Making a Difference - The Personal Touch

It can be very frustrating to spend time thinking about all the problems we face in this debt-swamped weak economy aggravated by the failures of our government to act responsibly and the failures of parenting and education to prepare a significant portion of our young folks for full and satisfying participation in a free enterprise economic system.  It can be especially irritating if you are trying to write something about it every day or so.  But you can go see a movie, which will make you forget all about those issues and focus on the positive for a couple of hours at least.  And it might bring a tear or two and motivate a serious look in the mirror.  Probably everybody knows by now that The Blind Side is the story of Michael Oher, Ole Miss football star, and the wealthy white family that took him into their home when he had no place to stay and later adopted him and provided the love and parenting he had missed.  You can read the story here.

Probably this story would never have made it to the big screen without the football angle, but the importance to Michael would have been no less if the love and parenting had simply prepared him for a career at Wal-Mart on in the fast food industry or in construction or for some other more mundane way to make a respectable and honest living and escape the drug culture he came from.  As depicted in the movie, Michael was basically a well-mannered, good natured, and easy-going young man who made it easy for the Tuohy family to love him.  If he had ripped them off the first night in their home, the story might not have had such a happy ending.  So it was a miraculous meeting and demonstration of God’s grace that brought them together and created the opportunities for both, one to serve and the other to be served.  Almost none of us have the love and personal resources combined with the opportunity to do as much for someone, but if we all only did 2% as much, it would change the world and completely dwarf any improvements we can expect from stimulus spending, extended unemployment, universal health care, cap and trade legislation, and withdrawal from Iraq and Afghanistan combined. 

I personally am shamed by how little I do…probably a dozen hours a week or so on average helping with food and clothing vouchers or assisting with rent and utility payments at a local agency, The Cooperative Ministry, or repairing homes for elderly low-income homeowners with Home Works of America.  The benefit I get from actually talking face-to-face with the folks we assist and learning more about their situations far exceeds the benefit they get from the meager assistance we offer which, unfortunately, is often enabling rather than life changing.  Still, I highly recommend getting so involved.   Send some money if you like, but follow the money with your hands and feet.  It is that personal touch, not a check from the government, that can change the world. 

And, by the way, is it possible that a blockbuster movie such as this from Hollywood is an indication of some cultural shift toward more caring for each other?  It seems Hollywood always argues that the vile stuff they produce is not a driver of society but simply a reflection of it so maybe the same is true here.  

Pistol Creek Days

When I was growing up in Maryville, TN, I spent a lot of time from probably age 10 to 15 on Pistol Creek. We used to catch a lot of suckers, red eyes, crawdads, and lizards. Crawdad tails made the best bait, but I never even considered eating one of them.  I and two or three buddies would be gone for hours, with bicycles and fishing tackle, completely free, fishing and wading and seining. We had names for our favorite spots and would say, “Let’s meet at the stump, or at the log.” It was fun. I think the creek is almost devoid of big fish now and was told by my dad that he thought it was because blasting to install sewer lines along the creek had killed the fish.

Near the head of Pistol Creek, at the outer limits of my childhood area of exploration, there is a low lying marshy field of about 12 acres not fit for residential development even though it is surrounded now by residences and a nearby school. While in Maryville for Thanksgiving I read a Maryville-Alcoa Daily Times article about that 12 acres titled Wetland Classroom Nearly Done.

It turns out that the city received a $992,000 grant from the Environmental Protection Agency to build a boardwalk and an octagonal pavilion in that marshy field for use in environmental education of city school students. I guess that kind of thing was left to the Boy Scouts when I was a kid. I drove by the project and thought it looked pretty good. I’m sure that it will be an asset to the City of Maryville, that some kids addicted to their cell phones and iPods will learn a bit about nature, and that some Tennessee politicians will get a boost to their re-electability.

But there is a small problem. If we were paying all our bills and had some money left over, I think this kind of thing might be OK, but we didn’t and don’t have $992,000 available for this project without borrowing it. Some may be thinking, “C’mon, Darryl! It’s only a million dollars.” But the problem is that there are tens of thousands of projects of various sizes like this all around the country and that the cost of all of them adds up to billions of dollars we don’t have. I did a quick search in The State Newspaper, Columbia, SC, and found the following federal grants reported in just the last few weeks:

1. $45M to Clemson University for a study on wind energy
2. $ 1M to cities of Columbia and West Columbia for pollution studies
3. $240K to four SC cities to install electric car charging stations
4. $4.95M to USC to study the possibility of off shore storage of carbon dioxide
5. $9M to Clemson to establish a center for tissue regeneration research
6. $4.8M to USC to help seriously ill patients find and volunteer for clinical trials
7. $13M to South Carolina State Univ. to develop textbooks for use in Tanzania!
8. $1M to six SC colleges to boost nuclear education
9. $138,807 to Coastal Carolina University to hire a campus cop
10. $35M to Toda America, a Japanese company, to make battery components!!!

That little sampling totals about $114M and doesn’t even scratch the surface. I wonder if numbers 5 and 6 are considered part of our health care bill.

So, there are two major issues here. First is the problem of mounting debt, currently at $12T and increasing by $3.8B a day. The New York Times today reports on growing resistance in congress to raising the debt limit which will be necessary to assure continued payment of the bills. Second, there seems to be no sense or system of priority in how we allocate and spend taxpayer money. Its just one project at a time often not even voted on but just tacked on to unrelated bills, sometimes apparently in return for a favorable vote! Consider the proposed increase in federally funded health care, for example. Where would that fit in a priority listing with the stuff above?

I know. You are going to say that all we have to do is whack military spending. But even President Obama, now that he has access to all the available information, is having trouble justifying big cuts to the military as much as I am sure he would like to.

Life was a lot simpler in those Pistol Creek days.

Antitrust Problem With Private Health Insurers

I was shocked to hear Senator Richard Durbin (D-Illinois) on Meet the Press Sunday say that the health insurance companies need competition from the government “public option” because they are exempt from the antitrust laws. I had no idea! I did a quick search and found out its true. Whose fault do you think it is? Congress in 1945 passed the McCarran-Ferguson act which “shielded insurance firms from federal prosecution for price fixing, bid rigging and carving out protected markets.” Apparently the justification was that the insurers would be regulated by the states.

Well, it just shows how dense I am. I hadn’t been able to figure out why adding a government option to the mix was going to change the competitive landscape for these insurers since there are already several big ones competing with each other. Now that I see the problem, I think it is clear that the solution is to simplify by removing that protection for the private companies rather than increasing the complexity by adding a government run insurance company to the mix.

I understand the Health Insurance companies don’t want that protection from the antitrust enforcers removed. They say they are following the rules anyway and nothing is to be gained by making a change. At least one senator has been convinced. In the negotiations on moving the proposed Senate health care bill to the floor for debate, Senator Ben Nelson (D-Nebraska) apparently got a provision to remove the protection omitted from the bill in return for his vote. You’d think that would be more of a Republican position. Lots of horse trading was apparently done to get those 60 votes Saturday night.

Well, if I had a magic wand, that health insurance company exemption from antitrust laws would be gone by noon today. No reason it should not be clearly illegal for insurance companies to talk with each other about markets and market share and pricing and strategy and other critical business issues. The only thing Humana should know about Unitedhealth Group and vice versa, for example, is whatever the two companies decide to release to the public in press releases and quarterly earnings statements. Still, you can’t blame the insurance companies. This falls squarely on the shoulders of congress.

Time for a little time-out. Enjoy the Thanksgiving weekend. As the Psalmist wrote, "Give thanks to the LORD, for he is good; his love endures forever."

