What’s wrong With THIS Health Care Reform

by Darwin on March 22, 2010

With a major hurdle cleared this weekend in the Health Care Reform efforts, much attention has been focused on how it’s “historic” and how many people are now going to have healthcare and somehow topics of abortion and and other seemingly tangential issues became deciding factors in who would vote for it.  There has been much praise and articles citing what’s in it for you but health care reform criticism articles have been few and far between.  I’m not opposed to bringing America’s health care access and treatment in line with other western economies, but I can’t help but be dismayed and frustrated by the bill in its current state and how it was enacted.  I wanted to step back and highlight the major flaws in the approach, what the indirect impact to America’s prosperity may be and why it’s just so difficult to please everyone.

What’s Wrong with the Health Care System?

Health Care Costs continue to skyrocket.  In a year where annual inflation was virtually zero for most other major categories, health care premiums still rose 5% again through early 2009 (8% for year end).  Why?

As you can see, not only are the costs of healthcare skyrocketing, but for a country with the largest GDP in the world, this segment continues to comprise the largest % of total GDP in the world as well.

One of the biggest flaws in the system (which cannot be easily addressed due to complexity) is that compensation is based on treatment, not outcomes. As much as we like to think that all medical professionals act SOLELY with the patients’ interest in mind, the reality is that they’re doing a job to support their family just like you are.  And, since the way medical expenses get paid is rather nebulous, it’s very easy to overdo everything from MRIs to specialist recommendations to medications even with the best intentions in mind.  The doctor figures “Well, maybe this is going to cost a ton, but if I hit this condition with these 6 approaches and one works, great!  I’m trying to save a life here, not a dime”.  Meanwhile, more doctors (specialists) are compensated, more hospital capacity is filled for expensive cost centers like MRIs, CAT Scans, etc., more drugs are prescribed and the patient may or may not improve.  Perhaps they would have been better off with a different, less expensive treatment altogether or perhaps they shouldn’t be treated at all.  In my article on how to value life for a terminal patient, does it make sense to spend six figures to extend someone’s life by a few months?  If it’s your family member, you’d probably say yes – especially if you’re not paying for it.  If you are paying for it, you may still say yes primarily from an emotional standpoint.  If you’re analyzing the situation from an objective unemotional standpoint (someone sitting in Washington making this decision for you) and see just how unsustainable this model is, you’d certainly question it.  In the absence of a methodical approach to treatment (rationing), this situation will continue to manifest itself and balloon further.  Why? People are living longer, innovative companies continue to find new treatments and approaches to disease that didn’t exist previously (and they rightfully need to recoup their R&D costs lest we take away any incentive to innovate further and take financial risks to develop new approaches), and Americans are becoming LESS healthy primarily due to poor eating habits and an increasingly sedentary lifestyle.  So, it’s a conundrum.  I don’t think it’s fair to blame any one particular group – hospitals, health insurers, doctors, pharma, patients…it’s a massive problem shared by what is basically a flawed system.

The problem with trying to use say, a lean six-sigma approach to analyzing data, outcomes and recommending guidelines for treatment is this notion of “death panels” and “government bureaucrats” deciding what kind of treatment a patient will receive.  There is certainly merit to this argument.  Don’t you think your doctor who’s been seeing you for the past 5 years has better insight into how to treat you for your condition than a paper pusher in Washington?  But conversely, that’s how we get into this situation of over-treatment.  It’s come down to one of two choices – to ration or not to ration.  Rationing would control costs but remove the flexibility and judgment of physicians to treat the way they see fit while no rationing allows costs to continue to run rampant.

What’s Wrong with This Health Care Bill?

The biggest problem with the bill is that it probably won’t work, will be much more costly than initially projected and is likely just a foot in the door to broader, more sweeping government oversight of the country’s medical system.  No different than the initial bailout that turned into more bailouts, the unemployment benefits that got extended once, but are now up to 99 weeks!, and the housing legislation that kept evolving into more ridiculous and inneffective modification programs like first paying people to stay in their house which evolved into paying people to leave their house??.  Basically, once government gets an inch, they’ll take a foot.  They make hasty decisions that are based on politics rather than effectiveness and then need continued band-aids, fixes and more money to fix what they screwed up the first time.  This will be no different and anyone that thinks otherwise is naive and disconnected from reality.

Special Interests, Deals and Moral Hazard

Especially egregious was the contrast between Obama’s campaign promises of “no more special interests” and transparency which directly contradicts the entire process in which this bill evolved.

