Another Day, Another Self-Serving IPO

The Twitter IPO had the desired "pop" they wanted.  Who does this profit?  Not you.

Another day, and another self-serving dot-com IPO hits Wall Street.  As I wrote before in The Nature of IPOs, particularly the dot-com kind, the whole purpose of a moden IPO is to make the founders wealthy.

How does this work?  Simple.  But first let's review what IPOs were and what they have become.

In the good-old-days of Corporate America, you did an IPO to sell stock to fund your company.  The IPO provided capital for investment in machinery and materials, so you could build cars or make steel, or whatever - ventures that required a lot of capital to start.   So you sold off a good chunk of your company to make money. 

Alexander Graham Bell (no relation) had to sell off more and more of his stock, over time, to investors, in order to raise capital to make phones (which were leased, not sold).   In the end, he owned less than 5% of the company - and his wife sold half of that in a panic when the stock price spiked.  He still ended up rich, but not as rich as he could have been.

Today's IPOs are a different beast.   Yes, they sell you the story that they are doing the IPO to raise capital for investment.  But it is a bullshit story.   Instead of selling off 95% of the company to raise money, usually they sell off only 4-5% of the company (read that again - four to five percent!).   And they don't "need" the money to "expand their business" as the amount raised in the IPO is often trivial compared to the amount of cash on hand.

In fact, with today's IPO's they leave most of the money on the table by allowing the stock to "pop" in price on the first day.   What does this "pop" mean?  It means that institutional investors and others who "subscribed" to the shares at the opening price can immediately sell their shares for nearly double the money.  They make as much money, in one day, as the company "raises" in Capital.

If this were an old-fashioned IPO, people would scratch their heads and say, "That makes no sense!  How are you going to raise the most amount of money to build your steel mill if you let some banker take half of it?"

And in the days of steel mills, that argument made sense.   But we aren't building a steel mill, we are building a bullshit mill.  And we really don't care whether the company "raises capital" because a bullshit mill doesn't NEED capital.  

What it needs, or more precisely, the FOUNDERS need, is a way to "cash out" of their investment in the company.   They are paid in stock (or invested and got stock in return) and they want to sell it as a regulated security on the open market, where chump investors in the general public will pay top dollar to "invest" in "the next big thing!"

So they hope the stock price spikes - which is bad for the company, as it means the company left money on the table - because it is good for the INDIVIDUALS who started the company.  In other words, what is a direct detriment to the company, profits the people running it.   And these are the people running the company that you are "investing" in - right?

OK, so the Twitter IPO is a day old now.  What happened?

1.  The people who got subscriptions to the stock at $26 a share sold out at $45 to $50 a share and made a ton of money.  This was not you and me, but institutional investors and big money players.

2.  The insiders in the company, who are paid in stock, now are worth Billions, at least on paper.  To cash out, they will have to sell their shares, over time.   Most are locked out from selling for 180 days.   Wait until that day comes....

3.  The small investor bought at $45 a share and up on the first day.  Some paid as high as $50 a share!

 4.  We are ONLY ON DAY TWO and the stock has tanked by 7.24% from its close yesterday.  That's a heck of a drop from the pop!  A few more days of this, and it ain't gonna be pretty.

5.  If you were unfortunate enough to pay nearly $50 a share (as some did), your shares are now worth about $41.  You just lost 18% of your investment, overnight.
Gee, wish I invested in that IPO.

Will Twitter tank as well?   Let's look at a brief history of some famous hyped IPOs of the last few years:
 

1. Groupon: Groupon went public with the same amount of hoopla and the same vaunted "Market Cap" as Twitter. The stock then tanked about a year later and the founder and CEO was forced out. He was so upset by this, he wrote a sardonic resignation e-mail. You see, he has more money that God, now, and being fired means only that he can now spend it at his leisure.

Groupon's model was copied by others and the product turned out to be a fad. The share price is rising in recent months, but the company is still losing money (-14 cents a share). Where is this going?


2. ZipCar: ZipCar at least sold a physical product - car rentals - and was more than a mere website. Problem was, car rentals are a capital-intensive business, and a costly one as well. ZipCar never made any money to speak of, and the stock price tanked, after the IPO. Again, look at the chart below and the cart above - do you see a pattern here?

AVIS finally bought ZipCar for a fraction of its IPO price. And they probably did this just in time to prevent ZipCar from going bankrupt (why else would ZipCar management sell?). Unless you bought the stock just before the AVIS purchase, you lost out.

Bottom line on ZipCar: The small investors who bought at the IPO price lost their shirts - again in a market where the DJIA was skyrocketing. Are IPOs a great investment? No.


3. Zynga: Zynga was another dot-com stock that went ballistic at the IPO, largely because of the anticipation of the Facebook IPO. But like Facebook, it did a face-plant as well:

Zynga made games like "Farmville" (remember THAT?) and people lost interest in the games. Unlike ZipCar and Groupon, there has not been a "bounce-back" as of yet. If you bought at the IPO price, you got creamed on this one.

Again - and this is important - it is very hard to make money by buying a stock and then having it lose more than half its value. And with no profits (and no dividends) there isn't even income to fall back on.

4. Facebook: Facebook is one success story of the lot (sort of), even with the "botched" IPO. But whether this makes any sense as a long-term investment remains to be seen. Facebook is showing profits, finally, of 41 cents per share. This gives it, at the present share price, a P/E ratio of 116.

