Healthcare Reform - A Possible Option

A national public option appears to be unsupported at this point and, in any case, it was unclear how a public option would quickly lead to lower costs. Following is an alternative that would be cheaper and easier to setup that might be called the 'local option'.

Essentially, the local option would involve individual hospitals selling comprehensive medical insurance policies. The attractive points with this option are:

• Cost Reduction - Currently, doctors and hospitals have the incentive to perform as many services as possible in a fee for service system. If the hospitals sold insurance coverage then they would have the incentive to find ways to reduce costs. As an example, in the current system, if someone has an operation, is discharged and then returns to the hospital with an infection acquired during the initial operation, the hospital would be paid extra to take care of the infection. Under the Local Option, the hospital would incur extra charges without a corresponding increase in income. I'm sure that since money is at stake the hospital would make sure that they changed processes to reduce infections.
• Private Sector- Since most hospitals are private sector enterprises, a major objection to the public option that the government is involved in health care would not be applicable.
• State Regulation - Since hospitals and the doctors who work in them are already state regulated there would not be issues with state versus federal regulations. Also, states already have organizations setup to manage insurance and deal with disputes.
  
• Competition and Innovation - Since there would be multiple providers in each large market, there would be significant incentive for the hospitals to innovate in areas of providing excellent service and reducing costs. For instance, I would expect that hospitals would work to bundle services.
  
• Local Needs - Since the hospitals operate locally, they can customize services to reflect the preferences and needs of the local market.

Following are some aspects that might be considered when developing the plan.

• Perhaps any federal subsidies that are available would be paid directly to the hospitals for their policy holders who qualify for the subsidies. This would provide some leverage with the hospital providers to ensure that the hospitals adopt certain minimum standards.
• Perhaps the hospitals that participate and receive the policy holder subsidies would be required to use a specified, electronic medical records system.
• In large markets, it might be advisable to allow multiple hospitals to participate as a single provider which would give patients more choice except that there should be a limit in terms of the number of insured that each provider services, perhaps 25% of the total market, to ensure that competition exists.
• In terms of pre-existing conditions, with private insurers, their medical underwriting assigns an additional cost for covering the pre-existing condition that is included in the insured's premium. Local Options that wanted to participate would need to cover pre-existing conditions without an additional premium. However, to prevent any single Local Option from incurring excessive costs related to pre-existing conditions, perhaps each individual local option would only be required to accept people with pre-existing conditions up to the point that the additional costs did not exceed a specified percentage of total premium income. There would need to be a state or federal surcharge price list for pre-existing conditions to prevent each local provider from creatively assessing pre-existing condition surcharges to prematurely meeting the maximum percentage that they needed to accept. States would have the option to pay the surcharge for any additional amounts if they wanted to.
• To prevent the Local Options from morphing into HMO's, it might be beneficial to limit the number of providers in any provider category such as cardiologists, vascular surgeons, etc. who are employees of the local provider to a specified percentage of the total number of participating providers in that category.
• It might be helpful if the state or federal government was able to identify providers who would take care of the billing and policy management to allow hospitals to focus on health care rather than accounting and administration. Ideally, there would be at least 2 administrative providers per state to keep the admin costs down through competition.
  

Medicare Recipients and Costs

In the context of the health care reform debate, I became curious about the participation and cost of Medicare and following are some of the key facts:

• The cost of Medicare in fiscal year 2007 was $440B.
• As of 7/1/2008, there were 37,584,186 aged persons and 7,717,651 disabled persons for a total of 45,301,837 people receiving Medicare in the US which equates to a $9,712 per recipient cost. Note that people younger than 65 are eligible to receive Medicare 24 months after qualifying for Social Security Disability payments.
• In order to qualify for Medicare, you must be a US citizen or legally resident for 5 years or more and you or your spouse must have paid into Medicare for at least 40 quarters (10 years) in which case your monthly premium for Medicare Part A (hospitalization) is $0. However, if you have less than 40 quarters you can "buy in" by paying $244 per month if you have 30 to 39 quarters of qualifying income or $443 per month if you have fewer than 30 quarters.
• All Medicare recipients have a monthly premium of $96.40 per month (this changes every year) for Part B (outpatient services such as doctor visits).
• Approximately 99% of recipients have Medicare credit for at least 40 quarters but not necessarily for payments into the US Medicare system.
• The US has what are called Totalization Agreements with 24 countries that count participation in a foreign system for purposes of qualifying for US Medicare. I'm not sure if the US has a Totalization Agreement with Mexico. Totalization Agreements must be approved by Congress which has not approved a Totalization Agreement with Mexico but it appears that the Bush Administration signed a Letter of Understanding which provides the same benefits as a Totalization Agreement.
• Totalization Agreements were originally intended to avoid additional costs for an employee of a company in one country who was temporarily assigned to a foreign work location by not requiring payments into the social security systems of both countries. In practice, someone who has paid into the US social security system for at least 6 quarters is able to count years paying into a foreign social security system when calculating eligibility and monthly pension in the US social security system. The US Social Security system counts all quarters for which payments were received regardless of whether the worker was in the US legally.
• Generally, Medicare will only pay for medical care received in the US although pension checks can be sent to people resident in a foreign country.

I am surprised by what I consider to be a very low cost of $9,712 per Medicare recipient which, given the age of most recipients, I would expect to be much higher.

However, I find several points in the above facts disturbing which may point to some options to reduce Medicare costs.

• 7.7 million people receiving Medicare under disability seems way too high to me. I suspect that a significant number of these people may no longer qualify for disability. By law, the Social Security Administration can review a disability annually to determine whether the recipient still qualifies. I also believe that disability qualification requirements are not stringent enough and should be tightened.
• Someone 65 or older who has never paid into Medicare is able to buy coverage for a maximum premium of $539 per month. This seems way too low for a senior who would likely pay over $1,500 per month for a private insurance policy which would cover much less than Medicare.
  
• The Totalization Agreements should be revamped. A citizen of one country who is an employee of a company in their home country who is assigned overseas should only pay into the retirement system of their home country and should only receive qualifying credits for the retirement system of their home country. As an example, an employee of GE in New York who was assigned to a GE facility in Poland for 5 years should only pay into the US retirement system and should only receive US retirement system credits for those 5 years and not receive any credit for Polish government. However, as the Totalization Agreements are currently constructed, if a Polish citizen works as a store clerk in Poland and pays into the Polish retirement system for say 8.5 years and then comes to the US, even if they are here illegally, and pays into the US retirement system for 18 months then they fully qualify for US retirement and Medicare.
  

Iraq - Time to Leave

Regardless of whether you believe or don't believe that the US invasion of Iraq was wise or justified, the US did invade Iraq and has the ethical responsibility of providing the Iraqi people a reasonable opportunity to develop and implement a system of self governance. Note that I say the US owes the people of Iraq the opportunity for them to develop a replacement system of governance. The US is not responsible for delivering a replacement system but only for providing assistance, security, expertise and funds which Iraq would use to develop their own system of government. After 6 years, I believe that the US has successfully fulfilled their obligation and it is long past time that the US withdraws from Iraq as soon as possible. The US has spent thousands of lives and hundreds of billions of dollars providing security, institutions, elections and infrastructure improvements. We have no further obligation.

Unfortunately, it appears that developments in Iraq point to the probability that Iraq will replace the secular, Ba'ath police state of Saddam Hussein with a Shia police state. Currently, the government of Nouri al-Maliki is engaging in the wide spread arrest and detention of opposition members, control of the media, torture, forced confessions and executions which characterized the Hussein administration.

Furthermore, if the US continues to stay in Iraq, there is a distinct possibility that the US will be drawn into one or more significant regional disputes.

