Hospital fees are the wrong answer

The revelation that Colorado Governor Ritter is conspiring with the Colorado Hospital Association to levy fees on hospitals to fulfill his political campaign promise to deal with the uninsured is a massively badidea. It falls short on three points.

First, there is no proof that hospitals have excess profits. Such fees would be internally cost shifted to patients and represent a hidden and covert tax. Medicare and Medicaid reimbursements are fixed and insurance companies negotiate discounts. That means only the sick, self-pay patient, who is already billed 27% more than the average would bear the brunt. It's regressive. We are trying to reduce cost shifting, not increase it.

Second, any extraction of additional monies so as to channel it back to pay for the costs of care of the uninsured is inflationary. Health care hyper-inflation is directly related to the steroidal injections of financial subsidies for various "needy" groups. It has distorted and destroyed any semblance of a marketplace in health care.

Finally, either mandates forcing people to buy health insurance or tax-based subsidies avoids the real need in health care reform. We need to re-institute disciplining forces, be-it competition or regulation, take your pick, to reverse the seemingly never-ending upward trend of health care inflation. In a time of recession we need the health care system to become more productive and efficient. Their costs need to decline, not superficially inflate.

The political establishment and the trade association lobby, continually obfuscate and avoid the real need in health care. There is no magic bullet. It is old fashioned efficiency improvement and quality. Maybe we should be consulting Toyota on health care.

Long melodrama of financial folly

To the extent we temporarily humble ourselves by taking a lesson from history, it might be possible to see the current economic tumult in a different light. Economic panics have occurred every few years; they usually last a couple of years and are followed by an even more manic run-up of the markets. The modern use of central banks to infuse money into the system often leads to inflationary price increases on the heels of responding to political demands for a cure to a recession. But, sometimes the cyclical fluctuations portend bigger events are in the offing.

When an economy transitions from agriculture to industrial or, as might be the case today, from a post-industrial to an information economy, we often bear witness to major depressions or hyper-inflation, followed by war and revolution. It's when a tsunami hits instead of "surfs up!'.

After WWII we had severe recessions in 1948, 1953 and 1957. After WWII, billions of $$ of public debt were being monetized by the Fed, interest rates had been suppressed and the gold standard was being diluted. This had all followed cyclical expansions in 1924, 1936 and 1955. The Great Depression and WWII were obviously big punctuation marks in a long narrative.

Now, I would argue we crossed a big divide in the 1957-58 time-frame. Not only was this when the Salk polio vaccine would become generally available but, society would, also, begin to shift gears from the patriarchal, republican Eisenhower post-war years, to a more modern era characterized by John F. Kennedy, television and a man on the moon. But, there is one background story that needs telling.

In 1958, AT & T, America's largest employer and pension plan trust decided, for the first time, to make investments in the stock market rather than just hold US securities and bonds in their portfolio. In this same year, Lehman Brothers,(the same major Wall Street investment bank that recently failed in the 2008 financial meltdown) launched the biggest IPO in mutual fund history. In the months that followed Lehman sold 16 million shares, using a nationwide network of 640 brokerage firms. It is interesting that this mutual fund had originally been a private fund created by Lehman and 28 wealthy Ford executives after the death of the anti-semitic Henry Ford.

Thus began Society's lurch towards the use of the stock market to underwrite pension plans. The concrete began to set-up in the mid-1970s with the enactment of ERISA which turned over billions of dollars of pension and health benefit dollars to the labor unions resulting in everything from the financing of Las Vegas to today's investments in real estate, hedge funds and the stock market.

All of this has pivoted on two countervailing forces, that often work in tandem. First, was the freeing of the U.S. from the gold standard and the enabling of the Federal Reserve(eg. Allan Greenspan) to expand the money supply, and influence the economy through monetary policies. The second has been the ever-increasing concentrations of wealth in the upper 5% tier of society and the pensions of the Fortune 500 and labor union dominated organizations. These forces live by virtue of credit fueled by low interest rates and an ever-increasing money supply. Recession only slows the steady advance of inflation that leads to $50,000 automobiles and $500,000 homes. . The enthusiasm for the coming of this modern manic-recessive, bi-polar world was best expressed by Sumner Slichter, a Harvard economist who wrote in the fall, 1957, Harvard Business Review that creeping inflation was not to be feared because rising prices reduced the impacts of panics(recessions), wages would steadily increase and technological progress would advance. He brought music to the ears of the political establishment who felt it also contributed to a vibrant trade union movement.