  • Votes were bought. Basically, savvy holdouts in the political spectrum gamed the political process to hold out and become one of the few deciding votes so they could essentially put their handout and demand a bribe for their vote.  (See the Louisiana purchase which cost taxpayers $100 Million for 1 vote).  Additionally, unions got a sweetheart deal that other Americans didn’t (See the Union Giveaway that the rest of America must fund through 2018). Why?  Well, this just helps the agenda, right?  Basically, at the expense of the rest of the country, the administration shamelessly enacted a special deal for a special interest group.  There’s no way around it.  As unions win favorable deals like this and people want these same benefits, marginal workers (those could care less whether or not they’re in a union or are slightly in favor or a non-unionized workplace) will continue to sway toward unionization or taking union jobs because of these “sweeteners” on the shoulders of taxpayers.  The more attractive you make it, the more members you’ll get.  Why provide this artificial incentive?  More unions = more democrat votes each election.  This seeks to ensure the cycle continues.  Not good for American competitiveness.  But good for Democrats.
  • Fuzzy Math. Politicians love to cite CBO statistic as gospel and tout that the CBO is a non-partisan group that can be trusted, etc.  The problem is, when you talk to someone currently or previously at the CBO, they say that the numbers politicians drop are often total BS.  The CBO makes statistical predictions and analyzes various scenarios (i.e. if assumptions x,y,z come to fruition, there is a 75% probability that it will cost ABC…).  A politician latches on to an attractive sounding scenario and cost and starts touting that number.  Meanwhile, that might have been the most optimistic scenario with the lowest cost which clearly will not be the actual scenario that plays out.  Seriously, who can predict how many people are actually going to pay for health care vs. pay the “penalty” if you can call it that?  Who can predict how this legislation will change coverage, prescribing habits, consumption of services and the other thousands of variables?  The true cost will be nothing near what was projected.  So, the question is whether it will be more or less expensive.  Given our country’s history with large programs, I highly doubt it will be cheaper.  We don’t exactly have a track record of coming in on time and under budget, do we?  No, that’s only private industry that’s expected to do that since accountability exists there.  Not here.
  • More Fuzzy Math. Additionally, the higher taxes and fees are front-loaded but the benefits don’t come for years until 2014.  While people keep praising the cost per year as modest, what they keep forgetting to mention is that there are 4 full years of taxes up front and then 6 years (with 6 more years of taxes) of benefit, so the when looking at the rosy 10 year projection, the cost per year is really almost twice as much as is being touted.
  • Who Pays? Pretty much, the middle class and up.  Most of the heaviest taxes fall on those darn “rich people”, which also happen to be many small business owners, who are primarily the ones that create real jobs.  Not temporary census workers or more government jobs that don’t actually create anything, but real small business jobs.  Is it fair that the top 5% percent earners in the country foot the fill for the bottom 50% of the country?  I guess if you’re in that 50% you’d say sure.  If you’re in the minority, it’s not fair.  It just doesn’t seem right to me.  The rest of the funding?  Ah, just more debt.  More tax increases.
  • Forget Something?  Umm, Tort Reform? Why not confront the frivolous litigation and the costs that can’t even be estimated by over-treating for fear of litigation?  Well, a decent portion of Congressional lawmakers is comprised of…none other than lawyers! Why would lawyers take an action to reign in their own kind?  The trial lawyer association is a huge political donor and when tons of these pols are voted out of office next term, what do you think they’ll go back to?  Practicing law.  Having no tort reform is good for all types of attorneys.  It keeps the gravy train going.  The reason cited for not including tort reform was that it would “only” have saved a few billion dollars per year, as cited by the CBO of course.  Well, again, it’s impossible to accurately estimate all the intangible costs of doctors thinking non-stop about lawsuits all day and why they take every measure possible no matter how ineffective it is from a cost standpoint.  It was WRONG to exclude tort reform.  Special interests again ruled the day.
  • Gaming the System – Fraud. First off, government does a terrible job of combating fraud.  Why? Because it’s just taxpayer dollars being wasted, which are endless. Notice the large insurers aren’t defrauded at nearly the same rate?  Why?  They are beholden to shareholders and have an incentive to turn a profit – and reduce fraud.  When you’re ineffective in private industry, you’re replaced with someone who will get the job done.  When you work in the government, it’s virtually impossible to be fired. Ineptitude rules the day.  Government workers don’t have much incentive to care.  With Medicare being defrauded at a rate of $60 Billion per year, how many taxpayer dollars do you think are going to fund scammers by 2015?
  • Gaming the System – Americans. Americans will surely game the system in shameless fashion as well.  We’ve seen it in virtually every aspect the government allows itself to be exploited like cash for clunkers and the mortgage modification programs.  This one leaves the door wide open.

Get this: If you don’t buy health insurance, you’ll be assessed a “penalty”.  What was started off as a reasonable couple thousand dollars per year, which would incentivise people to just go buy some insurance, has devolved into peanuts.  In 2014, it’s $95.  In 2015, it’s $325 and maxes out at $695 or 2% of income.

$95?  Are you kidding me?

Here’s How the Government Will Take Over Health Care Completely:

  • Young people think they’re invincible.  In general, if not already insured by a large company or their parents, they will just forgo coverage.  Paying a few hundred bucks a year is a pittance and is much cheaper than paying a few thousand per year.
  • Here’s where it gets ridiculous:  Since insurers will now be prohibited from denying anyone with a pre-existing condition (75 year old life long smoker shows up and says “I want insurance”, they have to cover his 6-figure treatment for lung cancer), said young person will now wait until they have some massive costly condition and say, “Well, I guess it’s time to get health insurance today”. Example: Cancer, infection, pregnancy, whatever.
  • It’s a free ride (close enough at these menial penalty rates) up until you get sick.  Then you pay the going rate when you want to exploit the system.  On that, who’s even going to pay?  What are the penalties for not paying?  Who enforces this?  Are we really going to prosecute people for not paying the penalty while many challenge the constitutionality of forcing the issue to begin with?  Mark my words.  People will not pay.  They will seek emergency treatment when they need it and they will be treated.  It’s a joke.
  • This will destroy the insurers because the way the insurance business works is that the healthy people help fund the rare large bills incurred by the small number of unhealthy people.  What you get here is the health insurers being forced to insure an increased number of unhealthy people and a smaller proportion of healthy people.
  • Premiums will need to rise or profits will tank, but alas – the government will impose restrictions on how much they can raise premiums.  It is likely profits will tank, as the government won’t allow premiums to rise at this even more ridiculous rate to account for this ridiculous mandate.
  • As fewer and fewer insurers remain viable, and the ones that do are forced to provide a worsening level of service, people will become frustrated and demand action.  The government takes an ever broadening swath of patients under their umbrella under…hello – Public Option.

