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It's really not all that complicated when you dig into the headline that has just started showing up -- and which I predicted would bite before the end of Trump's first term.
2018 could be the year the dam bursts on the federal deficit.
Back in June, the Congressional Budget Office projected that the budget deficit — government expenses exceeding revenues — would drop to $563 billion in 2018 from the $666 billion shortfall the Treasury Department declared in the 2017 fiscal year, which ended Sept. 30.
Now budget experts outside government say the 2018 total could exceed $1 trillion because of series of bills being passed in quick succession, and decisions to scrap what were already weak limits on spending.
The CBO is always off -- on the low side. That's not because they try to be off, it's just a function of how the CBO works; they are constrained by the rules Congress sets for them on how to evaluate things, which forces them to use existing law projected forward without any likely, or even nearly-certain, legislative changes.
In other words if a budget change expires in 5 years they're required to assume that it will indeed expire, even if the legislative history strongly suggests it will not. If the Medicare "Doc Fix" has taken place every year (and expanded the deficit) they may not consider that in the following years because it has not "yet" passed -- even though historically it has passed every year in the previous decade.
Last fiscal year, by the way, was the first one in a long time when the debt addition actually was close to the "official" deficit; it was just over $670 billion (where the claimed deficit was $666.)
What does a trillion dollar deficit mean?
In a $20 trillion GDP economy (assuming you believe GDP actually captures economic activity) it means a 5% devaluation of the purchasing power (that is, inflation) of every single dollar in existence. In other words if we put up a 3% GDP number it's actually -2%.
The problem all comes from Medicare and Medicaid. To recap -- Medicaid is a pure entitlement; there is no offsetting tax. There is for Medicare, which is 2.9%.
Politicians always lump "Social Security" and "Medicare" in together when talking about "entitlements" but this is an intentional fraud run upon you and when they do so you should either insist they cut that crap out or force them office whether peacefully or piecefully, as there is no Social Security problem.
That's because Social Security has a "buffer" of Treasuries that are issued against the "excess" tax receipts. The system was designed this way so that when there were "lumps" of people (e.g. the Boomers) the money would be there to pay their benefits. Those people will die, and when they do that drag on the system will dissipate. I remind you that this is 12.4% on earnings, from the first dollar, up to the cap -- and that benefits are capped as well, and in fact you get more back for lower-earning dollars than higher ones. That is, Social Security is a progressive tax in that those who earn more get less for each dollar contributed. While the Boomers will indeed deplete the Social Security bond stash as it is cashed in and spent they will then die and the drain on the system will stop. In short there is no issue with the retirement fund -- there is, however, an issue with Congress raiding retirement funds in order to support ridiculous expansion of unearned Social Security disability payments, and this must be halted.
Medicare, on the other hand, is funded with a 2.9% tax on earnings (and has no cap.) The problem is that this was designed to mesh with an economy in which health care spending was about 4% of GDP.
Today health care is almost 20% of GDP, or five times larger on a proportional basis, despite technological innovation that should drive down cost.
That hasn't happened because of monopolies and racketeering all of which is illegal under more than 100-year old law. It starts with the American Medical Association (AMA) which has built itself a monopoly business in the ICD and CPT "code lists" for diagnostics and just gets worse from there.
What this imbalance has done, along with the government trying to cap Medicare spending (by setting "reimbursement rates") is force that spending into the "private sector" -- that is, on you. This is only partially effective, particularly in the area of drugs where Medicare Part "D" was forbidden to negotiate drug prices when it was passed by Congress.
Then came Obamacare, and suddenly the soft underbelly and truth became exposed. If you made less than about $40,000 (whether intentionally or not) you got subsidies that, in many cases now, exceed $700 a month for a single person. In other words you get "free" health insurance. If you actually use health care this is robbery of the public on a grand scale to the tune of more than $10,000 a year but if not you can "opt out" of the scam -- for now -- at near-zero or zero cost by reducing your income to the roughly $20,000 a year level.
However, make more than about $20,000 and the effective tax rate on your earnings until you reach the $40,000 threshold is in the neighborhood of 80%! Do the math -- first you lose the entire subsidy, so that's now about $10,000 you must pay for said "insurance" right off the top. That's a 50% effective tax rate to which you must add Social Security and Medicare (15.3%) and then income tax (~15% bracket, plus whatever your state has, if you have a state income tax.) The effective tax rate thus is 80% on that next $20,000 in income if you live in a zero-state income tax state like Florida and for most states where income tax in the $20-40k bracket has hit the "nominal" rates in the 5% range it's 85%!
In other words earn one dollar, get to keep 15 cents.
Do these people think I'm nuts? More to the point $40,000 is hardly a "rich" lifestyle and it's much worse when you work hard enough to "make" $40,000 but only live as if you made $23,000 because the rest is taxed away with $10,000 of that taxing coming from the loss of Obamacare subsidies!
I can easily surpass the point where that "knee" drops back off, but realize that until you get into the hundreds of thousands of income that nasty in the $20-40k range is an extremely ugly marginal tax boost. At the $100,000 level it adds a full ten percent to your effective tax rate. Those who think they're in the 20% bracket are not -- they're paying 30%.