The major power centers in Iraq are currently the nationalist Shias under Nouri al-Maliki, the religious Shias aligned with Iran who will probably be headed by Ahmad Chalabi (the same guy who pushed the US into invading Iraq and who provided a large part of the intelligence relating to Iraqi WMD's that provided the justification to invade Iraq that was later proven to be fabricated), the Sunnis and the Kurds.

There is the distinct possibility that the Iraqi Kurds and the Iraqi central government will come to blows over control of the oil rich area around Kirkuk in the north. There is a distinct possibility that Turkey will support the Kurds and that the northern border will experience periodic border clashes and occasionally be on the verge of an all out limited war.

I think that over the next few years there is the distinct possibility that the Nationalist Shias and the Shias aligned with Iran will come to blows. It is likely that the Nationalist Shias under al-Maliki will resort to the same police state practices that Saddam Hussein used to keep the Shias in line which will only increase tensions between Iran and Iraq.

The US risks significant military involvement and significantly damaging relations with other regional powers were the US to remain. We have met our obligations and it is time to leave Iraq - now.

Impact of 2001 & 2003 Tax Reform

Following is the distribution of the savings accruing to tax filers for the rate reductions for Long Term Capital Gains (LTCG) and qualified dividends passed in the 2001 and 2003 Tax Acts. This analysis is based on IRS data for all returns filed for the 2007 tax year. Performing the analysis required that certain assumptions and generalizations be made which cause this analysis to approximate the distribution of savings. For instance, the actual tax rate used to calculate the savings from the reduced tax rates assumes that all tax returns are filed as Married Filing Jointly because the IRS data does not provide the detailed income data by tax filing status. Using the Married Filing Jointly status would tend to understate the savings resulting from the rate reductions because tax rates for this filing status are lower than for other filing statuses. All long term capital gains and qualified dividends above AGI's up to $63,700 are taxed at a 5% rate and then at a rate of 15% beyond $63,700. The income levels referred to below are Adjusted Gross Income (AGI) brackets which include all income including capital gains minus certain deductions such as IRA contributions, education and moving expenses, etc. The tax rates used to calculate savings are based on net taxable income which, generally, is adjusted gross income minus the standard or itemized deduction and the personal exemptions.

The method for calculating the savings of the reduced tax rates below is as follows:
1) Determine the mid-point marginal tax rate for each Adjusted Gross Income (AGI) income bracket published in the IRS stats.
2) Subtract the new tax rate (5% or 15% depending on AGI) from the marginal tax rate determined in step one above.
3) Multiply the reduced tax rate percentage by the qualified dividends or long term capital gains total income for the bracket to determine the dollar amount saved by the filers in the individual brackets. For instance, if for a given income bracket the marginal tax rate was 33% then the tax rate reduction would be 18% (33% - 15%).

QUALIFIED DIVIDENDS

$155.9b of total qualified dividends were reported in 2007. The reduced tax rates for qualified dividends reduced US Treasury tax receipts in 2007 by approximately $24.5 billion. 80.9% of total qualified dividends were reported by tax filers with AGI's of $100K or more, 64.4% were reported by tax filers with AGI's of $500K or more.


LONG TERM CAPITAL GAINS (LTCG)

The reduced tax rates reduced US Treasury tax receipts by approximately $306.8b. 94.2% of total LTCG tax savings were to tax filers with AGI's of $200K or more and 71.2% to filers with AGI's of $1 million or more.

TAX RECEIPT IMPACT OF FINANCIAL BAILOUT

In order to recapitalize the banks to prevent bank failures, the Federal Reserve significantly reduced the federal funds rate. Essentially, this increased income to the banks by increasing the spread which was accomplished by lowering the interest rate that banks pay to borrow funds.

Total interest, both taxable & tax exempt, reported in 2007 was $347.41b ($268.1b taxable interest). Assuming that interest rates earned by tax filers declined 80% from 2007 and that balances in accounts on which interest is taxable remained constant, reduced interest rates will reduce treasury tax receipts by $56.4b and will reduce the income of US taxpayers by $277.93b. This $277.93b is a transfer from US taxpayers to bank balance sheets.