• Only 21% of voters nationwide believe that the federal government enjoys the consent of the governed (the Declaration of Independence posits that governments derive “their just powers from the consent of the governed”). (Source)
• A majority of Americans (56%) say the federal government poses an immediate threat to freedom of ordinary citizens. (Source)
• A big majority of likely voters  (63%) believe that it would be better for the country if most incumbents in Congress were defeated this November. (Source)
• A vast majority of Americans (75%) are angry at government’s current policies. (Source)
• Only 11% of all voters now think the government spends taxpayers’ money wisely. (Source)
• A vast majority of Americans (83%) say the size of the federal budget deficit is due more to the unwillingness of politicians to cut government spending than to the reluctance of taxpayers to pay more in taxes. (Source)
• A majority of voters (58%) think that if Congress raises taxes to reduce the deficit, Congress is more likely to spend the money on new programs. (Source)
• A majority of Americans (61%) favor a law that would limit the amount of taxes paid to state, local and federal governments so that no one would pay more than 50% of their total income in taxes. (Source)
• 45% of voters think that a random group of people selected from the phone book would be better than our current Congressmen. (Source)
• A majority of voters (59%) believe that cutting taxes would create more jobs than even more government spending. (Source)

The first two polls really shock me. Only 21% of voters think the government currently has the consent of the governed?!? And most people think the government is a threat to our freedoms?!?

The rest of the polls show that people are quite angry at Congress for wasting their money and passing bad laws. They want fewer taxes and less spending. They also think that all incumbent Congressmen should be replaced.

It’s unclear how this anger will manifest itself. Congress doesn’t seem to understand the anger and is seemingly content to keep doing business as usual: more spending, more payouts to special interests, and more taxes wherever they can sneak it in.

When November rolls around, I think we’ll see a lot of incumbents replaced, but this will be limited because Americans tend to think, “my guy is good, those other guys are the problem”. And given that we have a two-party system, the choice still comes down to “Tweedledee vs Tweedledum”. Real change will probably take a bit longer, since it will take a while before we have a real 3rd party alternatives or a massive restructuring of an existing party.

Let’s take a look at his suicide note:

I choose to not keep looking over my shoulder at “big brother” while he strips my carcass, I choose not to ignore what is going on all around me, I choose not to pretend that business as usual won’t continue; I have just had enough.

…

I can only hope that the numbers quickly get too big to be white washed and ignored that the American zombies wake up and revolt; it will take nothing less. … violence not only is the answer, it is the only answer.

…

I am finally ready to stop this insanity.  Well, Mr. Big Brother IRS man, let’s try something different; take my pound of flesh and sleep well. (Source)

The official government definition of terrorism is “premeditated, politically motivated violence perpetrated against noncombatant targets by subnational groups or clandestine agents.”

Lets check the criteria:

• Premeditated – yes
• Politically Motivated – absolutely
• Violence – definitely
• Against noncombatant targets – yes
• Perpetrated by a sub-national – yup

So why is he not a terrorist? The only reason I can think is that guy who did it isn’t a brown-skinned guy with a funny sounding name and a turban.

To summarize: “A man flies his plane into a federal building trying to kill innocents and hoping incite people to overthrow the government. But he’s white, so he’s not a terrorist.”

Prohibiting insurers from denying coverage based on a pre-existing medical condition is a very noble-sounding idea. But it’s as naive and myopic as the idea of eliminating poverty by giving everyone a million dollars and a pony.

To understand why, we need to think about how insurance actually works. Let’s look at auto insurance. For example, Crissy and I pay around $100 per month to have $500,000 of coverage per incident. It’s very unlikely that either one of us will ever cause that much damage in an accident, but if we did, it would financially catastrophic. So, we voluntarily buy insurance even though we don’t really expect to ever collect.

The insurance company collects $100 premiums from lots of people and pools the money so that a large sum of money is available if the low-probability event happens to one of us.

The system works since people pay small sums to protect against a low probability event.

If you wrecked your car yesterday and bought insurance today, would the insurance replace your car? Of course not. You would be asking them, “How about I give you $100 and you give me $25,000 to replace my car?”

Basically, you’re asking them to charge you the small premium of low probability event, even though the event already happened. You’re just asking for free money.