The worst part of this is that virtually everyone who works for someone else and has a full-time job is paying this tax too but it's hidden from them and exactly none of Trump's so-called "tax cut" helps in this regard. That's because their employer is "required" to provide said health insurance or get fined, so they pay. You don't see it, the CPI index doesn't capture it but it's there. We were seeing this at MCSNet in the 1990s with 10%+ escalations annually and it's still going on. Employers inevitably cut back the plans to try to manage that cost but that eventually runs into the mandatory coverage requirements and thus there's only so much you can do.
There is only one way to stop this and prevent the escalation from detonating the Federal Government's budget -- and that is to return medicine to 4% of GDP. If we do that then the Federal Government never runs a deficit and in fact runs a surplus immediately and permanently, State and Local governments stop getting hammered and thus your property taxes go down instead of up, pension plans that include health benefits prior to Medicare stop being bankrupted in an afternoon and you get a real pay raise of about 15% immediately as well.
But there's a problem -- all that theft and scam comes out of the economy and millions of people who profit from and in fact are employed as a direct result of it now are temporarily unemployed. In the year you fix it GDP plunges by that same 15%. A 10% decline is the formal definition in economics of a Depression, so we get one.
It doesn't last long -- in fact it lasts for mere months before the economy will adjust -- but those months, if you're one of the people who make their living as a result of this robbery, are very bad for you. It's also bad for the stock market and any business that is on the public markets and exists only because of these scams; those firms are all literal zeros.
Of course politicians would get blamed, which is why they won't do it. But if we don't as a body politic demand that this scam be kneecapped, now, the increasing cost escalation will destroy the federal budget, will destroy state and local budgets and will destroy you financially if you're not super-wealthy -- and no, the "ordinary wealthy" with a million or two will not escape this.
You may think we can get away with trillion dollar deficits because the economy and stock market are doing "well" today. You're wrong because if it's a trillion now when the next recession comes, and it will, it won't be one trillion -- it will be two or three trillion at which point the federal government's ability to fund itself will collapse. There are plenty of people who believe The Fed can "QE" its way out of this again, but that's false -- there is a limit to that chicanery where you no longer are in the market but effectively are the market, and The Fed has already tickled that dragon's chin.
Wake him up and he eats you.
Time's up folks; if you expect Medicare to be around 10 years from now and beyond this has to be fixed right now or the outcome is certain: Medicare and Medicaid will collapse. It is a mathematical certainty.
Medicare is in fact self-funding and perfectly ok if we collapse medical spending back to 4% of GDP. We can do this without losing access to medical care or destroying the industry by enforcing 100+ year old anti-trust law against all medical providers and throwing those who refuse to comply in prison. We can start here, and then pass this immediately following and the problem will be immediately and permanently solved.
If we do not demand this now as Americans then the outcome is certain -- and it's going to suck.
Ok, so I have the APTC for a single person who has reduced income to right near $20,000 a year for 2018.
In Florida it is now $760/month, or $9,120 a year.
This is wildly up from $446 for last year; in fact it's up 70%.
This means I can now have a Silver plan for about $15/month, as opposed to a very low-level Bronze plan for under a buck. I can also choose virtually all the Bronze plans for zero (since the cost is lower than the APTC), but that would be insane since I'd be leaving a huge amount of your money on the table.
The actuarial value of a "Silver" plan is wildly better than any of the Bronze plans.
There is one "gotcha", which is hospitalization co-insurance that does exist on the Silver plan but not on the Bronze. But the Silver plan in question has a zero deductible, so even with 20% "coinsurance" you'd have to run a hell of a bill to lose that bet especially considering that you get the insurance-company racketeering-deduction price.
Folks, you have to be flat-out nuts to work harder and run into the subsidy phase-out, especially if you have a spouse, even if you do need routine medical services since you can now buy zero-deductible Silver plans for less than the cost of a burger-and-beer in your local pub!
QUIT ****ING WORKING AT $20,000 A YEAR OF INCOME, FIGURE OUT HOW TO MAKE YOUR LIFE FIT IN THAT EARNINGS LEVEL AND YOU WILL NOT ONLY PAY BASICALLY ZERO FEDERAL TAX (OTHER THAN EMPLOYMENT TAXES, OF COURSE) AND YOU WILL GET CLOSE TO $10,000 OF "HEALTH INSURANCE" WITH A ZERO-DEDUCTIBLE PLAN FOR UNDER $200 A YEAR.
No, you probably can't do this in high-cost-of-living areas without living in a slum. Yes, you can make it work perfectly-well in lower-cost-of-living areas and be perfectly fine. I'm doing it and you can too. Yes, it means you have to change your lifestyle but I'll be double-******ned if I'm going to go out and earn a six-figure income and then have government thieves not only tax more than half of it away (which they will) but then double-monkey-**** me by extracting approximately $10,000 in after tax money in addition from me for "insurance" that, unless I have some sort of medical catastrophe in the next 12 months in fact provides zero value to me.
Let's talk about the implementation of my model bill that I recently posted to reform health care on a permanent basis.
