Does Washington Really Understand Health Insurance?

I have written several blogs on the subject of health insurance and efforts being made in Washington to reform healthcare.  I have even advocated for regulating the health insurance industry in the effort to make it more available to the people that really need it by eliminating rejections for pre-existing conditions.  Sounds like something almost everyone can agree on right?  Not so fast I am afraid.

If what the country wants is private health insurance for vitually everyone, then everyone must own and pay the premiums for health insurance for their whole lives, not just when they think they need it.  Allowing people to opt into health insurance policies at anytime with vitually any type of condition would simply not work.  Setting insurance premiums of any kind is based on actuarial calculations of risk over long periods of time.  Letting people into a policy later in life or when they get sick or injured simply is not insurance. 

As I have been stating may times, if reform is going to happen, people in charge of trying to come up with some kind of plan that makes sense need to think about separating catastrophic health insurance from wellness or day to day healthcare.  

The first step should be to implement a heavily regulated catastrophic health insurance plan mandated for everyone from birth on a national level that is affordable for individuals and for all employers to be able to provide their workers. 

The second step, and the part that makes health insurance premiums so high priced in the first place, is to completely eliminate  insurance companies from being third party administrators for payments to healthcare providers for day to day healthcare like prescriptions, office visits, routine testing etc, up to a certain dollar amount or deductible each year.   A combination of a person’s ability to pay, employers self insuring for their employees and subsidized locally, for people that just can’t pay, with federal and state dollars for this deductible amount each year should drastically reduce overall costs. 

The key to this type of systems ability to reduce the overall cost of healthcare would be that individuals would pay healthcare providers directly. This would encourage competetion for the day to day healthcare dollar and provide some transparency of actual healthcare costs.  In todays system, insurance companies are a level of administrative costs that are not needed for day to day medical expenses and provide a convoluted system of payment to healthcare providers no one understands or likes. 

As with any so called solution to the healthcare problem, this approach may run into major obstacles also, but believe strongly the concept is where we need to start over again.

Back to the drawing board Washington.

Interest Payments on Debt Affecting American’s Financial Futures.

How many of us stop and think about how much interest we pay on mortgages, student loans, auto loans and balances on credit cards over our lifetimes. More importantly, do we realize how the amount of interest we pay over a 30 or 40 year period is affecting our accumulated savings for retirement years.

Although it appears there is a trend for taking on less debt as reported by the Federal Reserve for the end of July (Report), the average American consumer has a long way to go to be debt free. 

So how much debt are Americans carrying and how much interest do they actually pay over their working lifetimes?

Mortgage Debt:  Average Mortgage today is $210,000 . (Report)           

Student Loan Debt: Average per household is about $12,000. (Report)

Auto Loan Debt: Average per household is $12,560. (Report)

Credit Card Debt: Average per household is $8329 (Report)

This means that a typical middle class family in the United States owes lenders right around a quarter of a million dollars.  What is also true is that if they are typical, they will carry a good portion of this debt for anywhere from 30 to 40 years and pay somewhere between $200,000 and $400,000 of interest for the privilege of having good credit.

There is nothing inherently wrong with this scenario.  Long term loans on homes, student loans and cars have meant low monthly payments for millions of consumers and probably more than anything else has fueled our economy for the last fifty years or more. 

What leveraging these large sums of money from lenders has also done however, is created the mentality of instant gratification based on if they can afford the monthly payment or not.  In our typical example of $250,000 of debt, these households will pay more than a $1000 of interest each month for most of their working lives. Is it any wonder that so many Americans that have seen their 401K plans lose 40 or 50% of their value in the last few years are concerned about going into retirement without the kind of nest egg they had hoped for. 

Wonder if they would have been able to save even half of the money they had been paying to interest on debt?

Maybe even more tragic is the prospect of having 25 years left on a mortgage when they reach retirement age.  People in this situation are left with some pretty poor options if they reach age 60 or 65 in this financial situation.  Social Security was never meant to cover mortgage payments.

