Doctor Raises Rates; Patient Refuses to Pay

Dr. Oscar Livingstone Simpson, contemporary of my parents, practiced medicine in East Tennessee, mostly Maryville, from the 1950’s to the 1990’s, and he wrote a book about it. The name of the book is My Dadaw Used To Be A Doctor, 2004, Stinnett Printing, Maryville, TN. Unfortunately it is out of print and generally unavailable, and when I called Dr. Simpson in the fall of 2009 to ask about it, he said he had done the book for his children and grandchildren and had no plans for a reprinting.

I had read my mother’s copy of the book two or three years ago before all the health care bill negotiation got under way and kept thinking that the doctor’s recollections included many great stories that illustrate one way that the US health care system has regressed rather than progressed over the past fifty years. We had circulated the book around among family members, and it took a little time to find it and read it again but doing so affirmed my thoughts. The major loss has been corruption of the patient-doctor relationship through injection of private and government insurers as the true bill-paying customers of the doctors.

In the fifties, there was much less specialization than today, and doctors divided their time between hospital rounds, office hours, house calls, baby deliveries, and even surgery. It was a brutal schedule they followed, but it paid pretty well and I think most doctors saw it as an enjoyable life of service to their fellow humans. That is certainly the tone of Dr. Simpson’s memoir. Doctors set their own rates for services provided and collected directly from those they served.

Dr. Simpson relates the story of a lady who came to his office in 1955 shortly after he had raised rates for an office visit from $2 to $3. (That’s a 50% increase!)

“After I had completed checking her she complained, ‘Doctor, I understand that you’ve raised your fee from two dollars to three, but you’re not worth but two dollars!’ She then plopped down her two dollars and left in a huff.”

He also tells of a farmer who appeared to be very poor and for whom he voluntarily cut his fee in half.

“To my dismay he pulled out a wad of bills that would choke a horse, peeled off a fifty from the roll, and said, ‘Is that all, Doc?’ So you can’t always tell what a person’s financial status is by the way he looks.”

I know what you are thinking. That was the dark ages, everybody died young, and we have come a long way since then. Well, life expectancy is better. I found some data here.

Life expectancy has increased because of improved nutrition, inoculations, antibiotics, and diagnostic, pharmaceutical, and surgical technology and not because the patient – doctor relationship has been corrupted by hundreds of thousands of insurance company and government employees being imposed on the system and taking a large share of the health care dollar.

(The table above does raise an interesting question about Social Security. What if Social Security law had been written so that benefits begin at average life expectancy minus 3 years for males and average life expectancy minus 9 years for females? That was the immediate effect of the law as written in 1965.)

I wish everybody could read Dr. Simpson’s book. It brought more spontaneous laughter than anything else I have read in a long time. Here’s a sample:

“One month I delivered thirty babies. Usually I didn’t see the father of the baby until I went to congratulate him after I delivered the baby. One day I extended my hand to a young mountain boy who had a three-day beard and manure on his boots…When I said, ‘Your wife just delivered a fine, healthy, eight-pound baby boy,’ he replied, ‘Well, what’s it’s name?’”

Thank you, Dr. Simpson, for this memoir.

The Innovator’s Prescription by Clayton Christensen - Another Good Health Care Read

I (St. Paul) have become all things to all people, so that I might by any means save some. I do it all for the sake of the gospel, so that I may share in its blessings. - 1 Corinthians 9:23

Willingness to be all things to all people may be a good strategy for spreading the Gospel, but it doesn’t work in business including the business of health care. At least that is the way I would summarize the basic message of The Innovator’s Prescription by Clayton Christensen, Harvard Business School Professor. It’s a message that rings true with me based on personal experience in a company struggling with management of both specialty and commodity businesses. Christensen’s focus is on disruptor-driven innovation, and he has applied the same theories to education reform in Disrupting Class.

Words analogous to those of St. Paul quoted above could well be uttered by general hospital managements and physician practices who would say something like this:

To those with serious life threatening injuries, we have become a trauma center so that we might save their lives. To those with bad colds, we have become a dispenser of aspirin and advice. To those with terminal illnesses, we have become very expensive anti-hospices doing whatever we can to prolong life. To those with chronic illnesses we have become providers of routine and ordinary treatments at high cost and great inconvenience. To those with undiagnosed illnesses we have become expensive providers of trial and error testing to try to figure out what is wrong. To those needing operations, we have become a surgery center. We do it all for the sake of health care so that we may share in the revenues available from it.

