Wednesday, November 30, 2011

Health Care Needs Real Reform

Look, the way health care works now is a fee for service process. That, along with malpractice lawsuits, creates a huge incentive for providers to give you as many services (such as tests, medication, etc.) as possible so that they can list them and charge for them. If there is the slightest reason for a service, it will be provided and charged. Patients do not understand medicine enough to refuse certain services that are probably unnecessary and since the insurance company pays, there's no incentive for patients to refuse all the services that are given to them even if they were educated enough to understand which is ridiculous.

What are the profits to insurance companies as a whole? From

According to many on the left, health insurance companies are sleazy and unethical, making obscene profits by charging high prices to sick people, giving physicians and patients the runaround to avoid paying bills, and rescinding policies just when people who paid in good faith get cancer, while their executives often walk away with millions in compensation. Last year, health insurance companies did rack up big profits, but it turns out that the combined profits of the country’s five largest for-profit health insurance companies — United, WellPoint, Aetna, Humana and Cigna — were $11.7 billion, only 0.5 percent of total health care spending. Even confiscating every penny of those profits would add up to less than half of the cost-saving threshold. And even not-for-profit insurance companies need to have an operating margin — a profit by another name. There just isn’t enough money there to make a dent in health care spending.

It's not "greed" by insurance or phara or doctors, the problem is that there is no mechanism to restrict health care services on a cost/benefit level. This applies to doctors as well. A doctor never thinks about the cost of the care he recommends and if it provides enough benefit. That's just not the way they are taught, they are there to cure or fix your problem regardless of cost. That's why end-of-life care cost so much. A doctor will simply not say that it's not worth the hundreds of thousands to try and cure your disease when it's very likely, but not 100% certain, that you will die in 2 years anyway. That simply isn't done and so we have all these expensive treatments and surgeries and the patient dies in a year anyway.

People have to be made to accept that we need to do a cost/benefit analysis and start denying care if the costs aren't worth the projected benefits. Right now people are outraged when care is denied and it's understandable. People will want a treatment that extends life for an average of 6 months even if it costs $100,000 if the costs are paid by someone else. We need to move to a system where those treatments are denied unless the patient pays for the entire cost themselves. For those who want government control of the health care sector, that's exactly what will happen and what Britain already does. And you cannot sue the government in those countries if they deny you a service, such as a test, even if that test would have discovered the disease you eventually die of. That's what keeps costs down in those countries. We may have to move toward such a system if people cannot accept the cost/benefit method naturally.

Put it this way, NOTHING can prevent you from death. There is no cure, YOU WILL DIE EVENTUALLY. The goal is to get people to accept that it is not worth hundreds of thousands to try and extend your life by a couple of months on average when you are going to die anyway. This is a very harsh view and statement, but a practical one and one that needs to be adopted.

Tuesday, November 1, 2011

Michael Lewis and California's Budget Crisis

The reason states are having so many budget problems stems from their pension obligations which are coming due as more and more workers retire. The so called "cuts" we all hear about don't apply to pensions and generally apply only to newer, younger government workers even as a growing portion of state and local budgets are being allocated to pension obligations. Michael Lewis wrote a piece on this regarding California in Vanity Fair which is below. I suggest everyone read the article as it shows clearly how government workers have used the system to enrich themselves.

From 2002 to 2008, the states had piled up debts right alongside their citizens’: their level of indebtedness, as a group, had almost doubled, and state spending had grown by two-thirds. In that time they had also systematically underfunded their pension plans and other future liabilities by a total of nearly $1.5 trillion.

In 2010, for instance, the state spent $6 billion on fewer than 30,000 guards and other prison-system employees. A prison guard who started his career at the age of 45 could retire after five years with a pension that very nearly equaled his former salary. The head parole psychiatrist for the California prison system was the state’s highest-paid public employee; in 2010 he’d made $838,706. The same fiscal year that the state spent $6 billion on prisons, it had invested just $4.7 billion in its higher education—that is, 33 campuses with 670,000 students. Over the past 30 years the state’s share of the budget for the University of California has fallen from 30 percent to 11 percent, and it is about to fall a lot more. In 1980 a Cal student paid $776 a year in tuition; in 2011 he pays $13,218. Everywhere you turn, the long-term future of the state is being sacrificed.

