Web Letters: Healthcare Surrender Monkeys

This will describe how to fix both Social Security and all of medical care, and by so doing also fix capitalism and save democracy.

Both problems are basically actuarial in nature, but you will never hear how to fix them from any actuary except for me. Actuaries are one of three major reasons why we have never put these systems on an actuarially sound basis and do not yet have a national health care system. For what it is worth, the other two are first, a federal accounting system--cash accounting--that was replaced in the private sector in 1934 by accrual accounting, but never made into government, and secondly, powerful corporate vested interests that have subverted our government with serious help largely, but not entirely, from the GOP.

A little background on actuaries is important here, because they have enormous conflicts of interest, which have never been effectively addressed. As a result many have been pushing privatization of Social Security and Medicare on behalf of insurers for them to sell their overpriced products, and formerly independent consultants are far too busy making big bucks by working for corporations dismantling the private pension system--a system that ironically they previously invented and had the most to do with it’s evolution and growth.

I used to work first in the insurance industries, life and health, individual and group and then a long time in the pension consulting industry for two firms, fifteen years for Towers Perrin the largest of them all. I left Towers as a Principal in 1990 because I no longer could stand watching millions of pension participants get screwed out of billion of dollars of pension benefits through flaws in ERISA, the massive set of pension laws that were supposedly protecting against this sort of thing. Most of this came from older employees, many of whom they were also helping employers boot out under so-called ‘Open Window’ programs. Although I am not a lawyer, both of these I regard as age discriminatory. All the while this was happening, they were rewarding CEOs as if they were kings so they could maintain their high-priced and over-priced pension actuarial business. A House Subcommittee looking into excessive executive compensation has recently subpoenaed Towers Perrin for failure to provide requested information on their practices in this area.

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Fixing social Security is very easy, even forty-three years after I first said how to do it. Medical care is far harder, but the savings generated over time from making it a universal, single-payer national health care system will be huge--$700-800 billion a year--and this is more than enough to pay for the 47 million uninsured and the 100 million underinsured and to actuarially advance fund both systems using an actuarial cost method known as The Entry Age Normal Cost Method. The latter permits investments in common stock, with little long term financial risk to the systems and zero risk to the people, since the benefits are delivered in a defined benefit system, that is you get the formula based benefits irregardless of the investments.

For Social Security there would be no reduction in benefits nor any retirement age increase, in fact no change in the benefits whatsoever--and we will see shortly no increase in taxes at all, but instead of substantial decrease. The stock investments are part of a portfolio based on asset allocation designed to take advantage of covariances that do not move perfectly together, which is the basis of the benefits of diversification as Markowitz proved and received the Nobel Prize for. This would be the result of a well-thought-through long-term investment strategy that will require the vetting and hiring of investment experts for each asset class and their periodic monitoring for performance.

You will get a minimum of 8.5 percent investment returns compounded over time and this makes a staggering difference in lowering the costs for both systems over time, as opposed to the present Partial-PayGo system which gets a puny 2-3 percent and thus costs three to four times more than it should and is also unstable. It will in fact lower costs to around 3 percent of pay for each of the two systems, once we have paid off the initial unfunded past service liabilities of both systems. The former will be paid by a combined employer-employee tax, replacing the much higher ones we are paying now, while the amortization of the initial unfunded past service liability of the systems needs to be funded from the General Account of the Federal Government, but still accounted for as part of both systems annual actuarial valuations reports.

The $700-800 billion a year cost savings from the national health care system will take maybe a decade to fully implement but there will be an initial bump up in costs of perhaps $150-200 billion before these savings can be realized. Much of the bump up will be the costs of developing three major PC-based national computer systems: one for our personal medical records; the second for accessing the best thinking of the medical profession for good treatment of every procedure and disease; and the last for providing costs and quality information for all doctors, hospitals and treatment centers on a local basis. For this reason we will have to have a gradual six-year reduction in the latter part of that decade to these 3 percent of pay figures--this is the combined employer-employee tax--as opposed to giving that reduction immediately. The excess amounts they are presently paying are necessary for the first four years to prevent any tax increases due to this bump up.