The same holds true for healthcare. If we pass a law that says you can’t be denied for pre-existing conditions, then people will just wait until they are sick and then buy insurance. The latest proposal from Congress has a penalty if you don’t hold insurance, but the penalty is a measly $750/year. So healthy individuals would still wait to buy insurance until they need it.

In this world, every policy holder will be filing claims. Which means every customer will be saying, “How about I give you $100 and you give me $25,000 to replace my car?” and the company will be required by law to say yes. The law essentially dictates that private companies have to give you free money to pay for your medical expenses.

In this system, all the companies will either go out of business or raise their rates drastically. And the whole private sector of insurance providers would collapse.

And though the government will claim this is a “market failure”, it should be clear that the cause is government meddling.

Once the private sector is gone, all we’ll have left is a government “single payer” system. And despite the touted theoretical benefits of a “single payer” system, does anyone actually believe that the same bureaucrats that brought us the the TSA, FEMA, the DMV, and the IRS can run a nationalized healthcare system that is cost-effective and also provides high quality care?

The sad thing is that politicians are using the “pre-existing condition” issue to distract people from the real problems: government bans of insurance competition, out of control malpractice lawsuits, and government subsidies that forced us to have a “3rd party payer system”.

Remember, a single-payer nationalized system has rationing by definition. Anytime something is provided for free, it is rationed. Every existing single payer system in the world and every single US government program is rationed. This includes Social Security, Medicare, Cash for Clunkers, $40 vouchers for digital to analog converter boxes, welfare, subsidized CFLs, tax credits for hybrids, and so on.

There’s no way anyone can claim that healthcare would be any different.

Finally, while I shouldn’t have to say it, I’m all for fixing healthcare. I’m just against the ideas coming from Washington. Those plans won’t make things better; they will make things much, much worse. If you’re interested in learned why and how to really fix healthcare, check out my earlier posts on this topic:

• The root causes of our healthcare problems
• How to fix healthcare
• Some closing thoughts on healthcare – I guess these didn’t turn out to be “closing” thoughts :-)
• Healthcare reform and Corporatism

WASHINGTON — A measure to allow the importation of cheaper prescription drugs from Canada and some other countries fell short in the Senate Tuesday night, but lawmakers were working on other ways to squeeze concessions from the pharmaceutical industry.

So our Senators had to ask the drug companies if Americans could have permission to buy medicine from non-American companies.

A free people should be able to voluntarily buy goods from whomever they want. The ban on importing drugs is nothing more than corporate welfare thanks to the industry’s liberal bribing of our Congressmen.

The drug companies claim that safety is an issue. But an amendment to allow importation of medicine if it has FDA approval was voted down in the Senate as well, which means the concern about “safety” isn’t valid.

I know we’re told that our economic and political system is Capitalism, but it’s very untrue. Sadly, we really have a system of Corporatism, where companies essentially run the government and write the laws. Heck, even Michael “I hate Capitalism” Moore agrees.

In this case, American pharmaceutical companies bought Congress and got a law passed that makes it illegal to buy products from their competitors. And it can be even more blatant: sometimes companies just get big piles of taxpayer money. A study that shouldn’t surprise anyone found that banks that spent more on lobbying were more likely to get bailouts.

An obvious, simple fix for healthcare is to let Americans voluntarily buy medicine from whoever they and their doctor feel is best. This alone with save Americans over $8,000,000,000 a year! But it’s not on the table; Congress doesn’t work for the people, Congress works for wealthy and powerful corporate interests.

But, don’t lay all the blame on the companies. The majority of the blame should be on our leaders in Washington. If they weren’t for sale in the first place, then they couldn’t be bought.

You have to watch it; it’ll make you laugh really hard… and then it may make you cry since it’s all so true.

Sadly, they don’t. And given the pathetic state of political discourse in our country, this is a somehow a partisan issue.

A few Congressmen (from both parties) tried to add an amendment to the Health Care bill which requires the final version of the bill be available for 72 hours before the vote. And the amendment failed in committee along party lines!

Health care is extremely important to everyone’s quality of life and is the single largest piece of the U.S. economy. Congressmen voting on a 1,000+ page which overhauls over 10% of the economy without reading it? What on earth could go wrong?

