The Santa Claus Syndrome: Where Things Come From

Wrong Culprit in Healthcare Debate

As the Democrats healthcare bill, designed to turn health insurance on it head, is percolating in Congress, I decided to look into the situation.  The government has savaged the health insurance industry as if they were just a bunch of looters, taking all the money and leaving their customers high and dry.  Much of what the Democrats are working on is designed to put the squeeze on the insurers.  But they are looking at the wrong thing!

As a CPA, I like to look at the numbers. I have been reviewing the financial results of Wellpoint, the largest insurer with 35 million members and 42,000 employees.  They are the Blue Cross franchisee in a number of states.  If the health insurance industry is getting rich, it should show up here.  Their financial statements are available on their website for anybody to see.  

The 2009 results aren’t available yet but 2006 to 2008 are there. So did I find vast bundles of profits?  If I had, I would be buying their stock instead of writing this.  In fact, I was not moved at all towards that.  Annual reports are designed for potential investors so put an optimistic a face as possible on things. 

I would not buy into this industry.  Their profits as a percentage of revenues are nothing special and Nancy Pelosi is trying to grab that. 

It is clear that where the money is going is to the healthCARE industry, not the health INSURANCE industry.  Of Wellpoint’s 2008 gross revenues of $57 billion, $48 billion went straight through to healthcare providers: hospitals and doctors.  By the time they paid their administrative costs (salaries for 42,000 employees), taxes and drug bills, they were down to $2.5 billion which is only about 4.4% of the gross.  With Nancy Pelosi hell bent on grabbing as much of that as possible, nothing good can come of this. 

If the government is to reduce healthcare costs, they need to go where they are actually occurring, not after the industry doing the paying.  They can beat up the health insurers forever and it will never touch health care costs.  When you have the wrong people analyzing the wrong thing, they will get the wrong answer. 

Christmas at the Obama White House

        Nancy Pelosi and Harry Reid are handing out the presents and all is right with the world.  Or is it?  They are just putting the final ribbons on the biggest present, the new healthcare package, all the hundreds of pages of it.  It will take time to sort out just who gets what and what the cost will really be but it seems like if your U.S. Senators are Republican, look for switches and ashes.  If you have the other guys, the sky is the limit.

            I had not planned on a Christmas blog since my basic theme in my Santa Claus Syndrome book is that there isn’t really a fat guy in a red suit who is going to pay all our bills.  But Obama and his elves in the Congress are trying to prove me wrong.  The NY Times is reporting that deep in the bill there are lots of specific provisions inserted by Harry Reid to get the votes of specific senators.  There are reports of millions for this, hundreds of million for that.  All presents designed by senators for some specific need:  To get a vote here, a vote there to get to the magic 60.            

        Some of these benefits have very specific criteria and only fit a few circumstances.  Those who wrote these provisions may be the only ones who know the intended beneficiary.  How can anybody vote for something like this?  They seem to be just looking at the specific benefits to their own constituents and turning a blind eye to the costs to the whole government.

            Another big factor is the expected cost savings.  Like many government plans, they say they have devised ways to save money but instead of implementing the plans to see if the savings actually appear, they are going to spend the whole bundle first.  Wishful thinking is an important legislative tool.  One of the major savings they allege is by paying less to Medicare doctors.  These are the same doctors who are turning down Medicare patients now because of the low payments.  This is pure fantasy.             

            There may be a political urgency for the proponents of this plan but for those of us who might be on the paying end; a little more thought would be a big benefit.  In fact, they need to defer this plan for a year, not just for more study but to implement the cost savings schemes and see if the money really rolls in before they spend it.

            So while everybody is settling in to enjoy their new presents, remember there is a bill as big as the moon headed for somebody.    

Under Cut by the Federal Reserve

    We were once again undercut by the Federal Reserve on interest rates when the Fed announced this week that the bargains for bank borrowing will continue. When I say “we”, I mean people like me, and hopefully you, who might have a few dollars in a savings account or a money market fund or some similar cash like investment, made with the hope of actually getting paid some interest on it.  And also a little weary of the up and down stock market.

     As long as banks can get money from Mr. Bernanke and other government elements for virtually nothing, there isn’t much reason for them to pay us anything.  One thing that has allowed this in the past year is that we are worried about putting money in stocks.  After the collapse last year people have been willing to give up earnings for an assurance of preserving capital.  In the interest of salvaging principal, we have given up interest.  But this is not a natural situation and can’t continue indefinitely.  In the long run, people aren’t going to invest money just to get free storage.

