Ron Amundson’s Political Blog

To some extent, many dont want healthcare reform for any number of reasons, ranging from personal financial interest, to ideology, to the status quo being ideal for them and their family. All are reasonable and understandable objections. Of course, the problem is, whether now, or later by market force, its going to happen. Whats a bit scary though are some of the tactics used… Sure, maybe some of it is ideologically / sound bite driven, but when statements are so far off the mark, it does make me wonder what planet folks are on.

I came across the following:

Putting dollar amounts on human lives is unacceptable to us in America!

???? It is common practice, and widely accepted in America. However its the elephant in the room that no one wants to talk about. Granted, there may be some folks who are unaware… either by ignorance, or perhaps its horrific enough, they just dont want to think about it.

Human life does have a dollar figure whether in ones family, ones employer, products we consume, or ones government. Decision matrices do include the dollar costs of human life, whether it be how much life insurance one can afford, workmans comp limits, design calls based upon projected loss of life/litigation, and regulation. There are only so many resources, and tough calls do have to be made…

Some examples:

Mattress Safety

The CSPC propose a new standard for mattresses. It would cost $343 million, in order to save 270 people a year. The value of human life is thus calculated to be $1.2 million, just a tad more than most health insurance companies current set as their life time payout. It was implemented.

School Bus Safety

The National Resource Safety Council did a study as far as school bus safety was concerned. It was determined students lives could be saved by changes in the standards, but at a cost of $40/million per students life. This was deemed too high, and as such was not implemented.

The DOT

The NTSB makes recommendations left and right per their charter. Ie to protect the public. Other agencies balance such recommendations with the economic costs to private business. Changes which are low cost are put out as NPRM with ease, and usually there are few if any comments. Recommendations which are expensive, often times dont even make it that far, and if they do, private industry and lobbyists post comments with a vengence. Sure, on the individual level, where one has control/responsibility it makes sense. Ie, if there is the potential for a landing gear trunion failure in my single seater, and I dont fly much, and its spendy… I dont want this to become a spendy airworthiness directive, I can intelligently accept the risk after weighing all the factors.. Otoh, if a common carrier is involved, where most folks may be unaware of a safety issue, such as 777 thrust roll back, even if it is spendy, the public must be protected, even if the costs mean the end of the $99 airfare.

The Value of Life/Year

Another factor commonly used is the value of life/year. Ie, what is the value of extending a person’s life for 1 year. In the UK, NICE uses a figure of ~$49,000, which has caused no small amount of upset over rationing. In the US, ~$50,000 is a commonly used figure… except when it comes to the uninsured. Stats based upon a Wisconsin study bear the figure out to be around $5,500 for those who do not have insurance. Yet… there is no moral outrage, even if the reason for such is well beyond the control of the individual.

These stats are the elephant in the room no one wants to talk about…

Background info from http://www.nytimes.com/2009/07/19/magazine/19healthcare-t.html?pagewanted=2&_r=2&sq=peter%20singer&st=cse&scp=2

Healthcare reform is needed due to fear, morality, and costs, but there are so many opinions out there, things get buried. In fact, it seems the fear of change is perhaps the biggest fear of all. By the same token, for some, they really do percieve no need to change, at least at the current time. Ultimately though, change will happen, if not by planning, it will occur by market forces, well beyond the control of any specific group. The current model is not long term sustainable.

Reform needed due to fear

Folks fear loosing their job, or their employer or insurance company going bankrupt, if they have any medical issues, and even those who dont… if they find out they cant cover the costs of Cobra, and then have a medical problem, there are hosed.

In the back of their mind, many know their insurance is a facade, that if they really need it, it wont be there. Ie if they get cancer, they know their fellow worker who did, ended up having to declare bankruptcy. Of the fellow workers having fund raiser after fundraiser to provide support for their ill child.

Each year, coverage amounts and procedures are reduced, and/or co pays are increased by their employer. This will be an even bigger deal come the end of the year when insurance contracts are up for negotiation.

Riches to rags stories are coming to light, and more and more folks are seeing it can happen to them. It doesnt take much, and even $1 million in savings, if paid at the uninsured rates wont last very long in the case of serious injury or illness. The fellow with a net worth of only $200K is even more at risk.

Domestic abuse stories are coming to light, where in economics and the lost of medical coverage keep far too many in the horrors of an abusive relationship.

