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AT&T CEO Complains That Regulatory Logjam Stymies Deals

By Scott Moritz & Alex Sherman; Bloomberg ~ May 10, 2012

AT&T Inc. (T) Chief Executive Officer Randall Stephenson said Washington needs to figure out how to clear a regulatory logjam that’s hampering wireless growth and forcing companies to raise prices.

The industry is waiting for the Federal Communications Commission to decide on Verizon Wireless’s proposed $3.6 billion partnership with cable companies, including Comcast Corp. The review of that agreement, announced in December, is holding up related deals for spectrum by AT&T and others, Stephenson said.

The popularity of the iPhone and other smartphones is putting pressure on existing networks, prompting wireless carriers to seek more capacity in crowded markets. The FCC has to sign off on each transaction, and its rate of decision making can’t keep pace with the industry’s evolving needs, he said.

“The industry is just kind of stuck and we’re all sitting here watching Verizon-Comcast waiting to see what happens,” Stephenson said today in an interview at Bloomberg headquarters in New York. “You have got to make sure we put spectrum in the market. They need to become liquid spectrum markets.”

AT&T, based in Dallas, says it faces a shortage of spectrum — the airwaves that let mobile devices make calls and download data. Ever since its $39 billion takeover of T-Mobile USA Inc. was shot down by regulators in December, Stephenson has warned that the constraints on airwave expansion will cause higher prices. When spectrum is tight, the only recourse carriers have is to charge more, degrade quality or throttle service, he said.

No Delay?

FCC Chairman Julius Genachowski fired back at AT&T this week, saying that the failure of the T-Mobile deal didn’t create an industry shortage on its own. There hasn’t been a holdup in the regulatory process, he said.

“We have approved hundreds of wireless transactions involving approximately 1,000 spectrum licenses, some involving licenses valued at billions of dollars,” Genachowski said in a speech at the CTIA International Wireless show this week.

AT&T won approval from federal regulators for a $1.93 billion purchase of Qualcomm Inc. airwaves in December, three days after dropping its plan to buy T-Mobile USA.

Neil Grace, a spokesman for the FCC, declined to comment today.

AT&T, the second-largest U.S. wireless-service provider, counters that the industry would push ahead with more spectrum purchases if the government weighed in on Verizon (VZ)’s agreement with cable companies. That deal would let Verizon, the No. 1 U.S. carrier, buy a major swath of unused spectrum from a group led by Comcast.

Maintaining Competition

Companies should be able to buy and sell spectrum more freely, letting them better satisfy regional demand, Stephenson said. A carrier in one city may have low market share and more than enough spectrum, while another company has lots of customers and inadequate airwaves to serve them. The government approval process doesn’t let the industry make deals quickly enough to meet customers’ needs, AT&T argues.

For its part, the FCC is trying to balance the allocation of spectrum so that customers always have several service providers to choose from. The intent is to keep prices down by ensuring competition.

Stephenson said that distributing spectrum among competitors who can’t use it efficiently doesn’t help. The government either has to let companies pool their spectrum or risk pushing underperforming companies out of business, he said.

“The industry is going to consolidate whether you like it or not,” he said. “If you don’t allow consolidation some companies will go away.”

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Alex Sherman in New York at asherman6@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

AT&T, Leap talked merger in recent months: sources

By Soyoung Kim & Nadia Damouni; Reuters ~ May 10, 2012

NEW YORK (Reuters) – AT&T Inc (T.N) has held talks to buy smaller rival Leap Wireless International (LEAP.O) in recent months, according to people familiar with the matter, in the latest sign U.S. carriers are looking at acquisitions as a way to grow in a mature market.

These talks were serious enough for Leap Wireless to hire bankers to advise it on a potential deal, said the three sources who asked not to be identified because the discussions were private. Reuters could not learn whether those discussions are still ongoing.

Leap Wireless has a market value of roughly $400 million and $3.2 billion of long-term debt.

Representatives for AT&T and Leap Wireless declined to comment.

These discussions were held amid a flurry of deal activity in the U.S. telecom sector, in which the four national carriers and smaller operators like Leap and MetroPCS Communications Inc (PCS.N) are fighting mainly for customers who already have cellphones. The market is dominated by Verizon Wireless (VZ.N) (VOD.L), AT&T, Sprint Nextel (S.N) and Deutsche Telekom’s (DTEGn.DE) T-Mobile USA.

Moreover, the proliferation of bandwidth-hungry smartphones has U.S. wireless carriers scrambling to gain access to more airwaves.

AT&T has said that it urgently needs access to additional wireless spectrum and will explore every possible way to achieve that. Last year, the company struck a deal to buy T-Mobile USA for $39 billion, but U.S. regulators blocked the attempt by the No. 2 and No. 4 U.S. wireless carriers to merge.

Deutsche Telekom has since been considering other strategic options for T-Mobile USA, including a possible deal to merge the unit with MetroPCS, other sources familiar with the matter said. The considerations, however, are at a very early stage and the German telecom company is not close to any decision on a deal with MetroPCS, the sources said.

T-Mobile USA Chief Executive declined to comment on Thursday about whether it was ready for an acquisition of another company. A MetroPCS spokesman was not available to comment on Thursday but the company has declined to comment on talks with Deutsche Telekom earlier.

Meanwhile, in February, Sprint Nextel pulled the plug on a deal to buy MetroPCS at the last minute, people familiar with the matter told Reuters at that time.

Verizon Wireless is seeking regulatory approval for a purchase of $3.9 billion worth of spectrum from cable companies.

Both Leap and MetroPCS, which focus on prepaid services for cost conscious customers, are having a tough time competing with their bigger rivals, which have also been eyeing opportunities in the prepaid market with growth slowing for contract customers.

Wireless industry analysts have long said that they expect Leap and MetroPCS to consolidate with a bigger company, or with each other.

However, an AT&T-Leap deal would be complicated by the fact that Leap and AT&T use incompatible network technologies, which would make the integration of both companies more costly and time consuming. The same technology problem would exist for a combination between T-Mobile and MetroPCS.

(Reporting by Soyoung Kim and Nadia Damouni, additional reporting by Sinead Carew; editing by Paritosh Bansal and Richard Chang)

Progress Made on How Medicare Pays Doctors

By Louise Radnofsky, Wall Street Journal- May 9, 2012

A Democratic congresswoman and Republican congressman made a small move forward in an effort to change the way Medicare pays doctors Wednesday, introducing a bill that would end regular congressional scrambles to stave off physician pay cuts by tapping savings from winding down the war in Afghanistan.

Lawmakers from both parties frequently override the current formula for reimbursing doctors who treat elderly patients in the Medicare federal health program to make sure that doctors don’t face sharp cuts and in turn, carry out their threats to stop participating in the program. But they also struggle to identify ways to fund the extra payments, and the legislation can get caught in gridlock over other issues.

The proposal from Reps. Allyson Schwartz (D., Pa.) and Joe Heck (R., Nevada) scraps the existing formula, gives doctors pay increases for the next four years, and creates new payment models that are designed to be more stable, with variations based on specialty and geography, and for doctors who change how they deliver care.

Mr. Heck, an osteopathic physician who won his congressional seat in 2010, said that Ms. Schwartz’s staff had approached his aides about signing on to the effort and that he hoped more Republicans would join him.

“I don’t look at it as sticking my neck out. There really is no greater threat to Medicare” than the current payment system, he said.

Ms. Schwartz had previously tried to get the congressional “super committee” charged with deficit-reduction to take up her ideas for a permanent fix to the doctor payment issue.

She said that she thought it made sense to allocate funds for it from the “overseas contingency operations” appropriations — the amount spent that is beyond the regular Pentagon budget. Those are included in the budget for future years, but would end up being smaller as U.S. commitments abroad end. Medicare payments to doctors, meanwhile, are scored by the federal account-keepers as if annual cuts go into effect, rather than lawmakers overriding them.

“It feels correct from a budget point of view because it’s a match of expectations,” Ms. Schwartz said.

The bill has cautious backing from the American Medical Association, the biggest group representing doctors. Peter Carmel, head of the association, said in a statement that the proposal was “an important step in the right direction.”

“This legislation is consistent with proposals put forth by the AMA,” he said. He added that the group had “concerns” about provisions in the bill that might limit options for doctors who couldn’t change how they deliver care but said they were willing to work with the lawmakers to address the issue.

The lawmakers’ bill comes the same day as an announcement from the Department of Health and Human Services that it is moving ahead with a provision in the federal health law to increase reimbursements for primary-care doctors who treat patients through Medicaid, the federal-state program for the poor and disabled, to the same level of Medicare for 2013 and 2014.

The pay increases could total as much as $5.5 billion each year. They would vary by state, based on the current rates that doctors receive, but would be a 34% bump on average.

But the payments would end after 2014 — the year that millions more Americans are expected to enroll in Medicaid under the health law.

Federal officials asked by reporters soon after the announcement if they thought they could be creating a new standoff between doctors and the federal government said that they hoped the temporary pay hike would lead to new examinations of the ways that Medicaid could reimburse doctors.

AT&T is Growing Impatient with the FCC

By Diallah Haidar; Wall St. Cheat Sheet ~ May 11, 2012

The wireless industry is currently waiting on a verdict from the Federal Communications Commission to decide on Verizon Wireless’s (NYSE:VZ) proposed $3.6 billion partnership with cable companies, including Comcast (NASDAQ:CMCSA). The agreement will impact the entire industry, including related deals for spectrum by AT&T (NYSE:T) and others.

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AT&T Chief Executive Officer Randall Stephenson announced that Washington needs to figure out how to clear a regulatory logjam that is stifling wireless growth and forcing companies to raise prices. The popularity of Apple’s (NASDAQ:AAPL) iPhone, Google’s (NASDAQ:GOOG) Android devices, and other smartphones has put strain on existing networks, which has prompted wireless carriers to seek more capacity in crowded markets. Meanwhile, the FCC is having trouble keeping up with the rate of wireless carriers’ transactions that it must sign off on because of the rapidly evolving industry.

AT&T has said it faces a shortage of spectrum — airwaves that allow mobile devices to make calls and download data. The second-biggest wireless operator in the nation attempted to acquire T-Mobile USA for $39 billion for more spectrum licenses, but the transaction was shut down by regulators in December, after the two companies waited nine months for the decision. AT&T has warned that constraints on airwave expansion will cause operations to charge higher prices, lower quality, or throttling services in order to compensate for tight spectrum.

According to the FCC, the agency has been diligently approving hundreds of wireless transactions involving around 1,000 spectrum licenses, some involving licenses valued at billions of dollars. After the FCC halted AT&T’s transaction with T-Mobile USA, the former was granted approval from federal regulators for a $1.93 billion purchase of Qualcomm (NASDAQ:QCOM) airwaves in December. Currently, AT&T is rumored to be engaging in talks to purchase Leap Wireless International (NASDAQ:LEAP).

The industry is waiting on the results of the Verizon and cable companies deal, and is hoping that the government would weigh in on the agreement. The deal will allow Verizon to purchase a large chunk of unused spectrum from a group led by Comcast. AT&T believes that companies should be able to buy and sell spectrum more freely, and that the FCC should let companies better satisfy regional demand.

On the other hand, the FCC asserts that it is merely trying to maintain a balance in the allocation of spectrum so that consumers have several services to choose from. The FCC is trying to even out the playing field by ensuring enough competition to keep prices down.

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To contact the reporter on this story: staff.writers@wallstcheatsheet.com

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Boost Your Portfolio Now With AT&T’s 5.3% Yield

By Mel Davis; Seeking Alpha ~ May 09, 2012

AT&T (T) is one of the most reliable companies out there. From the ashes of the old “baby bell” system, AT&T has emerged as a leader in wireline, wireless, and internet platforms. AT&T’s nearly $200 billion market capitalization dwarfs all competitors. The company is also a dividend champion, having raised dividends 27 years in a row.

In the first quarter of 2012, AT&T’s management team was able to take its eye off the frustrating failed bid for T-Mobile, and get back to running its business. The repercussions of that failure were a management shakeup and a cut in AT&T CEO Stephenson’s pay. The company also paid $4.2 billion in charges and fees relating to the failed bid.

AT&T had an average first quarter performance. Revenue came to $31.8 billion, showing a 2% increase from the same quarter in 2011. Earnings came in at $3.58 billion, or $0.60 per share, a gain of 5% from the same quarter last year, which beat analysts’ expectations of $0.57 for the quarter. Between the dividend and a share repurchase program, $4.7 was returned to shareholders. I never like seeing this figure higher than earnings, and hope that some sanity occurs during the balance of the year in terms of moderating the share repurchase activity.

There were a number of positive financial signs during the first quarter. Wireless data, most of which is the form of bundled plans, increased by $1 billion over the 2011 first quarter, to $6.1 billion, which helped to offset wireless voice revenues that fell about $650 million from the first quarter of 2011. Smartphone sales reached a record 5.5 million units. The churn rate was a historically low 1.1%, and over the course of the quarter, the company added over 700,000 customers. Wireline revenue was up by nearly 2% to $1.8 billion, the seventh consecutive quarter of increased revenues in that business niche. And AT&T “U-Verse” television and internet protocol revenues jumped up nearly 40% over the year ago quarter. The new Lumia 900 phone from partner Nokia (NOK) boosted sales in the first quarter, and will do so again in the second quarter.

