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Archive for September, 2011

A couple of years ago, a friend of mine had a heart CT scan. A few days later, he was having a couple of stents put in to alleviate a near complete blockage of blood flow to his heart. Shortly thereafter, my loving wife decided to give us each a heart scan for Valentine’s Day. Of course, she was completely clear, and I showed some blockages. My internist recommended that I have a stress test. I had a an old fashioned “major medical” health insurance policy with a very large deductible, so I would personally pay all of my medical bills outside of hospital surgical procedures.

I contacted the office of a radiologist in order to schedule the test, and asked for the price of the test. The receptionist asked me if I had insurance coverage for the procedure, and when I replied no, she told me the price was $3500. I nearly gagged, but had the presence of mind to ask what price Medicare reimbursed the doctor for the procedure. I was put on hold, and the office manager came on the line and informed me that the Medicare rate was $1200. I offered to pay $1200 by check at the time of the test, and she replied “sure, why not?” Since that time, I have wondered about doctor pricing of their services, and have asked various healthcare professionals about pricing, billing and collection practices.

I was not surprised to find out that “list prices”, which are almost never posted for physician services, are contractually discounted by doctors who agree to private insurance reimbursement and be included in that insurer’s “network”. After all, your insurance company is supposed to negotiate prices on your behalf. But I was shocked to find that, while this discount varies by specialty, it is routinely in the 70% range! And doctors are expected to reduce reimbursement rates even further for Medicare by about another 15%, to the point that many doctors will no longer accept such patients because don’t even cover overhead costs. Consulting firm Milliman found that in 2006-2007, Medicare cost private insurers about $88 billion in the aggregate by shifting costs to them. So ironically, public health care costs only partly pay for the care provided to patients with that coverage.

In addition, both Medicare and private insurers require medical practices to complete and submit claims information, which is then processed, questioned and disbursed over time periods that can result in payments typically two months, but routinely up to six months after service was provided. There are thousands of different medical services codes, and reimbursements for the same services vary according to the insurers, who regularly deny coverage for various services. Knowing this has prompted many physicians to routinely send in billing with multiple codes, some duplicative, others just misleading, in order to try to get a reasonable reimbursement for their services.

Over time, this cat and mouse game between insurers and service providers is corrosive to the business integrity of the providers. Doctors tend to have a world view shaped by their experiences. And in their experience, bills are not paid straightforwardly. They are “chiseled” on their billing and made to wait months for payment. Is it any wonder that over time, most doctors I know routinely pay their own bills late?

By separating the consumption from the payment for medical services, third party payment systems are innately antithetical to cost containment, and have led to higher than necessary health care costs. We need to have service providers post their prices much like restaurants have menus with prices for each dish. Doctors should be paid the same by those with insurance and those without. For non emergency care, patients should pay in full at the point of service, and try to collect from their insurers later. Since the patient is paying directly for that insurance, those companies would become more responsive to them or suffer the loss of their customers.

It seems certain that we are heading into a severe double dip recession. Not only does the US have it’s own problems, but the bills for a generation of European socialist spendthrift ways is now coming due, and threatens its monetary union. There appear to be no real solutions to remedy the situation. So I asked myself, if free from “socially and politically correct” restraints, what would it really take to solve our economic woes and usher in a new era of high growth in real incomes? Following are the ideas I came up with that are virtually guaranteed to annoy almost everyone, but might get the at least part of the job done.

