The case for healthcare price caps

Today on the show we'll dig into bonds and fed policy theory and we'll look at a less traveled path to home ownership. Would you share a mortgage with your best friend? From American public media, this is Marketplace. In New York, I'm Kristen Schwab in Prokira's Doll. It's Wednesday, September 9th and it's good to be here with you. $100 a barrel. That was the big mental marker of a number that oil prices passed today after the U.S. attacked several Iranian oil tinkers. There's a bit of deja vu happening here. The last time oil prices were this high was back in July. Stocks are, of course, reacting. So are bond yields and not just long term yields. This morning, the yield on the two-year Treasury note hit its highest level since July of 2024. Marketplace's Justin Ho looks into why short-term yields are spiking and what that says about the economy. The reason why short-term Treasury yields are rising is all about inflation because higher oil prices affect the cost of all kinds of things. Whether it be construction expenditures that go into the housing market, or whether that be the cost of delivering toys to a big box store, et cetera. That's Gila Baa, chief fixed income strategist with Janet Montgomery Scott. He says if inflation stays high or goes even higher, thinking is, the Federal Reserve is probably going to hike interest rates. We have a new Fed chair who is at least threatening to be a little bit more aggressive in raising interest rates and fighting inflation. And that expectation tends to have more of an impact on short-term Treasury than on long-term bonds, says Luke Tilly, chief economist at Wilmington Trust. The shorter end of the curve is definitely going to be influenced by short-term inflation and where market participants and traders think that the Fed is going to go with rates. In fact, over the last few months, short-term bond yields have been rising at a faster pace than long-term yields. That's also happening because long-term bonds reflect other factors, including how fast investors expect the economy to grow. Winnie Caesar, global head of strategy at credit sites, says if the Fed's going to hike interest rates? That is explicitly because they want to slow something down. Companies are going to be investing less, they're going to be hiring less, and that brings down growth expectations. And it causes long-term rates to rise more slowly. Caesar says it's not necessarily a bad sign when short-term rates rise at a faster pace. If long-term yields were to rise too quickly, that could be a sign investors think the Fed is letting inflation get out of control. And so if you have the long end of the yield curve that's just spiraling higher, then that is an indication that some sort of policy mistake has probably been made. Instead, the fact that short-term yields are rising at a faster pace is more of a sign than investors expect the Fed to succeed, says Luke Tilly, with Wilmington Trust. The Fed may need to hike rates a little bit in the short-term, but over the long term, you'll still have economic growth. And inflation would be generally under control. I'm Justin Ho for Marketplace. Wall Street today, well, I think you know where this is going. We'll have the details when we do the numbers. [Music] Justin was just telling us about what the bond market might be saying about the Federal Reserve and interest rates. Well, lately, it's been kind of tricky to figure out what the Federal Reserve is saying about interest rates. Will they raise them? Will they hold? We'll find out at next week's Federal Open Markets Committee meeting. In the meantime, we've called up someone who can help us read the economic tea leaves. Randy Crosner is at the University of Chicago Booth School of Business. He served on the Fed's Board of Governors with Kevin Warsh a couple decades ago. Randy, it's great to have you on the show. As always. So let's first talk Kevin Warsh. You two know each other. You work together. On a scale of 1 to 10, 10 being like you two have twin brain. I don't know. How well do you know his approach to monetary policy? So I think Kevin is playing his cards close to his chest. I'm not sure I know the specifics, but I have a, I think, a reasonable feeling for his approach to things, having gone through the confirmation process and also sat next to him during the global financial crisis. Yeah, and he said he's taking a quieter approach as Fed Chair, right? Giving little forward guidance. It's been a few months now. Do you think that strategy has remained true or has he shifted his approach at all? I think he's largely remained true to that. I think he's made it very clear that he's not going to clearly tell you which way he is going to vote. Certainly at Jackson Hall, he gave more criteria for what he would be looking at to make decisions about whether the Fed does need to act, but he didn't say in what cases he would need to act. He just put a little more flesh on the bones, but still left it fairly open. Hmm. Well, yeah, I was surprised, a little surprised about his speech. Like he said, he gave some criteria. He called it a framework, not forward guidance. What's the nuance here? What's the difference? Well, I think what he's doing is talking about what are the key indicators he might look at to make a decision, but he didn't say which a typical central bank chair in the past would say now that have evaluated these