Now I Get It! (Why Some Prefer Government Insurance)

Now I get it. I couldn’t figure out why so many seem to favor government health insurance over private insurance but I was working on responding to a comment from a reader and suddenly it hit me.

The comment was by Raj in response to my posting showing that the total profits of the big eight health insurance companies in 2008 comprised only 0.54% of our total health care cost. Raj said the problem must be in Sales General and Administrative (SG&A) Expense. What about that?

Well, I took a look at one of the big companies, Aetna. They took in $27.3B in premiums and paid out $22.7B or 83% of the premiums in benefits. Of their total revenue of $30.95B, 15% went to G&A costs and about 4% to Sales costs. Profits were about 4.5%. All this is on a chart below. It’s not cheap to administer all those policies and claims and I doubt they are wasting much money in G&A costs because their motivation to reduce G&A in favor of profits is strong.

The question on everybody’s mind is, ‘Why don’t they pay out more in benefits?” And then I suddenly realized why they are at such a disadvantage to the government. THEY HAVE TO HAVE A BALANCED BUDGET! Private companies cannot pay out more than they take in! Of course not all companies are successful in matching their income and outgo, but those that cannot usually have their stock prices driven down and go into bankruptcy or get acquired. I certainly wouldn’t want to have my insurance with one of those companies.

The United States Government, on the other hand, suffers from no such pedestrian restraints on its financial activities. In 2008 the government took in $2.5T and spent almost $3.3T. And that can’t all be blamed on the war. Just in the social insurance category, the federal government took in $975B and spent $1.4T. So, instead of being restrained to the measly 83% payout of Aetna, the government was able to pay out 144%. No wonder so many people want the government run public option! The government is a financial wizard.

These figures are plotted on the charts below also. If you are wondering about the validity of my numbers, check them out for yourself at the Bureau of Economic Affairs Website. You can see the 2008 Aetna Annual Report here.

On 60 Minutes Sunday evening there was a segment on Medicare and “end of life” medical costs paid without question by Medicare. I’m not usually impressed by anecdotal evidence, but they showed the bill of Dorothy Glass, octogenarian who spent the last two months of her life in a hospital dying of liver and heart disease. During her stay, she was seen by 25 specialists without request of or approval by Dorothy or her family. All of them billed Medicare separately and received reimbursement for tests including a Pap Smear. That is crazy.

In the NY Times this morning, David Brooks  argues that the issue at stake in the health care debate is one of values: Do we prefer “vitality” or “security?” Well, of course we all want both.  Few of us want to return to the atmosphere of the wild wild west and even fewer are ready to give up all we have to move to assisted living.  We recognize there may have to be some trade offs.  But here is the point:  Wherever we end up on the vitality/security question, whether we pay the bills as we go or plunge the nation into bankruptcy is a question not of values but of morals.

Postal Service Woes and the Public Option

CBS News posted a release November 19th titled Can the Postal Service Be Saved?   In the story several pertinent facts are revealed:

1. The USPS lost $3.8B in the fiscal year ending September 30, 2009 on revenue of $68.1B
2. Losses averaged $3.9B per year in 2007 and 2008.
3. Pieces of mail delivered were down 13% from 200 billion in 2008 to 174 billion in 2009. (I wonder how many of those 174B pieces were junk catalogues destined for immediate deposit in recycling bins.)
4. The USPS is prohibited from “taking” tax money, but not from “borrowing” tax money and now “owes” the government $10.2B.
5. Borrowing tax money is limited to a total of $15B. I wonder if congress will consider raising that limit when it is reached.
6. The Postal Service is supposed to deposit $5B per year in a fund for retiree health benefits, but the government allowed them to deposit only $1B last year. What??? I thought health care was a priority!

My nomination for the most nonsensical quote in the article is from Illinois Democrat Representative Danny Davis who is advocating a “bailout” for the USPS: "I'm not afraid of spending public money to keep money flowing."

I don’t understand how the USPS could get in such financial trouble? As I understand the deal, in return for a guarantee to serve all citizens, to “bind the nation together,” so to speak, the USPS gets a monopoly on First Class Mail and use of all our mailboxes. So, the USPS is allowed to compete with UPS and FedEx and DHL on packages but does not have to worry about any competition from them or anyone else on 1st Class Mail.

In their 2008 annual report the Postal Service brags about having 1st Class Postage Rates significantly below rates in Japan, Germany, Australia, Mexico, Canada, Great Britain, and France, in spite of the fact that the geographic area and delivery difficulties in the United States dwarf those of all the other countries except Canada and Australia. And, as volume of 1st Class mail declines due to more businesses and individuals communicating electronically, the unit cost has to be going up. What kind of sense does it make to brag about low rates in the process of going bankrupt and asking for bailouts from the taxpayers?

So, my challenge to the USPS is this: Raise 1st Class Postage rates and cut costs, starting with elimination of Saturday deliveries, to balance your budget! The fact that I can send a letter from Columbia, South Carolina, to Podunk, California, for less than fifty cents and have some poor guy going door to door on a football Saturday to deliver it is ridiculous. Raise the rates to $1.00 and start paying back that debt you owe! Now!

You may be wondering what the Postal Service has to do with any possible health care “public option,” but they were linked in an apparently unscripted statement by President Obama in August. Attempting to defend the idea of a “public option” in response to a question about how a private company can compete against the government, he made a statement that was an almost perfect explanation of why the “public option” is a bad idea. Here is what he said:

“If private insurance companies are providing a good bargain and if the public option has to be self sustained meaning taxpayers aren’t subsidizing it but it has to run on charging premiums and providing good services and a good network of doctors just like any other private insurer would do then I think private insurers should be able to compete. They do it all the time. I mean….If you think about it UPS and FedEx are doing just fine. Right? No, they are. It’s the post office that’s always having problems. So…right now you’ve got private insurers who are out there competing effectively even though a lot of people get their care through Medicare or Medicaid or VA. So, there’s nothing inevitable about somehow destroying the private marketplace as long as, and this is a legitimate point you are raising, that it’s not set up where the government is basically being subsidized by the taxpayers so that even if they’re not providing a good deal we keep having to pony out more and more money.

I love the phrase, “…where the government is basically being subsidized by the taxpayers…” Does the government have some other source of income we haven’t heard about?

But here’s the bottom line: Neither Social Security nor Medicare nor Medicaid nor the United States Postal Service is self sustaining and no “public option” will be either. So, if we decide on a public option with that clear understanding, fine. Let’s just not kid ourselves that all those IF’s will be reality.

The United States Postal Service clearly has the option of being immediately self sustaining and debt free by simply reducing costs and raising rates in its monopoly market and could certainly do so without causing anybody’s untimely death. Why is that not happening?

Under the heading of trivia, here are historical US 1st Class postage rates from 1930-2009 both as actually stated (current dollars) and adjusted to 2008 dollars. Bottom line is that we have been paying the same for 1st Class postage since the late 60's.  A few significant Postal Service milestones are indicated also.

Senator Al Franken in Senate Health Care Debate Today

I miss Al Franken on Air America. When we lived out in the country and did more driving I used to have the first three buttons on my car radio on Limbaugh, Franken, and a usually liberal AA radio station. I could just bounce around these stations and listen to all kinds of outrageous statements and get some good laughs and sometimes a little wisdom.

Somehow, outrageous statements just don’t seem funny when broadcast on the floor of the US Senate during a supposed “debate” on health care which looked more like a series of political statements to the folks back home by Senators in search of votes in a mostly empty senate chamber.