Is that a good P/E ratio? Some analysts like to say things like "Well in the tech sector" (as if a website was 'tech') "a P/E ratio of 100 to 200 is acceptable."

But P/E ratio represents the number of years you'd have to wait to make your money back on this stock. In other words, 116 years. Facebook is profitable, yes, just not that profitable. In order to show a more reasonable P/E ratio, Facebook either has to increase profits by a factor of five, or the share price has to decrease by a factor of five. You pick.

Since it has little in the way of profits, and little in the way of assets, there is no "there" there in the company. You have to hope that someone dumber than yourself will pay even more for the stock, over time. It is possible that someone could "buy the company" but at these prices, no one could afford to.

The Facebook experience shows that profits do matter. Facebook's IPO face-planted largely because the profitability of the company was in question. Once the profits went up, so did the stock price. Twitter, losing 30 cents a share, better figure out how to make money - and fast.

5. Linked In: LinkedIn is the darling of the dot-com investors. Why? Because the share price has soared and the company actually makes a profit, albeit not a large one. Yea, Linked-In is making 30 cents a share. But at the current share price, that yields a P/E ratio of over 700. That's scandalous.

People who pay that much for a stock are "buying ahead" just as home buyers in the late 1980's and 2000's did - banking on rising prices to make their overbidding a good investment later on.   But eventually, LinkedIn is going to have to make a profit that justifies its share price - or the share price will have to tumble to provide a more realistic P/E ratio.   At a P/E ratio of over 700, LinkedIn is nearly seven times higher than Facebook.   Where is this going?   Do you think that LinkedIn can grow profits by a factor of 10-20?

Buying Facebook or LinkedIn is an act of faith - and faith-based investing is a bad idea.   You are gambling that someone else will pay even more money for the stock down the road, based on the idea that it is "worth" more, even though the profitability of the company is tiny compared to the share price. 

In other words, you are waiting for a greater fool than yourself to buy the stock.

Is it possible to make money from these IPOs?  Yes and No.  Yes, it is theoretically possible if you can time the market, but timing the market, without a working time machine is nearly impossible to do.   It is also possible if you get lucky and a stock, like Linked-In takes off despite its dismal metrics.

But for the small investor, this sort of gambling is never a good idea.   Why?  Because for every Linked-In or Facebook, there is a Zynga or Groupon or Zipcar.   In fact, the stinkers outnumber the winners, every time.  And even the winners here, as suspect.

And picking winners is never an easy task.   First to market is often last in the marketplace.   And in the Internet world, a year or two is a lifetime.   A decade is a Century.   Few remember today, the fate of AOL - which was once American's premiere online portal.   At one time, it seemed like half the country was on AOL.   They even bought Time-Warner, they had so much money - at least on paper.

And then it went bad.  Not overnight, and not suddenly.   But eventually, other means of accessing the Internet came about.   No one wanted to use AOL KEYWORDS anymore, but would rather search using something called "Google".  AOL faded from view and Time-Warner extricated itself from the wreckage.

Gambling your retirement on trendy, hyped stocks is just not a good idea.  Diversify your portfolio, invest in a number of different things.   And as you get older, invest in more conservative investments, as you can't afford to gamble on IPO stocks.

Tech stocks and dot-com stocks are very volatile - and usually over-valued.   Investing in the tech sector is not for the faint of heart - or the small investor.

Will Twitter be the next Facebook?  Or Linked-In?  Or Groupon?   It is hard to say.  And it is hard to predict how long even the successful dot-com stocks will keep being successful.   If you look at the metrics on Facebook and Linked-In, they make no sense at all.

And as a simple rule of thumb, it never pays to invest in something you don't understand.

Satellite Radio

You can tell a lot about a company by how easy it is to contact them.

A friend of mine recently signed up for Sirius Satellite Radio.  Why is this?  Well, his favorite radio station switched from "oldies" to "country" and that means that the only radio stations we can get now are (1) Jesus - the hateful kind, (2) Country - the new bad kind, (3) Hispanic, and (4) two NPR stations that barely come in (blasted off the air by the hateful Jesus stations, which over-modulate).

If I was the kind of person who believed in Conspiracy Theories (but I don't) I would think that Sirius had bought up all the radio stations in the country and intentionally switched them to odious formats so you would have to pay extra for satellite radio service.

Anyway, my friend, fed up with this, decided to go satellite, and he claims he called the XM people and they signed him up for $4.89 a month for six months.   If this is true, then he got a steep discount off their advertised price of $17 a month or so.

But never confuse "savings" with "savings".   Reducing the price of an unnecessary expenditure is not creating wealth, just dissipating it more slowly.

And yea, $17 a month is a lot of money.   $17 a month, invested at 7% over a 45 year working life, comes to $62,373.36 at retirement time.   A little here, and a little there, and pretty soon you are bleeding to death from 1,000 cuts.   And that is the nature of subscription services and subscription fatigue.   You sign up for more and more of these types of services, and pretty soon - very soon - you are spending hundreds and hundreds of dollars a month, on "services" which are not essential to your daily life.