On one hand, the private health insurers are so reviled because of their practices, most people don’t care right now.  But what they will care about is the unintended consequences.  The problem is, people are so enamored with “hope and change” and making history that they’re missing the likely implications of this problematic bill.

I think at the end of the day, there’s going to be buyer’s remorse.

I hope I’m wrong.

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{ 16 comments… read them below or add one }

1 MoneyEnergy March 22, 2010 at 9:18 pm

How would you improve the reform, in light of these criticisms? How can they get health care to people who currently/previously couldn’t get any? The only part of the bill that seems odd to me is that they’re asking people themselves to have to actively go out and buy their insurance (if they didn’t already have any) rather than the government just instituting this themselves (I guess that was the so-called public option or single-payer system for those who didn’t have insurance). People are lazy and requiring them to take an action – let’s just say the less intelligent, the less informed, etc. etc. are not going to know how to do this – but, I supposed that’s no different than how it was before (aside from the small $95 fee, of course).


Darwin Reply:

@MoneyEnergy, This could have been a step-wise methodical approach to expanding coverage and decreasing costs over time. Instituting performance-based measures like what the Mayo Clinic and others have instituted have led to better outcomes at a lower cost. While there are some test approaches in the legislation, it’s not a major part of the bill. This penalty business doesn’t seem very effective at all. The penalties should have been much more substantial so even the lazy would make it worth their while to get insurance. Allowing consumers to buy insurance across state lines would have increased competition and lowered costs. There are a lot of things that should have been done that weren’t.

Cutting out the lawyers should NOT have been excluded. Shameful.
Giving out union deals? Shameful.
Buying votes? Shameless.

I just expected more from the people running our government. I feel they’ve reached an all-time low. The polls actually indicate that as well.


Chrisfs Reply:

Criticizing an actual bill is easy, and providing a two sentence alternative is rather ridiculous especially for someone that normally avoids easy answers.
Allowing the purchase of insurance across state lines without adequate regulations (like those in the current bill) will help no one. It will be like credit cards all over again. In 1978, the Court ruled that nationally chartered banks do not have to follow state law in which they do business, but only the law of the state in which the company is incorporated. Which is why the credit card operations of all national banks are based in a few states like South Dakota which has no usury laws and very lax rules on what credit cards can do (until recently). You’ll see the same thing with Health insurers. If you allow cross-state policies, insurers will pull up stakes and relocate to the state with the least regulations and consumers won’t get a benefit, nor will costs be lowered. The reason there is for example a Blue Cross of CA and a Blue Cross of Georgia and of State C,D and E is because of prevention of selling across state lines. Once that restriction goes away, the various incarnations of health insurance companies will vanish in a puff of corporate accounting smoke, and you’ll be left with no more choice than you have now, if that much.
Tort Reform is another red herring. California has capped pain and suffering damages since the 1970’s and it hasn’t affected the general rise of health care costs. Texas has very tough malpractice laws and yet some of it’s communities have the highest costs in the US without any added benefit.
New Yorker did an 8 page article about it.
Malpractice torts accounts for about 2% of medical costs. So completely eliminating fraud would not help.
What disappoints me more is that these are run of the mill myths. You wouldn’t blindly repeat investment advice without checking it out, but you throw out these myths without even checking .


Darwin Reply:

@Chrisfs, So your recommendation is to push through this steaming piece of turd instead? It’s horrific, seriously. Half of the country opposes it. But to cite 2% of medical costs from tort, how was that number derived? Is that direct expense? In the article I outlined all the preventative medicine and additional unnecessary treatment that patients receive because doctors are AFRAID. That is not a cost that shows up in estimates because the suit did not occur. However, it costs a ton – indirectly. America is the most litigious nation in the world. We have the highest lawyer per capita I’m sure (if someone could prove me wrong I’d be highly surprised; this is my presumption, not a known fact).

Unfortunately, brief answers are all I can handle at midnight when I’m up in a few hours, but in summary, do you REALLY think this is a good bill? You don’t think it’s ridiculous both in its content and how we arrived here? Seriously?

2 MoneyEnergy March 22, 2010 at 11:07 pm

I realize it’s not perfect, and I haven’t read through the actual bill myself so I only know the generalities – it just seems to me (1) they spent at least a year on it, it’s not like this was the first half-baked version – (2) hopefully they will improve on parts as it becomes implemented over the next three-four years.

It’s hard to think of how they could have done better *given* the amount of back and forth that has already taken place on it – they already made a ton of concessions to the other party (I don’t understand the charges that it wasn’t bipartisan)… I’m not saying it’s perfect, but it seems like it can’t be… it would just never be implemented at all… it’s better to just get something out there and then work to improve it – which I hope they will. It seems Obama understands that this isn’t the perfect/final version.


Darwin Reply:

@MoneyEnergy, they actually tried to ram it throw before the Christmas holiday, as Obama kept touting the urgency and that it had to happen NOW. We saw what happened with the flawed bailout programs when they were rammed through. There also wasn’t much back and forth at all. It was basically infighting amongst democrats to see who could get which bribe for their vote, but there wasn’t much back and forth with Republicans at all. Once the Mass. Senate seat was lost, Dems changed course and said, “who needs 60 senate votes? We’ll find another way – reconciliation” and they basically invented a loophole to get their bill through. They’ve basically schemed and changed course so many times just to get something through that it didn’t really matter WHAT was in the bill or how effective it would be. They just want to be able to say they enacted “historic” health care reform. For someone following it along the entire way, it’s really quite disturbing.