During his twenty minutes, Senator Franken expressed outrage that profits of the health insurance companies are up 428% in the last eight years and said something to the effect that those companies are the source of our health care problems. I guess he must have asked one of his staff to find out how much health insurance company profits have increased and got a superficial answer with no follow-up questions or investigation.

I have no love for health insurance companies and don’t want to be an apologist for them. I would never want to work for one. I know they, like automobile and life and homeowner insurance companies, can be difficult to deal with. But we need to face facts and look at some real data instead of making such outrageous and misleading statements.

So, here are the facts on the financial results of the big health insurance companies. Data are from The Value Line Investment Survey. Revenues and profits of the big eight are up dramatically over the past eight years primarily due to mergers and acquisitions, but the profits as a percent of revenue are not up dramatically and were at 4% in 2008. And, as I have pointed out in an earlier posting, the total profits of these eight big insurance companies comprise only 0.54% of the US health care bill. So, the big insurance companies are not “the problem.”

Here are a table of data and charts with explanatory notes constructed from it: (Click on the charts for high resolution readable versions.)

Flash: Wealthy and Famous Guys Argue on Television

I think this three part interview, including the parts that were not on The Daily Show, is pretty interesting. Lou Dobbs takes the positions that our country and economy are fragile, that we need to behave responsibly in the way we manage spending and debt, and that the constitution gives us equal rights and responsibilities and requires that we respect each other. Jon Stewart, on the other hand, argues that all is well, that we are invincible and can do anything, and that equality in the constitution requires that we help each other. Well, of course we are supposed to help each other, but that doesn’t have anything to do with the constitution or anything going on in Washington, DC. I don’t believe Stewart, who probably has the superior intellect, has given these issues as much critical thought as Dobbs has. It’s Stewart’s show and his audience so he gets the last word and a big round of applause, but, other than that little complication, it is a healthy discussion and expression of opposing viewpoints. Of course it is just wealthy and famous guys arguing with each other. That goes on in congress all the time. 

I guess CNN ratings will continue their decline with Dobbs out of the picture.

Continued Reckless Driving Not a Good Idea

September 2007 I got a speeding ticket on my way to Lake Murray for an afternoon of fishing.  Two points were awarded for my mediocre performance. Then, in February 2008 I got a speeding ticket in Knoxville, TN, returning home from a visit with my mother.  Two more points!  I decided I had better slow down and start paying more attention, at least to the possibility of police presence, or I was going to be in trouble or, even worse, have an accident.  I did and now, if I can just behave myself until February 2010, all those points will be gone.

In today's column, Nicholas Kristof, reliable provider of grist for my mill, says that the arguments against the health care plans currently under consideration are the same tired old arguments used against Social Security in the 1930's and Medicare in the 1960's.  He says the arguments were wrong then and they are wrong now and that those who oppose the health care reform are likely to end up "on the wrong side of history."

Kristof is right about one thing:  The arguments are the same.  What he misses is that the arguments are just as valid now as they were then.  Kristof's time frame is just far too short.  Social Security and Medicare have not been properly funded so the borrowed money required to keep them afloat has served as an automatic, ever increasing  "stimulus" to the economy over the decades.  So, yes, we have thrived economically in recent years by continually taking out second mortgages and refinancing our debt to keep things going, and that might be OK if debt as a percent of GDP could have been maintained at a low and reasonable level.  But, that ratio is climbing, climbing, climbing, now reaching 70%, and our ability to stimulate the economy by further borrowing has been seriously compromised.  Now to pile on more with the proposed health care reform of unknown but surely higher than expected cost will just compound the problem.

Here is the comment I posted in response to Kristof's column this morning:

Your arguments seem to me to be like saying, "I drove recklessly and consistently exceeded the speed limit all year last year and didn't have a single accident. Obviously that was a good plan." I would argue that universal Social Security was a serious mistake which made possible the second serious mistake, universal Medicare, which has set the stage for the next big problem, universal health care. None of these spending programs are adequately funded and they are driving the country into bankruptcy. Part of the reason the economy has done well on average over the last fifty years is due to the inadequate funding of these programs and the resulting "stimulus" to the economy from borrowed funds, but that cannot go on indefinitely. Eventually, the bills must be paid. All these programs should have been established as fully funded safety nets and not as universal systems of transfer payments. Had that been done, our economy could still be sound and based on real production of marketable goods and services rather than on government created money. You are thinking in much too short terms. If I keep driving recklessly and consistently exceeding the speed limit, it will eventually kill me or land me in jail.

And yes, I know that improperly funded military spending has been a problem also.  Details on that are covered in Permanent Fixes here.  Other related postings can be found here and here.  Bottom line is we can keep focusing on government solutions in the form of higher tax rates and transfer payments and "created" non-productive jobs managing the transfer payments or we can create a demand for real jobs and collect more total tax revenue and slowly work our way out of debt by reducing tax rates on businesses that create marketable goods and services.  Either way, some serious government belt tightening is going to be required to work off the debt.

PSA Tests, Mammograms, and Universal Health Care

I have seventeen years of PSA data on an Excel plot on my computer. That is the blood test recommended annually for men over 50 to see if there is likely to be any malignancy in the prostate gland. Three times in recent years my result has been “high” and I have received a call from my doctor saying we need to do a recheck and that if we get a second high result he will be sending me to a urologist for follow-up. I hate to even think about such a thing. It definitely creates anxiety. One of those times he put me on Cipro before the retest just to rule out any possibility of prostate infection causing the elevated PSA. In all three cases I dosed up on ibuprofen before the recheck because I read somewhere that any inflammation can cause elevated PSA levels and that ibuprofen helps reduce inflammation. In all three cases the recheck was OK. This year I dosed up on ibuprofen before the first check at my annual physical, and it was OK.

I’ve seen several articles in the last few years suggesting that the PSA testing is being overdone because it is much more likely to give a false positive than to actually detect prostate cancer and that the false positives can result in un-necessary biopsies and anxieties. Even if cancer is detected, treatment may be counterproductive because prostate cancer is normally slow growing and men who have the cancer often die of old age before it causes serious problems. I’ve toyed with the idea of telling my doctor to skip the PSA test because I just don’t need the anxiety.

However, I can name several good friends whose prostate cancer was detected early with a PSA test and who were treated and are alive and well today. I guess they may argue that the PSA testing is pretty important and helpful and, if they like me, will strongly suggest that I keep getting it done every year.

Now we have the announcement that a small group of experts has concluded that mammograms for women between 40 and 50 should not be done routinely because they are much more likely to result in a false positive followed by un-necessary biopsies and anxieties than to actually detect early breast cancer. That announcement is immediately followed by testimonies from women whose breast cancers were detected early by mammograms and treated and who are alive and well today as a result and declarations from doctors and other groups of experts that no change in current practice is planned or recommended.

As an engineer with a practical bent and strong interest in economics and financial matters, I think I understand exactly where the study group of experts is coming from. Women 40-50 comprise about 7.6% of the US population or about 23M people. As I understand the news releases, testing of 1000 women will identify two cases of breast cancer and save one life and yield about 90 false positives. So, if all 23M women are tested each year, 46,000 cases of breast cancer will be found and 2.1M false positives will result. Looking at it from the viewpoint of a government funded universal health care system, the cost of testing 23M and then following up on the 2.1M false positives and treating the 46,000 actual cases must be much greater than the economic benefit of catching the 46,000 cases early. Or at least there are other places where that money, in the judgment of some, could be better spent for improved overall health. I don’t like that line of thinking as it applies to health care issues, but I do understand it and think it is inevitable and essential with any kind of universal government funded health care system with artificially controlled prices.