    When I first had a money market account in the early 80’s, it was paying over 18%.  Now I’m only getting a quarter of a percent.  Neither extreme is good.  Rates need to be high enough to make it worthwhile to invest but low enough that borrowers have a reasonable hope of making enough money to pay the rate and have a little left over for themselves. 

    So how long can this go on?  Let’s look at a few things.  The government is putting out cheap money to stimulate the economy.  But a big part they are trying to stimulate is the building industry.  The problem in real estate is the collapse of home prices, not high interest rates, except for the ones where the rate balloons.  There is no benefit to the economy to help people refinance a mortgage from 6% to 4.8%.  This just helps the particular individual.  There is a benefit to refinance a mortgage that is in threat of foreclosure because the interest rate went up and tripled the monthly payment and the homeowners can’t make the payment.  But the current plans don’t seem to recognize this.               

    We need to find a way to remind those in power that we are still out here and we are the good guys.  There is too much emphasis on helping those who are overextended at the expense of those who have done the right thing like saving money to take care of their expenses and old age.  So write your congressional delegation and anybody else you can think of.  Sooner or later they need to come around.

Government Fees Disappear

    If a government charges an extra fee for something, where do suppose the money goes?  You may think it has to go to whatever purpose the fee is charged for.  Some of it probably does.  But the Atlanta Journal Constitution has revealed that in our state, much of the fee money just goes into the pot to be spent on whatever priorities the government might have at a particular time.  

    One of the fees we pay in Georgia is a $1 per tire fee when we buy new tires.  It is supposed to go to cleaning up piles of scrap tires.  I guess many would call that a worthwhile purpose.  But in 2009, only $1.4 million of the $16.38 million collected is going to cleanups.  The rest disappeared into the General Fund.  

    In another case, a fee is tacked on to the sale of every prepaid cell phone that is supposed to support local 911 systems.  But the millions collected is being diverted to other purposes. 

    There are hundreds of these fees in our state and there seems to be little accountability for the funds. The AJC article has several other examples and you can read the whole thing at: http://www.ajc.com/news/misused-fees-lead-state-189810.html .

    But we need to look more broadly.  I’m sure Georgia isn’t the only state doing this.  And the federal government isn’t above charging fees for whatever it can think of.  I doubt they are any more diligent about accounting for the money than Georgia. 

    If you look around, you probably have the same situation in your state, and even with your local government.  It’s an example of how governments chip away at us in increments so small it is hard to fight them off.  But it adds up to a vast amount of money with little accountability.  Hordes of small fees nipping at us is good for them and bad for us.  We need to save this article and drag it out any time a government says they need a new fee for some purpose.  Make them prove they can be trusted first!

Casino Gambling in College

It’s everywhere or at least close to everywhere.  There are certainly ads everywhere for it.  It’s fun.  There are lots of things to do at the casinos and hotels. 

But the main business of casinos is to get your money away from you.  They don’t produce anything you can eat or that can provide shelter.  I suppose they claim to be providing “entertainment” just as many sports or show business venues do.  While these other entertainment choices can cost a lot, you don’t have to keep paying while it’s going on. You know the whole price when you buy a ticket.

It’s is important to realize that it is impossible to win in a casino.  Even those who run them say that.  There are a few short term winners but they inevitably give the money back by continuing to play.  You don’t have to quit while you are ahead.  You have to quit when you run out of money.  Of course as an accountant, I can see this as an especially bad deal.  Giving money away where the only benefit is the thrill of giving your money away isn’t appealing.

If casino gambling (I include various gambling machines that might be other places too) involved definable set of skills or methods, if it could be trained, then respectable universities would offer degrees in it.  If winning at gambling could be taught, who better to learn than intelligent young college students. 

If this were anyway legitimate, with your new casino gambling degree, you should be able to get a business loan to stake you and you are off to making a living.  But that isn’t what happens.  If this were possible, people would win so much from casinos that the casinos wouldn’t be viable.  If the odds approached being even, that would probably be the case.  If even a high level of skill in playing games was the necessary tool, enough people would turn their hand to gambling that the casinos would collapse. 

