I recently attended that BAI Mavericks in Banking Conference. You can read my summary thoughts at Tom Brown's excellent site, bankstocks.com.
Tags: TomBrown, BAI, Bankstocks.com, Mavericks in Banking, Kevin Hoffberg
As readers of this rag may know, I maintain a running email debate with three colleagues with deep experience on health care, about what's going on in health care. I like my role best: semi-informed bomb thrower. This exchange started out being about Candidate McCain's health care proposal but turned into what I think is a fabulous lesson in the history of health care in post-war America. Worth a read.
John wrote . . .
He [McCain] may not be totally correct (right) but I think he's on the right track. Employer paid benefits may work in large (250 EE's) but for small businesses of 50 or less (the majority of USA businesses) another method is needed. Self-funded plans have gone far beyond their initial intent. I'm positive the two plans by Hillary and Obama (similar) are not good for the USA.
I'm assuming those of you in the health care insurance industry will agree with the McCain plan. However, Kevin needs a chance to kick the tires..
Then I wrote . . .
This is just the most convoluted piece of logic (and writing), it's hard to know where to start.
When in doubt, follow the money. Nobody wants the hot potato here. Big companies don't want to pay for health care any more than they want to pay for pensions. Both are expensive and filled with risk and uncertainty. When you strip away all the empowerment rhetoric, this is nothing more and nothing less than offloading even more costs and uncertainty onto consumers.
Assuming we're going to use our tax credits to buy "insurance", how will anything change? It will still be a procedure and drug driven world. Just like getting a collision estimate for your car, every provider of service will go off the same "rate sheet" just like they do today. They'll be capped on what they can charge and I don't see the incentives to charge less.
Opening the game up to national providers is an interesting idea. Leaving aside how difficult it will be to do that, what will follow over the next ten years is massive consolidation until there are three major providers and some smaller ones. Pass whatever pipe you're smoking if you think that's going to lead to lower prices to the consumer.
I don't have a better answer at the moment, and in any scenario currently being floated, the consumer/patient will get screwed. I don't know a lot of health care providers, but the ones I've met just seem like super people. The fact that I can't call or email my doctor because he doesn't get paid unless I come in is just weird. The fact that he only gets paid if he does a procedure is weird. We could make a list of strange things that would go out the door. Someone needs to just flat break the model and try something different . . . other than shifting even more financial risk to the consumer with no obvious benefit other than now they have more to think about and worry about.
John wrote . . .
Wow, "most convoluted piece of logic" is a pretty strong statement my friend.. I don't disagree with you too often and I even agree with some of your statements on your rebuttal. However, as I said, McCain is on the right track, not that I said he had the perfect solution. He doesn't have the solution but neither do the rest of the idiots running for President.. He just seems to have a better grasp of what is real and what may be steps to change the current system.. Blowing it up is a nice thing to think about but that ain't going to happen for awhile..
You're right when you say follow the money.. However, in my opinion, the culprit is not big companies who employee people but the insurance companies who perpetuate the myth that they're helping the solve the health care insurance and cost problem. THEY ARE NOT!! They are solving the problem for their stockholders need of money. That's about it.. Now, to be fair, the old Blue's of 20 years ago actually did try and keep a balance of cost to the consumer (via the employer) and payments to the providers. However, when so many of the Blue's decided to go 'for profit', the game was over. With old line insurance companies like Aetna, CIGNA (Connecticut General-Insurance Company of North America merged) and a few others got into the business of health insurance there was very little difference between the Blues and insurance companies. Even those Blues that are 'not for profit' run them like a stock held company. Bottom line, none of them are looking out for anyone but stockholders and Executive staff. There are a handful of small health insurance entities (like Dave's company) who are trying to do what the old Blues did but it's an uphill battle. Maybe too steep of a hill and far too long. Some of the large HMO's like Kaiser and Group Health actually are doing a good job, regardless of bad press and people who don't like "managed care". There are number of these around the country and if physicians are still in control, I feel that quality health care will be provided at reasonable prices. It can and does happen.
