...On Healthcare

We all agree that the U.S health care system needs some major reform.  However, in the process what we should not do is destroy the best, most innovative health care system in the world by imposing a central bureaucracy that will attempt to regulate and control 1/6 of the U.S. economy, namely health care.  Health care is unique in its size, complexity, rate of innovation, and ability to impact the lives of the customers it serves.  Therefore, it would be impossible for any centralized planning agency to ever effectively or efficiently manage all of the variables associated with the day-to-day caring of patients.  Additionally, the health care system must be nimble enough to rapidly adapt to the dizzying pace of technological innovation seen in modern health care, something that no centralized agency with all its inherent layers of bureaucracy and competing political interests could ever hope to achieve.  The only mechanism that can successfully meet the need for rapid adaptation, complex solutions, and optimal patient care is the unleashing of market forces on U.S. health care.

The current third party system of payment in the United States, i.e. health care insurance, is largely responsible for the uncoupling of consumer demand and health care supply.  Few health care consumers consider factors such as cost when choosing to seek health care, therefore health care providers do not feel market forces driven by the consumers of health care but instead by the insurance industry.  The goals of insurance companies are not always aligned with those of consumers therefore health care providers, while responding to the demands of their customers, i.e. the insurance companies, may not necessarily be responding optimally to the needs of patients.  So any modification to the current system of health care must better align consumer demand with health care supply.

One solution being proposed by conservatives is allowing consumers to purchase health care insurance across state lines.  To me this appears to be a short term solution at best.  The reason insurance rates vary from one region to the next has to do mostly with varying rates of risk between regions.  Thus where the rate of a certain medical malady is higher, the insurance companies will charge a higher premium to offset that cost.  Additional reasons may also include varying regional minimal benefits insurance providers are required to offer by local law, i.e. mental health services, that force them to bare additional costs that they then pass on to the consumer.  It is reasonable then to conclude that with the removal of regional boundaries for obtaining health care insurance that health care premiums will equalize across the nation over time.   This will occur because the risk pool will equalize across the country and thus the cost of providing insurance will equalize among insurance companies.  Over time, more efficient companies will consume the less efficient with a subsequent reduction in the number of insurance companies until only a few major players are left, thus reducing the competitive argument for eliminating state insurance boundaries.  I suspect that the net effect of all of this would be a small reduction in the overall cost of providing health insurance, and thus in health care costs, as less efficient companies will be weeded out, however the overall cost savings will not be enough to expect this measure to save us from the exponentially rising cost of health care.  So while removing state boundaries to health insurance might marginally improve health care costs, the greatest gains can be had by allowing consumers to drive health care demand which in turn will optimally effect health care supply.

The best idea to date I have seen to both encourage consumers to save for their own health care and to make consumers the determinant of health care demand are Health Savings Accounts.  Health Savings Accounts allow consumers to place pre-tax dollars into an account that both earns interest and that they alone control and that can only be used to pay for health care expenses.  These accounts are unlike traditional FLEX accounts in that they earn interest and the balances do not expire.  Over time these accounts can accrue significant balances that can be used by health care consumers to make their health care purchases, thus placing consumers in control of health care demand.  There should be no limits to how much people can contribute to a HSA.  The fact that HSA dollars can only be used to pay for qualified health care expenses will naturally limit how much individuals will save in their HSA's thus countering the argument that the wealthy will abuse them as tax shelters.  Given that only the absolute wealthiest patients could afford a truly catastrophic medical illness (probably only 0.1% of the population) costing hundreds of thousands or millions of dollars (i.e. major trauma or advanced cancer treatment), it is critical that HSA's be paired with a true Catastrophic Insurance Plan.  This Catastrophic Insurance Plan should be a very high deductible plan with a minimum deductible high enough to truly be a catastrophic plan, i.e. $25,000 or more, but could actually be decided by the consumer, with higher deductibles charging a lower monthly premium.  As an individual's HSA balance increases he or she might choose to increase their deductible and thus lower their annual catastrophic insurance premium.  I would even be open to mandatory catastrophic coverage as a compromise with those who believe in mandatory universal coverage provided that the insurance was provided by private companies.  Given that only a very small percentage of the population has a catastrophic illness in any given year, the overall cost of catastrophic claims should me manageable over time.

Another hot political topic is coverage of uninsured individuals.  The solution to this problem must avoid undue cost to taxpayers, provide coverage to all uninsured patients regardless of citizenship, and positively encourage health care providers to treat these patients.  My proposal is to allow health care providers to deduct their unreimbursed cost of caring for these patients, something current law does not allow.  Such a system would have doctors lining up to care for these patients, solve the problem of the uninsured not having access to health care, not burden taxpayers, and not increase government expenditures.

