Policy Updates: Major Cost in Farm Country: Escalating Health-Care Expenditures

Posted on 02/25/2018 3:10 PM

North Korea | Biofuel policy summit | Trump and Pacific trade policy | NAFTA 2.0 | 199A

Major media not focusing enough on the dramatically rising costs of health insurance for farmers and ranchers and their families? That is what some industry stakeholders say. They cite significant premium and deductible expenditures in health-care costs if their spouse does not work off the farm and have private insurance available to them.

Add the sky-high cost of prescription drugs to the farm industry's concerns. “I was in Panama and saw how little antibiotics cost compared to charges for the same drugs in the United States,” one farmer said at a Pioneer-sponsored event in Grand Island, Nebraska.

Every small business is faced with this exact situation... no health insurance company wants to deal with you, and every year there are higher costs for less attractive insurance coverage. This is not sustainable,” a Washington-based consultant said.

Some fairly prominent farm organizations including co-ops have examined options for group healthcare coverage. An example is the Western Growers Association and their foray into health insurance, one sources informed.

More than anything, these groups need Congress to pass legislation lifting the prohibition on Association Health Plans (AHPs) under ERISA,” one Washington analyst said. ERISA is the Employee Retirement Income Security Act, a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.

Chart source: Wall Street Journal

Farm health insurance sources

The Treasury levied what President Trump called its largest ever sanctions on North Korea, targeting shipping and trading firms, including some from China, to choke off foreign-currency flows to the nuclear-armed state. We imposed today the heaviest sanctions ever imposed on a country before,” President Donald Trump said in a speech Friday at the Conservative Political Action Conference in Maryland. “If the sanctions don’t work, we’ll have to go to phase two,” he said later in the day without elaborating. Trump said that alternatives “may be a very rough thing, it may be very, very unfortunate for the world.”

China, the biggest enabler of North Korea’s destabilizing activities, only gets a slap on the wrist, escaping any punishment in this package,” said Sen. Ed Markey (D- Mass.). Christopher Ford, a senior State Department official who handles nonproliferation issues, said China was gradually improving its enforcement of sanctions against North Korea but acknowledged the Trump administration wanted Beijing to do much more.

China responds. Trump-administration sanctions against Chinese shipping and energy firms doing business with North Korea are a step too far, China’s Foreign Ministry said Saturday. “China resolutely opposes the U.S. side enacting unilateral sanctions and long-armed jurisdiction in accordance with its domestic law against Chinese entities or individuals,” the ministry said. “We have already lodged stern representations with the U.S. side about this issue and demand the U.S. side immediately stops such relevant mistaken actions to avoid harming bilateral cooperation in the relevant area,” the ministry said.

Biofuel policy summit to be held Tuesday at the White House. Besides President Trump, the session will include EPA Administrator Scott Pruitt, USDA Secretary Sonny Perdue and four GOP senators. Link for details of the session, including reports about what an initial meeting on the topic reportedly discussed last Friday.

Search still on for Section 199A update. A fix for a controversial provision in the recent tax reform law remains in flux. The Tax Cuts and Jobs Act, passed last year, unintentionally created a tax advantage for producers who sell to cooperatives instead of private or independent businesses through Section 199A. Under the current language, farmers can gain thousands of dollars in tax breaks by selling their grain to a co-op: If a farmer sells grain to a privately owned grain elevator, they can claim a 20% deduction on the net proceeds, or profit, from the sale. But if they sell to a cooperative they can claim the 20% deduction on the gross, or total amount, of the sale.

The matter has tax and marketing implications with some companies already rushing to form a cooperative, so they can buy corn so the farmer gets the tax benefit. Other companies are pushing for a “quick fix” to the issue to avoid having to become a cooperative.

The likely legislative vehicle for a fix continues to be to attach the change to an omnibus budget bill Congress needs to pass by March 23.

Trump again says U.S. re-entering Pacific trade deal a possibility. President Donald Trump said he would consider rejoining the Trans-Pacific Partnership (TPP) if the U.S. could negotiate more favorable terms. “TPP was a very bad deal for the United States. There’s a possibility we would be going in” if offered better terms, Trump said at a news conference with Australian Prime Minister Malcolm Turnbull on Friday at the White House.

