Tuesday, June 30, 2009

“Taxation, And Excessive Borrowing, ‘With’ Representation”

With the Fourth of July coming up this week, it seems to be an apt time to take a break and see where we are right now. If you are long-term reader of Telemachus, you know we have covered a lot of territory over the past 4 short months.

Unfortunately, Chicagoan President Obama wasn’t kidding when he said he was going to bring ‘change’ to the way the nation’s capital does its business. With overwhelming majorities in both the House and the Senate, he and the Democrats have been running to daylight through the broken field of the Republican Loyal Opposition faster than Walter Payton or Gale Sayers of the Chicago Bears ever did.

We now have a case of more taxation, more spending and much more borrowing…and our very own elected representatives are doing it to us, not some aloof, effete King George III-type over in England! We elected all of them; no one forced to do so by gunpoint like in Iran; we sent them to Washington to do the ‘people’s business’…and look at what we are getting in return not for just the past 6 months but for the past 8 years.

Truth and facts matter, so since you are not getting it from Washington, the news media or the cable/radio ‘scream’ shows, you are stuck with reading ‘Telemachus’ for the rest of your life it seems.

We have been laying out a series of ideas and actual policy changes that should be made by our elected leaders instead of what we are now getting, all backed up with references and estimates from the CBO, OMB or other reputable sources of budget/tax and health care information. Our very strong belief is that:

  • Our federal spending is completely out-of-control;
  • Our increased reliance on deficit-spending and burgeoning national debt is dangerous and unnecessary;
  • Raising taxes is counter-productive to a growing, healthy economy and will not raise the funds needed to balance the budgets the way we are now going;

  • We need to convert all federal health care resources into a scaled-by-income payment system to help everyone buy the health ‘insurance’ they need to avoid being wiped out by a financial disaster caused by an adverse health outcome for a family member.

“But, hey, Mr. Know-It-All!”, some cynical wags have asked, “it is one thing to point out the speck in the eye of someone else but what about boiling this all down into some sort of political campaign language that can attract some attention?”

Most elected officials will never say what needs to be done for fear of unleashing the sword of Damocles over their necks from the AARP. We submit that we have got to take such radical steps so we can get this country back on track. If you agree with these proposals, tell your friends, neighbors and countrymen. Use them as a platform to run for public office yourself. Send the proposals to your current elected representative and tell them, politely, that you would like them to support these ideas as well….and if they don’t, you will run against them in the primary or general election in 2010, just 6 months away by the way.

If you don’t agree with these proposals, then find some other agenda to support. However, we submit that no other agenda or platform will get to the core of the critical issues facing us today. These ideas have been on the lips of legislators from both sides of the aisle behind closed doors in Washington for the past 25 years as “the things we have to do to get things right again”. (Except the first one…that just came up when the opportunity to present itself was offered by the massive “WPA-like” economic stimulus plan offered by Franklin Delano Obama in January):

1). Eliminate the entire US corporate income tax to free up the dynamism of the American creative genius and capacity for innovating new products and services. (see "No Corporate Tax")

Slogan: “Corporations Don’t Pay Taxes; People Pay Taxes!” (with apologies to the NRA)

2). Convert all existing federal resources in Medicare and Medicaid (and move any tax expenditure costs to the individual side since they will no longer be needed in the corporate sector due to the abolition of the corporate income tax noted above) to an income-based payment plan, scaled-by income and household wealth, to allow every family to purchase true health ‘insurance’ plans for themselves. (see "Jefferson Health Plan")

Slogan: “I would rather do it myself!” (with apologies to Excedrin headache tablets)

3). Raise the full retirement age for Social Security on a much more rapid schedule than current law to age 72 for people now under the age of 66; raise the early retirement age from 62 to 68 on a similar accelerated manner. (see "Social Security")

Slogan: “Your kids and grandkids will be glad you did!” (with apologies to Dial soap commercials)

4).Cut the national debt by half by 2019. (read any previous Telemachus posting, it seems)

Slogan: “Just Do It!” (with apologies to Nike)

We can keep on kidding ourselves and say we don’t need to do any of these things and only wind up in a way worse situation 5, 10, 25 years from now. 30 years ago, people in Washington assumed the American people would have the brains and gumption to force these changes into law long ago. Now, we don’t have any more wiggle room or time to wait to make these critical fundamental changes in policy.

In his Second Inaugural Address, Ronald Reagan had this to say about balancing the budget and bringing down the ominous deficits and national debt: “If not us, who? And if not now, when?”


His words will be as famous as the second inaugural speeches of both Washington and Lincoln when future historians look back and wonder what happened to the United States of America in the 21st century.

Saturday, June 27, 2009

Believe It Or Not: The US Was On The Way to Zero National Debt by 2008!

This is the sort of lost opportunity that makes you agree with Winston Churchill that democracy is the 'worst' form of government...except for any other that has been tried over the ages.

First, an important question: "How many other times in our nation's history has our national debt been really, really, really very large, (relative to GDP, that is)?"

Try 5...the Revolutionary War period, 1776-1800 (mainly because we didn't have much of a government budget per se back then and we were scrounging for every bit of debt we could find from the Dutch and rich Americans to win independence); the Civil War at 22% of GDP; World War I at 35% of GDP; the Really Great Big Depression at 44% and then the granddaddy of them all, until now at least, World War II at 122% of GDP.

Notice any similarities between most of these periods of advanced debt? They were times of war when we were forced to borrow exorbitant amounts of debt from whatever source we could find to 1) gain our freedom; 2) maintain the Union and 3) protect our nation from insane dictators who wanted to take over the world, or at least Europe and Asia, before they got to us. These were times when the US has had to throw all fiscal caution to the wind to maintain our freedom and survival as a nation.

We are not anywhere close to being in an analogous position nowadays. We are fighting the terrorists all over the world but perhaps our biggest threat is coming from within, namely our inability to act like grown-ups and manage our federal budget like patriotic men and women.

In each case, the national debt was paid down close to zero, or at least by 50%, in a matter of a few years, a decade at most. There is absolutely no hope today, or even a mention of a plan by either major political party in Washington,to accomplish this necessary goal by 2019.

The current fiscal debacle we are going through right now as a nation begs the question: "Just how many chances are we going to have to get it right?"

