Making Sense of the Healthcare Debate

Thursday, August 26, 2009
Baton Rouge, Louisiana

WHAT DO WE DO IN LOUISIANA
ABOUT THE COST OF HEALTHCARE?

Riots at town hall meetings, threats for an abrupt ending to congressional careers, patrician political posturing and some of the most vitriol rhetoric in recent memory. All this and more has been churning up continuing controversy in the national healthcare debate. Each day seems to bring renewed charges of the dastardly consequences that will take place if proposed healthcare reform either passes or does not pass. So what’s the real story? What‘s the straight scoop on the present condition of the maligned patient, the American Healthcare System? And where does Louisiana fit into the mix? Are we better off or in deeper trouble than the rest of the country? Here’s the skinny.

Is there really all that big of a cost problem? Unfortunately, despite what some naysayers are bellowing, yes. Escalating costs are taking a major toll on families, particularly in Louisiana. Several recent studies found that since 2000, health care insurance premiums rose more than 83% in Louisiana with little or no gain in additional earnings for Louisiana workers. In actual dollars, premiums for both employer and employee combined went from $6,536 to $11,913. Yet in many cases, deductibles have gone up and coverage has included fewer benefits. And with employers absorbing increased costs, there is little left for employee age increases.
What kind of care are Louisianans receiving? Good, but at one heck of a price. The U.S. spends 60% more on healthcare than do most of the other industrialized countries in the world. We have more equipment, run vastly more tests, and there are less waiting times. But when you look at numerous world rankings, the U.S. comes in at number 37, behind such revered healthcare bastions as Costa Rica, Malta, Columbia, Cyprus, and all those socialistic European countries like (gasp!) France and England. Life expectancies? Japan leads the list with an average age of 82 years. The U.S. is number 27th at 78 years. Louisiana has the second lowest life expectancy in America, second only to Mississippi.

Is the healthcare system in England as bad as many pundits say it is? Well, no. I have personally had extensive care in England while in school at Cambridge in the 1960s, as well as a number of treatments while in the country on both business and pleasure for the past 50 years. The care was on par with anything I have received in the U.S. An occasional co pay, but little cost to me. Yes, one waits a little longer for doctors appointments and medical procedures, but the waits are vastly exaggerated. And by the way, I need some shots for my knees to deal with arthritis. I waited for two months to get an appointment with my orthopedic doctor (who happens to be a friend), and am now on my third week waiting for approval from the insurance company.

I happened to pick up an issue of an American financial newspaper recently, Investor’s business Daily, and read their editorial that claimed: “People such as scientist Steven Hawking wouldn’t have a chance in the UK, where the National Health Service would say the life of this brilliant man, because of his physical handicaps, is essentially worthless.” Professor Hawking, who has fought Lou Gehrig’s disease for 40 years, just happened to have been treated this past April at the same NHS hospital where I was treated, in Cambridge, had this to say: “I wouldn’t be here today if it were not for the NHS. I have received a large amount of high-quality treatment without which I would have not survived.”

And how about the terrible Canadian healthcare system? Well, when our government gets into a pinch, they of course call on rogue intelligence agent Jack Bauer in the hit series “24.” Bauer, played by actor Kiefer Sutherland, uses torture and all kinds of illegal methods to help the president fight the terrorists. Rush Limbaugh loves the show and has visited the “24” set. Sutherland also happens to be the grandson of the guy who founded the Canadian healthcare system. Here is what Sutherland has to say about Canada’s single payer approach: “Private health care does not work. America is trying to change their system. It’s too expensive to get comprehensive medical care in the U.S. Why on Earth would we in Canada want to follow their system here? I consider it a humanitarian issue. This is an issue about what is right and wrong, what is decent and what is not.”

Does the present Obama plan have legs? Right now, they are real shaky. And for two reasons. First, the President is offering few ideas for cost control. Most Americans feel that the cost of any expanded system will be enormous, and so says the governmental accounting office. The President’s stimulus plan has yet to see much positive light, individual savings are still way down in value, and there is too much apprehension of the part of a large segment of middle class taxpayers. Secondly, the “public option” also raises the fear level. The fear, to many, of the unknown. The President just bit off too much here and moved too quickly on what is perceived to be a radical new concept, even thought his proposal is little more than an extension of Medicare.