Reform needed due to morality sort of

Most people of faith, and many of those who do not ascribe to any particular faith hold that human life should be valued, as should the quality of said life. The concept of accelerating death, euthanasia, and/or leaving an injured person to die are anathama… at least in most states. Ie, many but not all have good Samaritan laws, and also fund Hospice care via medicaid, such that folks are not simply thrown outside to die.

By the same token, morality is tempered by self interest. Ie, its fine to uphold life as of great value, until it will personally cost me, especially if I dont know the person. We had this discussion in aviation some time back, as concerns regulations and cost, and the stats bore out this elephant in the room pretty clearly. Its the same in most state govt transit departments, and in business, where in costs are assigned to human life, and the costs of resulting litigation as a method of managing resources.

• The proverbial X number of deaths/serious injuries are needed to foster design changes in manufacturing or traffic lights are needed at an intersection in road design.
• Health insurance premiums would be too high, if risk pools were to include the chronically ill, lifetime payouts were removed, out patient therapy was based upon patient need, the patients needs put first etc.
• In state governement, political fiefdoms and key programs would be shafted, if the needs of the disabled and chronically ill came first. Case in point MN and CA budget cuts. Those folks dont have lobbyists and are small in number, and its easier to cut them, than other areas.

Reform needed due to cost:

Reform is needed as costs are increasing at a greater rate than wages, even more so since we are starting to enter the era of wage deflation in some areas, and sectors.

Medicare Reimbursement is a joke. A fellow posted on Minn post a few days ago, he had a colonoscopy, and was billed for $1560. The physicians medicare reimbursement for such a procedure is far under $500, some sources suggest as low as $340.

Those in the industry, are well aware of the insane markups..  Ie, if something is sold to the medical market, the sales price is 5-10X what it would be if sold into another market. QA, regulatory, and liability do play a role in this of course, but charging what the market will bare is the primary factor… and the reason for that, 1. the end user is unaware of prices, until its too late to do anything about it, and 2.  its easy to shift said costs to them.

Malpractice liability insurance is insane… I remember working with pacers folks years ago. The professional liability premiums, if they were available, often times were multiples of gross sales. Thus, most independent professionals either go bare or shelter assets. Most manufacturers have to vertically integrate low volume processes, and the use of readily available low cost commercial off the shelf technology is prohibited, thus further increasing costs.

Hospitals, even well run ones are finding unless they put the needs of their infrastructure above the needs of their patient, they can’t keep their doors open. Even Mayo, with its super cool patients first model admits its not long term sustainable practice without reform.

Its not needed for all…

Some folks are blessed with Cadillac plans at reasonable costs. I know, I was one of those folks years ago. The thing is, as time passes, the Cadillac is morphing more and more toward a Geo in most but not all sectors. Ie, congress is excluded, as are some government employees, and a few in the public sector. In other cases, the morphing is pretty well hidden. Ie, John’s kid had cancer years ago, and the insurance was wonderful, but since then, system costs are pretty nominal, and as such, no one really knows how good, or not good the company plan is. Ultimately, if the company is prospering, they can keep up a good plan for quite some time, if not… it might be shrinking over the years, but few are aware of it.

Change is inevitable

If the current model continues to run unchecked, healthcare will grow, until a vast number of people can no longer afford insurance, housing, or food, and then difficult, and potentially damaging changes will be forced upon them. The proverbial medicine or food scenario will become more and more real to many. At that point, change must occur, and most likely it wont be pleasant, ie major care rationing, lack of resources, overworked med staff, and the patient looses big time in contrast with even today. The question is, whether there is enough will to make a change, or if we all go down as captains of our own ships.

I was looking at the Blue Cross Blue Shield of MN 2008 Financial statement.  Their total revenue was $8.8 billion and paid out claims were $8 billion putting their administrative percentage a tad under 10%. In many ways, thats pretty impressive. Membership is roughly $2.2 million, putting a rough cost per member at $4000/year, which again, is pretty impressive.

However…. dollar figures dont tell the whole story.

• If someone has a pre-existing condition, it likely wont be covered.
• If someone was seriously injured, and doesnt recover, they will hit yearly, and likely lifetime limits of coverage, where upon their coverage becomes of little value, if its renewed at all.
• If someone is old, and with some heatlh issues, they will pay many times, what a young healthy person pays, if they are offered coverage at all.
• Maximum annual out of pocket spending is based upon only covered procedures, and only what they consider reasonable and customary. A significant illness or injury will likely result in annual out of pocket spending far beyond what is stated.
• It is highly likely, one will have to fight every step of the way for coverage in the event of major illness or injury, significantly less so for more routine matters. One’s doctor is really not the one in charge of care, when many options have to be reviewed/denied/appealed.

