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The original State Of The Onion, January 2008 - Economics and Healthcare
Unpeeling the layers

Copyright © 2008 Dorian Scott Cole
About this series.


As we unpeel the layers of the world we have created, layer by layer, and finally we unpeel the last layer, we realize that there is nothing at the core - it was all us and what we created. Perhaps it reveals our ideal values and how close we have gotten to them. Is it all a matter of perspective whether it is, "Here's another fine mess you've gotten us into," or "What a fine world this would be..." Is judgment is in the eye of the beholder. Read on.

Who are we to judge the product of our own work? Is there any way to judge? We are all in this together, and we all create the world we live in. We have to live with the results. We may be guided by noble and Godly ideas, or by ignoble ideas and passions, but by our hands and our wits, we devise our environment, and we live with the consequences. How well we fare depends on us.

The noble ideas are: That we live in peace and harmony; that we create an economy in which all of us prosper, and have safety nets for when we fail - together we share our risks; that we have opportunity to pursue our careers and interests; that we have good health throughout our lives and into our golden years; that we have a government that represents our interests, protects us, and makes sound decisions, and through which we collectively enable our endeavors; and that no one is repressed. These are values. In the US, these might be called the pursuit of happiness. How are we doing?

Focus for 2008

I focused on economics and healthcare in early 2006, and economics again in early 2007. Economics heads everyone's list of political issues in late 2007 and early 2008, overshadowing all other issues. At the date of this writing (Jan. 21, 2008) the world economic markets are expressing low confidence in the US economy. Our ability to make a good economy directly impacts our ability to do healthcare, and these same concerns are being realized in European countries as well. Economics is a horribly difficult part of our culture to understand, and often even more difficult to control. All that I can do here is try to understand the work, books, and reports of economists and physicians, and try to make some real-world sense of it. These two issues, economics and healthcare, will be addressed as integrated topics.


I would like to say that there has been progress in the last couple of years that has brought adequate healthcare to the 44 million people who didn't have health coverage. I have seen some efforts being waged, and perhaps they have made a difference, but the number of uninsured has risen at the same rate to 47 million people and medical costs continue to rise much faster than inflation.

Massachusetts, Michigan, California, Vermont, and Maine all have initiatives planned or implemented to fill in the gaps in healthcare coverage. But we're still at 47 million uninsured - 1 in every 6 citizens mostly who are holding full time jobs can't get health coverage.

Also on the good side, are grass-roots, ground-breaking efforts by groups designed to help prevent medical problems, like:

  • The Institute for Health Improvement, which in 2006 started a patient safety campaign that involves nurses, patients, families, and teams in improving safety and save 100,000 lives. 300 hospitals voluntarily participated at that time. They have since grown and currently sponsor a 5 million lives campaign to save life.
  • Hospital Compare has quality measures on how often hospitals provide some of the recommended care to get the best results for most patients.
  • National Committee for Quality Assurance. " a private, 501(c)(3) not-for-profit organization dedicated to improving health care quality. Since its founding in 1990, NCQA has been a central figure in driving improvement throughout the health care system, helping to elevate the issue of health care quality to the top of the national agenda."
  • Remaking American Medicine was a 2006 PBS series on pioneering individuals who struggled to fix the broken medical system. Click the link to visit their family-centered care resource website.
  • Cover the Uninsured, the Robert Wood Johnson Foundation raises awareness among civic and business groups about the need for health coverage for young people, and helps get them covered.
  • CNN carries out a very important health education effort with Dr. Sanjay Gupta and several reporters. The regular series, House Call provides important medical news and information to a large audience through TV and the CNN Web site. Plus, CNN Fit Nation - a multi-year effort "...tackling the obesity epidemic in a 7-week tour across the nation for a series of town hall meetings to educate and search for solutions." This effort also included President Bill Clinton in a Fit Nation Summit.
  • The Center For Health Transformation is "a collaboration of transformational leaders, led by Newt Gingrich, dedicated to the creation of a 21st century intelligent health system in which knowledge saves lives and saves money for all Americans." It is visionary in approach.
  • Center on Poverty, Work and Opportunity, John Edwards, Director, University of North Carolina Law School. The Center brings the best minds in the country together with some of America's best and brightest young people to ask the hard questions and find answers to poverty. Poverty is at the heart of most health care funding questions.
  • A number of fast food restaurants and food retail suppliers have removed trans-fats from their foods, and the food manufacturer Campbell has reduced the sodium content in some soup by 25%. High sodium content causes water retention and high blood pressure in many people.
  • A number of public schools have removed high fat foods and high sugar foods and drinks (junk food) from their vending machines and cafeterias in a effort to control obesity. Some have sought help from famous chefs to make cafeteria food more appealing and healthy.
  • Together Rx Access™ and Partnership for Prescription Assistance (PPA), are collective corporate endeavors to reduce prescription drug costs by 25 to 40% for those less able to afford prescription medicine - that is, those with low incomes who are not covered by any prescription drug coverage. The plan is confidential, has a wide network of participating pharmacies and pharmaceutical suppliers, and is totally free to participants.
  • Healthcare overall prices increased only 5.3% in 2007, slowing the double-digit growth of the 1990s and early 2000s.
  • Vaccine is now available to protect against cervical cancer, which infects ~11,000 women a year and kills around ~3600 women a year, and genital warts, caused by the most common forms of Human Papiloma Virus (HPV). (It doesn't yet protect against all forms.) It is available for women over age 9 to offer life long protection from acquiring HPV from sources such as their own husbands, who usually do not even know they have it. CDC: HPV Vaccine Questions and Answers.

