A Season to Remember

I am pretty sick of the "replacements" too.  The refs are holding out for more money and a defined pension.  Thing is these guys work for 16 games...not the bazillion in basketball, baseball and hockey.  They are trying to compare their salaries to those of other refs. Apples and oranges.  They claim that since the NFL makes SO MUCH money they should be paid more.  Well by that rationale if you work in say an Apple Store at the mall -- because Apple is about to be worth a TRILLION dollars you should be paid more?  Fact is that the NFL is STILL making a bazillion dollars without the refs!  How many of us have NOT watched because of this strike?  How many of us have not used our season tickets or bought our favorite jersey? Not very many. Yes the strike has affected the game -- but it has not affected the bottom line for the NFL! LOL  In fact with all the fines being levied their bottom line went up (although it's negligible). 

Now to the refs and their demand.  They want a "defined pension" -- which means that for part time work they want a package that has PERMANENT, FOREVER benefits.  The players don't even have that and I think the players are a bit more valuable than the refs…as we have seen, the game DOES go on (it's not like they are air traffic controllers).  Also, a ref for the NFL, depending on seniority and tenure makes between $25,000 and $70,000.  A ref is paid $11,900 for refereeing the Super Bowl alone.  Not a bad day's work.  The other professional sports in the US play multiples of games more than the NFL, log many more miles and demand more time.  Almost ALL the NFL referees have another line of work.  If they really depended on the NFL salary then they would be back at work already.

So yes the NFL makes HUGE amounts of money but what has become evident to me, whether I like it or not, the refs don't have much effect on the cash flow.  Yes we stomp up and down, raving mad when they make a call that is outrageous or when they over-look a flagrant foul, but folks we are still watching.  Heck, it is fun to see Bill Belichick dig himself into a hole that will cost him some serious cash (I thought to myself last night, "Oooo he is in TROUBLE!)  It has added an element to the game we have to admit and it has made the Monday morning quarterbacking a little livelier.  I think too, we as fans have become better students of the game -- there has been a time or two when I was actually MORE accurate than the referee!

So the game has gone on.  At this point I would not be surprised if Goddell just locks them out for the rest of the season.  As we have seen, he doesn't really NEED them. Over time, these guys will get better or at least stay consistently bad and it will be a season to remember.

The Math and Madness of Medicare

INTRODUCTION

In this paper I will explore two fundamental failures of the Medicare system. First, why it simply does not work mathematically -- it is literally accounting fraud and private businessmen like Bernie Madoff have been tried and convicted for lesser schemes.  Second, I will touch on why removing the "customer" from the payment process and removing the price from the product has created inflation and perversion of epic proportions.  I readily admit that I have used a few statements from my sources nearly verbatim -- there was simply not a better way of putting it.  I have cited my sources and give them serious credit and thank them for making my job easier.  

WHAT IS THE MATTER WITH MEDICARE

America enjoys freedoms beyond that of many advanced nations.  We like that -- it makes us uniquely American.  We, in general, don't like governments who unduly burden us or regulate our personal behavior.  Insidiously though American's have been willing to give up bits and pieces of itself to a nanny-state mentality -- we have allowed others to take responsibility for our care and well-being.  Most voters don't see the small losses of freedom as being dramatic -- but even Everest is scaled one small step at a time - you ultimately get to the top (weather permitting) and in this same incremental process America will reach its bottom. We are in fact losing one of the characteristics that made us America.

We often look at other governments as being oppressive and at the same time dismiss the elements that those governments might have that are strong points.  Throwing the baby out with the bath water as it were.  I don't often look to Asia for leadership role models nor for examples of transparency -- specifically I don't look at China -- China scares me.  But in this case Asia has got it right -- I never dreamed I would say this.

Take Singapore. Singapore’s paternalistic government is unappealing to many Americans — media restrictions (freedom of speech is a non-issue, there really is none).  They have a one-party system and even stiff penalties for gum-chewing -- yes gum chewing. But Singapore’s retirement system is a model of honesty and transparency compared with Medicare and Social Security.  

Of course in a one party system making drastic changes is far easier than it is in our world of two parties and some lesser party spin offs.  Our system while protecting some freedoms also creates a division.  I am not suggesting at all we should change our system to a one-party rule.  I am suggesting that as Americans we must at times lose our party ties; we must consider what is good for America and what our individual responsibility is.

Back to Singapore. In 1984, then-Prime Minister Lee Kuan Yew drastically redesigned his country’s retirement system to, as he later wrote, “avoid placing the burden of the present generation’s welfare costs onto the next generation.” The Singapore government makes no promises to anyone for extended care, benefits or medical coverage but instead requires all citizens to save up to 36% of their income for their own retirement and health care. The government invests the savings in stocks and bonds; the money is not used by the government to pay for current expenditures. They do not rob Peter to pay Paul.  It truly remains the money of the individual.  As an American you might decry that "taking" 36% of your income away from your current cash flow is outrageous and highway robbery.  If that is so, how can that be worse than taking my money out of my current paycheck to pay for someone else's care and benefits?  In the Singapore model -- at least it remains the individual's money.