We are now in two wars, Afghanistan and Iraq, but neither can compare to the massive amounts of manpower and materiel that were mobilized, on a relative basis, and thrown at the British in 1776 or between the North and the South from 1861-1865. Nor do they compare in scope to our fight against the Germans in the "War to End All Wars" (not quite, it seems) and then the Germans, again, Italians and the Japanese in the true Great World War II.

We are not in a national debt crisis because we are involved in a massive world war to save democracy from terrorism, at least not to the scale of the two previous world wars...yet. We have been completely irresponsible with our federal spending by living beyond our means for 47 out of the past 50 years on programs across-the-board.

We can blame the officials we elect all we want for being nitwits and idiots but they are just doing what at least 50%+1 of the majority of Americans want them to do: 'Spend money on me and tax someone else, or borrow from someone else like the Chinese or our children, to do it.'

You can help change things by telling people to do otherwise.

Believe it or not, we had a golden opportunity in 1983, with the passage of the last "Save Social Security Act", (don't kid yourself...there is another one coming around the corner pretty soon like before the end of President Obama's first term in 2012). And, believe it or not, had we done what that bill actually promised to do in 1983, we would have virtually NO national debt to worry about at this very moment in time.

And then we could have honestly said that we had incurred abnormally high levels of national debt 6 times and successfully paid them all back down to more manageable levels in a short amount of time.

This is not a joke, I promise.

Senator Daniel Patrick Moynihan of New York wrote a column in the New York Times, May, 1988, (click on "Conspirators, Trillions, Limos in the Night") that pointed out one of the underlying goals of the new Social Security legislation was to buy up the existing national debt over the next 30 years and, in effect, retire it all. ALL of it.

After all, what would have been the purpose of generating close to $200 billion in surplus Social Security payroll tax payments this year by you and everyone else if it was not to retire the debt? We could have just matched higher annual out-flows of payments with higher inflows of Social Security payroll taxes and been done with it.

But, we screwed up and spent it all on current consumption and are now left with an $11 trillion national debt, and counting, plus all of these future obligations to Social Security built up in the so-called 'trust funds', which are not true trust funds but IOUs.

As it was planned, even if we did pay down all of the federal debt over the past 26 years, there would still be the Social Security obligations that would need to be redeemed when the Boomers started to retire, like beginning in 2008 at age 62, but guess what? We would not be paying close to $260 billion in net interest each year to private sector holders of federal debt. The national debt would be zero today and there would be no discussion about whether the Chinese would be worried about the stability of the US dollar now that they are holding over $1 trillion of our existing debt.

We would have been in far better shape to be able to handle this current economic shock and had far more options to get back on track in a shorter amount of time.

Don't count on another Social Security surplus windfall to bail us out this time around. Or any other sleight of hand or magic pixie dust sprinkled about by any politician in Washington. This is going to require hard slugging for many decades to get out of this fiscal mess we are now in.

Friday, June 26, 2009

These Are Most Definitely Not "Grimm's Fairy Tales"

Sometimes, the news is so grim that the best thing to do is just to report it as you see it.

I have generously lifted two telling quotes from the most recent postings from the Director of the Congressional Budget Office (CBO), Doug Elmendorf, and urge you to click through to read both of them in their entirety. Today. Right now.

They are not the sort of 'fun' reading you might want to read this summer like a good novel, detective story or historical account of a major event. Mr. Elmendorf will never win any awards for creative writing; how can he? He has a Ph.D in economics, commonly referred to as the "dismal science'.

There is nothing more 'dismal' than when a government is spending money recklessly, with abandon and with no end in sight. Just like today. On top of already spending close to $2 trillion in the last 6 months, our duly-elected leaders in the White House and in Congress are pushing for a health care 'reform' (sic?) package that will cost at least $1 trillion, (I am betting dollars to doughnuts it will wind up costing three times that amount) and a cap-and-trade global climate bill that will amount to massive increases in energy costs for the average consumer.

When will the madness ever end?

Anyway, here are the chilling quotes that got my attention from Professor Elemendorf at CBO:

  • "Under current law, the federal budget is on an unsustainable path—meaning that federal debt will continue to grow much faster than the economy over the long run." (see "Path")
  • "Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the U.S. population will cause federal spending to increase rapidly under any plausible scenario. Unless tax revenues increase just as rapidly, the rise in spending will produce growing budget deficits and accumulating debt. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress income growth in the United States. Keeping deficits and debt from reaching levels that could cause substantial harm to the economy would require increasing revenues significantly as a percentage of gross domestic product (GDP), decreasing projected spending sharply, or some combination of the two." (see "Harm")

And to think that this guy was appointed to his new post at CBO in January, 2009 when the new Administration and massive majorities in Congress took office! Aren't they paying any attention to this Princeton and Harvard-educated economist?

Again, please click through both of the links cited above to read these entries in their entirety. They will not be the most entertaining reading you'll do all summer unless you love to read Stephen King horror stories. Unfortunately they might be some of the most bone-chilling and yet, important words you will ever read in your lifetime.

I wish it were just some fairy tale, science-fiction or a dream-like sequence from Shakespeare but it most definitely is not. It is up to us to make our very own government change its ways. You would think they would know better.

Wednesday, June 24, 2009

The Jefferson Health Care Plan

All this talk about converting Medicare and Medicaid into a private funding source to purchase health care for everyone in America is surely giving some people headaches or making other people mad. It is just such a foreign concept to the entire evolution of federal government involvement in medicine since 1965.

Anytime someone or some group comes up with a 'crazy' new idea, the established orthodoxy comes at it with usual progression of attacks, as enumerated by Mahatma Gandhi: “First they ignore you, then they laugh at you, then they fight you, then you win.”

But before that ever happens, someone has to have the "new" crazy idea, don't they?

In 1994, 15 years ago, former Congressman Alex McMillan introduced the 'Jefferson Health Plan' that showed exactly how this 'crazy idea' of converting all of the federal health care programs into a pool of funds that could be allocated on an income-related basis to cover every man, woman and child in the United States with a comprehensive health insurance plan.

H. Res. 508, was a detailed, actuarial-sound plan that had been developed over a two-year timeframe with the assistance of one of the nation's foremost health care actuaries, Mr. Mark Litow of Milliman and Robertson in Milwaukee, Wisconsin.