It's fairly easy to envision timelines based on complexity. Simply put, most of this isn't complex because providers have price lists now -- you just can't see them. So with that said, let's look at an example and assume The Bill was passed and signed somewhere around 30 September -- or the close of the fiscal year.
What's next? The following timeline appears to be reasonable.
Beginning immediately on signature with implementation required on or before 1/1/2018:
And.... it's done.
The medical scam has ended.
There are no more Federal Deficits; in fact, we run a perpetual budget surplus and begin paying down the national debt.
Your standard of living starts going up every year even without a raise by about 1% each and every year instead of going down as it does today.
We no longer pay for illegal immigrant medical care at all from public funds.
You get a price that is the same as everyone else for the same good or service in the medical field just as you do at the grocery store, the gas station and the local restaurant. The outrageous price discrimination (sometimes as much as 10, 20 or even 100x or more) served up on some people -- discrimination that usually bankrupts the consumer in question -- ends permanently.
You know exactly how much you will be billed for a medical procedure, drug or device before you choose to undergo that procedure or accept the treatment. Your insurance company, if you have one, will have to make available what they will pay and the hospital, doctor or pharmacist must tell you what they will charge. You will thus know what the total cost to you will be -- before you sign a consent form or have a procedure done.
If you get an infection from a hospital you cannot be billed for the drugs and time to treat that which they gave you due to their incompetence. That risk and cost is finally on them, which will drive innovation and greater care to prevent such infections that harm and even kill Americans today.
If you can't pay you will still be treated and can still choose your doctor, but you will be responsible to cover the (much more-reasonable) bill if you become able to pay it in the future. This will permanently put an end to the practice of poor people using the ER like a doctor's office since this sort of abuse will no longer be advantageous compared against going to a regular physician.
Drug prices fall in the United States by at least half (and more likely by 80% or more on an average basis) and for those with chronic diseases that have been sucking down drugs and procedures while refusing to make simple, zero-cost lifestyle changes they finally have a strong incentive to both do so and have their health improve materially at the same time.
There will be no more $300,000 snake bites, $150,000 scorpion stings and $1,000-per-stitch fees that get lumped on you without any way to prevent them when something bad and random happens. Any medical provider who tries it will find their bill void and they will be prosecuted for fraud.
Obesity and diabetes incidence falls dramatically since it is now strongly in everyone's best interest to practice simple changes in their lifestyle. An epidemic has broken out -- of people having their pants fall off. It's a good epidemic and America is noted and lauded as being the first nation to have reversed the increasing rate of obesity and Type II diabetes.
The nation becomes far more productive as the cost of employing someone drops by a solid 15% and America becomes the place to put a multi-national business. In short labor expense drops tremendously and productivity soars.
If you're not a currently-overpaid administrator you get a raise; for a typical median family it will be about 10% immediately as your employer's cost of having you on staff will drop by at least that amount. For the average family of four you will see, net of your medical expenses, roughly $7,000 richer in cash spending power after tax each and every year.
Those who are currently-overpaid administrators in health care will find jobs in other sectors. It may take a while but it will happen, as the economy comes roaring back with the newfound efficiency and productivity improvement from deleting the fraud currently consuming almost one dollar in five.
State and local pensions and budgets stabilize and, over time, taxes come down at the state and local level as the levies put in place to try to stay ahead of the pension destruction are no longer necessary. Specifically, property taxes decrease materially which will cause both the cost of owning a house and rents to decline.
Your car insurance gets cheaper as your liability policy, much of which covers medical expenses coming from accidents where you are at fault, along with uninsured motorist coverage, will decrease dramatically in cost.
Federal Spending will contract to something similar to this -- and I note that this chart presents a pessimistic estimate. We would almost-certainly do better than what is depicted here and, I remind you, both Seniors and indigent citizens would receive better care and more choice than they have now.
And we prevent this -- our federal debt -- from blowing up in our face as the CBO currently predicts -- an event that, if it occurs, will destroy the nation just a few years from now.
Let's lay out the parameters for a bill, a fairly-modest update to my two previous missives on this point here and here (note the dates) and which can be easily turned into formal legislative language:
Now let's look at what you could expect under such a system.
Let me first note that such changes would drop Medicare expenses in the budget by at least 75%. Again, 25% comes off from changing how we handle Type II diabetes alone; these are not "pie in the sky" numbers. This results in a complete deletion of the federal budget deficit on an instant and permanent forward basis and as a result everyone in the country becomes richer every year because their purchasing power of money stops going down and starts going up.
The CBO is out with their latest estimate on the detonation of our federal budget, and it's not pretty. They point out what I've said repeatedly on the budget and "entitlements": Social Security is not the problem and in fact will start declining in share of the budget in 2028; politicians speaking of "entitlements" lumping Social Security in with Medicare and Medicaid are lying. The entire problem is in medical spending and if current trends are not reversed -- not just "adjusted" over time -- will destroy the federal budget and economy. We will not get to 2037 before it happens either; in fact, if we do not act we'll be lucky to get through the next four years as the markets will figure out that neither political party will take this issue on and resolve it. Simply put we must solve this problem and we must do it now.
