Americans want ever more Free Stuff as the Founding Fathers feared they would under Mob Rule

Posted by PITHOCRATES - April 27th, 2014

Week in Review

Let’s imagine you buy your groceries a different way.  Instead of going to the store and picking things off of the shelves and paying for them at checkout imagine this.  You don’t pay the store.  A third party does.  Like it does for everyone else that shops at this store.  Sounds great, doesn’t it?  Let’s say people pool their money together for purchasing power.  And have this third party take that pooled money and use it to get better pricing.  Because of the large amounts they will be paying for.

So everyone pays in a monthly amount to their third-party purchaser.  Then goes to the store and takes what they want.  And at checkout they just sign an invoice to acknowledge they took this stuff.  And the store will submit the bill to the third-party purchaser.  Of course, there would have to be some rules.  Because if everyone pays a flat amount each month you can’t have someone picking up steaks every day when you’re buying hamburger for your kids.  So there are limits to what you can buy.  Requiring the third party to review every submitted invoice.  Requiring a very large staff to review every grocery store purchase to approve and disapprove line items on each and every invoice for payment.  To resolve billing and payment errors.  And to bill shoppers for any unapproved purchases they made.  Even if they didn’t understand that these items weren’t covered.

So, included with that monthly payment there must be an overhead fee.  To pay for all those people reviewing those invoices.  Those who bill shoppers for unapproved items.  Those who pay for the approved purchases.  And those who process payments from shoppers.  Still, things slip through the cracks.  People are getting unapproved purchases through the system.  Grocery prices rise.  The overhead costs at the third party grow due to new costly regulations.  Etc.  Such that on occasion the total amount of cash out at the third party exceeds the total of cash in.  Requiring them to raise the monthly amount everyone pays.

Sounds a bit more complicated than just going to the store and paying for what you want out of pocket.  And more costly in the long run.  But if someone else pays the third party for those monthly fees it’s a whole different story.  Say as a benefit at work.  Because without you having to pay anything it’s just free groceries.  At least, to you.  And you will demand that your employer pays for more stuff so it’s free to you.  Even though it’s not.  Because the rising cost of third party grocery purchases will cost your employer.  Which will limit your pay.  And other benefits.  Because in the real world nothing is free.  Even if people think that a lot of stuff is free.  Or should be free.  Like health care (see Nearly 7 in 10 Americans say health plans should cover birth control by Karen Kaplan posted 4/22/2014 on the Los Angeles Times).

Among the various provisions of the Affordable Care Act, few are as controversial as the one requiring health insurance providers to include coverage for contraception. A new survey finds that support for this rule is widespread, with 69% of Americans in favor of the mandate…

Women, African Americans, Latinos and parents living with children under the age of 18 had higher levels of support for mandatory contraception coverage than people in other demographic groups, the survey found…

— 85% of those surveyed supported mandatory coverage for mammograms and colonoscopies.

— 84% supported mandatory coverage for recommended vaccines.

— 82% were in favor of mandatory coverage for diabetes and cholesterol screening tests.

— 77% backed the provision on mandatory coverage for mental health care.

— 75% supported mandatory coverage of dental care, including routine cleanings.

There’s a reason why the United States is a republic and not a democracy.  For the Founding Fathers feared a democracy.  And wanted responsible people between the people and the treasury.  For once people understood they could vote themselves the treasury they would.  And things like this would happen.  Mob rule.  Where the mob demands more and more free stuff while fewer and fewer people pay for that ‘free’ stuff.  And people in government anxious to win elections will keep giving the people more ‘free’ stuff that others have to pay for.  Until one day you end up with the health care system we have in the United States.  All because other people were paying for routine costs people could expect and budget for.  Things that if they paid out of pocket for would cost less in the long run.  Which would keep insurance what it was supposed to be.  Insurance.  And not turn it into a massive cost transfer scheme that only allowed the price of health care to soar.

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It was a Bad Year for the NHS which Portends a Bad Future for Obamacare

Posted by PITHOCRATES - December 29th, 2013

Week in Review

Britain has had its problems with their National Health Service (NHS).  Where national health care is proving to be unaffordable.  Especially now that their population is aging.  People are living longer into retirement and consuming more health care resources.  While a falling birthrate is producing fewer new taxpayers to replace those retirees leaving the tax-paying workforce.  Forcing them to raise taxes on those still paying taxes.  Or cutting spending on those who aren’t paying taxes.  Those consuming the lion’s share of their limited health care resources.  Those retirees.

Those are the choices.  And they are the only choices.  Because when it comes to national health care it’s a zero-sum game.  Either you take more from some to pay for others.  Or you spend less on everyone to make those limited resources cover more people.  Which is the great flaw in national health care.  Because your health care depends on what others are willing or able to give you.  Something that’s been happening ever since health insurance became an employee benefit.  For before that you paid for your health care.  And no one denied you anything.  Because you were in control by paying your own bills.  But then came the third parties.  First the health insurance companies.  And then the government.  As always is the case when you introduce ‘middle men’ costs rise and efficiencies fall.

As health care became a benefit it required generational theft.  Taking money from the young and healthy to pay for the old and sick.  When health care became a right the generational theft grew greater.  And when government took over the generational theft grew even greater.  As government is notoriously less efficient than private health insurers.  Requiring ever more money to provide the same level of health care found in the private sector.  Which is why 2013 was not a good year for the NHS (see Was 2013 the NHS’s annus horriblis? by Nick Triggle posted 12/27/2013 on BBC News Health).

It has been a bruising year for the NHS in England…

It kicked off with the publication in February of the Francis Inquiry into events at the Stafford Hospital, which accused the service of betraying patients.

