Political Calculations
Unexpectedly Intriguing!
October 20, 2016

Since the Affordable Care Act's health insurance "marketplaces" first went online back in October 2013, we've been proud to offer a unique tool that subsidy-eligible American consumers can use to make the right choice for themselves in shopping for health insurance with respect to their personal financial situation and their health.

That tool will tell you whether it makes more financial sense to buy health insurance through the Obamacare exchanges or to opt out and pay higher income taxes instead, depending upon whichever of these options is less costly for you.

According to recently released IRS statistics, that is a choice that million of Americans have been making since 2014, where after performing similar calculations on their own and finding out how actually "affordable" the Affordable Care Act's health insurance policies are with respect to whatever additional tax they might otherwise have to pay after considering the state of their health. The IRS confirms that in 2014, the first for which Americans had to either demonstrate that they had health insurance coverage or else be subject to a "shared responsibility" tax penalty, some 8,061,604 Americans chose the penalty over paying any health insurance premiums.

The Obamacare tax collectively cost them $1.694 billion, which works out to an average tax paid of $210.14 per income tax return for those who were subject to the tax. By contrast, the average monthly unsubsidized premium for a health insurance plan through the Affordable Care Act exchanges for 2014 was $328, which corresponds to a total cost of $3,926 per year for health insurance coverage.

It would have taken annual tax subsidies of at least $3,716 to have made signing up for health insurance through the Obamacare exchanges a slam dunk choice from a personal finance perspective that year, and though the penalty income tax has since increased to its now maximum rate, which changes where that threshold now lies, similar personal finance math still applies today!

Our tool below will help you decide which option may be more affordable for you in 2017. Beginning on 1 November 2016, you can obtain the relevant health insurance policy cost information you need from either the Healthcare.gov web site, or more reliably, from the independent and far more transparent Health Sherpa site. The default data in the tool below applies for 2017 premium data that has already been published for Pueblo, Colorado.

Also, if you're accessing this tool on a site that republishes our RSS news feed, please click here to access a working version of our tool.

Your Household Data
Input Data Values
Year in Which Insurance Coverage Will Apply
Your Total Household Income, or Modified Adjusted Gross Income (If Known)
Number of Household Members
Number of Children in Household
Your State's Health Insurance Exchange Data
Select Your State (Select "United States" If Your Territory Isn't Listed)
Monthly Premium for the Second Lowest-Cost "Silver" Plan Available To You
Monthly Premium for the Lowest-Cost "Bronze" Plan Available To You
Monthly Premium for the Health Insurance Plan You're Considering Purchasing

Your Annual Health Insurance Results
Calculated Results Values
Annual Premium (Full Price) of the Health Insurance Plan You're Considering Purchasing
Annual Subsidy Tax Credit You'll Receive For Buying This Health Insurance
Your Annual Out-of-Pocket Costs
For Health Insurance (Premium Only, No Co-Pays or Deductibles)
For the Alternative Tax If You Don't Purchase Health Insurance (And Not Provided by Your Employer)
Potential Savings or Costs If You Choose to Pay the Tax Instead of the Premium
Your Potential Savings If You Choose to Pay the Tax (or Costs, if Negative)
The Bottom Line

About This Tool

In building this tool, we've made a handful of assumptions. Here they are, along with links to our references for data:

  • The federal government's poverty income thresholds for 2013 will initially apply in 2014.
  • The Kaiser Family Foundation's description of how ObamaCare's subsides will be calculated is accurate.
  • The map of states we used to identify which are expanding their eligibility for their Medicaid programs up to 138% of the federal poverty income threshold and which are not is largely accurate. For states that had not made their determination as 1 September 2013, we've assumed that they are not expanding their Medicaid program's eligibility. We will update this periodically as new information becomes available.
  • CNNMoney's description of how the penalty tax will work is accurate. We also thank Sean Parnell of The Self-Pay Patient blog, who identifies an exemption from the tax that we originally missed - it turns out that people who live in regions where the lowest-cost Bronze plan is more than 8% of their household income even after the subsidy will be fully exempt from the tax! (Of course, you realize that means that skipping out on not paying health insurance too until they might actually need it just became an even more attractive option for those who will be fully exempt from the tax!)
  • The default values associated with selecting the "United States" are those that will apply for a majority of the nation's population.
  • People will mostly act rationally where their financial incentives and the assessment of their health care needs are involved.

Beyond this, we've assumed that for some people there may be a "gray area", who would only have a small incentive to not purchase health insurance, where any benefit in doing so is not very large with respect to their household income, and where the decision to buy or not buy should instead be based upon an assessment of what the buyer's actual health care needs for their household will be in the near term, rather than purely upon its cost with respect to the ObamaCare income tax.