The problem with that lack of focus is that it assures a high cost structure and impossibility of providing such services efficiently or for charging appropriate and fair prices for them. Christiansen argues that there are three basic tasks to be provided to customers of the health care system and that the three are so different in nature that it is impossible for a single integrated institution to provide all three efficiently and effectively. In lay terms, I would say the three basic tasks are:

1. Diagnosis and problem solving
2. Application of standard one-time treatment based on the diagnosis
3. Ongoing management of chronic diseases

The first task requires the best specialized education and technology and is most expensive and can be paid for only with a fee for service system. Probably most people never need such service. The second task is process oriented and can be standardized with written procedures describing best practices. Such standardization will allow primary care physicians to displace specialists and nurse practitioners to displace primary care physicians for many tasks thus increasing availability and reducing cost and time required. Pay can be based on results. The third task is best managed by facilitated networks of persons with the same diseases to enable sharing of best practices and improve communication and access while reducing costs. Pay can be based on participation.

Christensen discusses the normal business development cycle that begins with evolution of vertically and horizontally integrated companies at the front end followed by a process of dis-integration as those big companies gradually outsource the least value adding parts of the business to smaller companies. All the steps in that process make economic sense for the large company giving up something, for the small company gaining something, and for the customer getting a better deal in cost and quality. This cycle is playing out in small ways in the health care industry such as in development of independent surgery centers and nurse practitioner staffed retail clinics but is severely slowed and restricted by the government imposed system of fixed reimbursement for procedures. Physician practices and general hospitals are helpless to change the system because they are trapped in it and dependent on it. Rapid change must come from external disruptors.

He also discusses a normal technology development cycle which begins with everybody having to go to experts to access a new technology and proceeds to wide dispersion of and easy access to the technology even for novices. A medical example cited is Dialysis, which is now so simple that it can be done at home more effectively and at lower cost but normally is not because congress guarantees Medicare reimbursement for clinical dialysis for anyone suffering from end stage renal failure.

This is a rich text, full of examples from medical and non-medical businesses, to which I cannot do justice in a post of a few hundred words. For any who believe that a government single payer system is the best approach for US health care, this text will explain clearly why smart people who have spent years studying the system think otherwise.

I offer this quote from near the end of the text:

We hope, however, that the concepts in this book can give government officials a language and a deeper understanding of how the world works, so they can sort self-serving arguments from public-serving ones. In particular, we hope we’ve provided convincing theory and evidence that the solutions cannot come simply from demanding that existing providers operate more efficiently or compete against each other more intensely…The health-care industry needs to be disrupted.

Now, if government officials would only read the book…as soon as they get through reading the self-serving argument based 2000+ page bill that they are about to pass and try to implement.

OK, Maybe I'm Wrong Again (About the National Debt)

My first encounter with debt and it's retirement was my senior year at Vanderbilt serving as treasurer of the local chapter of Sigma Nu. We had just moved into a new on-campus fraternity house which cost a tad less than $100,000, maybe six or seven times the cost of the average new home in those days. The house was steel and masonry with concrete floors and cinderblock walls and metal window frames and was supposed to be impervious to damage from the undergraduates expected to inhabit, party, watch TV, and study in it. It didn’t work.

The house had a mortgage, arranged by a Nashville banker alumnus, requiring monthly payments of around $750, more than I expected to earn per month once I graduated and went to work as a chemical engineer. As treasurer, I was responsible for making the payments.

We were always short of money, and I recall spending a lot of time trying to collect for all the long-distance calls that showed up on the house phone bill. (“Long distance” calls were a big deal in those days.) Anyway, one month we were short so I decided to send less money, about $500 I think, to the bank holding the mortgage. I thought they should be happy with that. I promptly got a phone call from our banker alumnus who informed me that that was not even enough to cover the interest and that I had to send the full payment every single month. That payment moved to the top of my priority list from then on. (Recalling this story gives me more sympathy for today's apparent weakness of education in business, finance, and economics. I, a senior engineering student who had taken Econ 101 at a prestigious university was clearly clueless.)

I’ve had several mortgages and loans since then and have learned a lot and have become pretty consistent in my belief that debt has to be very carefully managed for individuals, for companies, and for the nation as a whole. So, it is a bit of a shock to read In Defense of Debt by Zachary Karabell in this week’s Time Magazine.

Mr. Karabell’s rationalizations about the current national debt include phrases such as these:

• …amount the US pays to service the national debt isn’t particularly onerous.
• …reason we can afford such large debts is that interest rates are so low.
• …the debt isn’t particularly high by global standards.
• …interest rates could stay low for a very long time.
• …eliminating deficits…could be fatal to future prosperity.
• …half the debt is owed by the federal government to itself, and a quarter to the American public.