By the start of the summer, another 14 hospitals with the highest death rates were being hauled over the coals for their failings in their care…

As autumn came, another review – this time on complaints – was scathing about the attitude of the NHS to complaints.

The report, led by Labour MP Ann Clywd who had broken down on radio over the care given to her late husband, said there was a culture of “delay and denial”.

Of course, controversy has surrounded the health service before…

But that was about how the service was structured.

This year has been about the very basics – the quality of care – and so in that sense it has felt different…

According to Chris Hopson, chief executive of the Foundation Trust Network, the giant hurdle in the way of further progress is money.

“This is perhaps the trickiest position the NHS has ever been in,” he says.

“We are looking at a period of 10 years where money will be incredibly tight and what we are seeing now is a mismatch between what is being asked for and what is achievable.

The United States has an aging population just like Britain.  And has the same problem paying for their health care as they do.  Requiring ever greater amounts of generational theft.  As Obamacare all but picks up our young by the feet to shake whatever money they can out of their pockets.  Which begs the question if the NHS is such a case study in what not to do why did President Obama and the Democrats do the Affordable Care Act?

The answer is simple.  Because Obamacare is not about health care.  It’s about government power over one-sixth of the U.S. economy.  For if it was about health care they wouldn’t have done the Affordable Care Act.  Because of the lessons offered by the NHS.  Lessons President Obama and the Democrats ignored when passing Obamacare into law.  As they weren’t being honest with the American people.  Because they want what the British have.  Even if it reduces the quality of our health care.  Which is obvious by their passing the Affordable Care Act despite all of their woes in the NHS.  Which will soon be our woes.

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Cost-Benefit Analysis and Health Insurance

Posted by PITHOCRATES - August 19th, 2013

Economics 101

We do a Cost-Benefit Analysis before making a Buying Decision

We make decisions everyday comparing costs to benefits.  Any time we go to a store.  Any time we make a buying decision.  We ask ourselves how much are we willing to pay to enjoy the benefit of the thing we’re thinking about buying.

For example, people love boats.  For there is nothing like being on a boat on a beautiful summer’s day.  Especially if you’re a guy.  Because bikini-clad women love sunning themselves on boats.  You could even say that a boat is a magnet for beautiful, bikini-clad women.  But how much are you willing to spend to enjoy that benefit?  Being around beautiful, bikini-clad women?  For owning a boat is very costly.  Especially if you live in a northern clime with a short boating season.

First of all, buying a boat is very costly.  It could determine the size of your house or where you live if you’re making a boat payment.  Then there’s insurance.  Fuel costs.  Transportation costs.  And inconvenience.  Of the time, effort and wear & tear on your vehicle to haul your boat to and from the water.  Or you can spend even more money to dock your boat at a marina.  And dry-store it over the winter.

Young, Healthy People do not buy Health Insurance because it has no Immediate Benefit for the High Cost

It takes a pretty healthy income to enjoy the benefit of boat ownership.  Something business owners can afford.  Because they earn a decent income.  But they earn that income because they put in a lot of hours.  So many that their boat may sit in their yard for most of the summer.  Or in storage.  So while a boat owner continues to pay the costs for the benefits of boat ownership he or she rarely enjoys those benefits.  Especially if they get married.  And the spouse gets seasick.

In an honest cost-benefit analysis few would buy a boat other than a business that needs a boat to do their business.  Like a fishing boat.  Or a harbor tug.  For these people there is a financial benefit that comes from boat ownership.  Income.  Unlike earning enough money to be able to afford a boat these people use their boat to provide an income.  Making the cost-benefit analysis completely different.  Instead of rationalizing the value of having fun they look at the revenue their boat will be able to provide.  And if it’s greater than the costs of owning that boat they will go ahead and buy that boat.

Sometimes we make these decisions based on impulse or desire instead of objective analysis.  Buying a more costly car when a less costly one would do.  But there are times when some go too far in the other direction.  Deciding not to buy something because they can’t see or enjoy the benefit.  Such as car insurance.  Or health insurance.  Things that have no benefit unless something bad happens.  And a lot of those going happily through life see no reason to spend a lot of money for something that brings them nothing good now.

Obamacare and the Individual Mandate make Generational Theft Law

This is why health insurance is so expensive.  Because FDR broke the health care system.  At least, the money-side of it.  When the FDR administration put in wage caps General Motors started offering a health insurance benefit.  This got around FDR’s wage cap and allowed them to offer more to the best workers to get them to come and work at General Motors.  And ever since we looked at health insurance as an employer benefit now instead of another cost in our everyday life.  Like food and housing.

After this our employment decisions changed.  People chose a job not based on what they would enjoy doing in life but by the size of their health care benefit.  The owner-provided health insurance.  At first the sky was the limit.  Because the U.S. automotive industry could charge whatever they wanted for a car.  And the price of cars began to climb to cover those very generous benefit packages.  Undoing what Henry Ford had done.  As the benefits pushed the cost of a car higher and higher it soon was not available to the average working man.  As they could only be afforded by the upper middle class and above.  Until competition entered and provided a lower-cost car that the less wealthy could afford.  As the U.S. automotive industry lost market share their sales declined.  So a smaller revenue had to pay for a growing number of pension and health care expenses of retired GM workers agreed to during the glory years.  Who were living longer into retirement than originally assumed.  And consuming a lot of medical services in those later years.  All paid for by the health insurance companies.  Causing health insurance costs to soar.