Investor Junkie Reply:


Technically it’s only bi-partisan if they vote on it. No Repukes voted. They wouldn’t touch this with a 10′ foot pole. The positive or negative the Democrats own this baby.


3 Samurai March 23, 2010 at 4:36 am

Some good thoughts here Darwin! I really like the two charts you put up. Love the 5% premium jump in a deflationary environment. Damn.

I have to say that if this bill didn’t pass, nothing ever word. This is better than nothing, and the original corrupt proposal. Now others will debate. I’ve got my own thoughts I wrote about today.




4 Investor Junkie March 23, 2010 at 7:17 am

Great summary of what’s wrong with this bill! The current system is broken, so this bill proposes more of it? While there are some positives, I don’t think this bill will work.

Unfortunately history has shown, govt intervenes says something is broken. Adds more policy, then net result it’s even more broken. Rinse and repeat. I believe this will lead down to a single payer solution at some time.

NY Times has an opinion article from a former CBO director and the costs of this bill:


The other thing could I suggest is maybe our method of measuring inflation is flawed? It just doesn’t make sense when we have things like health care, higher education, and commodities increase, yet we had no inflation? It just doesn’t add up to me. There are sites like Shadow Stats (http://www.shadowstats.com/) that show otherwise. I’m not sure if I totally believe that either, but some food for thought.


5 Kyle March 23, 2010 at 8:14 am

It’s times like these that i wonder…”WHERE is john galt?”


Chrisfs Reply:

He’s living on the street, broke , his job laid him off, because they could get cheaper help in India and without a job he couldn’t afford to pay his credit card (at 29% because regulations are evils, and screwing people for as much as you can get is ayn Rand’s way), or his health insurance, and when he got hit by a car, he couldn’t pay his hospital bill or his rent. I guess he lost the game called ‘survival of the fittest’.


6 Wizard Prang March 23, 2010 at 8:53 am

Thanks! I’m still coming to grips with this legislation.

“(those could care less whether or not they’re in a union or are slightly in favor or a non-unionized workplace)”

I suspect that you mean “couldn’t care less…”


7 ctreit March 23, 2010 at 10:03 am

I like the chart you put up about health care costs, but I draw a different conclusion from it. Insurance premiums go up by a ridiculous amount each year under the current and mostly private system. Maybe we should have a radical cut and make it all public and see what happens then. We already know that the private system leads to such ridiculous increases year after year. We also know that medicines are a lot cheaper in Canada under a public health system. Maybe we should give a public health system a try, too. Alas, this bill does not even include a public option, which makes me fearful that we will get more of the same as far as costs are concerned. Maybe that is also the reason why hospital stocks and insurance company stocks welcomed the bill.


8 Budgeting in the Fun Stuff March 23, 2010 at 1:03 pm

I’m just waiting to see how this will effect the coverage my company give me for free and how much my taxes will increase…

I agree that a $95 a year penalty is stupid…how will that entice anyone to get coverage if they know they can get it whenever they get sick? Maybe doctor’s will charge less and be reimbursed by the insurance companies if you can show proof of long-term coverage or something…I can see this getting messy…


9 20smoney March 23, 2010 at 2:21 pm

Very good explanation and analysis of the legislation. Thank you for taking the time to explain it!


10 Evan March 23, 2010 at 3:06 pm

Whenever this discussion came up in the past I would always ask the proponent – name one government benefits program that is solvent and works appropriately. This shit makes me sick. The thought that the federal government is forcing a consumer product down my throat is NUTS. A bunch of people asked for an idea on reform….why not take off the ban from interstate insurance companies?

I am not sure how much I agree with the tort reform stuff but that may be some good old fashion brain washing during law school. You would be SHOCKED to hear some of the cases we heard in law school…with doctors leaving sponges and other random items, the cutting off of wrong limbs, and then you have the good that tort cases have brought to light like smoking, abestos, etc.


Investor Junkie Reply:


Spoken like a true lawyer 😉 LOL Reform doesn’t remove suing, it is supposed to make it more balanced (like the loser paying for all of the legal costs)


Evan Reply:

@Investor Junkie,

The emoticon doesn’t take away the pain!


Investor Junkie Reply:


“name one government benefits program that is solvent and works appropriately.”

that’s the part I don’t get, no one can answer this question. So great with your karma (sorry Sam), you helped 30 mil, but bankrupted the country. As Sam always says, everything is rational, cept when it’s karma 😉


11 Crystal March 23, 2010 at 4:57 pm

I’m canceling my family’s health care insurane. $95 is much easier on my wallet then $45 per week that we currently pay. Why should my husband and I bust our humps to pay for insurance for our kids when the neighbor kids down the street see the same doctors for free b/c their mother is too fat to work (that part is true-she has a disability they say)?
I’m tired of taking the high road- its welfare and food stamps and free college for us now!


Investor Junkie Reply:


Atlas just shrugged.