Is this supposed to be a humorous column, or is he serious?

He does end on a serious note saying that our problem is not debt but failure to invest in our future by improving health care, infrastructure, and competitiveness. True perhaps, but borrowing more and pulling more money out of the private economy for expansion of government to provide health care, infrastructure, and competitiveness will be a detriment rather than a help. The solution is to stimulate and free the private economy to generate wealth which will increase employment and salaries and tax revenues and enable such investment in the future without the debt. Ever heard of delayed gratification?

I guess Time Magazine, slimmer and fluffier by the year, is still widely read, probably more so than such boring fiscal responsibility advocates as The Wall Street Journal and National Review. And I’m afraid many readers may just buy Karabell’s arguments, breathe a sigh of relief, and conclude that the best ideologies are “Don’t Worry, Be Happy” and “Let Uncle Sam Take Care of It.” “Ideologues” who advocate those could be very popular indeed and perhaps even reduce the negativity associated with the label.

By the way, I wonder if the fact that once expensive and carefully rationed “long distance” phone calls are now essentially free non-events has anything to do with the open cutthroat competition in telecommunication technologies and businesses. I wonder if that idea could be extended to health care businesses by reducing government’s role to that of referee, eliminating it's role of middleman with fixed reimbursement rates, and freeing up doctors, hospitals, drug companies, and insurance companies to compete openly with each other. I think so, but maybe I’m wrong again.

I am pretty sure that if the government, in the 1960’s, had established “long distance” phone calls as a basic universal right for anybody over 65 and had set up a bureaucracy to establish approved reimbursement rates for them and had continued to adjust those rates based on inflation and continuing negoiation with Ma Bell over the years, we would still be getting charged special rates for long distance calls.

Home Works of America: A Big Winner

Since June, 2006, I have been volunteering with Home Works of America, a Columbia faith-based organization that focuses on involving teens in repair or improvement of homes of elderly, low-income, homeowners.  I do this probably about 30 days a year, and it has been by far the most enjoyable and satisfying volunteer activity I have ever been involved in.

This week we had a big project with a group of high school students putting a new roof on Mrs. J’s house and building a deck at the back of her home to connect her kitchen door with her laundry room door.  Her roof was leaking, and the steps she had “been going up and down for 38 years” just to do her laundry were steep and hazardous.  Here are before and after pictures which clearly illustrate why Mrs. J was happy with the results.

I and the other adults got to use our power tools, pent-up creativity, and energy and got the opportunity to teach some skills to young folks and got acquainted with Mrs. J.  We also learned a few construction tricks from each other.  The teens learned some construction skills and had an opportunity to serve in a concrete way and to get acquainted with Mrs. J who continually mingled with the volunteers expressing her appreciation.  We began and ended with prayer, and, at the end, we got a hug from Mrs. J.  It was a winner for everybody involved.

Home Works’ biggest need is for adults willing to volunteer time to organize and lead these projects which work best when there is a ratio of about four teens per adult.  Construction skills are not required.  Sometimes we are just cleaning up homes or yards, and sometimes we are scraping and painting. We don't always get dramatic before and after photos like these, but we always try to leave a home in much better shape than it was when we first saw it.  There is an unending supply of homeowners needing help, so, if you have the time and interest, go to www.homeworksofamerica.org to check out the organization and sign up for an event or call or email for more information.   

"Real" Insurance for Irresponsible Americans: The Health Care Summit

I’ve been “Kindling” my way through Innovator’s Prescription by Christensen, a health care reform book that is full of good points and ideas but not a quick read like Flatlined which I wrote about here.  Christensen is a Harvard Business School professor, and reading his book makes me think of all the strategy gurus on the scene during my working years. Michael Porter's "Five Forces" analysis was the official word from Harvard in the 90’s.

One of Christensen’s key points (There are others I plan to write about later.) is that we need to clearly understand the difference between insurance plans and prepayment plans and keep them separate. We buy homeowners insurance hoping and praying that we never have a fire or burglary or other reason to file a claim, and we keep on paying the utility bills and routine repair bills as they arrive. We buy automobile insurance hoping and praying that we never have a wreck or car theft or other reason to file a claim, and we keep on buying gas and getting the oil changed and doing other routine maintenance and paying the bills as they arrive. We even buy term life insurance hoping and praying that we do not die during the term of the insurance, and we keep on living and buying food and clothing and shelter and paying the bills as they arrive. For these cases, we know that even if every dime of any insurance claim filed is paid, there will still be grief and suffering and major inconvenience in case of such claims. As a result, we try very hard to avoid the necessity of claims by keeping batteries in our smoke alarms, driving at least somewhat defensively, and just basically trying to stay alive.