It pays to limit the number of recurring charges in your life to the bare minimum.   Small fees like $17.95 (which is seventeen dollars and not eighteen, right?  And certainly not close to twenty!) add up, cumulatively and over time.   People look for large chunks of "waste" to cut in budgets - whether personal, business, or even governmental.  The real solution to cutting waste from a budget is to cut a little here and a little there - because the big things can't be cut, only whittled down.

I met a young man the other day who confessed he spend the whopping sum of $200 a month on his smart phone.  He was 25 and fresh back from Afghanistan.  I tried to explain to him that $200 a month, invested over a working life could be a quarter-million dollars in retirement funds, and he gave me a blank stare.   I didn't have the heart to tell him about the money he was squandering trying to "hop up" a 2005 Dodge Charger.   Kids that age, just want to spend it all.   And it all seems so important back then.

But I digress.

Anyway, I was intrigued that Sirius would cut their rates so much.   I went on the website to check this out, but all I found were sign-ups online, and no discounts offered.   In fact, most of the gags were 'negative option' offers, where you get "30 days free" service (and we all know that FREE isn't, right?) so long as you provide a credit card number - so they can bill you perpetually.

Tellingly, there was no telephone contact number listed, other than on a help page.   I tried calling that number, but got only a DTMF telephone tree.   

When a company makes it hard to contact them, you know where this is going to go.

I did find a page where you can submit a request for them to contact you.   Obviously, their time is more important than yours!   You see how they are power-shifting here.

The entire website was so chock full of flashy animation and distracting graphics, as well as large come-on prices and fine print details that it was impossible to really figure out what the real "deal" or bargain was.   What are you paying and what are you getting?   You have to sign up to find out.   And that means giving them your credit card number.

Negative option sign-up techniques are never a good idea.   You sign up for a "Free 30 day trial" and if you don't cancel in time, your credit card is charged.   If you call to cancel, they claim never to have received your call.   And so on and so on.

AOL tried this technique in the past (google it).   People complain about Angie's List for the same reason.   Companies claim to have not gotten the message that you wanted to cancel, so they keep charging your account.   And many Americans never bother to check their credit card statements or accounts, so they don't notice - until months have past!   So after three months, they realize their subscription wasn't cancelled, and they call, yet again, to start the process over.  Guess what happens then?

As I noted in another article (citing a New Yorker article), AOL is kept afloat in large part because a number of people still pay the dial-up subscription fee, month after month, even though they use a cable modem or DSL or whatever.   People think that they still "need" AOL to get online.

As you can see, the "subscription model" is very lucrative for businesses!

(By the way, it strikes me that the phrase "Like us on Facebook!" which seems so prevalent today, will someday seem as quaint as "AOL Keyword:" was in 1995.    What seems ubiquitous and permanent in the online world, evaporates like ether in a matter of months).

The point is, every time you sign up for a subscription, you put a little hole in your rowboat.   Not a big hole, but one nevertheless.   And if you can't plug this hole - or keep track of it - then your rowboat is going to require more and more bailing, over time.

My friends are very excited about XM radio, and how cheaply they were able to get it.   They claim that they paid for a six-month subscription, and when it ends, they can negotiate another six months, at the same price of less than $5 a month.

I will wait and see how this works out for them.   But frankly, I am skeptical.   I suspect what will happen is that after the six month period (or even before) they will find a nasty little charge of $17.95 on their credit card, and they will spend hours and hours on the phone trying to straighten it all out.

And if you can get satellite radio for $5 a month, why don't they advertise it for everyone at that price?

I tend to go with my gut instincts.  And the Sirius website has all the charm of a carnival barker.   Simply put, I don't trust them - and why should I?   After all, by now, we are all aware of how these marketing gags work.   The splashy ads and fine print say it all - pay no attention to the man behind the curtain!

So, no Sirius satellite radio for me.  Why?

1.  I am punching an unnecessary hole in my rowboat - for a trivial reason.

2.  I will have to dick around with these negative-option cancellation deals.   Not worth the stress!

3.  The carnival barker atmosphere of their website is like police tape roping off a bad deal.

4.  I tried this service once in a rental van, and frankly, I thought it sucked.   100 sports channels, 100 talk channels, and then 50 music stations playing things you probably don't want to hear, anyway.  In other words, I didn't think the service was worth much.  Even when FREE, we listened more to our iPod or CDs or over-the-air radio.  That is telling.

With the advent of Music over the Internet (Pandora, etc.) which you can stream through your smart phone or whatever, the XM model may become obsolete in a few short years.   Their huge cost structure (satellites, programing, etc.) is an inherent disadvantage (Pandora does not have to pay for cell phone towers).

"In the fourth quarter of 2009, Sirius XM posted a profit for the first time, with a net income of $14.2 million. This came after net losses of $245.8 million in the year following the merger. The company’s resurgence was owed in part to the loan from Liberty Media. Increased automobile sales in the US was also a factor. Sirius XM ended 2009 with 18.8 million subscribers.

By the end of 2012, Sirius XM’s subscriber base had grown to 23.9 million, mostly due to an increase in partnerships with automakers and car dealers; a strong push in the used-car market; and continued improved car sales in the US in general. The renewal of radio show host Howard Stern’s contract through 2015 ($400 million for five years, $100 million less than Stern’s previous five-year deal) was also a factor in the company’s steady growth; Stern’s show attracts over 12 million listeners per week"

In other words, Sirius hemorrhaged cash for many years (particularly since it competed with XM radio, until the two merged).  They are now starting to make money, only because a large installed base of radios is out there.   Problem is, of course, if you have two cars with Sirius radios, you need two subscriptions.  And if you want to use Sirius in the house, you need another radio there, another subscription, and an outdoor antenna with a sky view.  It is not like listening to "radio" off the air.  And not like Internet Radio (or streaming) which will play on any device you own, with one user account.

