creates a considerable amount of competition within the health
insurance market in Georgia that many feared would not happen with the
exchange — that it would be two or three big insurers, and that’s it,”
said Bill Custer, a health care expert at Georgia State University.

Stepping
into the complicated world of insurance might seem risky at a time when
hospitals are facing financial challenges and waves of change. But the
systems are not the first to try it, and they view the undertaking as an
exciting opportunity to shift the course of health care for the better.

“I actually think we have more risk by not moving in this direction than
we do moving in this direction,” said Dr. Ronnie Brownsworth of
Piedmont, who is the CEO of the new health plan. “The trend in this
country is for providers to step up and become more accountable for the
cost and quality of the care.”

By having access to every detailed
piece of information about a patient’s care — from the insurance records
to the medical files — the health systems say they have a better chance
of achieving the holy grail of health care innovation: dramatically
lowering the cost of care by making it better. They say they can do more
to prevent hospitalizations and other costly health events if they can
study their patients carefully and employ care without the intrusion of
insurance company regulations and payment policies.

“We do think it’s a significant advance for the health care market in how care is
going to be delivered,” said Greg Hurst, interim chief operating officer
at Piedmont.

For privately insured people, health care is a
triangle, with patients, hospitals and insurance companies each a
fundamental part of the equation. Under the Piedmont-WellStar plan,
hospitals would draw a straight line between themselves and patients,
cutting insurers out of the game.

And insurance companies are skeptical.

Graham Thompson, a spokesman for large insurers in Georgia, said running an
insurance company is especially challenging today with the wave of
reforms coming through the federal health law, not to mention managing
the day to day operations.

“Can a medical provider successfully  assume the role of an insurer?” Thompson said. “There aren’t a lot of
great examples out there.”

With health care costs ballooning every
year, the government health plans, Medicare and Medicaid, as well as
private employers that provide their workers with insurance, are
demanding that doctors and hospitals get control of expenses, said
Reynold Jennings, WellStar’s CEO. “You can’t succeed unless you have got
total information to do that,” he said.

Custer, of Georgia State, said if the Piedmont-WellStar health plan succeeds at better managing
the most complex and costly cases, it will put pressure on other
insurers to find a way to work with providers to achieve similar
results.

The health systems plan to launch an array of products
for 2014, the same time that the major components of the Patient
Protection and Affordable Care Act kick in. The systems said that they
want to offer a Medicare Advantage plan, as well as plans for employers,
but the details aren’t yet clear. The systems said the plan would be
available for Piedmont and WellStar’s employees and family members.

Whether it will offer a plan on the insurance exchange required by the health
law will depend on the detailed requirements of selling on the exchange,
executives said.

The state Department of Insurance confirmed
Monday that Piedmont has already filed an application — for a health
maintenance organization. Piedmont and WellStar said they intend to move
forward as a joint venture operating a for-profit insurance company.
Piedmont said it started working toward developing an insurance plan
this year when it partnered with Evolent Health, a Washington, D.C.
which helped the University of Pittsburgh Medical Center launch a plan
that the systems hope to emulate.

The plans are expected to operate as an HMO where patients are treated mostly within Piedmont and
WellStar’s vast network of hospitals and doctors. But the systems said
they may expand that network to include other providers.

Health Exchanges to Be Run by 18 States as Most Governors Pass

By Alex Wayne | Dec 17, 2012 9:51 AM ET

Governors in 18 of the 50 U.S. states agreed to build health-insurance exchanges, a final tally
that leaves the federal government with the duty of running
marketplaces for the majority of the nation through 2014.

Idaho, Nevada and Utah were among the states that submitted
blueprint applications to the Obama administration by the Dec.
14 deadline to create exchanges for residents to shop for
insurance as part of the Affordable Care Act, the Department of
Health
and Human Services said today. Governors who opted out
said they balked at the federal regulations they would have to
adhere to and long-term costs they would have to bear.

“The majority of states will play
an active role operating their exchanges,” Kathleen Sebelius, the U.S.
health secretary, said in a blog post. Photographer: Mark Wilson/Getty
Images

Four states — Delaware, Illinois, Iowa and North Carolina
— plan to contribute some services to a federally built
exchange in a partnership with the Obama administration, Gary Cohen, who directs the U.S. Center for Consumer Information and
Insurance Oversight, said last week. Those states may take on
functions such as plan selection and customer assistance, while
the federal government builds the websites and other
infrastructure.

Avalere projects that the number of states in partnership
with the government may eventually reach 12.

Federal Funding

Under the law, the exchanges are designed to allow
consumers who don’t have medical coverage through their jobs
beginning in 2014 to easily compare health plans, and then buy
coverage online and through telephone services. The U.S. is
subsidizing the cost for those who can’t afford coverage.

Funding for states to build their own exchanges is
essentially unlimited, and the U.S. has given $1.8 billion so
far, including to some states that have said they won’t complete
the work, Cohen said in prepared remarks for a Dec. 9
congressional hearing.

States still have to come up with their own money to run
the marketplaces. Nebraska Governor Dave Heineman, a Republican,
said it would cost about $81 million a year to run an exchange
while the federal government could do the same job for about 27
percent of that amount. Connecticut anticipates a cost of about
$30 million a year, said Kevin Counihan, the CEO of the
Connecticut Health Insurance Exchange.

Student Loan Debt Crisis looming?

Do we really need to be worried about yet another bubble-crisis-economic disaster. I think so.  The American Dream – graduating college- getting a good job – buying a house – having a family – is all but gone.    According to varying reports between 45-54% of college graduates are either not working, or working in a low-end job that does not require (or reward) a Bachelors Degree.  This is up in the last 12 years from 41 percent.  Different however, is that now fully half of them are unemployed – no income at all.

There is a ripple effect here as well – Its hard to pay back your student loans (averaging now $24,301) working for tips at the coffee shop, Starbucks and Wild Wings.  And for every Bachelors degree working in those jobs, they are displacing a less educated worker in many cases – evidenced by the high number of High School Graduates completely out of work.

Student Loans now total more in this country ($867 billion) then Credit Card Debt ($704 billion).  10% of graduates have payments that exceed 25% of their income, and the average payment is $250/month.   It is small wonder that the delinquency rate for student loans is around 12% in the 40-49 year old age group.  That rate is only 6.2% for 20-somethings, mostly because they use their 38 month deferral when not working.

Yet, despite these facts, the continued bad economy, unemployment projected to be in the 7 % range for the next 3 years – education costs are up 20% in the last five years, and projected to go up another 33% by 2020!

All things considered, it is small wonder that such a large number are now questioning the value of a college education – why run up a huge amount of debt that I cannot pay back, because I can’t get a descent job, ruining my credit rating.  Student loans are one of those things that don’t dissappear with bankruptcy.

And, obviously, that does not bode well for the hosing market if we don’t find a solution as a country.

 

Sources-  The Week 12/14/12; The Atlantic, 4/23/12, “53% of recent college grads are jobless or unemployed“; Huffington Post 12/18/12 “student Delinquency Rate Highest among forty-somethings

 

 

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Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA.
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