Instead of trying to fix an unfixable system with bandaids on the margins, the Jefferson Plan sought to fix all of the inherent problems in health care such as covering the uninsured, lowering costs in the system and not raising any taxes in one fell swoop. It could have been called the "Gordian Knot" Health Care Plan because it had the same effect. [1]

It actually came about as an answer to a challenge in 1993 from the Ranking Member of the Budget Committee, John Kasich, who apparently got tired of Mr. McMillan constantly pointing out to the Committee that "There are already enough existing funds in the health care system to pay for everyone's insurance...the problem is just that they are not allocated properly!" Mr. Kasich then said:" Well, Alex, if you are so smart, why don't you show us how to do it and come back to us with a plan?"

Which led to the two-year effort that culminated in the Jefferson Plan.

You can take a look for yourself at the legislative language (which also required a herculean effort by the legislative counsel's office in the House who thought we were nuts at the beginning as well) and see the detail that went into the package. H. Res. 508

But the essence of the plan was predicated on three things:

  1. Health "insurance' coverage for everyone
  2. Conversion of every currently available federal health care dollar either currently spent or offered as a tax deduction or credit (in the form of a tax expenditure)
(Remember, this was in the aftermath of the so-called 'broken promise' by President George H.W. Bush from his 1988 campaign that led to the passage of the most successful budget-reduction/restraint law ever, the 1990 Budget Act, but that is the subject for another posting)

And the Jefferson Health Plan delivers on each point. It has the added advantage of being flexible and scalable according to revenue that actually comes in each year so that the payments can be adjusted and avoid any debt from being incurred. Once the base health insurance plan is paid for, each person has the option of being able to buy more insurance depending on their own risk profile and income-generating level. The utilization rates of health care services should fall to "normal" levels since people will now be responsible for making their own health insurance decisions, just like they do with car or home insurance, and more importantly, paying for it themselves.

They will also start to make better decisions regarding their own health, eating, exercise and wellness situations since every Twinkie they eat, beer they drink, cigarette they smoke or mile they don't walk every day goes right to their own bottom line in the form of higher health insurance premiums. The program can be set up one of either two ways: Make them high so that every pound they lose, their premiums go down or set them low and add on a risk-based premium according to their health profile.

The difference between a $200/month premium and a $400/month premium for a family making $50,000 of income per year is enough to incent anyone to more responsible behavior.

And the cigarette companies would not mind it either. We asked them for their opinion in 1993 and they agreed with the whole risk-based premium model. Congressman McMillan took the idea to then-First Lady Hillary Clinton and her point person on their ill-fated health care reform bill, Ira Magaziner, both of whom didn't believe it and dropped the whole idea.

The question now is not whether it can work; we have proven that the resources are there and it can be implemented. The question now is whether people 15 years later will decide they have seen enough of the foot-dragging going on in Congress to put pressure on their elected representatives and tell them they want health care 'insurance' paid for everyone without any new taxes or any expansion of existing, failing, non-sustainable programs.

The lost opportunities on comprehensive health care reform over the past 3 decades truly boggles the mind. But we have reached the end of the road, the point of no return, and the point where not doing something radically different like the Jefferson Health Plan imperils the future fiscal stability of the nation.

We will never be able to raise the $1 trillion in taxes the Obama people say is needed to go their approach. For anyone in the Administration or Congress to say that there are $2 trillion in savings "just waiting to be discovered" to pay for the 'public option' approach they are promoting is up there with belief in the Tooth Fairy.

The only way to do this right is to use the cold hard cash that is sent to Washington every single payday in the form of the payroll taxes used for Medicare across-the-board and the income taxes that flow into Medicaid across the country and buy bonafide, underwritten health care 'insurance' plans for every single person in the country.

Everything else is just more of the 'same old, same old' political shell games of the past and, sadly enough, from the present from a President who won the campaign with such promises of "Change is Coming!"

We can't afford the "wrong" kind of change and certainly not one that doesn't even cover all of the uninsured as the Obama approach has already been confirmed as not doing.

[1] Alexander the Great cut through an intricate knot of cornel bark at Gordium in Phrygia with his sword and set the standard for "cutting through all the bull" for generations to come

Monday, June 22, 2009

If We Really Want Everyone in America to Have Health 'Insurance'.....

Let's help everyone buy health insurance, then!

The issue of health care reform always gets blurred by politicians talking about 'health care coverage' as if it is the exact same thing as "health insurance" coverage. They are most definitely not the same thing.

'Health care coverage' implies that all of the costs of everyone's health care costs will be paid for by someone else, namely corporate-sponsored health care plans or directly from the government through reimbursements from Medicare or Medicaid. There is no way on God’s green earth that we will ever be able to pay for everyone’s entire health care costs each year through expanded Medicare/Medicaid-type direct or reimbursed payments from the government or through employer-sponsored health payment plans.

Nor should we do that as a matter of national public policy.

'Health insurance' means that payments are made to for-profit health care insurance companies such CIGNA or non-profits such as Blue Cross Blue Shield and then they pay for the costs as stated in their plans. Remember, only 1% of the American public gets ill enough each year such that they account for 20% of all the health care spending; 10% of the population gets ill enough to consume 60% of all health care spending in any given year. We just don’t know which ones will be the unfortunate 1% or 10% each year. We need to find a way to fund comprehensive insurance to cover the cost of these expensive situations to save the families from bankruptcy and the taxpayer from chasing an ever-expanding list of health expenses for everyone in the nation.

We submit that now is the time to remove the confusion between the two approaches. It should be clearly stated by leaders on both sides of the aisle in Washington that the intent of public health care policy in America is to help provide comprehensive, high-level 'insurance' protection for every American as the foundation for a new approach to health care going forward.

Once we know exactly where we are heading, our elected leaders can then make decisions that are productive, cost-effective and fix this problem now instead of kicking it down the road again for our kids to deal with...again.

Plus, we also submit that converting all of the existing resources in Medicare and Medicaid is the only way out of this precarious budgetary predicament we find ourselves now drowning in. There are no other viable options out there any longer...this problem has been brewing and percolating for the past 25 years or more and we have backed ourselves into the proverbial corner with no other way out.