This CNBC report shows that revenues are up, but overall profits have dropped, slightly.   I think in the short term, as more and more Sirius/XM equipped cars enter our national fleet, they have the potential to increase their subscriber base.   But the real threat to their business is the smart phone, which with bluetooth, (or even a hardwire connection) can stream content to a car radio, house radio, or just ear buds - at a cost far below that of Sirius.

So, not only will I not be getting the service, I won't be buying the stock, either.  Long-term, their business model looks to be flawed, unless they can get the price down and greatly boost the number of subscribers.  As Mark put it, even at $5 a month, it wasn't worth it, if all we could do is listen in one car.  (I sarcastically offered to leave the car door open in the garage so he could hear it in the house.   But of course, that wouldn't work without a clear sky view).

And as Americans drive less and less (fewer of us will commute in the future) fewer people will think paying nearly $20 a month to listen to the radio is a worthwhile bargain.  It will be interesting to see how this plays out, over time.   Remember Iridium?

Dealer Installed Options and Adminstrative Fees - the latest gag.

New 2013 Nissan Frontier SV $26,750**

 

**Disclaimer: Prices plus tax, tag, dealer installed options and fees including $55 private tag agency fee and $599.00 pre-delivery service fee

 

 

Buying a brand-new car is never a good idea.   Things like "Internet Pricing" and pricing services like Kelly Blue Book (KBB), Edmunds, and TrueCar, would seem at first to level the playing field for the consumer.   People like to think they can outwit a dealer this way, but dealers are constantly coming up with new "gags" to pad and obscure the price of a car.

 

The latest "gag" the Auto dealers are using to hide the cost of a car, is to add on "Dealer Installed Options" to confuse you about pricing and to pad the price of the car.

 

For example, the car shown above is advertised for $26,750.  This sounds pretty cheap, until you realize that you can use any online price service, such as TRUECAR to drive down the price considerably - to about $23,147, which of course is a lot better.

 

So you call the dealer and he says, "Come on down!" and you think, reasonably, that the price of the vehicle is $23,147.  This includes the list price minus any incentives, rebates, markdowns, etc., plus the cost of shipping.

 

Of course, there are the normal "hidden costs" of buying a car, such as sales tax, and titling fees, which come to $1700 in my State.   So $23,147 is now $24,847.   OK, still a cheap car under $25,000.

 

But the dealer adds in a "$599 administrative fee" - some call it "document prep" or "vehicle preparation" - basically profit to cover their overhead of washing the car for the nice photos and to pay for secretarial help.   Some websites suggest you should not pay this fee, or at least negotiate it down:

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And as you might guess, "Friendly Al" at the dealer didn't mention this $599 fee, which appears in fine print on the Internet Ad, until he is asked point-blank about it.    Salesmen can't lie, outright.  But they can lie by omission.   And if you don't ask, they won't tell you about the $599 fee or what is considered a "Dealer Installed Option".

 

Of course, if you do something stupid like trade-in your old car, they will just adjust the price of that accordingly, or pad the financing price.  The simpler you can keep any financial transaction, the easier it is to figure out the real price involved.

 

But what about dealer installed options?   The local Nissan dealer adds their "Safety Package" for a whopping $1685.   What is in this package?

 

Well they tint the windows.  This sounds expensive until you realize that on this model, the rear windows are already tinted, and that a tint job in Florida is less than $100 - maybe $50 if done in bulk.

 

They add a few options - the step rails shown above ($184) and wheel locks ($44) and rubber floor mats ($115).   The car comes with standard floor mats, for free.  They also add a pinstripe, which is maybe $50 and that's being generous.

 

So this comes to about $500.  How do they pad the price of the car by over $1000?

 

Well they add "One year free roadside assistance" - which is essentially worthless, particularly if you already have AAA.   And they throw in "free oil changes for a year" which means two oil changes with Dino oil - a $39.95 value each, at Jiffy Lube.

 

So where does the rest go?   Well, no doubt they add in "labor" to "install" the side rails and other items and pad out the price accordingly.

 

The point is, you don't know in advance, unless you ASK, what "options" are installed on the car, even if you have an "Internet Pricing Deal!"   And not surprisingly, they get really vague on the phone about what these options are.   If you can even get them to say, they usually just give you the flat fee for "the safety package" (how this makes the car safer is anyone's guess).

 

And you had better be astute, as they will try to tell you than some things that were installed at the factory were "Dealer Installed Options".    Floor mats, bedliners, trailer hitch, and cargo extender, for example, are all factory options on this truck, but that doesn't stop the dealer from trying to add one or more to the list of "Dealer Installed Options".

 

So you take your stupid Internet Pricing Certificate (such as from TrueCar) to the dealer and they snicker at you, because most of that "discount" has been wiped out by "Dealer Installed Accessories".  You think you are being clever and smart by clipping coupons, but once again, "the man" has beat you to the punch.