The whole thing is so patronizing, the idea of saying to a woman or to a man, “OK you have now turned 40 or 50 so you qualify for a mammogram or PSA test so get in line.” Far better for the patient and doctor to have an open discussion about the pros and cons of various choices and the patient’s risk profile and personality and comfort with anxiety, etc. But, to do that, such discussions may have to be added to the list of approved reimbursable treatments so the doctor can be paid.

So long as individuals still have the right to get whatever care they want at their own expense I suppose we can live with such a system. But I don’t believe the American people are going to willingly turn over all their health care decisions and options to the guidelines resulting from recommendations of expert study groups. It’s just too personal for that. I’m not sure, as I have argued in an earlier posting, where the idea comes from that we “spend too much on health care,” but it seems to me that, as individuals, we should be able to spend as much or as little as we want to on routine and preventive health care and be able to buy excellent major medical coverage to cover the serious problems that may or may not occur.

US Trade With China - A Sore Thumb

President Obama is in China hopefully discussing issues of importance including an unacceptable trade imbalance between the US and China. In yesterday’s NYTimes, economist Paul Krugman says the problem is China’s artificially weak currency which makes Chinese goods cheap on the world market and goods produced elsewhere expensive to the Chinese people.

The problem for us is that the dollars spent in China have to work their way back to the United States in some way. Ideally for the US economy that currency would be used to buy American produced goods and services. A less desirable but probably still OK result would be investment in American businesses and real estate. (Remember when we were all upset about the Japanese buying up American icons such as Rockerfeller Plaza and Universal Studios?) The worst possible use of those dollars is buying US Treasury Bonds thereby financing our deficit spending while putting the US in debt to China. Unfortunately that is what has been happening.

During Japan’s economic boom years from the early 1970’s to the early 1990’s the Japanese Yen strengthened from 360 Yen/$US to less than 100 Yen/$US. During China’s boom the Yuan has strengthened from a little above CNY8/$US to a little less than CNY7/$US.

Normally I don’t worry about the same things Mr. Krugman worries about, but this situation looks pretty bad to me. Skeptic that I am, I spent a couple of hours digging up and plotting trade data to get a better feel for the situation.

Here are four helpful charts I created from data available on line. The first shows our balances of trade with 57 countries for which the surplus or deficit is greater than $2B. Clearly China is outside the normal range with a 2008 deficit about equal to the next three countries combined. Click on the chart to get a readable copy. Incidentally, our biggest surplus is with the Netherlands where major markets for the US are pharmaceuticals, medical equipment, and telecom equipment.

The first chart is a snapshot for 2008, but the second one tracks changes over time for the eight countries identified as being most out of balance with the US. Clearly, growth in the deficit with China dwarfs changes in deficits with the other countries.

US exports to China have grown nicely also, but clearly the imbalance comes from dramatic growth in imports.

During that period of dramatic growth in the trade deficit with China, the exchange rate between Chinese currency and the US Dollar has been maintained at a constant level.

So, let's hear it for a floating Yuan!

Urinary Tract Infections and Medicare Waste

About ten days ago I was feeling really bad and started having chills. By the next morning I had a fever and obvious symptoms of a urinary tract infection. I’ve had a half dozen or so of these over the years so had little doubt what the problem was. In case of doubt, there is a little home test kit available now at pharmacies to check for this common malady.

I called my family doctor’s office and they squeezed me in around noon so I drove out there and got the expected diagnosis and a prescription for Cipro. It was good prompt service and I saw the doctor at the promised time and had a brief discussion with him. They also weighed me. I guess all the things they did are on the Medicare Physician Fee Schedule so with the proper filing and handling of paperwork they will be reimbursed at some rate for what they did. There was no charge to me, and the doctor said that I could get the Cipro free at Publix Pharmacies. After the visit to the doctor, I skipped the Publix option and drove to CVS and waited around 15 minutes or so while the pills were counted. I always end up buying something extra at CVS in such cases, so I’m sure that is part of their strategy. My cost for the Cipro was about $8.

I took the Cipro as prescribed and, except from some really nasty fever blisters, recovered nicely from the infection. Pills are gone and just one little fever blister scab remains. I feel very good this morning.

So, that all worked out fine but, it seems to me, was unnecessarily complicated and expensive and generated completely unnecessary travel, paperwork, and Medicare claims. It may not seem like a big deal, but multiply this small incident by the millions of times a year it happens with Medicare patients in doctors' offices all over the country, and you get some significant costs.

Here is my suggestion: Get rid of 80% of the stuff on the Medicare Physician Fee Schedule and just let patients deal directly with doctors, sometimes even by phone and email for minor issues, and then pay the doctors directly for time spent. I could have sent a quick email describing my symptoms, and the doctor, who knows me well and knows I am not a Cipro abuser, could have spent five minutes making a quick note on my file and then forwarding the email back to me and to my pharmacy with a prescription. At a $500 per hour charging rate, the doctor could charge my credit card $40 for that simple service and incur almost no overhead cost in doing it. If he really needs to know how much I weigh, he could just ask me.

But, unfortunately, my doctor can’t make a living doing that because Medicare won’t reimburse him for it and there is really no practical way he can charge me for it directly though I would be glad to pay. It would have saved me the trip and would have pleased Al Gore by reducing my carbon footprint. As I wrote a few weeks ago, let’s Free the Doctors.

New Blog - Last of All or Last to Fall

I have started a new Blog focusing on theology and faith and related issues.  I don't plan to promote it with emails the way I have promoted Permanent Fixes but will be glad to let any who request notification of new postings know by email.  Or, if interested, you can sign up as a follower.  The new blog, http://www.lastofall.net/, will include some stuff I wrote while at Lutheran Theological Southern Seminary as well as occassional posts on current issues.  There is a link to the right under My Other Blogs.  So far there is just one paper there that I wrote on the subject of Double Predestination.

Death Panel Op-Ed in Today’s New York Times

Earl Blumenauer, D – Oregon, explains in an op-ed today where all the “Death Panel” uproar was born. He says that in his years in congress he has made many attempts to change the way Medicare pays doctors from the current fee-for-service system but has not been successful. When he realized that doctors could be reimbursed for thousands of medical procedures (whether necessary or not and whether effective or not) but could not be reimbursed for the time spent “having a thoughtful conversation to prepare patients and families for the delicate, complex and emotionally demanding decisions surrounding the end of life,” he introduced language to the bill being put together to authorize payment for such discussions every five years. Big mistake!

In the first place, he gave up his principles driving him toward changes in the misguided system in place and just caved and started adding to the complexity. Second, to single out this one controversial doctor-patient discussion subject from hundreds of possible valuable and meaningful doctor-patient discussion subjects as meriting reimbursement by the government was sure to bring it to the attention of all who have any serious interest at all in the contents of the bill and especially of those who are out to defeat it.

And justifiably so. “Death Panel” is an emotional and inflammatory term, but if we believe that the planned Medicare cuts and rationing required to achieve them will not result in reductions in end-of-live care that will, in some cases, hasten the end of life, we are not paying attention. It is a fine line between heroic and unnecessary fee generating end-of-life treatments that do little more than extend suffering and reasonable treatments that improve comfort and quality of remaining life and allow persons to die with dignity at a natural pace. Work on exactly where that line is should be done by patients and families in confidential consultation with their physicians and not by or subject to review by Medicare contract employees in an office building somewhere.