Kyle Reply:

@Investor Junkie,

Ayn Rand FTL…


12 Chrisfs March 24, 2010 at 5:21 am

This is an insanely long comment, you have been warned:
You start with a great first paragraph on the how the high costs of the problem in the health care system, how there’s a tendency for excess in the system and some great comparisons of the rise of costs over time and between nations, but then you don’t go anywhere with it. You get stuck on the question of managing costs and resources (aka “rationing”) and then spend the rest of the time making some rather weak arguments and blanket statements about the current bill. The first thing I have to say is that you have an MBA in Finance and run a pretty nifty blog. If you have a solution to ever increasing health care costs, the world seriously needs to hear about it. I don’t think the Senate bill is at all perfect, but it’s a necessary start, because as you seem to agree, the current system is broken.
You end “What Wrong with the Health Care System” with the question “to ration or not to ration” after having spent two pages stating that the current system is massively flawed and yet an objective system would lead to govt ‘paper pushers’ deciding on treatment.So that seems to say we are screwed either way. Either a smaller and smaller number of people will be able to afford health care or it will be dictated to us from above. But you seem to forget that there is no ‘not rationing’ of limited items or services. Whether it’s a plastic rationing card issued by the govt or green pieces of paper with Presidents on them, there will always be rationing; by laws or by supply and demand and who has the cash to afford things. There’s rationing right now. And as long as there is any sort of insurance, there will be 3rd parties who have a say in your health care. Right now insurance companies decide they will cover cancer med A which has a 50% chance of survival, but not cancer med B which has a 62% chance of survival but costs twice as much, because the numbers don’t add up FOR THEM. If that’s not a paper pusher overruling a doctor, nothing is. And yet it’s ok for an insurance guy to do it but not a govt guy, because the insurance company’s goal is to make a profit ???
I don’t agree with that conclusion.

“What’s Wrong With This Bill”
Nothing that calming down and hyping less won’t solve.
Complaints to the contrary not withstanding,without action from the govt, we’d be lots worse off then we are right now.

Special interest and deals. You show me a major piece of legislation where interested parties haven’t had a role in fashioning it. You won’t find one. 100 million for LA, the bill costs 93 billion in 10 years, so 100 million is about 1/1000 of that. There’s more of a ‘kickback’ in subsidies to middle class at large, then to people in LA.
Furthermore, You use an appropriation to a state with a Democratic Senator and a temporary benefit for for Union members, which you point out are also mostly Democratic.
You point out how these don’t help the public at large.
Let’s look at some other sweetheart deals.
How about the deals with various parts of Big Pharma? Are CEOs and Board Members mostly Democratic?
The Biologics deal where, in the bill, a certain class of pharmaceuticals gets 12 years of monopoly protection compared to 5 years that’s normal.
An easy way to cut costs (which YOU say is the key) is to use generics, but how much will seven extra years of monopoly protection cost insurance cos, patients and taxpayers?? A heck lot more than a measly 100 millions It will cost billions extra. Profits from that deal are a nice return on the meager lobbying expenses by the Biologics (Screw stocks, I want to be a CEO at a Biotech.)
And how about dropping the amendment for drug reimportation. That’s another way to reduce costs. Bring the exact same drug in from Canada, where it sells much less and save money, bring health care costs down. There was an amendment for that. it had support of Demos AND Repubs (McCain and Snowe) but it was killed in order to keep the Pharma’s support.
Reimportation was going to save the govt $19 billion (with a B) over 10 years and consumers directly $80 billion.
Now it goes to Pharma instead. Same medicine more profit. Compared to those numbers, giving 100 million for people in Louisiana and the delay in taxes for union members, is chicken feed!!! It’s nothing!
So why did you mention a ‘deal’ with a Democratic Senator and Unions, but not with a for profit industy? (an industry that you are familiar with in that you have an MBA in managing part of it…)
Because things that benefit Democrats are called “deals” and things that benefit Pharma are called “protection of innovation”. Next time you decide to deride “deals”, make sure you use the most costly ones as examples and not the ones that just happen to match your politics and financial interests.

So in this part you start what seems to be your favorite argument which I call “The facts are these, but really who can tell?”. Which is really a desperate empty argument. I mean seriously, look at your other posts on this blog. You recommend a leveraged Inverse ETF strategy (which I totally plan on implementing, because it’s genius), and a CD from Everbank, and you make rational points to support these ideas. So if someone posts a comment that says “Sure that sounds good, but who can really tell, maybe Everbank is run by the next Bernie Madoff, How can you tell? and we all know those financial guys are crooked, they’ll find some way to scam me out of the money in inverse leveraged ETFs, because they are just crooked, that’s just the way they are”. Would you consider that a valid criticism, or just so much junk? any yet you do that repeatedly with this bill. When the facts don’t work, it’s “who can tell what will happen?”
There needs to be an independent arbiter of financial facts, if it’s not the CBO, pick another one, otherwise any policy discussion is pointless. And as you have pointed out, we need to do something or we are screwed.

10 Year of Taxes and only 6 years of benefits… if you’re near sighted.
This is disingenuous. First off there are about a dozen of immediate benefits. including Pool insurance for people with pre-existing conditions before the exchange kicks in. Free preventative care in new plans, closing the Part D drug hole. http://www.reuters.com/article/idUSN1914020220100319
Now if the whole plan only went 10 years, there were only 6 years of benefits in every 10 year period, you might have a point, but it’s not. You can say 20 years taxes 16 years benefits (or 4 years some benefits, 16 years full benefits,) or 30 years taxes 26 years benefits and the ratios get better and better. Or you can say 4 taxes no benefits, and make it look really really bad. It depends on your frame of reference Companies have start up costs, some live off funding and generate no earnings for years, yet that’s ok, but 4 years of startup costs for a plan that’s going to be indefinite, within benefits for millions during that time that’s bad? That seems wrong.