Below, Lewis continues with an interview with the mayor of San Jose whose problems are a microcosm of what local governments are facing.

He hands me a chart. It shows that the city’s pension costs when he first became interested in the subject were projected to run $73 million a year. This year they would be $245 million: pension and health-care costs of retired workers now are more than half the budget. In three years’ time pension costs alone would come to $400 million, though “if you were to adjust for real life expectancy it is more like $650 million.” Legally obliged to meet these costs, the city can respond only by cutting elsewhere. As a result, San Jose, once run by 7,450 city workers, was now being run by 5,400 city workers. The city was back to staffing levels of 1988, when it had a quarter of a million fewer residents. The remaining workers had taken a 10 percent pay cut; yet even that was not enough to offset the increase in the city’s pension liability. The city had closed its libraries three days a week. It had cut back servicing its parks. It had refrained from opening a brand-new community center, built before the housing bust, because it couldn’t pay to staff the place. For the first time in history it had laid off police officers and firefighters.

By 2014, Reed had calculated, a city of a million people, the 10th-largest city in the United States, would be serviced by 1,600 public workers. “There is no way to run a city with that level of staffing,” he said. “You start to ask: What is a city? Why do we bother to live together? But that’s just the start.” The problem was going to grow worse until, as he put it, “you get to one.” A single employee to service the entire city, presumably with a focus on paying pensions. “I don’t know how far out you have to go until you get to one,” said Reed, “but it isn’t all that far.” At that point, if not before, the city would be nothing more than a vehicle to pay the retirement costs of its former workers. The only clear solution was if former city workers up and died, soon. But former city workers were, blessedly, living longer than ever.

A lot of people are confused over why they are seemingly having to pay more than ever in combined taxes, yet are getting less and less in terms of services. It's time to wake up, there are special interests that are clearly using government to enrich themselves and they are not limited to corporations or banks. We are on a course for disaster.

Lessons From Greece

The lesson to be learned here is that once some point is reached, it becomes very difficult to reduce the debt/GDP ratio especially if the government's contribution to GDP is very high as it is with Greece. An economy dependent upon the government will experience a slowdown in growth or even negative growth until the economy can adjust which takes time. In the short term, things will not change and might become worse. The trick is to take pain and reduce government spending before the crisis point is reached.

In Greece, government spending makes up nearly 50% of GDP. What's interesting is that we hear about "austerity" measures, but no actual cuts in government employment have been made, only some changes to wages and pensions. That's because the Greek Constitution guarantees lifetime employment for public sector workers, they cannot be fired or laid off. Now there is talk about moving government workers into a "jobs banks" where they would be paid 60% of their salaries to do nothing. Link below.

Greece's economy is so screwed up and so dependent upon the government sector that there is simply no way to avoid massive pain and a huge depression.

Why don't they just default? In the long run this might be better, but a default would mean that they would have to make even bigger cuts in the short term. That's right, Greece is still running around a -7% deficit despite all the "austerity" measures and a default would force them to balance the books. The Greek economy needs to restructure itself away from the government sector, but it's too late now to avoid huge pain. With so many people dependent upon the government gravy train, it's no wonder that there is social unrest. Once again, the lesson is for us not to get to the point where we are Greece. Our debt/GDP ratio is at 100% now and fast approaching Greece's.

For the people and economists who decry these Greek "austerity" measures, I can only shake my head and wonder what world they are living in. GREECE HAS NO CHOICE, THERE IS NO MORE MONEY TO SPEND, INVESTORS REFUSE TO LEND GREECE MORE MONEY. Time for a reality check.