So, Congressman Blumenauer had it right first time. Let’s get rid of this onerous, privacy invading, time and money consuming, paperwork generating, fee-for-service system and pay doctors the same way we pay lawyers, for their time. Then we can let the subjects of doctor-patient discussions remain confidential as they should.

But that is not likely.  Even after all the uproar, the end-of-life provisions are in the bill as finally passed by the House of Representatives last week.  I don't know if there are provisions for reimbursing doctors for time spent discussing beginning-of-life issues such as starting families, pregnancy, childbirth, childcare, family planning, etc.

For more on this insulting, demoralizing, and disrespectful fee-for-service system of physician payment, see Free the Doctors.

Kristof Column Followup - Analysis of Comments

Well, that was painful. Talk about a trivial obsession! I just spent an hour reading through and trying to categorize all 230 comments posted in response to the Nicholas Kristof column in the NY Times.  I wrote about the column yesterday. Don’t ask me to prove or document these conclusions, and I hope nobody has the patience to check it out for themselves. I admit that some of the categorizing is a bit subjective, but here is my assessment of the general tone. Total is more than 230 because some comments qualified for more than one category.

This may be considered a very unscientific poll of people who meet the following criteria:
1. Read Nicholas Kristof
2. Use the internet
3. Are able to make and register comments online
4. Have time on their hands

About 40% of those commenting are true Kristof fans who responded with apparently unthinking endorsement and no recognition that the premise he put forth, that we are sitting around with $100B to invest in either war or health care and now must make a decision, was false. These are folks who can be depended on to vote against anyone bringing up issues of fiscal responsibility.

About 30% implied that Kristof was on the wrong track by launching their own ideas, sometimes on related issues and sometimes not. Some probably didn’t even read the Kristof column. At least they didn’t just jump on his bandwagon.

About 11% challenged Kristof’s premise and/or simply said they disagreed with him entirely. This includes the comment I posted.

About 6% ignored the healthcare issue but took advantage of the opportunity to make a strong statement against the war while 3% ignored healthcare while arguing that the war is necessary.

With respect to the current healthcare bill under consideration, 8% objected strongly, most saying it is just the wrong solution, while only 3% (in addition to the true fans of course) strongly favor it.

About 3% lamented poor Sue’s condition and said we must never let such a thing happen again in America while an equal number argued that Sue was responsible for her own health care and could have had a regular Pap smear if she had just chosen to and taken the time to do so.

And finally about 3% focused on the deficit, pointing out correctly that we don’t have the money for either choice.

Here we have another unscientific poll in the “Man in the Street” format. You can either have a good laugh or shed a tear for the American electorate depending on your mood.

False Choices

Nicholas Kristof presents the United States citizens with a couple of false choices today and then tells a sad story to sway us in favor of one over the other. The false choices are:

1. $100B a year in additional spending for health care reform, or
2. $100B a year to improve our military position in Afghanistan

Considering the simple fact that total US government spending in 2008 was $3,118B vs. total receipts of only $2,475B (deficit of $643B) and that before the big stimulus spending and lower tax receipts of 2009, the very idea that we should be on a shopping trip trying to make a choice between a couple of new $100B a year expenditures is absurd. Kristof would have us just forget the fact that our house is under foreclosure and decide whether to buy the new Lexus or the new Hummer.

There is only one reason we should spend another dime in Afghanistan or in Iraq (beyond the cost of getting out, of course) and that is if we believe that extremists based there have declared war on the United States and must be defeated if the Constitutional Freedoms of the United States are to be preserved for future generations. I believe “they,” difficult though they are to identify, have so declared and must be defeated. If we continue that battle, we need to put special temporary surcharges on all tax bills, corporate and personal, and pay the high cost as we go instead of running up more debt. I guess we would quickly find out how highly the citizens value those Constitutional Freedoms. My guess is we would value them more highly if there were some personal cost (for all of us, not just the military families) associated with defending them.

Additional health care spending, on the other hand, can, if we put high enough priority on it, easily be paid for by eliminating $100B of spending somewhere else in the budget. No additional spending is required. Just whack out “earmarks” and grants for off-beat research projects and special studies and obsolete and fraudulent programs and I bet we could soon come up with $100B a year. Oh, you say we can’t do that because part of the objective is also to increase the size of the federal government and the portion of our wealth that is controlled by it? Well, if that is the case, maybe that, rather than attacks from extremists, will be the death of the Constitutional Freedoms I mentioned in the previous paragraph.

The sad story Kristof tells is second hand from a doctor about Sue, a 31 year old single mom who worked hard, sometimes with two jobs, and who “felt she couldn’t afford to splurge on herself to get gynecological checkups.” Twelve years with no Pap smear. Sue died young after a trip to the emergency room resulted in a diagnosis of advanced cervical cancer. It is sad. But where did Sue get the idea that dropping by a local clinic of some kind and paying $100 or so for a Pap smear would be splurging on herself?  Check the link.  Pap smears are often free.  Sue and not the United States Government must bear the responsibility for her failure to take care of her own health. Even with insurance, she might or might not have spent the time to get gynecological checkups.

Individuals often have the same prioritization issues the Government has. In the mind of the average American, where do the expense of and time required for regular physical exams stand in a priority listing that includes homes of various prices, cars of various prices, wardrobes of various prices, food of various prices, hairdos, nails, cigarettes, bass boats, concert tickets, movies, ball games, vacations, utility bills that often depend on our thermostat settings and the lengths of our showers, and the myriad of technology options we currently have for television, computers, music, cell phones, etc.? It seems to me that for many, health care is pretty low on the list and preferably paid for by somebody else lest we be accused of splurging on ourselves. We certainly don’t want to be thought guilty of that!

Government Stimulus Program Works - Creates Lasting Value

I found at least this one historical example of a government stimulus program that put people to work actually doing things with their hands, learning new skills, and creating something with enduring value.  I took the picture in the first slide January 9, 2005.

The second slide is the cover and excerpts from an out-of-print book, The Historic Architecture of Sevier County, Tennessee, by Robbie D. Jones.  Click on the picture to get a view large enough to read about the Stimulus program.  I have many happy memories of boyhood experiences with Granny and Grandaddy Shelley on the "Shelley-Parton Farmstead in Boyd's Creek." Didn't learn any business there, but lots about family farming, pond fishing, rat trapping, chicken scalding and picking, and mail carrying.  Grandaddy was a rural mail carrier and Granny was, at least for a while, Postmistress.

Here are some more pictures of the "Farmstead."  My Uncle Ray still lives there, lonely after the recent loss of his wife, our beloved Aunt Suzy.  That is my mother standing on the porch.

This back yard is where all the action took place.  Many a headless chicken made loops in this small area, and many a rat was trapped in the little smokeshack at the left.  The historic outhouse is just out of view to the right.

I fondly recall sitting on this swing as a little boy having Moon Pies and RC Colas.  Royal Crown was Grandaddy's favorite.

Well, that's enough nostalgia.  Now, can we just get a common sense stimulus program that will build or create something of lasting value instead of just passing money around and generating activity?

Please, Please Don't Privitize Social Security (chuckle, chuckle)

I don't know whether to laugh or cry when I hear the rhetoric from financial know-nothings about the privatization of Social Security that George W. Bush proposed.  Somebody will say, "If they will just give me back what I put in, I want out."  Or some were saying after the big market crash of last year, "Thank God we didn't privatize Social Security."  Neither statement seems to be the product of serious analysis and consideration of the issues.  My thought after the market crash was just the opposite.  I said, "Now is the time to begin the SS privatization process while equity values are down!"