Are the Republicans playing politics and opposing any efforts by the President? So far, it looks that way. Here is the Republican dilemma: There are competent GOP legislators who have some good proposals to offer. But if anything substantive passes, Obama, who began the whole debate, will claim all the credit. So if a serious effort is made by Republican congressman to give better care and reduce costs, they, in effect, give the President a victory. So do you fight to win a victory for your ideas, or fight to get a victory for your party by defeating the whole effort?
Is there a State role to play in the whole debate? Definitely. Texas Governor Rick Perry has been a leading pro activist for state solutions saying this week: “It really is a state issue, and if there was ever arguments for letting states find a solution to their problems, this may be at the top of the class.” Louisiana Governor Bobby Jindal offered a package of ideas recently in a Wall Street Journal Op Ed piece that included much discussed proposals including pooling for small businesses, pay for performance and refundable tax credits. So go ahead Govs. Play this thing out on the street level and put your proposals on the table before legislators. Whatever you think of the President’s plan, at least he is doing more than just proposing. Jindal is missing the chance to gain much national traction by not calling a special session of the Louisiana legislature to implement his plan. The Republicans are offering little so far, and Jindal could make his proposals an alternative to the President’s solution. This also gets Jindal firmly back on the national stage in a more favorable light.

So in the end, what will congress do? A watered -down version of the plan presently in the Senate Finance Committee should eventually be adopted by congress in late fall. Limits will be placed on pre existing conditions and more restrictions of employer’s ending medical coverage. Look for one national mandate, eliminating the 50 individual state systems now in place. Right now, just a few companies dominate the healthcare market in each state. In some states, companies like Blue Cross control as much as 75% of the market. So look for more Wal Mart’s and fewer mom and pops. More regulation will go to the feds with a goal of more completion in each state by a larger number of national insurance companies. Medicare won’t be touched, but Medicaid for the poor will be expanded.

Remember that the health spending portion of the Gross Domestic Product is now approaching 18%. It’s just too big an undertaking to structurally change the system in a matter of a few months. This whole debate has a ways to go. The President can scale down a good bit, build a consensus with his Democratic majorities in both housed of congress, and declare victory.
But while all this posturing is going by both parties, the costs of our healthcare system, particularly in Louisiana, continue to rise at a dramatic rate. And the piper is demanding to be paid. It’s like the mechanic said in those old commercials for oil filters: “You can pay me now, or pay me much more later.”

*****
“My fear is that we as a nation have forgotten how to have a conversation without lying. The end game seems to be to use whatever it takes to mislead people. Whoever can yell the loudest.”
The Average Joe

*****
Peace and Justice

Jim Brown

Jim Brown’s syndicated column appears weekly in numerous newspapers and websites throughout the south. You can read all his back columns by going to www.jimbrownla,.com. You will also see a number of relevant videos and current updates on this website.

Thursday, August 13, 2009
Baton Rouge, Louisiana

WHY CAN’T I GET A LOUISIANA BAILOUT?

At first, it was the big financial guys who were “too big to fail” that were getting all that bailout money. Billions to banks, insurance companies, and then to auto makers. If you are old enough to remember back to the depression, the popular song of the suffering epitomized what was taking place:

“Once I built a railroad, I made it run, made it race against time.
Once I built a railroad, now it’s done. Brother, can you spare a dime?”

Well you can sure tell that inflation kicked in. Instead of financial panhandlers asking passersby for a dime, they head to Washington and ask for a spare $50 billion or so.

At the front of the line is A.I.G., Louisiana’s biggest insurance boondoggle that this column wrote about last week. It is hands down the biggest single financial disaster in Louisiana history of a company with such a huge Louisiana presence. This is a company that recently posted the largest quarterly loss in American Corporate history-some $61.7 billion. To put this sum in perspective, A.I.G. was losing more than $27 million every hour. That’s $465,000 every minute.

Now one would assume that there are regulatory mechanisms in place to protect the weary and leery average citizen. And in fact, the supposed white knights are the various state insurance commissioners who took great umbrage of the accusations made in last week’s column of how perilous the financial condition of A.I. G. happens to be. “Misinformation is being circulated” with “inappropriate assertions based on incomplete information that ultimately hurt both policyholders and taxpayers,” the National Association of Insurance Commissioners’ press release lamented. The release went on to say that “A.I.G. companies are financially sound and fully able to pay claims.”

And how can you argue with that conclusion? Well, except for the fact that the NAIC conveniently failed to mention that you and I as taxpayers have bankrolled this shaky insurance conglomerate to the tune of more than $210 billion. And like the man once said, a 100 billion here, a 100 billion there, and pretty soon you’re talkin’ about some real dough.

Here’s what’s been happening. Insurance regulators have for years allowed A.I.G to privatize the gains but socialize the losses. The fat cats at A.I.G. get million dollar bonuses year after year, but when the losses must be paid, it’s the taxpayer, you and me, that have to cover all the wild-eyed spending spree that regulators allowed to take place.