If we don't this is what the federal government will try to do with debt
That will fail because it must; infinite exponential expansion of debt is impossible to sustain and will result in a fiscal crisis. Since this is being entirely driven by health care spending the only means to avoid collapse of the government will be forced rationing or even collapse of both Medicare and Medicaid -- an immediate disaster for everyone dependent on them.
We must act now to stop this, and the above plan (or something substantially identical to it) is the only workable means to do so.
Let's take some pessimistic estimates of the result from enacting this set of changes -- that Medicare spending will go down by half and Medicaid by 60%. These are in fact very pessimistic, since a 25% reduction is simply from policy change rather than cost control. What does that do to the budget even if that's all we get?
Total spending goes from $3.85 trillion to $2.92 trillion in an afternoon.
In other words we go from a $587 billion dollar budget deficit last year (on "official" terms) to a $342 billion surplus; that is, from a 15.24% deficit (as a percentage of the budget) to an 11.70% surplus! This change in spending and the surplus is maintained forevermore into the future -- in short this change ends, permanently, the federal budget deficit.
At least as importantly for you, as a consumer, we take the destruction of purchasing power of your money caused by deficit spending and permanently reverse that. Over time this will eliminate the federal debt -- without cutting any discretionary (or military) spending.
Let me add to this: I have, since The Market Ticker began publication, said that Social Security is not going to blow up; the entire problem is in health care. Lawmakers and candidates love to either scare Grandma by saying their opponent will "cut" Social Security or threaten that we must address "entitlements" in which they include Social Security. Here's proof from the CBO that I'm right and they're lying: Social Security does not materially increase in budget load over the next 30 years, and more to the point it starts declining in impact ten years from now as the Boomers begin to pass on!
Fixing Health Care prevents the destruction of the Federal Budget and prevents you from losing access to medical care -- especially if you're a Senior Citizen or poor. If we do not pass this bill or something substantially identical to it and you are either a Senior Citizen or poor within the next five to ten years you will face forced rationing of your health care or the government will collapse.
This bill will materially increase access to doctors, clinics and similar by Medicare customers since there is no longer any discrimination between who does and doesn't take the program -- Medicare is simply an insurance payer just as any private program is, and will list its payable amounts for care just as will any private party insurance does. This also leaves the Medicare Advantage programs, for those who decide they like that program better, fully intact. For those Seniors who have medical expenses that exceed what Medicare will pay they will wind up with a tax lien just as will any other citizen.
This bill will make customer choice not just a function of price but also of outcomes. Today there is no accurate way for a person seeking a procedure to compare the success rate between various providers of a given procedure. This must be fixed immediately if we are to have true competition as some doctors are outstanding, some are excellent, many are average and some are poor. There is literally no way for a customer today to know, other than by anecdote, which category a physician falls into.
The bill will also destroy PBMs and the outrageous extraction of funds they commit by forcing price transparency and decoupling price from "insurance." You will be able to call or go online to look up drug prices from any pharmacy and they will in turn have to honor the same price for all retail buyers. Competition will return at the retail level and the practice of "gagging" pharmacists, which is arguably illegal as it is done for anti-competitive purposes, will end immediately.
If you're unable to pay or accrue medical expenses in your Senior years (or otherwise) that wind up being paid by Treasury then when you die they go "poof" (Treasury eats them) to the extent that your estate is unable to pay them off as ordinary debt prior to distribution through probate (will) or trust. If you're married then your spouse cannot be punished for said debt during their life should they survive you despite some (or all) of your assets being titled in common, but your joint assets cannot be shielded when the surviving spouse dies against your medical claims nor can you marry after incurring such expenses as a means to prevent recovery from your assets. This prevents "serial marriage" or late trust-creation gaming of the system yet also protects a surviving spouse, which will be particularly important for poor couples and will prevent some of the nastiest situations that occasionally arise today (where long-married couples are essentially compelled to divorce for economic reasons due to medical expenses and collection efforts.)
Medicaid goes away entirely on a formal basis however poor people actually acquire superior access to health care. The amount spent by Treasury would drop by at least 80% instantly. A fair amount of the remainder would be, in future years, recoverable as some people leave the ranks of the poor and if and when they do their accumulated medical debt would be recovered over time.
This bill stops the detonation of all of the state public pension fund budgets -- a catastrophe that has been driving property tax increases and threatens to destroy all of the state budgetary systems. That all ends in one day.
It deletes all state Medicaid spending immediately (the states may choose to use said funds,or some part of them, to pay for low-income clinics and similar for residents in their states, much as County Health Departments do today in the States.)
It makes bilking the government by submitting false or inflated bills to the Treasury a severe criminal offense. The poor and disabled are the least able to press their own claims and fraud is rife in both Medicare and Medicaid today. This puts real teeth in the anti-fraud provisions for those individuals who, most of the time, cannot reasonably bring their own suits. It also protects the poor and disabled from improper tax liens while at the same time recovers from them the cost of their care should their financial situation improve in the future.
