Friday, July 10, 2015

ObamcaCare Mergers: The Long Pole In The Tent Is Not The Savings To Be Made -- July 10, 2015, Part III

I don't know where I first saw this but it was in some introductory course in finances or economics that I took somewhere along the way. There are many, many reasons for mergers. Perhaps the number one reason for mergers is that one of the parties may not survive. When investors see a press release that a company they have invested in is looking to be bought out or looking for a merger, a smart investor knows that the company may have significant financial problems, and is looking for a way out.

Google mergers purpose survival.

Near the bottom of the first page when you google those three words:
  • can mergers ensure the survival of credit unions
  • mergers key to community hospital survival
Hold that thought.

Now go back and read the earlier post today on ObamaCare:
As leading health insurers scramble for market share through a series of multibillion-dollar mergers, consumers are no doubt wondering if their premiums are bound to skyrocket.
Short answer: Probably.
"That's what usually happens when you have less competition," said Erin Trish, a researcher at USC's Schaeffer Center for Health Policy and Economics. "At the same time, though, consolidation among insurers could mean a stronger position in negotiating lower rates with hospitals."
The question, she said, is whether insurers would pass along any savings to policyholders. Past mergers among insurance companies suggest that consumers seldom benefit. 
"When insurers merge, there's almost always an increase in premiums," Trish said.
Ironically, Obamacare had anticipated the negative effects of runaway capitalism with a safeguard that critics branded as socialism — the so-called public option, a government-run insurance plan offered alongside private plans.
The reason for the mergers among "leading health insurers" was not addressed. We can leave that for later, but here's a hint: go back to that thought you were holding.

This is what caught my attention in that segment from the linked Los Angeles Times article:
The question, she said, is whether insurers would pass along any savings to policyholders. 
There may or may not be any savings that result from these mergers, but let's say the savings are "incredible." 

But here's the dirty little secret. No matter how huge, or how "incredible" the savings are as a result of the merger, the savings (or reversely, the administrative costs for healthcare) are NOT the long poles in the tent.

The long pole in the US healthcare industry is uncontrolled costs for health care. Period. Dot.

No matter how much US insurers save by merging, those savings will never, never, never keep pace with the expense of US health care (and that's even before we get into fraud).

The three reasons health care costs are unconstrained:
  • physicians practicing defensive medicine
  • no one can understand health care costs
  • Americans won't settle for second best
Three additional reasons why ObamaCare will make premiums rise:
  • no caps
  • no pre-existing conditions clause
  • no penalties for intentionally harming the body
I firmly support the "no caps" and the "no pre-existing conditions clause" aspects of ObamaCare, but they require that everyone participates in ObamaCare.

Of the six points above, the one that interests me the most, and I think the one that will ultimately be the biggest problem for a US national health care program is the second of the six points: no one can understand health care costs. That includes how prices are determined; how to read a billing statement; how to "manage" a health care event from a financial perspective; etc., etc., etc.

If Americans cannot understand the concept of fracking -- which is just about the easiest thing to comprehend -- there is no way on God's green earth, as they say -- that Americans are ever going to be able to understand a medical billing statement and all that it entails.

As an example, 99% of female urinary tract infections in otherwise healthy females age 16 to 61 could be treated with a single dose of an antibiotic with no urinalysis or microbial culture. A single UTI-package, if available over-the-counter, and strict warnings about risk of allergies, would cost less than $10. But in today's health care system, the costs (remember, time is money):
  • make an appointment 
  • time loss from work (or babysitter expenses for children)
  • cost of driving (and CO2 emissions) getting to physician
  • check-in with admin clerk ($)
  • pre-pre-eval by LVN ($$)
  • pre-eval by RN ($$$)
  • 5-minute visit with phyisian ($$$$)
  • 5-second tap on the back to rule out kidney infection (ruled out by LVN pre-pre-eval)
  • urinalysis
  • urine culture
  • three-day wait
  • call from physician's office
  • pick up prescription for single-dose antibiotic
  • stop by pharmacy
  • (Some steps left out).
  • Total cost: easily $500.
At MDSave, the average cost of a urinalysis is said to be $224. MDSave will do it for $79.
Urine culture: walkinlabs says $72.
For a pretty good perspective on the cost to treat a UTI, see this site.
Remember: 99% of all female urinary tract infections... yada, yada, yada...