Here are some of the many laws that were passed without anyone reading them:

• Patriot Act (Oct 2001) – voted on and passed even though many paragraphs and pages of the bill still said “to be written”
• $789,000,000,000 Stimulus Bill (Feb 2009) – 1,100 pages long and only available 13 hours before the debate and vote
• House Energy Bill (June 2009) – 1,200 pages long and only available 15 hours before the vote

Remember those large cash bonuses AIG executives got after being bailed out by us taxpayers? Last minute changes to the stimulus bill by Senator Dodd allowed those bonuses to be paid. And other provisions to tax bonuses of bailed out companies disappeared at the last second too. No one knew, since no one actually read the bill.

And that Energy Bill? Turns out that Democrats added 300 pages of amendments at 3 am the night before the vote.

But it’s not just the Democrats forcing bills through without letting anyone know exactly what’s in them. The Republicans forced through the Patriot Act and the Medicare Prescription Drug bill without anyone knowing exactly what’s in them as well.

The solution to this is really simple: voters need to vote out any Congressman that voted for a bill that he or she did not read.

I’ve called my Congressmen before and asked why they vote for bills they couldn’t have possibly read and I’ve heard a number of excuses.

One excuse is that it is very hard to understand the bills since they contain pages of text like “Amend paragraph 4 of subsection (a)(iv) of Subpart C…” Now, while it’s true that the language of the bills is hard to understand, this excuse is stupid. Is it too much to expect our lawmakers to be able to understand laws? Or that they would actually take the time to figure it all out?

These guys are paid over $160,000 a year (not counting all the perks and under the table money) and they aren’t able to do their job? Tell you what, elect me to office and I’ll vote for bills without reading them for half of what you’re paying your current guy.

Another excuse is “we have a crisis and had to act now”. This one is also untrue. For example, it was claimed that the 2009 Stimulus Bill was needed to avert a crisis. But only 20% of the spending in the bill was for 2009. So if it was urgent, the bill should have only addressed the “immediate needs” so that people could read it first.

The last excuse I usually get is “that’s just how things work”. This, again, is just a lame excuse. Everyone goes to Washington and says that they are going to bring “change, transparency, etc” with them. And they all turn out to be liars. If they all voted “no” on bills when they weren’t given enough time to read them, then we wouldn’t have this problem.

A friend mentioned to me that you can’t make the final bill available before a vote, since people keep adding amendments and riders to the bill. It seems like there’s a easy fix here: just declare the bill “final” and don’t allow changes for 72 hours while people are reading it.

I’m curious, does anyone think it’s acceptable for a Congressman to vote for a bill he didn’t read?

I think all Congressmen should have a rule: “If I didn’t read the bill, I vote no.”

In the meantime, we should all have a rule, “If you voted for a bill that you didn’t read, I’m voting for the other guy.”

So, given all the continuing ruckus around the issue of health care, I thought it was worth making a few last comments on the topic. :-)

First, we have to remember that the system we have today is not a “free market” system. Why? Well, we already discussed the some of the government policies that cause massive distortions in the market. And there are hundreds of more rules and regulations. For example, in Maryland, employer provided health plans must provide 66 different benefits: everything from hair prostheses to in-vitro fertilization to massage therapy. If they don’t, then they can’t provide any coverage at all. As a result, employer-provided plans in Maryland cost 12% more than the national average (source).

The system we have today is the result of government policies and regulations. Even if you health insurer is screwing you over, you can’t do much. Your only option is to leave your job. This protects the insurers from competition and they lobby heavily to keep things that way. The very last thing they want is to have to compete with other companies to get their customers.

This is something to keep in mind why we discuss how to “fix” the problem. It’s highly unlikely that more of what get us into the problem will get us out.

Second, I think it’s important to point out that there is the goal of “affordable, quality healthcare for everyone” (the “ends”) and then there’s the strategy of achieving that goal (the “means”). “Obamacare” is just one of these means. In these sorts of discussions, people seem to forget that means and ends are separate things. It’s quite reasonable to believe that you can achieve the goal of affordable, healthcare without Obamacare.

Anyone who claims that opposition to Obama’s plan is the same as “not wanting affordable quality healthcare” is being extremely disingenuous. They are either guilty of myopic thinking or worse, just using underhanded propaganda to try to drum up support for their plan.

