Not Everyone signing up for Obamacare is paying for Obamacare

Posted by PITHOCRATES - April 6th, 2014

Week in Review

The big question in the Obamacare signups recently released by the Obama administration is this.  How many people have actually sent a payment into their insurance company?  For signing up for health insurance doesn’t mean you have health insurance.  You have to pay for it first.  With ‘first’ being key.  As anyone who has paid a health insurance premium knows.  You pay for next month’s health insurance this month.  That is, it’s cash before delivery.  As the insurance companies need the cash before they can pay any benefits.  This is the way all insurance has worked since the dawn of insurance.  First money goes into an insurance pool.  Then said insurance pool pays insurance claims.  The money must come first.  There’s just no other way for it to work.

So, is the money coming first with Obamacare?  As it turns out, the majority of it is.  At least, according to a leading federation of Blue Cross and Blue Shield health plans (see Blue Cross group sees Obamacare premium payments at 80-85 percent by David Morgan posted 4/2/2014 on Reuters).

A leading federation of Blue Cross and Blue Shield health plans said on Wednesday that it is receiving premium payments from 80 to 85 percent of its new Obamacare health insurance customers.

The estimate, released by the Chicago-based Blue Cross Blue Shield Association, reflects enrollment activity among 35 Blue Cross Blue Shield plans in 47 of the 50 states, including plans sold by WellPoint Inc, from October 1 through February 1…

If the Blue Cross Blue Shield payment rates held true for enrollment across the board, between 5.7 million and 6 million of the 7.1 million would actually be enrolled in coverage.

So that means the Obama administration is overstating the enrollment numbers from 18.3% to 24.6%.  And between 1.1 million and 1.4 million haven’t paid for the Obamacare they signed up for.  Of course, that’s assuming that the 7.1 million were all new Obamacare enrollees into private health insurance plans.  And not those who signed up for Medicaid who will never write a check for their coverage.  Which will not help the insurance companies pay for the expanded benefits mandated by Obamacare.

So the Obama administration’s numbers are suspect to say the least.  As is the continued existence of the private insurers.  For if they don’t get 7+ million signing up for Obamacare (with a heavy concentration of the young and healthy who will file few claims) the cost of caring for the old and sick will bankrupt them.  Of course if this was the plan all along the Obama administration could at least claim something in Obamacare was working according to plan.


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Marine Insurance shows why Obamacare won’t Work

Posted by PITHOCRATES - February 22nd, 2014

Week in Review

As ships began to ply the world’s oceans some of them did not make it to their destination.  Instead, they ended up on the ocean floor.  The financial loss for a ship lost at sea was enough to bankrupt a shipper.  Which greatly inhibited early transoceanic trade.  But then the good men at Lloyd’s of London began selling marine insurance out of a London coffee house.  Spreading the risk of a large financial loss across all shippers.  Where each shipper paid a small fee (i.e., an insurance premium) to cover the financial loss for the few ships that sank.  It was an excellent system.  Mitigating the risk of the very risky transoceanic trade.  It worked so well we still use it today (see Ship loses more than 500 containers in heavy seas by Tim Lister posted 2/22/2014 on CNN)

On any day, between 5 million and 6 million containers are on the high seas, carrying everything from potato chips to refrigerators. But not all of them make it to their destination, as the crew of the Svendborg Maersk have just found out.

Their Danish-flagged ship was in the Bay of Biscay last week as hurricane-force winds battered the Atlantic coast of Europe. Amid waves of 30 feet and winds of 60 knots, the Svendborg began losing containers off northern France. After the ship arrived in the Spanish port of Malaga this week, Maersk discovered that about 520 containers were unaccounted for. Stacks of others had collapsed.

It’s the biggest recorded loss of containers overboard in a single incident…

The Through Transport Club, which insures 15 of the top 20 container lines, has put the loss at fewer than 2,000 containers a year. But other industry sources say the number may be as high as 10,000. That would still represent far less than 1% of the containers traversing the world’s oceans. Maersk, one of the world’s largest lines, says that its highest annual loss in the last decade was 59 containers.

