NHS vs US Health

Leave a comment

The good, bad and ugly of the American and British health care systems. In an 8/15/09 FT article, Nicholas Timmins gives a brief comparison of the two systems.

In a 9/15/09 PBS program, “Retirement Revolution”, host Paula Zahn spoke with a doctor who has worked in both systems. The doctor summed it up: The British NHS works well for most patients whose disease presents no particularly difficult or unusual complications. The American system, with much more emphasis on advanced technology and public funding for academic institutions, is better for those patients who do have unusual complications.

At town hall meetings this summer, some Americans touted the U.S. health care system as the best in the world, citing the estimated 400,000 people who come here each year to get medical care. An 8/24/09 AP article cites a 2007 estimate that almost twice that number, 750,000 U.S. citizens left the country to get medical care elsewhere. Estimates by the Medical Tourism Board for 2010 are that 1.6M patients will leave the U.S. for care outside the country.

Public Option

Leave a comment

Some people in this country have expressed concern that a “public option” in health care would drive out private insurance companies. The warning is repeated over and over again as though this prediction were fact. We have a history of a public option competing with private insurance companies – Workmen’s Compensation Insurance. Has it driven private companies out of the market? No.

In an 8/16/09 San Diego Union Tribune article, Dean Calbreath relates the early history of Workmen’s Comp insurance and the criticism that Pres. Woodrow Wilson endured from conservatives for initiating a public medical plan for workers. Dean recounts the century long struggle between private insurance companies and the California State Fund in this insurance market. The result? Private insurance companies in California dominate the Workmen’s Comp insurance market. Yet there are those clamoring that such a thing is impossible.

Were we to have a public option in health care insurance, a plan covering basic insurance needs, we might expect that private insurance companies would design insurance plans that filled the gaps left by such a public plan. Just as workmen’s comp insurers did in California, health insurance providers will offer competitive pricing to larger companies and command the majority of the market. Like the workmen’s comp example, the public health insurance option will appeal to small businesses and those individuals who have difficulty getting affordable insurance.

Had they been born a hundred years ago, those arguing against a public option today probably would have argued against Workmen’s Comp then. This debate is less about public insurance options and more about the role of government, a long and fierce argument that began before the founding of this country and continues to this day.

A hundred years ago, Andrew Carnegie was criticized by conservatives for his support for the use of public taxes for libraries. Public libraries did sometimes swallow up the collections of social libraries that charged a subscription fee to members. However, libraries whetted a desire for books, and private booksellers fluorished in larger cities to meet the demand for popular newly published books, a need that libraries were not designed to satisfy.

In smaller towns like Kankakee, Illinois, citizen-initiated drives for a public library were met with resounding support from their neighbors; private donations of books and land helped launch the library in 1896. Does President Obama hope that this kind of community spirit is still smoldering in the hearts of Americans?

How can any company possibly compete with a public entity as large as the Post Office? UPS, FedEx and other private mail and package delivery companies have met the challenges of this competition and fluorished. The once stodgy Post Office, in turn, has offered new services and products to compete with these private companies.

In the 1850s, conservatives protested loudly at the use of public dollars to fund free education for children. Has public education led to the demise of private schools? No.

The competition between a public option and private companies in insurance, libraries, mail delivery and education have promoted a vigorous environment which offers better choices to the public. To those who predict that a public option will kill the private insurance market, history replies, “You’re wrong.”

Consumer Debt

Leave a comment

Each quarter, the Federal Reserve calculates the average percentage of debt payments to income for households in the U.S. In 1980, credit card and automobile lease payments were about 11% of disposable, or after tax, income. By 1998, they had climbed to 12%. In 2006, that percentage broke 14%. During 2008, the American consumer has been whittling down that percentage to about 13.5% of disposable income.