If there is a real problem with AT&T, it is that its network does not compare with archrival Verizon’s (VZ). Over the past two years, AT&T has focused on its 4G network, whereas Verizon has focused on its much faster 4G Long Term Evolution, or LTE network. It will take years and many billions of dollars for AT&T to catch up, and by that time, there will likely be a 5G network to build out.

The other current issue facing the company is the very reason for its stubbornness in pursuing the T-Mobile deal, which is the need to acquire additional radio spectrum. Many studies have shown that AT&T customers are generally the least satisfied among all major carriers. Anecdotally, I note that I have happily had AT&T wireless for many years. Frankly, thanks to our friends in Washington D.C., this has become a total mess. Lightsquared’s plan to acquire and then sell off spectrum was scuttled by the FCC and Sprint Nextel (S). There will be no federal auction of spectrum for at least a year. This leaves AT&T to either muddle through with inadequate spectrum in New York and San Francisco, or to buy spectrum by acquiring the likes of Leap Wireless (LEAP). Neither of these options is ideal.

Analysts predict AT&T earnings will rise by 8% to 10% per year over the next five years, aided no doubt by continuing share buybacks. AT&T has plenty of long-term debt, but that amount is still less than 40% of capitalization, and therefore not terribly troubling. As the years pass, the new AT&T is looking more and more like the old AT&T. It is safe, secure, boasts a high yield of 5.4%, and is quite perfect for income seekers. But for growth potential, look elsewhere.

If Leap Wireless is not acquired by someone, soon, I do not see it remaining viable for long. Leap’s bottom line in the first quarter was bad by anyone’s standard, perhaps even Leap’s own. It lost $98.4 million, or $1.28 per share in the first quarter of 2011. The company has not been profitable in the last five years. The company’s principle operating asset is its Cricket Wireless brand, which exists solely as a prepaid service, usually in lower income, urban neighborhoods. The model has not worked, yet Leap clings stubbornly to it at its own detriment.

Leap has a market capitalization at its current depressed stock price of a little over $400 million. But its wireless spectrum rights alone are worth over $2 billion. Management believes the company has a future, and recently agreed to a swap of spectrum rights with T-Mobile. If Leap cannot really make a go if it as an ongoing business, it owes it to its shareholders not to burn through its $600 million cash on hand and remaining shareholders equity. The company should either try to sell itself, or auction off those valuable spectrum rights. I am pretty sure that either way, AT&T would be very interested. There is no way I would endorse anyone to purchase shares of Leap at the present time.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

AT&T’s Blame Game: We Didn’t Raise Prices; the FCC Did

By Kevin Fitchard; Bloomberg Businessweek ~ May 06, 2012

AT&T (T) is heating up its retaliatory campaign against the Federal Communications Commission for denying its $39 billion acquisition of T-Mobile. Speaking at a conference, AT&T Chief Executive Officer Randall Stephenson claimed once again that the merger’s death directly resulted in AT&T’s raising mobile data prices 30 percent earlier this year, The Hill reported.

Stephenson chose an apt pulpit. He delivered his speech before the Milken Institute, founded by and named after junk-bond trader Michael Milken, who was convicted of felony securities violations in 1990 and sentenced to 10 years in federal prison. Neither Milken nor Stephenson has any great love for regulators.

We have heard Stephenson’s refrain before. He tried to make the same case to analysts and investors in the fourth-quarter earnings call, claiming the FCC was picking winners and losers in the mobile industry. Without T-Mobile’s 4G airwaves, AT&T doesn’t have enough capacity to meet the enormous mobile data deluge generated by millions of new smartphones, which in turn is forcing AT&T to raise data prices—or so Stephenson’s argument goes.

The truth is no one forced AT&T to raise prices. AT&T just raised prices because it wanted to. It’s just scapegoating the FCC, whether to make some petty point or to deflect attention away from a good old-fashioned money grab. AT&T had, and still has, plenty of headroom to grow its network capacity. Let’s break down why.

• While it’s true AT&T raised prices on its low- and mid-tier data plans, it also raised its data caps significantly. A $30 per-month customer now gets 3 GB per month rather than 2 GB for $25. If AT&T is so hard up for capacity, why is it inviting its customers to consume more gigabytes for less cash? AT&T is actually gaming the system here a bit, because it knows few customers can conceivably consume 3 GB per month on a smartphone. Still, AT&T effectively lowered its per-megabyte rates for mobile data, which is not something a carrier strapped for capacity would do.

• AT&T still has plenty of networks it can build. AT&T’s initial 700 MHz LTE rollout is only a third complete. It’s also sitting on a bunch of Advanced Wireless Services (AWS) spectrum that it hasn’t even touched yet. Ma Bell could also follow T-Mobile’s and Sprint’s examples and refarm the spectrum used by its inefficient GSM networks for HSPA and LTE. Eventually AT&T will need to go out and get more spectrum—there’s no denying that—but today it’s nowhere near exhausting its airwaves. There’s nothing stopping it from building its networks more quickly. It has the money: $39 billion to be exact.

• AT&T’s problem isn’t that mobile data traffic is growing too quickly; it’s that mobile data revenues aren’t keeping pace. AT&T’s mobile data traffic is doubling every year, but it’s only adding an incremental number of new smartphone customers every year. What gives? AT&T’s existing customers are consuming more megabytes, but since they’re nowhere near their caps, they’re not paying anything more. This is AT&T’s own fault, though, because of the way it structured its original smartphone plans. AT&T sold customers big buckets that very few people could consume each month. Now that customers are actually eating the gigabytes they have paid for, AT&T is complaining it’s running out of capacity. It’s hard to be sympathetic.

This isn’t the last we’ve heard from Stephenson on the issue. Much of AT&T’s public communications since the merger’s failure have been direct or indirect assaults on regulators. Ma Bell even used the Super Bowl as an excuse to decry its so-called capacity problems. And as long as AT&T keeps making these claims, we’ll continue to dispute them.

AT&T sets up new group to sell home security and automation, challenging Tyco’s ADT

By Peter Svensson, AP; Reno Gazette-Journal ~ May 07, 2012

NEW YORK (AP) — AT&T Inc. will start selling home automation and security services nationwide, taking on incumbents led by Tyco International Ltd.’s ADT.

The installations and services will be sold in AT&T stores, starting with a trial this summer in Dallas and Atlanta.

Several of AT&T’s competitors, including cable TV company Comcast Corp. and phone company Verizon Communications Inc., have ventured into the home automation and security field. Dallas-based AT&T is showing more ambition with its stated goal of selling nationwide, rather than sticking to its landline service territory, as Verizon does.

Steven Winoker, an analyst at Sanford Bernstein, said about 23 percent of U.S. homes have security systems, so there’s plenty of room to grow. Even fewer have automation systems for controlling appliances, lights, heating and cooling.

The biggest player in the field is ADT, but it has only 25 percent of the market. Many smaller companies make up the rest, according to Winoker.

It’s a very profitable business, Winoker said, but it’s not big enough to significantly affect the earnings of a company of AT&T’s size even if it’s successful, given that it’s a relatively small market.

AT&T’s technology comes from Xanboo, a company it bought in late 2010. Its central control panel can connect wirelessly with cameras, thermostats, appliance controls, lights and sensors for doors, windows, smoke and carbon monoxide. Through the panel, home owners can then control their home from their cellphones.

It’s highly recommended that the control panel is connected to wired broadband, but it doesn’t have to be service through AT&T, said Glenn Lurie, AT&T’s president of emerging devices. As a backup, the panel can connect to AT&T’s wireless data network.

AT&T didn’t say what its services would cost.

AT&T made its announcement on the eve of the U.S. cellphone industry’s annual trade show, which starts Tuesday in New Orleans.

Medicare disruptions seen if health law is struck

By Ricardo Alonso-Zaldivar, Associated Press – May 3, 2012

WASHINGTON (AP) — Medicare’s payment system, the unseen but vital network that handles 100 million monthly claims, could freeze up if President Barack Obama’s health care law is summarily overturned, the administration has quietly informed the courts.

Although Obama’s overhaul made significant cuts to providers and improved prescription and preventive benefits, Medicare was overlooked in Supreme Court arguments that focused on the law’s controversial requirement that individuals carry health insurance.

Yet havoc for Medicare could have repercussions as both parties avidly court seniors in this election year and as hospitals and doctors increasingly complain the program doesn’t pay enough.

In papers filed with the Supreme Court, administration lawyers have warned of “extraordinary disruption” if Medicare is forced to unwind countless transactions that are based on payment changes required by more than 20 separate sections of the Affordable Care Act.

Opponents say the whole law must go. The administration counters that even if it strikes down the insurance mandate, the court should preserve most of the rest of the legislation. That would leave in place its changes to Medicare as well as a major expansion of Medicaid coverage.

Last year, in a lower court filing on the case, Justice Department lawyers said reversing the Medicare payment changes “would impose staggering administrative burdens” on the government and “could cause major delays and errors” in claims payment.

Former program administrators disagree on the potential for major disruptions, while some private industry executives predict an avalanche of litigation unless Congress intervenes.

AARP says it’s concerned. If doctors became embroiled in a legal battle over payments, then “a general concern would be that physicians would cease to take on new Medicare patients, as well as potentially have issues seeing their current patients,” said Ariel Gonzalez, top health care lobbyist for the organization.

Medicare payment policies are set through a time-consuming process that begins with legislation passed by Congress. Even if the law were completely overturned, the government still would have authority under previous legislation to pay hospitals, doctors, insurance plans, nursing homes and other providers.

“There is an independent legal basis to pay providers if the Supreme Court strikes down the entire law,” said Thomas Barker, a former Health and Human Services general counsel in the George W. Bush administration.

But reversing the new law’s payment changes from one day to the next would be a huge legal and logistical challenge, raising many questions. How would Medicare treat payments made over the last two years, when the overhaul has been the law of the land? Would providers who have received cuts subsequently have a right to refunds?

“Medicare cannot turn on a dime,” said former administrator Don Berwick, Obama’s first Medicare chief. “I would not be surprised if there are delays and problems with payment flow. Medicare has dealt with sudden changes in payment before, but it is not easy.”

It’s not just reimbursement levels that would get scrambled, Berwick said. The law’s new philosophy of paying hospitals and doctors for quality results, rather than for sheer volume of tests and procedures, has been incorporated in some payment policies.

Tom Scully, who ran Medicare during former President George W. Bush’s first term, does not foresee major problems, although he acknowledges it would be a “nightmare” for agency bureaucrats.

“It is highly unlikely in the short term that any health plan or provider would suffer,” said Scully. “They’re probably likely to get paid more going forward. If you look at the way the law was (financed), it was a combination of higher taxes and lower (Medicare) payments. That’s what you would be rolling back.”

The White House declined to comment.

Administration officials say they are confident the entire law will be upheld by the Supreme Court, and there’s no contingency planning to address whether all or parts of it are struck down. Sharp questioning by the court’s conservative justices during public arguments has led many to speculate that at least some parts of the law will be struck down.

Opponents of the law argue that Congress overstepped its constitutional authority by requiring most Americans to have health insurance, starting in 2014. The administration says the mandate is permissible because it serves to regulate interstate commerce, underpinning another provision of the law that requires insurance companies to accept people in poor health. A decision is expected by early summer.

Former officials say it’s likely that some form of high-level assessment and planning is going on within the administration. It has happened in the recent past.

Last year, when the GOP-led House threatened to block funding for carrying out Obama’s law, Health and Human Services Secretary Kathleen Sebelius wrote to Congress outlining potential consequences. She said the administration might have to suspend payments to Medicare Advantage plans, popular private insurance alternatives that cover about one-fourth of all beneficiaries. That would have sent millions of seniors back into traditional Medicare, scrambling to find new doctors and coping with higher out-of-pocket costs.

Scully dismissed the notion that private Medicare plans would be jeopardized if the Supreme Court throws out the law.

“The idea that Medicare Advantage plans would shut down and patients would be thrown into the street is just people making up arguments to stir the pot,” he said.

Repeal of the law would also mean that seniors would lose some new benefits, including the closing of the prescription coverage gap called the “doughnut hole,” and no-charge preventive services such as an annual wellness physical.

“There is no doubt that striking down (the) Medicare provisions would be enormously disruptive for patients, physicians, hospitals and countless other providers and suppliers,” said Rep. Sander Levin, D-Mich., ranking Democrat on the House Ways and Means Committee, which oversees the program.

FAQ: Obama v. Ryan On Controlling Federal Medicare Spending

By Marilyn Werber Serafini; Kaiser Health News ~ May 03, 2012

It may come as a surprise that President Barack Obama and Rep. Paul Ryan, the Wisconsin Republican who chairs the House Budget Committee, are pushing the same target rate for curbing annual federal spending on Medicare. Each would set it at half a percentage point higher than the growth rate of the economy – the gross domestic product.

Looking at their plans in more detail, however, the practical effects are likely to be very different when it comes to restraining federal spending and impact on seniors.

“There is a consensus, an agreement that Medicare is unsustainable,” said Ryan spokesman Conor Sweeney. “That’s where the agreement is, and it’s where the agreement ends.”

Here are some questions and answers about the Democratic and Republican approaches to moderating spending on the popular program, which covers 47 million seniors and disabled people.

Q. If both Obama and Ryan are proposing a target growth rate of GDP plus half a percentage point for Medicare, shouldn’t federal spending be the same under both scenarios?