On the one hand, you have the Scylla of explosive national budget deficits and debt threatening the future vitality of the American economic system. On the other, you have the Charybdis of millions of Americans going long periods of time without the insurance coverage they need to cover expensive medical care should they ever need it. [1]

But people say, "But you can't do that! You can't take all of those entitlement dollars away from the holy sacrosanct health entitlement programs, Medicare and Medicaid to pay for this! That is why they are called "entitlement programs!"

Why not? Why can't we take these dedicated payroll tax funds to pay for 'health insurance coverage' for the same people already covered by both programs? The only difference is that under this new plan, these funds will be used to buy legitimate health insurance plans in the private market for all people who can not afford it solely on their own of regardless of family income and wealth status, not solely because of age. Plus everyone finally will be part of the broader health insurance pool where the basic fundamental principles of insurance can fully implemented. Vast numbers of healthy younger people's premiums can be matched against older or poorer people's risk profiles to balance out all the costs nationwide in a more efficient manner.

We really only have two ways to go on health care in our opinion: 1) continue down the same tortured, convoluted path on our current patchwork of health care in America that is taking us down the pathway to financial ruin or 2) adopt this radical (meaning ‘returning to the root’ or the basics) proposal to fund health care insurance for all Americans on a basis scaled by income and solve this problem once and for all.

[1] Scylla and Charybdis are the two monsters in Greek mythology that sat on opposite sides of a narrow strait forcing Odysseus to make the choice between going too close to one side and losing a few sailors or veering too close to the other and losing more

Thursday, June 18, 2009

Don't Look At These Charts On An Empty Stomach

Don’t look at these charts to the left on an empty stomach…..or a full one, either for that matter.

The updated numbers came from the CBO mid-year report that was produced last week. Now that the FY2010 President’s Budget has been released, CBO was able to make more definitive estimates of the effects on the budget deficits for the next decade.

None of it looks good. [1]

As you can see, there is more dark red ink from the independent CBO estimate than from the President’s OMB Director, as is the norm in any White House. OMB reports are always more optimistic about economic forecasts than CBO because, well, they are appointed by the President and every President wants more of a “rosy scenario” than CBO.

This updated estimate does NOT assume any net effect on the deficits due to the health care reform now under discussion in Washington. The President has said that all of his health care reform proposals will be paid for by savings elsewhere in the budget plus additional revenues such as tax increases on soda drinks and sweet, fattening foods.

So I guess that violates his “No Tax Increase on Middle America” pledge, both in a financial and figurative sense.

If the cost of expanding health care through the so-called “public option” now being discussed does not wind up costing 2 or 3 times as much as the first CBO estimate of $1.6 trillion for the Obama Health Care Plan, then it will be the first and only federal health care plan ever passed by Congress that has not exploded in scope over time. We are already over $50 trillion in unfunded liabilities on a net present value basis for the existing federal health programs as it is….what is another $3-$4 trillion amongst friends?

Just wanted to give you an update on where your money is going. And your children's. And your grandchildren’s. And the Chinese while we are at it. It looks like we are going to have to keep buying Chinese-manufactured goods forever so they can keep buying our debt, now doesn’t it? Is that a Faustian bargain or what?

[1] Source: Chart (used by permission from Editor of "Reason" magazine, Nick Gillespie)

Tuesday, June 16, 2009

The "New" National Health Care 'Insurance' Plan That Can Work

The annual budget for Medicare is around $436 billion.(2007 numbers)
The annual budget for Medicaid is approximately $191 billion.
The states' additional portion of the Medicaid budget is about $160 billion.
Tax expenditures for deductibility of corporate contributions for health care premiums are about $165 billion.

We 'only' spent approximately $2.2 trillion total in the entire health care industry in 2007 America and close to 1/2 of it was determined in some way by the federal and state government apparatchik?[1]

C'mon....we can and should do better than that in the United States of America, shouldn't we?

Here's what bugs me whenever I see politicians tossing big numbers around without any explanation or context: "They never tell the whole story!" How can they? They are just numbers and figures from dull and boring charts.

And money, in and of itself, doesn't have any animating value or emotions. It is a symbol of worth, a mode of exchange and shouldn't be treated as anything more or less than it really is. The real 'value" of money comes about for the purpose for which we spend it and that determines whether the effort is "good" or "bad", wasteful or well-spent.

The intrinsic 'value' of any health care-related program on which we expend taxpayer dollars should be judged on whether or not it covers people with the 'insurance' they need to avoid catastrophic losses, helps keep a person well and avoids complications from ill-health and bad habits.

This is where the current health care system in America has fallen down.

The September, 2007 Kaiser Family Foundation report points out that just over 50% of all health care expenditures go to hospital, physicians and clinical care expenses.

Where does the rest of the $1 trillion in "other" expenses go then? Waste, fraud, abuse, overhead, bonuses, IT?

Just 10% of the population accounts for close to 60% of the spending on health care in any one year. 1% of the population accounts for close to 20% of total spending. Those are the people we need to be "insuring against" each year with health care insurance programs.

Here's what we have to state very clearly as our national objective and then start doing: "Provide a means to fund true insurance plans for every family to cover the catastrophic health outcomes that can bankrupt them."

A clear national objective to provide direct payments specifically to help pay for the health insurance that will cover every American in the event of a catastrophic event will mean: 1) no family will be wiped out financially for an unfortunate health outcome by a member of the family and 2) the general population won't be burdened by excessive taxation to pay for all the health care spending we can not afford now.

And surely, with close to $1 trillion now being spent in some form or another in health care related programs from the federal ATM machine known as 'our government', we can find an efficient way to buy this insurance and move on to the next problem we face....like the budget deficits.

Here is the way to do it:

  • Combine all the existing cash resources of the federal programs Medicare and Medicaid plus the state share of the Medicaid into a new program called the "Freedom From Health Care Disasters Program"
  • Determine by actuarial means the amount of money it would take to fund an all-encompassing high-level, high-deductible, true health 'insurance' plan for each and every person across the gamut of income and age, adjusted for regional differences.
  • The private health insurance companies will compete for each of the new FFHCDP recipients to include them in their pool of clients since they will now have the economic means to pay for their own health insurance through a combination of direct federal payments and tax deductions.
  • Since we have already argued for the abolition of the corporate income tax code for economic recovery purposes (see "Abolish the Corporate Tax Code"), there would no longer be any tax deductions available for corporations to provide health care premium payment coverage to employees. Individual tax deductions would be allowed up to 400% of the poverty level scaled by income.
  • Allow people to buy supplemental health insurance on their own to the extent they want coverage for health care costs below the catastrophic insurance coverage level. The free market will be teeming with options to pay for it now that people have the means to do so based on their own decision-making, not the corporations.