Who Pays? People with money

It actually pays for itself. It costs
The problem with getting the poor to pay for anything is that they are well, poor.
Yes life is hard on the top 5%, they are by definition a minority and therefore oppressed.cry me a river. A number of countries have a progressive tax rate where the rich pay more than the poor, and they have a higher marginal tax rate than the US does. So the top 5% in the US are pretty well off tax wise to begin with. By the way, is it the middle class or the top 5% that are paying for this ? How is it being paid for? A tax on medical device companies, pharmaceutical companies and health insurers (not middle class) and it’s offset by those deals they got, A 0.9% tax increase on earned and a 2.9% tax on individual UNEARNED income ABOVE $200,00 (and only over $200,000)(not middle class). An Excise tax on health plan costing over $10,000 in group plans not individual plans. That doesn’t even start until 2018. Which comes closest and not many middle class people have this either. Mine is about $7,000 and it’s pretty nice and I’m in a union. How about you? How much is yours? So where are these middle class people being taxed to death? In fact, starting this year, 2010, those people who really create something, will get a tax credit. Up to 35% of the premiums for employee coverage. The full 35% going to employers with less than 10 employees and average wages of $25,000. So real, down home small business get tax credits . That go up to 50% in 2014.

FORGET SOMETHING? NO, Tort reform is not the cure we need.
I addressed this in another comment. To be brief Malpractice costs account for about 1% of all medical costs. So even reducing them down to nothing wouldn’t help. You say “but we can’t possibly know the amount spent of defensive medicine”, but in fact we can and it’s not much. Malpractice law varies from state to state. CA capped non-econ damages in the 1970’s, and it’s law is somewhat of a model. That hasn’t stopped costs from going up as fast as everyone else. Anthem did a 39%(?) hike, which I’m sure they claimed was to cover costs they were incurring. Texas passed tort reform in 2003 and was still one of the biggest spenders in 2006. http://wonkroom.thinkprogress.org/2009/09/11/tort-refom-costs/ Tort reform brings down malpractice premiums, but not health care costs or even health insurance premiums.

Fraud and ineptitude: General stereotypes don’t help anything. all bloggers don’t live with their moms, all financial people are not Bernie Madoff in the making, all govt employees are not lazy. In 2008 25 banks failed, including WaMU, in 2009 140 failed, and 37 in 2010 SO FAR from loans they made. Major banks, those that preached the greatness of free markets lined up to get money from the govt to avoid going bankrupt from decisions that THEY MADE. And you’re claiming that private industry is not inept and handles it’s shareholders money well, whereas as govt, the govt bailing them out is inept. And when was the last time that a bank failed and the ‘inept’ FDIC was unable to pay deposit insurance claims? Think about that for a second. Do you have a actual link that compares medicare fraud vs private company fraud? I don’t see one. I do but you won’t like what it says.
About 3% of Medicare goes to fraud and that’s about the same for private insurers. and I could invoke the “we can’t possibly know” argument, since fraud is by it’s nature secretive. If you knew something was fraud, you would stop it. But I won’t.
And I’ve worked in enough private companies to give you many anecdotal tales of people, being inept, accountants that don’t comprehend Excel, people who watch porn, people who raid supplies to know that private employees aren’t much better than public ones.

Gaming the system aka we’re all DOOMED
Any System can be gamed and yet systems survive. You can always find a way and if you say that inevitably leads to financial self destruction then we may as well move elsewhere (to countries with public systems that apparently haven’t self destructed…) I think the penalties should be higher, but I think that would bring more outcry. I don’t think you can question the system’s constitutionality and yet bemoan the lack of punishment. It’s one or the other.
Some people will take the penalty, but people aren’t completely financially rational. They hate paying something for nothing ( a penalty) and pay some more for health insurance as insurance against the costs of getting sick (imagine that). But maybe I’m wrong, in which case I think you are making a stunning argument you don’t mean to make.
So here’s what I see you saying. The current system is screwed and under the bill, there’s not enough incentive for healthy people to get coverage, so they will jump on and off as needed. Insurance companies will be overburdened with too many sick people and not enough healthy ones and they will collapse. Well that sounds like a great argument for a single payer system. why not avoid the hardship and go straight there? I’d like to leave it at that. It’s be a happy ending to a long rebuttal. But alas I won’t because it won’t happen like that and I want to cheer you up and leave you on a happy note. You are wrong. You’re forgetting something. The mandate only applies to people who don’t have insurance. Most people do and they get it through their employer. http://facts.kff.org/chart.aspx?cb=57&sctn=158&ch=1213
60% of all non elderly get their insurance through their employer. 44% of all 19-24 year old do. About 50% of those in their late twenties. Those are the young invincibles. And most of those get it for little or no money out of pocket for prems. Employer health care works like this: it covers the whole group, so the company pays for the healthy employees as well as the sick ones. And as a whole, employees tend to be a healthy bunch, because if you are really sick, you can’t work because, well you’re really sick. So you have all these healthy people with employer health insurance paying into the system. You only need to worry about the 17% that aren’t insured. And of those, some are illegals and aren’t eligible. Of the eligible ones,, you’ll remember there will be tax credit for small businesses to cover employees and fines for big companies that don’t cover people. Both of which will reduce than >17% by giving them employer based insurance and thereby having more healthy people paying into the system So I don’t know exactly what percentage you have left, but it’s a rather small percentage and assuming they are all 100% economically rational beings, some hard core will jump on and off, but most will buy insurance, because most of the uninsured are
lower income and will get a subsidy to make getting insurance cheaper for them anyhow. Also there are at least two countries that also have this system of mandated individual private insurance with a higher rate of individual coverage. Netherlands and Switzerland. And neither of them have imploded… yet. So relax, calm down, and think things through. If you use the same argument on this as on your investment posts I think you’ll be fine. The socialist boogie man is not going to get you. at least not due to this.


Darwin Reply:

@Chrisfs, First of all, thanks for your thoughtful comments and points you raised, and the compliment. You should blog if you don’t already.