All of the above serve to keep premiums low, and also lean towards keeping a specific membership demographic that keeps premiums low as well. Removing / modifying many of the above would be the morally correct thing to do, and changes are called out in the reform bill… however, such is going to require premiums to increase multifold. Where is the greed aspect? Is it us, who dont want to pay, or is it them, in wanting to keep prices down to maintain volume and thus profitability?

I have a feeling its more us, than them. No one ever thinks they will get sick or be injured, few even bother to read their policy, until they really need it, and then find out… they need to have fund raisers and such to help with their childrens health issues, or that bankruptcy may be a high probability, although for chronic cases… what then, it doesnt change financial circumstances, the high costs are still there. Or what about the anti-government person, who believes a great deal in affordable private insurance… only to find out, they exhaust it, or its cancelled and end up on medicare/medicaid programs anyhow.

I agree that the intent of this makes sense. “To get our economy back on track and to create jobs now, we must fundamentally shift power from politicians to small business, from lobbyists to entrepreneurs, and from bureaucrats to investors.” However, tax policy, while it plays a role, is not the root issue, demand is the problem, its collapsed, and as such, there exists huge overcapacity. Here are four ideas from American Solutions, they make for good politics talk and soundbites, but do little as far as the demand side, and some are counter productive. What worked in the 80′s was based upon the history leading up to it. Considering where we are on the Laffer Curve today, such policies just dont seem to add up.

1. Reducing payroll taxes… Fostering greater consumer liquidity through tax policy can help… but more likely, the first proposal would be used by the average Joe for paying bills, and safe investing for the wealthy class rather than fostering an increase in demand. The end result, government debt increases multifold, and the citizens receive very little bang for the buck. Shrinking govt to absorb the costs is not a option, as there are too many hands in the cookie jar.
2. Eliminating Capital gains… well it makes for a good soundbite, but a good accountant and tax lawyer already have this covered. If anything, it would serve to shift the largest tax burden even more to the middle class than it already is. The flat tax would serve as a much greater leveling agent.
3. Reducing the corporate tax rate....The corporate tax rate again is subject to having a good tax lawyer, and accountant. It makes for a good sound bite, but does little in the demand arena. Its a good thing in the finance world, but does little for production of tangible goods and services in the current economic situation. I think the finance sector has been bailed out enough.
4. Eliminating the death tax… The death tax needs reform, but not removal. Removing it, being inheritance serves to keep money from being productive, at least as shown by history, would be counterproductive. The paperwork burden needs to be addressed, as do the limits.

Realistically, only a black swan will make any difference. Short of such, a long term L shaped recovery with little change in employment is the likely outcome. Thus, the questions should be asked, what can govt change to increase the probability of black swans, and what can government do to foster employment in the short term.

Encourage, rather than discourage competition, and new market creation

Vast sums of policy and regulations are in place to protect the status quo from competition, and to limit new market creation. This has to end, keeping in mind, the citizen needs protection, not the status quo. Anti-trust legislation needs to be enforced with a much larger stick.

Encourage, rather than discourage hiring for small business and startups, defined as those with under 50 employees.

Having been down the hiring path a few times, soundbite folks would be astounded to realize the costs of hiring an employee. The total cost to an employer is at a minimum 1.5 X take home pay, and 2.5 multipliers are not unrealistic in some sectors. The paperwork burden can be substantial, and the pitfalls of mistakes are huge. Shifting workmans comp, and UI somewhat to the employee side would also work wonders, even if our net costs remain the same, being such would be visible. Addressing the healthcare issue, with the proposed 8% employer contribution limit, and access to insurance will do wonders in this regard.

Encourage, rather than discourage local hiring, do not encourage outsourcing.

Tax policy encourages outsourcing for the most part, rather than local hires. This has to end… but its an impossible sale. The flat tax model would level the playing field, but being it takes the ability to influence social policy via taxation away from govt, it would never fly.

Encourage, rather than discourage early stage investing, for all people.

Currently, SEC regulations limit early stage investing to qualified investors. Only those with a high net worth can play, subject to some minor exceptions. The idea was to protect the little guy, however, as history shows, the little guy was not protected from Wall Street greed… Also, the massive overhead involved in early stage fund raising, serves as a significant barrier to entry for many. Obviously balance is needed.

Encourage the creation of startups and small business, defined as those with under 20 employees.

