Month: May 2009

Intel-ligent

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After 35 years with the company, Craig Barrett is leaving Intel. He has served as President, CEO and is currently Chairman of the Board. When he started in 1974, Intel had $50M in yearly revenue. Now, Intel has $50M in revenue every twelve hours.

In a 5/27/06 interview with PBS host Charlie Rose, Barrett discusses the transition to digital medical records in the first minutes of the hour long interview.

If you continue listening a few more minutes, you will learn earlier strategic missteps that Intel made. In hindsight, these mistakes are laughable but it shows that even the best and brightest have difficulty predicting the future.

Worth More White

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The Federal Interagency Forum on Aging-Related Statistics keeps track of the decades long transfer of wealth from the younger to the older.

After adjusting for inflation, “between 1984 and 2005, the median net worth of households headed by white people age 65 and over increased 81 percent from $125,000 to $226,900. The median net worth of households headed by black people age 65 and over increased 34 percent from $28,200 to $37,800.” Click on Indicator 10.

The graph shows an overall trend but a look at some historical data at the site shows that older blacks did not share in the boom of the late nineties. Their net worth declined.

There are a number of other interesting stats on this web site. For example: after declining for several decades in the 20th century, a greater number of older people are working in retirement. Indicator 9 tab shows the the decades long change in the mix of income sources for older Americans.

Sham Accounting

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In the past presidential campaign, Mr. Obama and other Democrats pointed to the 90s as an example of their party’s fiscal responsibility. Voters were told that, with President Clinton at the helm, the American economy surged and there was a budget surplus in the last years of Clinton’s presidency.

What surplus? For the fiscal year ending Sept. 30, 1999, the U.S. government reported a $124.4 billion dollar surplus on a cash basis ($72.9 billion on an accrual basis). The Social Security surplus was 124.7 billion. The Medicare Part A surplus was 21.5 billion. The Government, despite all of Vice-President Gore’s rhetoric about a leaner government, still spent $21.8 billion more than it received in 1999.

The Federal government borrows money from the Social Security fund, calls it “income” and reports a budget surplus. Only in America. As long as there has been a surplus in the Social Security fund, both political parties promote this sham accounting and fight against all attempts to adopt a more rational accounting system that reflects the actual realities and liabilities of the Federal government.

When will our elected representatives come to their senses? In the latter part of the next decade, the many years of Social Security surpluses will finally come to an end as the baby boomer generation retires in greater numbers. The Federal government will no longer be able to borrow from the fund and will, in fact, have to start paying the fund back. Those paybacks will hurt the sham budget numbers that both parties dangle in front of voters eyes. Then we will see a growing political movement to have a more realistic system of accounting. These are the same politicians who are currently running a large insurance company, AIG, and will soon be running a car company, General Motors.

Small Business Health Benefits

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In a 5/26/09 WSJ article, Dana Mattioli reports on how the recession and health care premium increases are affecting small businesses.

What does the future hold? “About 10% of small businesses are considering eliminating coverage over the next year, up from 3% in 2005, according to a recent survey by National Small Business Association.” A survey by another group estimates 19% of small businesses dropping coverage over the next two years.

What are the historical trends? The Small Business Association reports that “just 38% of small businesses [provided] health insurance last year compared to 61% in 1993.”

What is not news to any small business owner is the increase in premiums over the past years. “Health-insurance premiums for single workers rose 74% for small businesses from 2001 to 2008, the latest year data are available, according to nonprofit research group Kaiser Family Foundation.” In that same period, the Consumer Price Index has gone up 22%.

As revenues drop, some business owners have been canceling health insurance in order to keep more employees on the payroll.

United States of Insurance

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The United States government has become the largest insurance company in the world.
Its citizens are among the most heavily insured people in the world. We are insured for many aspects of our lives, from our life itself to other people’s mistakes.

Some insurance fees we pay directly. These include insurance against getting old, Social Security and Disability Insurance, insurance on our health, home, car and mortgage. Some insurance fees are indirect in that the cost of that insurance is passed on to us in the price of a product we buy or income to us is reduced by these fees.

Examples of the first type of indirect insurance are “mistake” insurance, malpractice and liability. A business pays a fee to protect themselves in case they make a mistake. Those fees are passed on to us in higher prices.