The result? Singaporeans retire well, they are quite comfortable and they have left the subsequent generations with their own earnings to save and invest - they pay for themselves. Their health-care system scores far better than ours costing 80%  less than ours according to 2010 findings from the World Health Organization;  all of it is financed without imposing debt on the next generation -- imagine a generation that is not saddled with the debt of their parents and grandparents. Singapore even reported an uptick in medical tourism last year.  A step toward Obamacare is a dramatic step away from this model and will only perpetuate the declining health and well being of our nation's healthcare system and will add to the shifted burden of responsibility. 

Why is the system so much cheaper?  An 80% reduction is a lot! It all comes down to pricing. For example, consider the difference between the full-page grocery store advertisements that appear in every daily newspaper and those promoting your local hospital or health care provider. They both run ads. They both want your business but they go about "selling" themselves in dramatically different ways. The grocery store ads, no matter in what papers they appear, the NY Times or the local Prairie Times, are dominated by one thing: the price of the advertised goods. Health care firms also advertise, and their ads inform us about why we should use their respective facilities, the characteristics that set them apart from their competition, but price is never mentioned. 

Why is price prominent in grocery advertising but never mentioned in ads for hospitals or medical clinics? The reason is simple, and it is a major reason for the escalating per-capita cost of Medicare: the majority of consumers of medical care are not concerned about its cost because they aren’t directly paying for it. Because we, as buyers, are not concerned about medical care costs, the sellers of medical care aren’t either. Consumers are happy to demand and receive state-of-the-art care, and providers are happy to supply it.  Even when you try to "opt out" of the state-of-the-art stuff because you believe it is over-kill, you are dismissed as "not being a doctor" and in effect not knowing what is "best" for you.  

Here are two personal examples:

I was in the emergency room about two years ago for a kidney infection.  I knew what I had. They knew what I had.  After a roughly three-hour stay and a battery of tests later I was released with some added fluids and antibiotics.  The bill arrived and those three hours cost $12,000.  After the insurance paid their portion, I was left with $1800 to pay.  That is $600 an hour.  At the time of treatment I attempted to ask what test they were running and what the costs of the tests were going to be and I was regarded as though I had two heads.  They marveled "why does it matter, it's your health!?  They don't test you for the PROBABILITY they test you for every remote POSSIBILITY. In another example I once attempted to find out the actual price of some of my regular prescriptions when I was on a healthcare plan that left me responsible for a percentage of their cost. In this case I had a handful of options -- different drugs from different companies that treated the same thing.  In an attempt to make a sound financial decision for my own cash flow purposes and my household budget I attempted to find out the price of each drug so I could determine how much each one would cost me (remember I was responsible for a percentage of the price).  Call after call resulted in no usable information.  The drug companies could not tell me the price, the physician could not tell me the price, and the insurance company could not tell me the price. In fact they had no resources of their own to find out.  No one knew and they were frustrated with me for wanting to know.  I had to make my decision based on the age of the product figuring the "newer" the drug the more expensive it would be.  It was the best information I had.  Would you go to the grocery store and fill your cart without ANY idea the price of the products it contained?  Of course not.  But again, at the checkout stand it is your money you are handing over.

Well over 90% of all payments to hospitals in the year 1990 were not paid by the recipients of hospital services. For physicians services, over 80% of all payments were not paid by patients. Even for dental services and prescription drugs, relative newcomers to the prepaid insurance market, more than 50% of payments in 1990 were not made by the patients. If the patients aren’t paying, who is? The payers are the federal government, through Medicare, and the patients, indirectly through various medical prepayment plans (commonly known as medical insurance, although the insurance companies simply administer group plans and are not at risk as they would be if insurance was really involved).

Let's compare the two systems, Singapore and the Untied States. When Medicare was debated and enacted, Paul Samuelson was America’s most revered economist. He was an adviser to presidents Kennedy and Johnson, author of the nation’s best-selling economics textbook and a soon-to-be Nobel laureate. In 1967, Samuelson wrote in Newsweek about the funding mechanism for Medicare and Social Security: 

“The beauty about social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in. . . . Always there are more youths than old folks in a growing population. More important, with real incomes growing at some 3 per cent per year, the taxable base upon which benefits rest in any period are much greater than the taxes paid historically by the generation now retired. . . . A growing nation is the greatest Ponzi game ever contrived.” 

But the baby boom was ending as Samuelson wrote these words. Births per woman had fallen from 3.7 in 1960 to 2.6 by 1967 and then to 1.8 by 1975. By 1990, births were back to 2.0 per woman, but the demographics of the next century had been determined: The rapidly growing population needed to make up for insufficient savings by each generation of Americans was no more.