1. Simplify the tax code to a flat 22% rate on income above the poverty level. Get rid of all deductions except for charitable contributions, retirement savings (IRAs), and healthcare. According to the Laffer Center, the cost of tax compliance under the current tax code is $431 billion annually. Forget the fairness arguments in favor of a flat tax for a moment; this is outrageous complexity! We are a religious and charitable nation; we need to encourage retirement savings to reduce reliance on the Social Security safety net; and we need to get employers out of the business of healthcare and encourage the self employed to obtain it by putting them on par with employees.
2. Reduce the corporate tax to a flat 22% rate on worldwide income with deductions only for foreign taxes paid. Let’s stop encouraging our resident companies to export jobs and play accounting games. Bringing back untaxed overseas corporate income would create a rising wealth effect to businesses and their shareholders that would have a huge and continuing stimulative effect on the economy.
3. Pass a free trade agreement with the European Union. This would cost the US almost nothing, and according to a report by the Brussels-based European Center for International Political Economy, a transatlantic zero-tariffs initiative would increase combined U.S.-EU GDP by $180 billion within five years.
4. Raise the Social Security retirement age to 72. We all know that this entitlement program will go broke before it pays out its obligations. And government’s failure to deal with such a largely unfunded obligation is one of the elephants in the room of our deficit woes. Realistically, Social Security was set up in 1935 during the depression to ensure that the elderly were not indigent. It was never meant to be a complete retirement plan to be paid out for twenty years or more. And the retirement age of 65 was instituted in a time of considerably shortened life expectancy. In fact, according to the Social Security Administration, only 54% of men lived to age 65 at the program’s outset, versus about 75% today, and the life expectancy of those who do is about 25% longer today. Lower birth rates in the last generation also mean about half as many wage earners today are paying in to the program to support retirees as when the program was set up. Let the program reflect its original purpose and our new reality.
5. Reduce unemployment benefits back to the historical limit of 39 weeks. Yes, I know this is an additional hardship for many suffering people. But when you increase the options of the unemployed, you get much more usage of unemployment insurance. Today, a worker needs to have been employed for only six months in order to receive 99 weeks of benefits. By forcing workers to take less desirable jobs sooner, you reduce unemployment. And when the economy improves, they can trade up for better jobs. Have you ever wondered why millions of undocumented illegal aliens are able to support themselves when so many American are out of work?
6. Allow Fannie and Freddie Mac to fail and get the US out of the mortgage business. By allowing the continuing support of the Government Sponsored Enterprises (GSEs) we do not allow the residential real estate market to find a true bottom. According to their regulator, the Federal Housing Finance Agency, they have already cost taxpayers $170 billion, while paying millions to their executives. The agencies insure over $6 trillion of mortgages, and their costs could eventually exceed $1 trillion, all of it “off budget” since they are not government owned. Yes, letting these GSEs fail could put more homeowners under water on their mortgages by contracting the supply of mortgages and causing prices to fall, but a home should be a long term investment, not a casino or a money market fund. Canada doesn’t subsidize home mortgages, yet they have a higher rate of home ownership than the US, and have largely avoided the housing bubble these GSEs contributed greatly to inflating.
7. Establish a sunset provision for all government agencies. Have you ever wondered why government expenditures are always increasing? Part of the reason is that no agency or department of government ever seems to be de-funded. Take for instance, the Environmental Protection Agency. Since it was founded in 1970, isn’t our air and water much cleaner? Great job right? But today, this bloated agency employs 18,000 and has a budget of over $10 billion. If we are ever to get our economy growing again, we can not afford to continue bloating the size of our government.

If you have other ideas to really fix the economy, I would love to hear from you.

I play USTA adult age group tournaments at the local, sectional and national levels. I do so not because I think it is loads of fun, although it can be when you win, but because it helps to keep my rambunctious ego in check. In tennis, once one becomes an accomplished club player, the difference in ability levels is not so much stroke production, but what is between the ears. Being able to perform under pressure for an extended period of time is what separates a good match player from someone who hits a good ball. Whereas most club play does not extend beyond about an hour and a half, a competitive tournament match begins about then and concludes in about three hours. And it gets tougher to both concentrate and keep your playing level up as you tire.

So as my age group national grass tournament approached this year, I was full of confidence. It was being played at the old site of the US Open, at Forest Hills. I had won a singles event in the late spring before being sidelined with a Morton’s Neuroma. Virtually every senior athlete (and non-athlete) is constantly nursing an array of injuries, so this was a mere annoyance. I had been playing well for several weeks. And as a warm up for the event, I played grass court doubles in a younger age group at the same venue earlier in the week. Teaming with a good, but tournament neophyte player with whom I sometimes hit, we had exceeded all expectations by taking a set off the fourth seeds before losing 6-4 in the 3rd. I felt like I was loaded for bear.