Trump said he prefers “bilateral deals” to multi-nation agreements like the TPP and pointed to a pact with Australia as an example. The two countries’ “reciprocal trading relationship is a model for other countries,” he said.

A group of 25 Republican senators sent Trump a letter on Friday asking him to “re-engage with the Trans-Pacific Partnership.” Trump withdrew the U.S. from the 12-nation free trade pact during his first week in office. The remaining nations announced they struck an alternative agreement without the United States. “We encourage you to work aggressively to secure reforms that would allow the United States to join the agreement,” the senators wrote. “Increased economic engagement with the 11 nations currently in TPP has the potential to substantially improve the competitiveness of U.S. businesses, support millions of U.S. jobs, increase U.S. exports, increase wages, fully unleash America’s energy potential, and benefit consumers.” Link to letter.

Now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), President Trump withdrew from the agreement his third day in office. Under terms of the agreement, for example, TPP would have significantly reduced tariffs on U.S. pork based on Japan’s “gate price system.” The CPTPP was finalized last Wednesday following a series of negotiations between TPP’s 11 remaining member nations and is scheduled to be signed in March.

OMB releases 2017 report on costs, benefits of regulations. The White House released a mandatory report (link) that was due to Congress last year on the costs and benefits of all federal regulations. The Office of Management and Budget’s (OMB's) 2017 Draft Report to Congress on the Benefits and Costs of Federal Regulations, now open for public comment, estimates that the benefits of regulations through fiscal 2016 far exceeded their costs.

The estimated annual benefits of major federal regulations reviewed by OMB from Oct. 1, 2006, through Sept. 30, 2016, were in the aggregate between $219 billion and $695 billion, while the estimated annual costs were in the aggregate between $59 billion and $88 billion, the report said.

Negotiators began meeting in Mexico City Sunday for round seven of talks to update the North American Free Trade Agreement, with negotiations continuing through March 5. Major issues such as agriculture and intellectual property have yet to be resolved, but incremental progress was made when negotiators last met in Montreal.

The U.S. request that Canada eliminate its supply management system for dairy, poultry, and eggs as well as increase market access for those products has been a sticking point as is the U.S. proposal that both NAFTA partners raise the duty-free threshold to the U.S. level of $800. Canada's is C$20 (about $15), and Mexico's is $50.

"It is time for the political leadership to decide whether to get to a deal or not," said former U.S. diplomat Scotty Greenwood. "If you could make a ton of progress this round, so you could announce something immediately thereafter, that would be good. Short of that, I think you then adopt a go-slow approach, and you just negotiate for a long time and avoid not just the Mexican election, but the U.S. midterms later this year, and then the Canadian elections next year." There is no firm timeline for a deal to be reached.

Mexican Economy Minister Ildefonso Guajardo said the renegotiation of the 24-year-old trade deal is entering a critical phase. "It's going to be a difficult meeting," Guajardo said, noting that negotiators have moved from general discussions to "highly complex issues" like the amount of content in automobiles produced in the region that must be U.S.-made.

Mexico, which sends some 80% of its exports to the U.S., is gearing up for elections on July 1. The presidential frontrunner, the leftist Andres Manuel Lopez Obrador at one point that he would restart NAFTA negotiations and "make Donald Trump see reason."

Mexico's president cancels plan to visit White House. Tentative plans for Mexican President Enrique Peña Nieto to make his first visit to the White House to meet with President Trump were scuttled after a testy call between the two leaders ended in an impasse over Trump’s promised border wall, according to the Washington Post. Peña Nieto was eyeing an official trip to Washington this month or in March, but both countries agreed to call off the plan after Trump would not agree to publicly affirm Mexico's position that it would not fund construction of a border wall that the Mexican people widely consider offensive, said the officials, who spoke on the condition of anonymity to discuss a confidential conversation. Link

Plans are being made to schedule an eighth round of talks in the U.S. in late March.

U.S. trade policy report due this week. The Office of the U.S. Trade Representative (USTR) must submit its 2018 Trade Policy Report to Congress by March 1. The report, released annually, outlines the president's annual trade agenda. In last year's submission, the Trump administration focused on strict enforcement of U.S. trade laws, negotiating “better” trade deals with other countries, and prioritizing U.S. trade laws over the mandates of the World Trade Organization.