Unfortunately, when the masses are at the heights of delusion and mania there always seems to be one odd fellow who wants to play the role of Cassandra. It was best expressed by Malcom Bryan, a past president of the Atlanta Federal Reserve Bank and an adviser to the American delegation at Bretton Woods (which set in motion the elimination of the gold standard and government's massive meddling in economic affairs). Here is classic Bryan:

"So, the proposal (Slichter's ideology), is on the one hand, that we take from the naïve or the trusting and, on the other hand, that our defalcations be effected on the installment plan, lest doing the job all at once, we might be caught at it. Let us be clear what is being asked, when we are now urged to a policy of either intentional or connived-at-inflation, is that we sell our honor. What altar of expediency is high enough and what bribe is great enough to absolve us from such perfidy? If this language be deemed unduly pungent, what other language shall be used? I believe that no greater delicacy of expression is warranted if we speak out of one side of our mouths to give ingratiating reassurances and out of the other side of our mouths to plan the undoing of men we have enticed and are enticing.

The integrity of our conduct is critical. Even if we ignore past savers(pensioners) in money forms, which would be a great scandal, we at least have a responsibility, binding in conscience, to present and future savers(pensioners) in money forms. If a policy of active or permissive inflation is to be a fact, then we can rescue the shreds of our self-respect only by announcing the policy. That is the least of the canons of decency that should prevail. We should have the decency to say to the money saver(pensioner), "Hold still, Little Fish! All we intend to do is to gut you!""

The short term injection of trillions of dollars of government-created money into the global economy to ward off recession will have long term unintended inflationary consequences. The effects we are experiencing today are the culmination of decades of decision-making that pushed us over the precipice onto a slippery slope; that we now find ourselves on the precipice should be no big surprise. Government offers us only a branch to self-arrest our fall into the chasm. If the characters in the drama were moral it would be a 'tragedy' in the classic sense. But, these individuals are amoral at best and therefore, it is comedic, a farce, a melodrama complete with villains. The popcorn on the table is being spilled on the floor with the peanuts. You have just finished the first act of a very long opera.

Campos & CU vs. McCain & TR

Clearly, the price of war is horrendous. The Civil War cost 600,000 lives. Worth the cost to emancipate a few slaves? Editor: So says Fran Miller in reply to "McCain's Dangerous Belief," a Paul Campos column in the Rocky on 4/24. Dave Crater tags on his impressions of Campos as a law school professor. Here are both pieces.

War? Why Bother?

(By Fran Miller) Paul Campos has sparked an important conversation that many will want to pursue. If we dispense with the glorification of past battles won and lost and focus on the merits of war it will inform our actions in the future.

Is the drafting of millions of men and resocializing them to get them to a point psychologically where they can kill or be killed worth doing? What, to liberate people like the French and British who will be ungrateful anyway.

And what about the Jews in those camps? Wasn't that a local problem on its way to being solved locally? Deposing dictators? Retaliating for the World Trade Center bombing? Aren't more people killed on our streets in a couple of months than were killed in New York?

Wouldn't the Russians have eventually won WWII? Couldn't we have sacrificed a few islands in the Pacific, trusting that the Chinese would have eventually taken care of the Japanese?

Clearly, the price of war is horrendous and its scars leave blemishes on the skin and mind of soldiers and civilian collaterals for a lifetime. I really didn't appreciate getting drafted in 1971 and being forced to put on combat boots.

My father and father in law both served in WWII and were never the same afterwards. The Civil War cost 600,000 lives and 2 to 3 million wounded. Worth the cost to emancipate a few slaves?

Discussing the merits of war as against the consequences of not fighting is a valid debate in a free society. But where I draw the line is Paul Campos's outrageous insinuation that the men who step forward when their nation demands are war-mongering sociopaths.

He is not fit to eat the droppings that fall off Teddy Roosevelt's mess kit. What Mr. Campos does really well, though, is act as the symbolic spokesman for the Colorado Bar, the University of Colorado and the Rocky Mountain News. He's your man. I'll keep TR as mine.

Who says 2 + 2 = 4?