If we crunch some numbers we can see how insurance works.  Let’s make some assumptions.  Conservative ones.  Let’s assume the low end of 5 million containers.  And the high end of lost containers (10,000).  This puts the total loss of containers at 0.20% of the total shipped.  Which means that 99.8% of all containers shipped reach their destination.  So the insurance pays for a very small number of lost containers.  Now let’s assume an average value of $250,000 per container.  That makes the value of all containers shipped $1.25 trillion.  And the value of containers lost $2.5 billion.  Or 0.20% of the value shipped.  Which is a small fraction of the total.  If we spread this amount over each container shipped that comes to an insurance premium of $500 per container.  A small price to pay to avoid a $250,000 loss.

This is why marine insurance works.  Because it’s insurance.  Where shippers pay a small premium to insure against a very large possible financial loss.  Which is why Obamacare won’t work.  Because Obamacare isn’t insurance.  Neither was health insurance before Obamacare.  Because people expect a free ride.  If they have ‘insurance’ they don’t want to pay for anything.  Which isn’t how insurance works.  That would be like shippers having someone else pay for their marine insurance.  And then expect to ship things across the ocean for free because they had insurance.  Marine insurance doesn’t work like that.  And neither should health insurance.


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Health Care Economics

Posted by PITHOCRATES - January 20th, 2014

Economics 101

Because Obamacare Insurance pays for everything Under the Sun it is anything but Insurance

Do you know what the problem is with health care?  Insurance plans that give away free flu shots.  Not that flu shots are bad.  They’re not.  And it’s a good thing for everyone to get one every year at the onset of the flu season.  For it does seem to limit the spread of the flu virus.  It’s because we get a flu shot every year is why insurance shouldn’t pay for it.  Because we know about this expense.  And we can budget for it.  Just like we can budget for our monthly cellular bill.  Which is in most cases more than ten times the cost of one annual flu shot.

When Lloyds of London started selling marine insurance at that coffee shop they were selling insurance.  Not welfare.  Losing a ship at sea caused a huge financial loss.  And shippers wanted to mitigate that risk.  So every shipper paid a SMALL premium to protect against a LARGE loss.  A POTENTIAL sinking and loss of cargo.  Not every ship sank, though.  In fact, most ships did not.  Which is why that little bit from everyone was able to pay the financial loss of the few shippers that lost their ship and cargo.  But that’s all that Lloyd’s of London paid for.  They didn’t pay a dime to shippers whose ships didn’t sink.  No, those shippers paid every cent they incurred (crew, food, rum, etc.) to ship things across those perilous oceans.  Because they could expect those costs.  And they could budget for them.

This is how insurance works.  Which isn’t how our current health insurance system works.  No.  Today people don’t want to pay for anything out-of-pocket.  Not the unexpected catastrophic costs.  Or the EXPECTED small costs that everyone can budget for in their personal lives.  Like an annual flu shot.  Childhood vaccinations.  Annual checkups.  Childbirth.  Etc.  Even the unexpected things that aren’t that expensive.  Like the stitches required when a child falls off of a bike.  Things that would cost less than someone’s monthly cellular bill.  Or things that people can plan and save for.  Like a house.  A car.  Or a child.  Which is why Obamacare insurance is not insurance.  It pays for way too many expected costs that we can budget for.  And because it does it only increases the cost of our health insurance policies.  Which are now anything but insurance.

Free Market Forces and Insurance for Catastrophic Costs will Fix any Problems in our Health Care System

When we pay these things out-of-pocket there are market forces in play.  For a doctor is not going to charge someone they’ve been seeing for years as much as he will charge a faceless insurance company.  Even today some doctors will waive some fees to help some of their long-time patients during a time of financial hardship.  Because there is a relationship between doctor and patient.  And they want to help.  Which is why they sometimes overcharge insurance companies to recover costs they can’t recover in full from other patients.  (Which is why insurance companies are vigilant in denying overbillings).  Especially those things government pays for.  Medicaid.  And Medicare.  Which the government discounts.  Leaving health care providers little choice but to overbill others to pay for what the government does not.

