Incentives are key to fixing healthcare

This year I tried something new.  I signed up for a high-deductible health plan.  After a little research, I decided to leave my traditional health plan and opt for a consumer driven one.  And this decision has made me a more conscientious consumer of health care.  Here’s how it works.

On January 1, United Healthcare deposited $2,400 into my health reimbursement account.  I can use this money anywhere I wish so long as the expenses are health related.  I can’t buy a bag of chips with it, but I can use it for doctor’s visits, prescription drugs, and the like.  Each time I transact with a health care provider, the fee is deducted from my account.  Should I not use all the funds by December 31, they roll over to the next year – up to $10,000 for a family. 

 

Here’s the incentive part.  If my HRA runs dry during the year, my health care provider (United Healthcare) won’t begin paying for my doctor’s visits and drugs until I reach my deductible of $3,600.  That means I have come out of pocket $1,200 before my “traditional” insurance kicks in.  (1200 out of pocket = 3600 deductible – 2400 HRA deposit).

This arrangement has made us consider carefully every doctor visit, drug, and other medical expense because we really want to ensure our $2,400 lasts us throughout the year.  For example, yesterday my wife took our 8 year to the doctor.  She was complaining of a sore throat and running a fever.  The doctor swabbed her throat (negative for strep) and prescribed an antibiotic for a sinus infection.  The doctor wanted to send the swab off to another lab for additional testing – testing we would have to pay for. So we declined and saved that unnecessary lab fee (the results of the lab would not have changed the doctor’s remedy – an antibiotic).

Traditional insurance removes the incentive to make consumers savvy shoppers of healthcare.  We plunk down our insurance card, fork over a small co-pay, and couldn’t care less what happens after that. If we want to change people’s behavior regarding healthcare, this arrangement has to change.

Absolute Tyranny

Living in America in 2011, it’s hard to imagine what absolute tyranny entails.  We hear the term tossed around from time to time, but I suspect few of us really understand what absolute tyranny looks like.  Even the poorest of Americans enjoy a life a million times more abundant than those unfortunate souls in North Korea.

Life in North Korea is harsh, short, and repetitive.  Liberty does not exist, only complete commitment to the Dear Leader.  Consistent and daily propaganda, assisted by Confucianism, has reduced the population into automons, existing only to worship Kim II Sung, who died in 1994, and his murderous son, Kim Jong-il.    They are idolized as gods.  They are actually tyrants.

North Korea is the most reclusive nation on earth.  Outsiders, when allowed in, are under constant supervision by “guides”.   A drive around Pyongyang bears witness to oddly- empty streets and towering buildings with few occupants.  Famine is everywhere and electricity is almost nowhere.  Visitors are escorted to hand-selected venues where Korean school children perform dances and play music.  It’s all a façade.  The real Korea is off-limits to outsiders.  The real Korea is most likely filled with unspeakable horror, starvation, and death.

I asked myself why children continue to be born.  As a sane, rational human being, I would not want to subject my children to the tyranny of North Korea.  Perhaps, copulation is forced.  Freedom is nonexistent in this hermit country, but substituted with the grim reality of a difficult and short life.  An early death may actually be a blessing in North Korea. 

  

Here’s a video (about an hour in length) that will help you understand absolute tyranny.

Taxes DO Matter

Don’t think taxes matter?  They matter to CME.  As a reminder – Illinois hiked income taxes this past year by up to 60%. 

Regulations that actually save money, or so says the EPA.

Black is white.  The earth is flat, and monkeys really can fly.  Stimulus creates wealth, and government can issue regulations that actually save the country money.  Hi, and welcome to the bizarro world. 

Last week, the EPA finalized a new rule to “help states reduce air pollution.”  I would personally like to ask those states if they consider the EPA a respected business partner or a lying, cheating hooligan.  I digress.  Companies have until January 1 to comply.  Can a major coal plant retro fit its equipment to comply with this new rule in less than six months?  Doubtful.

This new rule mandates that power companies reduce air pollution that contributes to particulates and ground level ozone.  The EPA swears that tens of thousands of lives will be spared, saving us billions in avoided healthcare costs.  It also promises that any increase in electric rates will be minimal, and this action will not interrupt the flow of electricity to power-hungry cities.  Well, proving that deaths were avoided is impossible to measure, but we can certainly capture the increase in rates and the reduction in generated power.

Luminant, run by EF Holding Company, operates 12 coal fired power plants in Texas.  They announced plans to “materially reduce power generation” at some plants and “mothball” others to comply with the new rule. A company spokesman said six months weren’t enough time to comply.  Most reasonable people know six months isn’t enough time – just as unreasonable regulators at the EPA know it’s not enough time.  With already tight supplies, this additional reduction in supply could lead to shortages and significant price increases.

America gets half its power from coal, and there are over 500 coal plants that may need retro fitting to comply.  These costs will be passed on to consumers, acting as a tax and reducing our wealth.  Power companies in KY have said consumers can expect average increases of 20% in electric rates for the next five years.  KY gets 90% of its power from coal.  Upset? Don’t be.

Remember, this is the bizzaro world.  The EPA said everything would be fine.  These rules will save you money – there are no costs, only benefits.  Hey, I just saw a monkey fly by my house!

Income ≠ wealth

Income isn’t wealth, but try convincing this to a politician or mainstream journalist.  Many people confuse this issue and become caught up in the class warfare that plagues the political parties.

Income, loosely defined, is a flow.  Contrast this with wealth, which are assets, or a stock.  Assets normally generate income (think municipal bonds), but they don’t have to (think an expensive piece of art).  But again, income, even high income, doesn’t necessarily translate to rich.

Suppose a freshly minted doctor opens his own practice, and earns an annual income of $265,000. Let’s also say this doctor bought a home worth $300,000, and put 20% as a down payment.  And let’s say the doctor borrowed $200,000 to attend medical school.  Is this guy rich?  Well, let’s analyze his net worth. 

His assets (house) are worth $300,000 but his liabilities are $440,000 (student loan of $200,000 + mortgage of $240,000).  He has owner’s equity of $60,000 in his home.  So, while his income looks high at $265,000, he is far from wealthy.  Subjecting our doctor to higher tax rates based on the false premise that he’s rich is bad policy.

So, the next time you hear a pol talk about taxing the rich, ask them to define rich.