 

And at that point, the vaunted ease of "No haggle Internet Pricing" is shot.   Because you will spend hours - as many as four or five, trying to argue down these penny-ante items which collectively, add up to over $1000 to the sticker price of the car.  (The dealer will argue that since they have already been added to the car, they cannot be removed - except for an additional fee.)

 

And a lot of people do this - spending hours at a dealer, being worn down, until they finally throw in the towel and say "to heck with it, I just want to get out of here!"

 

So you see what has happened here.   The dealers have found a neat end-run on the "no haggle" pricing.   They quote you a price on the Internet, and when you get in the door, they show you another price quote, with "dealer installed options" added on.  Dealer installed options that are often gimcracks and garbage and not worth much - but are wildly overpriced.

How do you avoid this?    Well, buying used is one way.   You can't lose at their game, if you refuse to play the game.  The same truck shown above, in a different color, with 10,000 miles on the odometer, is for sale an hour away for $21,400 from a private owner.  In fact, two such trucks could be easily found on Autotrader.  Yes, that is a savings of about $5000 when all is said and done.  And the private owner has added the side rails and a tonneau cover ($500 value) as well.

 

A used car seller isn't going to play this bait-and-switch game with you, telling one price on the phone, and then jacking the price when you arrive.

 

It also illustrates how much a car depreciates in the first year of ownership.   Here, a $26,000 truck drops $5000 in value - about 20% in just 10,000 miles.   Those first 10,000 miles cost 50 cents a mile to drive!

 

The other advantage of buying used, is that when you sell the used vehicle, you lose a lot less in depreciation.   Let's say two people buy these trucks, and one pays $26,000 at a dealer and the other pays $21,000 secondhand.  Each keep their cars about 5 years and put 75,000 miles on them.   At that point they are used cars, one with 75,000 miles on it, and the other with 85,000 miles on it - the difference in resale is negligable.  They are both worth about $12,000 at that point.

 

The new car buyer takes a hit of $14,000 in depreciation or 18 cents a mile.  The used car buyer pays only about $9000 or about 12 cents a mile - a 50% decrease in cost-per-mile.   Of course both buyers do far better than the fellow who bought the truck new and sold it in the first year - he got hammered with the most depreciation.   That's why a late model used vehicle is the best bargain - it has taken the biggest hit in terms of depreciation.

FOOTNOTE:   Deceptions like this are perfectly legal, since the "disclaimer" mentions that other items may increase the price.   Dealers also do very despicable things that are also legal.  For example, they sell a car on credit to a buyer and slap temp tags on it.   Two days later they inform the buyer than the interest rate on the loan is higher than expected.   The buyer cannot "take the car back" as it is no longer new.  Or, if used, the dealer will claim the "trade-in" was sold at auction already.  This is perfectly legal, and one reason you should NEVER take possession of a car, until it is paid for.

The point is, car dealers have 1000 sleazy and yet legal tricks to fool you into spending far more money than you intended, on a new car.   The only way to win at this game is to not play.

 

 

ObamaCare is Here!

 

Obamacare is here.  Is this a good thing?   Maybe on a personal level.

NOTE:  While I am no longer posting to my blog, I had to write up my experiences with the Affordable Health Care act, as it is quite interesting how this plays out.
 
I went on the affordable health care act website today to sign up for Obamacare - or at least see what the premiums are like.   It is fascinating.


First, the site is pretty badly done.  It asks the same questions again and again (middle name and Social Security number, e-mail address, and phone number, all entered twice - on separate pages) plus has a paranoid level of security with regard to user names and password structures, and security questions (two sets in different parts of the site).

In addition, there are so many questions to be answered that have nothing to do with health insurance - like ethnicity and demographic data.

And then it bombs out.   The final "signature" page bombs, and then I get an e-mail message saying "I have a message waiting for me!"  So I click on the link to sign in, and that signs me OUT on the bombed page.   Badly done.

The "message" says I am eligible for a $627 tax CREDIT every month (!!!!) based on my sucky 2012 income (2013 will be slightly better, so my credit may go down).   The message is in a pdf format that is not recognized by my old version of Adobe Acrobat, but a new version of Adobe reader will display it.

HERE IS A PROBLEM RIGHT HERE:   While my tax credit is based on my 2012 income, if my income goes up next year, I may lose part of that tax credit, and thus have a nasty surprise on my tax bill on April 15th.  As a self-employed person, it is hard to predict my income from year to year, which may vary from over $100,000 to as little as $25,000.    This makes planning, based on the tax credit, nearly impossible.    The only "safe" was to deal with this is to chose a plan that costs less than the tax credit, or be prepared to put aside money for April 15th.

A warning message comes up that I have to "review my application for unresolved issues" but when I click on the link, it says "Page not found".    Clearly the HTML isn't ready for prime time, but then again, it has been up for only 15 days now.

Regardless of this warning message, the site allows me to proceed further in selecting a plan.

What is troubling is that this massive tax credit, while appreciated, is something that government will have to pay for.   At the present time, Mark and I are on a $10,000-deductible Blue Cross plan, which costs us $240 a month, combined.    We get a deduction for this on our taxes, which might reduce the cost to $210 a month or so.   This is still a cost to us.

What is interesting is that I have a letter from Blue Cross on my desk, offering to extend my existing plan for another year, for a $298 premium.   This would "grandfather" in my high-deductible plan, but clearly compared to the tax credit plans, it is not a very good option.