Young people are healthy people.  They rarely go to the doctor.  So when it comes to buying very expensive health insurance (to pay for the older generation consuming the bulk of health care services) they choose not to.  Because of an objective cost-benefit analysis.  Young, healthy people, today, are getting little benefit from paying an enormous amount of money for a health insurance policy.  Their parent’s generation (or their grandparent’s) is getting the benefit.  So they make a rational decision and NOT buy health insurance.  Which raises the cost of health insurance for those who do.  For today health insurance is not insurance.  It’s generational theft.  Stealing from the young to pay for the old because of FDR’s decision that made health care an employee benefit.  And an aging population makes it worse.  Enter Obamacare and the individual mandate.  Which made this generational theft law.  Forcing the young to pay for the old against their will.  Leaving little for them on their meager incomes to support or start a family of their own.  Preventing them from buying a new car.  While the thought of owning a boat is now a distant dream.

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McDonald’s 2012 Annual Report

Posted by PITHOCRATES - August 6th, 2013

History 101

The Benefit of a McDonald’s Franchise is getting the Benefit of their Years of Building their Brand

Recently a late-night comedy show attacked McDonald’s for being greedy.  Because they don’t pay their minimum wage workers a living wage.  Because what were once entry level jobs are now the primary support for some families.  And why have entry level jobs come to support families?  Because the anti-business policies of the current administration have destroyed better-paying jobs.  But they don’t attack that on late-night television.  They attack a company actually providing jobs in a jobless economy.

Today McDonald’s is huge.  You can find them pretty much anywhere in the world.  Which can be a welcome site for a weary traveler.  For they know they can walk into a McDonald’s wherever they are and have the comfort of a meal exactly like that at home.  Which is pretty amazing if you think about it.  And why McDonald’s is so successful.  The sight of those Golden Arches can attract a foreigner in a strange land or a construction worker on a new project in a distant city.  They know exactly what they can get at that McDonald’s.  What it will taste like.  And what it will cost.  Even if they’ve never been in that McDonald’s before.

This is because McDonald’s has very successfully built their brand.  Which is one of those intangible things.  It has great value.  But you can’t physically touch it.  Those who own a McDonald’s franchise can enjoy a thriving business.  From day one.  Without doing any marketing to get people to walk into their restaurant.  They don’t have to.  Because McDonald’s has already done it.  And continues to do it.  This is the benefit of the franchise.  You get the benefit of all those years of hard work McDonald’s did to build their brand by simply paying a franchise fee (see Restaurants and Franchises posted 8/5/2013 on Pithocrates).  It’s not cheap.   But it’s such a fair deal for both franchiser and franchisee that McDonald’s had 27,882 franchised stores in 2012 (see McDonald’s 2012 Annual Report, page 11).

Owning a McDonald’s Franchise allows you to own a Restaurant that has been Successfully in Business for 72 Years

In addition to the intangible value of the brand the franchise fee also includes rent.  For McDonald’s “owns the land and building or secures long-term leases” for the franchisee’s store (see McDonald’s 2012 Annual Report, page 11).  While the franchise needs to foot the bill for the “equipment, signs, seating and décor.”  This makes sure all stores are modern and up to date and uniform.  Helping to maintain that comfortable familiarity for the customers.  While splitting the capital costs between the franchisee and franchiser.  So both parties have a major investment in the business.  And each shares in the profits of the business.  Perhaps the best of the deal for the franchisee is getting a mentor.  And a detailed operating manual telling them everything they need to know and do.

Owning a McDonald’s franchise is costly.  But you get to step into a restaurant that has been successfully in business for 72 years.  Give or take.  Considering that half of all restaurants fail within the first five years of business this is a HUGE benefit for the franchisee.  And something well worth the franchise fee.  As evidenced by 27,882 franchised stores in 2012.  So what is that franchise fee?  And how much money does the franchisee get to keep after paying the franchise fee?

Well, if you do a little number crunching with the financials included in the 2012 annual report you can get an approximate number.  McDonald’s also has stores they own and operate.  In 2012 they had 6,598 company-owned stores.  The average per store revenue was $1,358,594 (calculated by dividing the total revenue from the company-owned stores by the number of company-owned stores).  A similar calculation gives an approximate $667,205 franchise fee per franchised store.  Subtracting the typical franchisee fee from the typical store revenue (assuming all stores have the same average revenue as the company-owned stores) gives the franchisee an annual income of $691,389.  From this income the franchisee has to pay for food, labor and overhead.  And whatever is left over is profit.

High School Kids and College Students work at McDonald’s because they need no prior Restaurant Experience

The rule of thumb in restaurants is that costs are broken down into thirds.  One third is food cost.  One third is labor cost.  And one third is overhead and profit.  So if we divide that $691,389 by 3 we get an annual food cost per franchised store of $230,463.  Ditto for labor.  And overhead (gas, electric, water, insurances, taxes, licenses, fees, waste disposal, light bulbs, toilet paper, soap, garbage bags, etc.) and profit.  Let’s look at the labor cost more closely.  To see if McDonald’s is greedy when it comes to paying their employees.

The benefit of owning a franchise is that it comes with very explicit instructions.  A McDonald’s distributor delivers prepared food ready for the grill and fryer.  As delicious as it is, though, it doesn’t take a highly skilled chef to prepare it.  As the franchisee operating manual has it down to a science.  Which is why high school kids and college students work at McDonald’s.  They need no prior restaurant experience as it is an entry level job.  Typically their first job.  Where they learn what it’s like entering the workforce.  The importance of being on time.  Following instructions.  Being responsible.  Skills that they will use in later jobs.  Which most do.  As there is a high turnover of employees at McDonald’s as there is for all fast food.  Because these are entry level jobs for unskilled workers.  Who learn the skills they need on the job.  So let’s assume a restaurant that is open 24 hours a day, 7 days a week.  Assuming an hourly rate of $8.50 and an overhead of 40% for direct labor costs (workers’ compensation insurance, unemployment taxes, health insurance, uniforms, training, etc.) the average hourly labor cost comes to $11.90.  Dividing the labor cost of $230,463 by this hourly cost gives us 15,758 annual labor hours.  Or about 53.06 hours per day.  Or 17.69 hours per 8-hour shift.  Giving us an average of 2.21 workers per 8-hour shift.

