Why The Healthcare Mandate Is No Big Deal

The piece of the Affordable Care Act that requires all U.S. citizens to have health insurance has caused quite a bit of controversy. It seems that a lot of that controversy is caused is by a lack of awareness of the details of the mandate. I’ve found that when I explain some of the details of the mandate to people that don’t like it they often end up realizing that it’s really not all that bad.

Let’s start with this: there are approximately 40 million people in the United States that don’t have health insurance.

And getting healthcare when you don’t have health insurance is super expensive. So when you don’t have insurance you tend to delay getting care until your condition becomes serious. Even when it’s serious, because you’re not insured, you still don’t get care through the appropriate channels, such as a Primary Care Provider or a specialist.  Instead, you very likely just show up at the emergency department of your local hospital (hospitals are required by law to give care to anyone that shows up at their emergency department, regardless of insurance or ability to pay). But emergency departments aren’t setup to deal with these people. They’re setup to deal with emergencies. They’re setup to stabilize a condition, not provide ongoing treatment or preventative care.

People without insurance that are getting care only when they’re desperate and through the wrong channels are costing the healthcare system lots and lots of money.  They’re waiting until they’re very sick to get care, they don’t access care through cost effective channels and, perhaps most significantly, when they get care from the emergency department they don’t pay their bills.

So who do you think pays for these inflated healthcare costs that are caused by the uninsured?  Answer: the insured.  In order to provide this level of care at no cost to the uninsured, hospitals must raise prices for the insured.

So Obama has proposed a solution that will alleviate the suffering for the uninsured and the suffering of the insured. This solution is a law that requires everyone to have health insurance.  The mandate.  And this is the controversial point in the Affordable Care Act.

But it shouldn’t be that controversial.  For a lot of reasons.  For one, nobody actually has to get health insurance.  If you believe that being uninsured is part of your freedom as an American, no problem. You’ll just have to pay a slightly higher tax rate each year (not more than a 1% increase). 

Also, of the 30 million that are uninsured, most are going to be getting insurance anyway as a result of some of the other components of the law such as expanded Medicaid to individuals with higher incomes and increased insurance coverage requirements for employers.

In addition, if you make less than what is required to file a tax return (somewhere around $9k/year) then you are obviously exempt from any tax penalty that comes from not having insurance.

So the fight over the mandate is really only about a group of approximately 7 million people (about 2% of the population). 7 million people that are costing those of us that are insured a lot of money because they delay care and don’t pay their healthcare bills.  And all the mandate is doing is asking those 7 million people to either get insurance or pay a slightly higher tax rate (not more than 1%) to make up for what they’re costing the system.  When you look at it this way, suddenly the mandate doesn’t seem like such a big deal.

I Like Mike (Part 2)

Regular readers know that I'm a big fan of Mike Bloomberg. I wrote about him in an earlier post back in 2008. Chris Dixon interviewed him for TechCrunch’s Founder Stories series last November.  It's an insightful and inspiring interview -- I recommend watching when you have some time.  Here's some of the highlights/insights for me. I’m paraphrasing Mike, of course.

• One of the goals of New York City is to have a park within a ten minute walk of every New Yorker.
• The business goals for New York isn’t to pay companies to come here through subsidies, it’s to create an environment where people want to live.  That means great culture, parks, schools and reduced crime.
• Big companies are like governments in that they setup very reasonable bureaucracies to minimize risk.  But that bureaucracy is what prevents them from innovating.  That’s why we need startups.
• The United States is committing suicide by not giving citizenship to foreign entrepreneurs.
• People talk about making New York more of a hub for college education, much like Boston.  It turns out that there are more undergraduate and graduate students in New York City then there are people in Boston.
• There are 13 public golf courses in New York City and Staten Island's land mass is almost 25% park.

Segmenting the Unemployment Rate

Any data set is a lot more useful if you segment it.