A good example of this is the “Patriot Act”. Proponents equated the Patriot Act with “protecting Americans”. If you opposed the Patriot Act, they claimed that you were against “protecting Americans”. Which, of course, is just plain wrong.

The same thing is happening with Obama’s plan. I’ve heard many people dismiss criticism of Obama’s plan with, “I don’t understand how anyone can be against reform.” Guess what? You can be against the plan (“the means”) and still be for reform (“the end”). Means and ends are not the same thing!

Here’s another recent example: Whole Food CEO John Mackey wrote an Op-Ed talking about how a few reforms that would improve healthcare and make it more affordable and accessible for everyone. He opposes Obamacare as a solution to the problem. While I don’t agree with everything he wrote, I thought it was a reasonable and thoughtful piece. However, a lot of people are angry with him “because all Americans need health care” and presumably in their minds, Mackey believes otherwise just because he opposes the Obama plan.

There is more than one way to fix healthcare, Obamacare is just one of these ways. Saying no to Obamacare is not the same as saying no to health care reform.

Anyway, it should be fairly obvious that I’m all for reform, but I’m very much opposed to Obama’s plan because it will make things worse.

Obama’s plan will further weaken private options for healthcare. The plan would continue to operate under a model like Medicare. Medicare, on average, pays 60% of what a medical service actually costs. Health providers need to cover this loss, so they pass on the costs to private insurance and other paying customers by inflating our bills.

Since the government plan is legally allowed to pay less for services than other plans and providers are forced to treat these patients, private plans end up paying significantly more for the same services. So essentially, the government plan is heavily subsidized. This subsidy will quickly drive private health plans out of business. And then we’ll all be stuck on a single government run health plan.

And this would be an unmitigated disaster.

Now, I’ve said it before and I’ll say it again: do you really want the same people who run the DMV, airport security, IRS, the Post Office and FEMA to run your hospital?

Heck, even Obama said, “UPS and Fedex are doing just fine; it’s the Post Office that’s having problems.” That’s right, despite massive subsidies and a monopoly advantage, the Post Office is still losing money (and mail), while UPS and Fedex are profitable. That doesn’t leave me very confident about government run hospitals.

First of all, if only the government provides healthcare, it will be rationed. Don’t let anyone tell you otherwise. It’s axiomatically true that there will unlimited demand for free services. That’s just a rule of nature. When you give away something for free, you’ll run out. The only way not to run out is rationing. In every single country with a single payer system, there is rationing. It’ll be the same here.

Second, medical innovation will crawl to a halt. Innovation requires money. A public health plan, like Medicare today, doesn’t even pay enough for current technologies. It definitely won’t pay for doctors who establish new methods of care. Without this incentive and the necessary resources, innovation will suffer and so will we.

Third, new medicines and treatments that are approved for the government plan will not be judged by their merit, but instead who has the best lobbyists. If you don’t believe me, look at how companies win government contracts or how new treatments are approved by Medicare today.

Fourth, due to lack of competition, the quality of care will also be poor. If you don’t believe me, go check out a government-run VA hospital. Would you want to be treated there?

Though, maybe I’m wrong. Perhaps, Obama can deliver on his promise provide affordable, quality medical coverage for all of us.

But tell you what, if the government can provide affordable, quality medical coverage for all Americans, let them prove it first by providing it to our veterans.

Once they do that, let’s talk.

First a quick recap: the main cause of the problem is that insurance companies yield disproportionate power over the doctors and the patients. This is caused by government policies:

• Employment based insurance is heavily subsidized by the government, while private insurance is not
• Doctors are not allowed to collectively bargain against insurance companies due to antitrust regulations
• Doctors and medical providers are legally allowed to charge vastly different amounts for the same exact service (though this is illegal for everyone else)

So, as you’d expect, the first step in fixing healthcare is to reverse these three policies and undo their horrible negative consequences.

Now before going through the next steps, it’s necessary to go on a slight tangent about “insurance”. Today, when we talk about “health insurance”, we’re talking about two very different things: (1) a pre-paid plan for routine coverage (e.g. covering your yearly physical and normal prescriptions) and (2) an insurance policy for catastrophic health problems (e.g. coverage for a broken leg).