In time, the present $2 trillion dollar health care bill for the US will be whittled down first by the $700-800 billion a year, and then by another 800 billion a year, to about $400-$500 billion a year, or by 75-80 percent. And the present cost of Social Security will also be reduced from more than 10 percent of total pay to less than 3 percent.

There will be an important role for health insurers but as administrators, not as insurers, and possibly also as a check and balance against Medicare fraud and medical care fraud.

Any time you have a third-party-payer system--for anything but especially for health care--you will have crooks trying to take advantage of it, so substantial and very important controls are necessary to prevent it. These health care administrators--former insurers--themselves will need to be held not just responsible but accountable. Checks and balances are necessary throughout the system for it to work well, just as the Founding Fathers set up our democracy--a democracy that is not working very well, if at all, these days precisely because our leaders, most of them Republicans, have forgotten this.

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Lastly, the benefits to our economy will be very substantial. We will have greatly improved the efficiency of our economy. We will not just have converted enormous waste in our bizarre expensive health care system into large national savings but also turned that into steady patient capital, much of it stock, that will not go to future Enron’s but to the best of our companies, including some for new start-ups, the main job producers of our economy, and will reduce volatility in the stock market and in other markets and over time reform capitalism itself.

On that last point there is an actuarial way to allocate these assets to the workers themselves in order to extend voting rights to them, and that democratic influence is essential to make corporations to behave more responsibly in a whole host of other areas, such as in stopping global warming.

To summarize, I think we can fix both systems and need to, but the bad boys mentioned above will fight tooth and nail every step along the way. But this time I think they are going to lose badly because not only are more than 70 percent of the American people now backing a national health system, but so are a very significant majority of doctors, a majority of hospitals, and more recently a majority of our largest companies too, all of whom have become fed up with the current system. The only real question is if we are going to fix it the right way, or wimp around and come at it in little bits and pieces and from all directions at once, in which case we may never get there at all.

Andy Lang
(Retired healthcare and pension consulting actuary)

West Chester, PA

As a nurse, I am appalled at the state of healthcare in America today. The only viable answer is a single-payer system, not just "universal" coverage. Yet most Americans would probably be hard-pressed to define the difference between the two. Why? It is purely due to a lack of reporting by the mainstream media as well as a lack of intensity by the political candidates for the Democratic party. Quite frankly, the candidate who can't find their way clear from the corruption of insurance company influence (not to mention a way out of Iraq) will never get my vote. Clinton and Obama need to recognize that Americans deserve better and may just demand better at the next election.

Thomas Bohley

Albuquerque, NM

Thank you, Barbara Ehrenreich. A little creative destruction is in order for the healthcare industry. As Michael Moore ponts out, it's not the healthcare you don't have, it's the healthcare you've paid for you'll never get. The pundits don't like too point out that over 50% of health care is paid by the government now! Between local, state, and federal governments, the armed forces, Medicare , Medicaid , and SChips the American people already foot half the bill. The real problem is extracting the corporations from the equation.

Michael McKinlay

Hercules , CA

The health insurance industry can be very much the worst in customer service, especially for declining those who really do need healthcare. When I tried applying to health insurance before, I had a question about getting covered through an e-mail, and the e-mail respondent said to call the insurance company on the phone. Still, there was not much luck, because the person on the phone referred me back to the website. It sure doesn't seem like such health insurance industries have their act together, and it is time that we as Americans stand up to the right of our health, and not let insurance companies either profiteer or deny coverage to anyone! We can still have universal health coverage, even with the plan that we are currently on, or lack thereof. It's already bad enough the cost of living these days in much of the country is high.

Nick Rosen

Great Falls, VA

It is worth noting that this is an economic model forcing people to buy the products or work through certain large companies. When used before by both Hitler and Mussolini, it wound up giving only an illusion of independence to those companies, which wound up as corporate slave-puppets to government.

John D. Froelich

Upper Darby, PA