eight different criteria, my bottom line is that I think we need to act. He doesn't want to box the Fed in. He wants to see how the data come out and not only look at the individual bumps and wiggles of the data, but also look at the broader trends. Do you think the markets are reacting to Worsh's words, what the previous Fed might have done, what the actual data is saying? I mean, what do you think they're leaning on? So I think there's a bit of a teething process going on, perhaps on both sides. So I think the markets are not used to this more spare communications strategy. Kevin clearly does not want to to give that. And so they're not 100% sure what to react to yet. And he helped to clarify things at Jackson Hole where he's learning what are the pieces that the markets want that will help them to feel more comfortable about his framework without him having to say, and yes, this means I'm going to act next month or no, it means I'm not going to act next month. They're in the, they're in the volume part of volleyball right now. Yes. So the pickle part of pickle ball. Choose your, choose your sport. You know, you, you talked about Worsh relying less on certain types of data. He's talked about relying less on backwards looking data. One number he's mentioned, he's paying, paying attention to is the supply of money in the economy. Why is he watching this and why is he worried about it? I think it's very interesting that he mentioned that because you haven't heard fed people and particularly fed chairs talk about money supply for a very long time. But money supply was quite relevant in the run up of inflation in the post-COVID period. The US money supply and many other countries, the money supply really exploded. And so that sort of old-fashioned notion that that money supply matters for inflation that Milton Friedman had talked about seems to have come back. And obviously, Kevin Worsh has talked about being a, a follower of Milton Friedman and Friedman talked very much about money. I don't think that's the only criteria that he's looking at. But I do think it is one relevant one that I think will get a little bit more attention in this post-COVID period than typically central bank governors have given it in the past. We have another CPI report coming in this week. What is he looking for there? Well, one of the things that he talked about was the number of subcatter quarries of these indexes of how many are going up. Is this something that's broad-based? Is this something that's more narrow just in a few sectors? If we're looking at, are there some outliers that are driving this? Is it just an energy story? Where's it more than an energy story? But I don't think he has like a view that like, aha, if it is this piece that I need to move, that's not I think how he's thinking. Big crystal ball question, what do you think is going to happen at the Fed meeting next week? Well, the crystal ball is always a bit cloudy. But I would say that I think that the markets have gotten a little bit ahead of themselves and assuming that there will be a move. I think the expectations are around the CPI number that, you know, the headline number will be still in the low threes, but the core number will be in the mid-toes. If it's broadly in that range, I don't think that Kevin will see a large need to act. I think he will have some people who will descend and say that they do want to move, but I don't think the majority of the committee want to go there right now. Randy Crosner is at the University of Chicago's Booth School of Business. Randy, thanks so much. Thank you. (upbeat music) It is not common these days to see Republicans and Democrats band together to sport any singular idea. But here's one red and blue states can agree on. The cost of hospital care is too darn high. In fixed-gaining traction, hospital price caps. Indiana and Vermont have passed legislation to limit how much people with private insurance pay for care. In Indiana, for example, where the cap is already in place, hospitals have to offer employers special deals or risk paying a $10,000 penalty for each day they're over the limit. Alex Olgin reports on the trend. Owen Foster sees Vermont's costly health care problem from two sides. In 2021, a family member had big bills for cancer treatment and medicines. The overall number is just for jaw drop ring. It was constantly, I couldn't believe $100,000 for this $80,000, $50,000. His insurance did cover most of it. Foster also shares the Green Mountain Care Board. State lawmakers have tasked it with setting caps on care and some drugs given at hospitals and making sure those prices are reflected in insurance premiums. Striking the balance between affordability and hospital viability is tricky. We have a large proportion of our hospitals classified as vulnerable or highly vulnerable by the rating agencies. That keeps me up because we have to lower the prices, but the hospitals don't have much bandwidth to absorb that. The federal health insurance program for people over 65 has standard and transparent prices. The states are setting caps at a multiple of Medicare rates. It's a tested theory. One early experiment in Oregon that limited state employee health care prices to double Medicare rates saved $107 million in two years. So price cuts are absolutely the new hot thing. That hot new thing says Kelsey will focal with health care advocacy group United States of care is a