Every 3 years, the Fed conducts a detailed survey of consumer finances. In its most recent released 2007 Survey of Consumer Finances, the Fed found that 2/3 of families had applied for credit in the past five years. 30% of those had been either turned down or been approved for less credit than they applied for (pg 45). 73% of families had credit cards but only 60% of those with credit cards had balances due, a healthy sign that families were paying off their credit card balances each month (pg 46). However, those holding credit card balances saw a 25% increase in their balance to about $3000. The median interest rate on a bank type credit card was 12.3% (pg 47).

Einstein said that compound interest was the most powerful force in the universe. When we owe debt, that power of compound interest is working for the other guy, the company we owe the money to. That 12% in interest we pay to a credit card company is in after tax dollars, meaning that it is more like 15% – 20%, depending on the tax bracket we are in. Translating that into hours, it means that we may work 1/2 day to a day each week just to pay the interest on the debt. We become someone else’s work slave.

Asset Allocation

Leave a comment

A portfolio analysis adds up your investments in various categories to determine your asset allocation, a measure of the anticipated risks and returns of a portfolio.

The historical returns of stocks are higher but so are the risks. Bonds have less risk and less return. More importantly, there is a historical inverse correlation between stocks and bonds so that bond prices usually rise when stock prices fall and vice versa.

These historical trends were broken during the past year as almost all asset classes fell. Since March 2009, both bond and stock prices have risen dramatically. The recent crash and credit crisis has made people more cautious and we can expect that money will continue to flood into the perceived safety of bonds. How long can both stocks and bonds rise? When will the inverse relationship reassert itself? Which is the more powerful emotion? Will fear continue to drive money into bonds or will greed goad investors into the more risky stock market?

Asset allocation can dampen the emotional driving forces behind your investment decisions.

In an October 1999 WSJ article, Jonathan Clements examined the finer points of asset allocation with some investment professors. Most people calculate their asset mix by adding up the value of their stocks, bonds and cash. An old maxim is that the percentage of bonds and cash in your portfolio should approximate your age. The truest maxim may be “Go with your gut.” If you can’t sleep at night worrying about your investment portfolio, then it’s time to ease up on the risk in your investments.

So what about your house? House prices historically rise 3 – 4% per year, a return that approximates the return on a bond. When calculating your asset mix, should you include the equity of your house in with the total of your bond investments? A real estate professor that Clements interviewed maintains that a house is not a conservative investment. Historical data shows that, over a period of three years, housing prices have sometime fallen 40%. Remember, this article was written in 1999. How many people heeded that advice and treated the equity in their house as though it were more like an investment in a stock fund?

An investments professor interviewed by Clements “suggests treating your mortgage as a negative position in bonds”, subtracting the amount of the mortgage from the total bonds in your portfolio.

The point of analyzing a portfolio is to assess the risks that your investments are exposed to and that you personally are comfortable with. In this past year, too many older Americans found out that they were exposed to a lot more risk that they thought.

Heirs Looking At You

Leave a comment

In a (undeterminate date) 2005 WSJ article, Jonathan Clements shares some retirement advice from a Pittsburgh accountant and estate-planning lawyer, James Lange, author of “Retire Secure” and a web site devoted to IRAs and other retirement strategies. “Spend your after-tax dollars first, and then your IRA dollars and then your Roth dollars.”

Children inheriting a regular or Roth IRA have to start taking minimum withdrawals based on their life expectancy. For a regular IRA, they will owe tax on the amount of the withdrawal. Withdrawals from a Roth IRA are income tax free.

Most people will not leave estates large enough to trigger an estate tax (in 2009 the threshold is $3.5M).

Many employer sponsored 401K accounts require beneficiaries other than a spouse to cash out the account. In this case, it may be wiser to convert the 401K to an IRA.

Health Reform Republican Plan

2 Comments

Republican politicians and conservative talk show hosts have devoted plenty of time slinging arrows at Democratic health insurance reform proposals. Occasionally, I hear a talk show host or a Republican politician on a Sunday morning talk show mention the Republican health care plan but few or no details. Instead they continue to heap scorn on “Obamacare”.

