Saturday, June 20, 2009

Healthcare Relief Without Universal Health

From the Desk of Joe Rollins

I have not been closely following the public debate regarding the new health insurance program proposed by President Obama. Quite frankly, health insurance matters tend to make my eyes glaze over from boredom. I assume that since there is such an emphasis on the issue, there must be some sort of kerfuffle between the parties, but in all honesty I do not know where the problem lies. So, to try to inform myself, I’ve done some investigating into the topic.

On Tuesday, the Congressional Budget Office (CBO) made an interesting announcement. Based upon their analysis, Senator Ted Kennedy’s proposed Healthcare Reform Bill would cost roughly $1 trillion over the next 10 years to insure only 16 million additional people. It does not take a rocket scientist to figure out that this figure constitutes $6,250 per participant, per year. Interestingly, that annual premium is 30% higher than we currently pay for group medical insurance. That’s essentially what is paid for private coverage in America today, so I’m a little baffled why a government sponsored plan has been reported to cost significantly less than what you can buy in the private market today.

I have been involved with many businesses through the years that have fought with the concept of providing private insurance to employees. For example, a few years ago I had a private security company offer group medical insurance to their employees. This company was your basic “rent-a-security-guard” service geared towards private businesses. The employees dressed in uniform to look official but were not members of the police department and were not authorized to carry guns.

Due to the cost of the insurance, the employer agreed to subsidize 25% of the cost while the employee paid the other 75%. A summary was sent to all employees asking about their willingness to participate in such a program. Not a single employee agreed to participate in the program.

The company issued a follow-up inquiry to the employees, asking them why they did not want to participate in such a generous offer by the employer, and their answers were fairly indicative of the mindset in many communities. They indicated that they didn’t feel like they should pay anything for group medical insurance. Furthermore, many of them stated that if they needed medical care, they would simply visit a facility where services would be rendered to them for free. This group of employees was basically young and healthy; they didn’t have much need for medical care, and so it was not that important to them. If they ever needed medical care, they knew it was available to them at no cost – which is significantly less expensive than them paying for something that they may or may not ever need.

I have not read the entire proposal on the medical insurance reform, but what I have read reflects one basic problem. As I understand it, the government will provide a medical insurance company which will be artificially subsidized by the government’s money (i.e., your tax dollars). For example, a company will be established by the government which will compete with the private insurance companies to provide medical care. This company will offer premiums at less than the current rates under the theory that competition will force all of the other non-government companies to provide insurance at the same or at lower costs than the government mandated plan. As the President said, “Make the health care market more competitive and keep insurance companies honest.”

It’s hard to believe that anyone thinks the U.S. government needs to be in direct competition with private industry. I’ve written many times in previous posts that the Federal government only does one thing well – they can provide security and defense, but virtually everything else they do is done worse than the private sector. I cannot even fathom the bureaucratic mess that a government-sponsored health insurance plan would become.

Given that the plan would clearly be subsidized by taxpayers and be politicized by an uninformed and uneducated Congress, it would compete unfairly with the millions of Americans currently employed in the private sector providing group medical insurance. The poor track record of the other countries that have tried socialized medicine should be evidence enough. You don’t need to look any further than how economically inefficient and poorly run the U.S. Medicaid system is operating. Enough said!

I understand there are 1,500 insurance providers in the United States offering group medical coverage. This group medical coverage is very competitive between the various medical insurance providers. The fallacy of the government’s plan is that if they are able to offer premiums that are less than those offered by private insurers, it will only be a matter of time before employees transfer to the government’s low cost provider. Over time, the vast Americans insured will be on the government plan under the subsidized premiums and not in private insurance. How could premiums not be lower, subsidized by your tax dollars? If you would like to project how well that plan will be, just visit the Department of Motor Vehicles (DMV) and try to change the license plate on your car.

One of the reasons I’ve never been terribly concerned about the uninsured Americans is because healthcare is widely available to everyone at little or no cost, as I illustrated with the security guard company mentioned above. Anyone can walk into a facility needing medical care without being refused. That is the law – they have to provide medical care. In fact, taxpayers provide free medical care not only to U.S. citizens, but also to anyone – whether in the U.S. legally or not – who enters a healthcare facility. The cost of this care is provided through our property taxes and other forms of city, county and state taxing authorities. In some cases, the money comes from the Federal government in programs such as Medicare. Basically, a large portion of our local taxation provides for medical care for the uninsured.

An interesting article was featured in yesterday’s Investor’s Business Daily that set out some interesting statistics. In fact, now that I have a better understanding of the numbers, it appears to me more than ever that such a healthcare plan is not needed. President Obama says there are 46 million uninsured people in America in need of health insurance. Unfortunately, a large portion of these people are not U.S. citizens, and in many cases they are in this country illegally.

The Census Bureau provided the following statistics regarding the 46 million uninsured:

Total uninsured people in the United States46.0 million
Less non-U.S. citizens (many here illegally)(9.7 million)
Less household annual incomes greater than $50,000(10.0 million)
Less household annual incomes greater than $75,000(7.0 million)

Of the total uninsured, roughly 40% are age 18 to 34, and they are in basic good health. They have, apparently, elected to put their dollars elsewhere in the economy rather than in buying medical coverage. It is presumed that those with annual incomes greater than $50,000 do not buy medical insurance because they do not feel they need it or they are self-insured. They clearly could afford coverage, but elect not to purchase it.

As such, it is an exaggeration to indicate that there are 46 million people in the United States who do not have medical insurance. I would argue that none of the 46 million go without medical care. As for the non-U.S. citizens getting medical care on the U.S.’s dime, that is very simple: If an illegal alien enters a healthcare center, we provide medical care to get them healthy enough to deport them back to the country from which they came.

I’ve always wondered why there is such outrage about medical insurance anyway. If there are truly only 13 million uninsured American citizens in the country, that means that approximately 300 million are either covered under a private medical plan or one of the governmental health plans. Since 70% of the people covered under private health plans have premiums that are subsidized by their employers and virtually all of those who are retired are subsidized by the government, there are few who complain about the cost.

Additionally, based on my experience of preparing income tax returns for health professionals, I can assure you that practitioners in medical delivery are not getting rich. I’m not talking about specialists or those in cosmetic medicine, but general practitioners. Due to governmental restrictions, these people are making less money today than they made 10 years ago.

The true issue with healthcare delivery is not with people under the age of 65. The real risk to the American way of life is healthcare under Medicare. None of the issues contained in the proposed bill do anything to alleviate that potential liability to all Americans.

It’s simple to resolve this issue without a great debate. Since we are providing medical care anyway, why doesn’t the Federal government simply grant every qualified person who cannot afford to pay for medical insurance a voucher for group medical insurance? It could not be spent on anything other than group medical care. This would be provided by the private sector with no governmental interference. Since the states, cities and counties would no longer be providing indigent care, it would greatly benefit the economic well-being of these cities and towns that are severely financially stressed.

There would also be an easy way to pay for this program. Of the current Americans covered under medical insurance, 70% of their insurance is paid for by employers. I dare say the vast majority of these insurance programs have premiums that are paid with pre-tax dollars under some sort of cafeteria plan. It is one of the few items in the Internal Revenue Code where the employer that pays the premiums are fully tax deductible and the employee that receives the benefits are fully tax exempt. An easy way to pay for this entire program would be to not allow cafeteria treatment for these employees.

I recognize that this would be a tax increase for some employees, but it would be a relatively minor amount. It’s important to remember that 50% of the population in the U.S. pays no income taxes whatsoever. If, in fact, a significant portion of these are then taxed on the premiums paid for by employers, the cost would be relatively low. The wealthy would find the tax on these premiums to be only a minor inconvenience and trivial to their financial situation. I doubt there would be any major objections to taxing premiums if the issue could be solved.

None of the issues above address the inherent problems with medical delivery today, including technology, prescription, etc. However, it does immediately solve the issue of insuring everyone who qualifies for medical coverage. In addition, the major benefit is that we do not create another entitlement program run by the government to be funded with future tax dollars.

My suggestion would be health insurance fully funded by the private sector, with 1,500 insurance providers competing amongst themselves. The government could immediately begin dealing with the issues of the medical delivery which is very much needed, but would never be in the business of providing coverage, which would unquestionably be a drain on Americans forever.

As always, the above are my opinions – I could be wrong.

Tuesday, June 9, 2009

Stock Market – Up 12 of the Last 13 Weeks!!

From the Desk of Joe Rollins

The first full week of June will be remembered as another great week for the stock market and for the U.S. economy. It’s absolutely amazing to me that the financial media has suddenly refocused their emphasis from the economy to other “important” issues, like world travel and national celebrations. This demonstrates the old adage that I’ve heard from so many journalists: “You can’t report that the cat didn’t fall out of the tree; you only have a story when it does.” Since the economy is now getting better, there is not much to report other than better news, which means they don’t seem to be reporting anything of any substance at all. Fortunately, I strive to bring you up-to-date on what is going on in the financial world in my posts…

Even in the avalanche of bad news regarding nearly everything concerning the financial world that we have read over the last 12 months, the stock market has recently continued to make a slow but steady rebound. In the first full week of June, the stock market (as measured by the Standard & Poor’s Index of 500 Stocks) had another excellent week. This index was up 2.3% for the week, bringing their year-to-date gains to 5.4%. Given how bad the market was down in January and February of 2009, it is nothing short of stunning to see the reversal that has occurred over the last three months. It certainly would not surprise me to see somewhat of a pull back sometime soon given how quickly the market has gone up; but clearly the trend is higher, not lower.

There are a few items that piqued my interest over the weekend that I wanted to share with you. The Washington Post itemized all of the banks that are ready and able to pay back their so-called “bailout” money. It was even more interesting to read about all of the road blocks the Federal government has put up to keep these banks from repaying their debts. In that regard, reflecting on what actually took place is appropriate.

In September of 2008, Henry Paulson, who was the Treasury Secretary at that time, called in 10 of the largest banks in the United States and basically strong-armed them into accepting Federal stimulus money. Many of the banks openly expressed that they didn’t need or want a bailout, and would rather the government keep its money. However, Paulson insisted that they all take it so that no single bank would be thought by Americans to be weak. Each and every bank was to take their appropriate stimulus money and pay the government 5% in non-taxed, deductible dividends. In addition, the banks were to give warrants to the government to buy additional stock of their banks, whether the banks wanted to or not. Each of the banks dutifully did the right thing for America (at that time) and took the money with the clear understanding that they could repay it as soon as their financial condition strengthened.

The Washington Post now reports that at least eight to 10 of these banks have been begging the government for some time to take the money off their hands. There may be as much as $100 billion repaid to the government in the next few weeks. The government has thrown up every possible roadblock to keep from accepting this money. I’m confused. Isn’t this the exact same plan that was proposed? I thought the banks accepted the money only until their financial situation strengthened, at which time they would repay the government. This quarter, the banks will report “blow-away” profits. Their strength has returned!

The bankers also were not told of important caveats that would occur while they held the government’s money. Each of these learned and brilliant bankers would be called to Washington and berated by a bunch of uninformed and almost unintelligible politicians. They would have the Federal government intervene in almost every aspect of their business. Even though many of the banks did not want the government’s money in the first place, the involvement of the government in their business became mandatory.

I hope everyone realizes that the government is basically attempting to interject itself in privately owned businesses. These banks are owned by their shareholders, not by the government. Hopefully many of the banks will repay the debts in the coming weeks and we will once and for all end this nasty intervention by government in businesses they have no clue about running.

Do you recall when the new stimulus bill was being debated that these projects would quickly put money into the U.S. economy? In fact, the website,, so boldly said that it will “save or create good jobs immediately.” In fact, the White House economists in January predicted that unemployment would top out at 8% if the stimulus bill was passed. Of course, the government tends to exaggerate and then the facts get lost in time.

In fact, as of today, only $44 billion of the $787 billion in stimulus money has actually been spent. It should also be evident that $44 billion in spent stimulus money in an economy that exceeds $14 trillion is literally a drop in the bucket. If anyone thinks that this $44 billion had any material effect on the excellent job report we had on Friday, then they really do not understand the scope and scale of the excellent U.S. economy.

Remember the White House’s promise that unemployment would top out at 8%? In fact, unemployment hit 9.4% on Friday, which is a 25-year high. I reviewed the unemployment records and discovered that 1.5 million jobs have been lost in America since the stimulus package was instituted. Apparently, spending the stimulus money has not been nearly as easy as we were led to believe. It has been a slow, grinding bureaucratic mess with almost no positive results. In fact, many of the stimulus packages are bogged down in lawsuits and counter charges. In many cases, none of the stimulus money has actually been spent in some states. However, the economy and the stock market continue to improve without it.

Learned politicians (an oxymoron?) would quickly evaluate this positive economic trend and revalue the entire stimulus package. Rather than create unprecedented deficits in this country over the next two years, it is now time that half of the stimulus package that was previously approved be immediately repealed. It is not needed, and in the end, it will cause more problems than it will be worth.

Everyone seems to have lost sight of the fact that the Federal deficit for 2008 was roughly $455 billion. That’s large for sure, but it’s peanuts compared to 2009’s deficit, which is a staggering $1.8 trillion. The economy was never as bad as the press tried to lead you to believe, but we have opened the door to massive government spending at unprecedented levels that we have never seen in the past. In addition, we have opened up private industry and small businesses to be run by the bureaucrats in Washington who are clueless as to how to run our government, much less private industry where few of them have ever worked.

If you need some examples of how private industry no longer needs the government’s involvement, here are a few: Last week, none of the major investment houses borrowed any money from the Federal Reserve. In fact, the last time they borrowed money from the Federal Reserve was the week of May 13th, almost one month ago. Since the large investment houses were able to raise capital easily in the public market, the involvement of the Federal government in bailing them out is no longer necessary. The banks and investment houses have raised $80 billion in private money in the last two months.

You may have recalled my earlier statements that the government would provide a much needed fund to handle commercial paper of large companies. When the banks suddenly quit loaning short-term money, the government stepped up and provided the liquidity that was needed for short-term commercial paper. The Federal Reserve identified $1.3 trillion worth of big business commercial paper that they were willing to purchase to assist the U.S. economy. But once again, politicians screamed that the government was bailing out businesses that deserved to fail. I guess they never bothered to read the whole story.

In fact, demand from private businesses for this program in commercial paper never came. Perhaps it was because the businesses were able to borrow their own money or banks actually started providing the necessary financing. However, as of last week, the Federal Reserve was only holding $145 billion in corporate commercial paper. In each week of the last six, this amount has been going down. Since most commercial paper matures over a relatively short period of time, as the maturity dates are reached, the Federal government will be repaid the principal plus interest and these amounts will continue to go down. While $145 billion is a lot of money, it is nowhere close to the $1.3 trillion that was originally proposed.

In order to fund these massive government programs – which the economy no longer needs – the government is proposing every type of new tax ever attempted in any country in the world. There’s a new proposal on the table that U.S. based corporations will be taxed based upon their foreign income in the United States. The fact that companies can presently set up corporations in a foreign country with low income workers and run and fund them economically from the United States without taxation has put literally millions of people to work in foreign countries with U.S. employers.

On Wednesday of last week, Microsoft’s CEO, Steve Ballmer, indicated that if such a tax was imposed, it would reduce the earnings of the Dow Industrial companies by 15%. Microsoft is arguably the most important U.S. company with 90% of the PC market. Ballmer stressed that it will benefit all U.S. corporations to export jobs if this proposed tax passes.

Given a normal multiple of 10 times earnings, we are talking about an astronomical sum of lost wealth by all Americans. Even scarier is that companies will not do business in the United States due to this unfair and unrealistic corporate tax. U.S. based companies will also relocate out of the United States to countries with friendlier tax laws. Once again, the idea of increasing taxes to pay for unneeded and unwanted social programs in this country will hurt the very employees the social plans are designed to assist. By increasing taxes on businesses, businesses will employ fewer people. If these American companies relocate to foreign countries, then the jobs will benefit foreigners in other countries, not individuals in the U.S.

There are other taxes that have also been proposed. You can call it whatever you want, but the new Cap-and-Trade Program is nothing more than a way to extract money from the economy under the misguided theory that it will help the environment. We’re now even hearing about a possible VAT (Value Added Tax) European-style tax of 10%. This would essentially be a national sales tax in addition to all the other taxes you currently pay. Furthermore, I continue to read about the possibility of a health care tax to fund the massive undertaking of government-sponsored health care in the United States.

Again, title them however you want, but when you take money out of an individual’s pocket and give it to the government, it is a tax. As the government involves itself in the daily aspects of running American businesses, the burden on U.S. taxpayers will only increase. You may say that this will only impact the rich, but all the taxes outlined above affect the poor proportionally. The poor will need to continue to purchase utility services which will go up under the Cap-and-Trade Program. Everything purchased will be impacted by a VAT. All people needing health care will pay extra taxes to fund a larger bureaucratic nightmare that government-sponsored health care will bring. In fact, every plan proposed will come with new massive governmental spending and corresponding massive government taxes.

There are solutions that should be pondered: The rest of the stimulus package beyond fiscal 2009 should be trashed. It’s not needed, it’s not good for the economy, and we certainly cannot afford it. Rather than increase taxes, the government needs to reduce spending. If there is any type of fiscal responsibility in Washington, the budget has an outside chance of being balanced in the next decade. The largest single increase in employees in the latest employment numbers is in the government. The government needs to be cutting employees rather than increasing them. The future of a better economy and a better way of life for employees is through private employment, not the government sector.

It is encouraging to see the stock market go up 12 of the last 13 weeks. It is encouraging to see the number of people filing for unemployment fall. It is encouraging that the banks and investment houses say they don’t need the government’s money any longer. It was only eight months ago that Congress was telling everyone the $700 billion bailout bill for the banks would amount to zero to the taxpayer in return. In fact, only $350 billion of the original bailout bill was used, and the government has received interest on every dime. In the next two weeks, half of that is subject to being repaid. There is so much good going on that it’s hard for the public to believe since they do not get a report of that in their daily news. The only place you see better news on the horizon is on Wall Street.

As always, the above are my comments and opinions. Heaven knows, I could be wrong.