Insurance Reform, Not Health Care Reform

Here's a few bullet points on the new "health care" bill going through the senate (courtesy of the AP):

• Health insurance companies would be prohibited from denying coverage to people with health problems, or charging them more.
• For the first time, Americans would be required to carry health insurance, either through an employer, Medicare or Medicaid, or by buying it themselves. Refusal would bring fines, except in cases of financial hardship.
• Federal subsidies would start flowing to individuals and small businesses buying coverage in the exchange, helping them afford the premiums.
• Most employers would be required to offer coverage or pay a tax, under the House bill. In the Senate version, employers would get a bill if any of their workers got subsidized coverage in the exchange.
• Medicaid coverage would be expanded to pick up millions more living near the poverty line.

As you can see from these major points, this plan does nothing to address the real problem: Health care costs. Instead, its only aim is to get everyone on insurance.

Here's a few bullet points of my own:

• If you buy your own insurance right now, you can expect your premiums to keep going up because health care costs are going to continue to go up.
• If your employer pays for your health care, you can expect your wages to keep remaining flat because your employer's health insurance premiums are going to keep going up (because health care costs will keep going up).
• We will get to have this debate all over again in 10 years because this bill does not address the fundamental problem: Outrageous health care costs.
  

The only really good thing about this, in my opinion, is that everyone is required to buy insurance. This is good because, as a nation, we already provide "insurance" to everyone. Think about it this way...

If someone poor and without insurance walks into an emergency room the hospital is forced to treat them (I think this is a good thing). But because the person can't afford the care, the government and/or the hospital picks up the tab. Since the government's money is our money and the hospital recoups its costs by raising rates on those that can afford it, we as a nation are already "insuring" everyone. So I like the idea of formalizing that policy.

Bribing Public Officials

The Democratic party should be completely and utterly ashamed of itself for it's Chicago style of mob politics. In particular, resorting to bribery to win necessary votes for new health care legislation. Consider this: In the House of Representatives, Mary Landrieu of Louisiana was promised $300 million for her state in order to acquire her vote to pass the health care legislation.

Now the same shenanigans have taken place in the Senate with Harry Reid promising the same sort of payout to acquire the vote of Ben Nelson from Nebraska. While the exact bribe amount is not yet known, Democratic senator Kent Conrad was quoted as saying that Sen. Nelson's payout will be "much more" than what it cost to buy Rep. Landrieu's vote.

Think about what this means for the future of legislation in the Democratic party. It pays to hold out until you're the last vote needed and then you can extort exorbitant amounts of money from the rest of the country.

Nice job Mr. Reid and Ms. Pelosi.

Creating Jobs - Part II

Let's reiterate my central thesis to helping end poverty: The best way to bring someone out of poverty, is to provide them with a well paying job. Now on to part II of this piece...

You'll recall in my last post I mentioned that the best way to help developing nations is to follow the Marshal plan of post WWII Europe: Creating small aid centers within developing nations, have them give loans to promising small businesses, and have those loans repaid directly to the country's government. That will get much needed capital into the hands of local business people, force the government to create an atmosphere for those businesses to thrive, and, ultimately, result in more and better paying jobs for the citizens of that country.

To be honest, I didn't come up with that theory. It heard it presented by Glenn Hubbard of Columbia University. It made so much sense to me, though, that I finally asked another question: Couldn't we apply that to modern day America?

Think about it. The major problem facing America right now is unemployment. The only way to end unemployment is for jobs to be created. But small and medium sized businesses, the biggest engine of job creation in America, are on hold because they can't get loans from the banks. So what better solution than for the federal government to take its stimulus money, create local business aid centers, and start actively giving loans to promising, cash strapped small businesses. In addition, these loans would be repaid to the city, county, and/or state governments where these businesses reside.

I believe this is a much better plan than having the federal government give this money to local government agencies to have them build infrastructure. As I mentioned in my last post, just building roads and bridges for the sake of putting people to the work isn't the best expenditure. Instead, let's give that money to small companies that are doing innovative research or producing useful products or services.