The argument has been made that we need "group health insurance" because many people are 'too stupid' to buy it on their own and they can't understand it all. Are they too stupid to buy car insurance which is mandatory before they can drive the car off the lot? Are they too stupid to buy home insurance when they buy a house? I don't see any 'group auto insurance' plans out there or 'group home insurance' plans funded by third-party payors such as employers or the state and federal government, do you? People seem to get by pretty well in both of those 'confusing' insurance areas, don't they?

Is there any reason why people can not be trusted to do what is right for themselves and their families and buy health care insurance, particularly when the resources are allocated to them on a per capita basis based on their income if they can not afford it solely on their own? If need be, we can set up a financial management system to escrow these federally mandated vouchers to the appropriate insurance companies to cover those who truly can not make their own decisions.

This approach will finally break the now 45-year lock on universal Medicare eligibility based on age alone. Bill Gates and Warren Buffett surely don't need to be included in the Medicare pool just because they turn 65 in order to maintain political support for the program, do they? I think they would be glad to continuing paying their share of the Medicare payroll tax into the system to help pay for those less fortunate than they are regardless of whether they ever enroll in Medicare or not.

Eligibility for federal funding assistance will then be based on income and household financial wealth status solely from age 1 day to 100 years old.

This approach will drive down health care costs in the meantime due to more individual decision-making and vested stake in the purchase of health insurance and competition in the health care delivery market.

[1] Great Russian word basically meaning "agent of the Apparatus"...pretty ominous-sounding word

Saturday, June 13, 2009

What Happens to US Federal Budget Deficits When Interest Rates Go Back Up?

Here is something you hardly ever hear the Mensas bring up on the cable shows or talk radio:

"What will happen to the budget deficit projections when interest rates go back up?"

You know they will; they always do. It has only been in the recent past that we have seen interest rates touch the incredibly low levels of next to zero. For much of the time since 1970, interest rates have been much higher. In 1981, the federal funds rate hit an amazingly high level of 16.39%, believe it or not, for those of you who were just kids or not even born at the time.

We have been through difficult economic times before so this current deflating recession (deflession?) is nothing new. It is just particularly hard and deep because of all of the excesses in spending and consumption we have done over the past couple of decades.

One thing you won't hear most politicians tell you is just how bad of a hole we are really digging ourselves into with all of this deficit-spending they are authorizing. President Obama and Speaker Nancy Pelosi came out this week to say they wanted to reinstate the PAYGO spending requirements that says any dollar spent on health care has to be saved from some other program or paid for by a new tax.

That is a little like giving birth control pills to a young lady who finds herself unfortunately 6 months pregnant, isn't it? A much larger national debt baby is on its way whether we like it or not and no amount of wishing and hoping and rubbing on the magic lamp will put that genie back in the bottle at this point.

Sometimes economic statistics can be interesting and exciting, believe it or not. Sir Winston Churchill took the opposite view when he said: "Statistics are like a drunk with a lamp post: used more for support than illumination."

But when you get a chance, take a look at the 2009 Statistical Abstract for the United States at "Bond Yields" and see what you think. We have been able to pay historically very low rates of interest for the humongous amounts of debt we have had to issue for the past 8 years, and almost inconsequential levels of interest rates in 2008.

Interest rates on all bonds are sensitive to inflation expectations. When the expectations of inflation fell from 1992-1998 or so, and it looked like the federal government was finally getting its fiscal house in order, interest rates plummeted. This reduction in interest costs, plus the "peace dividend" from lower defense costs post-Iraq War I, contributed to the reduction of overall spending costs and led to the balanced budgets that ensued after the Balanced Budget Act of 1997.

But what will happen in 2010, '11, '12 when inflation expectations rears its ugly head and we are still running $1 trillion annual deficits after the Obama Health Care plan is enacted? We have injected so much monetary stimulus into the economy by the Federal Reserve 'expanding its balance sheet' that it is almost inconceivable to believe we will avoid rampant inflation in coming years.

If we are paying 4.25% today in interest rates to the Chinese government to take this debt load off of our hands, what will we be paying when inflation goes back up to say 5% per year? Some experts believe 'rampant inflation' won't happen in the modern globalized financial world. I hope they are right. But what if they are not?

Will the Federal Reserve ever be able to 'de-leverage' its balance sheet as easily as it "expanded its balance sheet" to buy the auto companies and extend TARP payments to all the banks? What exactly would that mean and how will the process occur precisely? Burn up all the excess currency we have been printing up over this past year?

Our current gross interest costs for the government now runs close to $500 billion per year. What if interest rates go back up to 7%, 9%, 16%? Will federal budget interest costs ramp up to $1 trillion per year? The President’s FY2007 Budget contained a sensitivity analysis that estimated the 5-year additional cost of only a 1% increase in interest rates over that period of time to be $203 billion. What happens if it is a 3% increase in interest rates? 5%?

We really don't know. The extraordinarily high interest rates and inflation caught everyone by surprise in the late 1970's, including virtually all of the economists and expert forecasters . The implosive downturn in the economy recently caught virtually the same group of experts and econometricians by shock and awe as well. We just do not know for sure what the future holds.

The only thing we can absolutely control is how much we allow our congressional representatives and senators to spend. And we are not doing a good enough job yet since Congress is still pumping out more spending than ever before.

Use the links on the right side of this column to contact your representative and senator and tell them to stop. You are our only hope.

Tuesday, June 9, 2009

Basic Fundamental Principles for a “New” Private, Market-Based Health Care Insurance In The US

What kind of government do you want to have going forward into the 21st century?

Is it one that is tied to laws and regulations first enacted over 25, 50, 75 years ago? What kind of nation would we be if we still had laws and a government more in tune with the realities of the 18th century than today?

That is one reason why we have been reminding you that each new legislative session can not be tied or beholden to the decisions of any past Congress. If we were, we could never move forward as a nation or an economy.

Thomas Jefferson went so far as to say "a little rebellion every now and then is a good thing". (letter to Madison, post-Shays Rebellion, 1/30/1787) His very fervent belief was that each generation should decide for themselves the shape and type of government they should have, not their grandparents or ancestors.