But none of this happens.  What happens is that millions of people enter casinos every year and most, necessarily, leave with less than they started with.  The saddest cases are those who are under some illusion that they can win.  It is hard to believe that casinos get away with this.  In fact, hardly anybody criticizes it.  I’m sort of libertarian leaning politically so I’m not saying it should be outlawed. I’m saying we shouldn’t do it because it’s not only expensive, it’s dumb.  Or at least wait until it becomes legitimate enough to be a college major.

Update on Double Entry Accounting (Gravity never sleeps)

The idea of spending our way out of a financial problem caused by too much easy credit reminds me of the beauty of double entry accounting.  This may be new to non accountants and the beauty may take a while to grow on you but with just a little knowledge, it is something that can be appreciated by all.  

Double entry accounting was devised by Italian merchants over 400 years ago to keep up with their business.  Since then there have been features added to keep up with different business concepts.  And along the way, much of it has been automated.  Believe me, this take a lot of the drudgery out of accounting and has been a blessing to those who do it for a living and those who audit it.  

One thing that has stayed constant is that debits equal credits.  If you debit one account, you have to credit one or more other accounts for the same amount.  This comes into play with the flurry of stimulus schemes coming from Washington.  If money GOES somewhere, it has to come FROM somewhere.  The “somewhere” might be some time in the future but it is out there.  This applies even if you don’t write it down.  You can’t just give stuff away.  Basically you must reduce another asset or create a liability, an obligation to pay later.   

This aspect is as certain as the law of gravity.  It’s always there even if you try to ignore it. You can put a rocket under something and send it up into the air.  It looks like it is flying.  But as soon as the rocket runs out of fuel, the object drops like a rock.  You can pretend you have conquered gravity for a while, but sooner or later it will win. 

Remember this:  Gravity never sleeps.  Neither does double entry accounting.   Being in balance doesn’t eliminate all problems but it does keep you going in the right direction.  At least you know where you are.  

Medical Billing Mysteries

As an accountant, I wonder how this situation can be logical or even possible.  An actual example of a current medical bill arrived in my mail this week.  I had a check up a few weeks ago which involved some routine blood tests.  You can tell a lot of things from analyzing blood.  The lab billed me $324.08 for this.  But wait.  There was a deduction of a $238.83 “insurance discount.”  Then the insurance company paid $18.66 and I got a bill for the balance of $66.59. 

I don’t really mind paying $66.59 for these tests since they check for a number of potential problems.  Even if I had to pay the small amount the insurance paid, it would still be a good value.   If I didn’t have insurance and was stuck paying the full $324.08, it would have not been so good.  In many cases I’m sure that the people who get hit with the full bill are the least able to pay.

It is important to focus on the fact that the real benefit is not the nominal $18.66 that the insurance company paid.  In fact, that would hardly be worth filing for if you had to do the paper work yourself.

The real benefit from insurance is the huge discount that they negotiated.  The $238.83 is more than 73% off the price.  I would be willing to pay somebody to negotiate a 73% discount on most everything I buy, even if they paid nothing.

So as an accountant you wonder what this stuff really costs.  If it really cost the full price, they couldn’t give such a discount.  I have read that hospitals claim they only collect a small percentage of the bills they send to the uninsured.  But the percent collected would be a lot higher if they billed at the discounted rate.

They have to pad bills to cover services to those who don’t pay, including the service the government requires them to perform free like emergency room care. But can it be nearly three quarters of the bill?  There need to be more CPA’s looking at this to figure out just how the money works in the medical industry.

 

Real Medical Cost Cuts

One of the centerpieces of the Obama health scheme is what he calls cost cutting.  They even plan to cut some of what they now pay into Medicare Advantage.  But they seem set on just arbitrarily paying less for the same services, not finding more efficient ways to, for example, extract an appendix.

We already hear about many doctors who already won’t accept Medicare patients because of the low payments.  This number will have to grow.  You won’t get any benefits by setting prices so low that providers can’t operate.

We already have a lot of cost shifting instead of cost saving now in a world where Medicare and insurers are negotiating prices with providers.  If Medicare makes lowball payments, some of the cost of these procedures will be transferred to insurers or individual payers.  Just saying you will pay less does not make a provider more efficient.  It means they have to get their money by overcharging somebody else.

We need is to have CPA’s go over charges and accounting practices to see what the costs actually are.  I expect they will find a lot of overhead in every charge.  This is because there is a lot of infrastructure and administration in hospitals.  And all of the cost shifting will have to be accounted for and that will be ugly. 