SBIR overhead burdens are substantial, add in small business being defined as those firms with under 500 employees, proposed institutional investors, and venture capital allowances, and a small startup firm with an idea, and limited money is out in the cold. If the intent is to encourage small business innovation and competition, the SBIR can be pretty counterproductive with such policies.

The problem with healthcare solutions, is that they dont address the problem at its most basic level, and that is the skin is in the wrong place. Ie, skin = whos finances are at stake. Insurance companies dictate to Dr’s, and balk at paying, or covering specific items as doing so makes them more money. Patients have no clue if there insurance is fake, poor, or great, as very few use it beyond the trivial things, and many really use it for trivial matters, as they dont directly pay. Many Doctors have no clue what procedures actually cost, and some practice proactive malpractice, which may protect them, but run roughshod over the patients financials. Hospitals and clinics force Dr’s to work on volume, and proactively find ways to maximize revenue, and when they get revenue, they expand, such that they can always whine for more. Malpractice carriers  advice physicians to focus on procedures which may not be the best for the patients finances, but minimize their, and their clients financial risks. Govt gets yanked around by lobbyists, at the whims of who can pay the most for revenue enhancement. Med schools charge outrageous sums, knowing that med students can get loans, irrespective of whether they really can pay them back or not. Each sector wants the best for itself, and let the others hang out to dry… and usually, that means the patient, as they have the smallest voice, and no lobbyist. And lastly, no one wants to admit there is an elephant in the room, who has been there nearly forever, known as health care rationing.

Is the free market a solution?

Some say, the freemarket is the solution… but lets think a bit. The public expects a certain level of care. Would it be cool, for an insurance company, to pull a credit card trick, and say just when you needed surgery, they decided it was only covered at 50% instead of 80%? Or to use contracts of adhesion and slight of hand to change coverage limits under the table? Sure, the free market would correct, but it might take a few quarters, all the while windfall profits could be made. Or what about far out concepts, like coverage up to $5000 would be local, and liberal. For anything more than that, it goes out for bids, anywhere in the world. Perhaps the best deal can be found in startup hospital powered by generators in a tent half way around the world. Again, the free market will correct, but how many folks are affected in the mean time. Or what about docs, and hospitals like those in McAllen TX, where profit motivation results in some of the highest care costs and use of tests/procedures in the world. Left unchecked, McAllen would probably become the richest area of the country…. but at what cost to the rest of the nation?

Is Government a solution?

Is the government the solution…. do you want to argue with a beancounter over some form, while your appendix is freaking out, and your doc is sitting worried to death it could blow at any moment? Or, what if the govt decides the one and only drug for your condition is not medically warranted. A generic is all you need, besides the FDA says there are identical… and of course, the binding agents and alternative processes that are used react, rendering it ineffective for you, and perhaps 50 others, but 1000000 folks do fine with it. Remember lobbyists are in the game, and whoever has the greatest pull gets the best deal… and that means the patient will loose. Look at Medicare part D for example, of how to win huge in the insurance business, yet the patient, doc, hospital pharmacy, and govt get hung out to dry. Of course, the exception is congress…. lobbyists dont have much pull when it comes to the governments own.

Is the current system a solution?

Is the current system a solution…. well, for many, who have rarely used it, or find it works well for trivial matters, its a perfect thing. For others, on plans similar to what congress has, it works very well, whether for trivial, or major things. On the other hand, for those in a major car crash, or with a serious diseases, far too often, they find out the hard way, their “great” insurance turned out to be only great for a few months, and then its a disaster. For others, they hit the limit, ie healthcare is rationed typically to 1-2 million dollars, after that, you are cancelled, and left to fend for yourself. And for others, say those in a early stage startup who can’t provide insurance… well their employees have to buy it out right, with after tax money. Why should such employees, many of whom put in 100 hour weeks have to subsidize all those in the F1000, who get it tax free. Otoh, mear mention of taxing health benefits, and folks scream… yet, they are the ones living off the work of others already. Go figure.

Nope… none of the above in and of themselves are solutions, they dont address the root cause(s), which lead to lack of coverage, overuse, high costs, and low value. I’ve read partly through 1015 pages of the proposed legislation… it doesnt address the root causes either, albeit it does dance around them a bit.

The blogosphere has been awash with folks crying in their beer… Egads, investors will never invest again, banks wont lend, the end of economic civilization as we know it is near… Well short of the last one, which imho is needed, the another two are pretty blatantly in error.