As an example, let’s say you find out that your e-commerce website converts at a rate of 3%. That is, for every 100 visitors, 3 make a transaction. That’s somewhat useful data, but it isn’t actionable -- i.e. you can't do much with it -- until you segment it. 

You need to break the users into segments: by gender or age or income, etc. When you do, you’ll find actionable insights that will allow you to take actions that will increase your conversions. For example, you might find that men between the ages of 30 and 40 that make more than $100k per year actually convert at the rate of 20%, but that most of your site’s visitors are in lower converting segments, thus the aggregate 3% conversion. With information like this you can adjust your marketing to bring more higher converting users to your site -- you'll get more marketing bang for your buck.

We must do the same with our unemployment data. The unemployment rate -- last time I checked -- was 9%. This number is quoted over and over again in the media as if, by itself, it actually means something. 9% unemployment is not actionable.  It must be segmented.

For example, the U.S. unemployment rate for those with graduate degrees is 2%, college grads 4.5%, high school grads 9.7%, non-high-school grads 15%. 

It’s critical to recognize the difference between these segments. The data is telling us that for the educated segment of our population, unemployment is at or well below its natural rate. But for the uneducated population it’s super high. This is actionable data. This tells us that there isn’t necessarily a shortage of jobs. There may actually be a shortage of qualified labor. Politicians should keep this segmentation in mind when evaluating "job creation" vs. "job training" programs.

The 40 Hour Work Week

I came across what was supposedly a very, very controversial graduation speech given by a right wing talk show host to students at Texas A&M.  It turns out that the speech was simply a chapter in his (fictional) book.  Much of the speech is totally over the top.  But if you’d like to get your blood flowing you can check out the entire speech here. 

The reason I’m posting about it is there was one line towards the end that struck me as pretty good advice for college graduates… 

Speaking of earning, the revered 40-hour workweek is for losers. Forty hours should be considered the minimum, not the maximum. You don’t see highly successful people clocking out of the office every afternoon at five. The losers are the ones caught up in that afternoon rush hour. The winners drive home in the dark.

Also, related to this topic, Salon.com had a good article a while back on the advent of the 40 hour week, that argues bringing it back would increase productivity -- interesting read when you have a few minutes.

Boomerang

I recently read Michael Lewis' new book, Boomerang.  It's a fascinating book about the recent European Debt Crisis.  Like most of Lewis' books (especially The Big Short, that chronicles the U.S. financial crisis) he's able to take a fairly mundane topic, roll it up into a few hundred pages and make it a page turner.

The book dives into the crises that occurred in the last few years in three countries: Iceland, Greece and Ireland.

It's a fascinating and very well written book.  It gives the inside story on the political, economic and cultural circumstances that led to the unlikely collapse of three different economies.  If you're interested in European economics, politics or culture, I can assure you that you that you'll enjoy reading Boomerang.

Stop Stealing Dreams

Seth Godin just released his free ebook titled, Stop Stealing Dreams. It's an excellent book. I highly recommend reading it and passing it onto your friends -- especially those that work in education. It's basically a series of blog posts so it's an easy read. Here are some lines from the book that I liked the most:

Our current system of teaching kids to sit in straight rows and obey instructions isn’t a coincidence—it was an investment in our economic future. The plan: trade short-term child-labor wages for longer-term productivity by giving kids a head start in doing what they’re told.

Large-scale education was not developed to motivate kids or to create scholars. It was invented to churn out adults who worked well within the system. Scale was more important than quality, just as it was for most industrialists.

Every year, we churn out millions of workers who are trained to do 1925-style labor.

Are we going to applaud, push, or even permit our schools (including most of the private ones) to continue the safe but ultimately doomed strategy of churning out predictable, testable, and mediocre factory workers?

There are so many examples in the mainstream news of companies not adapting and failing as a result (Research in Motion and Kodak are a couple of the most recent examples). The markets change, competitors take market share and the companies that don't adapt fail and fail fast.

There's no secret here. In fact, I would bet that most school administrators and politicians could explain exactly why Research in Motion is failing. But our schools -- possibly our most important public institution -- are doing exactly what RIM did, and to some degree are experiencing the same fate.  