That being said, I haven’t been watching Fox, C-Span or reading blogs on this other than the couple I normally follow, who tend to lean “for” the bill. But based on the known aspects of the bill, since it’s gone through so many iterations without much transparency, I have concerns about many subsets of the legislation, how slimy it was to stop at absolutely nothing to pass it, and most of all, what the likely implications are as this grows. Once the government gets their tentacles in something, it gets bigger, more expensive, more incompetent until they virtually destroy it.
It’s obvious to me that the real goal is a government-run public option, which would be a complete sham. But that’s where this is headed eventually – at the expense of the millions of Americans who are actually already satisfied with their current plans. As the public option pushes out private insurers or makes it so onerous for corporations to use them, they stop offering private insurance and we all end up in the same crap government run program.
Is health care a right? There are arguments on either side. The Constitution doesn’t say it is, but let’s assume it is or we’re not worrying about that (and no, I’m not jumping on the bandwagon of challenging the constitutionality of forcing people to pay for healthcare).
So, I obviously don’t go along with the party line on everything blindly. People want the best of both worlds. No coverage, then mandated hospitcal emergency room care if they really need it. Everyone knows now, and emergency room will treat you for a serious health issue regardless of coverage, ability to pay or citizenship even. So, the part of the bill with penalties for those not paying, fine. But let’s make the fines meaningful.

* On the rationing piece, I took both sides of the argument playing Devil’s advocate and didn’t necessarily take one side or the other – it’s a necessary evil.
However, on the topic, we’re jamming how many millions of new patients into a pool of the same number of general practitioners? What will that do to availability to see a doctor for someone who presently has insurance? Extend it dramatically. Like you said, basic supply and demand. More new patients, no new doctors.
Straight from CNN, a mildly liberal outlet (anything but conservative):

“Question: What will happen when there are not enough doctors to oblige all the patients?

Last year, the American Academy of Family Physicians predicted a shortfall of 40,000 primary care doctors, and that was before the signing of the health care bill. That will put another 32 million people into the system — with a promise of free preventive care — and insurance to pay for regular doctor visits. Some physicians have expressed concern about this. Patients could see increased wait times, as in Massachusetts, where since “RomneyCare” went into effect, residents wait an 10 extra days to see the doctor. But others say the bill will help create more community health centers, so primary care can happen at these centers instead of expensive emergency rooms”
Another minor detail. Why doesn’t this provision kick in until 2014? If you’re terminally ill now, you’re pretty much screwed still. Same CNN article. Why? It would cost a hell of a lot more (they’d actually have to account for it), but they wait until 2014 so they can build funds for 4 years and let it kick in after the next Election.
(same cnn article):

“Question: I am living with HIV and cannot get health care coverage. If this reform passes, how long before I am able to get coverage?

Answer: By 2014, that there would be no discrimination based on pre-existing conditions. You could not be denied based on an infection or some sort of pre-existing illness. That’s four years away, though.


* Special Interests and Deals – Yes, older bills have earmarks, porkbarrel spending, etc. Wait, I thought that’s why we elected Obama right? He said no more special interests, catering to big business, etc. He basically lied during his campaign when he said not on his watch. This was the ultimate. If he were true to his word, he would have been able to craft legislation that was broadly accepted to garner at least a few votes on either side which would not have mandated the purchase of votes from within his own party and not a single vote from across the aisle. At least he was right about one thing – no more business as usual. This was quite unusual indeed.

* Generics – I could write an entire post on this, but first off, the NYT author (surprisingly) needs to check his facts. Most drugs do no in fact have 5 years. They have much longer. It’s a bit more complex than just putting a number on it since it’s from initial registration of the entity, not FDA approval, so it tends to be about 7-12 years depending on the development phase.
wikipedia: http://en.wikipedia.org/wiki/Generic_drug#When_can_a_generic_drug_be_produced.3F

I’ve happened to work in Biotech manufacturing for years. It’s an insanely complex process, much more so than small molecule. It’s intensely regulated, much more goes wrong, more capital intensive, the human labor demands much higher salary, discards are vastly higher, cycle times are longer, liability is higher especially for sterile injectibles of which most biologics are vs oral for pharms, I could go on. Basically, you don’t want to be a Biotech CEO if you want to sleep at night. It’s an incredibly complex and risky business.
Hence, the certainly demand at a minimum, the same, if not more, patent exclusivity as drugs – which end up being 7-12 years post approval, not 5.

If getting into reimportation, price controls, etc., it’s an argument over whether you want lower costs today and no more innovation by removing incentive vs. leave the incentive and risk-takers will pursue those returns.
The market’s the best arbiter though. If drug-making were such a lucrative business, why do returns roughly trend with the broad market. Perhaps we should go put windfall taxes on Apple and force Microsoft to sell software at the cost of the CD it comes on, right? I mean, a CD is 10 cents, why do I have to pay $300 for windows? An IPhone costs a fraction of what Apple sells it for. It’s because you’re paying for the up-front risk taking and Billions in development BEFORE they collect a dime. Medicine is no different.

(…in order to keep Pharma’s support)… Not a single Republican voted for it. So, it doesn’t appear as though they needed pharma’s support. Perhaps they just saw the futility in destroying the world’s pharmaceutical industry by enacting artificial cost controls? I don’t know, I’m sure there were plenty of closed-door sessions with the Pharma lobbying group, but where they ended up, they’re still giving away $80 Billion over 10 years. Not too shabby. It would be nice if the government would trim waste and payrolls and give back the taxpayers $80 Billion ever.