Back on the large employers being the bad guy. They are just taking advantage of some tremendous tax laws. Tax laws that were put in years ago to 'encourage' these companies to provide health insurance. Remember, the original Blue plans came into existence because of union negotiations forcing some companies back east to pay for health insurance. On the west coast, Henry Kaiser was the guy who really kick started pre-paid health care. His desire to have his employee's at Coulee Damn and then his ship builders in Long Beach changed how docs got paid as well as employee's understanding about having an employer help them pay for medical bills. Way ahead of his time.
Anyway, when auto makers, steel mills and a few other large manufactures got involved in paying for health insurance, the elected officials felt they needed to get involved because by then, most tax based organizations at city, county, state and federal levels were also getting health insurance. Hmmm, how to get other large employers to pay? How to keep the current ones in the game? How to keep union members happy? Oh yeah, tax breaks!! Tax breaks for the employers.
Here's a little trivia you three may not know but I actually received a tax break when I first went to work at Pacific Northwest Bell in 1967. I got it and used it even though I was a lowly Installer/Repairman. Then, my tax break went away and went to PNB. They did pick up my employee cost of health care which was pretty nice but not my family. See, they knew the male employee was low cost but my wife and new baby weren't. The games were being played with tax money and Aetna even back then. I can assure you, we made deals with physicians and hospitals. They worked with me. My union kept telling us that having health insurance was better than a raise in money. That was bullshit then and it's bullshit now. They took away my choice of physicians, hospitals and payment arrangements.
Oh let's not forget the greatest killer of negotiated payments between consumers and providers. The Medicare laws in the early 60's.. Great idea but as so often happens, the government officials and greedy elected office holders decided to sweeten the pot of "their control needs". Not the consumer. Not the providers. They wanted more power and got it. Talk to any of the old timers at any Blue Cross Blue Shield plan who worked on the Medicare programs at the start. It ran good and was low cost. Then rules of engagement came in from people with no knowledge of health care nor health insurance. NONE!! The same thing happened with Medicaid. The government people, elected and lifers, decided to keep expanding the list of people who should receive benefits and what benefits were proper.
So here we go. Tax breaks to large employers. Unions either being duped or being stupid. Greater amounts of money to providers for people they used to care for at minimum or no cost because it was "the right thing to do." No more need for huge fund raisers in hospitals to buy equipment. No more need for physicians to provide free care to elderly or indigent people. The race for more money was on. The leaders in many health provider organizations were changed from social specialists to financial experts.
I agree with your acknowledgment of physicians being good guys. 99% of them are simply trying to make people better and live a good life. Even those who make the big bucks. However, these guys and gals are not stupid and have accountants or business managers who know how to work the game. But you know what? If a patient is without insurance, virtually everyone of these people will try and work a deal. I know from experience this past year.
My physician who did my xxxxx surgery would not accept a dime from any Blue plan. I knew that going in. He did however give me a 25% break on his bill. I've talked to many physicians over the years who will do the same thing. The old UCR system was not bad to be honest. It had some holes in it but I think it is more honest than the current method being used. Physicians watched their peers and didn't want to be an outcast or outlyer. Today, they all know it's the insurance companies setting fee's and they truly dislike the system and have hired some damn good people to screw the insurance companies.
The last point on providers is simple. They will work for patients and with patients. They will not join a large organization just to survive. If that was the case, then Kaiser would already be the large player. You feel there will be three large organizations. It won't happen. Physicians are and will be independent if given a choice. I think we the consumers can and should give them that opportunity. I think physicians would provide more information if they felt protected from lawsuits and large insurance companies. Right now they know they will be taken advantage of and screwed even more. Consumer driven health care can work if, I repeat if, it can be done in conjunction with their physicians. It will not work if insurance companies are in control. It will not work if the government is in control. Control is such a nasty word for the two main participants in the delivery and payment of health care. Patients and providers.
One last comment on having a physician use the telephone or internet to respond to you. Once again some stupid national laws of privacy have curtailed this action even if you and your physician wanted to do something over the phone or internet because how do they know who their talking to or who will read the email. HIPPA wins again. The other reason is simply time. These people are seeing patients all day long. Filling out paperwork. Running an office. The list goes on. Now what your suggesting is for them to sit by a phone after all that and call you for free. Would you really do that??
Tags: HealthCare, McCain, Blue Cross, Blue Shield, Medicare, Consumer Choice, UCR, Tax Break
There are so many things wrong with health care in America, it's hard to know where to start. So I'll just pick one. How about figuring out what the heck "it" is? Read the opening of a piece in the NYT about rising costs.