You're Going to Spend More than $2 Million on Health Care in Your Lifetime

Yesterday when writing about David Goldhill's piece on health care in the Atlantic, I noted that he noted that the average American will spend $1.77 million on health care in their lifetime (this includes their employer's contribution).  This is an astounding number.  I thought I'd do my own math.  And when I did, I actually got a number slightly higher than Goldhill's.

Here's my math.  Assume you start paying the average family health insurance rate of $12,000/year beginning at the age of 26.  You continue paying that rate until your death at, say, 85.  Assume the cost of health care increases at a rate of 3% per year.  Using the future value function in excel, that's a total of $2.02 million in health care payments over the 60 years that you're paying for health care. And keep in mind that this assumes that the rate that health care costs are rising is only 3%.  Given the increasing cost of health care over the last several years this is a very conservative number.  If health care costs continue to increase at their current rates, we could be paying twice that amount.

Some Health Care Insights

David Goldhill had a great and very long piece on health care in the Atlantic a few years back titled, How American Health Care Killed My Father. The premise of the article is that Goldhill's father catches a hospital-borne illness while in the hospital that eventually leads to his death.  Goldhill argues that had America had a consumer-centric health system in place, his father's death may have been avoided. I don't feel like diving in the consumer-centric argument today.  But there were a series of excellent insights that I took from the article that I want to call out.  Regardless of where you land on this issue, it's an excellent read and you should read the whole article when you get a chance. In the meantime, here were some of the most interesting insights for me:

• 100k people die every year from infections acquired while in the hospital
• the U.S. government spends almost 18 percent of our GDP on health care
• we spend 8 times as much on health care as we do education
• health insurance is a unique type of insurance in that it pays for all of our health care expenses, as opposed to just catastrophes
• this is the equivalent of paying for our gas with our auto insurance or our electric bills with our homeowners insurance
• most pregnancies are planned and known about many months in advance, yet they're financed the same way we finance an unexpected catastrophe
• the result of this unique insurance coverage has contributed to high costs; the average consumer could care less about the price of even the simplest procedure
• group health insurance was introduced in 1929
• employer based insurance grew significantly during WWII, when wage freezes prompted employers to expand other benefits as a way of attracting workers
• by 1954 most people still didn't have health insurance but that's when Congress passed a law making employer contributions to employee health plans tax deductible without making the resulting benefits taxable to employees.
• this led employer funded health insurance becoming by far the most affordable option for financing any type of health care
• for every two doctors in the U.S. there is one health insurance employee
• in 2007, the average health care insurance cost 12k per family up 78 percent since 2001
• the average American will pay 1.77 million dollars for health care, assuming growth rate of 3 percent a year, from age 26 to age 85
• hospitals may be shifting costs inappropriately to the ER to show the losses/investment they're making in charity care as most ER services aren't paid for
• when looking for an MRI he learned that prices vary widely between hospitals and that some hospitals wouldn't quote a price until the service was actually ordered
• some hospitals won't quote a price unless the patient is uninsured or is seeking financial assistance
• it's odd that it's been such a struggle to get medical records online, but that the billing for services that are included in that health record is all online and extremely sophisticated
• an individual would typically pay 2.5 times what an insurer would pay for the same treatment
• the price of LASIK treatment, an uninsured procedure, has nosedived over the last several years because it is subject to the forces of competition.
• conversely the price of an MRI hasn't changed, it's paid for by insurers and Medicare and thus not subject to traditional market forces that would make them less expensive
• the government has proposed investments in electronic health records of $50 million, only 2% of the health care industry's revenues
• but who's to say that doctors will adopt them, most of the benefit of this would go to patients, not providers, and patients aren't the real customers, insurers and the government are
• the bill for his father's five week stay was $636k -- $5k per night for the room, $145k for drugs, $41k for respiratory services,
• his family's share of the bill was only $992, the rest was paid for by Medicare at some huge discount

What's Driving Increasing Healthcare Costs?

