Years ago, when I lived in Ozone Park, New York, there was a local auto glass company that did fairly well in that area. There was always an element of vandalism one could expect in New York City and there were always kids playing ball in the streets which would invariably lead to a stray home-run breaking a windshield or two. Rarely did a day go by when there wasn’t a window broken here and there in the neighborhood and a local auto glass installer was a convenient fix for people on the go. Quite suddenly, the incidence of vandalism rose sharply and for a period of months, someone would target two or three blocks during the night with a BB gun and knock out 10 or twelve car windows per block.
Ozone Park was semi-famous back then as the location of the “Bergen Hunt and Fish Club”, one of the popular hang-outs of the notorious mobster, John Gotti. Someone overheard an employee of the local auto glass company bragging about how much business they had gotten from all the broken windows in the neighborhood and a few of the local tough guys put two and two together. Mysteriously one evening, the auto glass company burned to the ground in what was called a “suspicious fire”. Just as mysteriously, the crime wave of auto glass vandalism vanished for good.
Ok Paul, that was an interesting, if not amusing story but what does that have to do with the Healthcare Reform bill that has been making headlines for the past year? What if I told you that the current spike in healthcare insurance premiums were not caused by evil profiteering insurance companies? What if I told you that despite government claims of windfall profits that health insurers, as an industry, have a profit margin of less than three and a half percent (3.5%)? What if I told you that Medicare, Medicaid and government regulations are actually to blame for the spiraling costs of healthcare in this nation? Would that story have a little more relevance then?
Medicare and Medicaid were enacted in 1965 under the Johnson Administration as part of his “Great Society” initiative. The rationale for Medicare was that senior citizens were finding it difficult to afford private healthcare premiums on a fixed retirement income. Medicaid was similarly included to give the poor access to healthcare that would have ordinarily been out of reach for them. The fixed income argument for senior citizens was valid but not the whole story. Since America passed the Social Security Act in 1935 under FDR, a growing number of citizens failed to invest in private retirement programs because of a false sense of “security” this national safety net had given them.
In recently disclosed documents it was found that FDR only included the individual contribution mandate in Social Security so that future politicians could not dismantle the program later. After all, if people paid into it, then you cannot lawfully take it away from them without compensating them first. What he unwittingly did was create a thought process among the citizenry that these same individual contributions had taken the place of any contributions they could make into private retirement accounts. “Why pay twice?” became the general mindset of the public. We now know that because of numerous amendments to the Social Security Act as part of the “great society”, that a great many program expenses were added such as survivor’s benefits and disability benefits; expenses the system was never designed to incur.
Social Security was designed to provide a safety net for those Americans whose incomes would not support retirement savings and lived beyond an age that they could reasonably be expected to work. It was insurance but unlike life insurance, it was insurance that the government gambled that you would never collect. The age at which benefits could be collected had been arranged so that the age of retirement was nearly ten years older than the average life expectancy in the United States. The few that beat the odds would have a rich pool from which to draw a subsistence level of income if they had been unable to save for retirement in their youth. Well, the average life expectancy rose and while there were some adjustments in the age of retirement, they simply did not keep pace with the outlays of the program.
So now we have a large group of seniors drawing on Social Security as their only means of income and of course, by 1965, were unable to live on that and pay for healthcare insurance. Progressives like Lyndon Johnson could only see the solution in another large government program. Rather than offer assistance to seniors to help those that could not afford insurance to purchase it, he devised an enormous single payer healthcare system that would provide all seniors with medical care at affordable rates. He also enacted the single payer counterpart to Medicare for the poor but of course, the government couldn’t foot the whole bill for that so it became a shared responsibility between the Federal government and the individual States.
In 1965, the projected government costs for these programs were a measly nine billion dollars over ten years but by 1968; they were both over budget and in danger of collapse. In response the government would do something that only governments do. They raided the Social Security trust fund and placed Social Security on the Federal budget and into a massive new program that included Social Security, Medicare and Medicaid. The best minds knew that this was little more than a temporary fix and as the baby-boomers reached retirement age, there was no way the government could afford to repay all of the IOU’s they just stuffed into FDR’s “sacred trust” and meet the obligations of Johnson’s Great Society. So what…right? They would all be out of office and possibly dead before it all fell apart but for now, they were heroes.