There are important differences. Ryan’s plan is a hard cap on federal spending. He would automatically lower Medicare spending so that it is below the trigger level.

Obama is proposing a target that might not bring federal spending down to that level. His proposal follows an effort in the 2010 health law to curb Medicare cost growth by tying the spending target to the Consumer Price Index in early years, and later on to the rate of GDP growth plus 1 percentage point. Now Obama is proposing to lower the target to the rate of GDP plus half a percentage point. If federal spending per Medicare beneficiary is rising faster than that – a determination made by the Medicare actuary – then cuts are triggered.

The cuts would come as a percent reduction in Medicare spending. Such cuts wouldn’t necessarily be sufficient to meet the target, however.

Q. How would beneficiaries be affected by cuts under Obama’s plan?

As under the health law, Obama would make direct cuts to benefits off limits. The health law created the Independent Payment Advisory Board (IPAB) to come up with proposals to reduce spending if Medicare grows at a higher rate than the target. But the board’s 15 members, who will be appointed by the president and confirmed by the Senate, are not allowed to recommend anything that would ration care or change benefits, eligibility or cost sharing for Part A (hospital services) or Part B (physician services). It also couldn’t do anything to change the percentage of premium that seniors pay for prescription drug coverage or the subsidies that low-income individuals get. The expectation is that reductions would come from medical providers, although hospitals are protected at first.

Beginning in fiscal year 2015, if Medicare spending exceeded the target, the board would send its recommendations to Congress. The secretary of health and human services would have to implement those recommendations unless Congress passed alternative cuts. The future of IPAB is questionable, as Republicans – and some Democrats – have sought to kill it, arguing that the board will end up rationing care and have too much control over Medicare. Obama has yet to nominate panel members.

Some health care analysts argue that reducing payments to medical providers could drive them out of Medicare and create access issues for beneficiaries. Richard Foster, Medicare’s chief actuary, warned in the 2012 Medicare trustees’ report that the health law will eventually lower payments to medical providers so much that “Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result.”

Q. And under Ryan?

Ryan is not specific in his plan about what he’d cut to keep spending below his proposed cap, but has said that Congress could expand requirements for higher-income beneficiaries to pay more. Spokesman Conor Sweeney says that competition among both public and private health plans would lower costs and seniors would be able to choose the best health plans to suit individual needs. “Seniors want more power and control over their Medicare dollars,” he said.

Under Ryan’s so-called premium support proposal, all plans, including traditional Medicare, would submit bids for how much they would charge to cover a beneficiary’s health care costs. All plans would include a minimum set of benefits equal to the value of those in the traditional program. The government would pay the full premium for the private plan with the second lowest bid, or for traditional Medicare, whichever is lower. Beneficiaries would have to pay the difference if they chose a plan that set rates higher. Ryan estimates that this system would keep Medicare spending below his target. If it doesn’t, however, then automatic cuts would occur.

The Congressional Budget Office estimated that Ryan’s proposal from last year would require a typical 65-year-old person to pay a lot more for Medicare by 2030. His latest plan is missing key details, so the Congressional Budget Office has been limited in its analysis.

Although Ryan would give future seniors the option of remaining in the traditional, government-run Medicare program, it would have to compete with private plans. Critics predict that traditional Medicare could become unaffordable if it attracts the sickest people while private plans lure the healthiest. They also say that beneficiaries might have trouble finding physicians if they abandon the program because their rates are cut.

Obama is a critic of premium support: His ideas are rooted in the health law, and would retain Medicare’s existing structure. Currently, the government runs the program on a defined benefit basis, meaning that the government will pay whatever it takes to cover a specified set of services. A quarter of beneficiaries are enrolled in private Medicare health plans, although they don’t compete with the traditional program on price, as they would under Ryan’s plan.

Q. What’s next for Medicare?

The House Ways and Means Committee conducted a hearing April 27 on the premium support concept, but lawmakers are unlikely to consider legislation that would restructure Medicare in any significant way until a new Congress — and possibly a new president — are seated in 2013. Still, after the elections, Congress may try to pass budget reduction legislation that would avert automatic 2 percent cuts in Medicare required under last year’s budget agreement. In the meantime, Medicare is proving to be a contentious issue in presidential and congressional campaigns nationwide, as both parties vie for the coveted senior vote. Behind the scenes, stakeholders – from seniors’ advocates to insurance leaders – are working to produce proposals that protect Medicare and their interests.

SEC Eyes Non-GAAP Pension Disclosures

By Emily Chasan; The Wall Street Journal ~ May 03, 2012

The U.S. Securities and Exchange Commission is taking a closer look at companies that recently switched to the mark-to-market method of pension accounting, amid concerns that they may be using non-GAAP disclosures that are confusing to investors, a top SEC official said on Thursday.

Over the past year, a handful of companies, including AT&T, Honeywell International and Verizon Communications, switched their method of valuing pension assets to one that recognizes gains and losses immediately from the traditional approach of amortizing, or smoothing, gains and losses over several years.

The shift allowed those companies to push losses associated with the market fall in 2008 and 2009 to previously reported results, and marking assets to market is generally considered more accurate by investors.

But the SEC is looking at non-GAAP measures some companies are coupling with their new mark-to-market disclosures, SEC Chief Accountant Jim Kroeker said on Thursday.

“A number of companies that have done that [moved to mark-to-market pension accounting] have then gone on to select a non-GAAP method of disclosure for pensions, that then takes out the actual return on plan assets and adds back the expected return on plan assets,” Kroeker told an accounting conference at Baruch College. “Unfortunately in doing that, they haven’t then included the amortization of prior deferred losses.”

The non-GAAP disclosures, Kroeker said, can confuse investors who think they are receiving information about actual pension gains and losses on a mark-to-market basis, when they are really getting what the company expects pension assets to return.

Kroeker said he wasn’t sure that the information itself was misleading, but that it might be “useful to an investor” if companies gave more information about whether their numbers reflected the pension plan’s actual performance or the performance that they hope for over a longer period of time.

He told CFO Journal that the SEC’s Division of Corporation Finance was also looking at the issue.

Rivlin On Medicare And The Debt: ‘We Know What To Do’

By Christian Torres; Kaiser Health News ~ May 04, 2012

Whoever ends up controlling the White House next year – Barack Obama or Mitt Romney – will have to make compromises if they are to solve the nation’s current budget and health care crises.

“I think we know what to do,” Alice Rivlin, a former director of the Office of Management and Budget, said Friday afternoon as part of a Brookings Institution panel about how the next president could curb spiraling health care costs.

Rivlin, now a senior fellow at Brookings, wrote in a paper published Friday that the “federal budget is on an unsustainable path” and Medicare reform is “essential” to addressing these dire fiscal straits. She gave the concept of “premium support” a nod, offering this approach as a means of moving toward debt reduction. Her primary example was the bipartisan Domenici-Rivlin plan, which she drafted with former Sen. Pete Domenici in 2010. She also mentioned the Ryan-Wyden Medicare plan, advanced by House Budget Committee Chairman Paul Ryan, R-Wis., and Sen. Ron Wyden, D-Ore.

Placing traditional Medicare in competition with private insurers is “not a risky, pernicious thing,” Rivlin said during the panel. While much of this year’s election will focus on contrasting views over premium support, tax revenue and other areas, Rivlin expects bipartisan progress early next year.

Panelist Thomas Mann, also a Brookings senior fellow, argued that bipartisan consensus is not possible – “it’s a pipe dream,” he said, underscoring comments from his own paper. Given the Republican party’s “ideological extremism and non-negotiable demands,” Mann wrote it would be better “to accept the reality of today’s intense and asymmetric polarization and challenge each party to make its best case in the election campaign.”

Speaking generally about premium support models for Medicare, Mann said, “it’s possible it could work,” but he first wants to see if health insurance exchanges will help empower consumers to make smart choices. He was not enthusiastic about the Ryan-Wyden plan.

If the health law is upheld by the Supreme Court, Rivlin wrote that the health law “should be fine-tuned but not repealed,” pointing to provisions – like the exchanges – that should go forward regardless of who controls the White House. In addition, the law’s Independent Advisory Board “should be strengthened,” she said. The board would help control costs, but has become a flashpoint for Republicans and an increasing number of Democrats.

Rivlin added that a “sensible tort reform provision” should be added to the law. This might include a push for medical practice guidelines or caps on payments. And if the individual mandate is struck down by the Supreme Court, “the president should work with Congress to find a constitutional way to ensure that almost everyone has health insurance and is in a risk pool.”

Ross Hammond, another Brookings fellow, responded to Rivlin, calling for “a renewed focus by the next president on obesity prevention.” Chronic disease costs could be brought down through investing in public health research and improving coordination among government agencies, Hammond wrote.

Will Medicare Costs Outpace Social Security Benefits?

By Kelly Greene, Wall Street Journal – May 2, 2012

Here’s a heads-up if you or someone in your family receives Social Security retirement benefits: A new analysis shows that benefits probably won’t keep up with Medicare premiums – which are typically deducted from Social Security payments – in the next few years.

The Senior Citizens League, an advocacy group, matched up the forecast for Social Security’s cost-of-living adjustments against Medicare’s estimates, and the results could be ugly for some senior pocketbooks.

The Congressional Budget Office recently forecast Social Security increases of no more than 1.3% in 2013 and 1.4% for the two years after that, the league reports.

Meanwhile, Medicare Part B premiums are expected to increase next year by almost 11%, or about $10.60 a month to $110.50.

Almost 6 million people, or more than one in 10 of those 65 and older, could be hit.

Rather than seeing a benefit cut, the rising Part B premiums would trigger a special “hold harmless” provision that would adjust the premiums so the increase is no more than the monthly Social Security benefit increase.

However, there’s no such protection against rising Part D drug-plan premiums, or those for Medicare Advantage plans, the group says.

Health Insurers to Give Back $1.2 Billion, Analyst Says

By Alex Wayne; Bloomberg ~ Apr 25, 2012

UnitedHealth Group Inc. (UNH), WellPoint Inc. (WLP) and other health insurers will forfeit to consumers about $1.2 billion, or 5.7 percent of $21 billion in 2011 profits, because of changes to U.S. health-care law, a Goldman Sachs Group Inc. analyst estimated.

The law limited to no more than 20 percent the premium revenue insurers can keep for administrative costs and profit, beginning in 2011. Eight publicly traded insurers, which also includes Cigna Corp. (CI), may pay a combined $850 million in rebates this year because they exceeded the limits, Matthew Borsch, a Goldman analyst in New York, said in a note to clients today.

The findings are “more positive than negative for managed care,” said Borsch, who used data that insurers filed to state regulators last week to estimate the amount owed. The government had forecast that insurers would pay about $1.4 billion.

Rebates may be lower than expected because insurers “proactively” reduced their premiums to avoid paying back customers, Borsch said. His estimate doesn’t reflect waivers the government granted to insurers in seven states, allowing them higher profit limits, he said.

Those waivers won’t affect rebates that plans pay by more than about 1 percent, he said. UnitedHealth, based in Minnetonka, Minnesota, is the biggest health insurer by sales.

President Barack Obama in 2010 signed into law an overhaul of how the U.S. health-care system is run and funded, with the changes being implemented over time.

AT&T Investors Vote 56-44 Against Split of CEO-Chairman Jobs

By Scott Moritz; Bloomberg Businessweek ~ Apr 27, 2012

AT&T Inc. (T) (T) investors defeated proposals to separate the chairman and chief executive officer roles and honor so-called net-neutrality guidelines on the phone company’s wireless network.

The vote on splitting chairman and CEO duties was decided by a margin of about 56 percent to 44 percent, showing dissatisfaction among a large block of shareholders at AT&T’s annual meeting in Salt Lake City. The net-neutrality proposal, which sought to ensure that Internet traffic is treated equally on wireless networks, was defeated by a larger margin, 94-6.

Backers of the measure for an independent chairman sought to increase the board’s ability to rein in CEO Randall Stephenson. They cited his “excessive” compensation, which amounted to $28 million in total realized pay in 2011, according to the Corporate Library. AT&T’s board recommended voting against the proposal, saying that the company had a lead independent director and that the CEO-chairman link helped bridge the gap between the board and management.

An initiative asking AT&T to issue a semiannual report on political contributions also was defeated, by a margin of about 61-39. AT&T’s executive pay passed 93-7, the Dallas-based company said in a statement.

Supporters of the net-neutrality proposal said the vote was still high enough to assure that it would be placed on the ballot again next year. Similar initiatives are planned for the Verizon Communications Inc. (VZ) (VZ) and Sprint Nextel Corp. (S) (S) shareholder meetings.

Retirees: Pump Up Those Yields!

By Kelly Greene; The Wall Street Journal ~ Apr 27, 2012

With interest rates stuck at rock-bottom levels, retirees and soon-to-be retirees are hungry for better returns on their low-risk investments.

Wall Street is rushing to capitalize on this need, rolling out a raft of interest-bearing investments known as “structured notes” that promise higher yields but often carry big risks. Brokers also are hyping dividend stocks, which generate income but can lose value during market storms.

The best places to look for yield and safety, advisers say, are long-term, high-grade bonds and certificates of deposit, which typically offer much better yields than shorter-term bonds and CDs.