We are of the belief that the time has come to revamp our government programs in a revolutionary Jeffersonian manner along some pretty basic, simple lines such as the following:

  • Defend our nation
  • Assist those people who are truly in need due to economic circumstance or physical impairment, not based solely on age-eligibility requirements
  • Balance our budgets so our kids and grandkids won't have to do it for us
  • Quit living beyond our means on borrowed money from China and our poor kids, (once again, they are getting it stuck to them)

With those underlying principles in mind, we are asking your indulgence to ‘suspend belief’ about the current confusing maze of health care practice and laws as we 'dream about what a 'perfect' health care insurance system would look like in America.

Did America ever have a “perfect” health care system? Probably not. Not back when people used to pay for medical services by bringing produce or animals as “payment” in the old frontier days. Nor when millions of seniors and poor people went without health care prior to the advent of Medicare and Medicaid in 1965. It may have been a ‘simpler’ health care system back in the day but those were also the days when a doctor would take one look at a cancer patient and say: “Good luck and say goodbye to your friends and family” without the benefit of the panorama of miracle drugs and procedures of today.

But a ‘more perfect’ health care system has to be out there, doesn't it? We think it is and it might be sitting right there right in front of faces, only hidden by all the confusing laws and regulations. With the same amount of public money currently being spent on health care and no additional taxes, we can cover everyone with a basic health 'insurance' plan (emphasis on 'insurance'), as long as we drop the barriers, such as strict adherence to universal age eligibility and fear of reprisals from the AARP, that have impeded such progress over the years.

In our opinion, a 'more perfect health care insurance system' is doable and will leave the basic underpinnings of the free market intact with the freedom to choose your own doctor for future generations to come.

We have laid out three fundamental premises finding fault in the current convoluted health care ‘insurance’ (sic?) system. We believe the current system: 1) violates every insurance financial principle known to mankind (a); 2) is not a true “insurance’ program at all but rather a ‘pre-paid health care payment system’ (b); and 3) is wasteful and inefficient in the sense that the majority of it is paid for by third-party providers, such as employers, which drives up utilization rates and costs unnecessarily. (c) Plus we have learned why health care plans coverage devolved to corporations during the wage-and-price controls of WWII. (see also (c) again)

The number of Americans who go without health insurance for the long-term is not 44 million but closer to 24 million (d) so the 'problem' is at least 50% as large as trumpeted by politicians.

Oh, and we also have examined why the costs of health care are so high in the first place due to our collective national over-consumption of unhealthy, fattening, sweet processed foods, alcohol and tobacco products multiplied by a severe lack of exercise by most Americans. (e) We could eliminate close to half of all the costs in our $2 trillion annual national health care bill if we would just do the right thing and return to the sensible eating portions and non-processed foods,stop drinking and smoking so much and get out and walk a mile or so every day.

Other than all that, the system is great and working well. (Which, in terms of delivering amazing technological breakthroughs and pharmaceutical solutions, the US is the clear leader in the world today. Maybe because we have imparted such an amazing array of destruction on our bodies that we are a veritable living ‘petri dish’ experiment for scientists to work on).

Here is the platform we would propose on which to build the “new” privately-based system:

1) Establish a base mandatory health insurance plan that everyone has to have, similar to the same conditions of buying car insurance in order to drive or home insurance when you buy a house.

2) Make it a ‘true’ health insurance plan that covers the cost of the extraordinary health claims that occur in catastrophic cases such as cancer, heart attack/stroke or accident which would bankrupt any normal family living in America today.

3) Bring everyone from the oldest senior citizen to the poorest low-or-no income family back into the general population pool so that the basic fundamental principles of having the vast majority of healthy people subsidizing the smaller percentage of ‘unhealthy’ people each year will apply.

4) Assign a given monetary value for health care insurance coverage to each person, similar to the GI Bill that has worked so well over the decades, based on their income and actuarial risk profiles due to relative age differences and regional adjustments and pay for it out of the existing Medicare and Medicaid budgets.

5) Let the private health insurance market set about competing for each of these new independent decision-making clients and provide group health insurance coverage on a competitive basis which would further drive down costs.

This ‘new’ approach would push the decision-making for joining health care plans back to the individual level where it rightly belongs. It would also assign a tangible actuarial economic value to each person that would cover their expected risks and potential costs when folded into a large pool of healthier people whose premiums would help subsidize the costs of those who fall ill each year.

With the new biometric devices that are out there in the market right now, or soon-to-be on the market, the highest risk new patients out of the number of people who will get sick in the next upcoming year can be identified. Steps can then be taken at an early stage to put them on a diet, exercise program or enroll in a ‘wellness’ program to try to avert the onset of a serious disease outcome.

The amount of money exists out there in the existing Medicare and Medicaid programs to cover these costs. We will try to explain how in later postings.

(a) Use Insurance Principles
(b) Do we have a Health 'Insurance' System?
(c) Do You Buy "Gutter-Cleaning Insurance for Your House?
(d) What is the Deal with 44 Million Uninsured Americans?
(e) Americans Need to Lose Weight and Get Healthy

Sunday, June 7, 2009

Shouldn’t America Believe Having Strong, Powerful Presidents Is More Than A Little Bit 'Creepy'?

Just read this in the news today: OMB Director Peter Orsazg said, "Ultimately, as happened with the recovery act, it will become President Obama's plan." (italics added) [1]

Since when did the United States of America get reduced to having a sole person dictate (trying to be very careful not to use the word 'dictator' here) things as humongous as the reorientation of 16% of our national GDP spent on health care?

Anytime you hear the words, "The President's Plan", from either party in modern times, your ears should perk right up and make you wonder out loud: "Why are we citizens of a free democracy giving one person in this country so much power nowadays?"

I have to be careful and admit that when someone was in the White House with whom I agreed, mostly, such as Ronald Reagan, this conundrum did not bother me as much. Perhaps it was because I knew that there was so much inertia to move out of the way in Congress in the face of overwhelming opposition control of the House that there was almost zero chance Reagan would get everything he wanted out of any proposed legislation. He had to be 'principled and direct' in order to make any headway at the time.