With a $627 tax credit (each) we can "afford" a Cadilliac plan now - with more coverage - and pay nothing for it.  This is great for us, personally, but it means that combined, the government will get about $15,000 less in taxes out of us in 2014 - which is about what we pay in taxes every year.   In other words, our tax bill is being shifted from Uncle Sam to Blue Cross.

All very well and fine, but what is Uncle Sam going to use to pay his bills?

That is an interesting question.

There are several levels of plans out there, Bronze, Silver, Gold, Platinum, and all in my State (Georgia) are from Blue Cross (my present insurer) or Humana:

 BCBS Healthcare Plan of Georgia, Inc. BCBSHP Bronze DirectAccess w/HSA - caar
        Monthly premium  $0/mo.  was $524.73
        Deductible $6,300 group total
        Out–of–pocket maximum $6,300
        Copayments / Coinsurance
            No Charge After Deductible Primary doctor
            No Charge After Deductible Specialist doctor
            No Charge After Deductible Generic drugs

 BCBS Healthcare Plan of Georgia, Inc. BCBSHP Bronze DirectAccess w/HSA - cabp
        Monthly premium $0/mo. was $547.62
        Deductible  $4,000 group total
        Out–of–pocket maximum $6,350
        Copayments / Coinsurance
            20% Coinsurance after deductible Primary doctor
            20% Coinsurance after deductible Specialist doctor
            20% Coinsurance after deductible Generic drugs

 BCBS Healthcare Plan of Georgia, Inc. BCBSHP Bronze DirectAccess - cabr
        Monthly premium  $0/mo. was $541.23
        Deductible  $4,300 group total
        Out–of–pocket maximum $6,350
        Copayments / Coinsurance
            $35/20% Coinsurance after deductible Primary doctor
            20% Coinsurance after deductible Specialist doctor
            20% Coinsurance after deductible Generic drugs

 BCBS Healthcare Plan of Georgia, Inc. BCBSHP Bronze DirectAccess - caae
        Monthly premium  $0/mo. was $570.28
        Deductible  $5,550 group total
        Out–of–pocket maximum $6,350
        Copayments / Coinsurance
            $45/25% Coinsurance after deductible Primary doctor
            25% Coinsurance after deductible Specialist doctor
            $20 Generic drugs

 BCBS Healthcare Plan of Georgia, Inc. BCBSHP Bronze DirectAccess w/Child Dental - cdae
        Monthly premium $0/mo. was $619.41
        Deductible $5,550 group total
        Out–of–pocket maximum $6,350
        Copayments / Coinsurance
            $45/25% Coinsurance after deductible Primary doctor
            25% Coinsurance after deductible Specialist doctor
            $20 Generic drugs
        Dental: Child

 BCBS Healthcare Plan of Georgia, Inc. BCBSHP Bronze DirectAccess - caaw
        Monthly premium $0/mo. was $575.81
        Deductible $5,750 group total
        Out–of–pocket maximum $6,350
        Copayments / Coinsurance
            $40/20% Coinsurance after deductible Primary doctor
            20% Coinsurance after deductible Specialist doctor
            $20 Generic drugs

 BCBS Healthcare Plan of Georgia, Inc. BCBSHP Silver DirectAccess w/HSA - cbbg
        Monthly premium $22.56/mo.  was $649.56
        Deductible  $500group total
        Out–of–pocket maximum $500
        Copayments / Coinsurance
            No Charge After Deductible Primary doctor
            No Charge After Deductible Specialist doctor
            No Charge After Deductible Generic drugs

BCBS Healthcare Plan of Georgia, Inc. BCBSHP Silver DirectAccess - cbds        Monthly premium $51.28/mo. was $678.28
        Deductible $200   group total
        Out–of–pocket maximum  $600
        Copayments / Coinsurance
            $10/10% Coinsurance after deductible Primary doctor
            10% Coinsurance after deductible Specialist doctor
            $10 Generic drugs

BCBS Healthcare Plan of Georgia, Inc. Blue Cross and Blue Shield Healthcare Plan of Georgia Silver DirectAccess, a Multi-State Plan        Monthly premium $70.17/mo. was $697.17
        Deductible $200    group total
        Out–of–pocket maximum  $650
        Copayments / Coinsurance
            $5/20% Coinsurance after deductible Primary doctor
            20% Coinsurance after deductible Specialist doctor
            $10 Generic drugs

BCBS Healthcare Plan of Georgia, Inc. BCBSHP Silver DirectAccess - cbiq        Monthly premium $70.17/mo. was $697.17
        Deductible $200    group total
        Out–of–pocket maximum $650
        Copayments / Coinsurance
            $5/20% Coinsurance after deductible Primary doctor
            20% Coinsurance after deductible Specialist doctor
            $10 Generic drugs

BCBS Healthcare Plan of Georgia, Inc. BCBSHP Silver DirectAccess - cbaa        Monthly premium  $77.96/mo. was $704.96
        Deductible $150   group total
        Out–of–pocket maximum  $650
        Copayments / Coinsurance
            $10 Primary doctor
            No Charge After Deductible Specialist doctor
            $10 Generic drugs

BCBS Healthcare Plan of Georgia, Inc. BCBSHP Gold DirectAccess - ccab        Monthly premium  $206.52/mo. was $833.52
        Deductible  $750   group total
        Out–of–pocket maximum $6,000
        Copayments / Coinsurance
            $30 Primary doctor
            No Charge After Deductible Specialist doctor
            $15 Generic drugs