The solution to this financial nightmare is like most good things in life, keep everything in moderation.  Buy your dream home, get the education you need, buy the cars that suit your lifestyle but just as you work hard to attain all these material things, work just as hard to pay them off.  Shorten up the period of time you make debt service payment in your life from 30 to 40 years to 15 to 20 years. This will save thousands and thousands of dollars of interest payments and even more importantly allow you to save more money for a longer period of time to take advantage of the magic of compound interest.

If your goal is to someday earn more interest than you pay, chances are you will not have to ever worry about having enough money when you want options later in life.  Living a debt free life style is not new, it just went away for about 30 years.

Regulating Private Health Insurance

I need some clarifications Mr. President.  First, you want the health insurance companies to accept everyone regardless of any pre-existing conditions.  Second, once they are insured, they cannot be denied coverage for anything and lastly the policy must include all wellness benefits like office visits and regularly scheduled exams and tests. 

Ok, lets just say for a minute that all these regulations of the private health insurance industry can be accomplished.  Here are my questions:

Why would you still need a “Public Plan” down the road?  Wouldn’t you have regulated the private insurance to the point where it would already be a ”Public Plan”?

Why would you want to create a whole new layer of administrative costs with a new government bureaucracy when there are 1500 private health insurance companies with administrative systems already in place?

But President Obama says we need to create competition with a “Public Plan” to force the priviate insurance companies to lower costs. 

Granted there maybe plenty of fat in some of these private insurance companies but a premium structure will still have to be established in order to have enough profits to support the millions of jobs in this industry. 

So in your competition idea Mr. President, what do you think is going to happen when the government creates a “Public Plan” with lower premiums?  

What will happen is that millions of employers and individuals will flock to the “Public Plan”.  There will be mass consolidation in the private health insurance industry to try to compete which will mean hundreds of thousands of more jobs will be lost. 

People that support this “Public Plan” idea can rationalize all they want but I don’t think there is any doubt that what I just described would eventually happen and our country would end up with a “Single Payer” government plan.  Millions of people in the U.S. want this to happen but do we want to create this much angst and will we ever be able to afford it.

The first step in this whole debate has to be the realization that we must decide on one or the other in my opinion.  Either a highly regulated and subsidized private insurance system or a single payer government system.  I don’t think the two can ever be compatible. 

I wish the President would live up to what he said himself last night, “I believe it makes more sense to build on what works and fix what doesn’t, rather than try to build an entirely new system from scratch. “ 

I agree wholeheartedly.  Lets regulate the health insurance industry much like we did with utilities.  Regulate premium charges and profits with Public Service Commissions.  Keep all the present insurance companies and their employees in place.  Who knows, maybe such a system could even produce more jobs eventually. 

Seems to me this is the direction we need to go if all of us are convinced that health care is a right that must be provided for all its citizens.

Labor Day-Our Future Economy

Regulate Healthcare Insurance Industry

Most Americans agree that healthcare should be available in some form to all its citizens as a human right much like we agreed back in the 1930’s that Americans should be able to retire with some income hence Social Security.  The concept of the Social Security Trust Fund, where it was to be funding through payroll taxes over a person’s working life in order to have a retirement income was excellent.  If this Trust Fund would have stayed in its orginal form and not robbed and funded with IOU’s, would we be heading for the train wreck we all see coming with this unfunded mandate.  Maybe someone could do the math and respond to this blog if they have any idea where we would have been today if the Trust Fund would have be kept in place. 

If you love the Social Security story, wait until you start trying how to figure out how to fund healthcare for all Americans. With Social Security, you have a fairly simple pure public plan.  In other words, 100% of funds are collected and administered by the Federal Government. 

With healthcare, you are talking about a vast array of for-profit businesses where any tinkering with prices for products and services could throw our economy into a tail spin potentially many times worse than what we are in now.  Legislators are talking about trying to co-mingle some form of public or cooperative plan into our present healthcare structure.  Trying to figure out how to fund such a system and maybe more importantly, what the effects on our economy will be when you start messing around with a very robust private sector healthcare industry are almost entirely unknown. 