(By Dave Crater) Fran, I had Campos for a class on legislation last semester at CU law school. It was not really a class in legislation, but one in literary, linguistic, and legal deconstruction.

We spent one entire class period discussing whether the proposition 2 + 2 = 4 actually describes the universe we live in or is just an arbitrary social and linguistic construct produced by humans.

I raised my hand and said, "With all due respect, the proposition 2 + 2 = 4 accurately describes the universe for all people, at all times, in all places." There was an awkward silence of a few seconds, then Campos said, "And how do you know this?"

He is as cynical and liberal as they come - a real moral and political disaster. As Fran hints, there are many reasons to not be excited about McCain, but his support for the Iraq war is not one of them.

Editor: Here are some key passages of the Campos column...

War is a form of mass psychosis, during which horrifying acts are transformed into heroic deeds, through the magical moral disinfectant of state sanction. .... When historians look back on the Iraq catastrophe, I suspect they'll discover a significant factor in this latest outbreak of mass psychosis was a kind of warrior envy, as reflected in recent popular culture. Books like The Greatest Generation, movies like Saving Private Ryan and television series like Band of Brothers are, despite some gestures toward moral ambiguity, essentially glorifications of war. .... Indeed, some of the support for the Iraq war came from the belief that war builds character by subjecting the pampered citizens of the modern state to a beneficial dose of suffering in the service of a great cause. The most famous American exponent of this view was Teddy Roosevelt, who believed in "muscular Christianity" and manly self-sacrifice, and who advocated militaristic imperialism as a kind of bloody outdoor adventure program, for a nation he feared was becoming soft and decadent. For anyone who considers this view both absurd and dangerous, Republican presidential candidate John McCain's evident affection for it is a cause for great concern.... There can be no better reason to vote against him.

208 rationale flunks Econ 101

Sound market economics is missing from a 208 Commission spokesman's recent Denver Post piece defending their recommendation for the legislature to mandate health insurance. Chairman Bill Lindsay would have us believe that the uninsured are cost-shifting their unpaid bills onto the insurance premiums of common, everyday folks. In fact, the uninsured are on the bottom of the totem pole and bear the brunt of the cascading effect of cost-shifting down from large players above them. Remember, government, which represents half of all health care payments, is reimbursing providers 25% to 40% less than provider costs. And, while big insurance companies seem to pay more than costs, they still pay far less than the retail prices charged to the uninsured. Insurers can use their clout to negotiate hefty PPO and HMO discounts.

What rarely gets mentioned is that the uninsured have their meager incomes taxed heavily up front to pay for Medicaid for the poor and Medicare for the elderly. The unreimbursed expenses of illegal aliens are also factored into the prices these people are charged. Maybe if they were relieved of this regressive burden they could start to buy insurance for their children and themselves.

What Mr. Lindsay and the Commission seemed to have missed entirely is that until systemic changes are implemented to reduce health care costs across the board, the uninsured will not be able to avail themselves of affordable coverage. Until then it is just a game of government and large insurance companies getting what they need to make their constituencies happy and the rest of us having to pay jacked-up rates.

Sure, hospitals want their bad debts to go away and insurance companies want an easier time selling policies. But, to do it through coercion and mandates makes a mockery of the legislative intent behind the 208 study process. It’s also bad economics.

Health policy awaits its Petraeus

It is less than profound to say that rising health care costs are restricting access for the working poor and squeezing all of us. Cost shifting, payroll and income taxes to pay for entitlements, rising copays and deductibles all combine to make us realize we have hit the wall on this matter. That 80 million baby-boomers are racing down the water-pipe towards retirement, with unfunded liabilities estimated in the trilllions is enough to double our dose of Prozac. The strategy used by government since 1965, when Medicare was first enacted, has been to increase access to health care through tax and spend subsidies in incremental doses that the American public would tolerate. First, it was the elderly, then Medicaid for the poor and then large corporation workers with ERISA. The last remaining segment has been the uninsured. Step-by-step, as these programs were put into place, the costs of health care exploded and we now have about 16% of the population under-insured, yet health care consumes 16% of our GNP, more than any other nation. Like Houdini in a straight-jacket we are constrained in attempts to free ourself.

The debate over the past two decades divided itself between those who believe in nothing short of a complete government take-over versus a group who continue to believe that the solution is for government to stop meddling and allow market forces to operate. But, in such a confused situation any grand scheme seems like driving into the future looking out your rear view mirror. A train wreck is sure to ensue.

