P&L: MIT's Gruber on How to Restore Obamacare to Initial Vision

White House. John Grouber is a professor of economics at m I T and many people consider him a key architect of the Obamacare program. He joins us now, John Groober, thank you, sir, good to be here. Can you explain some of the specific elements of the Affordable Care Act

which you believe need improvement. I think the major issue before Portable Care Act that needs improvement is the fact that ensure that competition has not been the strongest who might have hoped on these exchanges, and that insures, as a result of that, to raise premiums more than we might have hoped. I think that really, in some sense what needs to happen is something. The law needs to be implemented the way it was written. I want any

buy that is. Two things. First of all, the states where things are worse are the states have not expanded their medicaid programs, leading sick individuals into the exchanges rather than being covered by lower cost medicaid. Second of all, um, what's happened is in the law there was reinsurance payments to insurers that were scheduled paid to help them withstand

the vicissitudes of entering a new market. Republicans blocked those payments and so insure suffered billions of costs they didn't plan to when they signed up for the Obamacare exchanges. But the law had really has been implemented as planned, I think it would have gone a lot better. Okay, well, let let's let's just take that first one just so we can understand that. You say that people who should have gone into the lower cost medic CAD program right

went into an exchange based program. That's correct. So the way Obamacare was set up was individuals below a hundred thirty percent of the poverty line or you know, like fifteen dollars to an individual, we're supposed to be in the government Medicaid program, which pays providers less and is sort of a more unit is basically more managed type of care. And the drews above that level we're supposed to be in the exchanges buying private insurance along with

people of of hiring income levels. UH. The problem was when states chose to turn down the free opportunity to cover their uninsured, the really crazy decision to not expand Medicaid, people between a hundred and hundred percent of poverty became eligible for exchanges. So people who say in California would be getting medicaid, people between a hundred and hundred thirty percent of poverty will be getting Medicaid in Florida there

in the exchanges as a result. Actually the state with the most people in exchanges in America is Florida, which

has speciferously fought the Affordable Care Act. Okay, can you reconcile that though with the idea that there are people many times above the UH the income level in order to qualify for medicaid, because it also has to do with some efforts on part of the government to figure out your assets, but that are paying maybe five hundred more more dollars a month in premiums for the least expensive plan that is on offer on the exchange, and yet the deductible is so high that it makes paying

the premium almost crazy unless you know that you are going to use some type of long stay, long term stay, or catastrophic element of the plan. So basically, I think when you evaluate any law like the Affordable Care Act, you have to evaluate it relative not to the world we wish existed, but the world that would have existed otherwise. The problem you're pointing out is not about the Affordable Care Act. It's about the super high cost of healthcare

in the US. We as a nation are spending seventeen percent of our income on healthcare in a world that pay income on our healthcare. A high income family paying the kind of cost you're laying out is exactly what you'd expect, you know, in a high income family is gonna have spending ten plus percent. They're in healthcare in a world where the nation of the whole is spending

se So really, that's not about Obamacare. That's about the fundamental, long run problem of high costs, which Obamacare has done more to address than any legislation US history. If you look at the cost employer sponsored insurance since Obamacare has been passed, they've fallen by thirty relative to what would

have happened otherwise. Well, you say relative to what would have happened otherwise, but you recognize, I would imagine you admit that if you ask people what has happened to the premiums of their health insurance that they are either paying for themselves or for their employees, you would not be surprised if you heard them say it has gone up dramatically. Well, you know, I would not be surprised

at all. And so this is the really difficult problem that I think people who developed Obamacare did not appreciate enough beforehand, which is that when you reform the system, you own the system. And what that means is people hold you, really in some sense to not the standard of what would have happened otherwise, but the standard of everything they don't like is your fault. And essentially we have a system that's too expensive. Premiums since Obamacare have risen.

They have written much more slow than they were rising before Obamacare, but they still risen. And the question is what Obamacare supporters and that didn't do a good enough job doing I don't know how we could have done it, but clearly we couldn't do a better job would be to explain to people, to set up more realistic expectations, that Obamacare was the first step towards address the problems

to the system, not the solution. Having said that, can you also maybe give us your perspective and you say that would be the first step up. But knowing the way that legislation and the government works, you're only only going to get one or two chances during an entire administration. So to say that it's the first step implies that you're going to be able to roll out these improvements on an ongoing basis that really just never happened. But

but that's actually not true. I mean, take Medicare. That's the largest single healthcare program in the country. It's fifty years old. We're continually changing it. No, but I'm talking about it. I'm talking about a bomb. I'm talking about the Affordable Care Act, not Medicare. No, but no. But here's the reason I point it. You said we won't be able to make those changes. Why not, Well, because you can because you have a Republican administration coming in.