Another reason why there has been a concentration of power in the White House over the years is that, in the age of electronic media, U.S. Presidents can speak with “one voice’ as opposed to the cacophony of 535 other ‘would-be’ presidents in Congress. It is just a lot easier to concentrate on the plans and actions of one man versus all the others.

For the vast majority of the past 9 years, we have seen what happens when a U.S. president has almost the unanimous support of Congress when his party controls both houses in Congress. The predilections of a president often get 'rubber-stamped' by a loyal supportive Congress without a lot of compromise or even consultation with the minority party and then put into action.

And that ought to give us all pause for concern.

As stated before in a separate posting, "compromise is not a four-letter word" and "divided government works better than unified government". (see "Divided..")

The fellows who were at the Constitutional Convention of 1787 were so repulsed by the notion of a powerful, centralized executive running our nation due to their recent unpleasant experience with King George III that they seriously considered the following options: 1) a 'triumvirate' of sorts where 3 people would share the powers of the presidency (imagine what that campaign would look, sound, feel and cost like in today's world!) and 2) a combination of the executive branch melded with the Supreme Court where the justices would 'advise' the president on every matter coming to him under the sun.

Just thank your lucky stars that the Good General George Washington willingly stepped down after two terms in office like his hero, Cincinnatus, did when asked to leave his farm and rule the Roman Empire for just a brief sixteen days in 458 B.C. to quell a foreign adversary. There were no term limits at the beginning of the presidency and Washington could have ruled for decades as a king had he chosen otherwise.

North Carolina's delegation was so repulsed by the notion of a powerful executive branch that they were the first state to not ratify the Constitution (amidst other concerns like no Bill of Rights enumerated as well).

North Carolina, incidentally, was the last state in the Union not to allow their very own governor veto power over legislative actions until 1996 or only about 209 years after the U.S. Constitution was signed in Philadelphia.

Talk about long memories and holding a grudge for a long time! Good for the Tar Heel state...would it be that such inherent distrust of concentrated executive power in one office at the head of the state or nation would become infectious once again in our national DNA. And maybe on Wall Street and in Detroit as well as other places of highly concentrated power, authority and responsibility.

So as the national debate begins on health care reform this week, just keep this thought in mind as you go over all the information that will be pouring out of Washington. If we are true to our roots of rebellion against unchecked power, then we will resist any effort to further concentrate decision-making control over our personal health care choices contained in the Obama bill.

It is “our” health care he is talking about, not ‘his’.

[1] NY Times article by Sheryl Gay Stolberg, printed in Charlotte Observer 6/7/09

Thursday, June 4, 2009

What Would A 'Perfectly-Functioning' Health Care System Look Like Anyway?

In over 22 years in and out of public service in Washington, DC and working on all sorts of committee staffs and entitlement commissions, here is one thing that no one, and I mean no single human being, was ever able to show to me for discussion and review:

'What would a perfectly-functioning private market-based health care system actually look like in America if we could create one from scratch?'

That may sound like an odd request and most people would look at me like I had a single eye socket in my forehead after I said it. But the idea was to find some model, some combination of operational and financial structure by which people could look at the end product and say: "So that is what a healthcare system would look like in a perfect world!"

Instead of the amalgamated, convoluted, legislatively-distorted, confusing mess of a system we have in place today which is about to be swept aside under the guise of 'health care reform' this summer.

After all, you can never get to your goal if you don't know where it is or even what it looks like, now can you? Has any inventor, entrepreneur, business executive, athlete, student or missionary ever succeeded without knowing what their goal of success would look like when they finally saw it, even after years of trial, error and heartbreak?

Here's the real problem when you ask this question in the political world: Everyone will give you their version of what a perfect health care system would look like with their priorities highlighted vis-a-vis every other interest. Physicians groups present plans that cut other areas but double or triple their Medicare reimbursement rates, for example. The hospitals do the same thing and so on down the line.

Hey! They are just doing their job and we have to respect that.

But who is looking out for the general good, the overall best interests of the nation at large instead of solely representing the varied special self-interests such as the labor unions, the insurance companies or the hospital groups?

Health care reform seems to me to be remarkably similar to the proceedings of the Constitutional Convention of 1787, believe it or not. Don't laugh at the comparison between the 111th Congress of today and the conclave of the "Founding Fathers" then. There were smart, dumb, humble, proud, drunk and sober delegates in attendance then just like today.

Delegates were sent to Philadelphia to hammer out the details of an entirely new form of government, hopefully better than what existed under the Articles of Confederation that preceded it. Just like what we want out of health care reform in 2009: a better, more comprehensive, less expensive health care system.

Is that too much to ask? Probably, unless major fundamental changes are enacted.

Every state in 1787 had their own self-serving 'special interest' to protect, be it the self-preservation of the small states such as Rhode Island and Delaware, the export business of the New England states or the plantation economy based on the "peculiar institution" of slavery, as it was euphemistically known then, in South Carolina, Georgia and North Carolina.

Fortunately, for them, for us and generations to follow, General George Washington and Benjamin Franklin were seated in attendance for every session of the Convention. They were able to persuade the delegates by their mere presence and stature to sacrifice marginal interests for the public good. (Washington was 6'2" at the time when most mere mortal American men stood only an average of 5'7" in height... a veritable Shaquille O'Neal tower of strength)

Can that be duplicated in these days and times? Who is going to stand there in Washington and command that sort of dispassionate objectivity to get the best health care reform outcome on a bipartisan basis as possible? President Obama? Speaker Pelosi? John Boehner? Rush Limbaugh?

Anyway, over the next several weeks of postings here at Telemachus, we are going to try to paint a canvas of what we think a 'perfectly operating health care system based on private market principles' would look like before it is wiped off the face of the American market map if this summer's health care reform effort goes askew.

The exercise is going to require a sense of detachment from the present time and a suspension of adherence to generally-accepted norms so be forewarned. However, we think we can realistically present a fully-functioning health care system that covers everyone in the nation with the same amount of money that is currently being spent on health care from all sources in this country today. Perhaps even less, if certain over-arching principles about using the private health insurance system are used or kept in place.

In the meantime, it would be nice if the Spectre of George Washington would rise up from his vault at Mount Vernon and seat itself at the head of both the US Senate and House for the next couple of months while Congress tackles health care reform just as his physical self did in Philadelphia over 200 years ago.

And while the Ghost of Washington is at it, maybe it will go visit President Obama late one night in the White House and urge him to follow his selfless example of leadership.