Health “insurance” as presently designed is different. We want health insurance to pay for all our routine and preventive care and we know that we are going to be going to the doctor for checkups and screening and will probably do even more of that if we have insurance than if we don’t.  We know that we are going to be filing claims and generating paperwork and administrative costs on a regular basis. So, our health care insurance is primarily a very expensive prepayment plan plus rather than traditional insurance against unusual risks.

Prepayment may be good idea for anyone with budget concerns, especially if somebody else does the prepaying, but insurance to cover the cost of major medical problems is so different in nature that a single policy combining them, according to Christensen, does not work very well. He recommends use of Health Savings Accounts (HSA) with tax benefits and direct connection to a retirement plans to handle all the routine and preventive health care expense. In other words, unused HSA money rolls over into a 401K type plan and can be used to enhance retirement benefits if not needed for health care. That would keep the patient/consumer in the loop on decisions about health care options and responsible for wise spending of the resources.  In addition to the HSA, High Deductible Insurance (HDI) for major medical expense can be purchased. That HDI then would be more like homeowners or automobile or term life insurance, there for serious problems but not normally used. It would be insurance we would hope and pray to never have a claim against, and, as a result, the administrative cost would be miniscule compared to what insurance companies experience under the current scheme.

These options, of course, apply to families and individuals with some reasonable income and ability to manage their resources. For the poor, we would still need some Medicaid-like provision for both routine and serious medical care. As I have argued before, there is no more reason to try to force everybody into the same system of “universal health care,” than there is to force “universal food stamps” on everybody. The good reason not to do so is that it has to lead to either out-of-control costs or rationing.

I spent a good bit of time watching the Health Care Summit last week and followed up yesterday morning by watching videos, mostly of the president’s statements, on CSpan. It was pretty gutsy of him to take on the responsibility of responding, in a largely unscripted fashion, to whatever anyone might say in such a program. One thing he is not short on is self confidence. I think he did bring in at least one “talking point” which was to always be ready to pounce on others for using “talking points,” but we did learn some things about what he really believes. Unfortunately, one thing he really believes is that Christensen's Harvard Business School approach to the issue is unacceptable because protection only against major medical expense is not real health insurance. Here is what the president said. (Video of the entire summit is available at CSpan, and you can see and hear this comment at 1:51:09 here.)

Look, if I’m a self employed person who right now can’t get coverage or can only buy the equivalent of ACME Insurance (name changed to protect the innocent- read about it here) that I had for my car, so I have some kind of high deductible plan. It’s basically not health insurance. It’s house insurance. I’m buying that to protect me from some kind of catastrophic situation. Otherwise I’m just paying out of pocket. I don’t go to the doctor. I don’t get preventive care. There are a whole bunch of things I just do without. But, if I get hit by a truck, maybe I don’t go bankrupt. Alright, so that’s what I’m purchasing right now. – President Barack Obama

How patronizing! I know many of my readers agree with him, but the problem as I see it is that the runaway costs of health care are a direct result of excessive third party involvement and the separation of economic and financial decisions from us, the consumers or customers of health care.  He seems to imply that paying "out of pocket" for a physical exam is unacceptable.  I’m afraid the president doesn’t think much of our ability to take care of ourselves or our interest in doing so. What a shame, because the problem is that people have a tendency to rise, or fall, to the level of expectations their leaders have of them. Maybe the next administration will have higher expectations.  The Harvard guru will have to wait at least until then to get a sympathetic ear and get his book passed around at the White House.

One standard response we objectors to current health care change proposals get is the same one kids have always given their parents when being denied something they want or denied permission for something they want to do.  "Everybody else has one or is doing it."  Nobody else is in the same situation we are in.  Back to the televised debate for a final word, Congressman Paul Ryan of Wisconsin gave the clearest explanation of why the current proposals are very bad for the United States, and the President really had no answer to him.  You can hear Ryan's comments and the presidents stammering and subject-changing response at 50 minutes into Part II of the debate or you can read them in todays WSJ.