Here is the bottom line truth:  The federal government can't do without that Social Security tax income to spend.  Yes, they do "invest" it, in Treasury Bills, which are government debt and puts the actual cash right into the government checking account for spending.  So, the so called Social Security Trust Fund is just a bunch of government IOMe's and the actual money has long ago been spent, for good purposes I am sure.  I am also sure that when the decision was made to invest the funds that way, the verbal balonious assault issued by congressional leadership was something like this:  "We will invest these funds in United States of America Treasury Bonds, the safest investment in the world!"  Well, OK, so long as by "safe" you just mean that they are backed by the taxation powers of the US government.

Even without privatization, the government could have and should have invested that money in a stock index fund or in a bond index fund or, most wisely, in a worldwide stock and bond index fund.  Why?  Because it was not the government's money to spend.  It was to be held in trust for the citizens who paid it or had it paid on their behalf.  You don't see China's government investing their money in Chinese bonds.

I thought I could make this a little more interesting by using actual data from my own case.  Using my official SS Earnings Record and some data from the web on SS tax rates and history of the S&P500, I figured out exactly what the balance would have been year by year if the contributions made by and for me had been invested in an S&P500 Index Fund.  Click on this chart of the data for a larger view:

So, here are the key points:
1. Total contributed by me and Eastman over 40 years is about $169,000.
2. The SS commitment to me in this particular statement was a pension of $2030 a month or $24,360/Yr. beginning in 2007 at age 65.
3. Turns out 2007 was a really good year for the market and the total value, had all contributions been invested in the S&P500, averaged $884,000 for the year.

I think an annuity can still be bought to pay a lifetime income of about 5%.  If so, you would need about $487,000 to buy an annuity that would match the promised SS income of $24,360.  Well, I would have had that beat by a mile in 2007, but comfortably even after the crash of 2008/2009.  Looking at it from the other side, it would have required a constant annual rate of return of 5.9% to have given a 2007 balance of $487,000.  That is quite reasonable had the money been invested rather than spent.

So, am I unhappy with the deal I got from all the money put into Social Security over the years?  Not at all.  A return of 5.9% is not bad.  The only bad deal for me personally is that, if my wife and I both die soon, nobody gets any benefits.  Had it been in a private account, it would be there for our sons also.

It is today's working taxpayers who are getting the bad deal because the government has no money except future taxes from which to pay me the $24,360 per year.  Even without privatization, had the government invested the money somewhere outside government, at least there would be resources from which to pay the pension.

It's crazy, and it's not going to get any better as the population ages.

Now here is a stimulus idea:  Start pumping that Social Security money into American business and industry and see what that does to the GDP and unemployment rate and government tax revenues.  Talk about fundamental transformation!

Why Blog?

I’ve been enjoying the precious right of free speech by blogging for about three months now and think it is time for a little personal reflection about what the whole point is.  Some readers have known me for years and won’t be surprised at anything I say.  Others don’t know me at all, and have no idea how or where or why I formed the opinions I express.  So here are a few words about my personal philosophy.

I don’t know if I am “a conservative” or not, but I am a conservative person with a background in family business, education in engineering, management, and religion, 34 years of corporate life at the same company, and many hours of volunteer work since retirement ten years ago.  I still have the first pay slip I got from Eastman Chemical Company at the end of September 1965 showing gross pay of $770 with $100 going automatically to a newly established credit union savings account.  A check for $77 went to the Colonial Heights Baptist Church which we had just joined after moving to the suburbs of Kingsport, TN.  The problem with conservatism is that it can lead to selfishness, so I always took some unjustified personal satisfaction in the position that tithing to my church proved I was not irredeemably selfish.  I am a believer in and struggling follower of Jesus Christ and have spent 32 years as a Southern Baptist, 16 years as a Presbyterian, and now 19 years as a Lutheran, working my way up the ecumenical ladder so to speak.

I was 35 and had been working 12 years before springing for a new car, a 1977 Chevrolet Impala, and held off even longer before coughing up the money for a color TV even though we had enjoyed Bonanza every Sunday night on one in the Sigma Nu house at Vanderbilt my senior year.  I wanted to wait till I was sure they had all the bugs out, so the Williams household got by for years on a small Admiral black and white that we bought for $88 at the Big K.  I was always big on delayed gratification and didn’t really like spending the big bucks required to eat out or buy the latest technological gadget.  As the financial benefits of frugality and hard work paid off over the years, I have done much more of my part to keep the economy humming and would now be willing to eat out every night if my wife weren’t such a creative and talented gourmet cook.  And my technology status is pretty current. 

I’ve been eligible for Social Security for two years but have not started receiving it because I, like many recipients, don’t really need it and it’s not going to make any difference in our lifestyle.  I think the rules are that I have to take it by the year I turn 70.5, and the monthly benefit goes up every year that it is delayed so, if you plan to live a long time and can get by without Social Security, delay is a good thing, especially if you are conservative. 

I am on Medicare because I believe strongly in medical insurance and none is available for seniors other than Medicare.  The Federal Government has cornered that market and is trying to drive down costs by squashing the only people who actually do health care.   How much wiser it would have been if the breakpoint for Social Security and Medicare had been a percent of the adult population rather than an arbitrary age and/or had been established as a safety net rather than a guaranteed right to everybody.  With those two simple changes, our nation would not be going slowly bankrupt. 

If you have been reading my blog postings you know that I don’t agree with the direction our government is trying to take us on some issues.  You also know that I believe our corporate compensation system is corrupt, that doctors and hospitals are submitting ridiculously inflated bills to uninsured people, that insurance companies are restricting access to valuable life-changing medical treatments, that many schools are not doing a satisfactory job preparing students to contribute and carry their own weight, and that many citizens have a serious conflict of interest when they vote since they receive more from the federal government than they put in.  As one of my professors at seminary used to say, “Sin abounds.” 

Come to think of it, I don’t believe I have covered that item about voters’ conflict of interest in a posting, but it is true.  A person whose only income is government paid rent, food stamps, Social Security, and Medicare or sees their future in those terms has a serious conflict of interest when he or she votes.   I’m not suggesting they shouldn’t vote, assuming they have spent time listening to the candidates and carefully considering the issues, but I am suggesting that our national priority should be establishment of a business environment and educational system that nurtures a robust national economy able to provide meaningful work for almost everybody who wants to work so that the number of persons subjected to such indignity is kept somewhere well below 10%.  Surely everyone would agree that the best way to respectfully provide for someone is to offer meaningful work with income rather than handouts.  Charity is for churches and individuals, not for government, is supposed to be voluntary, not confiscatory, and is best done face-to-face with a kind word and not with a check from the government.

As candidate Obama approached Election Day and saw victory in sight he promised major change, at one point saying, “We are five days away from fundamentally transforming the United States of America.” That is a line that is appealing to almost everybody because we all know of fundamental transformation we would like to see.  I would like to see us be more frugal and get back to work inventing and developing and manufacturing products needed around the world.  I would like to see us with a steadily declining national debt.  I would like to see us with a better sense of priorities and a willingness to “just say no” to the many ridiculous requests for money that our politicians are faced with.  Thankfully, President Obama is finding his kind of fundamental transformation quite difficult to achieve.  My hope for him is that he, like any good leader, will finally figure out where the American people are going and will scramble to get out in front of them and lead the charge.  That was probably the genius of Bill Clinton.  To achieve that, the president is going to have to subdue his apparent ideology and listen to the people without his dismissively aloof attitude and responses and with more of the Clinton apparent ability to truly understand.