A while back I read a great article on the health care cost crisis in the New Yorker by Atul Gawande.  The article is titled, The Cost Conundrum and I took some time to read it again today.  It's a long one.

It's so insightful that I thought I'd do a short post to call out the key points.  If you have any interest at all in health care I'd highly recommend giving it a read.

The article starts after Gawande learns that McAllen, Texas is one of the most expensive health care markets in the country.  In 2006, Medicare spent $15k per enrollee in McAllen, almost twice the national average.  

Gawande visits McAllen to find out why costs there are so high.  The answer is surprisingly simple and is outlined in this excerpt.

Health-care costs ultimately arise from the accumulation of individual decisions doctors make about which services and treatments to write an order for. The most expensive piece of medical equipment, as the saying goes, is a doctor’s pen. And, as a rule, hospital executives don’t own the pen caps. Doctors do.

He finds that doctors in McAllen are using their pens a lot.  They're more entrepreneurial and profit-minded than their counterparts in other markets.  And as a result are prescribing far more health care than an average market like El Paso, which is just a few miles away.

In 2005 and 2006, patients in McAllen received twenty per cent more abdominal ultrasounds, thirty per cent more bone-density studies, sixty per cent more stress tests with echocardiography, two hundred per cent more nerve-conduction studies to diagnose carpal-tunnel syndrome, and five hundred and fifty per cent more urine-flow studies to diagnose prostate troubles. They received one-fifth to two-thirds more gallbladder operations, knee replacements, breast biopsies, and bladder scopes. They also received two to three times as many pacemakers, implantable defibrillators, cardiac-bypass operations, carotid endarterectomies, and coronary-artery stents. And Medicare paid for five times as many home-nurse visits. The primary cause of McAllen’s extreme costs was, very simply, the across-the-board overuse of medicine.

Doctors in McAllen are more likely to pursue referral fees from other health systems, be shareholders in their own practices and be involved in other business ventures.  More procedures means more revenue and more money in their pockets.

Gawande argues that the solution to higher cost markets doesn't lie with the payer issue, as most politicians seem to argue.  Regardless of who's paying, when doctors in certain markets are prescribing increasing amounts of care, the cost problem doesn't go away.  Instead, the solution, he argues, lies in the promotion of systems like that of the Mayo Clinic.  

The core tenet of the Mayo Clinic is “The needs of the patient come first”—not the convenience of the doctors, not their revenues. The doctors and nurses, and even the janitors, sat in meetings almost weekly, working on ideas to make the service and the care better, not to get more money out of patients. I asked Cortese how the Mayo Clinic made this possible.

It pooled all the money the doctors and the hospital system received and began paying everyone a salary, so that the doctors’ goal in patient care couldn’t be increasing their income. Mayo promoted leaders who focused first on what was best for patients, and then on how to make this financially possible.

The Occupiers and Capitalism

On Sunday I had the chance to check out the Occupy Wall Street protest in New York.  It was a pretty amazing scene.  Check out this blog that’s posting updated photos.

I’ve been thinking a lot about what the protest means and if these people are really onto something, or if this is just the latest rant that will go away when cold weather finally hits the east coast.  

Last night I came across Thomas Friedman’s column titled, There’s Something Happening Here.  In it, Friedman proposes that these protests could be a signal that we’ve reached a tipping point in capitalism, he points out this argument:

…these demonstrations are a sign that the current growth-obsessed capitalist system is reaching its financial and ecological limits. 

Yes, the rich are getting richer and the corporations are making profits — with their executives richly rewarded. But, meanwhile, the people are getting worse off — drowning in housing debt and/or tuition debt — many who worked hard are unemployed; many who studied hard are unable to get good work; the environment is getting more and more damaged; and people are realizing their kids will be even worse off than they are.  