But that's a separate issue. But as political as political and policy experts, isn't that one of the most fundamental things to take into consideration that you might not be around in the next four years to implement whatever improvements you think are necessary to make it work for people. So what you do in that situation you pass a law that has two criteria. It makes to is better than if the law did not exist, and be it hopefully sets up a flexible enough system that well intentioned

people can continue to improve it. That's exactly what Obamacare did. It made the world better. The healthcare costs are growing more slowly, more people have health insurance coverage. They made the world better than it was without Obamacare. But it was impossible pass a law that literally fixed the system because quite frankly, we don't know how. There's still too

much unknown. So what you do is you make the world better and you set up a system where well intentioned governments, which doesn't eem like this is gonna be one but we're well intentioned governments can continue to improve things. That's all you can do. I mean, you can't solve all the world's problems in one cell swoop. No piece of legislation has ever done that the best legislation moves in the right direction sets you up to continue to move in that direction when you of government who are

willing to do so. Well done, Thanks very much, John Groober. He is a professor of economics at m I T. He is considered a key architect of the Affordable Care Act Obamacare. We'll have to wait and see in seventeen what President elect Donald Trump and House and Senate Republicans have in mind for any changes or repeal of Obamacare. US intelligence agencies have concluded that the Kremlin approved the attacks on the Democratic and National Committee and other political organizations.

United States has retaliated, and now President Vladimir Putin of Russia says he will not retaliate for President Obama's expulsion of thirty five suspected operatives. This comes hours after the Russian foreign minister publicly recommended a response. Here to tell us what is going on is Nick Wadhams. He is our policy foreign policy reporter for Bloomberg, and he joins us now from Washington, d C. Home to Bloomberg one

and one oh five point seven eight d two. Nick, give us the latest on this, he said, he said, And now you're expelled, you're not expelled, saga. Well, it's really interesting. So earlier today, you know that the expectation was that Russia would respond in kind. I mean, traditionally how these things work, as if the US expels another country's diplomats is just sort of pro forma that they respond by expelling the same number of American diplomats from

their country. And indeed that appeared to be what was going to happen after the Foreign Ministry recommended that Russia do so. Then uh, Putin overturned that and said we're not going to Obviously, whether he actually overturned it or the whole thing was sort of an orchestrated dance is up for debate. But uh, you know he said he portrayed is basically taking the high ground as saying we're not going to stoop to this sort of kitchen politics,

as he called it. But really it's it's an acknowledgement that that Russia just wants to wait until Donald Trump comes to office and test his claim to seek better relations. So clearly they just see him as sort of a more reliable negotiating partner. Now, nick I got a chance,

and I mean I guess you can. Anyone can look at this, of course, because it is available on the Joint Analysis Website of the US Intelligence Department of Homeland Security as well as the Federal Viewer of Investigation, and it goes into quite a detailed analysis of what is called Grizzly Step. This is the Russian malicious cyber activity.

This has been going on, according to the report since right, that's right, and you know this was I think what we're seeing is partly an attempt by the Obama administration to make the case both to the American public who may have been doubtful about the claims against Russia, but also to Donald Trump and his own teams. And what they've sort of been saying recently is, you know, there's

not a consensus in the intelligence community. We've had lots of um anonymous statements from various members of the intelligence community, but no full consensus where everybody says, okay, we are all united on what we think is going on. Uh. And Trump had actually pointed to the FBI and had said, well, where's the FBI in this. We've had the CIA and others,

but I'm still waiting to hear from the FBI. Well, now we've heard from them, uh, and so we're all sort of waiting to see how he internalizes and processes this information and whether that changes his calculus and brings him down a little bit more firmly on the side

of those who say Russia should be punished now. The summary also offers details of the actual hacks, whether it is from something called APP twenty nine or APP twenty eight, and it talks some tail about remote access tools and how they actually gained access to many emails and email accounts because in twenty team they started something called a spear phishing campaign and that created a link that made it possible for them to steal information from the computers

of the US government as well as political organizations. Well that's right. I mean, the thing that's partly so interesting about all of this is, for all the discussion about technical matters and covert cyber campaigns and classified information, I mean, the way that, uh, some of this started was just hackers sending a fake email to John Podesta, allegedly or purporting to be from Google telling him to change his password.