To Profit or Not To Profit

I hate to be seen as an apologist for the health insurance companies, but I just don’t understand the demonization of “profits” and the misperception that “non-profits” are somehow “better” than for-profit enterprises. Profits are used to pay dividends to shareholders, reduce debt, invest in growing the business, and provide a cash cushion in case of unexpected needs. Profits are not used to pay management or to advertise or to send employees to Las Vegas on retreats.  Profits are both necessary and good. Unfortunately for the American economy, they are also taxable at the highest rate among OECD nations. Plus the dividends paid from them to shareholders are taxed again on the recipients' 1040's. Reminds me of the old Willy Sutton comment about why he robbed banks. It is a bad situation and puts American business at a competitive disadvantage in the world economy.

Of course “non-profits” depend on “profits” also because their income has to exceed their outgo or they would cease to exist or, at least, shrink in importance. They don’t pay dividends, but they do often have debt to be paid and need funds for expansion and for contingencies. There are five major differences between for-profit stock companies and non-profits. First, non-profits don’t have to pay any taxes. Second, they are not subject to the same financial reporting requirements as publicly owned companies making it much harder for citizens to figure out exactly where the money is going. Third, they are not under continuous scrutiny by shareholders trying to decide whether to sell their shares or buy more. Fourth, as a result of the first three, they do not have the same motivation for efficiency and continuous improvement that publicly owned and listed companies have. Fifth, in the case of 501(c)3 non-profits, tax deductible contributions can be accepted.  There are similarities between the two including the possibility of management misbehavior and poor judgment.

Below is the 2009 income statement for UnitedHealth Group, one of the two largest for-profit health insurance companies. This information and a lot of additional detail are readily available on their website, and will be followed up by them with a new report every single quarter. It is required by law, and that is a good thing. I wish it were as easy to figure out what is going on with BC/BS of SC or with Medicare.

If you see something here that really upsets you, let me know. Net earnings of 4.4% of revenue and 6.5% of assets don’t seem outlandish to me. They are paying out 82.3% of premiums collected as claims for medical costs. I’m sure they could cut their advertising and their top management salaries some. But if the company shrinks, unit costs will go up. And if talented management that knows what is going on retires early or goes elsewhere, it’s not easy to replace them. I wouldn’t take on one of those jobs in today's health-care environment no matter how much they offered. I’m not sure they can make any drastic cuts in the operating costs because it is expensive to manage all the paper work associated with health claims which have to be investigated and validated before being paid, and they have already been under continuous pressure to improve efficiency.

You may argue that all that paperwork and validation of claims would not be necessary with government insurance and that the claims could just be paid upon request. That must be what has been going on with Medicare since Medicare fraud is currently estimated to be $80B a year which is more than the total revenue of UnitedHealth Group. Is that OK, or should the government be tightening up a bit there? The Democrats are promising to reduce Medicare fraud to help pay for the proposed Health Care Reform. I don’t see the connection between the two and don’t know why they would be waiting for a big new spending program to clean up the waste in an existing program!

I am not suggesting that UnitedHealth Group is an example of righteousness, perfect in every way, and deserving of our support and dedication. I am just saying that the company is composed largely of ordinary citizens trying to do a job and earn a living as they work to comply with the complicated and illogical rules imposed on them by Congress and the various states. Under the circumstances, I think they are doing a pretty good job and, because of the fraud issue, far better than Medicare.  They also have to balance their budget which is a burden of responsibility unfamiliar to Medicare.

I would like to see a little more competitive pressure and a different set of regulations imposed on UnitedHealth and their competitors. I’d like to see all of them free to offer plans nationwide and I’d like to see them subject to all the antitrust laws from which Congress currently exempts them. I'd also like to see them required to offer guaranteed non-cancelable policies and policies that are available regardless of pre-existing conditions.  Under that set of circumstances, I suspect we would see that payout as a percent of premiums begin climbing.

John McCain, United States Senator, 123-45-6789

As I was driving yesterday from Maryville back to Columbia, I was thinking about that little interchange between President Obama and Senator McCain during Thursday’s health care discussion. The president interrupted Senator McCain with a condescending, “Let me just make this point, John, because we are not campaigning anymore. The election is over.” If Senator McCain had stood at that point, saluted, and given his name, rank, and Social Security number, it would have been an appropriate response to the disrespectful comment, recalling responses he might have given his captors as a Vietnam POW, and might have brought the house down. At least, it might have been a good reminder to President Obama of the need for protocol and mutual respect. On the other hand, I have some concern that the president might have considered it to be the most appropriate response.