Mathematically, we've defined that gray area as being equal to the difference between the penalty tax they might choose to pay or an amount equal to 4.2% of their income before taxes, which closely corresponds to the average expenditure of U.S. households for health insurance in 2015 according to the most recent Consumer Expenditure Survey. This figure has increased from the 3.1% of income before taxes that was indicated by data in the Consumer Expenditure Survey report for 2012, which is a direct consequence of how the Affordable Care Act has sharply escalated the cost of health insurance in the United States since it became law.


Here at Political Calculations, our policy is for our tools to always improve over time. This section of this indicates all the significant changes we have made to the text of this article and the code for this tool.

  • 20 September 2013: Modified programming to consider the tax exemption that might apply if the out-of-pocket cost of the least-expensive "Bronze" plan, even after the subsidy tax credit is considered, is still greater than 8% of their household income. Modified text in Assumptions section to indicate change was incorporated.
  • 25 September 2013: Modified text in fourth paragraph to better clarify when an individual opting to pay the tax instead of a premium could acquire insurance if they determine they will need it. Added the Updates section to communicate all significant changes in this post and tool.
  • 27 October 2013: Updated the data for Ohio, which will be expanding its Medicaid program, and also for Pennsylvania, which appears set to expand its Medicaid program to some degree.
  • Updated 7 November 2015: Montana is now listed among the states expanding their Medicaid programs. We should also note that seven of the now 30 states that have adopted the Medicaid expansion are also imposing measures that will limit costs to the states, such as Montana's decision to require Medicaid beneficiaries earning above 100% of the federal poverty level to pay premiums equal to up to 2% of their annual income. Other states that have adopted cost control measures that have been approved by the federal government include Arkansas, Indiana, Iowa, Michigan, New Hampshire, and Pennsylvania.
  • Updated 16 October 2016: Louisiana has expanded their Medicaid coverage under the federal plan, and both Indiana and New Hampshire have expanded their Medicaid coverage under an alternative plan with the adoption of cost control measures that have been approved by the federal government. We've also updated this version of the tool with 2016's poverty thresholds that hold for the 48 contiguous states, Alaska and Hawaii.

Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.

Labels: , , , ,

October 19, 2016

Is there a better way to weight stocks within a market index?

Modern portfolio theory suggests that the optimal way to weight stocks within an index is according to their market capitalization, where the percentage representation of each company within a particular index is based on the product of its share prices and number of shares outstanding with respect to the total sum of all the market capitalizations of the companies whose stocks make up the index. Examples of market cap-weighted indices includes the S&P 500 and the Nasdaq 100 (Ticker: QQQQ).

There are, of course, other ways to weight the holdings of the stocks of individual companies within a market index. For example, the Dow Jones Industrial Average (Ticker: DJI) is a price-weighted index. There are also equal weighted indices, in which the number of shares of each component stock within the index is periodically adjusted so that each represents the same market capitalization.

A little over 10 years ago however, Rob Arnott of Research Affiliates introduced a new method for setting the weight of each stock within a market index, called fundamental indexing. Here, instead of using either market cap or price, stocks within the index would be weighted according to fundamental measures of their companies' business performance, such as their revenue, dividend rates, or book values.

Here is the promise of fundamental indexing that Arnott noted back in 2006, based on his analysis of the 1,000 stocks that made up his proposed index:

How consistent is this approach? It's awfully consistent. During economic expansions, you add almost two percent a year. During recessions -- when you most need those returns -- you add three and a half percent. During bull markets you add 40 basis points. You don't really add anything in bull markets, because they are driven more by psychology than by the underlying fundamental realities of the companies. And so during bull markets you keep pace. Which is good; it's important. During bear markets you find yourself adding 600 to 700 basis points per annum. Bear markets are when reality sets in and people say, "Show me the numbers." Bear markets are when this really comes on strong. Also, during periods of rising rates, two and a half percent added. During periods of falling rates, one and a half percent added.

Soon, it became possible to invest in Arnott's new kind of index, where the first one was an Exchange Traded Fund based on his original 1,000 stocks, Powershares RAFI US 1000 ETF (NYSE: PRF). The follwwing chart compares the relative performance of the fundamentally weighted PRF against the price weighted DJI and the market cap-weighted S&P 500 over its entire history.

PRF vs DJI vs S&P 500, 2006-01-01 through 2016-10-16

In this chart, we see that through the close of trading last Friday, 14 October 2016, the relative value of the fundamentally weighted PRF was up by 84.15% over its initial 30 December 2005 value, while the Dow Jones Industrial Average was 66.78% higher and the S&P 500 was 68.15% higher.

But we also see that there were periods where DJI either outperformed or performed as well as PRF. We also noticed that most of the PRF's gains over the market cap-weighted S&P 500 came in 2009, so we wondered how the relative performance of the PRF has fared since that time. So, we reset the chart to show the relative performance of each major type of index to begin in January 2010. The next chart shows what we found.

