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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1205)	2/7/1999 7:04:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

Porc, >>Milton Friedman has written that there is no reason why the U.S. cannot resume the 4% to 6% average annual growth rates it enjoyed for much of its economic history, if (admittedly a big if), taxes are reduced to pre-New Deal levels.<< I'm not sure what the pre-New Deal growth rates were, but I vaguely recall some numbers about the averages from the Mises Institute (pro free markets) that were higher than current estimates but lower than 6%. Maybe 4%+ >>I don't expect taxes to ever go that low again, there is hope that the government's portion of the economy will decrease, going forward, from the current 40% level, thereby freeing up resources that would allow the private sector to grow at a rate faster than the current 3.5%.<< Actually the current official estimates are 2.5%. This includes the Fed's estimate. The 3.5% upper range long term average is the assumption that comes from the more optimistic Wall St. types that have a vested interest in rationalizing things. So I am suspicious. I think the current sum of Federal, State, Local and miscellaneous government is higher now than ever despite all the rhetoric from Regan/Bush/Clinton about reducing government. So my guess is that we are stuck in 2.5% - 3.5% range as a very long term estimate. From a valuation point of view I think it's a mistake to assume more. Wayne

To: porcupine --''''> who wrote (1205)	2/8/1999 7:58:00 PM
From: porcupine --''''>	Read Replies (1) \| Respond to of 1722

Rising Health Premiums Don't Mean Medical Inflation Is Back ECONOMIC SCENE By MICHAEL M. WEINSTEIN -- December 31, 1998 The most worrisome economic tiding for the new year is that health care premiums for employer-based coverage will rise by 10 percent or more in 1999. The startling figure, based on preliminary data from private employers and the program covering federal employees, is out of line with scant rate increases over the last four years. And it raises the question of whether managed care plans have returned to the days of double-digit rate increases, abandoning their promise to smother medical inflation. There are good reasons to believe the answer is no. The premium increases earlier in the decade were chronic, the symptom of a fee-for-service system lacking financial restraint. Next year's premium increases appear likely to be temporary. Health costs are rising, but not alarmingly so. It is too early to write off managed care as a fleeting has-been. The first task in sorting through the data is to distinguish premiums, which rise and fall in cycles like prices of other types of insurance, from the underlying costs of treating patients. "It is the long-term trend in medical costs, not recent movements in premiums, that ultimately rules the markets," says Paul Ginsburg of the Center for Studying Health System Change. A study by Ginsburg and Jon Gabel of KPMG Peat Marwick shows that while premiums have risen only by 1 percent to 2 percent a year over the last several years, medical costs have been rising by 2 percent to 3 percent. Ginsburg attributes the underpricing of insurance to a familiar strategy by insurers to price low during economic good times to expand their share of local markets. Insurers might also have misjudged how quickly medical costs would start to rise after the onslaught of managed care five years ago. But whatever the reason, the practice of raising premiums by less than costs had to end and will do so with a vengeance next year. Federal employees already know that their premiums will rise by an average of 12 percent or more. Ginsburg expects premiums for employer-based coverage to rise by more than 6 percent next year, about double this year's rise. But beyond the catch-up in premiums, medical costs are also rising. Hospital costs have risen by only 2 percent a year over the last few years but are expected to grow at twice that rate next year. Drug costs are rising by more than 10 percent a year, primarily because patients are taking advantage of a deluge of powerful new treatments. These changes are not necessarily temporary. Ginsburg, based on interviews with employers, attributes some of the cost increases to a backlash against restrictive types of managed care, like health maintenance organizations, that do the best job controlling costs. "Employers in tight labor markets are reluctant to impose a narrow network of approved specialists because of employee opposition," he said. There is a widely held belief that the managed care revolution has run its course. According to this argument, the inflation of medical costs has fallen only because employers are shifting workers from high-cost fee-for-service coverage into lower-cost managed care. But the savings will be one time, because managed care costs are rising at the same rate as those of fee for service. But the Ginsburg-Gabel study says otherwise. The cost increases of nearly every type of health plan have fallen drastically. Shifting among plans explains only part of the cost savings. Prof. Kenneth Thorpe of Tulane University, an architect of the Clinton administration's proposed health care plan, points out that where managed care plans have gained a substantial market presence -- in California, for example -- health costs are rising slowly. But where managed care remains nascent -- as in Louisiana -- health costs continue to soar. Competition, he argues, imposes a useful discipline. Yet, Thorpe suggests, managed care might have done about as much as possible to control costs through financial restrictions. He suggests that to knock more digits off of medical inflation will require other tactics. "Managed care needs to better monitor physician care, feeding back the results of studies that would tell doctors which treatments work, which do not," he said. Beyond that, Thorpe expects managed care to move into "life-style issues -- helping patients control smoking, drinking, obesity and cholesterol." Suppose Thorpe's vision becomes reality, managed care learns to do all the right things and medical costs creep up anyway. At that point, it might be time to relax. No one knows how much Americans should spend on health care. If well-informed consumers choose to spend money out of their own pockets for expensive insurance plans that provide easy access to a panoply of specialists, that should cause little second-guessing. The problem with the double-digit inflation of the early 1990s was that the fee-for-service system drove doctors and patients to excessively expensive and risky procedures, tests and drug regimes. It may turn out that even a disciplined system will prove increasingly expensive. Medical cost inflation has not been as low over the last few years as steady premiums seemed to indicate. Nor will medical costs be nearly as bad as next year's high-rising premiums might suggest. The mundane truth is that health care costs seemed destined to outstrip inflation by a percentage point or two for at least the next year or so. That news is not joyous. But neither is it frightening. Copyright 1998 The New York Times Company