American Economic Suicide Watch Update #3

The Washington Post (of all places) has a report on the almost certain mismanagement of the Theft/Pork bill if it goes into effect:

The Obama administration's economic stimulus plan could end up wasting billions of dollars by attempting to spend money faster than an overburdened government acquisition system can manage and oversee it, according to documents and interviews with contracting specialists.

The $827 billion stimulus legislation under debate in Congress includes provisions aimed at ensuring oversight of the massive infusion of contracts, state grants and other measures. At the urging of the administration, those provisions call for transparency, bid competition, and new auditing resources and oversight boards.

But under the terms of the stimulus proposals, a depleted contracting workforce would be asked to spend more money more rapidly than ever before, while also improving competition and oversight. Auditors would be asked to track surges in spending on projects ranging from bridge construction and schools to research of "green" energy and the development of electronic health records — a challenge made more difficult because many contracts would be awarded by state agencies.

The stimulus plan presents a stark choice: The government can spend unprecedented amounts of money quickly in an effort to jump-start the economy or it can move more deliberately to thwart the cost overruns common to federal contracts in recent years.

This wasteful spending would be on top of the wasteful spending and pork specifically legislated in the bill itself, of course.

One more poison pill in the House bill that passed last week that I just saw:

The House-passed "stimulus" bill includes a little-noticed provision which would impose substantial new costs on employers—exactly what is not needed right now with so many companies struggling to maintain profitability.

Under current law, laid off workers can elect to stay on with their former employer's health plan (so-called "COBRA" coverage), but the displaced workers have to pay the "full" premium associated with the plan and find other coverage after eighteen months.

Even though employers don't have to pay an explicit subsidy for COBRA enrollees, the program is nonetheless costly because it suffers from "adverse selection." COBRA enrollees pay premiums based on average plan costs, but they tend to be older and have more costly conditions than active workers, so their health care costs exceed the premiums they pay. Previous studies have estimated costs for the average COBRA enrollee at 145% of premium payments. Economic logic indicates these extra costs are passed on to current workers in the form of reduced cash wages, or perhaps a smaller workforce.

Now, the House has passed a provision—section 3002(b) of the stimulus bill—which would require employers to extend the period of COBRA eligibility beyond eighteen months for anyone with at least ten years of service with the firm or anyone who is at least 55 years old (this is in addition to a provision establishing a temporary federal subsidy at 65 percent of premium costs). These special categories of former employees could stay enrolled in a COBRA plan until they become eligible for Medicare at age 65.  This would mean that a thirty-something displaced worker could potentially stay enrolled in a former employer's health plan for three decades after separation.

The HR departments for large employers are looking at this provision with great alarm, as indicated in this policy brief. PricewaterhouseCoopers produced an analysis which pegs the ten-year cost of this provision at $39 billion to $65 billion just for those current COBRA-eligible workers age 55 to 64. The estimated costs would be even higher if the analysis assumed, as is reasonable, that many more workers would elect early retirement if they were assured of access to group-rated insurance.

What would employers do if faced with the costs of implementing this provision? It's fairly predictable.  They would hire fewer workers, and pay their current employees less. Not exactly "stimulus."

Indeed, this is exactly the kind of complex provision which should be considered by Congress only after careful study and a hearing or two to avoid unintended consequences. Certainly it has no business on a bill purportedly aimed at promoting short-term job growth. Unfortunately, logic and reason may not be enough to prevail in the current mad-dash rush to "pass something."

Fewer hirings and lower wages?  Like the man said: not exactly 'stimulus'.  But, it would be HOPE! and CHANGE!, wouldn't it?

The Senate cloture vote is supposed to happen sometime tonight.  I'll post an update later after it's done.  We'll see what the almighty Senate has determined to do with the American economy...will it be real recovery, or will it be forced suicide?

There's my two cents.