BCBS Healthcare Plan of Georgia, Inc. Blue Cross and Blue Shield Healthcare Plan of Georgia Gold DirectAccess, a Multi-State Plan        Monthly premium  $255.63/mo. was $882.63
        Deductible  $750 group total
        Out–of–pocket maximum  $6,000
        Copayments / Coinsurance
            $30 Primary doctor
            No Charge After Deductible Specialist doctor
            $15 Generic drugs
        Dental: Child

BCBS Healthcare Plan of Georgia, Inc. BCBSHP Gold DirectAccess w/Child Dental - cdcp        Monthly premium $255.63/mo.  was $882.63
        Deductible $750   group total
        Out–of–pocket maximum $6,000
        Copayments / Coinsurance
            $30 Primary doctor
            No Charge After Deductible Specialist doctor
            $15 Generic drugs
        Dental: Child

Humana Employers Health Plan of Georgia, Inc. Humana National Preferred Bronze 6300/6300 Plan        Monthly premium $327.39/mo.
        Deductible $6,300 group total
        Out–of–pocket maximum $6,300
        Copayments / Coinsurance
            No Charge After Deductible Primary doctor
            No Charge After Deductible Specialist doctor
            No Charge After Deductible Generic drugs

Humana Employers Health Plan of Georgia, Inc. Humana National Preferred Silver 4250/6250 Plan        Monthly premium $386.68/mo.
        Deductible $500   group total
        Out–of–pocket maximum $750
        Copayments / Coinsurance
            $35 Primary doctor
            $60 Specialist doctor
            $17 Generic drugs

Humana Employers Health Plan of Georgia, Inc. Humana National Preferred Gold 2500/3500 Plan        Monthly premium $443.62/mo.
        Deductible $2,500 group total
        Out–of–pocket maximum $3,500
        Copayments / Coinsurance
            $25 Primary doctor
            $35 Specialist doctor
            $8 Generic drugs

Humana Employers Health Plan of Georgia, Inc. Humana National Preferred Platinum 1000/1500 Plan       Monthly premium $499.97/mo.
        Deductible $1,000 group total
        Out–of–pocket maximum $1,500
        Copayments / Coinsurance
            $25 Primary doctor
            $35 Specialist doctor
            $8 Generic drugs

Whew!  That is a lot of data to digest!   If I sign up for a "Bronze" or some "Silver" plans, it appears my health insurance costs will go from $240 a month to ZERO, and the coverage increased (deductible decreased to $6500 or less) and Uncle Sugar will pick up the tab.

That's pretty sweet, considering my net worth is over a million bucks - I get some of that tasty gub-ment chee for a change!

But what do these plans entail?  It is hard to parse this out.   When I click on "Provider directory" I get:

Access Denied

You don't have permission to access "http://www.healthcare.gov/marketplace/auth/GA/en_US/www.bcbsga.com" on this server. Reference #18.f8050f17.1381842281.23969eec 

 Which is not helpful.   My present plan, even with a $10,000 deductible, does provide $40 co-pays at the doctor's office and a $15 prescription plan (the latter I never use, as many pharmacy plans are cheaper for generic and older drugs).

The site also logs you out after 30 minutes, so you'd better read fast!

We scotch the "gold" plans right off, as the premiums are ridiculous.    People with severe health problems probably will go for these plans - if they have high drug costs and lots of treatments to make.  But $500 a month?   That's $6,000 a year and a big chunk of my disposable income.   Not even a starter!

Similarly, the link to "SUMMARY OF BENEFITS" goes to a dead link generating the following message:

"Your Summary of Benefits and Coverage (SBC) is not available at this time, please check back soon."

So..... I have to sign up for a plan without really knowing what the plan is all about.

Geez, this isn't really very well thought out.  The premium costs of each plan are far higher than my old $10,000-deductible plan was for TWO people.   So we are talking about a4X increase in premiums!    And I think the premiums went UP because Uncle Sugar is paying the tab - to the tune of $7000 a year.

I was very hopeful that Obamacare would solve some of our health care crises problems.    So far, it ain't looking very good to me.

One problem is, of course, how the GOP is fucking this up totally.  Suppose I sign up for this new plan, at $500 a month and then the GOP decides to kill Obamacare?   I can't go back to my old plan, and now I may be stuck with a high-cost plan - and no tax deduction.   Our overall premiums would be over $1000 a month, versus $240 before.   I am not sure how this is "cutting" the cost of health care or health insurance.

But stay tuned.    Obviously this whole thing is in Beta stage....

UPDATE:  I am holding off on signing up for now. I have a $240 a month plan now (my share being about $120). If I sign up for a $570 a month plan, and the GOP decides to scotch the tax credit, I'd be screwed royally!

UPDATE:  10/16/2013  I called Blue Cross.  They have offered to extend my "non-conforming" plan for another year for $298.   It is a $10,000 deductible plan.

Blue cross has its own Beta website, Changemycoverage.com (they admitted it is not quite ready for prime time) where you can "sign up" for Obamacare - well, actually change from a non-conforming to a conforming plan.  A conforming plan for two people would run $1037.31 a month (!!!) for two people.

They also indicated that you might be able to shop for Blue Cross plans that are offered in other States (!!).