So when he clicked on it and changed his password, uh, hackers had information had access to his entire Gmail account, and that's where he saw a lot of the Wiki leaks or all all the Wiki leaks emails come from. So it was a very actually simple operation to get uh that that email account. But you know, again, what we're really seeing is the Obama administration sort of making its case and being very explicit about why it thinks Russia is involved, and being willing to disclose the evidence

to back that up. Thank you, Nick wadhams, our foreign policy reporter for Bloomberg. The Supreme Court of the United States normally consists of the Chief Justice of the United States and eight Associate Justices who are nominated by the President and then confirmed by the Senate. Well, we only have eight right now, and in addition to President elect Donald Trump taking the oath of office on January, is it possible that there will be another oath administered for

Supreme Court justice? Let's find out from Kimberly Robinson b N, a reporter for Bloomberg. Bloom for the Supreme Court. I beg your pardon, Kimberly, thank you very much for for being with me today. Um, tell us a little bit about what you expect to happen in twenty seventeen, and maybe give us some names of individuals who you believe are being considered for a place on the Supreme Court. Well, the Trump campaign itself actually provided a list of twenty

one names that are being considered as possible nominees. They provided this list before the election, but have since confirmed that they will be picking from that list, And in fact, on December one, Donald Trump indicated that he would release the name very soon, possibly before his inauguration. UM. Of course,

that doesn't mean that we'll have a sitting justice before then. UM. Any potential nominee still has to go through confirmation hearings, and those could be quite controversial, really, depending on who who it is that Donald Trump decides to ultimately nominate. So are there some particular individuals I note Bill prior form our Alabama Attorney General Thomas Hardeman, he's on the Philadelphia Appeals Court. Steve Cullaton the also US Court of

Appeals from Iowa. Tell us some of the individuals being considered, Right, those are three of the five individuals who have really come out um as the front runners. Um, And as you mentioned, a lot of these individuals are are currently federal Appellate Court judges, so that could speed up the confirmation process. I think the consensus is that the two front runners really are Bill Pryor whom you mentioned, UM

and Diane Sykes. Now, Donald Trump has said that he wants to nominate somebody who's in the mold of Justice Scalia, who is responsible for the vacancy on the court. UM. Somebody who's tested who wouldn't have any surprises for conservatives UM, which has happened for other Republican nominees, And somebody who's young enough to really impact the court and judicial uh in UM cases for a long time. Now. Both Bill

Prior and Diane Sykes fit that bill. There the two individuals that Donald Trump name dropped back in February when Justice Scalia first passed away UH. And you know they're both, as I mentioned, long term federal Pellate Court judges who have ruled favorably on conservative issues like abortion and the Second Amendment. UM. But Bill Prior um is a more controversial pick. Now. He has once referred to Row versus Wade, the Supreme Court Landmark abortion decision as the worst abomination

in constitutional legal history. UM. And so if if Donald Trump wants to avoid a very tough confirmation fight. He may instead go with Diane Sykes. She was a single mom who has said that her philosophy is one of judicial restraint, so she could be an easier confirmation battle for a new administration. What are some of the specific

cases you believe will be important in the court. Well, the specific cases UM that are already at the court UM include things on transgender rights UM, and we may be seeing issues on immigration coming back to the court, and those are things actually some of these judges are

already dealing with. You know, Diane Sykes, she sits in Federal Appellate Court in Chicago and is dealing with transgender rights UM out there, and so I think that that's an issue that will be closely looked at in their confirmation hearings UM and something that we'll be hearing about from the Supreme Court UM in the next year. I'm glad you mentioned those confirmation hearings. What is the thinking on part of the Democrat senators who will have to

approve or at least not filibuster the nominations. Well, these five individuals are not interchangeable. They really are quite different. And so uh, as they said in the beginning, It really depends on who Donald Trump chooses to pick. As I've suggested, Bill Pryor could be a really tough confirmation battle, and Democrats may decide to dig in their heels. They certainly did that when he was up for nomination for

the court that he sits on now. Uh. Democrats were able to drag his confirmation battle out for two full years. But someone like Diane Sykes might be easier for Democrats to get behind. And you know, the math for Democrats, especially Senate Democrats, is pretty difficult. They may not want to have a big fight on this first nominee, especially considering that there may be some Supreme Court vacancies coming

up again in the near future. In that context, how long do you think it will be before we learn the actual name of the nominee. I think it could be any time in the next coming days. As I mentioned, it was December one when Donald Trump said that he would very soon drop the name. UM, so we're about a month out from that. UM. I would expect us to hear a name sometime very soon. We'll have to wait and see. But I want to thank you very

much for keeping us up today. Kimberly Robinson is our Supreme Court reporter for Bloomberg b n A. Wenna have to watch closely. And indeed, one of the federal judges that the Donald Trump's team has indicated might be a possible fit for the Supreme Court. To Diane's Sykes, a federal judge of the United States Courts of Appeals for the Seventh Circuit. Well, maybe she'll have something to celebrate. Her birthday was just on December the twenty three, so

we wish her the latest happy birthday. Well, we call on Chuck Lieberman, the chief investment Officer and managing partner at Advisors Capital Management, to help us navigate our investment portfolios and strategies. He helps to manage one point three billion dollars and he joins us from Ridgewood, New Jersey. Chuck Lieberman, thank you for being with me. Give us your outlook for twenty seventeen, and maybe you can take a look at it in terms of industry groups that

will fare well and those that will fare poorly. Well, we see, uh, some continuing trends from six um. Trump selection, I think reinforces a lot of those trends that we see in place. So we see policies that are a bit more pro growth, whether it's cutting taxes at the corporate level or at the individual level, increased government spending, the regulation, all of those work in the same direction

for stronger growth. So that suggests that sectors that are more cyclical should benefit, sectors that are less cyclical should be hurt, both because of the better economy, but also because of upward pressure on inflation and wage rates and and interest rates. UM. And that gets back to the notion that the truth of the matter is the U