But if the average American can't understand fracking, there's no way the average American will ever understand health care expenses.

The long pole in the tent in health care costs is not the administrative costs; the long pole in the tent is common sense and/or education.

Friday, July 10, 2015 -- Part II; Health Care Premiums Won't Simply Rise, They Will Skyrocket -- LA Times, USC


July 11, 2015: this is truly remarkable. Just a few days after the post regarding the LA Times telling folks that their ObamaCare health care premiums were about to skyrocket, here it is in the Wall Street Journal:
Premiums are spiking around the country. Obama is in denial.
The Affordable Care Act was supposed to make insurance, well, more affordable. But now hard results are starting to emerge: premium surges that often average 10% to 20% and spikes that sometimes run as high as 50% or 60% or more from coast to coast.
Welcome to the new abnormal of ObamaCare. This summer insurers must submit rates to state regulators for approval on the ObamaCare exchanges in 2016—and even liberals are shocked at the double-digit requests, or at least the honest liberals are.
Under ObamaCare, year-over-year premium increases above 10% must also be justified to the Health and Human Services Department, and its data base lists about 650 such cases so far.
Original Post

PTI: the annual ENERCOM conference is always a biggie, August 16 - 20, 2015.

PTI: I'm no conspiracy nut, but one does begin to wonder. This past week, OPM was hacked and personal / personnel data of 22 million Americans stolen; NYSE "crashed" and is down for four hours; United Airlines scheduling system is down for two hours. The NYSE says it was a software update or something along that line -- in the middle of the week during peak trading hours? Sure. Now TD-Ameritrade is reporting a "widespread" order routing problem and says it was due to software update -- in the middle of peak trading hours just before the weekend and when major events are occurring in Greece, and the market is surging 200 points? A software update? Sure.

US Manufacturing Costs To Meet Chinese Costs In Next Year Or So

US manufacturing costs are projected to fall below those of China due to cheap energy due to fracking -- Boston Consulting Group. This has huge implications for:
  • global CO2 emissions (for those who believe; majority of Hispanics "believe" in God and believe that man is causing global warming, especially white men; I'm a denier)
  • imports from China
  • port activity along the US west coast
  • cost of transporting goods to consumers in US
And I assume the list goes on. is reporting:
A recent report projected that the cost of manufacturing in the U.S. will fall below costs in China within the next three years, in large part due to the rise of fracking.
Fortune, citing an analysis by Boston Consulting Group, reported that the average cost to produce goods is currently only 5 percent higher in the U.S. than in China, and that the cost is expected to be 2 to 3 percent lower by 2018.
Rising wages in China and increased industrial productivity in the U.S. contributed to that trend, but the report cited hydraulic fracturing as the primary reason for the shift in costs.
If I read that correctly, manufacturing costs are 5 percent higher in the US than in China. By 2018, manufacturing costs in the US will be as much as 3 percent lower in the US than in China. Then add in the transportation costs.

Odds And Ends And Everything In Between

I thought it was only 40,000. I guess the US Army is going to be cut by 60,000 soldiers.

After hackers stole personal data of 22 million Americans from the Office of Personnel Management, the director has resigned. Bloomberg reports that the U.S. government’s human resources director resigned Friday a day after disclosing that hackers stole personal data for more than 22 million people in one of the worst security breaches in history. The real question is who has the data? ISIS or China or Russia? Or all three by now?

Janet Yellen says she expects to start raising interest rates later this year, but "remains concerned about the economy." If she doesn't start to raise rates soon, her window of opportunity will close; she certainly won't want to be blamed for pushing the US into a recession in an election year. The market is certainly due for a correction in the next couple of years and the movers and shakers need something to blame it on. A Yellen-rate-rise (YRR) would be the way to go.