Taking these potential problems into consideration then, what approach is the best way to bring healthcare to the poor and uninsured with the least amount of changes to our present system?  In my mind, the answer has to be REGULATION and in some cases DEREGULATION of the health insurance industry.  Regulate the health insurance industry much like we regulate utilities. We have long ago deemed utilities a necessity for the public good.  Does not healthcare fall into this category? 

Another regulatory necessity would be to have TORT reform in order to limit liability amounts that can be paid for human suffering or malpractice.  Healthcare never has and never will be an exact science.  Unless it can be proven without a shadow of a doubt that there criminal intent to harm a patient, the astromical amounts doctors and surgeons have to pay for insurance is one of the first regulations that must take place.

Regulation of the insurance industry will not be easy, but as long as reasonable profits can be produced to maintain the insurance industry workforce without the executive salary and benefits packages being out of line, it should be doable. 

Get everyone in the country into the insurance pool and come up with a reasonably priced premium for employers and individuals to pay.  No disqualifications for pre-existing conditions.  No need for another layer of administrators. For those that can’t pay, the premiums would have to be tax payer subsidized. 

If we agree that we want to do this, it would be the easiest, least expensive and quickest way to provide this basic human right.

A National Health Insurance Plan Needs to Separate Day to Day Medical Expense from Catastrophic Medical Expense

Almost everyone in the United States now thinks health insurance should cover everything from day to day office visits and prescriptions all the way to cosmetic surgery and heart transplants. HMO’s have programmed everyone to think that way because of their total Wellness type health care programs. These things are great but have become tremendously expensive for anyone to fund but the very largest corporations or as we know federal, state and local governments (Which we know is the main culprit for out of control spending and higher taxes at all levels of government). Insurance was never intended to cover the day to day maintenance of the individual.  Insurance was created for the catastrophic events.  Think of Car and Homeowners insurance, we all decide how much risk we want to take when we decide a deductible amount.  You buy insurance to protect you from the major expenses.

Hence:  If we decide in this country that health care is a right for all our citizens (Which I think most people do), we need to find a way to fund day to day wellness separately from the catastrophic healthcare in order to make it affordable enough to cover everyone.  Our country cannot possibly cover everyone from cradle to grave (Nor should we) under our current healthcare structure.  For those citizens that can, they must take some of the risk or have some skin in the game.  If you ask most people, they would agree that they should have some responsibility for their own day to day healthcare.  They just worry about the big stuff. That is what catastrophic health insurance was designed for.

So, what are some things that might be discussed in relationship to this premise that might be workable on a national scale?

For the day to day wellness or maintenance type medical expenses, the HSA (Health Savings Account) program would work fantastic.  Our geniuses in Washington would have to pick an arbitrary number for the deductible amount for individuals and families.  Let’s use a figure of $1500 deductible amount each year for an individual and maybe $3000 per family.  Each individual or family would pay out of pocket for day to day medical expense until that deductible amount was met which in any given year if they went over that amount the catastrophic policy would kick in to pay 100% of anything over that amount (No denial of coverage for pre-existing conditions would be allowed).  In the HSA model, the individual or family can use what ever amount they did not use each year as a tax-deferred investment account and take the total deductible amount as pre-tax dollars to reduce taxable income each year. For those with little or no income, vouchers would be issued by the federal government to cover day to day medical expense up to pre-determined deductible amount. Ideally, the voucher amount not used each year could remain in a fund that would grow tax-deferred over the life-time of that individual and grow into a nest egg at retirement to help supplement living expense in retirement age. Eventually a system like this would give millions and millions of people a nest egg most of them would have never been able to accumulate. This system would give millions the incentive to try to stay healthy and not fill the emergency rooms with minor ailments.

For the employers that are barely able to pay health insurance benefits now or have dropped the benefit all together, they could self insure for this deductible amount with ease and give their employees another way to grow retirement income by helping them with ways to invest the unused portion of their deductible amounts each year.

I think once understood this HSA model, if framed correctly, would gradually expose where the problems lie in our national debate and show some tremendous benefits. 