I perceive the health care situation differently.

The modern health care system that you and I know has really only been with us since the 1970s. Prior to WWII hospitals were sanatoriums for TB patients, children's hospitals for polio victims or places to go and die. Until medicine was armed with its recently acquired arsenal of drugs, computer-assisted surgery and MRI diagnostics it had little to offer. Back then health care was run by religious orders with nuns and a begging cup and was at best 2-3% of GNP. With the introduction of polio vaccines in 1957 that flat growth curve hit an inflection point and began to rise exponentially.

Around the time when modern health care was getting off the ground, we also witnessed immense changes in our industrial economy. Computers downsized and become so cheap that we have come to expect twice the power at half the cost every year. Our cars and appliances all have on-board computers, some of which speak and listen. Mass-produced industrial goods are becoming cheaper, whether it is tennis shoes or toaster ovens. The world and its landfills are awash in plenty due to better management and technology.

That health care has not been the beneficiary of these changes should be no big surprise. It normally takes about 20 to 30 years for an industry to be impacted by disruptive technology. During the early stages technology is employed to improve quality, not efficiency. It is only now that we are seriously considering the electronic health record and internet as tools to improve health care costs.

By way of analogy, Henry Ford released the Model T in 1908, after a decade of failed attempts, at a price of $825. It was not until 1927 that his production peaked at over 15 million vehicles allowing prices to be reduced to $360; a record that stood for 45 years. The same phenomena has existed for electricity, telephones, radios and most things in life. We employed 60% of our people in agriculture in 1890 and today get the job done with 4%. In the very long run everything is subject to Moore's Law.

In my mind, health care is now on the cusp of becoming a really big industry, the likes of which will eclipse everything we have done in agriculture or industrial goods to date. As a service, health care has infinite potential in a world of 8 billion people, but only if it is efficient and effective. Health care services, using genetics and computers as the underlying technologies promise to be the cornerstone in our 21st century economy. Whether the United States will be the leader is yet to be seen, because most European economies also have their sights set on this target.

Health care is like having a grossly obese child. You know that the child's success in life depends on junior losing weight. But, do you admit failure and submit the child to gastric bypass surgery? In the end, isn't it eating less food that causes the weight loss? Or do you try some other approach? What will work? Less fat in the diet; a high protein diet; more fiber? There are lots of ideas, but they all get back to consuming fewer calories and getting more exercise.

So it is with health care. We have indulged our health care youngster mightily with subsidies and tax privileges and he has grown into a strapping big lad. So much so that he splits the seams of his trousers every time he bends over to tie his shoes. We all know that if we take the easy way out and have government take-over health care as a single payor, the game is all but over. As a socialized system, health care will not be the innovative and entrepreneurial creator of new drugs, surgery and genetics that are necessary to increase longevity and improve quality of life. We might cap health care off at 16% of GNP, which is still a heavy overhead burden for an economy that must compete in a global world, but we could do it. But, any hope of Baby Huey being in the Olympics or winning American Idol will be gone.

Now that we have tried almost everything short of gastric bypass surgery, maybe it is time to go back to the fundamental economics that made America great. I'm not talking about unbridled, lassaize faire economics. And, I'm not talking about the blunt instruments of tax and spend subsidization. I'm suggesting surgical economic reform techniques to reshape the industry and turn it into an efficient economic engine for our 21st century US economy.

There are dozens of strategies and tactics such as allowing consumers to form health care cooperatives, health futures contracts to compete against traditional insurance, defined-contribution health plans, evidence-based medicine and internet-based health records, all of which would take a stab at reform. You could reform Medicare within ten years. Just put a new system in place for pre-retirees and let the existing cohort in Medicare die off.

Colorado's 208 Blue Ribbon Commission was another case of trying to do something by committee. Remember, every great endeavor is the lengthened shadow of a single man. We didn't make progress in Iraq until we had David Petraeus. We didn't get an affordable auto until we had Henry Ford. It took Steve Jobs to turn around Apple and produce the iPod and iPhone. It's a hard pill to swallow, but a group of attorneys, political scientists, journalists and historians writing laws and concocting public entitlement programs is always going to be a day late and dollar over budget.