During the breakfast and lunch rush a typical McDonald’s may have between 5-8 people working.  With fewer working in the evening.  And a skeleton crew over night working the drive-thru.  So the labor fluctuates during the day to correspond to the amount of business.  Which is why there are a lot of part-time workers at McDonald’s.  Ideal for high school and college kids.  In addition the owner typically works during those busy periods to help with the rush.  And works on paperwork during the slower times.  Putting in about 12 hours a day.  If you assume an overhead rate of 18% and multiply that to the franchisee annual income of $691,389 we get an overhead expense of $124,450.  Subtracting that from the $230,463 (overhead & profit) leaves an annual owner income of $106,013.  Or, based on a work week of 84 hours (12 hours a day X 7 days a week), the owner earns about $24.27 an hour.  A rate a lot of people can earn working for someone else without the headaches of owning a business.

That late-night comedy show attacked McDonald’s for being greedy.  Saying they should increase their pay rate to a living rate.  Like picketers were asking for.  $15/hour.  A labor cost increase of 82.6%.  Or an additional $190,382 each year.  Which would bring the franchisee’s annual income from $106,013 to an annual loss of $84,369.  So are these McDonald’s franchisees greedy because they refuse to pay a living wage?  No.  They simply can’t afford to pay more than the minimum wage for these minimum wage jobs.  Unless they can get people to spend $6-$7 for a Big Mac.  They are delicious.  But are they $6-$7 delicious?  And can a low-income family afford to take the family to McDonald’s when they are charging $6-$7 per burger?  Probably not.  No.  McDonald’s is just fine.  What we need to do is to un-do the anti-business policies of this administration that is killing those higher-paying jobs.  And forcing the primary earner in some families to work a minimum wage job.  Because that’s all that is available in this jobless economy.

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Cost of Health Insurance

Posted by PITHOCRATES - May 27th, 2013

Economics 101

Making Health Insurance a Fringe Benefit removed Market Forces from the Equation

The reason why health insurance is so expensive is because it is not insurance anymore.  It’s more of a welfare program.  Where other people pay.  Whereas insurance mitigates financial risk.  People pay a small premium to insure against a large financial loss.  They may pay $250/year to insure something that may cost $25,000 to replace.  For something they may own for 10 years.  Because they would rather spend $250 each year (for a total of $2,500 over those 10 years) than have to replace it by paying another $25,000 should something happen.  Insurance reduces the amount of money you can lose.  In this case the greatest financial loss is reduced from $25,000 down to $2,500.  This is insurance.

Health insurance used to be like this.  When we paid for it ourselves.  But things changed when it became an employee benefit.  Where we no longer saw the true cost of that insurance.  This happened during World War II.  As FDR put in wage caps.  Why?  With all the men in the military and wartime production through the roof there was a shortage of labor.  And the last thing FDR wanted on top of the inflation they were causing by printing so much money to pay for the war was wage inflation.  Hence the wage caps.  But the problem with wage caps is that employers could not entice the best workers to come work for them by offering them higher wages.  So to entice the best workers to come work for them and get around FDR’s wage caps employers began offering fringe benefits.

This is the cause of all our health care woes today.  Making health insurance a fringe benefit.  For it removed market forces from the equation.  People receiving the benefit had no idea what the benefit cost.  And did not care.  Which wasn’t a problem at first.  But then the Sixties came around.  And women stopped having as many babies.  Causing the population to start getting older.  Worse (from the perspective of paying for health insurance), people were beginning to live longer.  So when a person retired from a company they lived a long retirement.  So companies who offered these generous fringe benefits began to suffer under the cost of them.  Between pensions and health care costs retirees were costing some companies more than their active workers.  Because they were living so long into retirement.  (Just as these long retirements are straining Social Security and Medicare).  And modern medicine just keeps pulling them back from the brink of death.  Prolonging this crushing financial burden.

Health Insurance is more Expensive than it once was because it now Pays for Routine Medical Expenses

Compounding this problem is how health insurance is no longer insurance.  Instead of a small premium insuring against a large financial loss people expect health insurance to pay for everything.  And get righteously indignant whenever they have to pay anything out of pocket.  From a prescription co-pay.  To a small co-pay at a doctor’s office.  This is not paying a small premium to insure against a large financial loss.  This is demanding a free ride.  If health insurance was actually insurance it would look something like this:

Health Insurance Cost - Insurance

This assumes a health group with 100 participants.  Of this 100 five people suffer a serious accident in one year.  Incurring a large and unexpected hospital expense of $6,000 each.  While three people suffer a serious illness that same year.  Incurring a large and unexpected hospital expense of $4,500 each.  The total for these large and unexpected costs is $43,500.  If we divide this over the 100 members of the group that comes to an annual health insurance premium of $435 each.  Or $36.25/month.  Or $8.37/week.  Which isn’t much.  If you were one of those suffering a serious accident you didn’t have your personal finances wiped out by an unexpected $6,000 hospital bill.  Instead you only paid a manageable and budgeted $435 each year.  In other words, spending $435 saved $5,565.  Not a bad deal.  This is insurance.  Because it only paid for the unexpected.  Not our routine health care expenses that we should pay out of pocket.  If we add these routine expenses into the health insurance formula we can see how they increase the cost of health insurance.