The biggest benefit would be that this plan would take the insurance industry completely out of the administrative end of day to day healthcare.  Individuals would pay health care providers directly up to their deductible amounts each year.  When this happens, competition would be created (Which is why the healthcare industry would fight a plan like this tooth and nail).  They want prices to be set by their partners in crime, the health insurance companies.  Imagine, if your primary care physician recommended a MRI and you needed to meet your deductible amount before it would get paid for, don’t you think you would start looking around for the best deal. This is what the healthcare industry needs to have happen but doesn’t want it to. They like their little cabal they have going.  In our present system, prices are set for what the traffic will bear.  Just try to get a straight answer from a hospital as to what the prices of procedures, medications and services are.  The first step to affordability would be to get some kind of pricing system people could access.

When we talk about the CATASTROPHIC part of healthcare, I think the first consideration is that we design a national plan that will allow the health insurance industry to stay in business and keep the federal government out of it.  Let them as an industry using tried and tested insurance principles and actuarial tables, come up with a dollar amount that would insure every single American regardless of age or pre-existing condition.  All these companies are excellent administrators that already have the man power in place.  We should not develop a new bureaucracy to administer healthcare but make the health insurance industry live under a federal plan based on regulations. In fact, get Medicare out of the federal government and place it into a new comprehensive plan administered by the health insurance industry saving billions if not trillions of dollars in the future. The present system is rank with fraud and abuse.

When coming up with a deductible amount where 100% of everything will get paid for with a catastrophic insurance plan, an important part of making a plan like this affordable for individuals, employers and those publically funded, would be how end of life issues are handled.  Is it right for tax payers that will be funding a large portion of any national plan the government came up with, pay for the large expense incurred in the late stages of life when that individual may be able to pay for some or all of their own medical expense?  I think most people would feel that money they accumulated over their life times should be spent on their own end of life medical expense rather than funded by the tax payers.  There would need to be some kind of means testing provision in place to make any comprehensive plan affordable for all.

Obviously, these are some broad ideas that I think have a lot of merit.  Working out the details is always difficult but if we can just start with the premise of separating day to day from catastrophic would be a step in the right direction.

Separating Wellness from Catastrophic Health Care.

What do most people think of when they describe their ”Health Insurance”?  To the majority of Americans that still have employer paid health insurance premiums, it means never having to see a bill for almost everything.  100% coverage for office visits, small co-pays on prescriptions, scheduled tests for early detection, and even nutrition and exercise programs for the purpose of preventing disease. 

All these things are wonderful but were never intended to come under the coverage of Health Insurance.  These are what I call ” health related benefits” that became part of all HMO’s (Health Maintenance Organization’s) coverage for the purpose of holding down overall life time costs of the patients in their groups.  It was a worthy concept that became the norm for what most people expect with their health insurance coverage today.  The problem is that this kind of cradle to grave maintenance expense was never intended to be part of insurance.  Insurance uses “actuarial tables” to determine the cost for insurance using age, health conditions and risk factors to determine premium amounts for all of their policy holders.  The problem today is that health insurance companies have become administrators of health benefits, not insurers for the purpose of risk against large claims for catastrophic health events.  The word “Insurance” has nothing to do with what is going on today with the ever increasing cost of health care. 

You can use auto insurance as an example for what I mean when separating daily maintenance from catastrophic events.  With auto insurance, the owner will decide what deductible they want or in other words, how much out of pocket expenses they can aford for things like day to day maintenance, scratches and dents etc. The more risk the auto owner is willing to take the less his insurance premium will be. 

Since most Americans feel that “Health Care is a right in this country and we have the debate going on now for how to cover everyone, I think separating “Wellness” from “Health Insurance” someway may be the key to affordibility. I think two things would have to happen for a plan based on the separation of these to entities:

1.  For the Catastrophic side, Health Insurance Companies would be required to provide a catastrophic plan that was pro-rated to the lowest cost that can cover everyone, including all the people with pre-existing condiditions. This pro-rated amount would be the same whether it was paid by the employer of as a benefit from the govenment.  The deductible amount would propably need to be at least $3000 a year to make it affordable.  Since the Insurance Companys are for profit businesses, a reasonalble profit margin would have to be figured into the premium.  Since this would be a nationally run program, all insurance companies now in the business would be required to offer it.  This product would have to be part of any company that now sells health and life products.  Some consolidation of insurance may happen if this were to take place, but this program should be designed to not be such a burden that it could not overcome with good management and diversity of products. 