*Fuzzy Math – Well, like I said, and I didn’t have the link at time of publication, but here it is. The ex-head of the CBO says this is total Bullshit. Total. Every number, the way this bill is structured, the “savings” myth. It is so damn disturbing. Please read the article from this credible source and then tell me you still believe in this bill:

Without copying his article, this bill is complete nonsense. But maybe I’m wrong, maybe he’s wrong. But is the market? No opinions there, this is traders’ money on the line.
Bill Gross, one of the most respected Bond Kings trashes US government debt due to this deal. http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2010/Rocking-Horse+Winner+April+2010+IO.htm
And alas, Treasury Auction performs very poorly today. What’s this say about the prospect of longer term debt. What happens when China stops funding our debt? Then we’re really in trouble.

* 10 Year of Taxes and only 6 years of benefits…
It’s disingenuous to NOT call them out on this. Why would it not be effective immediately? I’d love to know the answer. Or, better yet, why not start collecting fees for this until 2014 then? How can you not see what’s going on? It’s completely front loaded to appear attractive during the initial 10 years term and then this thing blows up when these idiots are all long gone. Again, please, I implore you, read what the CBO Director REALLY thinkgs about this hocus-pocus here:

– elsewhere, good points and links. Thanks. You rightly point out there are inept people everywhere, not just govt.

Overall, biggest gripe:
This could have been done much, much better – more equitably, more efficiently and BIG – Stop Taking on More Debt! In 30 years, we will not be “saving money” with this legislation. It’s going to explode and we’re going to eventually have to pay the piper. We should have clearly understood and articulated honestly what the true costs will be over time. Costs (savings?) numbers were intentionally manipulated to mask what’s really going on. And now, today, all the details are coming out of the woodwork.

We’re using student loans to fund health care? How are these related? They’re not, but they’re reaching everywhere they can to pull in fees, raise taxes, raid coffers to make the numbers work for this sham. And get this! They’re actually forcing students to pay a higher rate than a proposed Repbulican rate so they can pay for it! Just saw this tonight:

I realize some of this is posturing and trying to block the bill, but why were student loans even tied in to begin with? I’m sure more strange details will come out in the coming weeks leaving people scratching their heads.


13 Daddy Paul March 24, 2010 at 8:23 pm

You have to ask yourself would you write a health bill like this one? I am sure the answer is no. I see way too much room for corruption and fraud. What saddens me is that a very good plan could have been developed. DC as is always the case blew it.


14 Investor Junkie March 24, 2010 at 9:34 pm


Re: prescription drugs
Check out John Stossel’s video on prescription drugs:

It was an informative episode of his show.

Re: budget
I’m still waiting on someone to bet against me about the budget will NOT be deficit neutral in 10 years. Even if we use fucked up govt accounting. So far I haven’t found a sucker (ahem person) that would bet me.

Re: China. Can you say Smart Hawley tariff all over again? Why is our government doing the things they are doing with China? It’s not a matter of if China stops, but when. At minimum stops buying as much as previous. They won’t cut us off… yet because of all of the existing debt they have with us.

Some of the similarities to the great depression are amazing. History never repeats itself, but it often rhymes. – Mark Twain


Investor Junkie Reply:

@Investor Junkie,

I even tweeted Suze Orman (since she’s so gung ho about the new health care law) about betting me. She never responded… I know she reads replies. Coward!


15 Ryan@TheFinancialStudent March 25, 2010 at 10:02 pm

I’m a little late to the party, but I wanted to pass along this news:


They’ve eliminated the Nebraska deal, so there’s at least one step forward.


16 SegaAges April 22, 2010 at 10:09 am

Health Insurance companies are just that, companies.

The people that are against the health reform make me upset. I would have loved to be able to get treated cheaply by the government plan.

Before the reform was starting to get the ball rolling (about 3 months ago), within 1 weekend, I had a colonscopy to check for cancer and got my gall bladder removed from gall stones and spent 5 days afterwards recovering in the hospital.

My hospital bills are outrageous. I have been trying to dispute some of it, but in the end, I am still the one paying.

I am only 27 years old, and went through some serious health issues. I have had insurance for years upon years without a single health problem.

The amount I had to pay was not based on trying to “compete” with the government rates. There was no competition. I am still paying this off based on what this company decided.

I am one of the people where if my health problems had waited a year or so, I would be able to get this taken care of much cheaper. I mean, really, a 27 year old single male that is still only a couple years out of college.

Who pays the big, nasty insurance companies? I do. Not you. Not Mr. I am going to blog and complain. Me. Are you going to pay my hospital bills? I doubt it.

I am young. I can’t afford what I am paying. I am in so much debt to the point where it is very saddening, and it is from hospital bills.

Nobody is stepping up to make these big insurance companies charge people less. They are open to charge what they feel like. They are open to make me go in debt, bad.

Yeah, I was supposed to go in for a follow-up appointment to get checked out over 2 months ago, but I can’t afford it.

I have insurance and am now in debt and can’t afford to go in when I need to because of these insurance companies.

If there was, say, a government backed insurance plan, I bet I could afford to go to a doctor’s appointment when I need to.

This health care bill came in, and all of a sudden everybody got so concerned with a variety of health care options like they would magically go away or something. People started caring about the insurance companies.

What about caring for me? It is pretty obvious most of these people that upped and decided to care about the major corporations do not care what happens to me.

I am the reason why the health care bill is in place. I can’t afford to go back for a follow-up appointment. I need to. I went through surgery and 5 days in the hospital, so I need to return for a follow-up. I just don’t have that kind of money, and I have insurance.


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