Health Insurance Cost - Welfare

Assume each person consume $750 in routine medical costs.  For office visits.  Allergy shots.  Vaccinations for the children.  Flu shots.  Seeing the doctor when you have a cold.  Annual checkups.  Physicals.  Cancer screening.  Prescriptions.  Etc.  Those things that can be reasonably expected each year.  When our health insurance policies pay for these routine medical expenses note the large increase in the annual insurance policy premium.  Going from $435 to $1,185.  An increase of 172%.  Everyone will pay $1,185.  Whether they consume $750 in medical costs or not.  Also, of the three things health insurance pays for (serious accidents, serious illnesses and routine medical) routine medical is the biggest of the three.  Explaining why health insurance is now so much more expensive than it needs to be.

It was the Pension and Health care Costs of Retirees that Bankrupted General Motors

This is why it is better to pay out of pocket for these routine costs.  Because if you’re really healthy one year and never see the doctor you will not consume $750 in medical costs.  So if you normally pay these out of pocket but don’t you would only spend $435 that year for real health insurance.  Not the $1,185 that pays for everything.  Whether you use it or not.  This is where market forces come in.  Instead of paying for a costly doctor’s visit when you have a cold you may just buy some over the counter cold medicine from the drugstore.  This is how we behave when we pay for stuff.  But when you introduce a third party it alters our behavior.

“Whether you use it or not.”  When people can get something more for no extra money they are going to take it.  Like going for seconds and thirds at an all-you-can-eat buffet.  It doesn’t cost anything more for the second and third plate.  In fact people will feel cheated if they don’t go for plates 2 and 3.  Because all-you-can-it is pretty expensive if you only eat one plate.  Because that one price pays for 2, 3, even 4 plates.  If you can eat that much.  It’s this mentality that causes people to go to the doctor when they have the sniffles.  So they can get ‘free’ antibiotics.  Because it doesn’t cost anything more.  Since their health insurance is already paying for it.

But it does cost more to those who are paying for it.  A lot more.  So much more that small business owners can’t afford to provide health insurance for their employees.  Because to do so would require that they greatly increase their selling price.  Which they can’t do and expect to stay in business.  Because the market sets the price.  Not them.  It’s up to them to figure out how to sell at a price the people will pay.  And if they raise it too high to pay for health insurance for their employees the people will stop buying from them.  Putting them out of business.  Even bigger businesses struggle with this.  For it was the pension and health care costs of retirees that bankrupted General Motors.  Which was one of those companies that started offering health insurance as a benefit during World War II.  Giving us all our health care woes today.

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The Young and Healthy don’t buy Health Insurance because they make up only 3% of All Patients

Posted by PITHOCRATES - January 22nd, 2012

Week in Review

A couple of statistics can explain all that is wrong with our health insurance (see Most Health Care Costs Incurred by Few Americans by U.S. Agency for Healthcare Research and Quality Release posted 1/11/2012 on WCTV.tv).

More than 40 percent of patients were age 65 or older, while those age 18 to 29 made up just 3 percent.

Health insurance is different than, say, car insurance.  Car insurance is expensive.  But it has remained a whole lot more affordable than health care insurance.  Why?  What’s the difference between the two?  Anyone can have their car stolen.  Or have an accident.  But when it comes to patients in our health care system more than 40% are age 65 and older.  While those healthy and young (ages 18-29) are patients only 3% of the time.  Big problem.  Because a lot of people age 18-29 think rationally and say that’s a lot of money for what?  I never go to the doctor.

And herein lies the fatal flaw of health care insurance.  Insurance operates by having everyone contribute a little to pay large claims to those few who suffer an unfortunate event.  That’s how insurance works.  Not everyone suffers an unfortunate event.  So if everyone pays a little the few who do suffer an unfortunate event get help when they need it.  That’s risk management.  Spreading the risk over numerous policy holders for a small fee.  But that’s not happening in health care.  Because it’s not insurance.  It’s a cost transfer.  The industry is set up to transfer the cost of the health care consumers to those not consuming health care services.  And when those who are not consuming health care services opt out of the system that creates a serious funding problem.

This is the problem whenever you have other people pay for you.  And why Obamacare has a mandate for the young and healthy to buy insurance.  So Obamacare can transfer the cost of the health care consumers to those not consuming health care services.  The young and healthy.

This is a broken model.  It won’t work.  And it will only lead to higher costs and rationing.  Because the population is aging.  Which means those consuming health care services are growing at a rate greater than those paying for them.

You can thank FDR for this mess.  And his maximum wage limit during the Great Depression.  His attempt to stimulate the economy by keeping wages low so businesses would hire more people.  Businesses couldn’t attract better workers by offering them more wages.  So they offered them benefits instead.  And the health care crisis was born.

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FT100: “Benefit recipients agree that responsible governing should start AFTER they get theirs.” -Old Pithy

Posted by PITHOCRATES - January 13th, 2012

Fundamental Truth

Legacy Health Care (and Pension) Costs Bankrupted GM

Franklin Delano Roosevelt ruined General Motors (GM).  And created the health care crisis.  How?  With price controls.  By interfering with market pricing mechanisms.  In a misguided effort to fix the economy he instituted a maximum wage.  Meaning companies couldn’t compete for good workers by offering them a higher wage.  So to compete for good workers they started us down a path that is destroying our economy.  Instead of higher wages (which were illegal) they offered benefits.  And the United States would never be the same.

Health care.  Before FDR, we paid for our health care.  After FDR, other people paid for our health care.  And we demanded more because we weren’t paying the bill.  It worked well for awhile.  When there was an expanding population.  When there were always more younger workers than older workers.  And retirees.  But the population aged.  Thanks to birth control.  And abortion.  During FDR’s time it was common for a family to raise 10 children.  Now it’s closer to 2 or 3.  Which means a generation or two later there were no longer more younger workers than older workers and retirees.  And what does this mean?  Well, older workers and retirees consume more health care than younger workers.  So the cost of health care soared for business.