In addition, by having these businesses repay the loans to their local government agencies, we would help foster a climate that is conducive to small business success. Living in Chicago, I can tell you how badly reform is needed. Simply talk to any new restaurant owner about what it takes to get a liquor license here and you will learn about bribery, favors, and the need to be "connected" to get anything done. This is not a good way to help a small business get started.

That corruption drains money away from businesses and, ultimately, from the citizens that business could employ. By having these new small business loans repaid to the local government, we'll be creating a real incentive for our local political leaders to clean up their act. It will also give them a reason to create better schools, roads, and efficiencies throughout our government because all of these things help businesses succeed. And if they succeed, the local government gets a fistful of dollars repaid to it.

In short, I think there are a lot of similarities between ending unemployment and poverty in the third world and helping America out of it's current financial crisis: Get businesses much needed capital and give an incentive for political leaders to create a business friendly environment.

Creating Jobs - Part I

Before I say anything else, let me state what I believe to be an absolute truth: The best way to bring someone out of poverty, is to provide them with a well paying job. Now, let's get on with the rest of this post...

I was recently listening to my favorite new Podcast, Planet Money, when I came across a very interesting story about how to fix aid to developing nations. They interviewed Glenn Hubbard. He's a professor in Economics at Columbia and has recently written a book called, "The Aid Trap: Hard Truths About Ending Poverty". It was absolutely fascinating and I highly recommend you listen to it.

Here's the gist: Developed nations have given about $1 trillion to developing nations over the past 50 years with almost no improvement in the lives of the citizens of those countries. The problem? We've been giving the money to the heads of state and asking them to figure out the best way to spend it on their nation. Kind of a Keynesian approach. Let the government build highways, dams, and other massive public works projects and that will employ their citizens who will then have money to buy things and that will spur the economy.

As I see it, there are two huge problems with this approach. First and foremost is corruption. Most third world countries are run by leaders who use this aid to reward friends and allies with big government contracts and the average citizen gets very little economic relief.

The second problem with this approach is it assumes the government, even if it isn't corrupt, knows best what the people need. As a free market person, I personally don't believe in this. For example, if only 10% of a society has vehicles and 90% of it's commerce takes place in local markets, what good does it really do to build an expensive highway system?

What a country needs is a thriving small and medium sized business community that can offer millions of jobs.

This, Professor Hubbard argues, can be done by distributing aid in much the same way the Marshal Plan did after World War II: Create regional offices within nations, give these offices a bunch of money, have those offices make loans to small and medium sized businesses, and have the loans repaid to the government of that nation.

This system of aid does several things. First, it gets much needed capital into the hands of local business people so they can grow their businesses. They will then be able to hire local people. Secondly, since the money is going to small, local businesses, it ensures that products and services needed in that region are being produced.

Lastly, since the loan repayments go directly to the government, it creates a major incentive for that government to create an atmosphere that will allow these businesses to succeed. This means removing hurdles to starting and growing a business, creating a better education environment so businesses can hire quality workers, and, perhaps most importantly, eliminating government corruption. If the governments don't do this, they don't get any of the money.

By helping small and medium sized businesses succeed, the Marshal Plan turned much of Western Europe and Japan into economic powerhouses. Yes, they have not been perfect - no human institution ever will be. But it lifted 100's of millions of people out of the desperate poverty and destruction wrought by WWII because there were millions and millions of jobs created by small businesses.

Media Spin

To try and insure that I'm not just getting a one sided view of world affairs, I have both an NPR and Fox News feed on my browser home page. One conservative source, on more liberal source. This helps me get a better idea of where the truth actually lies.

As an example, check out these two headlines for Obama's new Afghan strategy:

Fox News: Left, Right Slam Obama Plan
NPR: Afghan Plan Met with Cautious Approval

You don't get much different than that now, do you?