The economic slowdown has swelled the ranks of people without health insurance. But now it is also threatening millions of people who have insurance but find that the coverage is too limited or that they cannot afford their own share of medical costs.
Many of the 158 million people covered by employer health insurance are struggling to meet medical expenses that are much higher than they used to be — often because of some combination of higher premiums, less extensive coverage, and bigger out-of-pocket deductibles and co-payments.
With medical costs soaring, the coverage many people have may not adequately protect them from the financial shock of an emergency room visit or a major surgery. For some, even routine doctor visits might now take a back seat to basic expenses like food and gasoline.
“It just keeps eating into people’s income,” said James Corbin, a former union official who works for the local utility in Tucson.
Mr. Corbin said that under their employer’s health plan, he and his co-workers are now obliged to pay up to $4,000 of their families’ annual medical bills, on top of about $1,600 a year in premiums. Five years ago, they paid no premiums and were responsible for only about $2,000 of their families’ medical bills.
So what exactly are we talking about here?Tags: healthcare, costs, coverage, insurance, decision making
For those thinking it might be time to get interested in the November elections, Citizen McCain has begun to lay down the pillars of his economic thinking.
Let's start with his plans for the federal budget . . .
Mr. McCain’s plan would appear to result in the biggest jump in the deficit, independent analyses based on Congressional Budget Office figures suggest. A calculation done by the nonpartisan Tax Policy Center in Washington found that his tax and budget plans, if enacted as proposed, would add at least $5.7 trillion to the national debt over the next decade.
The centerpiece of Mr. McCain’s economic plan is a series of tax cuts that would largely benefit corporations and the wealthy. He is calling for cutting corporate taxes by $100 billion a year. Eliminating the alternative minimum tax, which was created to apply to wealthy taxpayers but now also affects some in the middle class, would reduce revenues by $60 billion annually. He also would double the exemption that can be claimed for dependents, which would cost the government $65 billion.
“High tax rates are driving many businesses and jobs overseas — and, of course, our foreign competitors wouldn’t mind if we kept it that way,” Mr. McCain said, laying out his economic plan this month in Pittsburgh. “We’re going to get rid of that drag on growth and job creation.”
There are a couple of obvious problems here.On the expenditure side, Mr. McCain has called not only for continuing an open-ended deployment of troops in Iraq, but also for spending $15 billion annually to expand the Army and the Marine Corps and to improve health care for veterans, among other programs.
In case you somehow missed it, Candidate McCain is on record supporting a 100 year involvement in Iraq. So add some more trillions to the pile.
So how to pay for this sea of Red Ink?
Mr. McCain’s advisers have said the new tax cuts would be paid for by eliminating earmarks and making large spending cuts, but they have not identified specifics. And they have spoken vaguely about making entitlement programs like Social Security and Medicare less costly for the government. Mr. McCain’s chief economic adviser, Douglas Holtz-Eakin, said the campaign had simply presented its vision of what the tax code should look like and noted that some of the proposals would be phased in.
During the current Republican presidency, those same programs marked for elimination or curtailment grew at an unprecedented rate. Given the sour mood in the country, the likelihood they'll be cut is about nil.
“I voted against the tax cuts because of the disproportionate amount that went to the wealthiest Americans,” Mr. McCain said in 2004. “I would clearly support not extending these tax cuts in order to help address the deficit.”
In 2001 and 2003, Mr. Bush pushed through Congress tax cuts totaling nearly $2 trillion. The first set lowered income and estate taxes, and the second focused mostly on capital gains and dividends.
The McCain campaign does not figure the costs of extending the tax cuts into its deficit projections, although the Congressional Budget Office estimates that it would cost an extra $2.2 trillion over the next decade.
Oh. And when will he balance the budget?When Mr. McCain outlined his tax cut plan, he backed away from his pledge to balance the budget during his first term, but said that he would do so by the end of his second term. And in an interview last Sunday on “This Week With George Stephanopoulos” on ABC, Mr. McCain said he would push ahead with his tax cuts even if Congress did not approve his spending cuts.