PRF vs DJI vs S&P 500, 2010-01-08 through 2016-10-16

We see that PRF has outperformed both the S&P 500 and DJI over the period covered in this chart, having risen to be 96.32% above its 8 January 2010 level, compared to the S&P 500's 93.48% and the DJI's comparatively lackluster 73.23%. Meanwhile, we also confirm that much of PRF's relative outperformance over the longer period of time with respect to the S&P 500 occurred as an almost singular event in mid-2009, when whatever factors boosted it also boosted the DJI.

What this outcome suggests is that the considerable outperformance of PRF during 2009 has not been replicated in the years since, where through 14 October 2016, it has largely found itself within spitting distance of the performance of the S&P 500.

And yet, the fundamentally weighted PRF has generally performed either equivalent to or slightly better than the market capitalization weighted S&P 500 over that time.

As an investment then, it has some very attractive qualities that suggest a place for it in one's long term holdings. However, the near-performance of PRF with either the DJI or the S&P 500 over shorter durations means that it will be important to consider other factors, such as transaction costs, when choosing between investing in these different kinds of indices.

On a final note, we've been wanting to get back to this particular investing topic for some time, where the last time we discussed it here was back in August 2006!

What can we say? Some of our analytical projects have very long development periods!

Labels: , ,

October 18, 2016

How well off are typical Americans today?

That's a difficult question to answer using conventional economic statistics like GDP, because over time, GDP has become an increasingly less representative measure of the quality of life that Americans enjoy. That discrepancy hasn't gone unnoticed, as 61% of the respondents to a survey at Debate.org to the question "Is GDP growth a good indicator of improving quality of life?" answered "No".

But there is an alternative. Last year, we realized that it is now possible to calculate Irving Fisher's consumption-based "national dividend" concept, which wasn't possible in 1906 when he proposed it or for much of the following eight decades, until the U.S. Census Bureau and the U.S. Bureau of Labor Statistics began their annual survey of U.S. consumer expenditures at the household level in 1984.

We now have the ability to track the trends in the economic well-being of the average American "consumer unit", which consists of American families, single persons living alone or sharing a household with others but who are financially independent, or two or more persons living together who share expenses. The following chart shows the major trends for the nominal average expenditures of U.S. consumer units from 1984 through 2015.

Nominal U.S. National Dividend per Consumer Unit, 1984-2015

In the chart, we've indicated both the total national dividend, which represents the average annual expenditures by U.S. consumer units/households and also what might be described as the "true" national dividend, which accounts for the average amount of that consumption that was financed by debt, and which should provide a good indication of degree to which Americans have sought to attain a particular level of quality of life today at the expense of impairing their quality of life tomorrow, as the bills for their total consumption come due.

We observe a generally rising trend in the nominal data for both the total national dividend and the true national dividend.

Let's next account for the effects of inflation over time. In the next chart, we've adjusted the nominal values for the national dividend per consumer unit/household for inflation as measured by the Consumer Price Index for All Urban Consumers, so that they're expressed in terms of constant 2015 U.S. dollars. [On a side note, data from the Consumer Expenditure Survey is used to regularly revise and update the Consumer Price Index market basket of goods and services and their relative importance, which is why this measure of inflation is particularly relevant.]

Real U.S. National Dividend per Consumer Unit, 1984-2015, Constant 2015 U.S. Dollars

In the inflation-adjusted chart, we see that since 1984, the total national dividend per typical American consumer units/households has been essentially flat. However, that outcome has been increasingly financed by debt, which we see in the falling trend for the true national dividend over time.

Since 2013, we see that there has been some improvement in both measures, where rising incomes have enabled increased consumption. In the next chart, we'll show the nearly one-to-one nominal relationship that exists between the average annual expenditures of U.S. consumer units and median household income.

The Almost Perfect Correlation Between Average Annual Total Expenditures per Consumer Unit and Median Household Income, 1984-2015

The 2015 Consumer Expenditure Survey summarizes the major changes in how American consumer units/households spent their money from 2014 to 2015.

Personal insurance and pensions expenditures rose 10.9 percent to $6,349. This was primarily driven by the 11.4 percent increase in pensions and Social Security expenditures. In particular, non-payroll deposits to retirement plans, such as IRAs and Keoghs, rose 45.2 percent to $795 and payroll deductions for private pensions increased 25.2 percent to $645.

Education expenditures increased 6.4 percent. This was largely driven by a 63.7 percent increase in finance, late, and interest charges for student loans to $157.

Transportation expenditures increased 4.7 percent to $9,503. Within transportation, expenditures on vehicle purchases increased 21.1 percent, while spending on gasoline and motor oil declined 15.3 percent, continuing trends highlighted in the 2014-15 midyear report.