So, back to the original question of what the point is.  I guess it is just using that precious right of free speech and the power of the internet to be “on the record” so to speak whether anybody reads it or not.  Can you imagine living in a country in which we had to worry about anything more than political viability by being “on the record?”  Lots of folks around the world do.

Medicare Troublemaker

I am going to end up on the Medicare "Troublemaker List" if I don't quit going to the doctor so often. In recent history I have had three basal cell carcinoma's excised, one of which required a trip back to the doctor while vacationing in Ireland, a couple of annual physicals including blood and urine work and the infamous DRE (Check it out!).  I had an EKG followed by a nuclear stress test after complaining about irregular heartbeat during exercise.  They said what I have is common and not to worry.  I had a once-every-seven-year colonoscopy that was normal.  I had to go in to have a splinter removed from my finger and then, later that same day, a fish hook.  It's been two years since the bicycle wreck that resulted in a CT Scan on the first day of my Medicare coverage.  I'm not sure how long it has been since the last UTI and the last kidney stone, but not long.  Then Friday I had to go in with another UTI and get a diagnosis and a Cipro prescription.  It's not working so far.  I still have a fever and have been just lying in bed staring at the ceiling awaiting that blessed relief that comes with the cold sweat that normally accompanies a breaking fever.

I am happy with my health care and it's cost and would like for everybody to have the same access I do.  The idea that we can do that while "bending the cost curve" (downward, I assume) seems to me to be impossible.  I guess there are many Americans who never get checked for skin cancer or have colonoscopys  or even have annual medical exams for example.  To provide those for everybody, on an age appropriate basis, is going to take more doctors and more money or different rules. We might as well face it and figure out where the money is coming from.  Maybe some can come from Acorn.

Dr. Thomas Sowell has now published his Costs of Medical Care, Part IV.

Not In Good Hands

Interesting article in the latest Forbes magazine about Celleration Mist Therapy for treatment of slow healing wounds of the feet and legs, usually in diabetes patients.  This product has been under development since 1994 with total investment to date of around $70M.  FDA approval was finally received in 2005, and 45,000 patients have been treated so far.  According to the article, about 6 million suffer from such wounds.  In 2007, Medicare and Medicaid agreed to reimburse hospitals $100 per treatment, but according to the article, only 4 of 15 Medicare regional administrators pay out.  Celleration is charging $75 for each disposable mist applicator, and "reimbursement from private insurers is spotty as well."

My question is this:  How have we let a system evolve that gives government and private insurance companies so much power over available medical treatments?  You may say that we are always able to get whatever treatments we need and pay for them ourselves, but, when the major market is insurers and medical device and pharmaceutical developers are totally dependent on them for success, the result is a seriously distorted market with limited suppliers, controlled prices, slow development, and limited access to effective treatments for serious problems.  How many are suffering needlessly from open wounds because of the government roadblocks to wide dissemination of this innovative and simple treatment?

Here is the Celleration website.

Medical Care Costs, Prices, and Accounting Systems

Here are two fundamental economic truths that are often overlooked or misunderstood:

1. Price is a function of the market and the laws of supply and demand and is independent of cost…unless the price and or capacity are being artificially established and controlled regardless of competition.

2. Cost of any product or service other than something that is purchased outright and used or sold immediately is difficult to determine and can vary widely depending on the cost allocation system and rules in place.

I have often been asked what the cost of building a home is in some particular location. Not being a builder, my answer always is, “I have no idea what the cost of building is, but I can tell you what the price of buying is.”

We probably all recognize that during the home construction boom in cities where such things occur, the price of buying a home was significantly higher than the cost of building. That is why so many homes were built. It was an attractive business, and builders were making a lot of money.

Now, after the bursting of the bubble, the prices are probably at or below the cost of building and are well below what some people paid for homes. As a result, not much building is going on, some builders have gone bankrupt or lost their jobs, and homeowners who want to sell at an artificially high price to get their investment back are sitting on unsold property.

I grew up working in a small family-owned furniture business that sold used and inexpensive new furniture. Lots of buying and selling went on there without any government intervention except the collection of taxes. My dad and granddad always bought as cheaply as possible and priced the merchandise at what they thought the market would bear. Fully allocated costs of running a furniture business in those days were such that selling prices had to be about twice the purchase price in order to make a profit. So, if dad looked at a couch and judged that he could sell it for $80 in the store, he would be willing to pay up to $40 for it knowing that he could haul it around, clean it up, display it for a few weeks, incurring additional cost all the while, and finally sell it and make a profit. If the seller wanted more than that, he would pass. If someone asked dad to haul away an old couch they didn’t need anymore he would do so and would sell it for whatever he thought was a fair price. That fact that it was “free” to him had nothing to do with the market price of the item sitting on display in his store.

How about the cost of an MRI? Obviously the cost of the equipment at around $1M is a major factor. If it costs a hospital 6% or $60,000 a year to borrow the $1M to buy the equipment, that $60,000 has to be covered by the fees collected using the equipment. Lets say the hospital hires five MRI technicians at $60,000 each to run the equipment and that the cost of the space and utilities and other overhead, without worrying about the particular cost allocation rules in use, total $140,000 a year. So the total cost of the service is $500,000 a year. (Fictitious numbers I should note but not completely out of the realm of reason.) If they do 500 scans a year, the fully allocated cost is $1000 each. If they can do 1000, it is only $500 each. Incremental cost of doing one is just the electric power required to operate it and maybe a few other incidentals. Of course the hospital has to make enough to cover costs of patients who are uninsured and cannot or will not pay. It has to cover the costs of less profitable services. It has to have funds available for expansion and shareholder dividends. So, it prices the scan at $2000.

If there is just one place in town to get an MRI, it is going to be priced pretty high and it is going to be very profitable. The result of that, in a free market, is that somebody else is going to establish an MRI center and perhaps offer a better deal. So long as the price is profitable, new capacity will continue being added until the price comes down to somewhere around the fully allocated cost of $1000. At that point, competition can get really mean as capacity expansion stops and providers with unused capacity begin advertising scans at less than the fully allocated cost but more than the incremental cost in order to increase their capacity utilization and profitability. Even though the fully allocated cost is $1000, the hospital makes more money selling the service at $500 than not selling it at all. Throughout this process, people willing to shop around can look for the best deal if they are uninsured and paying the bill themselves. Here is a website that documents advertised prices ranging from about $1700 to $3500.

Well, that is the way it is supposed to work anyway. That is the way that prices of computers and MP3 players and cell phones and televisions and cars and other products developed and sold in competitive environments have come down over the years in spite of inflation. (I know prices of cars are up, but they are not your granddaddy’s cars anymore.)

But once an artificial price is established as Medicare and health insurance companies have done for medical services, the rules of competition are out the window. So if Medicare steps in and establishes an MRI reimbursement rate of $1000 and addition of new capacity is subject to local government approval, the benefits of competition and normal movement down the cost curve are out the window. And, if the provider considers the reimbursement rate marginal or unsatisfactory, the same service to uninsured customers will be priced much higher to make up for it.

That is why medical care costs have continued to escalate in America: More and more services at the same old prices. What we really want and need is more and more services at unit prices continually decreasing as a result of improved processes, increased capacities, and competition but probably higher total cost to the country simply because there are more and more of us and we are getting older and older and paying less and less attention to our personal health.