On the other hand, he looks at it  more optimistically: 

Yes, corporations now have access to more cheap software, robots, automation, labor and genius than ever. So holding a job takes more talent. But the flip side is that individuals —individuals — anywhere can now access the flow to take online courses at Stanford from a village in Africa, to start a new company with customers everywhere or to collaborate with people anywhere. We have more big problems than ever and more problem-solvers than ever.

As we consider these arguments, I think it’s critical to keep in mind economies are cyclical -- we have good times and we have bad times.  And occasionally, economies go through revolutions; in recent history, the U.S. economy has been through the agricultural, industrial and information revolutions – and we’re still in the thick of the last one, and we’re feeling the pain.  

In this most recent revolution, when most pessimists point to the bad news, they point to the unemployment rate.  But here’s an important statistic that often doesn't get talked about: the U.S. unemployment rate is 9%; for those with grad degrees it's 2%, college grads 4.5%, HS grads 9.7%, non-HS grads 15%. 

This data shows us that our economy is going through the painful transition that we’ve experienced in every economic revolution: a mismatch between our growing job sectors and our citizen’s talent (this particular gap is amplified by the housing crash that viciously eliminated scores of jobs for less educated American workers).  

In time, as it always does, the economy will naturally close this gap.  But we can and should do a lot to speed up the process: skilled worker training programs, changes in high school curriculums to include skills the economy needs, increased student loans for growth sectors, increased investment in growth sectors, to name a few solutions.

The “Occupiers” passion is inspiring and it underscores the important problems and real pain our nation is facing.  They have a good message and I’m glad their voices are being heard.  But as the conversation evolves into solutions, I hope it moves away from theoretical discussions on the merits of capitalism and the principles of taxation.  And towards more practical, easy to implement, solutions that get people back to work  in sustainable jobs that keep America competitive now and into the next revolution.

The Debt Ceiling and Politics

I’m certainly not a political or economic expert, but the debt ceiling debate in Washington seems to be much more about politics than it is about the viability of the economy. A few facts to consider:

•  Congress put the debt ceiling into place in 1917
• The purpose was to cap the President’s ability to borrow and spend money so it wouldn’t get out of control
• This was necessary back then because at the time Congress had little control over our budget
• That has changed
• Since the 70’s Congress has direct control over the budget each year (taxes and spending)
• The ceiling, which is now at $14.3 trillion, has been raised nearly 100 times since 1917

From what I've read, most agree that raising the ceiling would have little material effect on the economy, good or bad.  Though it would be an important, high profile, symbolic event reminding all of us that the U.S. needs to quickly get its spending in check.  I think we’re all for that.

But most also agree that not raising the ceiling could be catastrophic for the economy (though there's no precedent for it as it's never happened).  We’d default on our debt payments, raising interest rates and damaging the credit rating of the United States.  The economy would almost certainly fall back into recession.

So why all the support for not raising the ceiling?  Why not just raise it one more time?  What’s the big deal?

The answer is simply politics.  This symbolic event is a fantastic opportunity to make the President look economically incompetent.  Putting up a big fight puts a huge amount of attention on the fact that our national debt is out of control and makes the President look bad as he ramps up his re-election efforts.

While I recognize the need for political posturing, not raising the ceiling makes no sense given the fragility of this economy.  It would be a classic case of the punishment not fitting the crime (only we’d be punishing ourselves).

As James Surowiecki writes in this week’s New Yorker, it’d be akin to "shooting yourself in the head for failing to follow your diet."  Let's hope Congress puts politics aside and sees it that way too.

What We Don't Know

Donald Rumsfeld, former Secretary of Defense, said this back in 2002 when responding a to a reporter’s question about links between Saddam Hussein and terrorists seeking weapons of mass destruction.  It came up again Monday in a column in the Wall Street Journal. “As we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns: the ones we don't know we don't know. And if one looks throughout the history of our country and other free countries, it is the latter category that tends to be the difficult one."

I’ve always loved this quote; it’s very humbling and so true in business and life (and of course politics and war).

In short, there are things we don’t know that we don’t know we don’t know.