In my working years I often participated in such workshop style discussions (never televised, by the way) and sometimes was responsible for moderating them. One key to success for such meetings is that the moderator, regardless of personal opinions, has to remain neutral and concentrate on pulling the best ideas from all participants and even play “devil’s advocate” in order to move the group toward some agreement. President Obama did not attempt that but clearly aligned himself with one side against the other and was much more political than presidential. I guess that shows the limit of his professional experience. The president should have stayed home or taken a seat with the Democrats and brought in as moderator former President Bill Clinton who has the political skill to listen, empathize, and project neutrality and reasonableness regardless of his personal opinion.

The other big problem with the event as conducted was that getting professional politicians to have an honest discussion with each other with the TV cameras on is unachievable except in the case of lost tempers or other emotional outbursts. I would have great difficulty having an honest discussion with my wife if it were being televised and broadcast as is done on some of those reality TV shows. There is no way a professional politician can avoid focusing primarily on the image he or she is projecting to voters back home rather than on carefully understanding what has been said and making honest responses to it.

One clear ground rule that should have been established for the event was, “No anecdotes!” Was it Ronald Reagan who first sprinkled his speeches with stories beginning something like, “Just last week I was talking to a lady who…?” If he was the first, he did us a tremendous disservice, because government is not supposed to be about the business of catering to the needs of individuals or companies or industries or unions or trial lawyers or doctors or any other special interest group. The responsibilities of the government are to provide national security, robust infrastructure, fair and reasonable regulation, personal freedom, responsible financial management, and national competitiveness.

As I suggested in an earlier posting commenting on the president’s ten page proposal, I believe the process now will be to continue to make concessions to reduce direct costs to taxpayers and improve benefits until a majority begin to feel that the legislation is not too bad a deal “for me” and that it will then pass. And government employment will grow and health care costs will continue to climb and the national debt will continue to increase. And there will still be millions of uninsured people. Just a guess.

Complexities of the Tax Code and Why Congress Loves It

Here is my nomination for most ridiculous instruction on the 2009 Form 1040.

Line 42 Exemptions. If line 38 is $125,100 or less and you did not provide housing to a Midwestern displaced individual, multiply $3,650 by the number on line 6d. Otherwise, see instructions

Others that were in the running are these:

Line 40a Itemized deductions (from Schedule A) or your standard deduction (see left margin)
Line 40b If you are increasing your standard deduction by certain real estate taxes, new motor vehicle taxes, or a net disaster loss, attach Schedule L and check here (see instructions)  (In South Carolina, new motor vehicle property taxes might be considered a "disaster loss.")

Line 24 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 or 2106-EZ (How in the world did performing artists and fee-basis government officials end up in the same category?)

Line 23 Educator expenses (see instructions)

Line 35 Domestic production activities deduction. Attach Form 8903 (Does this refer to activities targeted to having children?)

What brought all these to my attention was working on my mother’s tax return.  I questioned her carefully about whether any displaced Midwesterners had been hanging out in her basement during 2009. She doesn’t go down there very often, but she was pretty sure they had not. My sister from Memphis was there a couple of nights maybe but fails on the displacement and the Midwestern criteria.

What all these mysterious instructions have in common is that they are the results of congressional tweaks to the tax code to gain votes or to respond to contributors or to  motivate or punish personal behavior or to do a favor for some group or maybe just  to feel good or useful. All those, in my opinion, are inappropriate uses of congressional time and power. Routine insertion of such obscure complexities into the tax code is the reason my mother and millions of others with modest incomes shell out a few hundred dollars each year to have someone prepare their income taxes.

There are four things that bother me about the current income tax system: First is the corrupting influence on Congress of the power to use it inappropriately.  Second is the inequities that result from favoritism and unequal treatment of taxpayers.  Third is the non-productive work and un-necessary expense required to figure out what we owe.  Fourth  is the invasion of privacy required for citizens to comply with all the rules. If we are guaranteed a “right to privacy” in the Constitution (Discussion here) as those who argue for reproductive choice argue, I don’t see why that same right would not apply to our incomes and investments.

Just think how all those problems could be avoided with either the Flat Tax which would be a fixed tax on all income of around 20% with no exemptions or deductions or exclusions, or the Fair Tax, a retail sales tax of around 20% on all new purchases. Both proposals have a lot of support and are gaining momentum but will, of course, never come to pass. Congress will never give up the power they now have with the income tax code to manipulate and control, reward and punish.

The major problem with the Flat Tax is that it will still require a lot of enforcement and auditing to make sure people are actually reporting all  income correctly, and there would still be the invasion of privacy. The beauty of the Fair Tax is that there would be no way to avoid paying it. The possible downside, if consumer spending is truly the primary driver of our economy,  is that taxing consumption would tend to decrease consumption and would possibly dampen  the economy. Environmentalists should love the Fair Tax if it reduced consumption since that would reduce our "carbon footprint."