Expenditures on cash contributions reversed their 2013 and 2014 declines, increasing by 1.7 percent.

Expenditures on the discretionary categories of food away from home and entertainment continued increasing in 2015, up 7.9 percent and 4.2 percent respectively, after increasing 6.2 percent and 9.9 percent in 2014.

In 2014, health insurance saw the largest year over year increase in where Americans spend their money, coinciding with the implementation of the Affordable Care Act and its sharp increase in health insurance premiums.


U.S. Bureau of Labor Statistics and U.S. Census Bureau. Consumer Expenditure Survey. Total Average Annual Expenditures. 2015. [Online Database]. Accessed 16 October 2016.

U.S. Census Bureau. Income, Poverty, and Health Insurance in the United States: 2014 (P60-252). Current Population Survey. Annual Social and Economic Supplement (ASEC). Table H-5. Race and Hispanic Origin of Householder -- Households by Median and Mean Income. [https://www2.census.gov/programs-surveys/cps/tables/time-series/historical-income-households/h05.xls]. 16 September 2016. Accessed 16 October 2016. [Note: Median incomes for 2013 and 2014 were revised with respect to values reported in previous years.]

U.S. Bureau of Labor Statistics. Consumer Price Index - All Urban Consumers (CPI-U), All Items, All Cities, Non-Seasonally Adjusted. CPI Detailed Report Tables. Table 24. [Online Database]. Accessed 16 October 2016.

Labels: ,

October 17, 2016

From all appearances, investors have indeed shifted their forward-looking focus to the current quarter of 2016-Q4 in setting stock prices.

That's a change from the previous week, where the trajectory of the S&P 500 suggested that might be the case, but which wasn't as clear cut as we find the data indicates in Week 2 of October 2016.

Alternative Futures - S&P 500 - 2016Q4 - Standard Model - Snapshot on 2016-10-14

As you can also see in the chart, during the next week, we're going to once again have to cope with the echo effect that arises due to our standard model's use of historic stock prices as the base reference points from which we project the future and the occasional outsized volatility of those historic prices.

This time however, we're going to keep the modified model that we developed ahead of the last such major echo event in our toolbox and will instead test the simplest method that we can think of for addressing the echo effect in our standard model's projections. That method will simply involve connecting the dots for the trajectories associated with each future quarter to which investors might turn their attention on either side of the period where we know in advance that the accuracy of our standard model's projections will be negatively affected by the echo effect.

For our alternative futures chart, that would mean adding four additional lines to connect the dots associated with each alternative trajectory that we display during the upcoming echo event, but we're going to make a simplifying assumption (or prediction, if you like) so that we'll only show one line. We're going to assume that investors will remain focused on 2016-Q4 in setting stock prices for the next five weeks, so we only have to go to the trouble of connect the dots on either side of the echo for that single trajectory.

Alternative Futures - S&P 500 - 2016Q4 - Standard Model - Snapshot on 2016-10-14 - Connected Dots for 2016Q4

The shaded red region on the chart indicates the typical range of day-to-day volatility that we would expect stock prices to fall if investors do indeed focus their attention on 2016-Q4 in setting stock prices.

The reason we're doing this is because it occurred to us that the modified model we developed produced results that would be little different from using this simpler approach. After the echo event has passed, we'll compare what that method would have forecast with the simpler model and see if simpler is better.

In the meantime, here are the headlines from the week that was, which provide the basis for our simplifying assumption.

Monday, 10 October 2016
Tuesday, 11 October 2016
Wednesday, 12 October 2016
Thursday, 13 October 2016
Friday, 14 October 2016

Elsewhere, Barry Ritholtz summarizes the positives and negatives of the week's economic and market news.

Labels: ,

October 14, 2016

Pinuccio Sciola is a sculptor of sound, who makes a very different kind of rock music with carefully considered cuts to explore the natural harmonics of stone. While the following video is presented in Italian with German subtitles, you don't need to speak either to appreciate what he's been able to achieve as both a visual artist and as a musician whose orchestra resembles Stonehenge.

HT: Core77.


About Political Calculations

blog advertising
is good for you

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

Thanks in advance!

Recent Posts


This year, we'll be experimenting with a number of apps to bring more of a current events focus to Political Calculations - we're test driving the app(s) below!

Most Popular Posts
Quick Index

Site Data

This site is primarily powered by:

This page is powered by Blogger. Isn't yours?

Visitors since December 6, 2004:

CSS Validation

Valid CSS!

RSS Site Feed

AddThis Feed Button


The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.

Other Cool Resources

Blog Roll

Market Links
Charities We Support
Recommended Reading
Recommended Viewing
Recently Shopped

Seeking Alpha Certified

Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.