Month: July 2009

Health Care Reform – For Real

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It was the summer of 1973. I was working in emergency room x-ray in a teaching hospital in New York City. Back in those good ole days X-Ray techs had to know a lot about MA and KV, exposure time and soft tissue absorption and diffusion of X-rays. Developing x-rays required a knowledge of silver emulsions and development time. Now digital cameras make a lot of those judgments.

The word came down from on high – the top management of the hospital. From then on, all patients who came into the ER with any kind of fall were going to get a basic set of skull x-rays. What precipitated this nonsense, we wondered?

After a fall, a patient had come into the ER with a possible ankle fracture. His ankle was x-rayed. He had a sprain. He had some small skin scratches on his forehead, elbow and hand. These were cleaned and bandaged, his pupils and eye response were checked and he was discharged. A day or so later he was admitted with a brain hematoma. He sued the hospital. Under the new policy, a small child with some cuts and scratches on his knee got a set of skull x-rays. Neither the patients, doctors or staff liked the new policy. It was the dawn of defensive diagnostics. The legal department at the hospital was now making medical decisions.

Today, 36 years later, the House of Representatives passed a health care bill. You can read the jist of it here along with the 537 (and still counting) comments, some of them quite vituperative. No one has been predicting that this House version would be even close to a final version of a health care bill but it has kicked the discussion on health care reform into high gear. The Senate is working on a more moderate proposal. This bill is not about health care reform. It is about health insurance reform.

What is getting far less attention is the utter failure of the Congress to agree on real health care reform – the HOW of health care delivery and the legal environment in which health care is delivered. The Senate Committee on Health, Education, Labor and Pensions killed even a modest limited trial of tort reform, refusing to entertain the idea of special courts to try malpractice claims. Special courts for income tax cases, bankruptcy and workmen’s compensation are common in this country.

Until there is some attempt to slow the huge expense of defensive diagnostics, the ordering of tests to protect the doctor against possible lawsuits, health care costs will continue to climb at a rate far exceeding the consumer price index.

Pres. Obama is asking citizens to encourage their Senators to pass a health insurance reform bill. We need to be encouraging our Senators and Congressmen to pass a real health care reform bill, one that includes at least an attempt at tort reform.

California Welfare

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In a report to Congress published in June 2009, the Office of Financial Assistance (OFA) tallied the September 2008 welfare caseload in each state. The program, Temporary Assistance to Needy Families, is known by its acronym TANF and was created in 1996 to reform the previous welfare program and emphasize getting people back to work.

The dramatic increase in the caseload since 2006 is a testimony to the economic downturn. In September 2006, only California, Tennessee and Rhode Island had a greater than 1% of their population on this welfare to work program. California ranked first with 1.32% of the population on welfare.

Fast forward two years to September 2008 and the data shows that 24 states had greater than 1% of their population on this program.

In 2006, California had almost 1/2 million cases, almost twice as many welfare cases per 1000 people as New York and New Mexico, two other states with large immigrant populations. Texas and Florida, populous states with large immigrant populations, had far, far less cases per 1000 people than California.

In the two years from 2006 to 2008, New York’s caseload per 1000 population increased 60%. New Mexico’s caseload percentage doubled. As bad as the auto industry has been, Michigan had 1.72% of its population on the TANF program, the same as New Mexico.

New York has been hit hard by the financial crisis, Michigan by the auto crisis. California’s economy has a diverse base including agriculture, technology, tourism and the movie industry. In any downturn, diversity is a strength. So why does California continue to claim the top spot among states in welfare caseloads per 1000 population? At 3.25% of the population, this is a 250% increase in welfare caseloads in two years.

As high as California’s caseload is, it has declined 45% since the TANF program went into effect in 1996. California Budget Bites reports “The number of families receiving CalWORKs [California’s welfare to work program] dropped by more than 400,000 between March 1995 and March 2009. Yes, the CalWORKs caseload has gone up since July of 2007 – not surprising, given the economic downturn – but the overall trend in California slopes downward.”

Judging by the above data, we can conclude that as bad as California’s welfare program is, it is not as bad as it used to be. One wonders if this welfare expense might be contributing to California’s budget woes.