This is what bankrupted GM.  These legacy health care (and pension) costs.  Instituted during a time when they were cheap and easy to provide.  But they became unsustainable.  Because of that declining population growth rate.  Union contract after union contract discussed these legacy costs.  But the way the rank and file felt was that it was their turn.  The system may be flawed.  But it worked before them.  So let them have their benefits they say.  And fix the system after they get theirs.

Social Security and Public Sectors have the same Problems GM Had

Social Security has the same problem.  That declining population growth rate is forcing fewer and fewer workers to support a retired worker.  And they’re living a lot longer than FDR’s actuaries ever calculated thanks to better and better health care.  Which just compounds the problem.  Social Security is a pyramid scheme gone bad.  The top is far wider than the base.  There are more benefit recipients than benefit contributors.  And it will follow GM into bankruptcy.  It’s just a matter of time.

There’s been a lot of talk about privatizing Social Security to prevent its collapse.  But it always meets fierce resistance.  Especially from the elderly and retirees.  Who are stuck in the system never having provided for their own retirement because they believed in the Ponzi scheme that is Social Security.  They say the system may be flawed.  But it worked before them.  So let them have their benefits they say.  And fix the system after they get theirs.

If you combine the rising health care costs and the rising pension costs inherent with a declining birth rate we come to the public sector.  Who have always enjoyed far better benefits than those in the private sector.  But that aging population is requiring ever higher taxes to support these most generous benefits.  And the taxpayers simply can’t sustain them any longer.  Those in the public sector know these systems need to be reformed.  But they worked before them.  So let them have their benefits they say.  And reform the system after they get theirs.

This Generation will Always Kick the Can to the Next Generation

That’s the problem with bad public policy.  Everyone can agree that bad policy needs to be reformed.  But what harm could one more generation do?  So kick that can down the road.  We have time.  After all, it took generations to get where we are now.  So another generation won’t ruin the country.  Even though it very well could.  But the important thing for them is that they get their benefits.  And the responsible governing can start after they get theirs.

But that’s the problem.  This generation always wants the following generation to fix things.  They always want to kick that can down the road.  But the problem is that there will always be another generation to kick that can to.  So they always will.  And no one will fix these problems while there’s a chance to fix them.  One generation will just suffer the consequences of all this can kicking.  As will every generation that follows.

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Barack Obama Outspends George W. Bush and Ronald Reagan Combined

Posted by PITHOCRATES - October 20th, 2010

Spend Baby Spend

President Obama is the most liberal president ever to occupy the Oval Office.  Spending records have been set on his watch.  And he’s only been president for about 2 years.  This is quite the testament to his insatiable lust to spend.  The Left bitterly attacked Ronald Reagan for his $200 billion deficits.  Compared to Obama, though, that’s chump change.  He measures his deficits in a different kind of dollars.  He prefers trillions.  For billions are just too small.  See the sobering numbers in the Political Hotsheet blog article National Debt Up $3 Trillion on Obama’s Watch by Mark Knoller on www.cbsnews.com.

New numbers posted today on the Treasury Department website show the National Debt has increased by more than $3 trillion since President Obama took office.

If you divide this by the 2 years in office, that comes to about a $1.5 trillion deficit each year.  Or, to compare with Regan’s $200, billion, that would be $1,500 billion.  That about 8 times the deficit spending of Ronald Reagan.  All you hear from the Left about the Reagan deficits was that they were bankrupting the country.  Now that they are doing the spending, it’s spend baby spend.

Read My Lips – It’s George W. Bush’s Fault

And the numbers just keep getting bigger.

The Debt increased $4.9 trillion during President Bush’s two terms. The Administration has projected the National Debt will soar in Mr. Obama’s fourth year in office to nearly $16.5-trillion in 2012. That’s more than 100 percent of the value of the nation’s economy and $5.9-trillion above what it was his first day on the job.

Dividing Bush’s $4.9 trillion by his 8 years in office comes to about an annual $800 billion deficit.  Dividing Obama’s $16.5 trillion by the 4 years in his term ending in 2012, that comes to about an annual $4,125 billion deficit.  Holy crap!  That’s 5 times the Bush deficit.  And 20 times the Reagan deficit!  If Reagan was reckless and irresponsible with his spending, than so must be Obama.  All the bad the Left said about Reagan, then, must apply to Obama.  For his spending is 20 times worse.  Either that or the Left was wrong about Reagan.  Or lying.

Mr. Obama frequently lays blame for soaring federal deficits on his predecessor.

“By the time I got into office we already had a $1.3 trillion deficit and we had exploded the national debt,” he said last month during one of his backyard chats with Americans.

The blame George W. Bush argument doesn’t work here.  You’d have to be pretty blind, stupid or in denial if you can’t see that Obama will add another $3 trillion (or $3,000 billion) to what he ‘inherited’ from George W. Bush.  Such comments are either insincere.  Or deceitful.

Here Comes the Middle Class Tax Hike

And once again, the Left opposes those ‘unfunded’ tax cuts.  Yes, they look at a tax cut as a government benefit.  As if it wasn’t even our money in the first place.  But it’s our money.  And letting us keep our money is not a benefit.  So they don’t have to fund them.  But that’s the way the Left looks at it.  If they don’t take our money, the deficit will grow.  It’s never their out of control spending that grows the deficit.

The soaring deficit and Debt is one of the reasons Mr. Obama is adamantly opposed to extending tax cuts for Americans earning over $250,000 a year.

The ten year cost would total $700-billion and Mr. Obama says it would needlessly add to the deficit and Debt.