Unemployment and FDIC insurance are examples of the second type of indirect insurance.
Unemployment insurance is a based on a percentage of the wages paid by an employer to an employee. An employer typically reduces the wages that it can pay an employee by that amount. FDIC insurance is a fee charged to banks to protect savings against bank failure. The bank reduces the interest it can pay on a savings account to offset the fee. Like individuals, businesses pay for many types of insurance, passing the cost on to their customers in the form of higher prices.

There is another indirect form of insurance in the form of taxes paid into a general fund.
We are insured against poverty in the form of SSI and food stamp programs, whose payments come out of general Federal and State tax revenues.

How have Federal and State governments become so heavily involved in the insurance business? With the passage of the Social Security Act during the 1930s Depression, the Federal government entered the annuity insurance business – sort of. Annuities are a type of insurance where a person pays premiums over a period of time and, at the end of that period, begins collecting payments from the insurance company. Insurance companies invest the premiums paid in order to make the payments at a later time. The Federal government, on the other hand, spends the premiums received each year, relying on future premiums to make payments. If our Federal government did not spend the premiums each year, Social Security would be more like an annuity program. Since the premiums are spent, it is a Ponzi scheme.

With the introduction of the Medicare and Medicaid programs in the 1960s, the Federal government stepped into the health insurance business. Unlike private health insurers who charge higher premiums for those with higher risks, the government charges higher premiums based on a person’s ability to pay higher premiums. This premium pricing system is most often used by those in the protection racket.

Ponzi schemes and protection rackets eventually collapse. What can we do? Elect representatives who are willing to make a transition to a valid business model. Elect representatives who will support a new law giving them a legal fiduciary duty to the voters and taxpayers. Without that duty, our elected reps have no responsibility to the public or liability for their actions other than the prospect of losing their jobs. They can enact laws and make promises with impunity. We, the voters and taxpayers, pay the price.

Indicators

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We read of lagging, leading and coincident economic indicators like the unemployment rate, housing starts and retail sales. In a Congressional hearing, somber Fed Chairman Ben Bernanke recites a litany of indications as he looks into his murky crystal ball to hesitantly forecast the future. In a 5/19/09 WSJ “Currents” article, Justin Lahart explains what some of these indicators are. And there are cool pictures.

State Spending

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The downturn in the economy has spawned budget battles in many states. California’s budget woes have been getting a lot of press but other states face crises.

In Minnesota, Republican Gov. Pawlenty and the Democratic legislature have been at odds over measures to balance the budget. Here is a blow by blow account of warring budget priorities and resolutions.

Per capita state spending varies far more than the differences in the cost of living. We might expect New York’s per capita spending to be more than that of Colorado since it is more expensive to live in New York. Bank Rate’s cost of living calculator shows a 31% cost of living difference between Denver and New York City. But, as this Tax Foundation table of 2007 state spending shows, New York spent 78% more per person than Colorado.

Is it the density of the population that contributes to the increase? Apparently not. Florida, near the top of the list of states with the most population, spent less than Colorado.

18 states spent less than $5000 per capita in 2007. 17 states spent between $5 – $6,000. The remaining 15 states, Minnesota among them, spent more than $6000 per person. Minneapolis is only 7% more expensive to live in than Denver, but Minnesota’s per capita spending is 40% more than Colorado. Must be all that extra snow removal and lake maintenance in Minnesota.

Medicare Reimbursement

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In anticipation of the annual announcement of reimbursement rates for Medicare patients, pundits have been warning of a tsunami of hospital bankruptcies once the new rules were implemented. Last year marked a transition to a new cost coding system, one that some feared would significantly reduce reimbursements to hospitals.

On May 1st, CMS published the proposed reimbursement rules (NPRM) to take effect Oct. 1st of this year. Analysts at the independent Congressional agency, the Medicare Payment Assessment Commission, or MedPac, dug into the 1228 pages of data and found only minor changes, and a slight reduction in per patient case rates. Colorado hospitals will see a slight increase.

As Edward Berger reports at MassDevice.com, MedPac found that Medicare reimburses hospital 6 – 8% less than the cost of care. Higher private insurance reimbursements offset this negative impact. In the ongoing debate about public vs private insurance, this would seem to reinforce the opinions of those who say that a greater presence of public insurance and below cost reimbursement rates will close hospitals, force doctors out of business, and reduce the availability of medical care.