For those keeping track, this is exactly the timetable that President Bush offered . . . "during my last year in office." And this on health care . . .Mr. McCain’s health care plan would shift the emphasis from insurance provided by employers to insurance bought by individuals, to foster competition and drive down prices. To do so he is calling for eliminating the tax breaks that currently encourage employers to provide health insurance for their workers, and replacing them with $5,000 tax credits for families to buy their own insurance.
His proposal to move away from employer-based coverage was similar to one that President Bush pushed for last year, to little effect. And his call for expanding coverage through market-based competition is in stark contrast to the Democrats’ proposals to move toward universal health care coverage, with government subsidies to help lower-income people afford their premiums.
I realize that this sort of "let a million flowers bloom" rhetoric is appealing to those of us who are inherently suspicious of governmental involvement in nearly everything, but I have a question. Is it time to be done with faith-based economics yet?
So let's see, what will happen if we take big buyers with massive purchasing power out of the market and replace them with millions of under-informed, overwhelmed, and increasingly less economically able buyers.
Scenario A
Scenario B
Don't believe me? I give you exhibit A: The Airline Industry. Or exhibit B, look at what's happened to pensions in this country.
Democrats and their proposals have their own problems. I just find it astonishing that the so many Red State voters are so eager to vote against their short and long term economic interests in the name of ideology.
Tags: JohnMcCain, Voodoo Economics, 100 years, Iraq, Health Care, Budget Deficit
There's almost nothing that President Bush has said or done over the past seven years that I agree with, but there's always a first . . .
He also called for a fiscally responsible bill that would reform farm programs without putting new burdens on consumers.
He blasted Congress for "considering a massive, bloated farm bill that would do little to solve the problem."
"America's farm economy is thriving. The value of farmland is skyrocketing. And this is the right time to reform our nation's farm policies by reducing unnecessary subsidies," he said.
There hasn't been a sensible farm bill in thirty years. Bush himself has signed some doozies. I can't see what will change.
Tags: FarmBill, Agriculture Subsidies, Wheat Prices, Prices, Recession, Decision Making
You probably didn't hear about it and don't know who he is, but David Einhorn's speech last year at the Helbrunn Center for Graham & Dodd Investing ranks as a must read if you want some clear and concise analysis of the current credit mess. The PDF text of the full presentation is at Naked Shorts. Here's the lead . .
It goes on like that, calling a spade a spade. The naked truth is that the captains of finance took unreasonable risks, spurred on by non-existent oversight and no real personal downside if they busted the pinata (which they did). In a sign of rushing backwards from change, the mortgage business is mounting a full scale assault on the latest round of attempts to introduce some transparency and standards into what has become a game of liars poker. See this from the NYT . . .
The plan presented by the Fed was proposed by its chairman, Ben S. Bernanke, and Randall S. Kroszner, a former White House economist in the Bush administration who is now a Fed governor and leads the Fed’s consumer and community affairs committee.
The plan would not cover existing mortgages but would apply only to new ones. It would force mortgage companies to show that customers can realistically afford their mortgages. It would require lenders to disclose the hidden fees often rolled into interest payments. And it would prohibit certain types of advertising considered misleading.
The Fed is expected to issue final rules this summer.
Earlier this month, as the comment period was about to close, the Fed was deluged with more than 5,000 comments, mostly from lenders who said the proposals could affect loans that have not presented problems. Some bankers and brokers also said the rules would discourage them from lending to some creditworthy borrowers.
I can remember what it was like to get my first mortgage a couple of decades ago. It was a lot of work. It was a lot of paper. EVERYTHING had to be explained. But it got done. I can promise you with 99.99999% certainty, the contention that "the rules would discourage them from lending to some creditworthy borrowers" is a complete crock. People will still want to buy and finance homes. It's a very, very big business. Someone will meet the need.
As to the part about cost rising, they should. I realize that's profoundly anti-consumer, but I can't think of a single good reason why risk shouldn't be properly priced. Governments distort the price of things all the time for all sorts of reasons. Exhibit one is the cost of gasoline at the pump in the US . . . it's not even close to what it should be given the huge bill the Chinese and Gulf States finance every year so that our vast military can make the Gulf safe for the flow of oil. Sorry, I digress.