The ten year cost comes to $70 billion per year.  Or approximately 1.7% of his projected deficit.  This isn’t even chump change.  This is statistically insignificant.  Now, Obama denies being a socialist.  Says he believes in free-market capitalism.  But all of these numbers say otherwise.  A free-market capitalist knows that tax cuts stimulate the economy.  A free-market capitalist is against massive government spending.  Therefore, Barack Obama is not a free-market capitalist.  He’ll spend trillions on stimulus spending that doesn’t stimulate anything in our economy.  But he won’t approve tax cuts that have always stimulated economies whenever we’ve tried them.

President Obama and Congress await recommendations on ways to reduce federal deficits from the National Commission on Fiscal Responsibility and Reform.

The 18-member panel will report December 1st – after the midterm election.

And here comes the tax hikes.  The ‘bipartisan’ committee will report that there is no choice but to increase taxes.  This bombshell (Obama reneging on his no new taxes for anyone earning less than $250,000) won’t affect the midterm election result.  And they are no doubt hoping that 2 years will be enough time for the American people to forget this broken promise before Obama runs for reelection.  But I doubt anyone will forget in 2012 who gave us the 2nd Great Depression.  And that is exactly what he’s giving us with this out of control spending and massive tax hikes (coming sometime after November 2010).

There will be a middle class tax hike.  The rich just aren’t rich enough to pay for all of their spending.

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LESSONS LEARNED #22: “The only problem with health care these days is that it’s approached from a cost basis more than a medical basis.” -Old Pithy

Posted by PITHOCRATES - July 15th, 2010

ONCE UPON A TIME, in a distant land, there once lived a merry people.  And life was good.  They lived together in sweet harmony.  They worked long and hard to sustain their happy life.   And when people fell ill, they went to the doctor.  And after treatment, THEY PAID THEIR OWN DAMN BILL!

But those days are gone.  We don’t pay our own doctor bills anymore.  Health care is no longer between a doctor and a patient.  There’s somebody else involved now.  Someone who says what a patient can or cannot have.  Someone that tells doctors what they can or cannot do.  And our doctors have a bull’s-eye on their backs.

Medical care has taken a back seat to medical costs.  It’s not about what’s best for the patient.  It’s about what costs the least.  Think of a graph.  Increasing along the bottom are medical services rendered.  Increasing up the y-axis are costs.  On this graph picture two curves.  One that plots costs of medical malpractice lawsuits (very high when the doctor provides no medical services and decrease as the amount of medical services increase).  The other that plots costs of doctor reimbursements for services rendered (very low when the doctor provides no medical services and increases as the amount of medical services increase).

This is what a doctor considers when seeing a patient.  They don’t want to.  But the system forces them to.  Because of the conversion of health insurance (to protect your personal financial wealth) into a benefit/entitlement (to get free stuff with other people’s money).  And the rise of that other benefit/entitlement, the malpractice lawsuit as a vehicle to early retirement.

What better way to illustrate how cost takes center stage in our health care today but by some personal anecdotes?  So here is a smattering of our collective pasts.

I WAS IN some junior officer training program.  It was the last full day.  The last training we did was a run on the obstacle course.  It was hot.  Humid.  I kept pushing myself.  Now, I’ve suffered dehydration and heat exhaustion before, but whatever hit me wasn’t that.  I looked okay.  I had one of those ‘spike driven through your skull behind the eye’ migraines.  Nausea.  Some other discomforts.  All we had left was retreat.  Where we formed, though, we faced into the setting sun.  I asked my CO if he would excuse me from retreat.  I just wanted to hit my bunk.  To die.  Or sleep it off.  Whatever it was.  Training was over.  After retreat, they were going to open the pool for us. 

Well, he denied my request.  And made me feel like a little girl for even asking.  (I regret that moment of weakness to this day).  After I was dismissed, he called me back and said, “And if you do vomit in rank, vomit with bearing.”  “Yes, sir,” I replied and saluted.  Made it through without vomiting.  Crawled into my bunk.  When my CO saw that I was not partaking in the ‘mandatory’ fun he came to see me.  Was about to send my ass to the infirmary.  But whatever I had passed.  I felt fine.  The following day it was as if nothing had happened.

When you got through something like that, you’d be surprised how it impacts you.  You ignore things.  And live with things. 

I HAD A WART once under my thumbnail.  I made an appointment with my doctor to have it removed.  The day before my appointment, though, was a very busy day at work.  Didn’t sleep well the night before, either.  So I was tired.  And drinking coffee.  Apparently, I was the only one.  In the afternoon, half a pot was still remaining.  From the morning.  Nice and black.  Thick, too.  Like tar.  Strong.  I finished that pot.  Later that night, I had heart palpitations.  I rationalized it was from drinking too much coffee.

While getting that wart removed, I mentioned in passing the heart palpitations from the night before.  Laughing about it.  Last time I drink a pot of coffee, I said.  The doctor looked up from the wart and said, “Heart palpitations?  That’s serious.  This,” he pointed to the wart, “is piddling.  Heart palpitations?  That’s serious.”  The next thing I knew was getting an EKG and sent home with a heart monitor strapped to my chest.

I now thought about those things I was ignoring and living with.  Perhaps I was being irresponsible.  I mean, I was feeling things in my chest.  When I went in to get the results of all those tests, I told him about those things I’ve been ignoring and living with.  My test results were fine.  I asked him about those other things.  He asked, “How old are you?  You’re fine. You just have some anxiety.  Here’s some Xanax.”

When I mentioned heart palpitations, he couldn’t laugh it off with me.  For one, he was a doctor.  It’s what doctors do.  Save lives.  But he also buys malpractice insurance.  He was leaving himself open to a lawsuit if he didn’t do everything expected when a patient says he has had heart palpitations.  Once those tests came back confirming it was most probably the excess amount of coffee I drank that day that gave me the palpitations, I was just a young, healthy man.  Who did not justify any further testing.  At least, my insurance company wasn’t going to reimburse any further testing.