But You Can Keep Your Doctor

This was blogged/predicted from the very beginning: health care mergers will result in higher premiums. Column in today's Los Angeles Times
As leading health insurers scramble for market share through a series of multibillion-dollar mergers, consumers are no doubt wondering if their premiums are bound to skyrocket.
Short answer: Probably.
"That's what usually happens when you have less competition," said Erin Trish, a researcher at USC's Schaeffer Center for Health Policy and Economics. "At the same time, though, consolidation among insurers could mean a stronger position in negotiating lower rates with hospitals."
The question, she said, is whether insurers would pass along any savings to policyholders. Past mergers among insurance companies suggest that consumers seldom benefit. 
"When insurers merge, there's almost always an increase in premiums," Trish said.
Ironically, Obamacare had anticipated the negative effects of runaway capitalism with a safeguard that critics branded as socialism — the so-called public option, a government-run insurance plan offered alongside private plans.
Ironically? Give me a break. If you didn't see this coming, you weren't paying attention.

But the bigger story: mergers + federal exchange = national heath care. See the June 28, 2015, post.  Even better, see the October 31, 2013, post -- Halloween -- scary!

For newbies: like AGW, ObamaCare used to concern me. It no longer does. It is what is. Americans have accepted it; the Supreme Court will uphold ObamaCare regardless of the merit of lawsuits against it. I now write less about ObamaCare than I used to now that I understand it and know that it is here to stay. ObamaCare will be modified around the edges, but the key components will be kept: mandated; no pre-existing clauses; no caps; children defined up to 26 years of age; 29-hour work week; manageable penalties for not enrolling.

Friday, July 10, 2015

Active rigs:

Active Rigs73189186212170

I track North Dakota's active rig count here

RBN Energy: changing patterns of refiners' oil input.This is another fascinating article from RBN Energy. This was a topic discussed at the blog in the very early days of the Bakken boom. No one outside the industry understood this at the time. I doubt many folks still understand it. (Archived)
The U.S. energy production renaissance isn’t just changing where we get our crude oil and natural gas from, it’s forcing major shifts in the domestic oil refining sector. Gulf Coast, East Coast and Midwest refineries that used to depend heavily on foreign oil are turning to domestic sources, refiners’ ability to process very light U.S. crude is being stretched, and traditional pipeline flow patterns—for crude and refined products alike--are being up-ended. Today, we continue our look at fast-changing petroleum products markets and the infrastructure that supports them.
The infrastructure developed over the past 70-plus years to move, store and export refined petroleum products is an unending work-in-progress that reflects (among other things) ongoing changes in the sourcing of crude, the types of crude being produced, and the demand for gasoline, diesel, heating oil, kerosene-type jet fuel (kero-jet, also known as jet-kero) and other refined products. The petroleum products-related infrastructure—how it fits together, and how it’s still evolving—is the focus of this series.
The U.S. produces and consumes more refined petroleum products than any other nation on earth. Production of finished motor gasoline (which includes ethanol) now averages more than 9.5 MMb/d, while distillates production (mostly diesel and heating oil) is approaching 5 MMb/d and production of kero-jet stands at about 1.6 MMb/d.
These fuels need to be moved as efficiently as possible from refineries to where they are stored and (ultimately) consumed domestically or exported. More often than not, they are moved much--or, in a few cases, all--of the way to market via petroleum product pipelines (more than 63,000 miles of them) to storage terminals in areas with significant fuel demand. From there fuels are generally distributed by tanker trucks to heating oil dealers and gas stations; many airports get their kero-jet delivered by smaller-diameter pipeline. In our series opener, we also explained how petroleum product pipelines typically transport specific products in a series of “batches” that are diverted to the proper tanks in sequence as they arrive at downstream storage facilities. In today’s episode, we’ll focus on refineries—where they are, and how their feedstock sourcing is changing.

Data points from the RBN Energy blog today (there will be a quiz later):

The top five US refiners by capacity:
  • Valero: 1.96 million bopd
  • XOM: 1.86 million bopd
  • MRO: 1.73 milion bopd
  • Phillips 66: 1.61 million bopd
  • Motiva Enterprises: 1.08 million bopd
In other words: four refiners each between 1.5 and 2.0 million bopd; and one refiner at about 1 million bopd. Total refining capacity in US about 18 million bopd.