A big upside to the Fair Tax is that it would unburden American business of taxes and greatly improve our competitiveness in world markets.  That should boost employment and incomes and overall wealth of US citizens.  I'd like to see us give it a try because, after a couple of years of adjustment, I believe the dampening effect on the economy would disappear even as the positive effects on national competitiveness would continue to increase.  It would be a fairer system. 

If you like one of these new tax systems, you might want to go to the appropriate link and cast a vote or sign a petition or join the conversation.  At the same time, we should all prepare for more complexity with more exclusions, exemptions, and rebates and higher marginal rates in the income tax code. That is what will best serve the needs of Congress.  We may get a Fair Tax on top of the current Income Tax.  That wouldn't surprise me.

WSJ vs. NYT

On the same day that the New York Times published Nicholas Kristof’s appeal to proceed with current health care reform proposals in spite of their many shortcomings and apparently just for the sake of change, the Wall Street Journal printed an op-ed by Jeffrey Flier, Harvard Medicine Faculty Dean, and David Goldhill, author of How American Health Care Killed My Father in the September 2009 Atlantic. If you haven’t read the Goldhill article, check it out here. It is well worth your time.

Flier and Goldhill seem to be trying to bring some rational thought, careful diagnosis, and intelligent design principles to the discussion on how to bring about changes in the US health care system. The key point they make is that accurate diagnosis requires that the problems or issues be carefully defined and not just lumped together as “health care.” They suggest there are three main areas of concern which need separate consideration and treatment: Health, Health Care, and Health Insurance. They argue that good Health depends only partly on Health Care, that having Health Insurance does not guarantee good Health Care, and that regulating and subsidizing Health Insurance drives up costs of Health Care for everyone. They argue that improved Health Care probably depends on discovery of new therapies which will require investment in R&D. The logical extension of all that is that focus of reform should be not on universal Health Insurance but on improved Health.

It seems that the goal of the champions of current health care reform bills is to separate health care decisions from any concern about their cost and make health care a free basic right available to all of us on equal terms. Nirvana! The problem is that such a separation, in the absence of strict and arbitrary limits on health care spending (rationing) will result in accelerated escalation of costs. That free basic right concept is basically the way Medicare and most employer provided health insurance operate now, and it is the reason that most people covered by Medicare or employer provided insurance are happy with their coverage. It is also the reason that Medicare is not financially sustainable without large premium or tax increases and that employers are looking for relief from escalating health care costs. Granted Medicare and private insurers continually squeeze doctors and hospitals by reducing reimbursement rates, but the whole system of reimbursing for treatment procedures with no significant cost to the patient continues to motivate more and more treatment procedures. It’s a gift to patients and the only thing doctors and hospitals get paid for.

So, I think everybody knows but avoids saying that making health care a free basic right available to all will not work in the absence of strict rationing. Already we are reading, for example, that women don’t really need mammograms so often, that stents for treatment of heart disease might not be any more effective than diet and lifestyle and drug regimens, that testing for prostate cancer is overdone, and that arthroscopic knee surgery may not be any more effective than less expensive rest and rehabilitation. And we all know that scans of various kinds and colonoscopies are being overdone. I don’t think I ever had a scan until after I was retired, and I have had half a dozen or so of various kinds since then. I think the concept of rationing by government is fine for lots of folks. It is the system in place in the UK and Canada, and many there defend it, at least so long as they are well, while others with medical needs and resources come to the US for treatment rather than queue up in their own system.

Actually, I am in favor of rationing health care. I just don’t want it done by the government. Everything else that we consume is rationed. That includes food and water and shelter and clothing and boats and cars and vacation homes and season tickets to sports events. But they are rationed by economics mostly controlled by decisions of consumers in a freely competitive environment mostly without government intervention. And the basic necessities, food, shelter, and clothing, have been taking less and less of our resources while health care, in the absence of competition, has been taking more and more. Health care can work just fine in the same kind of competitive marketplace with consumers making their own choices in consultation with their insurers, pharmacists, and physicians. Maybe some will choose to drive a cheaper car or skip a vacation because health care is a bigger priority to them. Maybe somebody will choose to forego a $3,850 (Ridiculously Inflated Charge) trip to the hospital and a CT Scan after a minor bicycle crash and take the one in several million risk they will die during the night due to a brain injury. (Check out my personal experience with this here.)  And, just as we have systems in place to assist the poor with food and clothing and shelter, we need a system in place to assist the poor with health care. If we free up competition among health care providers and health care insurance companies and put patients in control of their own treatments and expenditures, worked out in discussions with their doctors, I suspect that costs will come down and there will be plenty of money available to take care of the poor.