shift from how lawmakers had been tackling affordability over the last 15 years. State governments and the federal government continue to subsidize that care to help try to make it more affordable for people. And I think state legislators were recognizing the need to interrupt that. Vermont's law, which goes into effect in 2027, is sweeping. Capping prices for care and certain drugs at hospitals for the entire private health insurance market. It's massive. I mean, it's a very big change. Michael Del Treco has big concerns about the caps. He's president of the Vermont Hospital Association. He says hospitals are buying supplies together and sharing some doctors to save money. He's optimistic that primary or maternity care might actually see a bump. I could see those going up, but I see more downward pressure in this discussion than upward mobility. Indiana's law is more targeted. It only applies to employers who choose to cut out the insurer and buy health care directly from a hospital. Mike Shroyer is also worried. He's president of Baptist Health Floyd Hospital in Southern Indiana. His costs for everything, doctors, equipment and construction keep going up. My supply cost over the last two years have gone up 29% alone. At the same time, federal Medicaid cuts have meant a spike in unpaid care in the emergency room. We are getting slammed and trying to keep the cost of health care down, but again, it's all these other entities that are hammering us at the same time. The limits are only growing in popularity across states and with health economists. See More Daphne at Harvard Business School was formerly the deputy director for health care and antitrust at the Federal Trade Commission. As an economist and one who focuses on competition and antitrust enforcement, I have long been eager to see the market work its magic. That market magic has dwindled. Now that three and four hospital markets are highly concentrated. I came to the conclusion that it was not going to work in a whole set of markets where the providers were so heavily consolidated already. With health costs a top concern for voters across the country, states are watching Indiana and Vermont closely to see if price caps are a fix or just another experiment. I'm Alex Olgen from Marketplace. You don't have to tell me, but let's do the numbers. The Dow Jones Industrial Average fell 405.8% to finish at $52,380. The NASDAQ lost 168.6% to close at $26,253. And the S&P 500 was down 37.5% to end at $76.36. There's a non-stock number for you. $1,999, that's the starting price for Apple's latest phone that folds like a book. The iPhone Duo was unveiled today, Apple put back 3/10%. Bond's fell, the yield on the 10-year T-note rose to 4.84%, you're listening to Marketplace. This is Marketplace, I'm Kristen Schwab. We opened the show talking about how the Bond market woke up today, took a look at the world and said, "No, nope, not for me." Well, you know what goes hand in hand with Treasury yields? Mortgage rates. They're up again, sitting at 6.71% for a 30-year fixed last week, according to Freddie Mack. And that's pushed more people to consider adjustable rate mortgages. That's alone with a lower interest rate, that changes after 5 or 7 or 10 years to whatever the new market rate is. All rate mortgages accounted for 8.5% of all mortgages last week, the highest it's been all summer. Marketplace's Kaley Wells has more on what that means. There are two main reasons people opt for an adjustable rate mortgage. One, they're betting that interest rates will fall once the mortgage rate adjusts 5 or 7 or 10 years in. But that doesn't seem likely. We can't just look at the prediction markets, rates are supposed to be going up. Three-electin is a real estate professor at Florida State University. She says since falling rates aren't it, the growing popularity might be borrowers opting to save money now. They just can't qualify for a mortgage if they use the 30-year fixed rate today because rates are so expensive. And the classic fixed mortgage is usually more expensive than the adjustable one, says Senior Economist Joel Berner at Realtor.com. What you're paying for in a 30-year fixed is the certainty of having a single payment over the whole life of the loan, so you pay a little bit more for that. About 200 per month more, based on the average home price, because while the fixed mortgage is hovering at 6.7%, the adjustable rate mortgage is in the high fives. Right now the spread, it actually between the fixed and the adjustable rate is pretty high, so the adjustable rate is especially attractive right now. And for a certain demographic, it's not a bad bet, says Marketplace, who teaches real estate at the University of Wisconsin. One who is going to maybe move or almost certainly refinance in two or three years. Because then that someone can get out of the loan before the interest rate can jump up. As for the cash-strapped borrower who's in it for the long haul, yes, there are more of them going for this riskier option, but. I'm not super concerned about sort of a wave of defaults happening. Camera LePoint, who teaches finance at Yale, says for one thing, it used to be way easier for riskier borrowers to qualify for these loans. And yet they're getting more popular, but everything's relative. Today, they make up eight or nine percent of mortgages. In the mid-2000s, it was up over 30%. I'm Kaley Wells for Marketplace. One strategy