By promoting and liberalizing Health Savings Accounts and allowing health care providers to deduct unreimbursed care of uninsured patients, the power and adaptability of free market supply and demand forces can be harnessed to both provide health care for the uninsured and more efficiently balance health care demand with cost, all with undue burden to the taxpayer.

...On Government Spending

The federal government spends WAY too much money.  It's robbery, waste, and redistribution gone wild.  Most of these expenditures are for policies, regulation, and welfare that far exceed the boundaries of federal responsibility outlined in the Constitution.  Also, the process lends itself to promoting corruption and largess due to federal outlays being subject to the whims of the ruling party and politicians eager to remain in office.  I propose a more systematic, stable, predictable, and less corrupt method for determining federal expenditures as described below.

The total annual federal budgeted expenses for any given year should be a rolling average of collected federal tax revenue over the previous 3-5 years.  Any surplus in any given year should, by law, have to be used to reduce the federal deficit.  Although this methodology might lead to a deficit in any given year, over time net federal cash flow should be positive, thus allowing a gradual reduction of the federal deficit.

All federally financed categories should be a certain percentage of annual federal expenditures to be determined by congress.  For example, annual military spending should be set at 5% of total annual federal spending, Medicare and Medicaid at 5%, debt reduction and servicing 10%, and so on.  These percentages can fluctuate from year to year based on the desires of the dominant party and needs of the country.  However, in this manner Congress can only divvy up total federal spending, not intentionally pursue a budget deficit strategy since total annual spending is determined by previous years tax revenue.  Also, I suspect that members of congress, given these fiscal limitations will be forced to behave more like responsible individuals with a fixed budget and weigh the relative merit of each program against other programs and only fund those considered most necessary.

Of course, at times emergency spending increases might be necessary in the event of a natural disaster, economic collapse, or war so a mechanism must be in place to allow for such.  I propose an amendment that would require a 2/3 vote of the House of Representatives and the Senate to allow for expenditures in excess of the allotted total annual federal expenditure.

...On A "Fairer" Tax System

How about we dump the progressive system of taxation and try something more "fair" to everyone.  Everyone must have some skin in the game by paying some of the tax burden, regardless of income.  I propose a combination of the "Flat" and "Fair" Tax.

The "Flat" tax rate should be around 10% with no deductions allowed, corporations included.  The tax will kick-in at 250% above the poverty level which I believe is about $45-50,000.  With a stable, simple, and predictable tax rate individuals and businesses will be able to more successfully plan and invest for the future with profound stimulus to the nation's economy.

The "Fair" tax portion should be a consumption based tax exempting items considered necessities for living.  Basic food items, clothing (say any garment under $50), rent, housing purchase, higher education, and basic medical care should all be exempt from taxation.  Their should only be ONE tax rate for the "Fair" tax, not some arbitrary progressive tax.  Think about it, if the tax rate is 10% and one item cost $100 and another cost $100,000 then one is already paying ALOT more in taxes for the latter ($10 vs. $10,000 for those of you who are math challenged).  So for all of you that believe the wealthy should pay more in taxes, this plan will meet that need.  Under this plan the wealthy will pay more in taxes because they consume more and more of the items they consume cost more, thus they will pay alot more in taxes than the non-wealthy.

The appealing part of this plan is that now individuals, not the government, are deciding how much they pay in taxes by choosing their spending patterns.  The downside is that government revenues will be more cyclical as tax revenues will decline if consumption falls.  On the other hand, perhaps this threat will force government policy makers to adopt more pro-growth policies that benefit the economy and ultimately, the consumers.

Perhaps we need to reconsider how the federal budget expenses are determined to smooth out these fluctuations in the long run.  But that is another blog for another day.

...On Taxes in General

First of all, I hate taxes but I realize that they are a necessity for the successful functioning of the government.  Remember that there was no federal income tax before the first quarter of the twentieth century.  Our founding fathers would be rolling over in their graves if they knew how confiscatory the federal government has become.  The government has only a few responsibilities as outlined in the constitution.  The federal government should conduct foreign policy, provide for the national defense, and maintain a stable currency...and that is about it!!!!

The current progressive system of taxation is criminal and in my opinion, illegal under the constitution.  Unfortunately the Supreme Court did not agree and thus it became the law of the land.  Since abolishing the income tax altogether is probably out of the question, we need to explore some more "fair" (and I hate to use that word) methods of taxation.  Everyone needs to have some skin in the game and thus pay some share of the tax burden.

The "Flat Tax" is a very intriguing option, say 18%, no deductions for anyone.  This would be damn near impossible to pass.  The "Fair Tax," a consumption tax, also sounds good but it too would be impossible to pass.  So how about a combination of the two?  See the next blog for these ideas.