When we pay out-of-pocket doctors can’t charge as much.  Because they need patients.  If they charge too much their patients may find another good doctor that charges a little less.  Perhaps a younger one trying to establish a practice.  These are market forces.  Just like there are everywhere else in the economy.  Even a cancer patient requiring an expensive miracle drug benefits from market forces.  If there was true insurance in our health care system, that is.  Cancer is an unexpected and catastrophic cost.  But not everyone gets cancer.  Just as every ship does not sink.  Everyone would pay a small fee to insure against a financial loss that can result from cancer.  Where that little bit from everyone buying a catastrophic health insurance policy was able to pay the financial loss of the unfortunate few that require cancer treatment.  Even one including a costly miracle drug.  Because only a few from a large pool would incur these financial losses insurers would compete against other insurers for this business.  Just like they do to insure houses.  And ships crossing perilous oceans.

Health care would work better in the free market.  It doesn’t today because government changed that.  Starting with FDR putting a ceiling on wages.  Which forced employers to offer generous benefits to get the best workers to work for them when they couldn’t offer them more pay.  This was the beginning.  Now the health insurance industry is so bastardized that it doesn’t even resemble insurance anymore.  It’s just a massive cost transfer from one group of people to another.  Instead of a pooling of money to insure against financial risk.  For the few unexpected and catastrophic costs we cannot afford or budget for to pay out-of-pocket.

Because our Health Care System is the Most Expensive in the World it is the Best in the World

The American health care system is the finest in the world.  When you have a serious health care issue and you have the wherewithal there’s only one place you’re going for your medical care.  The United States.  And the best costs.  And it’s because it is so costly that people enter into the health care industry to do wonderful things.  Such as pharmaceutical companies.  Who many rail against for charging so much for the miracle drugs only they produce.  It’s a free country.  Anyone could have created that miracle drug.  All they had to do was to spend a boatload of money for years on other drugs that were losers.  Until they finally found one that wasn’t a loser.  That’s all you had to do.  Yet few do it.  Why?

Because creating miracle drugs is an extremely expensive and often futile endeavor.  Which is why we award patents to the few who do.  Which is the only reason they pour hundreds of millions of dollars into research and development and pay massive liability insurance premiums for taking a huge risk to put a drug onto the market that may harm or kill people.  They do this on the CHANCE that they may develop at least one successful drug that will pay for all of the costs incurred to develop this one drug, the costs for the countless drugs that failed AND provide a profit for their investors.  Who took a huge risk in paying their employees over the many years it took to come up with at least one drug that wasn’t a loser.  Their investors do this only because of the CHANCE that this pharmaceutical will develop that miracle drug that everyone wants.  But most don’t.  And investors just lose their investment.  But it’s the only way miracle drugs become available to us.  Because of rich investors who were willing to risk losing huge amounts of money.

This is what the profit incentive gives us.  The best health care system in the world.  Why the countries based on free market capitalism have the finest health care systems in the world.  And why North Korea, Cuba, the former East Germany, the former Soviet Union, Venezuela, etc., have never given us miracle drugs.  There never was an economic incentive throughout the economy to do so.  Like there is in countries with free market capitalism.  Where everyone at every level pursues profits that result overall in a pharmaceutical industry that produces these miracle drugs.

There is an expression that says you get what you pay for.  Our health care system is the most expensive in the world.  And because it is it is the best in the world.  Trying to inhibit the profit incentive for research and development and forcing medical providers to work for less (steeper Medicaid, Medicare and now Obamacare discounts) will change that.  Because you do get what you pay for.  And those who live/have lived in North Korea, Cuba, the former East Germany, the former Soviet Union, Venezuela, etc., can attest to.


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Wal-Mart Health Care Plans are better than Obamacare Plans

Posted by PITHOCRATES - January 12th, 2014

Week in Review

Government at all levels and unions hate Wal-Mart.  Because they are nonunion.  Which helps to keep their costs down.  Enabling them to offer such low prices.  And it’s those low prices that keep bringing customers through their doors.  Allowing them to make a decent profit.  So they can take care of their employees.  Including health care plans that are better than anything offered under Obamacare (see Surprise! Walmart health plan is cheaper, offers more coverage than Obamacare by RICHARD POLLOCK posted 1/7/2014 on the Washington Examiner).

For a monthly premium as low as roughly $40, an individual who is a Walmart HRA plan enrollee can obtain full-service coverage through a Blue Cross Blue Shield preferred provider organization. A family can get coverage for about $160 per month.

Unlike Obamacare, there are no income eligibility requirements. Age and gender do not alter premium rates. The company plan is the same for all of Walmart’s 1.1 million enrolled employees and their dependents, from its cashiers to its CEO.

A Journal of the American Medical Association analysis from September showed that unsubsidized Obamacare enrollees will face monthly premiums that are five to nine times higher than Walmart premiums.

JAMA found the unsubsidized premium for a nonsmoking gouple age 60 can cost $1,365 per month versus the Walmart cost of about $134 for the same couple.

The medical journal reported a 30-year-old smoker would pay up to $428 per month, in contrast to roughly $70 each month for a Walmart employee.

A family of four could pay a $962 premium, but the same Walmart family member would pay about $160.

Low premiums are not the only distinguishing feature of the Walmart plan. The retailer’s employees can use eight of the country’s most prestigious medical facilities, including the Mayo Clinic, Pennsylvania’s Geisinger Medical Center and the Cleveland Clinic.

At these institutions, which Walmart calls “Centers of Excellence,” Walmart employees and their dependents can get free heart or spinal surgery. They can also get free knee and hip replacements at four hospitals nationwide.

Many top-rated Walmart hospitals — such as the Mayo and Cleveland clinics — are left out of most Obamacare exchange plans…

Slayton said the gap between doctor availability in Chicago under the Obamacare and Walmart plans is dramatic.

“You will notice there are 9,837 doctors [under Obamacare]. But the larger network is 24,904 doctors. Huge, huge difference,” he said.

Wall-Mart can give more for less under their health care plan than the government can under Obamacare.  Which proves that the private sector is better than the public sector in doing anything.  Even health care.  So if we want quality health care for everyone then we should get rid of Obamacare and have everyone join a Wal-Mart plan.  But, of course, that won’t happen.  For Obamacare is not about quality health care for everyone.  It’s about amassing power.  Which is why governments and unions attack Wal-Mart.  And we have Obamacare.  Because this transfers money and power from the private sector to the public sector and unions.  Allowing the privileged few to live better lives than the masses.


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Health Insurance Premiums and Deductibles

Posted by PITHOCRATES - October 21st, 2013

Economics 101

The Requirements of Obamacare force Insurers to Cancel their Less Costly Policies

We buy health insurance to protect our financial assets in case of a catastrophic health problem.  Such as a bad accident requiring costly hospitalization and rehabilitation.  Or a costly disease.  Like cancer or a heart attack.  As bad as those things are the good news is that most people don’t suffer from these health problems.  Which allows us to use insurance to protect our financial assets.

People in an insurance pool pay a small premium to pay for a potential loss.  Such as a catastrophic health problem.  Because not everyone in the pool will suffer from a catastrophic health problem the insurance premium can be much smaller than the cost of medical care for the few that do.  A premium small enough that individuals and families can budget this amount and rest comfortably knowing that a catastrophic health problem won’t cost them their home, their kids’ college fund, their retirement savings, etc.  A system that has worked well.  Until we started using insurance to pay for everything under the sun.  Which has caused insurance premiums to soar.  And Obamacare just doubles down on this trend and turns insurance into welfare.

Premiums before and after Obamacare R1

Obamacare raises the coverage requirements for all insurance policies.  To a ridiculous extent.  For example, couples whose children are grown adults still need pediatric coverage.  Obamacare requires a lot of standard coverage like this that is virtually impossible for some people to use.  Thus greatly raising insurance premiums.  In our example our fictitious insurance pool contains 10,000 individuals and 10,000 families.  To include everything the Obama administration wants to include raises individual premiums 240%.  And family premiums 257%.  Which causes a problem with President Obama’s promise to the American people.  That thing about keeping your current insurance if you like your current insurance.  As insurers have no choice but to cancel their less costly policies.

The Affordable Care Act makes Premiums Unaffordable by Requiring Insurers to Cover More

That promise was, of course, a lie.  Because you can’t buy more for less money.  You just can’t get more for less.  So if the policies cover more they cost more.  If they cover a lot more they cost a lot more.  Well, that creates a bit of a problem for the optics of the Affordable Care Act.  When you make the existing health care system ‘affordable’ you really can’t raise the cost of insurance by over 200%.  Even if you are giving more insurance coverage.  Because if it’s just too expensive people won’t have the money available to pay for it.  So they brought the premiums down from what they would need to be to do what they want them to do.  To something a little more affordable.  Like this.

Premiums before and after Obamacare Adjusted R1

Which brings the increases to 80% for an individual policy.  And 129% for a family policy.  These are still steep price hikes.  But with the more these policies cover and subsidies for those who need them they are an easier sell.  Of course, there is another problem.  Selling these policies at these lower prices won’t bring as much money into the insurance pool.  Which will limit what this pool can pay for.  Leading to rationing.  And longer waiting times.  As health care providers will have to tell patients ‘no’ because the insurer denied the treatment or procedure.  Which sort of defeats the purpose of Obamacare.  Affordable health care for everyone.

So what to do?  To cover everything under the sun requires hefty premiums.  But hefty premiums are not affordable.  There appears to be a paradox here.  And that’s because there is.  Because you can’t get more for less.  But Obamacare has a workaround for this paradox.  At least for the optics of Obamacare.

The Ultimate Goal of Obamacare may be to Fail to Clear the Way for Single-Payer National Health Care

There’s another part of health insurance.  The deductible.  The out-of-pocket portion of our health care expenses.  When insurance was truly insurance we paid for our routine health care expenses out-of-pocket.  We took our kids to the doctor for their vaccinations and the doctor billed us.  Then we paid the bill.  Using our insurance only for those catastrophic health problems that we couldn’t plan for.  Or budget for.  And it’s the deductible that makes Obamacare look more affordable than it is.  By making their deductible far exceed their premium.  So a lot of people pay into the pool but never collect from it.

Claims Individual and Family R1

In this example we look at some claims.  The money the insurance pool pays out.  The above numbers are net of the deductible.  So the annual claim per individual and family is money from the pool paying their bills.  Most people get little.  While the breakout with the fewest members have a catastrophic health care problem.  The total claims for this pool for both individuals and families come to $159,750,000.  While premiums total only $123 million at our adjusted premiums.  That’s a $36,750,000 shortfall.  Well, insurers can’t pay out more than they collect so they need to find another $36 million or so without making this affordable health insurance appear unaffordable.  So where can we find another $36 million?

By raising the deductible, of course.  If we raise the deductible for both individuals and families to $7,500 those claims at $7,500 or less are out-of-pocket.  They don’t come from the insurance pool.  If we add up the claims that become out-of-pocket they total $57,250,000.  More than enough to cover the shortfall.  As well as provide subsidies for the poor.  And all those new government jobs to run Obamacare.  With these higher deductibles AND higher premiums people will be paying far more for their health care than they did before.  Perhaps more than they can afford.  Thus making the Affordable Care Act unaffordable.  Which may be the ultimate goal of Obamacare.  To fail.  So the government can blame greedy insurers who the people will hate even more.  And setting the stage to get the people to acquiesce to a single-payer system.  Or national health care.  Which the left wanted all along.


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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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Out of Control State Spending – Greece, France, the U.K. and the U.S.A.

Posted by PITHOCRATES - December 15th, 2010

Greece Burning – Public Sector Pay and Pensions Bankrupting the Nation

Things got ugly in Greece during their 2010 financial crisis.  At least three died one day during rioting (see Greek financial crisis explained posted 5/6/2010 on The BBC).

Three people, including a pregnant woman, have been killed during riots in Athens.

And why were the Greeks rioting?

Many of the protesters are public service workers, whose salary comes from the tax payer…

They object to their government’s plan to get Greece’s economy back under control.

It includes a freeze on public sector pay, raising the tax on fuel, and cutting pensions.

And why did Greece find herself in a position to take these austerity measures?

For years, Greece has been spending money it doesn’t have.

The government there took advantage of the economic good-times to borrow money and spend it on pay-rises for public workers and projects such as the 2004 Olympics.

France Burning – Early Retirement Age Bankrupting the Nation

Things weren’t much prettier in France.  They, too, were facing out of control state spending.  So they, too, tried to cut their spending.  And it didn’t go over well with the people (see Proposed retirement age change prompts riots in France by The Associated Press posted 11/4/2010 on The Chicago Sun-Times).

Workers opposed to a higher retirement age blocked roads to airports around France on Wednesday, leaving passengers in Paris dragging suitcases on foot along an emergency breakdown lane.

Outside the capital, hooded youths smashed store windows amid clouds of tear gas.

Riot police in black body armor forced striking workers away from blocked fuel depots in western France, restoring gasoline to areas where pumps were dry after weeks of protests over the government proposal raising the age from 60 to 62.

And what was their greatest fear of these austerity cuts?

Many workers feel the change would be a first step in eroding France’s social benefits – which include long vacations, contracts that make it hard for employers to lay off workers and a state-subsidized health care system – in favor of “American-style capitalism.”

The United Kingdom Burning – Cheap College Tuition Bankrupting the Nation

Meanwhile, in the U.K., they’re having their own riots.  And the rioters attacked the Royal Family.  Fortunately for Prince Charles, his car took the brunt of the attack (see Prince Charles’s car kicked in tuition riot by The Associated Press posted 12/9/2010 on CBC News). 

“We can confirm that the royal highnesses’ car was attacked by protesters on their way to their engagement at the London Palladium this evening. The royal highnesses are unharmed,” a statement from Prince Charles’s press secretary said.

And why were the people rioting?  Much like in Greece and France, the U.K.’s generous social benefits are bankrupting the nation.

Cameron’s government describes the move as a painful necessity to deal with a record budget deficit and a sputtering economy. To balance its books, the U.K. passed a four-year package of spending cuts worth $129 billion, which will lead to the loss of hundreds of thousands of public sector jobs and cut or curtail hundreds of government programs.

The government proposed raising the maximum university tuition fees in England from $4,780 a year to $14,000. Students reacted with mass protests that have been marred by violence and have paralyzed some campuses.

Not Burning Yet – Social Security and Medicare Bankrupting the Nation

Social Security and Medicare are going broke.  And will.  It’s just a matter of time.  When they came into being, there was an expanding birth rate.  Actuaries counted on those birth rates to continue.  But they didn’t.  The baby boom generation had only about 3 children per family.  Whereas their parent’s generation often had 10 kids or more.

Social Security is like a Ponzi Scheme.  There are no retirement accounts.  Payroll taxes from workers today pay the retirees of today.  Think pyramid scheme.  As long as the base of the pyramid (those workers paying taxes) grows at a greater rate than the tip of the pyramid (those collecting benefits) the scheme works.  But with the reduction in birth rates and our aging population, the pyramid has inverted.  The tip of the pyramid is growing at a greater rate than the base is.  As the ‘size’ of the tip and the base approach each other, eventually one worker will support one retiree.  And if a retiree lives on, say, $30,000 a year, do the math.  In a two-income family, one income will support a retiree.  And nothing else.  And that just ain’t sustainable.  Ergo, Social Security will go broke.