to afford a house right now is the adjustable rate mortgage. Another is to reimagine who makes up your household. A survey from Rocket Mortgage earlier this year found that 60% of respondents were interested in buying a house with friends, which leads me to Ashley Ayala. She's 37 and an insurance appraiser living near Austin, Texas. Ashley and I have been in touch for a while now and it's always been her dream to own a home. In February, she bought one with her best friend. We called her up to see how things are going. Hi, Ashley. Hey, Kristen. How are you? I'm good. How are you? Great. Thanks. It's been a while. Thanks for making time for us again. Absolutely. What's new? Well, I am actually sitting in my office at home because I'm not traveling right now, which is very different for me. I am absolutely in love with the house. I spend ridiculous amounts of time looking at home decor and Instagrams and imagining all of the things that I would like to buy if I had endless amounts of money. The algorithm has found you and you have found it. Absolutely. How is home ownership treating you now? It's been what? Seven months? Yeah. The house makes me so happy and I get to have people over all the time. That girl, it's expensive. For some reason, I thought, oh, the down payment and closing costs and those kinds of things are going to be the most expensive part of buying a house. And it ain't. Yeah. What's come up that's been surprising? Everything. So the utilities are more expensive. We finished out the garage and put an AC unit in there, like a mini split. And that was, again, more expensive than we expected. And we've got some drainage issues in the back. I don't want to say it's a drainage issue because it's not like a problem. But we have a low spot. So I brought it up to a friend and they were like, oh, yeah, you probably need a French drain. I had a couple companies come out and they were like, oh, it's, you know, $4,000 to install a French drain. Keep in mind that was like the option that we chose to go with because the first company said, oh, we need to like regrade your backyard. That'll be $20,000. And it was like $20,000, like how it was overwhelming. Yeah. How do you approach some of these conversations with Jay, who is your roommate, but your co-home owner? I mean, it's a very different relationship than, you know, splitting toilet paper. Right. She's like my platonic life partner. So when we were talking about finishing out the garage and installing, you know, a mini split, he's an artist and so he's like got paints and canvases and stuff that like he works on in there. And he's like, okay, great, like here's my credit card. And I'm like, oh, no, like we don't even know how much it's going to be. And he's like, well, whatever it costs, like I need that. So like I got it. It issue for me the concern, right, my main concern is always like the dollar amount. Whereas for him, it's, I just need it done. So it sounds like you two are still finding your way. I mean, that that would happen in any kind of home ownership relationship, you know, of any kind, I think has owning a home change, your personal finances at all? Yes. I feel constantly stressed about money. I am used to seeing $20,000 in my checking account every month. But now I'm anywhere from like four to $10,000 and it feels hard. Has that changed how you kind of walk through your personal daily expenses? I know you love to target run, you love the movies? Yes. Okay, I went to target oddly enough this weekend for the first time in like three months and just spending $200 was insanely difficult. I got home. I like was putting the sheets on the bed. They weren't the color that I expected them to be weirdly enough. So I went to return them literally right away and like, what is the 80 bucks on sheets really matter? And now I'm like, hmm, okay, I'm heading back to target to return this. Gotcha. Every time you and I have talked about home ownership and your dream of owning a home, you always mention hosting Thanksgiving, which is not too far in the distance. Coming up. Are you on Turkey duty this year? I am, so Jay Samley are great, wonderful. I love them all and his sister-in-law usually hosts Thanksgiving and Christmas. So I reached out to her and I was just like, hey, Amber, we've got the house now. Are you able or are you willing to like let me host Thanksgiving and choose like girl, take it? I don't ever want to host anything again. And I've got my menu already set. Okay? Oh wow. We will be hosting his family for Thanksgiving and then mine for Christmas. Sounds exciting. The ups and downs of home ownership, the ups Thanksgiving for sure. Ashley Ayala is a seven month homeowner near Austin, Texas. Ashley, it was so good to talk to you. New as well. Thanks so much, Kristen. This final note on the way out today, an update to our coverage yesterday about the trade war with Canada. Quick recap. We put tariffs on imports coming from them. They put tariffs on imports coming from us. Now today, the White House says it will ban imports of some Canadian goods. The list includes molasses, motorcycles, and a lot of booze. The import restrictions will take effect on September 29th. Our media production team includes Brian Allison, John Vokey, Montana Johnson, Drew Jostad, Gary O'Keefe and Charlton Thorpe. Alex Simpson is the manager of Media Production and I'm Kristen Schwab. We'll see you here tomorrow. This is APM.