What's interesting is that both articles present basically the same facts. The difference is in how they spin those facts. In this case, I'm going to agree more with NPR. Here's why:

• Both articles point out that most Democrats fully support the plan, though a few are completely opposed.
• The Republicans unanimously agree with the additional troops but they do have an issue with announcing a timetable for withdrawal.
• General McChrystal, at least publicly, is fully in support.

Put those 3 facts together and what you realize is that, most people are in support of the plan to send 30,000 more troops to Afghanistan.

The moral of the story: Don't ever read just one news source. Take the time to read a couple of ideologically opposed sources because both of them will put their own spin on the facts.

Nancy Pelosi & California

Reading the news today I see the following from Nancy Pelosi:

"The American people have an anger about the growth of the deficit because they're not getting anything for it...If somebody has the idea that the percentage of GDP of what our national debt is will go up a bit, but they will now -- and their neighbors and their children -- will have jobs, I think they could absorb that, and then we ride it out and bring money in."

Ah yes, the California way: Spend money you don't have and by some miracle of a God you don't believe in, it will all be okay. Oh wait, California is going bankrupt. I forgot that. In fact, California has been forced to put a 10% increase on every persons paycheck to try and balance the budget.

A little economics 101 for Speaker Pelosi:

1. If people have less money, they don't spend as much.
2. If people don't spend as much, businesses don't sell as much.
3. If businesses don't sell as much, they lose money.
4. If businesses lose money, they fire people.

In other words, California is about to insure that they can't fix the economic problems they're having. In fact, they'll be making them worse.

Now, of course, Nancy Pelosi wants to help do for the rest of America what she has helped do for her home state of California: Drive the rest of America into bankruptcy.

Yes, Ms. Pelosi, we do want to see more Americans with jobs. But we don't want to do it at the expense of a massive amount of future jobs when the American economy collapses under the mountain of debt that you, the rest of the Democrats, and, for the 8 years prior, the Republicans and George Bush helped us amass.

Here's an idea: Get us out of Iraq and Afghanistan (save money in the short term), change the focus from health insurance reform to actual health care cost reform (save money in the long term), start helping small businesses succeed and get much needed capital (creating jobs), and streamline the way our national government works (save more money in the long term).

Health Care, Not Health Insurance, is the Problem

I've been listening to a ton of "health care" debate and the fact is, what we're dealing with now, is a "health insurance" debate...and it's ridiculous. Here's why: Health insurance isn't the problem! The problem is the cost of health care itself.

To give an example: United Health Care, everyone's favorite, evil health insurance company, pays out 82% of all premiums collected to hospitals. Even if they could be run at the 3% administrative rate that Medicare claims to be run at (which is bogus because that number doesn't consider fraud), their customers would only save 15% on their total health care expenditures. With health care rising at about 6% a year, it will only about 3 years before any savings on insurance costs are eaten up by the actual health care costs.

Despite what the politicians and media are saying, the major problem we have to solve is how to bring down health care costs and not how to get everyone insured. Yes, insuring people is a concern, but the biggest issue we're facing is the cost of care.

It doesn't matter if the government runs that as a sole payer, a public option is available, or it's all handled by the private sector. Until we figure out a way to actually fix the cost of the care itself, we will continue on a path towards either bankruptcy as a nation or serious restrictions on health care.

My next health care post will give you all the solution to the problem. Stay tuned...

Why Liberals Should Oppose the Health Care Bill

I listen to a lot of conservative and liberal talk radio. Almost universally the conservatives are against the current health care reform and the liberals are for it. The one liberal complaint is that it doesn't go far enough. They want a single payer system.

But the bill that has passed the house and is going through the senate should scare the bejesus out of liberals. Why? Because as much as you may not want to admit it, democrats will not always be in control of the government. Imagine if there was a single payer system where the government was in complete control. Now imagine that President Bush was back in office or that, may heaven help us, Sarah Palin were to get elected president of the United States.