An often-repeated claim is that medicine is "highly variable"; the person who presents to the hospital or ER has an unknown expectation for complications and follow-up requirements. But this is true for car repair as well. I remind you that it was not that long ago (if you're old enough you remember) that the practice in car repair was to put your car on the rack, get a blanket authorization, rip it apart and tell you what the bill was when they were done. This often led to vehicles being literally held hostage and outrageous bills that nobody would have agreed to in advance. That was made illegal and during the debate over these laws all the car dealers and repair shops said they "couldn't" accurately estimate and would go out business if forced to do so. They lied; the dealers are still there but the racketeering they used to engage in and the rabid screwing the consumer used to take is gone. Car dealers dealt with this by introducing a "flat rate" book. The "flat rate" for repairing your front brakes is $400. This includes a set of pads and rotors and the labor to install them along with a margin for expected and possible complications; the dealer has no idea what sort of condition the vehicle is in other than that it needs brakes when he takes it into the shop. The flat rate book gives him the expected time to perform the procedure including a margin for possible complications. In some cases the dealer will take less time to fix the car and in some cases more. That doesn't matter; what does matter is that on average that's what it will take with a reasonable profit for the dealer, and in addition the dealer typically adds a "shop charge" that is a flat 10% of his repair price for small and hard-to-itemize things like shop towels, grease and similar. If he gets it done faster and cheaper, he wins. If he runs into complications, he loses. The book gets released with each new model and can be updated as actual service history is fed back to the manufacturer.
The "must post a price" model, incidentally, does not mean that providers cannot differentiate between customers who have objectively-measurable differences in presentation. For example a provider could charge 25% more for someone who is morbidly obese but must do so for everyone who is, and must post that up front on their price list. There may well be a higher complication rate for such a person in that practice's history. If a provider is willing to come in at 3:00 AM to take care of something urgent but wants to charge double to do so rather than waiting until the morning they can, provided they disclose it up front in their price list. Likewise, perhaps some practice has a lot of available appointments in the afternoon and wishes to offer a 10% discount for appointments between 1-4 PM. No problem. Competition once again comes into play; if some provider figures out how to get rid of the additional complication rate caused by said obesity they can then undercut the other guys on price and gain that business. If one provider is more skilled than another and thus has a lower complication rate they can undercut their competitors which is good for everyone except the lesser-skilled provider. Who do you want practicing their medicine on you -- the better guy or the lesser one? This is how progress is made folks. It's also why the shop charge to change an alternator in one make and model of car is different than the same job done on a different make and model; one may have easy access from the top, the other does not.
Likewise insurance companies employ a whole bunch of actuaries for the purpose of figuring out the odds of a given thing happening and what it will cost if it does. To do this they analyze previous events. After this change in law hospitals will be no different; the hospital has access to fine-grained data on all of its previous procedures done, for example, to perform a coronary artery bypass. It knows on average how many sutures must be laid, how many scalpels are used, how many units of blood get consumed, what drugs and in what amounts are consumed, how many hours in the operating theater and so on. It knows that X% of the operations go without a hitch, Y% have some minor complication and Z% are a disaster requiring other major interventions because of unforeseen complications -- some of which are avoidable (e.g. infections acquired in the hospital) and some of which are not. From all of this data the hospital can compute an average and that's the price they set. Just like the car dealer does not know if your car has frozen bolts that will have to be chiseled off in order to change your brakes or a caliper that will have to be swapped out because when it is reset it starts leaking fluid the hospital does not know all of the possible complications that may arise from a procedure when you are admitted. By mandating a quoted pricing model competition comes into the game and the hospital now has an incentive to find ways to reduce the complication rate and waste. The complication rate is very important to you as a customer since avoidable complications (e.g. MRSA infections) are severe consequences that you suffer and a good part of the time it happens because they screwed up. It is utterly essential if we are to improve the quality of care that the incentives align for the provider and customer in this regard and if the hospital across town (or across the state!) can reduce the infection rate, for example, that also reduces its average cost for a given procedure and thus said provider can offer a cheaper price. That's called innovation or, if you prefer, productivity enhancement and it is the driver for progress in your quality of life both personally and economically.
One of the often-repeated claims is that much testing today is undertaken for the purpose of "defensive medicine" in the form of preventing malpractice lawsuits (or at least making them harder to win.) Forcing the doctor ordering said tests to present a price to the customer and obtaining their consent before the test is done ends this instantly. If the customer refuses to consent to spending the money on some diagnostic then the result of doing so is on him or her.
"Poof" goes the defensive medicine problem in a puff of smoke because the customer made the choice rather than the doctor! Physicians often claim we need "tort reform" and that they order tests by the bucket-full as a means to defray lawsuit risk. Various advocates, for their part, want to outlaw bringing such suits. The problem with so-called "tort reform" is that sometimes lawsuits are appropriate -- the classic example is when the doctor amputates the healthy foot or hand leaving the diseased one attached! The best, easiest and most-equitable reform when it comes to the "tort lottery" game played today is to replace the current "order 10 tests" paradigm with informed consent and shift consent along with the cost and potential benefit analysis to the customer. If the doc says "I want you to take a CT scan because I suspect X and it costs $200" and I say "No" because I don't want to spend the $200 then if it turns out that the bad thing would have been discovered by the CT I cannot sue because I was offered but refused the test! Customers need to become the decision point, not doctors; they must be presented both the cost of such procedures along with the expected benefits -- including the odds of either proving up or refuting a possible diagnosis. My ass, my choice, my expenditure, my risk. That permanently resolves the entire tort lottery problem yet leaves the legal system intact for the outrageous cases where consumers should have redress in the courts.