My test results looked good.  Feeling things in the chest, though, could mean something.  A stress test might be prudent.  But unless something turned up in that test, the insurance company wouldn’t reimburse that cost.  Which meant I would ultimately end up paying for it.  And stress tests are expensive.  Of course, if I paid cash outside the bureaucracy of the health insurance maze, it could be less.  So I said let’s do the stress test.  I’m buying.  I took the test.  Did okay.  Didn’t die.  Nothing strange happened.  The cost?  About half of what they would have charged had it gone through the myriad levels of overhead that process an insurance claim (at the health insurance company, at the hospital where the test was done and at my doctor’s office).

And I continued to ignore and live with those things I was feeling in my chest.  Even stopped taking the Xanax.  If I was feeling any anxiety, it was from my little episode in the health care machinery.

BUT THINGS SEEMED to only get worse after a year or so.  I started wondering that maybe I was only making things worse by ignoring them.  So I went to the doctor.  I explained what I was feeling.  He did the perfunctory tests that shrunk the lawsuit window.  Again, things looked good.  “How old are you?” he asked.  “You’re fine.  Look, we can keep doing tests but it’s going to get expensive.  Your insurance isn’t going to pay for them if nothing turns up.  And, I gotta tell you, I don’t think anything’s going to turn up.”

Again, he was looking at the cost-service tradeoff.  He felt he had minimized his costs.  He did enough testing to protect himself from a frivolous lawsuit.  And he didn’t do more testing than the insurance companies would reimburse.  Further testing would be on my dime.  Not that I didn’t think my life was worth the investment, but more tests would mean more missed work.  And with me feeling he wasn’t going to do anything but throw darts in the dark, I didn’t pursue additional testing.  It didn’t appear that anything big was wrong so I continued to live with those feelings.

THIRD TIME’S A charm.  After another year or so, I went to another doctor.  Again, I thought I might be doing more harm by ignoring these things.  Being further away from my original heart tests, I didn’t really discuss them this time.  Which was good.  It was a red herring.  You start talking ‘heart’, you look at all things ‘heart’.  High risk.  High costs.  But if you don’t start from ‘heart’, you can explore things that are lower risk and lower costs.  I had some serious acid reflux.  Acid regurgitating up your esophagus can mimic heart attack symptoms.  Who’d a thunk it?

HAVING AN INTERMITTENT problem is hard to diagnose.  All but impossible if you’re young.  I was a young college student.  With intermittent stomach pain.  I went to a doctor.  He felt me up to see if it was appendicitis.  I didn’t feel anything when he pressed over my appendix.  So he ruled that out.  “How old are you?” he asked.  “You’re fine.  You just need to get drunk and get laid.” 

A couple of years later, I was still feeling that intermittent stomach pain.  So I went to another doctor.  (It was a clinic.  The doctor I saw last since retired.)  He felt me up.  Ruled out appendicitis.  Sent me for an upper GI (where you drink a cup of barium and they x-ray your esophagus and stomach).  Test came back.  Everything looked fine.  “How old are you?” he asked.  “You’re fine.  Just drink some Maalox.”

So I drank some Maalox for awhile.  Didn’t seem to help.  Another year and another trip to the doctor.  And another upper GI.  The instructions this time called for a wait time before one last x-ray.  This x-ray showed an ulcer.  Just past the stomach at the beginning of the small intestine.

MY MOTHERINLAW WENT into the hospital with chest pains.  She was in her mid-sixties.  She spent the night in the ICU.  The next morning they transferred her to the cardiac care wing.  They did just about every test they could.  She was elderly.  Elderly people have health problems.  So doctors do ALL the tests to slam shut the lawsuit window knowing that the health insurance company or Medicare will reimburse for most of those tests.  They found nothing.  She went home.  Without them doing anything or being able to explain what had happened.  They had practiced due diligence to protect themselves legally.  And the health insurance company would rule that any further testing would be frivolous and unnecessary, only to produce additional revenues for the hospital and doctors. 

This repeated a few times until they found pancreatitis and stones in her bile duct. 

IT’S NOT THE doctors.  It’s not the hospitals.  Or the insurance companies.  It’s the system.  When other people pay your way there has to be rules.  For a free ride is not free.  We just make other people pay.  The problem with all things free?  We over consume.

How many plates of food do you eat in a restaurant when you pay per plate?  One?  How many plates of food do you eat when you eat at an all-you-can-eat buffet?  The answer?  More.  It’s happening in health care.  Those with insurance don’t care a whit about cost.  Don’t give me generics, I have insurance.

But someone is paying all those bills.  And they see this over-consumption.  They raise their premiums to cover it.  But when they do, they find some people stop buying their health insurance.  Which means they have to raise their premiums again.  More people stop buying.  So they need to raise their premiums again.  But they can’t keep doing this.  So they have to put in some kind of spending rules.  Say what they will reimburse and what they will not.  And they force the poor doctor to police this mess who is trying to help you get well at the same time.  All the while trying to keep the lawyers off his back.

It’s worse on the Medicare side.  For private health insurance has some young, healthy people paying for insurance who aren’t consuming medical care.  Everyone in Medicare is sick and/or old.  Big consumers of medical care.  The trend has been to micromanage the rules more as the consumption of medical care has outpaced the taxes collected to pay for that care.  And with an aging population, those costs are running well ahead of tax receipts.  It’s not a question of if the program will go bankrupt.  But when.  And a national health care system will only be worse.  The added costs will require massive taxation and cost management worse than any hated HMO.

AND LOST IN the shuffle is the patient.  Who, once upon a time, went to his doctor.  And the doctor did what was best for the patient.  And the patient paid the doctor for his services.  And everyone lived happily ever after.

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