Today, Social Security, Medicare and Medicaid represent nearly forty percent (40%) of the entire Federal budget. As the Federal government struggled to meet its other financial obligations and keep these social programs afloat they turned to massive deficits and have incurred an enormous National Debt in the process. In the creation of Medicare/Medicaid, the government failed to adequately forecast the innovation in medicine that is synonymous with vibrant economic conditions in a free society. In 1964, there were no advanced diagnostic procedures and no such things as MRI’s or Cat Scans; there were no transplant surgeries and there certainly was no definitive studies on nutrition or well care that would keep people and healthier for far longer periods of time. Costs for medical care climbed because the care was better and the outcomes were healthier so people lived longer.
Through Medicare and Medicaid, the Federal government now pays more than fifty percent (50%) of all the medical related expenses in the United States. In an effort to reduce their own costs they have systematically capped payments to doctors and hospitals and have reduced their reimbursements to the States for their portion of the shared burden of Medicaid. They passed legislation for indigent care which makes it unlawful for hospitals to refuse emergency treatment solely on the ability to pay and have ignored most of the financial burden associated with that mandate; leaving up to the hospitals and the States to absorb the impact.
Of course hospitals and doctors can only absorb so much and what they have had to do is recalculate their fee structure to offset the losses. The reduction of Federal reimbursements and the imposed caps of the costs of services for Medicare and Medicaid patients have forced care providers to pass those shortages on to someone that will pay….private insurance companies. Does anyone hear glass breaking yet? With an average profit margin of 3.5%, insurance companies had to raise their premium rates in response to the increased cost of care or go out of business. That has made insurance nearly impossible to obtain and yes, even led to the draconian practice of lifetime benefit caps and the denial of pre-existent conditions.
So what came first; the chicken or the egg? While it may not be intentional “vandalism”, it is clear that the meddling of the Federal government through their nearly fifty year experiment of socialized medicine bears the lion share of the blame. Of course, since we have become a society that relies on insurance or government to pay for our healthcare costs, we stopped asking questions like “How much does that cost?” or “Do I really need this?” We need to ask what we expect from insurance. Do we want insurance to cover every aspect of healthcare and if so, we need to realize that it is no longer insurance but pre-paid medical care and that is going to be extraordinarily expensive no matter who provides it. If we want catastrophic insurance that would keep us from going bankrupt should the worst happen, that will cost far less but we will have to pay for our own doctor visits, examinations and yes, even our own medications.
Tomorrow we will examine why the Federal government is so insistent that you need this massive 2,700 page healthcare bill and why it looks like they are not going to take no for an answer.
Paul
Ozone Park was semi-famous back then as the location of the “Bergen Hunt and Fish Club”, one of the popular hang-outs of the notorious mobster, John Gotti. Someone overheard an employee of the local auto glass company bragging about how much business they had gotten from all the broken windows in the neighborhood and a few of the local tough guys put two and two together. Mysteriously one evening, the auto glass company burned to the ground in what was called a “suspicious fire”. Just as mysteriously, the crime wave of auto glass vandalism vanished for good.
Ok Paul, that was an interesting, if not amusing story but what does that have to do with the Healthcare Reform bill that has been making headlines for the past year? What if I told you that the current spike in healthcare insurance premiums were not caused by evil profiteering insurance companies? What if I told you that despite government claims of windfall profits that health insurers, as an industry, have a profit margin of less than three and a half percent (3.5%)? What if I told you that Medicare, Medicaid and government regulations are actually to blame for the spiraling costs of healthcare in this nation? Would that story have a little more relevance then?
Medicare and Medicaid were enacted in 1965 under the Johnson Administration as part of his “Great Society” initiative. The rationale for Medicare was that senior citizens were finding it difficult to afford private healthcare premiums on a fixed retirement income. Medicaid was similarly included to give the poor access to healthcare that would have ordinarily been out of reach for them. The fixed income argument for senior citizens was valid but not the whole story. Since America passed the Social Security Act in 1935 under FDR, a growing number of citizens failed to invest in private retirement programs because of a false sense of “security” this national safety net had given them.
In recently disclosed documents it was found that FDR only included the individual contribution mandate in Social Security so that future politicians could not dismantle the program later. After all, if people paid into it, then you cannot lawfully take it away from them without compensating them first. What he unwittingly did was create a thought process among the citizenry that these same individual contributions had taken the place of any contributions they could make into private retirement accounts. “Why pay twice?” became the general mindset of the public. We now know that because of numerous amendments to the Social Security Act as part of the “great society”, that a great many program expenses were added such as survivor’s benefits and disability benefits; expenses the system was never designed to incur.