My singles match was played yesterday on a crisp, cool sunny afternoon. My opponent was inexperienced on grass courts, and looked awkward in his strokes. I felt I couldn’t miss. Ah, such is the power of expectations. Although I had warmed up well, on the second point of the match, I pulled a groin muscle and felt like I couldn’t push off. Panicked, I began to blast the ball to end points quickly. I took 3 motrins at the first changeover, and tried to play slowly, but the first set went by in a blur with me losing 6-0.  I began to feel a bit better, and focused on not missing. I won the second set 6-4 and regained some confidence. This guy shouldn’t even be on the same court with me! Although I had many chances in the third set, I couldn’t remain focused and in the moment. I felt that I would win until the last point, and that I should beat my opponent 9 times out of 10. But on this occasion, I didn’t. Losing is a stinker, but it does surely bring one back down to earth. A day’s perspective brings back the reality that it is a privilege to play, and I am OK, but not great. And that’s just fine.

Even after the failure of the 2009 stimulus plan, President Obama still seems to think that temporary incentives change long term decisions. His jobs bill presumes that businesses will hire more workers if only they paid less in current payroll taxes. For someone with such a fine academic pedigree, he really knows very little about the real world.

To really stimulate the economy without breaking the bank, he needs to think more outside the box of temporary stimulus and class warfare. Congress needs to re-imagine the corporate tax. We currently have federal marginal rates of 35% on all income repatriated to the US. Yet there are so many deductions that average corporate taxes as a percent of all income is  about 22%. We encourage companies to export jobs abroad by having consistently higher marginal rates than other developed nations. And we penalize corporations with these punitive taxes when they repatriate foreign earned income.

Currently, US Corporations hold as much as $1.9 trillion untaxed profits abroad. The US corporation tax rate should be lowered to 22% on worldwide profits, whether held domestically or abroad, with deductions only for foreign taxes paid. I guesstimate that roughly $1.2 trillion would be brought back to the US, and assuming a 18% effective tax rate after foreign taxes, would bring in tax revenue of about $200 billion, a huge deficit reduction. Furthermore, the balance of the $1 trillion in new cash on domestic US corporation balance sheets would be hugely stimulative to the economy. Even if the money were to be used primarily for corporate stock repurchases or dividends, this amount of one time and recurring cash flow should raise stock prices, create a rising wealth effect and push increases in consumer spending.

At lunch today I heard a brilliant idea to spur new enterprise development. Simply put,

“never tax the profits of a business founder on the sale of the business, no matter how long the business is owned”.

Most businesses are small, family enterprises. There is simply no moral justification for taxing the life’s work of those companies, stores, restaurants and services. Various estimates show that 80-90% of all enterprises are family owned and  provide 65% of all wages paid in the private sector. Small businesses have accounted for 64% of new job creation over the last 15 years. While some become large, the overwhelming majority are not, and passing along the fruits of one’s labor to children is a pillar of the uniquely “American Dream”.

At a time when the US is engaged in fighting four wars around the world that have arguably little strategic value for it, why do we refrain from exercising our hegemony in Cuba?

Historically, Cuba has been closely tied to the US for over a hundred years. There are millions of Cuban Americans in the US. Havana used to be the exotic vacation spot for many Americans.

Not only is Cuba a mere 90 miles off the coast of Florida, our strategic and moral interests are very much served by intervention in Cuba. Recent energy discoveries in the Gulf of Mexico are being exploited by Cuba but off limits to safer US regulated drillers.

Cuba for the past 50 years has ruthlessly squelched internal dissent. They continue to attack the protesting “ladies in white”, who have called for releasing the thousands of political prisoners in its ghastly prisons. Under the Castro regime, per capita income in this island prison has gone from second highest in Latin America to second lowest, above only Haiti. Michael Moore may laud it’s free health care, but one can’t find so much as an aspirin in a state pharmacy. Food, housing and transportation shortages are an ongoing fact of life.