Nothing about the debt markets for the past five years has been properly priced. As obnoxious as lenders find the various regulators, they clearly were AOL. So whatever the compliance costs, they were, in retrospect, too low. Same with the ratings firms, whose negligence borders on the criminal. It's not that the money shape-shifters weren't taking their vig every time something was transmuted into something else. But none of that drag was staying home in the form of capital. And yes missy, at the end of the day, the mess would be less messy if the firms had spent less energy trying to leverage their capital to the nth degree in service and more energy running sound businesses.
As Ben Stein points out . . .
Tags: BenStein, David Einhorn, Helbrunn Center for Graham & Dodd Investing, CDO, Securitization, Sub Prime, Decision Making
There was a plastic surgeon named Maxwell Maltz who wrote a book called Psycho-Cybernetics. Among other things, he talked about how complex systems are controlled by relatively simple mechanisms. You just have to know what they are.
In the Decision Quality work I've been involved with for the last several years, we've built math models of complex decision processes. There are always about five factors that account for 90% or more of the variability in the model.
Chasing this rabbit around the pole is a bit like searching for the magic levers. For all sorts of reasons people point here, no there, for the thing that will unlock the mess. Generally the pointing is towards someone else's larder. So one person thinks the answer is more power to the consumer, another more power to the entrepreneur, another more power to the capitalists, and another more power to the regulator.
If you get past the rhetoric, I believe we have socialized health care in this country, just like Canada, Sweden, and all the rest. It's just that our bureaucrats, at least the ones that matter, don't draw a paycheck from a taxing authority. But make no mistake, the reality on the ground is that it's a gigantic lumbering system that is just as opaque as the Kremlin, controlled by a small group of plutocrats and oligarchs, making decisions to benefit the collective, except the collective aren't the patients.
There are two aspects that are particularly troubling beyond all the obvious.
The first is that nature loves specialization and hates generalization. That's why there are no TigerCows or FishTrees. Man is a unique biological entity in that he's an omnivore (not a lot of those in nature) and proves incredibly adaptable. We're also highly evolved, have no natural predators, and are hugely destructive to our ecosystem. We are biological freaks. Big health care, like big banking and big business, has no concomitant in nature. And over a couple of business cycles, nearly every conglomerate gets broken up to "unlock" value.
The evil secret in health care is that specialization is proven to work in the small . . . there is a doctor for everything, but isn't allowed to work in the large . . . big money is spent every year to make sure that the plague of specialized hospitals doesn't stretch across the land, visiting the evils of lower prices, better outcomes, and lower complication and mortality rates on innocent patients.
The second relates to the first: Large, centrally planned economies don't work. See exhibit A: USSR. But that's what we've got in the US Health Care business. I know the people on this thread love to rail at the evils of more government involvement in the game, but I don't think it would make a bit of difference. Everything about healthcare is already like the USSR.
I actually do believe that government can, though won't, make a difference.
Tags: Psycho-Cybernetics, Maxwell Maltz, Health Care Choice, Decision Making
Several weeks ago--it seems like years ago--I sat in a conference room with Howard Dean, major domo of the DNC, listening to him explain the beauty of the Democratic nominating system.
The folks in the other party must be pinching themselves every morning when they wake up. "Can the other side really be that dumb?"
Not the best decision making process I've ever seen.
Tags: McCain, Obama, Clinton, Pennsylvania Primary, Super Delegate, Howard Dean
Lacking a strategy, vision, or clue about how to get out of the hole they're in, Delta and Northwest airlines are now going to merge. I can't think of a single thing to recommend it.
The agreement came despite failed efforts to get pilots at both airlines to agree on how to combine their ranks, an issue that could lead to labor unrest and disruptions to flight operations.
But the threat of rising fuel prices — and a belief that a merger would bring huge cost savings — overcame those concerns.
The Pilots loathe this deal, so count on a work stoppage. Fuel is the biggest cost and it's not like they'll get a discount. The pension plans have already been gutted. Staff too. Where are these big savings coming from? This is about taking a competitor out, hoping that others will do the same, and then raising prices while continuing to diminish service. Hurry up and get the deal done before the next election. The administration will love this.
Tags: Delta, Northwest, Dumb and dumber, merger, anti-competitive
It took me and my wife 30 hours to fly from Indianapolis to Seattle. The combination of bad weather (typical for this time of year) and The absolutely bizarre decision on the part of the FAA to order the immediate grounding of all of American Airlines MD-80s over some wires, turned a trip that should have gone like this . . .