But long-term holdings pose a problem for investors in their 70s or 80s who are looking both to generate returns and leave something behind for their heirs. Many economists expect interest rates to start rising—and bond prices to start falling—in the next few years. By locking up money for the long term, seniors could end up sticking their heirs with investments that fall in value or no longer keep pace with inflation.

A growing number of financial advisers are pointing to a little-known strategy that can help solve this problem: “death puts.” Formally known as estate-feature puts, they are available on a handful of high-grade corporate bonds as well as most CDs sold through brokerages.

Death puts guarantee that when the owner of the bond or CD dies, the heirs can redeem it at face value, meaning they get back all the money that originally was invested. The fees usually amount to about 0.125% a year, and come out of the interest payments.

Meantime, buyers collect yields significantly higher than they can get on shorter-term investments. A typical investment-grade 10-year corporate bond currently yields about 3.5%, roughly double the yield of a similar five-year bond. A 10-year CD yields about 2.85%, more than a percentage point better than a five-year CD.

Those yields are far better than can be gotten from longer-term government bonds. A 10-year Treasury note now yields only about 2%, while a German bund yields only about 1.75%.

Some caveats are in order. The biggest risk is that the issuer of the death put defaults on the payments. While the CDs are guaranteed by the Federal Deposit Insurance Corp. up to $250,000, the bonds offer no such backstop. And most of the issuers of bonds with death puts are financial-services companies—Bank of America, BAC -0.24% Barclays Bank and Principal Financial Group PFG -5.14% among them. That’s a lot of exposure to one sector of the economy.

Another risk death puts pose: Some of the bonds and CDs are “callable,” meaning the issuer has the right to retire the investments early. The owner would then have to reinvest the money in a lower-rate environment.

Still, those risks are worth taking, say some advisers.

“When you can get a 75-year-old couple 5% instead of 0.7% or 0.9% in a bank, it’s pretty attractive,” says Larry Rosenthal, president of Rosenthal Wealth Management in Manassas, Va., who recently approached a client with the strategy for his elderly parents.

His proposal, for a $100,000 portfolio of four such bonds, included General Electric’s GE +0.82% GE Capital, paying 4.35% and maturing in 2032; Barclays Bank, paying 5.125% and maturing in 2036; Goldman Sachs Group, GS -0.13% paying 5.75% and maturing in 2041; and Bank of America, paying 5.9% and maturing in 2025. Together, the investments would return more than $5,000 a year in income.

Growing Market

Death puts, first introduced on corporate bonds in the 1990s, have largely flown under the radar. “People don’t know they exist,” says Jonathan Kurtz, a certified financial planner in Vienna, Va., who told Mr. Rosenthal about them.

But that is changing. Jim Schaberg, a managing director at bond-underwriting firm Incapital, says about $12 billion in notes with death puts have been issued annually in the past three years, and issuance is on pace to rise about 10% in 2012.

Some advisers expect the market to grow more in coming years. “The first wave of the baby boomers need this stuff,” says Mr. Rosenthal. “The Fed’s not going to raise interest rates for another year or two. The advantage for boomers is to garner this substantially better income for the next decade or so until the banks catch back up again.”

Gary Martin, a 75-year-old retiree from military service and the federal government in Sun City Center, Fla., several years ago invested $50,000 in Federal Home Loan Mortgage Corp. bonds with death puts paying 5.35% annually.

So far, he and his wife have used the proceeds to make other investments, such as buying gold, and to take trips, including a tour of New England last fall.

“We go places and have fun, and we don’t have to worry,” Mr. Martin says. “When rates go up or down, the value remains what we paid for them.”

How They Work

Only a handful of companies offer bonds with death puts at any given time. Since the bonds are designed mainly for older retail investors, they’re typically underwritten in small chunks and sold through brokerages including Merrill Lynch, Charles Schwab SCHW -0.21% and Fidelity Investments.

About 18 companies regularly issue bonds with death puts through Incapital, according to the company. Among them: Dow Chemical DOW -0.34% and Prudential Financial PRU +0.10% . The bonds are investment-grade, rated at least Baa3 by Moody’s or BBB- by Standard & Poor’s and Fitch Ratings, and are considered less risky than high-yield or “junk” bonds.

Right now, Goldman Sachs is offering a 10-year bond with a 5% coupon. Bank of America, Prudential Financial, Public Service Enterprise Group, PEG +0.78% Dow Chemical and the financing arms of Deere DE +0.72% & Co. and Caterpillar CAT +0.16% might be offering bonds in the near future, according to Incapital.

Why do companies offer death puts on their debt? It gives them a way to access retail investors, who otherwise would be shut out of buying bonds because their orders wouldn’t be big enough.

“It’s just a little thing that sweetens [the offering] a bit because they need to borrow a lot of money, and they need to figure out how to get that done,” says Garry Cotter, a certified financial planner in Sun City Center, Fla.

Be warned: Some bonds must be held for at least six months before the death put could be used. Others have limits on the amount that a bondholder can redeem at one time or on the number of redemptions allowed in a given year. Most companies, including GE Capital and Goldman Sachs, have the six-month restriction, though some stretch it to 12 months, says Mr. Kurtz, the Virginia financial planner.

On the other hand, if you died tomorrow, your heirs probably wouldn’t need to use a death put to redeem bonds at par value, because prices are so high that the bonds likely would be worth at least the face value in the open market, says Larry Plaxe, a senior vice president of investments at Wells Fargo WFC -0.21% Advisors in Florham Park, N.J., who has been using death puts for a decade.

Certificates of deposit have lower yields than corporate bonds but offer FDIC protection. There are two types: those issued directly by a bank and those sold through a broker.

Death puts are much more common on brokered CDs, and typically are labeled a “survivor’s option.” All the CDs sold by Schwab, for instance, offer the feature. Right now, Schwab offers three traditional 10-year CDs, issued by GE Capital, Goldman Sachs and CIT. Each has a 2.85% coupon and a survivor’s option, and is FDIC-insured. Interest rates on CDs with death puts typically are competitive with other CDs of the same duration, Mr. Plaxe says.

The main risk with a brokered CD: If you sell it before it matures, you could lose principal, because the products function like bonds. When interest rates go up, their value in the secondary market could fall. In contrast, with a bank-held CD, you would get the principal back but wouldn’t collect all of the interest.

Who Should Consider Death Puts?

The people who benefit the most are investors in their 70s and 80s who need to generate income from their savings to pad out a retirement paycheck, says Mr. Cotter, the Florida financial planner.

The investments also make sense for married couples who stand to lose a large portion of their Social Security or pension income when one spouse dies.

Harry Porter, an 85-year-old retired engineer and one of Mr. Cotter’s clients, invested in GE Capital bonds with death puts a few years ago. He and his wife use the returns to pay insurance and medical bills.

But if he dies first, his wife could redeem the bonds for the same amount they invested and have more cash available for living expenses. “My company was poor with the pension itself, so you have to start thinking of investments that give you money to live on,” he says.

Families receiving the bulk of their inheritance in tax-deferred retirement accounts could redeem such bonds as a source of cash to pay estate expenses while leaving the retirement money untouched, Mr. Rosenthal says.

Death-put bonds might also hold appeal for some younger investors. While they might not have a use for the put itself, the bonds often make monthly payments, rather than the usual quarterly or semiannual payments, says Mr. Schaberg of Incapital.

As for the CDs, if you’re counting on living off the interest but might have to cash in a CD early to pay for a big expense, this strategy might not be your best bet. But if you’re planning to leave the investment intact as your family’s inheritance, it makes sense, advisers say, because the death put removes the risk for your heirs of losing principal if they need to cash in early.

Mr. Plaxe, the Wells Fargo adviser, says he has been using CDs with the survivor’s option to help retirees replace maturing CDs that were paying 4% interest, because comparable shorter-term CDs are now paying 2%. He recently found a 3.3% rate on a 20-year CD for an 85-year-old retiree who wanted “the highest rate possible, since he’s going to live on the income,” says Mr. Plaxe.

—Ben Levisohn contributed to this article.

Congress cannot afford to punt on Social Security

By Former Reps. Jim Kolbe (R-AZ) & Charlie Stenholm (D-TX); The Hill ~ Apr 25, 2012

When we introduced one of the first bipartisan Social Security reform plans well over a decade ago, we were concerned about the future of the program. At the time the system was running large and growing surpluses, but we could already see the demographic storm on the horizon. We were worried that delaying action would narrow our choices as we looked to bring the system into balance.

With the newest Social Security Trustees report hot off the presses, it’s now clearer than ever that we missed our best opportunity to reform the program. Gone are the large surpluses of the 90’s and 2000’s, and here to stay are large and growing deficits which will inevitably drain the trust fund dry if left unchecked.

This year alone, dedicated payroll tax revenue will fall more than $50 billion short of benefits payments; about $170 billion short when we do not count the general revenue transfers to make up for the 2 percent payroll tax holiday currently in law. The problem in front of us is real, and it is dangerous. If we don’t start making some changes, the program as a whole will go bankrupt in 2033, at which point all beneficiaries – young, old, rich, and poor alike – will see their benefits abruptly cut by about a quarter.

And if this weren’t troublesome enough, the disability program is headed for bankruptcy by 2016, only four years from now. If we don’t make a course correction very soon, at that point everyone currently collecting disability benefits will experience nearly a 20 percent cut.

If we were to try to bring the program into cash balance immediately by raising the 12.4 percent payroll tax, it would require coupling the expiration of the 2 percent payroll tax holiday with a 1.1 percentage point tax increase next year, a 2.7 percentage increase by 2025, and a 4.1 percentage point increase by 2040.

Over 75-years, the period during which the Trustees measure the “solvency” of the program, Social Security faces an actuarial shortfall of 2.67 percent of payroll, increasing to an annual deficit of 4.5 percent of payroll by the end of the 75-year window. Everyone knows Social Security is in trouble, and everyone knows why. Our leaders in Washington have not made the important changes necessary to keep the system funded as the baby boom population retires and we all enjoy the benefits of higher life expectancy.

Yet those who come forward with solutions are attacked by the special interests in Washington. Propose raising the retirement age by just two years over a 50-year time period and they accuse you of forcing seniors to eat cat food. Ask high-earning workers to pay payroll taxes on a small amount of their income above the $110,100 cap and you are accused of proposing job-killing tax increases. In our combined 48 years in the United States Congress, never did we hear more hyperbole than when we proposed a permanent fix to Social Security.

The goals of Social Security reform are pretty simple – find a way to gradually bring benefits and taxes in line while protecting and strengthening the benefits of those who rely on the program most and rewarding work and savings where possible. And the options are very well known. We can change the retirement age, improve the way we measure inflation, slow the growth of initial benefits for new and higher-earning seniors, raise the payroll tax rate, increase the income subject to the payroll tax, and/or make other modest tax and benefit changes.

We can make any of these changes gradually to give workers time to plan and adjust their savings, and they can be well targeted to ask the most fortunate among us to make the largest sacrifices and ensure each cohort gets at least as large a benefit as the previous one. But we need to start soon because the problem only gets bigger the longer we wait. If we wait much longer, we will not be able to protect current retirees and will have to ask more and more from the middle-class and the economically vulnerable.

Republicans and Democrats can come together on this, as we did, and they must if we hope to preserve this program for the next generation (or in the case of disability, the next decade). We can have a healthy debate on exactly what policies should be in the final fix, but the worst thing we can do would be to wait for the day of reckoning – when trust fund exhaustion leads to an across-the-board 25 percent cut – to act.

It’s time for leaders to lead; and it’s time to reform Social Security once and for all. For ourselves, for our children and for our grandchildren.

Kolbe (R-Ariz.) and Stenholm (D-Texas), both former members of Congress, are on the Board of Directors of the Committee for a Responsible Federal Budget.

Who’s eating up AT&T’s data capacity? It’s not new customers

By Kevin Fitchard; GIGAOM ~ Apr 25, 2012

What does a mobile network hosting 41.2 million smartphones look like? A network where growth in data traffic far exceeds data revenue growth. AT&T is selling a lot of smartphones and data plans, but even millions of new iPhone customers don’t fully account for the huge spikes in mobile data traffic AT&T is experiencing.

AT&T’s first-quarter earnings numbers show that new smartphone customers aren’t the ones straining its data networks. Rather AT&T’s chickens have come home to roost. Customers are finally starting to consume the big buckets of data AT&T is selling them, taking their fair share of network capacity while not paying more for the privilege. Consequently AT&T is seeing a massive increase in data traffic without a corresponding jump in data revenues.

Revenge of the tiered pricing plan

During AT&T’s Tuesday earnings call, Mobility CEO Ralph de la Vega revealed that AT&T had added a net total of 10 million new smartphones over the past year. The devices now account for nearly 60 percent of its postpaid subscriber base. De la Vega also revealed that AT&T’s wireless data revenues are tracking about $24 billion per year, growing at steady rate of more than 20 percent per year.

But AT&T has pointed out before that data traffic on its mobile networks is actually doubling each year. So that means a 100 percent annual increase in mobile gigabytes shipped is being driven by a mere 32 percent increase in smartphones. What’s more, AT&T is only collecting a few billion dollars more in revenue to handle that deluge of new data.

The lion’s share of AT&T’s data traffic growth isn’t being driven by new smartphone customers; it’s coming from its existing subscribers, and for the most part they’re not paying more for that extra consumption. AT&T’s numbers would indicate that many customers are getting a lot a closer to their data caps without exceeding them. Basically they’re consuming more data while still paying the same amount on their monthly bills.