Other items of note:

  • North Korea will talk to U.S. President Moon Jae-in of South Korea said high-ranking officials from North Korea told him their country was willing to start a dialogue with the United States, a potential diplomatic victory for Moon, who has been urging the two countries to talk. Link to New York Times article.

  • President Trump hosts governors at the White House Monday, and will have lunch with VP Mike Pence, USDA Secretary Sonny Perdue and EPA Administrator Scott Pruitt (Trump, Pruitt and Perdue on Tuesday will participate in a White House-based confab on biofuel policy).

  • China’s Communist Party proposed eliminating a constitutional cap on presidential terms, solidifying signs Xi Jinping intends to cast off decades-old restraints on one-man rule and stay in power, according to the country’s official news agency, potentially paving the way for Xi Jinping to remain in office beyond 2023.

  • President Trump tapped former U.S. trade official Amy Karpel to serve on the International Trade Commission (ITC). If confirmed by the Senate, Karpel would serve for the remainder of a nine-year ITC term expiring June 16, 2020. She would replace F. Scott Kieff who resigned. The nomination will be considered by the Senate Finance Committee. Karpel's most recent position was at the Office of the U.S. Trade Representative where she provided legal advice on the implementation of trade agreements. While at USTR, Karpel litigated international trade disputes before the World Trade Organization.

  • Sen. Dianne Feinstein (D-Calif.) loses endorsement of California Democrats as she seeks fifth term in Washington. California Democrats rebuked Feinstein at their annual convention this weekend, denying her the party’s endorsement and giving a majority of their votes to her liberal primary challenger. Feinstein becomes the first incumbent senator in recent memory who will run in June’s primary without official backing. Just 37% of delegates to the statewide convention backed Feinstein. More than 54% backed state Sen. Kevin de León.

  • Kasich mulls end of two-party system. "I'm starting to really wonder if we are going to see a multi-party system at some point in the future in this country because I don't think either party is answering people's deepest concerns and needs,” Ohio Gov. John Kasich (R) said on Sunday on ABC’s This Week. Kasich pointed out that the lack of an agenda from both parties could help lead to a multi-party system. “That's exactly why I'm saying that our young people are fed up and why I'm saying that the prospect of a multi-party system in this country is a real possibility,” Kasich said.

Markets. The Dow on Friday moved up 347.51 points, 1.39%, at 25,309.99. The Nasdaq gained 127.31 points, 1.77%, at 7,337.39. The S&P 500 added 43.34 points, 1.60%, at 2,747.30. Friday's rally came after a Federal Reserve report to Congress gave little indication that the central bank plans to raise interest rates more aggressively than anticipated this year. The Dow industrials and the S&P 500 indexes now have recouped more than half of what they lost during the market pullback that ended on Feb. 8. That move had left the S&P 500 about 10% below its peak of 2,873 set on Jan. 26.

For the week, the Dow added 0.4%, the Nasdaq gained 1.4%, the S&P 500 was up 0.6%, the U.S. dollar index rose 0.9%, gold lost 1.7%, U.S crude was up 3.3%, Brent crude rose 3.8% and the yield on the 10-year Treasury note was down 0.5 basis points.

Fed officials shift thoughts toward future policy changes, not rate moves. While saying the "bar should be high" for any changes to the Fed's policy framework, Cleveland Fed President Loretta Mester said it may be appropriate for a rethink later this year. However, Mester did not signal at the Chicago Booth monetary policy forum which change she may favor. Among options the Fed could pursue are to adjust their inflation target upwards or setting it in a range or to target nominal GDP, but indications are there would be no shift announced before the start of 2019. New York Fed President William Dudley said that the Fed should probably stop shrinking its balance sheet so that it stays above $2.9 trillion. Dudley signaled he is a strong advocate for a floor system for setting interest rates, and since that should require large amounts of reserves in the system. Given that, he argued the "terminal balance sheet may actually turn out to be even higher" than a $2.9 trillion level suggested in a paper presented by Wall Street economists at the Chicago meeting.


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