Wednesday, June 3, 2009

Is it Even Possible for State Legislatures To Keep Public University Tuitions "Low" Ever Again?

One thing economic recessions force state governments to do, especially since they have constitutionally mandated balanced budgets, unlike the federal government, is to re-examine their spending priorities and how to pay for them.

We can no longer have everything we want when we want it. And there is no such thing as a 'free lunch". We have limited resources and budgets. No matter what any politician will try to say otherwise.

Always remember this important concept: Each new session of any legislative body formed after an election can not be bound by the decisions of any previously elected legislative session. That is one of the fundamental principles of a democratically-elected republic. This important principle has allowed the United States and its individual states to adapt to new conditions, economic realities and distributions of wealth in order to survive over the past 219 years.

So far, that is.

And our Founders sought to make the legislative bodies the pre-eminent decision-making authorities at both the state and federal level. Not the executive branch nor the judicial branch. Freely-elected legislators every other year at the state and congressional level; every six years at the US Senate level.

Perhaps the most important function of any state or local government is the provision of quality primary, secondary and higher education for its citizens. Thomas Jefferson counted the founding of "The University", as it is known in Virginia, as so important in his busy life that it is one of the three items posted on his tombstone. He advocated for an extensive system of free, public education as a means to educate the populace, defend and preserve democratic values and unleash a world of creativity unlike in any other nation around the world. [1]

Think of Jefferson as the first leader in the modern world to really 'get it' when it came to educating the masses so that the United States could become the most amazing job and wealth creation machine the world has ever known. Ever.

How does providing a "free" public college education today stack up against his utopian dreams of almost 200 years ago? Have economic conditions and competing legislative options changed since then so they call for different approaches nowadays?

North Carolina is currently struggling with competing desires of providing a 'free' public college education “as far as practicable”, as stated in the state constitution, and balancing the state budget. State-ordered budget cuts of 11% are currently underway and raise the fears of harsh reductions in the number of able young professors who really are the 'seed corn' for educating our future engineers, scientists and mathematicians.

Jefferson correctly noted that it was in the best interests of the young democratic republic to educate as many of the uneducated, illiterate, poor people as possible at the time. In that spirit, North Carolina was the first state to open its doors to the public in 1789. In 1795, a young man, Hinton James, literally walked 170 miles from Wilmington, NC, presaging the enrollment of Michael Jordan from the same city by about 186 years, to Chapel Hill and became the first student to graduate from a public-funded state university in 1798 as a civil engineer.

"Practicable' is a quaint 18th century word that is hardly ever used anymore, one reason being that it is hard to pronounce. It doesn't mean "practical" either; it's more correct interpretation is what can actually be "put into practice" or "capable of being done".

The comparatively low tuitions to attend the higher institutions of education in the University of North Carolina system seem to no longer be 'practicable' in any sense of the word. Unless, of course, dramatic changes are made in spending priorities in the state budget or humongous sums of money can be saved through administrative overhead reductions and building construction projects on campus are restricted going forward.

Here are the various tuitions for neighboring states for comparison purposes in 2008: (in-state first, out-of-state following)

UNC-Chapel Hill: $5397/$23,000
U.of Virginia: $9505/$30,000
U. of South Carolina: $9000/$20,000

There are two ways to go on this issue. One would be to hold true to the 'as far as is practicable' language of the state constitution and make the tuition "free" for all in-state students. Period. Since every family in the state has 'paid for' public higher education through state taxes paid over the years, all students would 'deserve' to attend public university free-of-charge as an underlying principle. North Carolina's relatively high state contribution of 38% to the University System's annual budget basically calls for such an outcome.

"Free" higher education obviously would mean a massive reorientation of priorities in the state budget but it can be done. Remember, each new legislature can make decisions without being bound by previous legislative spending priorities. We might not be able ever again to pave as many roads or cover as many people as we want on the state medicaid budget, which is hamstringing state budgets as much as it is at the federal level. Such a decision would be true to the state constitution and the intent and spirit behind the University ideal, wouldn't it?

If North Carolina does not go the totally free in-state tuition route, at the very minimum, it should raise out-of-state tuitions to a level comparable to UVA. Out-of-state students will continue to apply to Chapel Hill in droves regardless of the tuition. In 2008, over 13,000 out-of-staters applied for only 500 available positions. This would raise close to $14 million annually at the Chapel Hill campus alone. Out-of-staters by and large have never paid any state taxes and know that they are going to be paying a higher tuition to attend as a result.

A long-term solution would be to raise the in-state tuition rate to equal that of UVA. Are the educations received at UVA and USC worth $4000 more per year to the student in either of those states versus North Carolina? Apparently that is what the market price is telling everyone. Equalizing in-state tuitions to UVA levels would raise over $53 million for the Chapel Hill campus alone. Per year. And obviate the need for draconian budget cuts as long as the University system is managed in a conservative fiscal manner.

What is not publicly stated very often is that a low tuition across-the-board benefits everyone, rich and poor alike. Does it stand to reason in this day and age that the son or daughter of the most wealthy family in the state pays the same rate as the student who comes from a much more modest income-earning family? Is it really fair that 17% of the families with students now at Chapel Hill who sent their kids to a private high school in or out-of-state can then send them to a public university like Chapel Hill for the same below-market tuition fee as any other in-state student?

An endowment could be raised that would fully offset or reduce the tuition costs for every student who comes from a family with income levels below, say, 300% of the poverty level. The Carolina First Campaign raised closed to $2.4 billion by the end of 2007. Perhaps it could be increased to $4 billion to cover the students who need this assistance. North Carolinians are more than generous when it comes to helping people when asked.

Tough economic times have a way of highlighting areas in government budgets that need to be addressed. Legislative budgets at any level are made to set priorities on a vertical, not horizontal, basis. Bringing tuition charges into line vis-a-vis our neighboring public university systems is one important area to start, barring any radical change to existing state spending priorities, so the next generation of North Carolina-based engineers, scientists and mathematicians will be educated and trained to meet the 21st century.

[1] "The object [of my education bill was] to bring into action that mass of talents which lies buried in poverty in every country for want of the means of development, and thus give activity to a mass of mind which in proportion to our population shall be the double or treble of what it is in most countries." --Thomas Jefferson to M. Correa de Serra, 1817.