Some of those customers are AT&T’s grandfathered unlimited customers, but they’re a shrinking minority, accounting for 39 percent of smartphone customers in the first quarter. Plus, AT&T has begun throttling back speeds on those customers once they exceed 3 GB on HSPA+ and 5 GB on LTE. That means most of AT&T’s data traffic explosion is coming from tiered plans, which makes sense if you look at AT&T’s pricing structure.

Of the 25 million smartphone customers on tiered plans, 70 percent subscribe to an upper-tier plan, which means a 2 GB plan under the old pricing scheme and a 3 GB plan under the new one. But in a recent study, wireless analyst Chetan Sharma found that 70 percent of smartphone users in the U.S. consume less than 1 GB per month, which is one-half to two-thirds less than the amount of data most of AT&T’s customers are actually paying for. There’s been a huge disconnect between the amount of data customers buy and the amount they actually use, but that gap is finally starting to close.

Capacity crunch or poetic justice?

As you have probably figured out by now, AT&T’s capacity crunch seems to be a problem largely of its own making. Customers are finally growing into the data plans, and they’re eating up all of AT&T’s mobile data network capacity in the process. I should also point out that AT&T’s networks have also become far more efficient than they used to be, allowing it to deliver more bandwidth over the same infrastructure and spectrum. When the iPhone 3G first launched in 2008, the typical AT&T HSPA cell could support a theoretical limit of 3.6 Mbps. That number is now 14.4 Mbps. An LTE cell using the same amount of spectrum can theoretically support 37.5 Mbps.

So I wouldn’t feel too sorry for AT&T, despite all of its claims of being broadsided by traffic demand. When it set up its current tiered pricing structures, it knew its customers would eventually scale their usage to match their monthly allowances, and they’re still a long way from even getting close to those caps. If AT&T didn’t know this, then it never should have offered 2 GB and 3 GB tiers in the first place.

This is what infuriates me about the way the operators price data. The per-megabyte cost we pay for mobile data has actually fallen considerably in the past few years, but we wouldn’t know that by looking at our bills. If carriers from the beginning had set reasonable plan tiers that actually reflected how customers consumed data, operators could have gradually lowered prices as their networks became more efficient. It’s probably a stretch to say they would have come off as heroes, but their mobile data policies probably wouldn’t be vilified the way they are today.

Instead, they chose to gouge customers by selling them far more gigabytes than they could possibly use. Now that customers are starting to actually use up those gigs, carriers are claiming they’re running out of capacity. Didn’t you guys see this coming?

Physicians fight “unworkable” Medicare overpayment rule

More than 100 physician organizations adamantly oppose a requirement that practices keep 10 years of records to identify possible excess pay.

By Charles Fiegl; American Medical News ~ Apr 30, 2012

Washington Organized medicine is pushing back against a Medicare proposal to recoup overpayments quickly from physicians, who would be required to go back through up to 10 years of medical records when determining if they received excess pay.

The American Medical Association and state and specialty medical organizations have called on the Centers for Medicare & Medicaid Services to clarify — or in some cases abandon — new requirements that practices must return overpayments within 60 days. About 110 groups, led by the AMA, sent an April 16 letter to CMS acting Administrator Marilyn Tavenner calling on the agency to make necessary changes before the proposal is finalized.

The AMA specifically requested several revisions to the overpayment proposal that would reduce administrative burdens for physicians significantly, said AMA Chair-elect Steven J. Stack, MD. “Current CMS initiatives, like the Medicare recovery audit program, are already in place, and conflicting requirements will make it difficult for physicians to know which guidelines to follow.”

CMS has proposed that physicians be able to review their previous 10 years of claims to identify any overpayments that might be suspected during that time frame. The 10-year look-back is inappropriate, wrote Paul A. Hamlin, MD, president of the Medical Society of the State of New York, in a March 27 letter. The medical society would support the retrospective period only if its intent was “to put the fear of the federal government into those who knowingly and willfully with malice of intent act to defraud” the Medicare program. But the consequences of innocent mistakes by physicians and practice administrators must not also be swept up by rules aimed at those knowingly committing fraud and abuse, he said.

“To subject individuals to persecution because of impossible, unworkable, and unattainable rules and regulations is unfair and might even constitute entrapment,” Dr. Hamlin wrote. “Often, many Medicare program rules are impossible to keep current or are difficult to follow, let alone comply with, without confusion, error or mistakes. Lumping billing errors and typographical errors into the mix of fraud and abuse is preposterous.”

The AMA letter also adamantly opposes the 10-year look-back window. Combing through up to a decade’s worth of records would be an “insurmountable burden” for physicians. The proposal conflicts with claims reopening and audit standards established by other Medicare statutes. In general, physicians are bound to retain records for about six years, the letter said.

For instance, Medicare’s reopening regulation allows claims to be reconsidered within one year for any reason, within four years with good cause and further back any time when there is clear evidence of fraud. The False Claims Act allows for a six-year look-back. The Health Insurance Portability and Accountability Act requires record retention for six years. However, the Medicare recovery audit contractor program, which is similar to the overpayment recovery initiative, allows for only a three-year look-back.

“We recommend [that the look-back period] be shortened to three years to remain consistent with other initiatives,” Dr. Stack said. In addition, physicians who are required to return an overpayment but disagree with that determination should be given the chance to appeal, he added.

Physicians demand clarifications

The AMA also sought clarification of what it meant for a physician to identify an overpayment. CMS had stated that the rule created an “incentive to exercise reasonable diligence to determine whether an overpayment exists.” But the rule should not imply that doctors must actively search for overpayments from a decade’s worth of claims without some piece of information that would signal that an excess payment might have been received, the Association said.

The proposed rule essentially would create an unfunded mandate that forces medical practices to conduct self audits and apply compliance plans, wrote American Academy of Family Physicians Board Chair Roland A. Goertz, MD, in an April 11 letter.

“Though often recommended business practices, they are time-consuming, expensive and never before required by Medicare,” he said. “Further troubling is that this considerable burden is not even addressed in the regulatory impact section” of the proposed rule.

The health system reform law specified that the 60-day period to return an overpayment begins when a physician practice identifies it. However, the proposed rule lacked clarity on when the two-month countdown begins in cases where several overpayments stemming from a systemic problem may exist. The Association recommended that CMS say the 60-day period begins on the day an “error-specific overpayment inquiry has concluded.”

The AMA letter also calls for adding an appeals process to the rule, because medical billing is complex, and Medicare rules can be difficult to interpret across the health care industry. The agency also has allowed for an appeals process in the recovery audit contractor program.

Consultant Gerald Rogan, MD, proposed other changes to the CMS rule that would educate doctors about potential liabilities and how overpayment situations can occur. Dr. Rogan, of Sacramento, Calif., is a former CMS medical director for a Medicare insurance carrier.

Common mistakes can create significant liabilities for doctors. For instance, a physician may mistakenly report an excess number of anesthesia units or improperly use a coding modifier when billing services, he said.

“I recommend CMS post a list of common reporting errors and supply the information as part of the provider enrollment process,” Dr. Rogan wrote. “This information will allow new Medicare providers some means to verify the practice he/she is joining is compliant with Medicare billing rules.”

ADDITIONAL INFORMATION:

Who might be auditing you?

The Centers for Medicare & Medicaid Services oversees several auditing initiatives to ferret out overpayments to physicians and hospitals. A proposal to return excess pay for Medicare services within 60 days could cause confusion and duplicate the efforts of other programs that have a similar mission, organized medicine has warned. These programs include:

· Comprehensive error rate testing contractors

· Medicaid recovery auditors and integrity contractors

· Medicare recovery auditors

· Payment error rate measurement contractors

· Program safeguard contractors

· Zone program integrity contractors

Source: The American Medical Association et al. letter to the Centers for Medicare & Medicaid Services, April 16 (ama-assn.org/resources/doc/washington/overpayments-sign-on-letter-16april2012.pdf)

Poll: More workers see Social Security as critical

United Press International ~ Apr 30, 2012

PRINCETON, N.J., April 30 (UPI) — A third of U.S. workers indicated in a recent poll that Social Security would be a major portion of their post-retirement funding, Gallup researchers said.

Researchers said the poll, conducted April 9-12 involving 1,016 adults, found that 33 percent of respondents indicated they expected Social Security would be a critical source of funding after they retired.

In 2007, just 27 percent of respondents to the same question said they expected Social Security to be a major funding source after they stopped working.

Retirees and people still working had different views of retirement funding.

Thirty-three percent of retirees indicated pension plans were a major source of their income, followed by 401(k) plans (24 percent), home equity (23 percent) and stocks and mutual funds (15 percent).

Current workers — or non-retirees — indicated the following would be their major funding source: Social Security (33 percent), pension plans (28 percent) savings accounts or CDs (22 percent) and part-time work (22 percent).

Thirty-eight percent of current workers expect to retire comfortably, a new low, Gallup said.

The survey results carry a margin of error of plus and minus 4 percentage points, Gallup said.

Report: Companies likely to save billions dumping employee health care

By Caroline May; The Daily Caller ~ May 01, 2012

A new report prepared by Republicans on the House Ways and Means Committee suggests that companies would save billions of dollars by ending health insurance coverage for employees under Presidents Barack Obama’s health care reform law.

Based on an analysis of health care data received from 71 of the America’s Fortune 100 companies, the report found that if the companies terminate insurance coverage in favor of paying the $2,000 per employee penalty, they would incur a financial benefit.

According to the report, companies surveyed would save on average $400 million — or a total of $28.6 billion in 2014 — simply by putting their employees on the government exchanges.

Between 2014 and 2023, the report says, the average savings per company would be nearly $6 billion, a total savings of $422.4 billion.

“These employers spent an average of $5,197 on health insurance benefits, after taxes, per employee in 2011,” the report reads. “In 2014, this average would increase to $6,487 per employee, which far exceeds the $2,000 per full-time employee penalty they would pay for not offering coverage under the Democrats’ health care law. One Fortune 100 company could save more than $3.5 billion in 2014 alone, while another could save $1.8 billion. Four companies could save in excess of $1 billion in 2014 if they dropped health coverage and paid the mandate penalty.”

Committee Chairman Dave Camp, a Michigan Republican, said the data indicates a threat to employer-based insurance.

“The findings of the report, along with existing research, show that the Democrats’ health care law threatens the stability and sustainability of the employer-based health insurance system,” Camp said in a statement.

“Anyone who gets insurance through their job should be worried about what will happen next, because there is a distinct financial incentive for employers to terminate health care coverage under the Democrats’ health care law,” he added. “It is clear to me that because of this law, Americans will not be able to keep the health care plan they have and like. American workers and taxpayers simply cannot afford to have this law remain on the books.”

In 2009 Obama said the new law would not interfere with individuals’ current coverage — if they did not want it to.

“Let me be exactly clear about what health care reform means to you,” Obama said. “First of all, if you’ve got health insurance, you like your doctors, you like your plan, you can keep your doctor, you can keep your plan. Nobody is talking about taking that away from you.”

In mid-March the Congressional Budget Office estimated that that under the president’s plan 3 million to 5 million fewer people will be receiving health care through their employer each year from 2019-2022 than under prior law.

Elder care enters the digital age

By Kristi E. Swartz; The Atlanta Journal-Constitution ~ Apr 29, 2012

The growing business of taking care of aging seniors at home is getting help from a powerful, but unlikely suspect: the mobile phone industry.

With rising health care costs, the soaring baby boomer population and an increased emphasis on keeping people out of hospitals for conditions that can be monitored and treated at home, Atlanta-based AT&T Mobility and other major wireless phone companies have found a sweet spot for new growth.

Marrying technology with medicine may be part of the solution to better health care and lead to more business opportunities, but there have been challenges. Concerns about privacy, how doctors get paid and whether traditional geriatric facilities — such as nursing homes — will go away as more people choose to remain in their homes, are among them.

“In the private industry, there’s a whole group of people looking at how to solve this problem,” Ralph de la Vega, chief executive officer of Atlanta-based AT&T Mobility, said in an interview with The Atlanta Journal-Constitution. “Obviously, we’re not alone in this, but we think the technology we have will allow people to be able to do that.”

Analysts say what’s known as the home health care industry — adding technology, telecommunications, smartphone applications and other equipment to make it easier for seniors to stay in their homes — could swell to between $1.5 billion and $2.5 billion because of the number of involved partners: wireless companies, technology developers, hospitals, doctors, insurers and home builders. The growth will come at the right time. Nearly 75 percent of AARP’s surveyed members say they’d prefer to stay in their current home as long as possible, and much of the baby boomer generation is more comfortable with using technology and mobile devices compared with their parents.

They also have the most equity in their homes, have more long-term savings and are willing to spend money on gadgets.

“It’s helping the wireless industry transform itself. It can become more competitive and better for the customers. That’s a big job,” said telecommunications analyst Jeff Kagan.

The business opportunities have led AT&T Mobility to develop what’s becoming a separate division called Digital Life Services that will be run out of Atlanta. The organization will be housed under the AT&T Mobility’s whiz-bang “Emerging Devices” division, which started three years ago.

For its part, Verizon Wireless has formed its own team of account managers, executives and others to focus solely on the health care industry.