Pretty scary thought, isn't it? What do you think uber-conservatives would do if they were in control of the nations health care? Not only would payments for abortions be completely banned but any stem cell treatments would probably be banned too. You can completely forget about medical marijuana being funded. I'm pretty sure they'd put strict restrictions on pain medication...

You get the idea. Everyone screaming for the federal government to take over our health care system, ask yourself this question: Would you still want this system if the other party was in control of it? I assure you that one day they will be.

No Incentive, Lousy Employees

Running my own company has me thinking more often about business and economics. Lately, I've been considering the effects on an organizations of having an effective incentive program. After walking into the post office today, I have no more doubts: The inability to fire someone has seriously negative impact on performance. The same can be said for fixed pay structures (think teachers union).

So what happened to me today? I had to run to the post office "quick" to drop off a package. It was about 1:00 when I walked in and there were about 5 or 6 people in line in front of me. A pretty decent sized line for my small post office down the street. Now you would think that, being right around lunch, a popular time to run errands like going to the post office, that there would be 2 or 3 people working behind the counter.

You would be wrong. There was just 1 person.

You would think that if 5 or 6 people were standing in line and waiting, on average, 15-20 minutes to get service (which is how long it took for me), that someone else would be called out to work one of the 3 empty counter spots.

You would be wrong again. Instead, the one person behind the counter just kept plugging away, methodically and slowly, servicing each customer in line. I know they have more employees because I've been in there before and seen 2 of them working, albeit very slowly, while a third person putzed around doing nothing as a long line of people was gathered.

So with 20 minutes to kill while standing in line, I started thinking about economics. A common theory in economics, and most private businesses, is that to get someone to do something, there must be an incentive.

Consider the following examples:

1. I ask you to dig a small ditch for me but tell you I'm not going to pay you anything. You'd probably refuse.
2. I offer you a $1000 to dig the same ditch. You'd probably do it.
3. I tell you I'll pay a $1000 whether or not you dig the ditch for me. Almost everyone would take the $1000 and a lot of people wouldn't dig the ditch. Those motivated by guilt might do it but even they would probably do a lousy job of it.

Being a government employee is pretty much like option #3. It's almost impossible to get fired and your pay structure is determined almost entirely by how long you've been working. Your pay has little if anything to do with how good of a worker you are. So, at my local post office, as long as they show up for work, they're good to go. The problem is, once they've shown up for work, they have little motivation to hurry, make customers happy, or do anything above and beyond the absolute minimum they must do.

A similar position holds for those in the teachers union, the UAW (auto workers), and airline unions. Is it any wonder that our government, schools, auto industry, and airline industry are all in trouble? It's not a coincidence, it's a lack of motivation. Make it clear to all of them that they can get fired for not performing and you'll watch productivity skyrocket.

The Health Care Article Everyone Should Read

This is an article that everyone interested in the health care debate should read (and if you're not interested in it, you're a fool - it's one of the most important issues of our time):

http://www.theatlantic.com/doc/200909/health-care

Before I even begin, there's one major point: Employer paid health insurance is a big, big problem, and the bill in front of congress right now is set to entrench that system for a long, long time. Penalizing businesses for not providing health care? That's not going to fix our system, that's going to truly and completely destroy it.

Here's the Cliff Notes as I see them:

1. Employer provided health care is a major problem. Because our providers are "paying" for our health care, we don't see the real costs and therefore abuse the system. I put "paying" in quotes because the fact is that you, as an employee, are actually paying the cost and you just don't know it. Why do you think wages have stagnated over the past decade? Because of evil and greedy employers? Wrong! Because they are shelling out 20%-30% more money for your health care. That's wages that you don't make.
2. Employer provided health care is a major problem. Did I mention that already? Well it's one of the biggest problems so it deserves to be the top two items. This time I'm going to point out that because employers provide health care, insurers have no incentive to go after individual policies. Why waste your time trying to lower prices so that Joe Taxpayer can afford them when Company X, with a lot more capital and a government subsidized tax writeoff, is out there. You sign up Company X, you get a whole bunch of people into your system. You spend the effort signing up Joe Taxpayer, you get one person.
3. Joe Taxpayer isn't the one paying the bills at the hospital, the insurance company or government is. This means hospitals have about a dozen different pay schedules depending on who's paying. Try calling up your local hospital and ask them how much a simple physical is going to cost. Some of them will probably tell you, "We'll tell you after you come in and get the physical." I'm not kidding, that's probably what most of them will tell you.
4. This entire debate is about the wrong subject. We're debating insurance costs and not health care costs. Health insurance isn't the real problem. Health care costs are.
5. Doctor's and hospitals aren't evil, but they have to make a living. This means that they frequently order more profitable procedures. Remember, in most cases, you are not the customer - your insurance company (or Medicare) is the customer and that's who they are out to please and who they are out to bill.
6. The government is really bad at running most businesses. There's no incentive for employees to be efficient (just go to your local post office to experience this).
   

An SAT for Politics

I was thinking the other day about how little most of our politicians seem to know about economics and I had an idea. How about a new rule: In order to run for office, a person must take an SAT style exam on all the things related to their job. This would include economics 101, constitutional law, business, US & world history, a few questions on current events, and maybe even an ethics section.

A person would not have to pass this exam in order to run for office. In fact, there would be no "passing" score. Instead, the results of each section as well as their overall score would be posted for everyone to see. This would help their constituents make a much more informed decision about what their candidates actually know.

Fixing Health Care

Abstract: Fixing America's health care system requires the Federal government to establish one set of rules for all states and health care related industries. This includes standardizing rules for insurance companies, hospitals, and doctors. Doing this will create an atmosphere of true competition among providers and help turn health care into a commodity. Once that happens, performance will improve and prices will drop.

Discussion
For my first blog post I'm going to aim high: Fixing health care! I'm not going to waste your time talking about the urgency of this issue. Volumes have been written on that. For a good read and some staggering statistics, take a look at the following article from the National Coalition on Health Care (NCHC): http://www.nchc.org/facts/cost.shtml.

The question now is what can we do to fix the system? A common theory is to nationalize the system. A major problem with this is it simply changes the payment structure, not the costs themselves. You may no longer have to pay when you go to the doctor, but that's because 20% (or more) of your paycheck will be going to the government's health care plan.

The next idea is to combine a nationalized health care system with cost restrictions on health care providers. Limit how much those nasty hospitals and doctors can charge. I'm not sure that's a good idea either. The medical profession is already losing doctors at a staggering rate due to malpractice and other legal concerns and expenses. Start capping their salaries and you will discover that few talented people are going to be willing to sacrifice their 20's to get into the profession.

"But it works for Canada," you protest. You're right, the Canadian system does seem to work. It has its problems but in general every Canadian I've talked to much prefers their system to America's. Before you start patting yourself too hard on the back for this counter argument, ask yourself this: Which country provides the majority of the world's medical breakthroughs? The answer is the United States where the profit incentive motivates the best and brightest minds to enter the medical field. Remove that force and Canada (along with every other country) will soon find medical breakthroughs slowing to a crawl.

So there are your options with a nationalized health care system: Pay a significant amount of every paycheck to the government to cover costs or reduce the payouts and, hence, the quality of care that people receive.

Like most of our politicians and political analysts, all I've done so far is point out what won't work. I promised at the start to give you something that will work. So here it is: A standardization of health care regulations nationwide.

Consider this example:

Company ABC decides to get into the widget business in the state of Illinois. They spend years developing a great product. They also invest in creating industry leading software and processes for managing customers and vendors. In short, they become a lean, mean machine that produces the best widget in Illinois. Within 5 years they are dominating the Illinois widget business because they're providing the best product at the lowest price.

Then Company ABC decides to go after Wisconsin's widget business. After all, they've got all the infrastructure in place already - great product, procedures for dealing with customers and vendors, and a management team that knows how to succeed because they've already done it in Illinois. So company ABC moves into Wisconsin...then Iowa....Indiana...and so on.