It’s important to make this distinction. Your car insurance doesn’t pay for your oil changes, but it does pay when you crash your car. Now, on the other hand, when you buy your car, you could buy a “pre-paid” plan that covers oil changes and other routine stuff, but it doesn’t cover for when you crash your car.

The reason they are normally separate products is that they are different businesses with different models. If I were to sell you a package that included all your oil changes and timing belt replacements for the next five years, the business model is just a simple “pre-paid” model. If I were to sell you insurance, that’s an actuarial business.

So, the second step in fixing health care is to stop allowing companies to only sell “bundled” plans while include both “pre-paid plans” and “catastrophic coverage”. They need to allow customers to buy just one or the other. Today, the companies, using their disproportionate power, bundle these services which make it even harder for alternative private plans from existing.

The third step is about prices. We already said that the prices have to be consistent and can’t be different depending on who’s paying. Now, we need to make providers publish their prices. Going into a procedure or appointment, I should know exactly what it is going to cost. It should be the same as when I get my car repaired.

This will do two things. First, it makes sure that all patients are billed the same price. Second, and more importantly, it prevents the common practice of billing private insurance (or uninsured) patients significantly more than Medicare patients.

Today many providers can’t afford to provide services at Medicare’s reimbursement rates, so they charge everyone else extra! If Medicare reimbursement rates are too low, then providers should allowed to simply refuse to provide the service at that price. Furthermore, they shouldn’t be forced by the government to provide those services at prices they don’t want to. And they certainly shouldn’t be allowed to rip off everyone else to make up for the loss.

The fourth step is related to people who can’t pay for emergency health care. People who show up at the emergency room but can’t pay will still be treated by the hospital. But the hospital will no longer be allowed to pass the costs to paying patients (this leads to bloated costs at the hospital). Instead, the bill will be paid by the federal government. The government will treat this as a debt to government and have the IRS collect the bill through their existing mechanisms. And if you’re an illegal alien, we will just bill the patients’ home country. After all, this is what everyone else does: if I needed medical care while in Canada, they would just send the bill to the US government.

The fifth and final step is to hold the health care provider responsible for any clear negative consequences of receiving the care. For example, if I have a surgery and get a nasty inflection (e.g. MRSA), then the hospital is responsible for fixing it. Think of it this way, if I have my car tires rotated and the repair shop drops my car off the lift, they would have to fix the car. Under no circumstances would I have to pay to fix the car.

So what about people on welfare? It’s not actually that complicated; while people are on welfare, the government can simply just buy them a pre-paid plan and catastrophic coverage. Once they are off welfare, they can buy their own.

So, just a few simple steps to fix the mess. By making these changes, we break the tie between employment and insurance, remove the barriers so affordable private insurance options can flourish, and reduce the health care costs across the board.

Once we do this, you will be able to buy affordable private health coverage. And if you don’t like your provider, you can find another or just choose to pay out of pocket for your expenses. And most importantly, the “hidden” costs of Medicare and providing care for those that can’t pay will no longer to hoisted on everyone else.

• It is near impossible to get affordable private healthcare.
• Insurance companies routinely deny treatment patients need.
• Insurance is tied to employment.
• and so on…

But these are really just symptoms, what we need to identify and fix are the core problems. As always, we need to ask the right questions, otherwise we’ll never really understand the problem.

And the right question is, how on earth did we get to the system we have today? Everyone talks about “the good old days”, when doctors made house calls and we didn’t have to wait 45 minutes after our appointment time passed to see a doctor. In those days, healthcare was affordable and doctors made good money. So let’s try to figure out what changed.

I believe the root cause of the problem is that we have an extremely powerful middleman between the patients and doctors. While, these insurance companies, HMOs, and their ilk may not be completely useless, they wield way too much power. This disproportionate power is the root cause of our health care problem.

The reason that they are so powerful is due to a series of government policies. These are policies which I assume had good intentions, but also had unforeseen, horrible consequences.

#1 – Employment based insurance is heavily subsidized by the government, private insurance is not

Originally, someone thought that “if we help companies provide health insurance, then more people will have it”. This led to a policy where employer provided health care is tax free. This means no federal income tax, no state income tax, and no payroll taxes for either the employer or the employee. This alone is roughly a 50% subsidy!