Now on to some personal examples of expected financial outcomes.
First, let's compare against an Obamacare policy that contains a high deductible for a reasonably-healthy, 40 year old person. That person is today charged approximately $400 a month and the policy has a $5,000 deductible.
This means they pay $4,800 a year for exactly nothing and if they use any health services at all there is no coverage until $5,000 in additional funds are expended, at which point the insurance covers 80% up to the "cap" (typically $7,000 or $8,000.)
Under this system that customer would (voluntarily) pay $300 for a catastrophic policy. Since they are nominally healthy they might decide to have an annual physical (at a cost of $150) If they remained healthy they would spend nothing more through the year on medical care.
Their cost of health care would go from $4,800 a year today to $450 for a reduction in cost of 93.7%.
Now let's take the person who is nominally ill. Their current expense, assuming they consume $5,000 of medical care under the current insurance system is $9,800 a year -- $4,800 for the "insurance" and $5,000 for the deductible.
What do they pay under this system? $300 for their catastrophic policy which does not cover their existing conditions but does cover an accident or new catastrophe not caused by their existing circumstance and all of their current treatment at a discount of 80-90% of today's pricing.
How much medical care can you buy for $9,500? Well, you can buy one of many operations at the Surgery Center of Oklahoma, should you require one (and not many people need more than one in a year!) You can buy a hell of a lot of pharmaceuticals when they're sold at outside-US prices, which they would be immediately -- in other words divide current drug prices by anywhere from 5 to 20 or more. Monthly "specialty" visits to the doctor to monitor your condition would run you $700 over the entire year.
Do you really think you'd spend more than $9,500? Probably not, and you might spend a hell of a lot less.
In fact, in many cases you might spend 80% less depending on exactly what's wrong with you. Further, if you go from "ill" to "well" during that year your expense immediately stops since the $400 a month otherwise extracted from you is gone.
A poor person would enjoy dramatically improved access to care over what we have today since there would be no "Medicaid provider lists." They could access any physician or other treatment option that was medically indicated and there would be no discriminatory pricing for or against, nor any discrimination in access. Both access and outcomes would improve dramatically for poor people while cost to the government would be dramatically slashed.
How about the person "covered" through their employment, which is most of the population? Your employer would see thousands of dollars a year in cost reduction, and even more in his liability insurance premiums would disappear. For the average family of four the premiums covered by your employer are likely close to $10,000 a year. That is salary that you will receive.
To put this in perspective the average family makes some $50,000 a year. That "average" family would see an immediate 20% increase in spendable income; roughly $10,000 each and every year forevermore into the future. That's huge; there is no other way to have such a large impact on consumer income and wealth in this country on an aggregate basis than this.
Let's assume that "average family" has a kid during the year -- a routine, uncomplicated pregnancy. Today that's about $10,000 worth of expense, but if you have "good insurance" you don't see any of it directly. The cost of having that child as a matter of routine vaginal childbirth would drop to about $1,000. You'd get $10,000 more in salary and spend $1,000 of it; the other $9,000 would be yours. If something goes wrong then your $200 catastrophic policy would cover it, perhaps with a $3,000 deductible. You'd spend $1,000 for the routine part of the birth, $3,000 on deductible, the cat policy would cover the rest of the emergency and you'd be $6,000 net positive -- with a complex childbirth in the mix.
Now let's assume under this system you're nominally well and have a heart attack. What do you pay? The $300 you paid for the catastrophic policy, and perhaps a $2,000 deductible. The bypass you need to resolve the problem is $10,700 instead of over $100,000 because the local hospital has to compete with places like the Surgery Center, and that's what they charge. If they don't then they sell exactly zero bypass surgeries to anyone who isn't having a heart attack right now, and they're not going to give up the income. They'll compete because the alternative is that they have almost no business at all, never mind that you will probably choose to have the $10,000 procedure before you have the heart attack (saving you from the risk of dying during the heart attack outright!)
Ok, who gets hurt?
1. The lobbyists. They lose big. In fact virtually all of them wind up out of business entirely.
2. The administrators who aren't needed and are very expensive. Many, maybe most, get fired. The hospital becomes a place full of doctors and nurses but damn few administrators since now their cost can't be shoved off on others -- it's overhead, and is subject to competition from the hospital across town or in the next town over. Not only does this reduce employee cost at said hospital dramatically it also reduces the space the hospital uses for overhead which makes their per-person cost for actual procedures go down further since a larger percentage of their space goes to actually treating customers. Yes, those former administrators will lose their jobs. The good news is that the economy will expand due to greatly improved cost structures, so there will be new jobs in other fields available to them.