S economy hasn't feared that badly. The unemployment rate has come down pretty dramaticle we're at obviously cyclical lows and and even at full employment by the Fed Zone definition,

although they haven't really reacted much to it yet. But if you then get some incremental strength in the economy, which everyone seems to think is coming UH, that has a pretty negative implication for the bond market UH, and therefore also a negative implication for everything in the stock market that is very, very interest rate sensitive, notably things like real estate investment, trust utilities UH, telephone companies UH,

and even consumer staples. Well, but I thought that cyclical stocks the supercyclical sector includes such things as basic materials as well as consumer cyclicals, financial services, and real estate. Well, it varies. Uh. If you think about for example, materials, UH. Material sector has its own issues, most importantly the deceleration and economic growth in China and pretty much the end of the huge construction boom in China, both of which

demanded vast quantities of raw materials. China counted for something like plus of the total world's demand for cement some years ago, and that's going to a road pretty rapidly. Uh. And the same thing follows through for iron ore and steel and all of the other industrial medals. And you're seeing the fall out of that for companies like Caterpillar

and mining companies and and so on. So I wouldn't look for that to uh have a stronger economy more than offset that very very powerful secular trend working against those sectors. UM. The others like financial services, absolutely that's going to be one of the prime beneficiaries. That sector has done very well already up roughly since the election.

But if you still buy into financials today, yeah, I think the valuations are still a tray active and I would buy into financials any specifics, whether you're talking regional banks, money center banks, or non financial non bank financials. I definitely like the money center banks. I think they are

still pretty inexpensive. UH and deregulation plus lower interest rate put plus lower UM plus money I'm sorry, plus a widening of interest rate differentials because of rising rates UH increasing the rates that they earned versus the rates they pay, plus the deregulation. Both of those should work very powerfully for them. Well, let me just give you a couple and you can just give us a nod almost you know, whether it's Bank of America. The yield there one point

three percent, the stock is up thirty this year. I still like it. Okay, how about City Group? Do you think they'll benefit? Absolutely? Still like that one as well. Any regional banks. We do like some of the regional banks. UM. The regional banks should should benefit from the wire eyes and interest rates and the same phenomenon of arising in that interest margin. UH. Pack West is one that we like.

P A. C W is another one we like. UM Regions Financial in the Southeast another one we like, Bank United, also in the Southeast. Now you're not buying these because of the dividend yield or are you well? In some cases we are and in many cases we're not. We're buying them because they're attractive investments, because I'm just looking. For example, pack West up UH this year. The yield is over three and a half percent. Right, that one

fits into our income with growth strategy. So there we're buying it both for the yield as well as for the upside potential. But the city is a holding in our growth portfolio. The yield is still low there, but they have the ability to raise that dividends substantially over time, and until they get approval from the Fed, they continue

to buy back a lot of stocks. When Chuck Lieberman sits down around the New Year's table and someone asks, what is your most far fetched investment strategy, meaning the one for an individual or an institution that can afford some bumps along the way, what does Chuck Lieberman say? Uh. One of the areas that I like are some of the non bank financials, business development companies, and some of the UH private investment companies companies like a black Stone Group. UH,

those are very interesting. They provide pretty good yields UH, and they should benefit from the healthier economy. They can sell off some of their investments in the market that I think is going to be uh doing fine, so they can realize some of those big investment gains. And you're putting your money with people like Steven Schwartzman, who

happens to run the black Stone Group. Right stock down eight percent this year with the yield currently of over six per cent, But the people have to be mindful that that yield can change, and it can change dramatically, and it changes all the time. It reflects their ability to realize gains. And they've got a core business that's sort of recurring, and then there's another business that is

much more uh episodic, shall we say. So they need to be able to sell off assets, but the underlying value of that building the business remains very, very attractive, and so when you ask for something that's a little bit off the mainstream, that's one I want to thank you very much for joining me. Chuck Lieberman is the chief investment Officer and managing partner for Adviser's Capital Management, where he helps manage over one point three billion dollars.

Joining us from Ridgewood, New Jersey, Thanks for listening to the Bloomberg p and l podcast. You can subscribe and listen to interviews at iTunes, sound Cloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio