Return to Capitalism

by William Northwall

  Our politicians should resist the dangerous temptation to use infrastructure spending for social engineering. California Gov. Jerry Brown, for example, has used $3 billion in subsidies from the 2009 Obama stimulus package to launch what will likely be the biggest white elephant in state history. The so-called bullet train between San Francisco and Los Angeles saw its speed cut sharply and projected cost double to $68 billion before construction started.

  Policy makers should be careful before jumping on the infrastructure-spending wagon, lest it turn into a huge boondoggle. The next president and Congress should make sure the $305 billion highway bill is wisely spent before upping the ante.”

  Concluding, even before Congress starts the infrastructure debate, the executive branch could start moving federal government new office space outside the greater D.C. and disperse it to disadvantaged cities where construction costs and labor are cheaper, and stop piling on congestion in an already congested region. Then, let Congress debate general principles to follow in designing an infrastructure program that is needed and which will work.

  16 - THE ENTITLEMENTS

  When the media talk about the entitlements, they lump Social Security together with Medicare, and the other healthcare programs. This makes little sense. Social Security has one payer, the government, and one group of recipients, the retirees. Healthcare, ontheotherhand, has multiple players, multiple providers, and multiple groups of recipients. I, therefore, will divide this section into Social Security and healthcare. As the piechart shows, together they constitute about 60% of all federal outlays. No one can suggest ways to cut federal spending to any significant extent, without including a change to entitlements.

  A. Social Security

  “To the Editor:

  In their Other Voices essay, Dudley Kimball and Robert Morgan said that Social Security will be insolvent by 2034.

  In the sense of having liabilities vastly greater than assets, it is deeply insolvent today. Social Security needs the equivalent of Chapter 11 Bankruptcy reorganization.

  Life expectancy for the 20-year-old white man in the 1930s was 66—meaning that, on average, he’d get one year of Social Security. Today, a 20-year-old man has a life expectancy of 82.

  Social Security has become a complex mix of financial functions. It is partly a welfare program; Kimball and Morgan would make it more so. It is partly a forced savings program with a very low rate of return. It is partly insurance against outliving your savings. And it is entirely broke, in present-value terms, reflecting cash already paid to those who took out much more than they put in.

  It is time to draw a line and have a reorganization. Those people who can easily afford it could take substantial haircuts on their future benefits, receiving say 60 cents to 70 cents on the dollar, to exchange for voluntarily opting out of the program. This would make Social Security much less insolvent. For the creditors, Congress should step up, write off the Treasury’s loss, put in whatever it takes to pay off the accrued benefits at par, and put Social Security into runoff. To this extent, the government would then have honest, as opposed to dishonest, books. A program designed for the now-irrelevant demographics of the 1930s would slowly liquidate.

  Then a sound retirement finance program could be put in place to go forward, based on 21st century demographics. Doubtless, the politics would be interesting. But perhaps starting over offers a better chance than trying to remake the 1930s DC-3 of Social Security into a jumbo jet while it’s flying.”

  Alex J. Pollock, R Street Institute, Washington, D.C.

  (Barron’s, 11-14-16)

  I used to think that there were “three knobs” to adjust in order to get Social Security’s finances balanced; the amount paid in, the amount paid out, and the age when recipients started collecting the payouts. Then, if there were shortages, all Congress would need to do is put the choices up to the electorate and let them vote their preferences, with a note made that the choice the electorate picked, had to balance. But as the piece I’ve inserted above makes clear, so much has changed since the 1930s; we’re living longer, the ratio of the number of workers to the recipients has greatly decreased, and today a large segment of the population has their own private retirement program. The advent of Social Security worked itself as a stimulus which encouraged the people, for the first time usually, to think about saving for their old age. Demographics of the country today are vastly different from the way things were prior to the 1930s; it only makes sense now to rethink the Social Security program. But please don’t cause hysteria; let those within five years or so of retirement be exempt from change. The present course of the finances of this program going out into the future is unsustainable. It must change. Easier now than later, so let’s get on with it.

  May, 2018 — I have just returned from Omaha where I attended the annual shareholders meeting for Berkshire Hathaway. (I’ve been a shareholder since 1981.) Warren Buffett and his co-chairman, Charley Munger preside over thousands (perhaps 40,000; there is nothing like it elsewhere in corporate America) of attendees who ask questions and they answer, but Mr. Buffett always starts off with 5 or 10 minutes presenting some information, issue, or happening of importance. Business is deferred until late in the afternoon. Mr. Buffett is a great teacher and he enjoys sharing his wisdom to the benefit of a great many.

  This year he started off with a discussion about healthcare and gave his reasons about why he’s joined two other partners to explore and create a better benefit for their employees. The other two partners are Jeff Bezos of Amazon, and Jamie Dimon of J.P. Morgan. Berkshire has 377,000 employees, Amazon 346,000, and J.P. Morgan 250, 000; together that’s just short of one million.

  Warren Buffett started by saying that in 1960 healthcare spending in the U.S. was 5% of the GDP, and this has risen to 18% now. He went on to say that a long time ago John D. Rockefeller had done much to benefit healthcare by his monetary contribution, and that this group of three want to do the same. Mr. Buffett didn’t say any more about this reference, but I am quite aware of what he was talking about. He was thinking about the Flexner report of 1910.

  The complete story of the Flexner report is told in the book, Iconoclast, Abraham Flexner and a Life in Learning by Thomas Neville Bonner. I am a graduate of the University of Nebraska College of Medicine, 1967, and early in the program they told us about the Flexner report and how that report had changed, improved, and made uniform medical schools throughout the United States. This was all paid for by the Rockefeller philanthropies. The report was revolutionary and of tremendous benefit to society.

  Mr. Buffet thinks of businesses as economic enterprises surrounded by a moat to protect them from competition. Buffett said the moat around the healthcare system had, for many reasons, an almost impenetrable moat, but their group of three were going to try to take some cost out of the system and offer their employees something better. They had announced forming this group earlier in the year, and Mr. Buffett said he’s received many phone calls from other CEOs wishing to join them.

  With that as an introduction, let us approach healthcare as an industry. This industry is absolutely huge as it serves all 330 million of us. That’s because every one of us either needs healthcare, or someday will. This industry comprises the doctors and all the various paramedical people who see us when ill. They analyze the cause of illness and offer ways to relieve or cure the illness. Sometimes it becomes necessary to hospitalize, and here there are multitudes of workers employing numerous services and equipment. Vendors supply hospitals with all kinds of goods and services, and they may employ middlemen between them and the hospitals. Then there is the pharmaceutical industry supplying medicines of every kind and the offerings are continually expanding as research leads to ever-evolving products and techniques. And on top of all this came the insurance industry to even out the expenses spreading them overtime, but to work, had to develop myriad rules and criteria.

  Had government never entered healthcare, it might have evolved over time as other
industries did, with the consumer of healthcare continually shopping for the best products and services at the lowest cost, and with competition in the marketplace, we today might have developed an efficient and affordable system. But because every one of us either needs or will need the services from the industry, there will always be some of us unable at the time of illness to pay for these services. Being a compassionate nation, and because our politicians are always finding ways compete for votes and they need to justify their positions, it was only natural that they could invent new ways to enter the industry. This was the dream of President Harry Truman, who, following WWII, advocated takeover of the healthcare industry to supply the services and goods to all. Unfortunately, government planning inserted into an existing marketplace driven system produced distortion, and because government always forgets to put cost restraints in for their created benefit programs, or at least they underestimate the cost, costs for their various health programs have exploded. They are destined to consume the entire federal revenue stream, and as such are unsustainable. I will address this with my thoughts after I write about what might be possible on the private or non-government side of healthcare.

  What the healthcare industry could supply in 1945 was by today’s standard, extremely primitive. Over time industry evolution with huge investments in research and development, gave us many new ways to diagnose and treat illness. Today’s system is absolutely marvelous, not yet perfect, nor will it ever be, but still marvelous. But with evolution to today’s level, costs increased accordingly.

  Born in 1941, I remember the end of the war. I saw the troop trains and watched the olive drab DC-3 Gooney Birds flying over Omaha and saw many soldiers in uniforms. The war effort was unbelievably huge as our country’s survival was threatened. And it forever changed our country in numerous ways. Probably the young today can’t conceive of the changes, but the nation and its people today are very different from pre-war America.

  Massive numbers of people moved from farms to the cities to labor in newly created factories to produce war goods; tanks, jeeps, aircraft, and so forth that in absolute numbers today seem unbelievably huge. The war-time deficit spending was greatly inflationary, and shortages occurred everywhere, and to control inflation, the government instituted price controls and rationing. Factories competing for workers, but unable to raise salaries, were accommodated by tax law changes introducing health insurance paid by the company with pre-income tax dollars. Those not working in factories were left out of this perk and if they bought health insurance, bought it with after-tax dollars.

  Surgeons created health insurance in the 1930s so they had a way to get paid for their more expensive charges than what the GPs charged. Most people could afford to pay for common health problems treated in doctors’ offices, but after anesthesia was available, and more surgeons became trained and their numbers grew, their charges soon became more burdensome than most could pay for out-of-pocket. A popular company created back then was Blue Cross.

  Because the way politics operates in our democracy, issues of all kinds enter the national dialogue, and attempting to solve problems, at the ready are always politicians seeking to accommodate the electorate. It was therefore natural that eventually we would get Medicare and Medicaid and later Obamacare. The Veterans’ Administration (the VA hospitals) had its roots started before WWII. So today healthcare is supplied to various groups; the uninsured, those with private health plans, the age 65 plus getting Medicare, with Medicaid for the poor, and most vets now qualifying for the VA system.

  While Congress can grapple with the almost insolvable problems of Medicare and Medicaid, the now almost dead Obamacare, and finally the VA, I think Mr. Buffett and his group of three may have a chance to start changing the private side paid for by employers. This group on the private side contains the majority of people not on government paid healthcare. Should they be successful in this endeavor, it well could be an inspiration to the politicians as to how they might change the government programs.

  Here are some of my observations and thoughts.

  Design a new insurance product (without all the legacy rules and regulations that have been incorporated into today’s insurance products) that reimburses the employee for healthcare expenses incurred after the employee has shopped for the best (of good quality) product or service at a lowest cost by rewarding comparison shopping. The reward being 100% reimbursement if the employee can document that he or she comparison shopped, otherwise reimburse at 95%.

  Price Transparency: The healthcare products and services should be listed on a transparent list published in the community and available to anyone.

  Coding: Abandon the present medical coding system, as it is confusing and not understandable, especially by lay people. Put out a request for an alternative system for the public. Certainly Apple, Alphabet, and others should be able to design and organize a more usable and understandable way to list procedures and services and their charges.

  Allow Bundling: Here is an example to illustrate; a lady with newly diagnosed breast cancer may need a nuclear liver scan and a nuclear bone scan, an MRI of the brain, a lot of lab blood chemistry exams, and probably a few other things. The entity that designed the new coding system should also be in a position to create bundles of services. Then price the bundle less than the sum of its parts.

  Recruit medical doctors to join as participating members willing to accept payment for services rendered to employees utilizing this insurance and to be reimbursed by a uniform fee schedule arrived at through negotiation.

  Require participating physicians to utilize a common medical record that their representative doctors designed, and in which allows use by teams of specialist doctors as well as varied paramedical workers all working together for those attending a given employee/patient.

  Pharmaceuticals have become a huge expense to everyone and this needs to be addressed. Should your insurance program be successful and as it then grows, create a department to retain lobbyists to work with Congress to make meaningful changes applied to the pharmaceutical industry that affect prices. To name a few things, (a.) Congress needs to review the patent system, especially abuses by companies changing an atom or two on a molecule and calling it a new drug thereby extending its patent lifetime. (b.) Congress could do everyone a favor by rewarding companies creating generic drugs when a drug goes off-patent. (c.) Congress should examine how Americans are subsidizing pharmaceutical research and development for the whole world, and what might be done about this. (d.) The Food and Drug Administration needs to emphasize safety and not efficacy, and utilize more compassion and common sense and speed, particularly when promising drugs become known for those already near death from their disease.

  Your insurance program should align with companies offering medical practice liability insurance and assist them in petitioning state legislatures and the Congress to cap payment for medical errors, and insist that medical errors be made known to the medical profession so that medical procedures gone awry can be re-engineered so as to prevent recurrence.

  Interacting with hospital complexes needs to be viewed as possible or at times, unreasonable cost centers. Secrecy needs to be changed to transparency utilizing the aforementioned coding system for procedures and their cost, and these need to be based on a fee schedule that is somewhat uniform for a region. Cross subsidization such as increased radiology and lab charges made to subsidize lower cost of room charges has to be ended. If the Diagnosis Related Group or DRG system of grouping is used, which is where there is one charge for a given diagnosis, then all patients entering and getting diagnosed with pneumonia would incur the same charge. This should be the standard, whether or not it was a simple or complex case. With such a system, those needing an elective procedure, say a hip replacement, could know in advance the charge, thus making comparison shopping easy.

  These are a smattering of ideas, and please consider this just a start of ideas, but I’m hoping it might give some direction, or at least some i
ssues for Mr. Buffett, Bezos, and Dimond to consider. And most assuredly many others will offer their ideas. I whole heartedly welcome their efforts to try to bring some cost out of the system and create a better product for their employees. I salute you.

  Now, on to the government portion of healthcare. That’s Obamacare, Medicare, Medicaid, and the VA system.

  B. Healthcare

  THE COLLAPSE OF OBAMACARE—WHAT TO DO NOW

  Steve Forbes, Editor-in-Chief, Forbes Magazine, November 29, 2016

  “With the ObamaCareexchanges collapsing and millions of people being battered by ghastly increases in health insurance premiums, what’s to be done?

  Forgetting that socialism doesn’t work—never mind that it’s deeply immoral—Democrats are addicted to the idea of government-dominated healthcare. They see ObamaCare’s terminal crisis as the perfect opportunity to realize their age-old ambition of socialized medicine, hence the current mouthing of such slogans as ‘a single-payer system,’’Medicare for all’ and the offer to consumers of ‘a public option,’ i.e., subsidized policies from a health insurance company run by Uncle Sam.

  Republicans should be ready with proposals that will help healthcare ultimately become a normal market, where patients are in charge, not such third-party payers as health insurers, Medicare and Medicaid. Currently, the patient isn’t the ‘customer,’ which is why so many thousands of them die unnecessarily from infections received at hospitals or from medical errors. The current system works to make the patient as passive as possible. A consumer revolution won’t be achieved overnight, but several ideas will help.

  Nationwide-shopping for health insurance. Bust up the Balkanized, state-by-state arrangements we have today. We’re one country, after all. There’s no reason that a resident of, say, New Jersey shouldn’t be allowed to buy a policy offered in Wisconsin. Let scores of companies compete for your business instead of the handful you now have.