Bottom line is that the goal of improved health is a more challenging and inspiring goal than health insurance for everybody and is more likely to result in significant improvements in policies and procedures and technologies and, finally, health.

(I know it isn't going to happen.  I read the Presidents proposal at whitehouse.gov this morning, all ten pages of it, and guess he is going to gain some traction with this reduction of costs and improvement of benefits approach.  Who but a true Grinch can argue with that?)

Those Obscene Profits of Health Care Insurers

Below are a couple of quotes, one having to do with profits of US health insurance companies and one having to do with total health care costs in the United States. Below that is a chart which illustrates how much total health care costs could theoretically be reduced by elimination of the insurance company profits.

Senator Feinstein, in an interview, pointed to the $12.2 billion in profits reaped by the five biggest private insurers in 2009. “When you look at the profits in ’09, up 56 percent over the year before,” she said, “you begin to understand that something is going on that is not in the interests of the American people.” (Source)


Health care costs have been rising for several years. Expenditures in the United States on health care surpassed $2.2 trillion in 2007, more than three times the $714 billion spent in 1990, and over eight times the $253 billion spent in 1980. Stemming this growth has become a major policy priority, as the government, employers, and consumers increasingly struggle to keep up with health care costs. (Source)


Here is a pie chart that shows the insignificance of the profits of the big health insurers in the total health care cost picture.  The profits may or may not be "too high," but can we agree that completely eliminating the insurance company profits will not have any measurable impact on total health care costs?

I have written on this subject earlier, but Senator Feinstein must have missed that posting.  She is right about one thing. Something is going on that is not in the interests of the American people and that thing is government establishment of a system that prevents free and open competition among health insurance companies across state lines and exempts them from all antitrust regulations.  If we get those problems corrected, I suspect we will see insurance company profits on a fast downhill run as they compete for market share through improved payout ratios and higher customer satisfaction.

Don't Just Do Something. Stand There!

One of the worst standard pieces of advice ever uttered is, “Don’t just stand there. Do Something!” A far wiser admonition would be, “Don’t just do something. Stand there (and think before you act.)” Both phrases get lots of hits on a Google search.

In today’s column, New York Times columnist Nicholas Kristof amazes me with his illogical reasoning in defense of just doing something on the health care reform bills currently under consideration. I hate to be critical, but he is a prominent, well known, and well read columnist, and I really think he is misguided on this issue. I’ll be lucky to have fifty people read my opinions, but I just have to put my two cents worth in.

Mr. Kristof acknowledges that, “Critics are right to be disappointed that the legislation doesn’t curb malpractice suits and doesn’t do more to change the basic fee-for-service structure that incubates rising health care costs.” He acknowledges that critics who doubt that the current bills in the House and Senate will do much to contain costs “may be right.” He acknowledges that “there is something to” the suggestion that America’s poor health statistics in some areas are “a result of social inequities and a large underclass” and not just a result of our health care system. Nevertheless, he argues that all the trends of the past will, if we don’t pass health care reform NOW, extrapolate to some ridiculous point in the future at which time ‘we’ll probably get daily M.R.I.’s and CAT scans even as we starve naked in caves.”

I reread the column and still I found nothing positive about the bills under consideration except that they will result in change and will comprise doing something. The whole argument could be stated like this: “We have a problem. Lets do something…anything.”

If I were in Kansas and wanted to go to New York but could find no available flights except to California so decided to get on one of the flights to California just so I would be able to say that at least I wasn’t in Kansas anymore, I would be using logic and reasoning similar to what Mr. Kristof seems to be advocating in his column. It’s clear we need changes in our health care system to provide better access and competition and to balance the budget on Medicare and to improve education and personal responsibility. But we do not need to approve either of the bills currently under consideration. Let’s do some thinking about this before we head off.

Our National Debt, and the Lenders We Owe

Some of the comments in my posts about borrowing money from China are a bit misleading. The fact is that we are borrowing from almost everybody. A US Treasury website gives estimated US debt holdings by country. Japan is actually first with China close behind. Then come The United Kingdom and the Oil Exporting Countries. Here’s a chart. Foreign held debt is about $3.6T, up 20% in the past year and around a third of our total debt. So I guess you could say we owe the rest of it to ourselves. I think we also owe it to ourselves to tighten our belts and pay it off.