When someone prefers to attack rather than explain their alternative, I get suspicious. Maybe the Republican plan sucks, I thought, and that’s why conservatives don’t offer summaries of the plan. If you, like me, would like to know what the Republican health care plan is, you can check out a Roll Call summary here on the Real Clear Politics website. It has some good features, notably the reduced government “footprint.”

As a small employer with several experiences with state insurance agencies, I am leery of government insurance solutions. In Colorado, Labor Dept employees seem to assume that the employer is at fault or lying, although a spokesman for the Labor Department would probably deny it.

An employee is taken at his or her word and it is up to the employer to prove that the employee is mistaken. Conversations with several other small employers in this state have confirmed this attitude on the part of state agency employees.

While there have been court decisions to clarify “reasonable grounds” or “reasonable suspicion” in criminal cases, there seems to be little precedent to stipulate what “reasonable grounds” are in civil and regulatory matters. If a state auditor feels they have reasonable grounds to believe that an employer is guilty of breaking one of the hundreds of state laws affecting employers, then, unlike criminal cases, the employer must prove their innocence.

I am afraid that this same attitude will prevail when the Federal government injects itself even deeper into health care and insurance in the U.S. Doctors and health care providers will be in the same position as employers, needing to prove their innocence. As patients, we might think that such a presumption of fault on health care providers is a good thing. Such a presumption will only cause more doctors and health care providers to leave the medical field. After all, who needs the aggravation?

Even without health care/insurance reform, there will not be enough doctors and health care providers for the juggernaut of the aging baby boomers. With or without reform, there will be delays in getting medical appointments with primary care physicians and specialists. We need reform and this is the time to do it. I can only hope that our politicans will use some care and sober judgment as they craft a reform bill.

Lower Taxes

Leave a comment

Want lower income taxes and national health insurance? Move to Britain. As this chart shows, income tax and health insurance takes about 30% of a paycheck in Britain. But wait.. Don’t book your flight to Britain yet. There is also a 17.5% VAT tax (Ouch!), a sales tax on many goods and services, but food and children’s clothing is exempt from the tax.

Here in the good ole U.S.A, about 9.9% goes to state and local taxes, as reported by the Tax Foundation. Keep that in mind the next time you read or hear someone say “half of the population pays no tax”. What they mean is that approximately half of the population pays little or no Federal income tax. Social Security and Medicare tax take a 15% bite (as an employer, I can assure you that the employee pays the company half of the Social Security tax in reduced wages). Add in 10% for state and local taxes and a quarter is gone out of every dollar earned, before the Feds take their share. If you are a breathing adult, you’re probably a taxpayer.

A state by state comparison of median income from the Kaiser Family Foundation shows some surprising data. There are a number of other comparisons at this site.

Health Care Debate

Leave a comment

Joseph Ellis, a historian and author, recently wrote an op-ed in the L.A. Times that provides a historical perspective on the debate about the role of government.

Whatever our position on health insurance, let’s keep it to a debate. The last time we had an unresolvable debate about the role of government was in 1861 and we don’t want to do that again.

Thoughts to Ponder

Leave a comment

“You cannot help the poor by destroying the rich.
You cannot strengthen the weak by weakening the strong.
You cannot bring about prosperity by discouraging thrift.
You cannot lift the wage earner up by pulling the wage payer down.
You cannot further the brotherhood of man by inciting class hatred.
You cannot build character and courage by taking away people’s initiative and independence.
You cannot help people permanently by doing for them, what they could and should do for themselves. “

……Abraham Lincoln —

Thanks to Lydia for passing this on to me.

Stock Returns

Leave a comment

Here’s an interesting table summarizing data from the Federal Reserve on comparative returns on stocks, T-bills and Treasury bonds from 1928 to 2008. What if you had put $100 a stock index like the Dow Jones in 1928? What would it be worth today?

What this illustrates is the power of compounding over a number of years. A nice gift from any parent or grandparent to a newborn child might be a small amount put in a stock index fund in trust for that child.