Refineries are configured to operate most efficiently when processing certain types of crude
  • light oil: 32 - 40 degrees
  • above 40 commonly seen from shale basins such as the Eagle Ford and the Bakken
  • ultra-light: above 50 (again, from the Eagle Ford and the Bakken); generally known as condensates
  • diluted bitumen from Alberta oil sands: 22 - 31 degrees
  • heavier crudes require more complex refiners (think, more expensive)
  • sulfur must be removed during processing; heavier crudes, more sulphur
  • PADD 3: Gulf Coast
  • PADD 2: Midwest
  • PADD 5: West Coast
No cokers (except for one):
  • PADD 1: East Coast -- historically relied on imported light oil
Minor refining, has some coking
  • PADD 4: Rockies
The US is gradually shifting to lighter oil
  • in April 2015 (the most recent month for which EIA figures are available), the average API gravity of the crude refined in the U.S. rose to its highest level (32.18 degrees;) since March 1990
  • in July 2008, before the shale era began in earnest, the average API gravity bottomed out at 29.9 degrees. (That difference of 2.28 degrees may not sound like much, but in the refining industry it is huge.)
  • PADD 3: was 29.31; now 31.83
  • PADD 2: 32.13; now 33.61
  • PADD 1: was 31.53; now 34.99 (think Delta, think Bakken)
The Keystone pipeline was not mentioned.

Not mentioned: swaps make more sense than removing ban on US oil exports.
Talking About Lagged Data

EIA "energy cookie":
EIA develops state-level production estimates for selected states that are based in part on state-level data. However, data published by state agencies are often incomplete when first published because of a combination of late reporting and processing delays, mainly due to the filing of production reports that do not contain all required information...
Production data for Texas, the largest crude-oil producing state, published by EIA in the Petroleum Supply Monthly (PSM) and by the Texas Railroad Commission (TRRC) in its monthly reports, reflect differences in the treatment of incomplete and lagged data...
The need for EIA to calculate a true-up oil production volume for states, including Texas, will soon be replaced by a direct EIA survey of oil producers, just as it currently surveys natural gas producers in its EIA-914 survey.---EIA
North Dakota's data seems to be about the most transparent and most current of any state and is light-years ahead of the federal government's reporting of import data, which one would think would be easiest to track. Import data should be available in real-time.

So, Who Blinked?

The Drudge Report has the headline suggesting that the EU blinked. A SeekingAlpha contributor suggested that the market is surging because "Greece blinked."

In fact, the socialists played Europe like a fiddle. Of course, all the i's and all the t's have not been dotted, or the exact euro figures filled in, but as I said some weeks ago, the Greek government (i.e., the men at the top top) were not going to let $8.1 billion slip through their fingers. A fair amount of that $8.1 billion will be skimmed off the top to line the coffers of key government figures. The real losers are the poorest Greeks. The pensioners take a "haircut," and the government makes a few promises ("wink, wink") and then this Greek drama is over for the next five years.

Even Paul Krugman agrees: more money should have been sent to Greece, and it should have been sent much earlier, and all of this could have been avoided.

After all, the EU has not run out of money for the Greeks to spend.

(By the way, the linked Krugman opinion piece is one of the most poorly argued / most poorly written pieces I've seen by him -- I guess both he and I are getting tired.)

[July 18, 2015: see follow-up on Krugman at this link. At the linked post, way at the bottom.]

When It Rains, It Pours -- July 9, 2015

When it rains, it pours. I was out all day with the granddaughters today. We made our annual visit to the Getty Museum in west Los Angeles and were not disappointed. But I never take my computer with me when I am out with the granddaughters. It's also why I don't have a smart phone. I am addicted to the internet and if I brought a smart phone or a tablet or a laptop along with me, I would be tempted to check in on the news. So I don't bring any electronic "toys" with me when I'm out with the granddaughters, and I generally turn off my decade-old Samsung clamshell (cell phone).

But when it rains, it pours. There was so much news today. I assume my posts have been a bit haphazard, but what I write is mostly to remind me of the stories, not necessarily to get every detail right. That's why I link posts to the "original" source.