There are also some reports that in the case of Medicare, in some locations patients are given far more treatments and procedures than in others while the overall results aren’t much different.  This needs to be looked at in great detail. 

Another thing that should happen is an analysis of every procedure to see if it could be done more efficiently.  Is there an alternative treatment? 

If the only cost containment technique you use is that you just decide to pay less, you will most certainly receive less, one way or another.  We need to work on actually providing services more efficiently.  This involves analysis by both those with a technical knowledge of how services are provided and those who understand all the intricacies of how costs are accounted for.  This isn’t the same as a plan concocted by horse trading lawyers and politicians who have only a barely superficial knowledge of either. 

Georgia Birthday Card

    This week mine came in the mail.  The envelop bore a message demanding that you open it immediately because it’s government business.   For several years Georgia has used the owner’s birthdate for the car tag renewal deadline.  They send you a notice a few weeks ahead of your birthday to provide time to get an emissions inspection and any necessary repairs.

    Did I mention that there is a tax in there too?  It’s based on their estimate of the value of the car.  They used to use a straight line depreciation model but now use a value estimate.  This means that if you drive a five year old Toyota or Honda, you will be paying more tax than if you had a car which lost value at a higher rate. 

But writing my checks this morning, I was thinking about how many different payments and deadlines there are imposed on us by various governments.  And they are just to get money for their operations.  But they are generally going from the same pockets to the same places.  In fact, I have to write checks to the exact same tax commissioner at different times of the year for property tax on my house and a several hundred dollar annual fee for “solid waste” services.

This is a system designed for the benefit of government (them) instead of the taxpayers or customers (us).  We would be far better off if we could force them to use a smaller number of taxes that were easy to calculate so we could keep up with what we pay.  But for them it is better to nip us for a little here and a little there so it is harder to fight off.  And it is easier for them to get more money.  Of course with different tax systems there is more overhead in duplicate collections processes but that is a problem for us not them since we have to pay for that too.

I was thinking about this today reading an item about a new tax on stock trades proposed by labor unions.  The beauty is that it will be a small amount applied to a huge number of transactions and would draw in a lot of money.  And the thing that they and governments would like is that it would be hard to see.  But it would still be coming out of our pockets.

Every time any new tax is proposed, we need to remember that if we are among those who pay taxes, it will be us paying it.  The idea of getting services from the government for free is a fallacy.  All of this money comes from somewhere and it is inevitably the pockets of the productive part of society who is already paying. 

Free Money! How healthcare financing will work

             What we and Obama need is free money for healthcare.  A few days ago there was a segment on the PBS NewsHour about potential changes in medical care and it gave me an idea of where the money is coming from.  One of those interviewed was a doctor who was head of a society of neurological surgeons.  He described a case he had seen that day of an 82 year old woman with a back problem.  She needed an operation, a BIG operation.  He said that in England, she would not be able to get this surgery at her age from the government controlled health care system. 

They don’t find a way to do a $50,000 operation for $10,000.  They just don’t do the operation and use the money for somebody else.  She does not get the surgery she was expecting to get through Medicare or insurance. But she not only doesn’t get the surgery, she doesn’t get the money back either.  The money she has paid in for decades is taken away and used for somebody else. 

The only way for the Obama healthcare plan to work is to keep some from getting what they are currently eligible for and use the money to provide services to others who may have paid little or nothing into the system. 

It is important to think about these aspects before we go down this path.  There is no doubt that some way must be found to keep from spending vast sums on people who aren’t likely to live much longer anyway.  That’s a system that has no regard for costs at all.  But should it be the government who dictates the answer to these questions?  Do we trust them that much?

There was an ad on the radio about hunger stating that one in eight Americans has problems with hunger.  But we also hear frequent reports about the huge number of cases of obesity.  Both of these problems could be solved if Obama stepped in and took the excess food from the overeaters and gave it to the hungry.

They could then move on to the homeless problem.  Just have the local Commissar go around to each home and inventory the extra bedrooms.  There must be a million of them with all the empty nesters we hear about.  Then just assign the homeless to these rooms and the problem will be solved, the Obama way.

We already know that Obama immediately put a fat tax on those addicted to cigarettes to provide free healthcare to middle class children.  We hear everyday of plans for more taxes on the richest, and most productive, 5% or so of taxpayers to pay for healthcare for others.  So where does this stop.  Is the government going to be allowed to just redistribute everything?