At each step of the way, Company ABC encounters new competition. This forces both ABC and their competitors to work harder and harder to provide a better product at a lower price. If they don't, they'll start to lose customers. To see this in action, just change Company ABC to be Dell Computers or Crest Toothpaste or Suave shampoo. All of these companies work in a truly competitive environment and provide good products at a low price because that's what competition does.

Now let's change the rules. Let's say that when Company ABC decides to sell in Wisconsin, the state legislature tells them they can only produce their widget in Red and White, they must use paint manufactured in Wisconsin, have to register every purchaser with the state commerce department, must offer 3 different kinds of insurance to customers at purchase time, widgets must come with a 5 year warranty, the product must be sold through stores only (no online sales), 4 different warning stickers have to be placed on each widget, and the packaging can only be made from recycled news paper.

What do you think happens to the price of the widget in Wisconsin? It goes way up because ABC has to hire a bunch of new staff to deal with the new laws and regulations, they have to redesign the product, and they have to rewrite a bunch of their software and procedures to deal with the new rules. Now what if every state had a completely different set of regulations for selling widgets? The answer is that ABC would either not try to branch out or it would take them years to expand. It would also make their internal processes and structures much more bloated and harder to manage. This would mean a significantly more expensive widget for everyone.

This is exactly how the health care system in our country works. If you're an insurance company, you have to rewrite a whole new set of rules every time you try to go into a new state. That's expensive. It also means that all the efficiencies realized so far by a company are pretty much useless. And insurance companies aren't the only ones. What if a hospital really mastered great care in their state. Shouldn't they be able to branch out? Just like Wallgreens or Target? But this won't happen because the rules governing each state are so different and complex. It's not worth the cost for companies to do this and those that do must charge much higher prices to recover their investments.

The other side effect of all these different regulations is a significant reduction in competition. If Company XYZ know it's very expensive for ABC to move into their territory, they're going to charge rates that are just barely low enough to discourage ABC from investing in coming to their territory. While low enough to keep ABC out, those rates are going to be much higher than they would be if Company ABC was actually in town.

Conclusion
If people really want to see a reduction in health care costs, then start petitioning your politicians to nationalize health care regulations - not the health care system itself - so that we can see legitimate, nationwide competition amongst all health care providers. This will drive quality service up and costs down.

Lies, Lies, Lies

I register for news feeds from NPR and, in general, I find them to be a great source of news. However, this morning I saw the following snippet:

"Carbon dioxide is the single most important gas involved in global warming..."

That is a flat out lie!

First let me say that I do believe the globe is warming. I'm not convinced that humans are the primary cause but, even so, I think we should pursue policies related to reducing carbon dioxide emissions because it has so many other benefits. For example, not burning fossil fuels means cleaner air, cleaner water, less dependence on oil from foreign despots, and, if America comes up with the fossil fuel alternative, a massive boom to our economy. That's all a subject for a future post though.

For now, let's get back to the flat out lie being told by NPR and other people who so badly want their agenda paid attention to that they will resort to misinformation if necessary. Again, carbon dioxide is not even close to the predominant green house gas!

This line is taken right from the National Climatic Data Center (note this is a government agency and not some conservative think tank):

"Water Vapor is the most abundant greenhouse gas in the atmosphere, which is why it is addressed here first."

What is even more disturbing is that in trying to gather some more information on this topic, almost every organization out there talking about global warming, the vast majority of which are pro-anthropogenic global warming (human caused), don't even mention water vapor as a greenhouse gas! That is amazing to me. How can all of these agencies exclude the main component of green house gases when publishing all of their data?

That last one is a rhetorical question. They do it because it makes their data look a lot more impressive. CO2 has a much bigger impact on global warming if you remove H2O from the equation.

Again, I am all for measures to reduce our country's CO2 emissions because it has so many great side effects. However, let's stick to using real data and not just that which makes the cause look right?