Cal Budget Bites notes that “Total spending on welfare fell by nearly one-third (32 percent) between 1996-97 and 2008-09, after adjusting for inflation.” Another factoid: “Welfare spending in California made up about 7 percent of the state budget in 1996-97. Today, it makes up about 3 percent.”

Why do California’s caseloads continue to be two and three times what many other states are? As noted above, a large immigrant population is not the reason. A lack of economic diversity is not the reason. New York, New Jersey, and Connecticut have high housing costs but they don’t have the high caseloads. Could it possibly be a badly structured and poorly managed program? Hmmm, something to think about there.

In 2006, California had 12% of the U.S. population and 25% of the welfare caseloads. In Sept 2008, California still had 12% of total population but 31.5% of caseloads in the U.S.

Debt Burden

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In his book “American Theocracy”, economist Kevin Phillips compares this decade with that of the Depression. In 1929, the total of government, corporate, financial and household debt was 287% of GDP. In 2004, it was 304% of GDP. At the end of the first quarter of 2009, the Federal Reserve estimates that we had almost $34T in debt. With an estimated annual GDP of $14T, we have a debt load about 2.5 times GDP. That sounds better, huh? Not quite.

In 1929, there was no Social Security trust fund for the federal government to borrow from because Social Security would not be set up for another four years. Because Social Security pay outs have been less than Social Security receipts in the past several decades, largely due to the large number of working payers in the boomer generation, the Federal government has been borrowing this extra money. By borrowing from the Social Security trust fund, the federal government does not have to borrow from other countries like China, but the easy availability of this money has allowed politicians on both sides of the political aisle to fund a lot of programs through the years by borrowing against the future – our future and our children’s future.

The Federal Reserve does not include this “intergovernmental” debt in its calculation of total debt, estimated at $4.3 trillion. Add that to the total debt load of $34T and the total comes to more than $38T of debt or a percentage of total debt to GDP that is close to that of the depression.

The good news is that Americans have been reducing their debt load. The bad news is that we still have some ways to go to get healthy. It will be a slow recovery as reduced consumption continues to dampen production.

Housing Crisis Causes

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A wide array of suspects have been lined up as the causes of the mortgage crisis in this country. They include subprime borrowers, poor underwriting standards, adjustable rate mortgages that lured buyers with low teaser rates then reset at unaffordable rates several years after the initiation of the mortgage.

A professor of economics, Stan Liebowitz, analyzed data from 30 million mortgages and states his findings in an 7/3/09 WSJ op-ed. The chief culprit, the Darth Vader of the meltdown, is an ancient villian familiar to anyone in the business of providing credit. When customers have none of their own money in a purchase, no “skin in the game”, they are more likely to default on a loan.

The fault for this practice is the lender’s. When a lender is asked why they would do something that they have been told will surely put the loan at risk, they answer with a variety of reasons: “I wanted to make the sale”, “I thought they were good for it”, and “the competition was doing it so I had no choice” are some of the more common.

Prof. Liebowitz cites a simple statistic for home foreclosures in the 2nd half of 2008: “although only 12% of homes had negative equity, they comprised 47% of all foreclosures.” His analysis found that “interest rate resets did not measurably increase foreclosures until the reset was greater than four percentage points.”

Following negative equity as the prime culprit in foreclosures, unemployment had the second greatest impact. Prof. Liebowitz concludes that “a significant reduction in foreclosures will happen when and only when housing prices stop falling and unemployment stops rising”.

Government efforts to reduce interest rates spur refinancing but not home purchases and it is purchases, not refinancing, that stabilizes home prices. Government programs to inflate home ownership rates only threaten to recreate the housing bubble that led to this crisis. Mortgage payments that were greater than the 31% target level of the “Making Homes Affordable” plan had so significant contribution to foreclosures and the author doubts that this program will have much effect in reducing foreclosures.

As housing prices are approaching their long term inflation adjusted levels, the author predicts a natural stabilization of prices without any government interference. We can only hope that our political leaders will know when to stop “helping”.