Here is the conundrum:

1.  If I keep my non-conforming plan,  I pay $298 a month, but get no tax credit (maybe a deduction, but no credit).  I am still "insured" and do not have to pay the fine. 

2.  It is unclear whether the non-conforming plan will be offered in 2014 - I may have to switch over to Obamacare eventually.

3.  Right now, we could switch to a conforming plan, and the tax credit WOULD PAY FOR ALL OF IT (Wheee!  Free Ponies!!!) but the government would be out about $12,000 to $15,000 in tax money from us (basically all we pay in taxes).

4.  If our income goes UP, we may lose this credit, in whole or part, and then be "stuck" with a $1000-a-month plan.

5.  If Republicans manage to cut the tax credit, we may lose our subsidy and be "stuck" with a $1000-a-month plan - and wished we kept our old $298 plan!

So, what should I do?  Renew the existing plan as a back-up, AND sign up for "Obamacare" and see how that works out?

Or just jump off the cliff, sign up for Obamacare, and hope the GOP doesn't kill off the tax subsidy, so our rates don't skyrocket.

The best answer the folks at Blue Cross had was, "Wait and See" - which I suspect a lot of people are doing!

UPDATE:  October 17, 2013

If we assume that 1/3 of the country (100 million people) gets a subsidy averaging $5,000 a year, we are talking about 500 billion dollars in lost revenue to the Treasury.  This is a lot of money!    And that number could be much higher.  Since the median household income is about $51,000 at the present time, it may be that more than half the country gets some sort of subsidy.  This could add a trillion dollars to our budget, easily.  Ouch.  Now I see what the GOP is getting at.

How much of a subsidy do you get?  It is hard to play with the numbers as the healthcare.gov website does not have a "change my lifestyle" section just yet.   When plugging in my 2012 income, it says I get a subsidy of $627 a month.  But I may make as much as 50% more than that this year.

This site:  http://kff.org/interactive/subsidy-calculator/

Has a subsidy calculator.  Kaiser Permanente seems to have done the best job of preparing for this.

So, for example, if I make $16,674 a year (my adjusted gross in 2012) my subsidy

Household income in 2014:  145% of poverty level

Unsubsidized annual health insurance premium in 2014:  $5,172

Maximum % of income you have to pay for the non-tobacco premium, if eligible for a subsidy: 3.71%

Amount you pay for the premium: $619 per year

(which equals 3.71% of your household income and covers 12% of the overall premium)

You could receive a government tax credit subsidy of up to: $4,552 (which covers 88% of the overall premium)

This is on the Kaiser site, and it is interesting that it shows a lower subsidy that the government site - but still a substantial subsidy!

Now, 2012  was  a nadir of income for me.  2013 will be much higher.  In fact, I will probably have an adjusted income of about $30,000 (apiece), if I apply singly:

Household income in 2014: 261% of poverty level

Unsubsidized annual health insurance premium in 2014: $5,172

Maximum % of income you have to pay for the non-tobacco premium, if eligible for a subsidy: 8.37%

Amount you pay for the premium: $2,512 per year

(which equals 8.37% of your household income and covers 49% of the overall premium)

You could receive a government tax credit subsidy of up to: $2,660

(which covers 51% of the overall premium)

Ouch.  Even with a modest middle-class income (median income in this county is about $51,000, and combined, we would make about $60,000 in 2013) my subsidy would then drop in half.  My premium would then be about $200 a month (as compared to $298 a month for both of us, in a renewed existing plan) even with the subsidy.  As my income rises, the subsidy evaporates, and the cost of insurance would jump to $500 - APIECE....

Note that the subsidy is based on INDIVIDUAL income, not on joint income.  If we assume a "household income" of $60,000 and TWO people in the plan, we get the following numbers:

Household income in 2014: 387% of poverty level

Unsubsidized annual health insurance premium in 2014: $9,317

Maximum % of income you have to pay for the non-tobacco premium, if eligible for a subsidy:

9.5%

Amount you pay for the premium: $5,700 per year

(which equals 9.5% of your household income and covers 61% of the overall premium)

You could receive a government tax credit subsidy of up to: $3,617

(which covers 39% of the overall premium)

This is interesting.  The new premium under Obamacare comes to $475 a month (this is line with the Humana and BCBS Bronze plans, which run from $499 to $550 a month for the cheapest plans).  This would be my out-of-pocket cost, with the subsidy (tax credit) included.

Compare this to BCBS's renewal offer of my existing plan at $298 a month, and it is clear which is cheaper.  The Obamacare plan might have a lower deductible ($6300) but does not have the co-pays and drug plan I have now.  Hmmmmm....

THUS MY CONCLUSION FOR THE TIME BEING IS THIS:   Since I will only receive a partial subsidy for these new premiums, and the Obamacare premiums in terms of cash-out-of-pocket will be higher than my existing plan, I will renew my BCBS plan for the time being.

This, tied with the uncertainty regarding the subsidy (and my income) makes the existing plan more attractive.   If I dump my $10,000 deductible plan and go with Obamacare, and lose my subsidy through legislation or increased income, the cost of insurance would be about three to four times what I am paying now.

Subsidy or not, for many Americans, a high-deductible existing plan may have lower monthly costs than even the cheapest Bronze Obamacare plan.

This is not working out the way I thought it would!