Dr. Thomas Sowell has just done three columns on Costs of Medical Care. Be sure to read them.
Part I  Part II  Part III

War on Poverty in America

Poverty is a problem in America. I see it almost every day in the volunteer work I do or in the faces of people I encounter on the streets. It is not unusual for me to be in homes with caved in floors, leaking roofs, or non-functional plumbing. It is not unusual for me to talk with single moms with three or four children and no income except government paid housing and food stamps. It is not unusual for me to meet with homeless guys who obviously have little or no hope of finding meaningful employment and who are sleeping in the woods. And they are not and, unfortunately, probably never were Boy Scouts.

The percent of people below poverty level has remained in the 11% to 15% range for the last 30 years with no significant long term trends evident in the data. It is possible that the definition of “poverty level” has changed over time, but there is plenty of evidence that poverty in America is a serious problem. Stubbornness in the percent below poverty has continued in spite of the fact that total government social benefits have increased from about 7% of GDP in 1970 to 12.9% in 2008. We have been fighting a “war on poverty” since Lyndon Johnson was president in the 1960’s. We have not made any progress.  (Click on charts for a full size view.)

The total defense spending curve is included on the chart just to answer those who say we could solve the poverty problem if we just quit spending so much on defense. It’s just not true. Spending on defense has dropped from 8% of GDP to 5% over that same period of time.

So, what is the answer? Solution has to start with dramatic improvements in the education and training and discipline of young people born into poverty, without diminishing the education of the rest of us, combined with a booming economy and accompanying growth in job opportunities. Could we get our national leadership focused on that please? Increasing income redistribution will lead nowhere but to poverty for more.

The table below provides some detail on where the government social benefits expenditures are going.

Doctors vs. Lawyers (Fixed Game on Capitol Hill?)

In an earlier posting I argued that the reimbursement systems imposed on doctors are excessively restrictive and unfair and that we should pay doctors by the hour the same way I pay the guy who works on my outboard motor or would pay a lawyer if I ever need one for something other than suing my doctor for malpractice in which case the lawyer would work for a commission.

Just looking around the web this morning I found other postings on the relative positions of doctors and lawyers in American society today.  Below are three links worth clicking on for a quick read with a quote from each:

Thomas Sowell: In short, reducing doctors' income is not reducing the cost of medical care, it is refusing to pay those costs. Like other ways of refusing to pay costs, it has consequences. 

John Goodman (Not the comedian): Typically, doctors receive no financial reward for talking to patients by telephone, communicating by e-mail, teaching patients how to manage their own care or helping them be better consumers in the market for drugs. In fact, doctors who help patients in these ways will end up with less take-home pay. To make matters worse, as the insurers suppress reimbursement fees, doctors are increasingly unable to perform any task that is not reimbursed.  

Dennis Prager: But it does say something about a society when those who sue physicians and hospitals make as much or more money than those who heal disease. It says something about a society when it glorifies and rewards those who litigate while it demonizes and punishes those who produce the drugs and devices that keep its citizens alive and well. 

Socialism Not All or Always Bad

A much higher degree of socialism than we have in The United States works well under certain circumstances. It seems to have worked among at least one small group of Christians in the early church, for example (Acts 2:41-47), though lying about one’s resources was clearly not acceptable (Acts 5:1-10). A couple of years ago we were in Austria during the Christmas season, and it seemed to me that democratic socialism is working very well there. What a great place to be at Christmas! It is a no-holds-barred all-out celebration of the birth of Jesus with total immersion in Christmas decorations, food, music, and joy with lots of gluwein to drink.

“Socialism” covers a wide range of government activities and governing systems. You can read about one of the extremes, North Korea, in the November 2, 2009, New Yorker Magazine. The Good Cook is the story of Song Hee-suk who escaped from North Korea where government controls everything for the good, or bad, of the group and even food and housing are strictly rationed. At the other extreme, some ultra conservatives would argue that the highways and national parks in the United States are examples of socialism. So, I just want to make it clear that I am not saying that Austria is an example of socialism and the United States is not. I am just saying that they are more socialistic than we.

The United States and Austria are quite different and face very different challenges. I don’t believe, for example, that Austria takes any pride in diversity or worries much about political correctness or struggles with illegal immigration issues. Austria is 74% Catholic and less than 5% Protestant today at least partly because the Lutherans were driven out in the 1700’s and moved to Georgia in the United States where they founded Wachovia Bank. We did see a very few beggars in Austria, but our leader made it clear that they were “gypsies” and not Austrians and that we were not to give them anything or buy anything from them. With land area less than 1% of the United States (same size as South Carolina) and a homogeneous population less than 3% of the United States (about same as Virginia), suggestions that solutions or systems that work well in Austria would work in The United States seem naïve or foolish.

According to our tour leader, Austrian education and health care and pensions are fully paid for by a high and progressive income tax and there are generous guaranteed family leave policies for both men and women. On the other hand, I got the distinct impression that there are very high expectations for Austrian citizens to take full advantage of education opportunities appropriate to their capabilities and interests and to be gainfully employed and contributing to the common good by paying those high taxes. So, while Austrians may have a strong sense of entitlement to the benefits of being Austrian, they also seem to have a strong sense of obligation to contribute and very high expectations that everybody else will contribute as well. Peer pressure can bring about pretty good results as I can attest from having lived in Japan for three and a half years. It seems to me that in the United States we have the sense of entitlement down pat but are weaker on the obligation and expectation dimensions. As a matter of fact, I think we often disrespect and discourage and diminish each other with low expectations.

Focusing on the good of the group in total is much easier and more likely to occur in small countries such as Austria while individualism clearly flourishes in large diverse populations spread over extensive geography. I think in the United States individualism drives our volunteerism and charitable giving which may be less common in a country like Austria.  We want to help those less fortunate, but we just don’t trust the government to handle all that. We want to be personally involved. Individualism also drives our entrepreneurial activity and creativity in the business world, and that has created a large portion of the well paying jobs we have.

Here is a summary of pertinent comparisons between The United States and Austria. Much more is available at the CIA World Factbook Website. Good food for thought and very helpful for problem understanding and diagnosis.

 

I hope I haven’t expressed any serious misperceptions based on my admittedly very limited exposure to Austria. If I have, I hope some Austrians will accept my apology and point out my errors. I’m sure Austrians probably do not consider their country to be “socialist” though they are certainly more so than the USA.

Really SERIOUS Health Care Problems We CAN Solve One Person At A Time

We may not be able to get everybody in the United States covered with health insurance while reducing our total health care costs, balancing our federal budget, and extending our life expectancy to the highest in the world without giving up some lower priority things and disrupting our rather comfortable and often unhealthy lifestyles, but there are simple health care problems we can solve at a nominal cost.

We may not be able to or even have any desire at all to "fundamentally transform America," but we can, with the help of a willing doctor, fundamentally transform the lives of individuals suffering from easily correctable medical problems that would never be left untreated in the United States, with or without insurance.

Nicholas Kristof writes about one group of such persons and an organization founded to assist them, Worldwide Fistula Fund, in today's column in the NYTimes.   Give Well, an organization that evaluates charities says they don't have enough information about Worldwide Fistula Fund to recommend donations to it.  It is not listed at all on Charity Navigator.

Turns out Kristof wrote about a similar organization, The Fistula Foundation, in 2003 and in 2005 and that organization was also featured on Oprah Winfrey's show in 2004 and 2005.  It gets a four star rating by Charity Navigator, and it's Executive Director is paid only $104,650 as of 2007.

Here is another organization working on the same problem, The Fistula Care Project.  It is part of EngenderHealth which has been around since 1943 and which also emphasizes family planning, "reproductive services," etc.  They get a three star rating from Charity Navigator, and the director makes about a quarter million dollars.

I'm sending my donation to The Fistula Foundation today.