However, Berger writes “MedPAC research shows that the hospitals with the highest private insurance margins have the highest Medicare per-case costs; those that can’t achieve high private-payer margins have lower costs across all classes of payer – with no discernable impact on quality.” If this assessment is true, public insurance is achieving an efficiency normally associated with a competitive marketplace, causing hospitals to examine their operations and find cost efficiencies while maintaining the same level of care.

75% of nursing homes’ revenue comes from Medicare and Medicaid. When Medicare reduced their payments in the late nineties, a number of nursing homes went bankrupt. Due to the weak economy, many nursing homes were worried that there would be no annual reimbursement increase.

On May 12th, CMS published their 110 page set of proposed rules, specifying a 2.1% increase in Medicare reimbursement rates effective October 1st. While not as large as the 3+% increase of last year, it is an increase in an economy with a negative year over year CPI cost index.

Tight state budgets may impact Medicaid reimbursement to nursing homes. A more complete analysis of the Medicaid fiscal environment can be found here from a CPA at healthlawyers.org.

Health Care Reform

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In a 5/12/09 WSJ op-ed, Scott Gottlieb, M.D., a former official at the Centers for Medicare and Medicaid Services, criticized proposals for a health care system based on Medicare.

Medicare uses “its purchasing clout and political leverage to dictate low prices to doctors”, paying doctors 20 – 30% less than private plans pay. Although some advocate a public insurance option to cover the uninsured, Gottlieb (and others) predict that a public insurance plan will be less expensive and thus drive private insurers out of the market.

The lower reimbursement rates of a public health insurance plan will prompt doctors to take on fewer new patients with such a plan, a practice that is already occuring with Medicare patients.
Dr. Gottlieb writes “Government insurance programs also shift compliance costs directly onto doctors by encumbering them with rules requiring expensive staffing and documentation,” an onerous paperwork burden that adversely affects the 60% of doctors who are self-employed.

Medicare’s “fee for service” model is flawed, rewarding physicians for providing more care, not better outcomes.

This op-ed prompted a number of replies from other physicians. A California neurologist wrote that Gottlieb’s contention that Medicare pays 20 – 30% less than private insurance was “dead wrong.” He noted that “some insurance plans pay 5% to 10% more than Medicare rates” but the extra reimbursement is accompanied by “aggravation and overhead expense of dealing with private insurers and their patchwork of unfathomable private plan coverage, co-pays, deductibles, exclusions, required pre-authorizations and delays.”

At a high school reunion two years ago, I spoke with a classmate who had recently shut his practice down after 20 years to work for a company where he could spend his time seeing patients and doing research. “In my own practice, I was spending more of my time talking to case managers at insurance companies and managing the business that I was seeing patients” was his complaint.

A dentist wrote to the editor at WSJ saying that curtailing fraud, the introduction of electronic records and a single payer system would produce small gains. The biggest cost efficiencies would be the reduction of payments to doctors and hospitals, forcing many doctors to leave the field and hospitals to close. “Why should a bright, young, prospective medical student [spend] 10 to 15 years of additional education and training to do a job that pays piece-work wages, as an employee of the government.”

At my annual physical, my doctor at Kaiser enters a few salient facts, checks on a chronic condition, enters a few recommendations into the computer terminal in the exam room and he is done. My lab results are online. I may get an email from my doctor with a comment on a particular result.

When I got into an accident a few years back, there was no wasted time filling out a medical history. With little fuss and bother, I was able to get x-rayed and temporary treatment at one location, then get follow up care at another location. X-rays were digital and both they and my medical history were available to any practitioner at Kaiser. All of the people I came in contact with knew my history. Why can’t it be like that for everyone?

When we took our cat to the emergency room, we got a CD and an online link to test results and x-rays. We were given an access code to the data so that we could share the information with our regular veterinarian. Why can’t we treat people like we do our pets?

Unemployment

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Chris Wilson at Slate.com has produced a county by county animation of employment gains and losses over the past two years. You can play the two year animation or click on a month in the series, then click on your county and look at the year over year gains or losses for that month.