3. The drug reps. Gee, what happens when you can't be a pusher any more and have to price on a level basis? The rest of the world's prices go up some (there's many billions of "them") while ours fall like a stone (because there are only 330 million of "us")! That's math; take the amount of revenue necessary to make the drug and a profit and divide by the number of users; there's the price. Guess what -- forcing the US consumer to pay for the development cost of drugs used worldwide ends in a day. This costs us hundreds of billions of dollars a year today.
4. The PBMs. All gone. These organizations are all quite-arguably committing unlawful acts on a daily basis in any event under 15 USC Chapter 1; using market power to restrain trade and fix prices is per-se illegal. These firms appear to be nothing more than a racket -- and one that was tested in 1979 at the US Supreme Court with the drug firms losing their appeal.
5. Anyone who refuses to change their lifestyle and instead demands everyone else cover their willful acts. That's a tough nut to swallow, but it must be swallowed. If you can control a condition for zero cost you have no right to demand someone else pay tens of thousands of dollars a year to you every single year because you refuse. There are millions of Americans who do exactly that costing upwards of $350 billion every year just between Medicare and Medicaid and every penny of that expense must end right now.
That's a good start.
The problem isn't that health care is "expensive." The problem is that it's a rip-off and is laced through with fraud, theft and arguably even racketeering from top to bottom. You can find myriad examples of what competitive prices look like for health services and products if you bother to look around, even in the United States, and since we know what those prices look like what I laid out up above isn't a fantasy-land dream -- it's a reality we can have right now and forevermore into the future.
To do it we must demand that the politicians put a stop to the scam and back that demand up with whatever political and economic action is necessary until and unless they do so.
Perhaps we should all start showing up at town hall and campaign events with a simple plastic spork and wave 'em in the air from start to finish. They're obviously not weapons but the message ought to be pretty clear when it comes to what the people might, at the point the economic and political system collapses due to all the fraud and theft the political class is enabling through medical scams, choose to eat first.
What will implementation look like? Read here.
Where is the discussion of facts when it comes to health care?
Why do we keep talking about the cost of "health insurance" when that's a symptom and not the problem?
Why do we keep talking about "subsidies" (tax credits, etc)?
If you're coughing incessantly because you have lung cancer do you simply take a cough suppressant and call that a "fix" when you stop coughing for a while?
That entire line of discussion, which is the only discussion being held politically and in the news, is a fraud.
Two reasons: First, "health insurance" is not insurance to the extent it covers an event that is either certain to happen or has already happened. Insurance is a thing you buy to cover a possible future event you cannot pay for yourself. It is less expensive than the event will be only because the probability is less than 1.0 -- that is, the event is unlikely. If the event is either certain or worse, has already happened then the probability is 1.0 and the cost of "insurance" against such an event is always more than simply paying for it in cash because the insurance company has costs it must cover or it will go out of business.
Let me repeat that just in case you missed it: The cost of insuring against a bad event is directly and mathematically determinable by the cost and probability of said event.
Second, due to the above mathematical fact if you wish to decrease the amount "insurance" costs there is only one way to do it: You must decrease the cost of the event, the probability of the event or both.
This is arithmetic, not politics and anyone arguing otherwise needs to be indicted, tried, convicted and imprisoned for their intentional act of fraud upon the public because that's exactly what they're doing -- defrauding you.
I don't care if they're pundits, media personalities, Congresspeople or the President -- and I remind you that The President is well aware of how insurance actually works since he's been a Real Estate developer and operator for decades.
Now let's address the only two means by which we can lower health insurance costs. And lower them we can -- by 90% or so, and quickly too -- in fact, within months.
First, insurance must be actual insurance. In other words it must only cover events for which p < 1.0. By definition those are events that are neither certain to happen (e.g. routine, every-day visits to a doctor) or have already happened (e.g. pre-existing conditions.)
While you might be able to buy fire insurance on your house if it's on fire (or you are in the process of setting it on fire!) the cost of that insurance will always be more than the fire damage to said house because the probability is 1.0 and the company has to cover its cost and make a profit or it goes out of business. It is therefore always cheaper to simply pay cash for the fire damage than to buy said "insurance" and this is true irrespective of what you're "insuring" -- including health.
Again, this is math, not politics.
Second, we must address both "p" (probability) and "c" (COST.)
We must address "p" (probability) because it will directly and grossly reduce the cost of insurance since it is a multiplier to cost. Reducing "p" by 10% directly reduces cost of insurance by 10% all other things being equal.
We must address "c" (cost) because that not only reduces the cost of insurance (but on a smaller basis than "p" since it's multiplied by the fraction of risk) for the person who has already had the bad thing happen to them medically it enables them to pay directly for the treatment required. I remind you that paying directly is always going to be cheaper than running that same payment through an "insurance" company (typically by about 10-20%) because said company has costs that have to be covered.