Social Security was designed to provide a safety net for those Americans whose incomes would not support retirement savings and lived beyond an age that they could reasonably be expected to work. It was insurance but unlike life insurance, it was insurance that the government gambled that you would never collect. The age at which benefits could be collected had been arranged so that the age of retirement was nearly ten years older than the average life expectancy in the United States. The few that beat the odds would have a rich pool from which to draw a subsistence level of income if they had been unable to save for retirement in their youth. Well, the average life expectancy rose and while there were some adjustments in the age of retirement, they simply did not keep pace with the outlays of the program.
So now we have a large group of seniors drawing on Social Security as their only means of income and of course, by 1965, were unable to live on that and pay for healthcare insurance. Progressives like Lyndon Johnson could only see the solution in another large government program. Rather than offer assistance to seniors to help those that could not afford insurance to purchase it, he devised an enormous single payer healthcare system that would provide all seniors with medical care at affordable rates. He also enacted the single payer counterpart to Medicare for the poor but of course, the government couldn’t foot the whole bill for that so it became a shared responsibility between the Federal government and the individual States.
In 1965, the projected government costs for these programs were a measly nine billion dollars over ten years but by 1968; they were both over budget and in danger of collapse. In response the government would do something that only governments do. They raided the Social Security trust fund and placed Social Security on the Federal budget and into a massive new program that included Social Security, Medicare and Medicaid. The best minds knew that this was little more than a temporary fix and as the baby-boomers reached retirement age, there was no way the government could afford to repay all of the IOU’s they just stuffed into FDR’s “sacred trust” and meet the obligations of Johnson’s Great Society. So what…right? They would all be out of office and possibly dead before it all fell apart but for now, they were heroes.
Today, Social Security, Medicare and Medicaid represent nearly forty percent (40%) of the entire Federal budget. As the Federal government struggled to meet its other financial obligations and keep these social programs afloat they turned to massive deficits and have incurred an enormous National Debt in the process. In the creation of Medicare/Medicaid, the government failed to adequately forecast the innovation in medicine that is synonymous with vibrant economic conditions in a free society. In 1964, there were no advanced diagnostic procedures and no such things as MRI’s or Cat Scans; there were no transplant surgeries and there certainly was no definitive studies on nutrition or well care that would keep people and healthier for far longer periods of time. Costs for medical care climbed because the care was better and the outcomes were healthier so people lived longer.
Through Medicare and Medicaid, the Federal government now pays more than fifty percent (50%) of all the medical related expenses in the United States. In an effort to reduce their own costs they have systematically capped payments to doctors and hospitals and have reduced their reimbursements to the States for their portion of the shared burden of Medicaid. They passed legislation for indigent care which makes it unlawful for hospitals to refuse emergency treatment solely on the ability to pay and have ignored most of the financial burden associated with that mandate; leaving up to the hospitals and the States to absorb the impact.
Of course hospitals and doctors can only absorb so much and what they have had to do is recalculate their fee structure to offset the losses. The reduction of Federal reimbursements and the imposed caps of the costs of services for Medicare and Medicaid patients have forced care providers to pass those shortages on to someone that will pay….private insurance companies. Does anyone hear glass breaking yet? With an average profit margin of 3.5%, insurance companies had to raise their premium rates in response to the increased cost of care or go out of business. That has made insurance nearly impossible to obtain and yes, even led to the draconian practice of lifetime benefit caps and the denial of pre-existent conditions.
So what came first; the chicken or the egg? While it may not be intentional “vandalism”, it is clear that the meddling of the Federal government through their nearly fifty year experiment of socialized medicine bears the lion share of the blame. Of course, since we have become a society that relies on insurance or government to pay for our healthcare costs, we stopped asking questions like “How much does that cost?” or “Do I really need this?” We need to ask what we expect from insurance. Do we want insurance to cover every aspect of healthcare and if so, we need to realize that it is no longer insurance but pre-paid medical care and that is going to be extraordinarily expensive no matter who provides it. If we want catastrophic insurance that would keep us from going bankrupt should the worst happen, that will cost far less but we will have to pay for our own doctor visits, examinations and yes, even our own medications.
Tomorrow we will examine why the Federal government is so insistent that you need this massive 2,700 page healthcare bill and why it looks like they are not going to take no for an answer.
Paul
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