Investors want to make money… and along with that, guess what, the more potential gain, the greater the risk. Less than 2% of all patents make enough money to generate the costs of filing, far fewer even cover their development costs, and even less end up making a profit. Even less than that make a substantial return….  despite, the high risk, new tech is often the domain of IPO’s which attract substantial investment. However, even then, the chance of 100% loss of investment is very real. Just ask any holders of stock options from the dotcom era who failed…

Will changes in risk management in the investment world, especially as concerns government involvement, change the game… Yep, it probably will. However to state investors will not step up to the plate is significatly in error. If there is money to be made, or even a chance, by far investors will step in, albeit it is likely a different demographic will be in the game as contrasted with history.

Sec 363 of the bankruptcy code as concerns secure creditors has shifted things around for years… Secured creditor status does not grant safety, nor mulligans. It can be safer, but not always. This is not new, nor rocket science, and case law and history most certainly have justified twiddling with priorities. Either way, a fool is often parted with their money. Someone was either A too greedy, or B asleep at the wheel when investing in GM and Chrysler bonds. They had to know what was on the horizon, I certainly did, even going back as far as 2003, albeit I didnt know when things would unravel. As time passed, it appeared things would take a header sooner and sooner. Thus, to step in and buy bonds as many investors did late in the game was a calculated risk… and it didnt turn out too well. The beer has been spilled… and yes, some folks retirement was lost, and that is sad, especially if they were at the whims of an inept fund manager. If anything, the one change that needs to be made, is not to Sec 363, but to provide more diversity and options for folks retirement funds to prevent that lockin, plus additional education.

As far as contracts and loans go…. a bank makes money on loans and on bank fees. If, and I do hope it comes to pass, further restrictions come into play on fees, then banks have to return to their core, and that is the loan business. Interest rates are determined by market and by risk. Getting a loan when one has an equal or greater amount of cash in a bank’s CD’s is easy, and provides very low interest rates. In more than a few cases, large customers pretty much dictate what the rate will be, as the bank is backed into a corner. Otoh, getting an unsecured loan, unless one has a high income, a low debt to income ratio, and very stable employment is likely to result in a much higher interest rate, because the risk is higher. Certainly, those with low credit scores, low income, and high debt to income ratio can be charged the highest rates, as the risks of default are exceedingly high. The bank knows this, the investors know this, its not rocket science. And if default happens on an unsecured loan…. well, the bank gets a few cents on the dollar for selling it off for someone else to collect on, or if the customer declares chapter 7 bankruptcy, they get zero. On the other hand, if default doesn’t happen, the bank makes a small fortune. Its pretty simple, and its basic risk management 101, even going so far that a number of high interest loans are predicted to default, but that the aggregate will return huge gains.

The problem is, when the risk management model is upended… if one was being too greedy, or purposely chose to ignore specific factors, the default losses will exceed the gains, and before too long, they should cease to exist. Of course, there is the aspect of the culpability of the third party ratings agencies… if they are in error, the bank could still theoretically do everything right, and still loose their shirt, alas there is also an element of caveat emptor. Just because a bond rating or credit score is exemplary, its really only a tiny portion of the real risk at hand. Certainly a loan to an employee of a firm in bankruptcy with a 800 credit score is more risky than a loan to a person with a 700 working at a long term company showing positive trends and on a hiring spree.

Thus, when a bank or other firm gets hit with defaults, its their problem, they took on the risk, now they have to pay the piper. If anyone was foolish enough to have more than the FDIC limits tied up in such…. well, I would hope they are getting greater returns than the masses, as the risk is substantial. Granted, there are reasonable concerns for commercial entities.

And that’s what it comes down too… what is a reasonable risk, and how much return do I want. I have no right to cry in others beer, when I took a risk, and it fell apart, barring in mind, I took said risk with knowledge or a perception of what I was up against. Banks must loan money and investors must invest to exist, failing to do so, will ensure they will fail… thus changes in government policy, changes in risk models etc will not result in lack of loans, or investments. It will hopefully result in greater upfront awareness and understanding, and from a reactionary pov, fewer loans and investments in the short term, but they will come back… perhaps with more strings, or less favorable returns, but they will be back.

And lastly, the end of economic civilization as we know it, must come to an end. Liar loans must end, risky investments sold as no risk investments must end, and the whole ecoclimate needs to change. That is a good thing, and will poise us for future growth in a huge way based upon a real economy, with real and sold underlying fundamentals, not selective models based upon ignoring very real key factors, or bogus bookeeping.