Let's take "p" on first. An utterly enormous amount of health expense occurs because people choose to be overweight or obese. As noted in a previous Ticker the American Diabetes Association claims $250 billion a year is spent by Medicare alone due to both the disease and its effects. Best guess is that another $150 billion is spent by Medicaid (which they don't specify.) This is for one disease and essentially all of that money doesn't have to be spent. It is spent because people choose to consume foods that promote and exacerbate the condition rather than reduce or even eliminate its effects. The cost of changing what you put in the pie hole, medically, is of course zero. Therefore for each person who is diabetic (Type II) and makes said lifestyle change resulting in either the control or elimination of the harm to their body from same we eliminate all of the health spending by said person on said disorder!
There are myriad other diseases and disorders associated with being obese and overweight. Hip and knee damage, eventually leading to (expensive) replacement surgeries, for one. Heart attacks and strokes (many caused by high blood pressure that, again, is often a result of being overweight) for another. These are all avoidable costs and if we wish to address the cost of health care reducing "p", the probability of bad events, is a key item.
It is absolutely true that personal choice is a huge factor here and the government does not have the right to tell you how or what to eat. However, you do not have the right to demand that someone other than yourself pay for the consequences of your personal decisions.
It is therefore perfectly reasonable to put in place a protocol that says if you are overweight or obese and diabetic then the lifestyle change in terms of what you put in the pie hole that has a near-100% record of reducing or eliminating your need for drugs and medical procedures and has a cost of zero will be the only option offered under said publicly-funded programs until and unless you prove, by individually-shown test, that it doesn't work in the case of your particular metabolic makeup.
Doing this for one disease alone would cut roughly $400 billion off the federal budget this year and every year thereafter and would cost the patient exactly zero on top of it.
Can we extend this demand to private health care policies by force? No, but we can certainly allow companies to multiply their pricing by the change in "p" that not following such a lifestyle, if you're overweight or obese, comes with. Since this one disease is such a huge component of said spending my best guess is that the surcharge for refusal would likely be 25% or more and if you're already diabetic then it can (and should) be an immediate disqualifier for any coverage of any consequential event whatsoever unless you prove, by individual test, that the lifestyle change outlined above doesn't result in control of your condition.
Second, we must break all the monopolies in the medical system. There are in fact simple ways to do this, requiring no new laws, which I've outlined before going way back in time.
If you force price transparency by treating any health provider who refuses to do so, or who tries to bill on a discriminatory basis as committing a criminal act under existing consumer protection and anti-trust laws (at both the State and Federal levels) you will instantly and permanently remove all so-called "network" games, break the monopoly pricing games played by the health industry and as a result competition will cause prices to fall like a stone.
It's worthless to even attempt to argue that this "can't" or "won't" work because we know it does. The Surgery Center of Oklahoma does exactly this right here, right now, today and their pricing with the monopolist-laced chain of supplies for drugs and surgical devices still undercuts "traditional" hospital prices by 80%. For example a cardiac bypass is $10,700 -- cash, all-in, one-price and if there's a complication taking care of that is included.
Can you come up with $10 large to save your life if you need it? Almost-certainly, even if you're poor. Yes, it would be a lot of money for someone without material means, but remember -- we're talking about a price that's anywhere from 1/10th to 1/5th of what that same procedure costs in a "traditional" hospital setting and you're choosing between that and death.
Don't tell me it can't be done and wouldn't result in these sorts of cost reductions because it is being done right now, right here, today and has resulted in these cost reductions -- even with a huge part of the medical scamjob monopolist games still embedded in their pricing because they can't get away from the drug monster in their ORs at present. In other words their pricing is high (probably by 20% or so) compared to what it would be if we stopped all of the monopolist games.
Here's the bottom line folks -- if you think "health insurance" costs too much you're being misled. The problem isn't health insurance it's the cost of health care. The solution to the problem is to first require firms to offer true insurance (that is, does not cover events where p = 1.0) then require all providers to post prices and charge everyone the same amount.
Next, using existing law you then indict and prosecute all violations of 15 USC Ch 1; the health insurance and related industries already tried to claim exemption in a case that went to the Supreme Court in 1979 and they lost. It is therefore simply a matter of political willpower to get out the handcuffs and start issuing indictments. That will further collapse prices since now providers will be forced to compete for business.
To put numbers on this we're talking about "health insurance" for catastrophic events being something that costs the average person well under $100 a month and for virtually everyone they would pay only a few hundred dollars more a year in direct, uninsured cost.
With the cost of care collapsed to 1/5th of what it is now for the truly indigent we can certainly afford to help -- but for nearly everyone we won't need to, because even those of modest means can afford to pay cash at a price 1/5th of what is charged in the United States today.
The obvious question is "Why won't Donald Trump or Congress take this position, since it's clear on the math that it will solve the problem permanently and at the same time nearly eliminate both the Federal budget deficit and all State and Private Pension budget problems at the same time?"
The answer is quite simple: Doing so will cause an immediate and deep recession as the health industry collapses from ~19% of domestic output back to its historical level of about 3-4%.
Said recession won't last very long because that money will get redeployed in other areas of the economy but until it does the impact on GDP will be severe, immediate and deep -- and both Congress and Trump know it.
Oh, and it will put a whole bunch of lobbyists out of business too.