2.  For the Wellness side, Employers would need to self-insure for this arbitrary deductible amount of $3000 a year.  Using the HSA (Health Savings Account) as a model, any amount not used each year could be used as a tax-deferred savings plan to help build a retirement account.  Local businesses may be able to negotiate with local health care providers for the best rates for daily health care. For those Americans that do not have health insurance, I would think this HSA model could be used very effectively as a direct benefit in the form of health vouchers that could be used for day to day health care up to this arbitrary deductible amount.  Any amount not used each year could grow tax-free for the purpose of supplementing social security in retirement. 

I am sure there are many nuances or reasons this kind of plan may have difficulties, but I am quite sure, Wellness needs to be separated from Catastophic Care in order to insure all Americans without absolutely bankrupting our country or totally ruining the for-profit health care industry. 

I would love to have someone estimate the numbers for a plan like this or add any comments.

Best Way to Save Money Is Through Interest Cancellation

It appears either by choice or necessity, Americans are starting to save more money.  In May 2009, the government reported the savings rate had jumped to 6.9% over the previous year but also noted that April of 2009 the savings rate was still zero.  Savings rate is defined as personal income minus spending.

It is too early to call it a trend but the Wall Street Journal is predicting the savings rate will end up be somewhere between 3-5% in 2009.  People from investment bank Goldman Sachs predict even higher at between 6-10%. 

Ever since the last recession of the early 80’s, an unpresidented housing and stock market boom in the United States had changed a large percentage of Americans to feel like they did not need to save additional money over and above their double digit yearly increases in home equity and investment account values.  Over the last two years, these bubbles have defintely burst and caused many people to seek more stable and safer ways to increase net worth.

Many people are now using an age old method of using some of their discretionary income to accelerate the pay off of their mortgage and or consumer debt rather than count on the growth potentials alone of what most people had considered havens like real estate and balanced equity portofilios.  

The first step in this money saving process should be to eliminate the high interest charges and monthly payments of their credit card and revolving debt.  Nothing prevents Americans from accumulating savings and hurts the overall quality of life more than the negative compounding interest effect of credit card debt. 

The next step that should not be overlooked by home owners, is the savings that can be achieved from the interest cancellation effect of pre-paying their mortgage.  Because most home owners amortize their mortgage over a 30 year period, their monthly payments start at a rate where interest charges are 80% of their payment.  Even after 10 years into a 30 year amortization, the home owner is still paying interest at a rate of 70% of their monthly payment.  Tremendous savings can be derived, especially in these early years of the amortization, by making extra payments to the principle balance to advance the schedule to a lower level.  By advancing the schedule the home owner leaves behind or cancels out the scheduled interest payments that they will never have to be make at those payment levels.  They accelerate the mortgage and constantly pay higher and higher portions of principle each time they make a mortgage payment. It is not unusual to save ten of thousands and sometimes hundreds of thousands of dollars of interest charges and be able to pay off a mortgage in 10 to 15 years using this concept.

Once the mortgage interest cancellation effect catches on with more and more home owners, we will once again see the savings rate and net worths of millions of Americans continue to rise.

Discretionary Law Enforcement

Have law enforcement entities always enforced some laws and turned a blind eye to others or has this become the norm due the discretionary law enforcement behavior when it comes to immigration laws?  When some laws are enforced and others are not, doesn’t it become discriminitory against the people that are held to the rule of law. 

