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.


Tags: , , , , , , , , , ,

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.


Tags: , , , , , , , , , , , , , , , , , ,

Detroit may mark the Beginning of the End of Generational Theft by Public Sector Unions

Posted by PITHOCRATES - August 4th, 2013

Week in Review

So who’s to blame for Detroit?  The greedy.  The greed of the public sector.  Who stole as much as they thought possible from future generations.  Laughing all the way to the bank.  But never did they think that their greed would eclipse the paying-ability of those they were stealing from.  Future taxpayers.  Which is what happened in Detroit.  And will probably happen elsewhere throughout the nation (see The Unsteady States of America posted 7/27/2013 on the Economist).

Nearly half of Detroit’s liabilities stem from promises of pensions and health care to its workers when they retire. American states and cities typically offer their employees defined-benefit pensions based on years of service and final salary. These are supposed to be covered by funds set aside for the purpose. By the states’ own estimates, their pension pots are only 73% funded. That is bad enough, but nearly all states apply an optimistic discount rate to their obligations, making the liabilities seem smaller than they are. If a more sober one is applied, the true ratio is a terrifying 48% (see article). And many states are much worse. The hole in Illinois’s pension pot is equivalent to 241% of its annual tax revenues: for Connecticut, the figure is 190%; for Kentucky, 141%; for New Jersey, 137%.

By one recent estimate, the total pension gap for the states is $2.7 trillion, or 17% of GDP. That understates the mess, because it omits both the unfunded pension figure for cities and the health-care promises made to retired government workers of all sorts. In Detroit’s case, the bill for their medical benefits ($5.7 billion) was even larger than its pension hole ($3.5 billion).

Some of this is the unfortunate side-effect of a happy trend: Americans are living longer, even in Detroit, so promises to pensioners are costlier to keep. But the problem is also political. Governors and mayors have long offered fat pensions to public servants, thus buying votes today and sending the bill to future taxpayers. They have also allowed some startling abuses. Some bureaucrats are promoted just before retirement or allowed to rack up lots of overtime, raising their final-salary pension for the rest of their lives. Or their unions win annual cost-of-living adjustments far above inflation. A watchdog in Rhode Island calculated that a retired local fire chief would be pulling in $800,000 a year if he lived to 100, for example. More than 20,000 retired public servants in California receive pensions of over $100,000.

This is an important point.  People say that we must honor these lavish pension and retiree health care benefits because they made a deal.  A contract with the city.  Or the state.  But did they?  No.  The public sector unions and the cities and states colluded together to steal money from future generations.  Who were not a party to those agreements.  This amounts to generational theft.  And the generous size of those benefits just makes that theft worse.  Transforming the public sector into an aristocracy.  That cares little for the future taxpayers that they will be bled dry to pay for their long and comfortable retirements.

Detroit is just the first domino to fall.  This generational theft is just unsustainable.  Something has to be done.  But what?

Public employees should retire later. States should accelerate the shift to defined-contribution pension schemes, where what you get out depends on what you put in. (These are the norm in the private sector.) Benefits already accrued should be honoured, but future accruals should be curtailed, where legally possible. The earlier you grapple with the problem, the easier it will be to fix. Nebraska, which stopped offering final-salary pensions to new hires in 1967, is sitting pretty.

In other words our public servants should not live a better life than their masters.  Those people paying the bill.  There should be no aristocracy in the United States.  People in the public sector shouldn’t be able to retire young and live a long life in retirement while someone else is paying the bill.  The taxpayer.  People who have to work until they drop dead to save for their own retirement.  That just isn’t right.  If our servants in the public sector want that long and comfortable retirement then they must do what people in the private sector do.  Save for it.  Make sacrifices.  And live more frugally.  Because there shouldn’t be two Americas.  Where one enslaves the other.  While setting up a string of municipal and state bankruptcies because of their greed that threatens the financial wellbeing of the nation.


Tags: , , , , , , , , , , , , , , ,

Unfunded Pension and Retire Health Care Liabilities are a Problem for more Cities than just Detroit

Posted by PITHOCRATES - July 28th, 2013

Week in Review

The problem all our big cities are having is the cost of pension and retiree health care for their public sectors.  These cities made ridiculous promises during their contract negotiations with their public sector unions.  Promising them generous pension and health care benefits for life for retirees.  Benefits a later generation would have to pay for.  Which is why these cities are imploding under these costs.  And why Detroit filed bankruptcy.  These cities never put away the money for these future benefits because they were just too costly.  Besides, they no doubt thought, when the bill comes due it will be someone else’s problem.  And that’s where we are today.

How bad is it?  Really bad.  Especially in Detroit.  A city that has about half the population it had when it entered into those agreements.  And nowhere near the automotive industry it had back then.  A race riot in 1967 caused a white flight.  And the black middle class would follow years later.  As the jobs left Detroit for the suburbs.  And the people followed those jobs out of the city.  Just decimating the tax base that has to pay those unfunded benefits (see The Retirement Surprise In Detroit’s Bankruptcy by Robert C. Pozen posted 7/25/2013 on Brookings).

When Detroit recently filed for bankruptcy, one number surprised a lot of observers–$6.4 billion in other post-employment benefits (OPEB). OPEB is primarily comprised of unfunded obligations to pay health care costs for municipal employees.

By contrast, the unfunded pension obligations of Detroit were $3 billion–less than half the size of its OPEB…

The Pew Charitable Trust did a study in 2013 of both pension and OPEB shortfalls in the 30 largest cities in the United States. The three cities other than Detroit with the largest pension shortfalls were:

$14,302 per city household in New York City;
$12,170 per city household in Philadelphia; and
$11,389 per city household in Portland, Oregon.

But the shortfalls for OPEB, primarily healthcare obligations, were significantly larger. According to Pew, the three cities other than Detroit with the largest OPEB shortfalls were:

$22,857 per city household in New York City,
$18,962 per city household in Boston
$13,487 per city household in San Francisco.

These numbers are staggering.  Based on the U.S. Census, there are about 264,209 households in Detroit.  If you divide the total unfunded pension and health care costs by the number of households you get $35,578.  That is, to pay this outstanding debt it will cost each household in the city of Detroit $35,578.  Which will be very difficult to do when the median household income in Detroit is $27, 862.

Those in the union say these people are owed their retirement and health care benefits.  Because they made a deal.  But they didn’t make a deal with the people currently paying the taxes.  What this amounts to is generational theft.  Like all those municipal pensions and health care benefits.  For when they made those generous agreements the people who ultimately had to pay them weren’t in the room when they signed those contracts.  In fact they weren’t even born yet.  The people demanding their benefits now and their union representation apparently had no problem sticking it to future generations.  They were the ones in the room when they signed those contracts.  And didn’t give the people stuck paying for their benefits a second thought.

All big cities with big public sectors have the same problem.  They may not be ‘Detroit’ bad but they have bills that they won’t be able to pay.  There are about 100 U.S. cities with a population of a quarter million or more.  If each one of them had this problem that’s about $1 trillion in unfunded benefits just in these cities alone.  With trillion dollar deficits already, Obamacare coming on line and Social Security and Medicare projected to go broke the federal government just won’t be able to bail these cities out.  Perhaps bringing the days of generational theft to an end.  Which may be the only good thing to come from a wave of municipal bankruptcies.


Tags: , , , , , , ,