To this . . .
I found out later that the Dalai Lama was speaking, which probably accounts for the mess getting to Seattle. The good news in all of this is that everyone we met along the way in the USAir system was just as helpful and pleasant as they could be. The better news is that I got to see my brother on his birthday. The universe works in mysterious ways.
From what I can tell, the airlines are well and truly screwed. Here's what Jeff Jarvis at Buzz Machine has to say . . .
If there ever was a tipping point for an industry, headed down, surely the airline industry has reached that unfortunate metaphor. They’re fucked and their passengers with them.
On NPR this morning, I heard an old lady in a wheelchair forced to come to the airport to change her canceled American tickets — she wasn’t allowed to do it online or on the phone, not even after she said she was disabled and her daughter had seven children and a newborn and couldn’t take her to the O’Hare’s hell.
She is Customer Omega, the last screwed consumer.
You simply can’t treat people this way and survive. We all hate the airlines. We hate the experience on the plane and in the airport. We should fear for our safety, given American’s shoddy (and, one wonders, fraudulent) maintenance work. (As the Times said this morning, at least the FAA is doing its job.) The airlines never see themselves as our advocates, friends, servers; no, they are our prison wardens and enemies as they fight down legislation that mandates they should give us the crudest amenities a prisoner would get: clean water, air, and a toilet. The economics of the industry as it is being run today are unsustainable. And apart from the all-business-class airlines I try to fly every time I can (Eos, Silverjet, and there are more coming), there is not one visible bit of innovation — not one attempt to get out of this mess — visible in the industry.
Lots of us blogged about the disaster that is the FAA. After years of coziness, neglect, and worse when it comes to regulation, the FAA has decided to show everyone that they really, really, really know how to smack people around.
Here's a little secret about inspecting an airplane: it only takes a few days to do it, and airlines routinely take planes out of service to check them without stranding hundreds of thousands of passengers or costing themselves tens of millions of dollars.
So why are both of those things happening in the current airlines' chaos? Did the friendly skies suddenly become too dangerous to fly? Not at all. The massive flight cancellations at American Airlines — about 1,200 flights, more than half of its daily schedule, affecting 273,000 passengers after the Federal Aviation Administration ordered the carrier to ground 300 planes for inspection — are the aviation equivalent of a traffic cop behind on his quota blanketing a street with tickets to avoid catching heat from his sergeant. Woe unto thee unlucky enough to double park.
The cop in this scenario is the Federal Aviation Administration (FAA). The agency responsible for policing the safety of the nation's airlines has been under intense pressure over the last few weeks, ever since an investigation by the House Transportation Committee revealed in March that an FAA supervisor allowed Southwest Airlines to fly 46 planes that had missed inspections. Congress has been holding hearings on aviation safety, during which Robert Sturgell, the FAA's acting administrator, who is up for the permanent position, has had to answer charges, from whistleblowers and lawmakers, of excessive coziness with and lax oversight of the nation's commercial carriers.
And so he did, by ordering American, the nation's largest carrier by revenue, to ground all of its MD-80s after finding that their wiring wasn't fastened precisely according to FAA rules. No one, including the FAA, is saying that any of these planes were unsafe to fly. But rather than allow American to ground a few planes at a time and phase in the fixes and re-inspections (as it had done just two weeks earlier), the FAA chose to ground all the planes at once. The agency has said that it's simply enforcing the rules, and American's CEO, Gerald Arpey, has been careful to avoid any criticism of the FAA. (A spokesman for the airline would only say that American would follow the rules "to every jot and fiddle.") Industry observers have not been so shy. "They were making a statement to the traveling public," says Rick Seaney, CEO of Farecompare.com, a travel website.
This is another example of the Bush Administration at it's finest: Playing the role of Petulant Child when someone calls it out for its very bad behavior--a depressingly regular and recurring phenomenon.
I have flown well over 1 million miles over the past decade. More than a lot of people, less than some. I used to look forward to a road trip. For the first time in my career I'm actively thinking about changing what I do for a living to get off the road. It's a bad experience not likely to get any better.
Tags: airlines, FAA, Customer Omega, inspections, Robert Sturgell, delays,
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