The unintended consequence here is that the subsidy basically destroyed the chance for affordable private insurance to exist. First of all, due to the subsidy, the price of private insurance is now at least twice as much as employment based plans. Second, since the only potential customers for private plans are the unemployed or people not covered by a government plan, these private plans can never reach the economies of scale to drive down prices.

As a result, we the patients have no power against the insurance companies. If they deny our coverage, we can’t do a thing. Why? We can’t easily “take our business to a better provider”. Since there are no tenable private options, we have to change our jobs to find a better provider!

#2 – Doctors are not allowed to collectively bargain against insurance companies due to antitrust regulations

The insurance companies have the upper hand against the consumer. And it turns out that they have the upper hand against the doctors too. Due to antitrust regulations, doctors are not allowed to collectively bargain with the insurance companies. As much as doctors would like to, as a group, force the insurance company to change, they are not legally allowed to! (Note: this is starting to change in some states, but the damage is already done and will take a long time to undo, if ever.)

This means, if doctors want to play, they have to play by the insurance company’s rules. They have no power against the insurance companies.

As a result, doctors are paid whatever the insurance company decides to pay for a service. Given all the overhead of runing a medical practice, the doctor is forced to see as many patients as possible which lowers the quality of care and increases the wait time to see the doctor since they need to have a full queue of people everyday.

Presumably the antitrust regulations were put in place to prevent doctors from ganging up against the patients, but the unintended, yet predictable, consequence was to put all the power in the hands of the insurance companies.

#3 – Doctors and medical providers are allowed to charge vastly different amounts for the same exact service

Even though the Robinson-Patman Act forbids price discrimination, health care is exempt. So the same exact procedure may cost the insurance company $60, but it often costs a normal person $600 out of pocket! You can see this evidence in the statements your insurance company sends you. You’ll see, for example, that the doctor billed $500 dollars for a service, but the insurance’s negotiated rate is $149.35.

Originally, I suppose this stipulation was in place to allow doctors to charge less for patients that have financial problems. But the unintended consequence is that people without insurance pay more and end up subsidizing those with insurance.

Because of these 3 reasons, the patient is no longer the customer. This is a key observation and goes a long way to explain the distortion in the health care industry. It turns out that the insurance company is the customer; after all they are the ones paying the bills.

Sellers need to adjust and optimize for their customers, so it shouldn’t be a surprise that doctors (the sellers) end up adjusting to the insurance companies (the customers). If the patient was the customer, doctors would optimize for quality of treatment at the best price. Instead, doctors need to optimize for insurance companies and guess what? Insurance companies pay a fixed amount regardless of quality.

Doctors now have little incentive to optimize for quality first. They instead now need to optimize for throughput, they need to see enough patients a day so that they can make enough money to keep their practice running. As a result, we see the doctor for 5 minutes, even though we waited 45 minutes to see him.

The doctor also has an incentive to get whatever money he can from the insurance company, this means sometimes ordering unnecessary labs and procedures.

What are the insurance company’s incentives? Well, first we need to realize that the term “insurance” is a misnomer. We don’t have “health insurance”; we have “pre-paid plan”. After all, it’s not possible to make actuarial estimates for routine coverage; so we just have a monthly premium. So, the insurance company’s incentive is to lower costs. They do this by denying and refusing to cover treatment, medicine, and anything else they can.

Since insurance companies have all the power, doctors and patients don’t decide how they will  be treated, bureaucrats do.

Now that we know what is causing the problem, it turns out that the solution is really simple. But enough for today, I’ll write about that in my next post. :-)

So, what should I do differently if we’re at “High Risk” as opposed to “Elevated Risk”? I’m not sure anyone knows, which, of course, severely limits the system’s usefulness.

But, fear not. The Department of Homeland Security is setting up a task force to look into it:

Homeland Security Secretary Janet Napolitano will appoint a “task force” made up of national, state, and local government experts, possibly including governors and mayors, to examine whether the color-coded system has outlived its usefulness. Bush administration officials who developed and oversaw the system may also play a role. The committee is likely to solicit comments about the alert system from industries affected by it, including airlines and companies that make or ship hazardous materials. The committee will have 60 days to examine the system and draw up recommendations on its future.

Since it’s a “task force” and not an “tiger team”, you know they mean business. :-P