But this is the news that caught my eye today (and a couple from yesterday), most of it posted:
  • the creditors blinked; Greece will be bailed out; though the Greek economy is already starting to seize; and all Greece had to do was to make "promises";
  • China may have stemmed its stock market plunge; remember, the government will do anything to prevent social disorder
  • shares of AAPL have "plummeted" over the past few months
  • Apple is preparing for a huge launch for new iPhones this fall
  • Ford Motor Company is going to shift small-car manufacturing overseas
  • California's oil and gas industry is in deep trouble with the state politicians
  • if California bans the practice of irrigating with produced water from oil wells, the effects of the California drought will only be magnified; one bbl of produced oil, produces nine bbls of water which can be cleaned up for irrigation
  • FDA extends deadline for listing calories on menus; December 1, 2016, almost a year later than scheduled; after the 2016 elections; presidential wannabes did not want to see how many calories those chicken plates are adding to their waist (and waste) lines
  • this is a very obscure story; but I saw it some months ago; never posted it; interesting how things have gotten better on such a simple change
  • the US is doing such a great job reining in ISIS, President Obama will cut the US Army by 40,000
  • North Dakota's active rig count continues to break new records -- unfortunately in the wrong direction
  • despite all the bad news in the oil and gas industry, North Dakota is still issuing a lot of permits; eleven permits were issued today
  • Minnesotans are doing their part to offset carbon dioxide emissions from China; they are building wind farms, solar farms, redundant transmission lines, etc, for the privilege of seeing yet another electricity rate hike, this one effective as early as January 2016; unfortunately it was not high enough (and appears to be lacking in other regards) which means rates will be going up again as early as 2017
  • major violent crime is surging in big cities across the country, including Fargo (Williston appears to be unaffected)
  • construction on the new Williston airport should begin next spring (2016); the Bakken construction boom continues
  • there was a wheelbarrow of producing wells reporting high-IP numbers today (HRC, XTO, others)
And with that, I'm going to bed. I can't keep up.

But again, see my disclaimer. I am inappropriately exuberant about the oil and gas industry in general, the Bakken in particular. Data points, like those above, are how I see things, or how I thought I saw something reported. I often make factual and typographical errors. I correct them when I find them. If anything I post is remotely important to you, go to the source. If something I post seems wrong, it probably is. I take the Bakken seriously; everything else .. not so much.

Oh, by the way, in my mind there is a difference between investors and traders. When I see a SeekingAlpha article advising "investors" to short a particular stock, I know that the writer is unaware of the difference between investing and trading. I think the Fast Money panel has the same problem. For the most part they are advising traders, not investors.

Remember that joke about an individual having only one tool: the hammer. Everything starts looking like nails. Same for me when it comes to investing. The only buy-sell-hold button that I can find easily at my on-line investment sites: buy.

See my disclaimer

July 9, 2015: They Said Renewable Energy Was Becoming As Cheap As Coal, Natural Gas For Generating Electricity ---

... that's why, as being reported in The StarTribune:
Residential customers of Xcel Energy in Minnesota later this year will see a small increase in their electric bills along with a one-time refund under a rate structure approved Thursday by state regulators.
It’s the seventh electric rate hike for the utility’s 1.2 million customers since 2006 — and more increases could be down the road.
The state’s largest power company says it plans to file another, multiyear rate case for 2016 to recoup continuing investment in its generating plants, transmission lines and distribution network.
The latest increase for residential customers will boost electric rates slightly more than 1 percent. That’s on top of the 4.6 percent interim rate hike that took effect in January 2014. All together, residential rates are up about 6 percent from two years ago.
“It was not what we had hoped — it was a compromise,” said John Coffman, an attorney for AARP Minnesota, which represents older people and had intervened in the case on behalf of consumers in Xcel’s rate case.
Remember: some of those transmission lines are completely redundant (and unsightly); bringing in electricity from Canada just to back up wind farm electricity in North Dakota. I can't make this stuff up. 

Other than the information on the rate increases, most of the other "stuff" in the linked article is gobbledygook with a good dose of smoke and mirrors.