“The biggest piece is that Verizon wants to play in this space,” said Rachael Nagrowski, Verizon Wireless’ associate director of strategic sales. “We no longer want to be seen as a cellphone provider.”

AT&T Mobility talked up its new suite of home monitoring services including cameras, lighting, thermostats and motion detectors, part of its Digital Life efforts, at an international mobile technology conference in Barcelona in February. The business model is for overseas only; the company has not made any announcements in the United States. Here, the company broke into the digital health care industry by selling pill bottle tops called GlowCaps, which flash and send out ringtones to remind people to take their medicine. Every time the cap is opened, the person’s doctor or family member gets notified electronically.

“AT&T’s concern in this space is really around the fact that when you look at the stats — 10,000 people a day retiring — you look at the current infrastructure in the U.S. for people that are aging, there is no way with the baby boomers and how fast they are retiring. We don’t have the infrastructure to keep up,” said Glenn Lurie, head of AT&T Mobility’s emerging devices unit. “We need to understand that people are living longer, and we need to do a better job of asking those people what they want.”

It’s rare that the phone companies will develop these mobile health care technology devices themselves. Rather, they will partner with a company that’s developed new technology for the health care industry. That device typically contains the same type of software and network elements that are in a smartphone, so it can communicate with a caregiver, doctor or nurse using the mobile phone provider’s wireless network.

The development of these devices now helps people take their blood pressure, heart rate and weight at home, for example, and upload the information to a database for a doctor to read it. Any changes in vital signs or warnings of trouble can be spotted early, and the doctor can call to change medication, ask the person to come in for an appointment or send an ambulance for emergency care.

“The focus of all of health care now is really to reduce in-patient hospital care, nursing home care, facility kind of care,” said Mark Oshnock, chief executive officer of Atlanta-based Visiting Nurse Health System.

As much as $25 billion a year is spent on hospital readmissions. Medicare estimates that  75 percent of those readmissions could be prevented with better outpatient care, Oshnock said.

Oshnock said there was initial resistance from the visiting nurses when they first started using remote monitoring equipment five years ago.

“There were a lot of implementation issues, one of which was, ‘How can I be replaced by this little piece of equipment?’”

Not long after, Oshnock said the nurses said it was worth taking an extra 10 to 15 minutes to show someone who had just been discharged from the hospital how to use the remote monitoring equipment to check vital signs. It’s prevented people from returning to the hospital, allows nurses to check more patients and saves everyone money.

“It’s been a working solution for us,” Oshnock said.

In many cases, it’s eased the mental, emotional and often physical stress families or a spouse experience when caring for an ailing family member.

Suffering from dementia and emphysema, Jim Connelly wasn’t getting out of bed or interacting with his wife, Cackie. That all changed when his daughter, Mary McKenzie of Sandy Springs, bought a multimedia device called SimpleC. Similar to a small TV screen, the device uses photos, music and voice recordings to tap into a person’s long-term memory, helping to motivate someone who is suffering from memory loss.

McKenzie installed old family photos, 1950s music and voice recordings of herself reading prayers and psalms to help trigger memories of the family growing up.

“Dad would perk up,” when he would hear the music and see the photos, McKenzie said. Hearing the psalms would calm him at night, she said. What’s more, McKenzie said her mother felt less overwhelmed.

“This gave her a little bit of confidence, and afterward she started taking steps to get Dad more help,” McKenzie said. “I felt like it was a catalyst to get her going.”

The makers of SimpleC, which contracts with Verizon Wireless to run on its 4G LTE network, started testing it in homes last summer after installing it in 29 assisted-living centers. SimpleC directly markets SimpleC to assisted-living centers and is working with Verizon to market it to families and seniors who are remaining in their own homes.

The industry continues to work through hurdles, which include making sure the devices are made for the person who uses them and not just the caregiver, who is likely more tech savvy. Also, anything that cuts costs for patients, hospitals and other treatment centers means it reduces pay for doctors, nurses and others.

“There are numerous concerns by doctors, such as fear of punishment for authorizing home health services that [the Center for Medicare and Medicaid Services] declares to be unnecessary,” said Jane Orient, spokeswoman for the Association of American Physicians and Surgeons, a Tuscon-based physicians group. “Many physicians would be willing to make house calls if they were allowed to charge a reasonable rate. The question of the decade may be, ‘Are patients allowed to use their own money to pay for care without Medicare supervision?’ ”

Kagan, the telecom analyst, says the medical community will find a way to ensure doctors and nurses are still paid.

“Every transformation, you lose jobs, you lose investment, you lose money,” he said. “But you hire people and you make money and make investment. That’s how it works. Every 10 years, it’s a completely different world.”

Facing Health-Plan Cuts

By Ellen E. Schultz; The Wall Street Journal ~ Apr 20, 2012

Retirees are paying more than ever for their employer-sponsored health coverage, often in the form of higher premiums, copays and deductibles.

Companies often say spiraling health-care costs force them share the pain with retirees.

But that isn’t the whole story. Many employers have been shifting more costs to retirees even as they receive billions of dollars in government subsidies to offset their own costs.

Knowing what’s really driving up the amounts you pay can help you anticipate what’s ahead. At the very least, you’ll be more skeptical when you receive the next glossy notice announcing changes to your plan based on factors beyond the companies’ control. Here’s what to look out for.

Inflation. “Rising costs” is the most common reason employers give for making retirees pay more. But health-care inflation has actually slowed, according to Segal Co., a benefits consulting firm, which surveyed managed care organizations, health insurers, pharmacy-benefit managers and third-party administrators.

According to Segal, the inflation rate for 2010 was the lowest in more than 10 years, and inflation rates for medical plans and prescription-drug plans are expected to decline this year from 2011 levels.

The study also found that inflation rates for retiree plans are lower than plans for active employees in several key areas, including prescription drugs and HMOs.

Health-care overhaul. Another reason employers have used to explain why they’re cutting retiree benefits is that recent health-care legislation has made such coverage costlier.

Here’s how it works: Companies receive a 28% federal subsidy up to $1,330 per retiree, tax-free, to help pay for prescription-drug coverage. The subsidy was created when the Medicare Prescription Drug Act went into effect in 2004, after employers threatened to drop their drug coverage unless they were given an incentive to retain it. The subsidy is lucrative: AT&T and Verizon Communications, for example, each estimated they would receive at least $1.5 billion over a decade to pay for prescription drug coverage.

So what has changed? Under the Affordable Care Act, employers will continue to receive the money tax-free. But after 2013 they no longer will be able to deduct it.

Employers had to recalculate their obligations to reflect the loss of the future tax deduction. AT&T and Verizon took charges of roughly $1 billion each, according to public filings. Caterpillar, Deere & Co. and dozens of other companies also took charges.

Though this was an accounting hit, companies continued to receive the same amount of government subsidies. Yet many claimed higher costs were forcing them to cut benefits.

Government subsidies. The Affordable Care Act has provided employers with opportunities to get still more money from the government to pay for retiree benefits. For example, the Early Retiree Reinsurance Program, a short-term program that went into effect in 2010, provided $5 billion in subsidies to help cover health care for some retirees.

The program was intended to encourage employers to continue to offer coverage to retirees 55 and older who aren’t yet eligible for Medicare. The fund reimburses 80% of the eligible claims between $15,000 and $90,000 per retiree.

About half the subsidies went to public employers. Among private employers, AT&T received the most ($240 million) and Verizon came in second ($163 million). Employers could use the money to reduce their costs, retirees’ costs or both. Alcatel-Lucent used the proceeds to lower both retirees’ and the company’s costs, a company spokeswoman says, and General Motors used the subsidy to pay their salaried retirees’ contributions from April to December 2011, according to a letter it sent the retirees.

The Affordable Care Act was beneficial to employers in other ways. Unlike regular health plans for active workers, retiree plans don’t have to extend dependent coverage to age 26, unless they choose to do so. AT&T, which has plans that cover both active employees and retirees, covers dependents up to age 26; most of Verizon’s retiree plans don’t.

Capping benefits. There are other reasons your costs might be rising, besides rising health-care costs. Most employers have set ceilings on what they will pay for retiree health care; when the caps are reached, all cost increases are passed along to retirees. This can explain why your premiums might suddenly jump by hundreds of dollars a month.

In addition, your employer may have shifted retirees into a separate risk pool, instead of including them in the group plan covering active workers. When there are fewer individuals in a plan, and they’re older and have more health problems, the per capita costs rise quickly.

—Email: ellen.schultz@wsj.com

Write to Ellen E. Schultz at ellen.schultz@wsj.com

Medicare trustee report hangs on uncertain assumptions

By David Morgan; Reuters ~ Apr 23, 2012

WASHINGTON – (Reuters) – Medicare, the U.S. healthcare program for the elderly, should be able to stave off insolvency for the next 12 years, depending on a number of financial and political assumptions that may prove unrealistic, officials and other experts said on Monday.

The annual report of the Medicare trustees predicted that the program’s key hospital trust fund will become exhausted in 2024, prompting Medicare to begin paying out only 87 percent of scheduled hospital benefits to tens of millions of future retirees and disabled beneficiaries.

With the fate of Medicare a hot-button election year issue for the program’s 49 million beneficiaries, the report is likely to become fodder for Democrats and Republicans as they battle for control of the White House and Congress.

The 2024 forecast is unchanged from a year ago and shows that the deterioration of $549 billion-a-year program’s finances has not accelerated since 2010.

But the outlook is based on assumptions that may be unlikely, including a scheduled 31 percent pay cut for doctors in 2013, which Congress is almost certain to override.

The forecast also assumes that a deficit-reduction agreement to slash Medicare spending by 2 percent a year can be sustained over the coming decade and that the U.S. Supreme Court will not overturn President Barack Obama’s healthcare reform law in June.

The trustees also said Medicare is on an unsustainable path over the long term that could cause expenditures to more than double as a percentage of the U.S. economy, from 3.7 percent now to 10.4 percent in 2086, under a worst-case scenario.

Officials said that even the most optimistic sections of the report underscore the need for reform.

“The sooner the policymakers address these challenges, the less disruptive the unavoidable adjustments will be … and the greater the likelihood that the solutions we adopt will be balanced and equitable,” said trustee Robert Reischauer.

Administration officials seized on the report as evidence that Obama’s Patient Protection and Affordable Care Act has strengthened Medicare by encouraging efficiencies, combating fraud and waste and eliminating unnecessary costs.

MEDICARE AND MEDIOCRE COVERAGE

“Medicare’s in a much stronger position than it was a few years ago, thanks to the Affordable Care Act,” said Health and Human Services Secretary Kathleen Sebelius, who told reporters that an estimated $200 billion in Medicare savings from reforms had pushed the expected insolvency date back from 2016.

“This is an approach that will put Medicare on a stable trajectory without eliminating the guaranteed benefits that beneficiaries have counted on for decades or shifting tremendous new costs onto seniors,” she said.

But analysts said Medicare could be forced to begin paying only partial hospital benefits earlier if assumptions about physician pay, deficit reduction and the fate of reforms fail to pan out.

“Medicare is in trouble,” said Joseph Antos, an analyst at the conservative American Enterprise Institute. “Are we really holding the line? Absolutely not.”

Earlier on Monday, a new report from the nonpartisan Government Accountability Office raised new questions about Medicare’s ability to improve care delivery, reduce costs and combat waste.

The GAO said Medicare is spending $8.3 billion on a test project that is supposed to improve the quality of private health coverage but has mainly rewarded mediocre insurance plans.

The watchdog agency urged the administration to cancel the Medicare Advantage quality bonus payment initiative, a three-year project described as the largest-scale test to improve Medicare services to date.

The administration defended the program as a necessary effort to determine how best to improve quality and reduce costs in Medicare Advantage, which provides about one-quarter of Medicare beneficiaries with coverage from private insurers.

The demonstration project, designed to promote quality by awarding performance bonuses to private insurers that offer coverage through Medicare, was undertaken to test whether annual quality improvements could be achieved more quickly than under Obama’s healthcare overhaul.

“We think this is a really important step,” Sebelius said. “At the end of 2014, it will have accomplished just what the goal was, which is to give some financial incentives to those plans that are improving quality results.”

Medicare Advantage was adopted under George W. Bush as a way to bring market efficiency to the sprawling government program. Some of the largest providers of Medicare Advantage plans are UnitedHealth Group and Humana Inc.

But Medicare Advantage has proved to be more expensive than traditional Medicare.

Sebelius said that even with the costs of the quality test program, the administration has been able to reduce the cost of Medicare Advantage from 114 percent of the fee-for-service program to 107 percent over the past two years.

(Editing by Maureen Bavdek and M.D. Golan)

Social Security, Medicare report card on tap

By Jeanne Sahadi ; CNN Money ~ Apr 20, 2012

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NEW YORK (CNNMoney) — Critical to reining in the United States’ long-term debt will be finding ways to control the burgeoning costs of Medicare and Social Security, both of which will face serious funding shortfalls over the next two decades.

On Monday, the trustees of those programs will offer their annual update on just when those shortfalls will occur.

Experts said they expect the trustees’ conclusions to be similar to their findings last year.

Then again, “It’s like trying to predict elections. You never know,” said Don Fuerst, senior pension fellow at the American Academy of Actuaries.

Last year, the trustees projected Social Security could pay promised benefits in full through 2036, after which the program could only afford to pay 77% of them.