The tipping point of much of A.I.G.’s problems was an insurance product devised by A.I.G.’s London office called a credit-default swap. A CDS, in its simplest form is just a bet on an outcome. It’s a way of insuring a variety of investments including mortgages. There is nothing wrong with selling such insurance as long as there are reserves in place to pay up in case major losses occurred. But that was the clinker. A.I.G. kept virtually nothing back to pay the piper. And any way you cut it, CDSs were insurance that should have been closely regulated by insurance regulators.

Could insurance commissioners regulate the business done by A.I.G. in London and other countries? Of course. Not only they could, but it was imperative that they should have tightly overseen the A.I.G. activities abroad. This is particularly true where Louisiana is involved. As has been pointed out before, A.I.G. is the single biggest insurance company operating in Louisiana. But when policyholders pay their yearly premiums, the money does not necessarily stay in Louisiana. It flows through a variety of A.I.G. subsidiaries worldwide. And there is nothing wrong with such a revolving flow of dollars as long as proper regulation is taking place.

In the early 1990s, Louisiana was the key state to lead a major audit of Lloyds of London, then the largest operating insurance group in the world. Their financial condition was weak, and state regulators insisted on strict financial reserves to protect Louisiana and other state policyholders. No such case with A.I.G. Even though the CDSs were insurance policies, there was virtually no regulation by any governmental entity at either the federal or state level.

A.I.G. sold over $500 billion worth of CDS insurance in only seven years, with more than $64 billion of that tied to the subprime mortgage market. Yet the company didn’t even have a fraction of that amount on hand to cover the losses that eventually took place. They operated in a vacuum with no one looking over their shoulder. Recently, Treasury Secretary Timothy Geithner took a shot at insurance regulators when he called A.I.G. “a huge, complex global insurance company attached to a very complicated hedge fund that was allowed to build up without any adult supervision.”

All this complicated financial gibberish has become a smokescreen by both insurance companies and regulators to make this financial mess too complex for the average Joe to understand. And for good reason. Literacy is power. Remember that it used to be a crime in the Deep South to teach slaves to read.

In an excellent summery of the insurance regulatory bungling that appeared recently in Rolling Stone Magazine, Matt Taibbi concludes with good reason that in the age of CDSs, most of us are financial illiterates. “By making an already too - complex economy even more complex, a historic revolutionary change has taken place in our political system - transforming democracy into a two-tiered state, one with plugged-in financial bureaucrats above and the clueless customers below.”

So after all is said and done, A.I.G. execs keep their lavish bonuses, continue to run up huge losses, keep squealing for bailouts of your tax money, and for all practical purposes, continue to operate with little or no regulation. I guess we need some updated lyrics to the old song:

“Once I sold insurance, it was such fun – sold credit default swaps by the million.

Once I sold insurance, now it’s done. Brother, can you spare a billion?”

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"I sincerely believe... that financial establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale." --Thomas Jefferson

Peace and Justice

Jim Brown

Jim Brown’s weekly column appears in numerous newspapers and websites throughout the south. To read past columns going back to 2002, go to www.jimbrownla.com.

Thursday, August 6, 2009
Baton Rouge, Louisiana

INSURANCE DYSFUNCTION CONTINUES
IN LOUISIANA

Press reports, both nationally and at home, have confirmed what financial analysists and investigators have known for months. Louisiana continues to have the most dysfunctional insurance system and the worst insurance climate in the country. In almost every category, insurance rates are the highest nationwide. And just last week, the New York Times published a front page investigative report on major financial trouble involving Louisiana’s largest insurance company.

The American Insurance group (A.I.G.) does more insurance related business in Louisiana than any other company. A.I.G. recently received the largest bailout in history. Yet serious questions are being raised about insider swapping of both assets and liabilities among numerous A.I.G. subsidiaries. The Times article says A.I.G. is selling way too much insurance. “State insurance commissioners are supposed to keep insurers from writing new policies if in doubt that they can cover their claims,” the article concludes.

One of the voices raising alarms is former Louisiana chief insurance examiner W.O. Myrick. He was quoted extensively in the Times article, and has looked at a number of A.I.G. subsidiaries that do extensive business in Louisiana. W.O. was of great help in my initial days of taking over a deeply troubled department back in 1991. He assisted me in shutting down some 50 insolvent insurance companies. So he knows the territory, and when he says there is potential trouble, you can bet on it.

Remember now that we are talking not only about Louisiana’s largest company, but one that so far has received over $210 billion in federal bailout funds. That’s a lot of dough in anyone’s book. How much? Figure that $700 for you and each member of your family goes from the tax till to A.I.G. And since the government has to borrow the money, add in 10% for the next 30 years. We ain’t talkin’ chump change here.