Ditto for Medicare.

Obamacare – Tinder, Gasoline and a Match

All right, we’ve seen how out of control state spending has led to austerity measures throughout Europe.  And rioting.  We have two huge entitlement programs pushing our county down the same path.  Europe is cutting costs (even when cities are burning in the process).  And what do we do?  We double down.  We add a third entitlement behemoth that will make Social Security and Medicare look tiny in comparison.

Obamacare.  Affordable health care for everyone.  Because the government is going to force everyone to buy health insurance.  Because the more people who pay premiums, the lower each premium needs to be.  Think pyramid scheme.  You need more to pay in (the base) than collect benefits (the tip).  Because this ain’t insurance.  It’s the mother lode of welfare entitlements.  And it’s also something else.  Unconstitutional (see Opposition to Health Law Is Steeped in Tradition by David Leonhardt posted 12/14/2010 on The New York Times).

On Monday, a federal judge ruled part of the law to be unconstitutional, and the Supreme Court will probably need to settle the matter in the end.

But that doesn’t stop the Obamacare cheerleaders.

We’ve lived through a version of this story before, and not just with Medicare. Nearly every time this country has expanded its social safety net or tried to guarantee civil rights, passionate opposition has followed.

The opposition stems from the tension between two competing traditions in the American economy. One is the laissez-faire tradition that celebrates individuality and risk-taking. The other is the progressive tradition that says people have a right to a minimum standard of living — time off from work, education and the like.

Yes, the two competing traditions.  The individuality and risk-taking that has defined America until Woodrow Wilson and the Progressives came along.  And the entitlement mentality.  Also known as European Socialism.  Like they have, had, have in Greece, France and Great Britain.  And we’ve seen how that has worked.  But we don’t learn from the lessons of history, do we?

The federal income tax, a senator from New York said a century ago, might mean the end of “our distinctively American experiment of individual freedom.” Social Security was actually a plan “to Sovietize America,” a previous head of the Chamber of Commerce said in 1935. The minimum wage and mandated overtime pay were steps “in the direction of Communism, Bolshevism, fascism and Nazism,” the National Association of Manufacturers charged in 1938.

When my dad worked gross pay meant something.  Today it’s all about net pay.  What’s left after taxes.  Taxes have grown so great that a single wage earner has trouble raising a family.  Unlike those families back before the baby boom.  When a single wage earner could raise 10 kids.  So, yes, the federal income tax has greatly changed the American experiment in individual freedom.

Social Security has ‘Sovietize’ America.  Retirees live in fear of losing their state benefits.  And they know that it’s in their ‘best interest’ to support the state.  And they do.  At the voting booth.  Potato.  Tomato.  The only difference is that we don’t have gulags in Siberia here.  But we don’t need them.  Because the threat of cutting a retiree’s benefits scares them enough to toe the party line.

And now we want to add national health care to the mix.  Because every other rich country has jumped off that bridge.

It is clearly one of the least radical ways for the United States to end its status as the only rich country with millions and millions of uninsured.

There’s a reason why the U.S. does not pay for millions and millions of uninsured here.  Why?  See Greece, France and the U.K. above. 

Guaranteeing people a decent retirement and decent health care does more than smooth out the rough edges of capitalism. Those guarantees give people the freedom to take risks. If you know that professional failure won’t leave you penniless and won’t prevent your child from receiving needed medical care, you can leave the comfort of a large corporation and take a chance on your own idea. You can take a shot at becoming the next great American entrepreneur.

With every previous major expansion of the safety net, history has had a chance to prove the naysayers wrong. It may yet in the case of universal health coverage. But the decision now seems to rest with the nine members of the Supreme Court.

Again, see Greece, France and the U.K. above.  As nice and compassionate as it sounds, it just doesn’t work.  European Socialism.  If it did, it would have worked in Greece, France and the U.K.  But it didn’t.  And that should scare the hell out of us here.  Because we’re heading down the same road.

And history may just prove the naysayers were right.


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