Social Security has already begun paying out more in benefits than it takes in from workers’ payroll taxes.

But the difference has been made up for with interest paid by the Treasury on the $2.6 trillion that the federal government owes the program. That debt represents the amount of extra revenue paid into the system over the years that Uncle Sam borrowed and spent.

Cut Social Security for the rich? We already have

In order for Social Security to remain fully solvent over the next 75 years, policymakers in theory could do one of three things, the trustees said last year:

· Immediately jack up the payroll tax to 14.55%. Workers and their employers currently pay 12.4% (6.2% each) on the first $110,100 in wages.

· Cut benefits by 13.8%

· Or some combination of the two.

In reality, an immediate benefit cut or tax increase is not politically palatable nor practical. Budget experts who have proposed ways to reform the program have suggested more gradual changes in ways that do not affect anyone in or near retirement.

They’ve also proposed to gradually increase the retirement age and the amount of income subject to the payroll tax.

Budget mess rolls on

As for Medicare, the trustees last year noted that it faces a more immediate funding shortfall than Social Security, although the new health reform law improved the program’s long-term outlook.

Still, the long-range improvement is based on certain policy changes — such as scheduled payment cuts to Medicare doctors — even though they are not considered likely.

The trustees estimated that Medicare’s hospital insurance program, known as Part A, which is financed primarily through payroll taxes, should be able to pay full benefits through 2024, after which it could foot only 90% of hospital costs. By 2045, that share is estimated to drop to 75% before gradually climbing back up.

Were Congress to make the hospital insurance program solvent overnight, the trustees last year estimated that they would have to raise the 2.9% Medicare tax on all wages to 3.69% immediately.

But that doesn’t give a complete sense of the funding shortfalls in Medicare.

Seniors wishing to enroll in Medicare Part B (for doctor visits) and Part D (for prescription drugs) pay premiums, but those cover only about 25% of the costs, according to the Congressional Research Service.

The rest of the financing comes primarily from the government’s general tax revenue. And the share of Medicare costs that revenue will cover is expected to grow in the coming years, as enrollment in the program soars and spending per enrollee jumps in the next decade.

Even if the trustees’ estimates improve slightly on Monday, “the bottom line is Medicare still faces a long-term funding problem,” said Cori Uccello, senior health fellow at the American Academy of Actuaries.

The Congressional Budget Office has estimated that barring a reduction in health care costs and structural changes to the program, Medicare spending as a percent of GDP is likely to more than double in the next 40 years and triple over the next 75.

The trustees’ report will be delivered amidst stunningly dysfunctional budget dealings on Capitol Hill.

Such dysfunction is a key reason why Congress is expected to punt on $7 trillion worth of fiscal decisions this election year — a decision on the expiring Bush tax cuts, for example, and a series of blunt spending cuts agreed to during last year’s debt ceiling debate, but which everyone acknowledges is terrible policy.

The report also comes as Republicans are pushing a Medicare reform plan based in large part though not entirely on a proposal that House Budget Chairman Paul Ryan worked on with Sen. Ron Wyden, a Democrat. But many Democrats deride Ryan’s plan as an end to the Medicare guarantee.

Throw the politically sensitive issue of Social Security in the mix and one thing is certain: the trustees’ conclusions will likely spawn more of a rhetorical firestorm than a serious bipartisan policy debate. To top of page

Earnings Preview: AT&T Reports Tuesday

By Robert Weinstein; Seeking Alpha ~ Apr 20, 2012

AT&T (T) is on tap to release last fiscal quarter’s results before the opening bell on April 24, 2012.

Who They Are:

AT&T Inc., together with its subsidiaries, provides telecommunications services to consumers, businesses, and other providers worldwide. The company was founded in 1983 and is headquartered in Dallas, Texas. At&t trades an average of 31.1 million shares per day and has a marketcap of $182.2 Billion.

Book Value: $17.81

Float Short: 1.07%

What To Expect:

Analysts estimate an advancement of $0.15 in earnings per share compared to last quarter’s results of $0.42. Wall Street is expecting $0.57 per share based on earnings estimates.

For the last analyst update, a low of $0.53 and a high of $0.61 per share is what Wall Street is anticipating.

Here is a look at the fiscal year revenue for AT&T.

Click to enlarge.

Recent Stock and Valuation Performance:

The current trailing twelve months P/E ratio is 14. The forward P/E ratio is 13.19.

From a month ago, the stock has decreased in price -3.06%, with a change from a year ago of 2.02%. When comparing to the S&P 500, the year to date difference is -7.16%.

After a recent drop in price to trade below the 60 day moving average AT&T has moved up to trade at $31 today. Today’s move puts the price well above the 60 day moving average and the next test will likely be the gap put in earlier this month. Ma Bell doesn’t have a high Beta and the option volatility expresses it. April weekly $32 calls are trading for $0.04. Obviously there is little expectation of a move over a dollar higher per share. Because volatility is so low one can buy $30 puts for $0.07 each to buy protection through earnings. Given the recent ability for the stock to move more than a dollar in a matter of a few days this appears to be on the cheap side.

Revenue growth relative to last year appears to be problematic for management. Comparing year-over-year fiscal years, revenue has declined to $126.72 billion for 2011 vs. $124.28 billion for 2010. The bottom line has falling earnings year-over-year of $3.94 billion for 2011 vs. $19.86 billion for 2010.The company’s earnings before interest and taxes are falling with an EBIT year-over-year of $9.22 billion for 2011 vs. $19.57 billion for 2010.

The short interest is relatively low at 1.07%.

Here are the last few quarters to get an idea how well they perform compared to estimates:

Reported earnings per share compared to the mean estimate. Differences are rounded.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: Robert Weinstein uses information believed to be correct, but is not guaranteed and is not independently checked for accuracy You may wish to use this article as a starting point of your own research with your financial planner. Seeking Alpha, Edgar Online, Zacks and Yahoo Finance provides most of the data. paid2trade.com uses the “confirmed” symbols from earnings.com that believed to be of the most interest.

AT&T Spills Details Of New Watson Speech Recognition App Platform

By Carl Franzen ; Talking Points Memo ~ Apr 20, 2012

Watch out, Siri! AT&T on Thursday announced its intentions to compete in the burgeoning market of speech recognition technology by opening up its own, long-in-development system, AT&T Watson, to third party developers.

“In June, we plan to launch several AT&T Watson SM Speech application programming interfaces (APIs) that developers can access to quickly create great new apps and services with voice recognition and transcription capabilities,” wrote John Donovan, an AT&T senior VP of technology and network operations, in a blog post.

As he elaborated:

“The first AT&T WatsonSM Speech APIs will be focused on seven areas: web search, local business search, question and answer, voice mail to text, SMS, U-verse electronic programming guide, and a dictation API for general use of speech recognition.”

Watson, which was developed by AT&T Labs, the telecom giant’s research arm, is already live in its automated customer service phone banks and AT&T Translator and Yellow Pages mobile (YPMobile) iPhone apps.

The new AT&T Watson third-party development platform will support apps development on Android and iOS, and supports transcription, word identification and “takes spoken or written language and translates it into another language you select,” according to Donovan.

The company’s goal: create its own app ecosystem filled with all sorts of apps which harness speech recognition for different purposes, from games to lifestyle to planning to automotive interfaces — anything that creative apps developers can cook up. AT&T hopes it will have a whole store full of online apps that will overlap with the popular Apple App Store and Google Play. Check out the ambitions in the following video.

Following AT&T’s announcement, some key questions remained, such as: How much the program will cost developers, whether AT&T will take a cut of sales, and just which specific languages the technology will support.

Regarding the cost, “there is a registration charge of $99, which will allow developers to use all AT&T APIs, including speech, without a per transaction charge through 2012,” AT&T’s spokesperson told TPM. “There is a limit of 1 transaction per second. If there is an application that estimates needing more capacity, we just ask that they reach out to us to discuss their needs and we will be happy to talk about options to support them.”

As for how many words Watson can identify, AT&T pointed out that there will actually be seven different application programming interfaces, or APIs, each which contains its own “vocabulary.”

“The API belonging to the largest speech package is the Dictation (generic) API, which has been trained on 1+billion words, and supports nearly 2 million different vocabulary words,” AT&T’s spokesperson said, noting that it “can automatically detect and transcribe English and Spanish language. We have 8 other languages in the lab that we will roll out over time.”

As for how it competes with Apple’s own iPhone Siri voice recognition technology, AT&T didn’t pull any punches, with the spokesperson telling TPM:

“AT&T Watson has been used in commercial applications for over two decades. AT&T was the first to employ the largest nationwide operator assisted service in the early 90s. AT&T Watson has also been adopted by many partners including Vlingo who have publicly claimed that AT&T Watson is faster and better than other available engines.”

You’d be forgiven for thinking those are fighting words. Still, AT&T wants to play nice with Apple, at least nice enough to remain included in the App Store.

Auditors call on Obama administration to cancel Medicare bonuses GOP sees as political

By Associated Press, Washington Post – Apr 22, 2012

WASHINGTON — In a rebuke to the Obama administration, government auditors are calling for the cancellation of an $8 billion Medicare program that congressional Republicans have criticized as a political ploy.

The nonpartisan Government Accountability Office says in a report to be released Monday that the $8.3 billion the administration has earmarked for quality bonuses to Medicare Advantage insurance plans would postpone the pain of cuts to the plans under the new health care law. Most of the money would go to plans rated merely average.

The administration is defending the program, saying that without the bonuses many plans wouldn’t have an incentive to improve quality.

But Sen. Orrin Hatch, R-Utah, says the GAO report suggests that the administration abused its authority, pumping money to the plans to avoid more criticism over unpopular cuts.

Medicare Advantage is a popular private insurance alternative to the traditional health care program for seniors. More than 3,000 private plans serve nearly 12 million beneficiaries, about one-fourth of Medicare recipients. They offer lower out-of-pocket costs, usually in exchange for some limitations on choice.

President Barack Obama’s health care law trimmed Medicare Advantage to compensate for prior years of overpayments that had allowed the plans to offer attractive benefits — and pocket healthy profits.

Republicans fiercely attacked those cuts during their successful campaign to take control of the House in the 2010 midterm elections. Seniors, a key constituency of swing voters, responded by backing GOP candidates.

After the election, the administration announced what it called a “demonstration program” to test whether a generous bonus program would lead to faster, broader improvements in quality. (The health care overhaul law had already provided a smaller bonus program only for top-rated plans.)

GAO, the investigative agency of Congress, did not address GOP allegations that the bonuses are politically motivated. But, its report found the program highly unusual. It “dwarfs” all other Medicare pilots undertaken in nearly 20 years, the GAO said.

Most of the bonus money is going to plans that receive three to three-and-half stars on Medicare’s five-star rating scale, the report said.

Available through 2014, the bonuses will soften much of the initial impact of the Medicare Advantage cuts, acting like a temporary reprieve.

This year, for example, the bonus program offset more than two-thirds of the cuts in the health care law. Indeed, Medicare Advantage enrollment is up by 10 percent and premiums have gone down on average.

But GAO questioned whether the bonus program will achieve its goal of finding better incentives to promote quality. “The design of the demonstration precludes a credible evaluation of its effectiveness in achieving (the administration’s) stated research goal.”

The administration says it disagrees with the GAO findings and believes the bonuses will improve the quality of care.

Medicare “believes the demonstration supports our national strategy to improve the delivery of health care services, patient health outcomes, and population health,” the Health and Human Services department said in its formal response to the GAO report. “Absent this demonstration, we believe that many plans would not have an immediate incentive to improve the quality of care delivered to (Medicare Advantage) enrollees.”

Hatch, the ranking Republican on the Senate panel that oversees Medicare, is questioning whether the administration had the legal authority to create the program in the first place.

“The Obama administration seems to be using a technicality to sidestep Congress and write itself a blank check to spend more money for political purposes leading into this year’s elections,” Hatch said in a statement.

“The White House does not have the authority to green-light spending on whatever program it wants,” he added. “This report is just the beginning — I will be demanding answers.”

HHS spokeswoman Erin Shields said the bonus program will help Medicare improve quality.

The Associated Press first reported on concerns about the bonus program last spring. Administration officials said at the time it had nothing to do with politics.

But another nonpartisan agency that advises lawmakers on Medicare also criticized the bonus plan as the administration was pursuing it.

The Medicare Payment Advisory Commission said it amounts to “a mechanism to increase payments” and its design “sends the wrong message about what is important to the program and how improved quality can best be achieved.”

At a time when government is urging health care providers to improve quality and cut costs, the bonus plan “lessens the incentive to achieve the highest level of performance,” commission chairman Glenn Hackbarth wrote to HHS officials.

The bonus program is the costliest demonstration program in Medicare history. The money for it will come from the Medicare trust fund. On Monday, the Medicare and Social Security trustees are scheduled to release their annual report on the status of the programs, both of which face a long-term financial crunch.

Senate Budget Panel to Take Up Deficit Plan

By Jonathan Weisman, New York Times – Apr 17, 2012

WASHINGTON — The chairman of the Senate Budget Committee said on Tuesday that he would introduce the blueprint of President Obama’s bipartisan deficit reduction panel to his committee as the starting point for negotiations over a long-term debt plan.

But the committee chairman, Senator Kent Conrad, Democrat of North Dakota, made it clear that he would not push the committee to vote on amendments to the plan from the Bowles-Simpson commission or on a final version until a bipartisan consensus was reached.