Anyone could see that this would mean trouble for Medicare and Social Security when the boomers began to retire. But our leaders chose to protect the programs rather than restructure them, and they have used dubious accounting standards to hide the burden placed on younger Americans. Denial was in full glory.  In 1967 even the brilliant Samuelson could not predict an added element to the already questionable equation. In a US census document from 2008 it determined that the birthrate in women already on social assistance was three times the birthrate of those not on any sort of welfare or state and federal aid (http://www.census.gov/prod/2008pubs/p20-558.pdf). So now the population of the payors we even more greatly reduced as compared to those receiving benefits and not paying for them. Once again, shifting the burden of responsibility from the individual to the masses has lead to choices that further and further our national decline.  The "price" of having a child no longer matters.

China’s leaders made dramatically different choices - they  had to. With a one-child policy, they surely couldn't rely on the next generation to pay for current retirees. Instead, they have designed a system much like Singapore’s: The government makes few retirement promises, and Chinese citizens save significant portions of their income — the average household put away 38% of their current income in 2010, Bloomberg Businessweek reported, compared with only 3.9% for U.S. households. Much of those savings are invested by China’s state-owned banks into U.S. Treasury bonds, which our government sells to finance Americans’ retirements. So Chinese retirees hold US debt instruments that earn money to pay for their own care tools so we can borrow from them to pay our current healthcare bills.  That does not sound like any sort of "social security" to me. This situation is as dangerous as it is ironic.

Of the $16+ of U.S. public debt — this doesn’t count the over $4.8 trillion held by our government, largely in IOUs to itself for Social Security — the Chinese own over $1.2 trillion, making them the largest holder of U.S. Treasuries after the Federal Reserve.

The Treasury Department’s 2011 annual report shows U.S. debt as a share of the economy (gross domestic product) rising — to 125% of gross domestic product by 2042 and 287 percent by 2086 — as retirement promises turn into cash outflows. That is just like owing 125% of the value of your home.  And if Medicare’s costs per beneficiary grow at historical rates (and no changes have been made to predict otherwise), the U.S. debt-to-GDP ratio will eventually exceed 500 percent (like owing %500 of the value of your home). Remember that Greece was pushed into crisis with a debt-to-GDP ratio of 113% -- we will exceed that in no time. Talk about being upside down.

How long will foreign investors like China, who own half of outstanding Treasuries, be willing to use their savings to finance our promises? At some point won't they want to cash in? What then? In December, the head of China’s sovereign wealth fund, which invests $400 billion of his country’s savings, criticized Europe’s welfare system in brutal terms, saying that it induces “sloth, indolence.” Our system is no different. We are becoming a nation not of innovation and hard work, the essence of what it used to be to BE America but passing the buck or more accurately passing the bill.

In the United States the largest private buyer of Treasuries, said last month that our retirement promises have “similar characteristics” to Bernie Madoff’s scheme and predicted a Greek-like crisis if the system is not reformed. Bernie Madoff is serving a 150 year prison term -- more than most murderers. Meanwhile, the Federal Reserve bought 60 percent of Treasuries issued last year. This rate of purchases cannot continue indefinitely. There will be a crash.

Today’s US leaders did not design the Medicare and Social Security systmes as an intergenerational transfer (although that is what they were from day one), and they did not choose the government’s misleading accounting standards. But because these bad choices have not been corrected, many Americans believe that a cut to Medicare or Social Security is a confiscation of money they paid into a trust fund when in fact it is not. This misconception greatly complicates our politics.  Beneficiaries of Medicare and Social Security receive a far greater value in their withdrawal from the system than the vast majority has ever put into it.  With people living longer, the issue exacerbates itself.  Does your bank let you withdraw more from your account than you have in your account?

The good news is that Americans know changes are needed. The bad news is many of those same people don't want the changes to take place until after they have received their benefits.  If this "not me" attitude continues, nothing will change. Our health-care system can be reformed to reduce the burden on our children and their children. We need better information to have this critical national discussion and we need to take seriously the information that is already right in front of our faces.

Will our leaders give us an honest accounting and discussion of our choices, or will we have to wait for a debt crisis to force the issue?  Evidence of our current presidential campaign polls show us that voters would rather be told what they want to hear. Will our leaders, like they are already doing, create even more complicated and burdensome systems to pile on top of an already broken system? 

I predict the latter.  You can dress up a pig, but it is still a pig.

Sources : 
The Washington Post - To fix Medicare and Social Security, look to Singapore
http://www.census.gov/prod/2008pubs/p20-558.pdf
The Rise and Fall of Medicare - Andrew J. Rettinmaier and Thomas A. Saving: Texas A & M University