Myrick is warning that “if A.I.G.’s incoming premiums shrink, the whole thing’s going to collapse in on itself.” His examinations of a host of A.I.G. companies show a pattern of self dealing and the use of insurance to, as Myrick says “bounce things around inside the holding company group.” Bottom line? Raise the red flags, particularly in Louisiana.

And sometimes prices can get too low. Pennsylvania’s insurance commissioner summed up the problem by saying: "A.I.G.'s competitors have argued that the company is deliberately under pricing its insurance in a desperate attempt to maintain premium volume at a time when policyholders might otherwise move their business to a safer competitor given A.I.G.'s uncertain future.”

Myrick raises grave concerns about the possibility of “falsifying the liabilities” of A.I.G. But he says insurance departments, including Louisiana, are doing very little to protect the public. Here’s the problem he sees: The Fed and The US Treasury are hoping A.I.G.’s insurance operations will pay back the treasury, so they don’t want to rock the company’s financial boat. In other words, they are more interested in returns than solvency. “The insurance commissioners, for whatever reason, are letting them do this,” says Myrick. “I’d be jumping out of my shoes.” But the former Louisiana chief examiner seems to be raising his concerns to deaf ears.

Unfortunately for both tax payers and policyholders in Louisiana, the A.I.G. problem is just one of many the state faces. The Louisiana Citizens Property Insurance Co., a creation of the Insurance Department and dubbed Louisiana’s biggest financial disaster, has announced a 10% increase in their rates to homeowners this year. And every policyholder with every other insurance company in the state will face a 5% across the board increase in rates. Yet there have been no hurricanes in sight as has been the case for the past three years. In surrounding gulf coast states that are also subject to the dangers of hurricanes, rates have stabilized. But in Louisiana, rates continue to increase.

A new audit has found major overbilling to the tune of hundreds of thousands of dollars in legal fees at the state run Louisiana Guaranty fund. A just released report by outside auditors concludes that the Guaranty Association, that is supposed to be closely monitored by the Louisiana Insurance Department, “failed to complete recommended financial analysis that has resulted in lengthy and ultimately costly mishandling” of numerous legal bills. One firm alone billed $4.5 million over 3 years, which, as the audit points out, “would have required three attorneys and four paralegals to work eight hours a day, every day, every month, every year.”

The Insurance Department itself has just been court ordered to turn over numerous records the Legislative Auditor has been trying to obtain form the department for over a year. The cost of this litigation to the taxpayer has been enormous, including hundreds of hours of litigation, major legal fees, court time, depositions, preparation; and guess who is stuck with the bill? Every state agency by law has to make every document available to the Legislative Auditors. That’s basic state law 101. So again, the taxpayers are the losers here.

And then there are insurance rates. Ouch! Across the board, Louisiana leads the nation in the high cost of buying necessary insurance. Some insurance you can do without. But in the lines that are critical to protecting every Louisiana family, the state’s exorbitant rates are the highest in the country.

Insurance.com’s quarterly Car Insurance Rate Report just released lists Louisiana as number one, with an average auto rate of $2,674 yearly. That’s a big jump ahead of second place New Jersey that averages $2,499. Washington, D.C. is a distant third art $2,515. And with the economy pushing more drivers into a tighter financial squeeze, expect the uninsured numbers to rise, which means even higher auto rates in the future.

The property rate news is just as bad. The latest figures from the National Association of Insurance Commissioners shows Louisiana policyholders paid rates that are almost 40% higher than the national average. When you look at the comparisons figures or cost per $100 of residential property insurance, Louisiana property owners again lead the nation by paying an average $1.006. Florida paid only 69.3 cents. That’s right. Florida, the state that Louisiana insurance officials and legislators dismiss as being too proactive, is at the bottom of the Gulf South list while continuing to attract new insurance companies to the Sunshine state.

Health insurance is a whole separate column. Needless to say, Louisiana citizens are paying through the nose at a higher rate for insuring the health of its citizens than in any other state.

Insurance reform is a front burner issue in other states along the gulf coast in recent years. The issue has all but been ignored in Louisiana. With a population base that is both aging and dwindling, and unemployment rates on the rise, one would think focusing on this major additional cost just to live in the state would be of more concern. So far, there are few takers.

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“Honk if you really like paying the highest insurance rates in the U.S?”
Bumper Sticker in New Orleans

Peace and Justice

Jim Brown

Jim Brown’s weekly column appears in numerous newspapers and websites throughout the south. To read past columns going back to 2002, go to www.jimbrownla.com.