“It’s unlikely we will reach agreement until after the election,” he said. “That’s just reality.”

Mr. Conrad’s announcement surprised Republicans and Democrats, who were expecting him to produce a Democratic budget that, if passed by the committee, would have been the first detailed deficit reduction plan in three years. Mr. Conrad said that committee Democrats had tried to produce a marker for the budget debate, but that he had decided to fall back on his original plan, the Bowles-Simpson blueprint, named after the chairmen of the 2010 commission, the Democrat Erskine B. Bowles and the Republican Alan K. Simpson.

Senator Jeff Sessions of Alabama, the ranking Republican on the Budget Committee, denounced the introduction as a stunt that proved that Democrats were not ready to vote on any budget plan that would expose them to political heat before the election.

But Mr. Conrad and his allies said the move was one of several efforts to generate quiet bipartisan negotiations ahead of a lame-duck session of Congress this fall that could be one of the most momentous in years. On Jan. 1, the Bush-era tax cuts are set to expire, which would raise income tax rates on virtually every household; increase estate, dividend and capital gains tax rates; and shrink popular deductions like the child credit. More than $1 trillion in across-the-board spending cuts would also kick in, creating what the Federal Reserve chairman, Ben S. Bernanke, has called an $8 trillion “fiscal cliff.”

“Everybody’s waiting for the moment,” said Senator Ron Wyden, Democrat of Oregon, who is negotiating with Senator Dan Coats, Republican of Indiana, to prepare a tax overhaul for the lame-duck session.

The Bowles-Simpson plan would reduce the deficit by $5.4 trillion over a decade, reducing the red ink to 2.5 percent of the economy by 2015 and 1.4 percent by 2022, from 7.6 percent now. Government spending would be stabilized at 21.9 percent of the economy by 2022, with spending at Congress’s discretion falling to 4.8 percent of gross domestic product that year from 8.4 percent this year.

Unlike the budget plan passed in the House, Mr. Conrad’s outline would not touch the president’s health care law, but it would phase out the employer tax deduction for health care and include additional health care cuts. It would lay down parameters to overhaul Social Security to slow its growth. And it would set out prescriptions for a simpler tax code that eliminates or reduces scores of tax deductions, taxes dividends and capital gains as ordinary income, and lowers individual and corporate tax rates. The goal would be to raise revenues by $2.6 trillion over 10 years, Mr. Sessions said, something he could not accept.

In that sense, the Bowles-Simpson plan may be no more viable now than it was in late 2010, when it got the votes of some conservatives and liberals on the presidential panel but failed to receive the support of the most conservative and liberal House members on the committee.

As the budget debate intensifies, Democrats are on a war footing. House committees moved forward this week on legislation to meet savings demands in the House budget of $261.5 billion over 10 years, but Democrats denounced the emerging legislation as cruel. Democrats said that their Republican counterparts would move to eliminate the Community Services Block Grant to states, jeopardizing child care, Meals on Wheels services, child protective services and transportation assistance for millions of children and older people.

Ending Medicare As We Know It By Doing Nothing

By Sally Pipes, Forbes – April 16, 2012

The House of Representatives just approved Rep. Paul Ryan’s (R-Wisc.) budget proposal, which, among other things, would give seniors the option of receiving premium support payments from the federal government to purchase health insurance on a new, federally regulated Medicare exchange.

Congressional Democrats wasted no time before launching a “Mediscare” campaign attacking the proposal, similar to the one they waged last year. Democrats and their union allies have rolled out a series of advertisements targeting Republicans in competitive congressional races, claiming that they’d voted to “end Medicare.” Rep. Nancy Pelosi said that Ryan’s budget would “end the Medicare guarantee.”

The Democrats’ alternative appears to be simply postponing Medicare’s day of fiscal reckoning.

But that’s not tenable. The status quo will end Medicare as we know it. Congress must fundamentally change Medicare’s structure to rescue the program from bankruptcy.

Health care is the largest cost-driver in the federal budget — and has been the chief source of government spending growth over the past 40 years. Non-health government spending in both 1971 and 2011 accounted for exactly 17.1 percent of the nation’s GDP. Meanwhile, government health spending jumped from 1 percent to 5.6 percent of GDP over those four decades.

Medicare has been the locus for much of that spending. Expenditures in the program grew 7 percent in 2009 and 5 percent in 2010. Annual Medicare spending is set to double over the next ten years — to more than $1 trillion.

The entitlement’s fiscal problems threaten to preclude the federal government from spending on anything else — and exacerbate our looming debt crisis.

Enter the Ryan plan, which would introduce elements of competition into Medicare — driving down costs and encouraging providers and health plans to improve the quality of their offerings in the process.

The centerpiece of the proposal is “premium support” — effectively, a government payment to seniors to help them purchase insurance on a government-regulated marketplace or exchange.

The phrase was initially coined in the 1990s by Henry Aaron of the Brookings Institution and Robert Reischauer of the Urban Institute — neither of whom can be considered an ally of Rep. Ryan. As Aaron and Reischauer wrote then, “this framework lends itself to budget control in ways that the current system does not . [matching seniors to] the financial consequences of their choices.”

Under the Ryan plan, folks 55 years of age or older would face no changes to their Medicare benefits. Those younger than 55 would receive a subsidy to purchase insurance coverage once they retired, with both private plans and traditional Medicare competing for their business.

The subsidies they received would be based on the cost of the second-least expensive approved private plan or traditional Medicare, whichever was lower. And federal contributions would increase in accordance with a senior’s health status or age — to ensure that the plans available would remain affordable.

If a senior chose a plan costing more than the benchmark plan, he’d have to pay the difference — similar to how folks today pay for Medigap policies that cover additional services. If he chose a plan that costs less than the premium support payment, he’d receive a rebate.

To limit costs, the plan caps yearly increases in the level of premium support at the rate of GDP growth plus 0.5 percent. And that’s only a backstop. If competitive forces can drive cost growth further down, even
better.

The Ryan plan would also introduce a degree of means-testing by forcing well-off seniors to shoulder a greater share of their Medicare premiums. And it would gradually raise the age at which seniors become eligible to 67, by two months per year between 2023 and 2034.

The Congressional Budget Office (CBO) estimates that government spending would be an average of $7,400 per beneficiary under this approach. That’s 14 percent lower than under the status quo.

Some critics believe that the cap is too low — that it will force seniors to bear any future growth in the cost of health care on their own. Sen. Ron Wyden (D-Ore.) supported a previous iteration of Ryan’s plan that limited
the growth of premium support to GDP plus 1 percent. But he has not followed Ryan down to 0.5 percent. Aaron also believes that Ryan is too stingy.

But the government can’t afford to be much more generous. Medicare’s main trust fund will be empty by 2022.

Further, President Obama has proposed a similar growth rate for Medicare’s costs — only he’d empower the 15 unelected bureaucrats on his Independent Payment Advisory Board to decide where to trim costs. The Ryan plan, by contrast, empowers seniors to make those decisions.

Rep. Ryan’s proposed budget may change the way the government pays for Medicare — but it will save the program. Blind allegiance to the status quo will break the promise our nation made to seniors and end Medicare as we know it.

Sally C. Pipes is President, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute. Her latest book is The Pipes Plan: The Top Ten Ways to Dismantle and Replace Obamacare (Regnery 2012).

Tax Breaks for U.S. Retirement Should Be Simpler, Camp Says

By Richard Rubin; Bloomberg ~ Apr 17, 2012

U.S. tax incentives for retirement savings should be simpler and encourage more participation by low- and middle-income taxpayers, said Dave Camp, chairman of the House Ways and Means Committee.

Camp, the top Republican tax writer, said today that he hasn’t drawn conclusions about what Congress should do on retirement savings as it overhauls the tax code by lowering rates and curtailing tax breaks.

Camp also said he supported the idea of requiring automatic enrollment in individual retirement accounts. President Barack Obama and Representative Richard Neal, a Massachusetts Democrat, support making employers who don’t offer retirement plans enroll their workers in IRAs.

“I basically, in general, like the concept,” Camp, a Michigan Republican, told reporters after a hearing on retirement tax policy. “I think it’s got a lot of merit.”

Camp and House Republicans have called for lowering tax rates and reducing breaks, prompting supporters of tax incentives for retirement, housing, charity and other items to defend their place in the code. Republicans are searching for ways to raise $4.6 trillion over 10 years to meet revenue targets and turn the six-bracket system with a top rate of 35 percent into a two-bracket structure with rates of 10 and 25 percent.

Simplifying the System

The hearing on retirement savings, which coincided with the annual tax-filing deadline, focused on ways to strengthen and simplify the current system rather than raise revenue.

U.S. households can use tax-deferred and tax-advantaged accounts such as tax-deferred retirement accounts, employer- sponsored 401(k) plans and a “saver’s” tax credit for lower- income workers.

Congress should be careful about upsetting today’s retirement system for the sake of lower rates, said Representative Sander Levin of Michigan, the top Democrat on the committee.

“It’s reckless to simply say we’re going to get down to a certain figure without saying how you’re going to get there,” Levin said after the hearing.

Retirement savings tax incentives are costing the government more than $130 billion in revenue this year, making them among the most expensive U.S. tax breaks, according to the Joint Committee on Taxation.

Benefits Advocacy Group

Tapping those savings for revenue may be counterproductive, said Randy Hardock, a partner at Davis & Harman LLP in Washington who testified on behalf of the American Benefits Council, a group that advocates for employer-sponsored plans.

That’s because short-term revenue gains for the government would come from reductions in savings, which generate more taxable income. The flip side, he said, is that the government would receive less revenue in future years when tax-deferred money comes out of retirement accounts.

Because of that dynamic, Camp cautioned against focusing on the estimates of revenue from curtailing or eliminating retirement incentives.

“It’s almost like a one-dimensional look at things,” Camp said.

Several panelists at the hearing said they support the automatic IRA proposal, which wouldn’t require employers to match contributions.

“Savings change behavior,” said David John, senior research fellow at the Heritage Foundation, which supports smaller government. “It brings people closer to the community. It makes them more future-oriented.”

The Neal bill is H.R. 4049.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

Social Security payments to go all-electronic, not checks

By Stephen Ohlemacher, Associated Press – April 16, 2012

WASHINGTON • Starting next year, the check will no longer be in the mail for millions of people who receive Social Security and other government benefits.

The federal government, which issues 73 million payments a month, is phasing out paper checks for all benefit programs, requiring people to get payments electronically, either through direct deposit or a debit card for those without a bank account.

The changes will affect people who get Social Security, veterans benefits, railroad pensions and federal disability payments. Tax refunds are exempt, but the Internal Revenue Service encourages taxpayers to get refunds electronically by processing those refunds faster than paper checks.

About 90 percent of people who receive federal benefits already get their payments electronically, the Treasury Department says. New beneficiaries were required to get payments electronically starting last year, and with a few exceptions, the rest will have to make the switch by March 2013.

“It’s just that natural progression of moving to how people are used to receiving their funds,” said Walt Henderson, director of the Treasury Department’s electronic funds transfer division.

Henderson said electronic payments are safer and more efficient than paper checks; in 2010, more than 540,000 federal benefit checks were reported lost or stolen. The switch will save the government about $120 million a year. Social Security will save $1 billion over the next decade, according to the Treasury Department.

“You think of that paper check floating out there in the delivery system, with personal information on it, it’s much more susceptible to fraud versus an electronic payment,” Henderson said.

Advocates for older adults say they understand the government’s desire to cut costs and take advantage of technologies that most workers already use. The food stamp program switched from paper coupons to debit cards in 2004.

But they have raised concerns about requiring the switch for older retirees who may not be used to electronic payments.

“This will affect some very frail elderly people who are living by themselves, many of them, and doing well, but usually within the context of that old paper check that they deposit in the bank,” said Web Phillips, a senior policy advisor for the National Committee to Protect Social Security and Medicare.

“The change has to be handled carefully and with a lot of sensitivity so that there aren’t people who lose track of a payment or don’t understand that they have a card that came in the mail that’s the source of their payment,” Phillips said. “That’s our concern.”

The switch is mandated by a Treasury rule issued in December 2010. Since then, the department has worked to educate the public. The government has created a website — www.GoDirect.org — and a toll-free phone number, 1-800-333-1795, people can call for assistance.

AARP also has concerns about fees associated with the debit cards. The Direct Express cards are issued by Comerica Bank, Treasury’s financial agent. Each month, benefit payments are added to the cards, which can be used to make purchases or withdraw cash from ATMs.

There are no fees for using the debit card to make purchases. They can be used at any retailer that accepts MasterCard debit cards. If a card is lost or stolen, the beneficiary is protected from unauthorized use as long as the missing card is reported promptly.

Cardholders can make one free ATM withdrawal each time a payment is registered in the card. Subsequent withdrawals will cost 90 cents each, and all withdrawals may be subject to fees by the owner of the ATM.

The government’s switch to electronic payments also comes with a side effect: less business for the Postal Service, an agency that is already facing big budget problems with the rise of email and electronic bill paying.

The private sector has been migrating to electronic payments for years, costing the Postal Service millions of customers, said Alan Robinson, editor of the Postal Journal, a trade publication.

“Normally, these things happen one customer at a time,” Robinson said. “In terms of payments, this is probably one of the largest.”