Examples of this travisty are numerous but let me site a few: 

Glaring examples of course are when illegals use fraudulent Social Security numbers to secure jobs, buy homes, buy cars and yes in some cases get drivers licenses.  What makes it so comical or maybe the word is tragic is that almost every authority administering these paths to quasi legalship know these people are in this country illegally.  From the smallest business hiring a dish washer all the way to the Social Security Administration of the Federal Government know they are illegal and choose to do nothing. Billions of dollars are collected on FICA payroll taxes each year from people they have no records of citizenship on.  Millions of Social Security numbers show up as not registered to anyone by that name and just kept on lists while payroll taxes keep rolling in.

Now some states are even taking this farce even further when they passing laws to provide illegals once identified as such, with driving cards instead of actual legal drivers licenses.  How can contracts like mortgages and insurance policies or anything legal and binding be worth the paper they are written on when none of the documents illegals possess are valid. How can anyone make good or collect on someone that does not legally exist?

Makes you wonder why anyone should sign any contracts or pay taxes doesn’t it?

Thousands of U.S. Military trainees waterboarded during Viet Nam era.

With all the debate going on about waterboarding being torture, it brings up memories of my own experiences during advanced combat training at survival school at Widbey Island in Washington State in 1968. 

During this five day survival, escape and evade and POW internment training, we were exposed to a whole array of mental and physical exercises designed to break our committment to the Uniform Code of Military Justice which very strictly forbid us to say anything but our name, rank and serial number. Numerous attempts were made to get us to turn against our fellow comrads by signing documents or making statements against our own training group and our country. 

Because we had eaten very little during our four day survival in the forest, we came into the last day which was the concentration camp segment somewhat in a weaken state which meant the first attempts by camp guards to get us to turn coat was to bribe us with food.  Once we were interned we were also deprived of water, which after a few hours in a barb wire compound, the guards would fill their own canteens outside the fence and spill more water than they drank in front of us which in many ways may have been the worse torture than the physical attempts to break us as the the day went on. 

Among the things tried to break us physically were outright physical slapping and punching, awkward positioning of our bodies by arching our back for extended periods of time with our head against a wall.  Isolation in wooden boxes that measured about 5 feet tall and 5 feet square where you were to stay standing upright hunched over for several hours at a time, being confined in rectangle shaped wooden boxes about 5 feet long, 1 foot tall and 1 foot wide.  We were enclosed in these boxes for probably 20 minutes which was a very long time for your body to be in such a cramped position.  After just a few minutes, you couldn’t feel the bottom half of your body because of poor circulation.  Once they let you out of these boxes you were unable to stand up for several minutes.  I remember several of my fellow trainees breaking during this segment.  It was very difficult because we did not know how long we were to be left in this box.  Just a few minutes seemed like an eternity especially if you were prone to any kind of claustrophobia which in this case some of the guys started screaming to let them out.

And of course the waterboarding segment which was uncomfortable but most of us felt this segment was not the worst part of the concentration camp exercise. 

While the physical things were difficult, it was the food, water and sleep depravation that metally was harder to take and I am sure that many of the trainees, probably myself included,  would have broken if these tactics would have lasted a longer period of time in a real situation.

I bring this whole experience up wondering why these types of mental exercises are considered so terrible when thousands of our own military personel during the Viet Nam era experienced these things in training and did not have any lasting physical or mental problems from them. As long as no lasting physical or mental damage is done to the jihadist detainees we pick up on the battle field, I would think we would need to try most of these mentioned tactics to get the information we may need to save innocent lives.

We have to remember, that through out history, very few militaries the United States has had wars with other than the so called civilized Northern European and British militaries would ever treat our POW’s like human beings.  We don’t ever see our guys again if they are captured by these jihadist maniacs, they just kill our guys in the field right on the spot.  If we do see them again, it probably is a propaganda video of some masked mad man with a long knife cutting the head off the infidel. Its no different to them then cutting the head off a chicken to have for dinner for these brained washed animals taught in madrasas schools.

Do I want to see physical abuse or anything goes tactics?  No, I want to use the tactics that work short of torture and waterboarding is mild compared to what could be done.

Kind of makes you wonder what all the angst is about in this debate.  A little perspective here.