My apologies to those efforts that I missed. You are welcome to submit them, and I will include them on this page.

On the negative side:

  • The 122 most commonly prescribed drugs rose in price 14 percent from 2004 to 2007.
  • Indicative of the "privileged" circles that I commonly mention in economics is the fact that uninsured consumers are often charged 15% to as much as 76% more for prescription drugs. Uninsured people are always charged top dollar at physicians, pharmacies, hospitals, and medical centers simply because they don't have insurance coverage or the leverage of negotiation (privileged networks).
  • The pharmaceutical industry readily spends $80 million a year to lobby against or legally challenge any efforts to keep down drug prices. The industry is the profit leader in the US, and protects its territory well.
  • Overall, healthcare prices increased only 5.3% in 2007, but they are projected to raise 8.3% in 2008.
  • "If we stay on the same path, the (U.S. federal) budget will become dominated by Medicare and Medicaid." Peter Orszag, Director of the U.S. Congressional Budget Office.
  • "...if the entire health care system were to perform as well as the top 10 percent of plans surveyed, every year between 35,000 and 75,000 deaths, 45 million sick days and $7.4 billion in lost productivity could be prevented." - National Committee for Quality Assurance, as reported on MSNBC by Reuters.
  • Insured employee out-of-pocket expenses and copays are expected to increase 10% in 2008, to $3597.00 annually.
  • Uninsured people continue to increase at a 4% rate, affecting 47 million people, which is 1 in 6 people, mostly who are holding one or more full time jobs or are children (9 million) and can't get health coverage.
  • The World Health Organization's ranking of the world's health systems, ranks the US healthcare system at 37 of 191, well below many third world countries such as Costa Rica and Chile. In another study of five countries looking at quality, access, efficiency, equity, and healthy lives, the US ranked last. "...people in the U.S. go without needed health care because of cost more often than people do in the other countries. ... The US also fails to get better health outcomes." The US ranks 41st. in the world in infant mortality, and 45th. in life expectancy (CIA World Factbook - also The shouts of being the best in the world are mostly the bluster of the arrogant. France is #1.
  • U.S. residents receive appropriate medical care only about 55 percent of the time. - Rand Corporation study using 439 accepted standards to evaluate the quality of care that participants received for 30 common chronic and acute medical conditions and for disease prevention. The study showed relatively equal results demographically, with blacks and latinos faring slightly better.
  • Workers in the healthcare system are largely dissatisfied with their situations. Physicians can't spend the time that they would like with their patients to diagnose properly and recommend preventive measures. They are very frustrated with the time they have to spend justifying (arguing with) insurance companies about medical procedures and pharmaceuticals, and manually filling out paperwork. It is difficult to keep a medical practice profitable. Registered Nurses are frustrated over low pay and having to spend most of their time on administration rather than with patients - they leave healthcare and are very difficult to replace. Their compassionate interests are displaced by other requirements. Patients are frustrated over extraordinarily high medical costs, mis- or missed diagnosis, lack of prevention, and low return.
  • For the privilege of using a sub-standard healthcare system, in a country that unconscionably excludes 16% of its people from healthcare (once a compassionate system), allowing them to suffer and die, we pay more for healthcare per capita and as a percentage of Gross Domestic Product (monetary value of our output of goods and services - GDP) than any other country in the world.

I'm not going to rank healthcare this year. Professionals in the field with far better qualitative and quantitative measures than I can muster have provided a far harsher rating than I would likely give. The facts above speak for themselves. The healthcare system is ineffective, badly overpriced, spinning out of control, and reform is blocked by major special interest groups, while some politicians cover up the real state of things by lying about the system's greatness. (Watch for the President's next State of the Union Address, Jan. 28, 2008.) Major reform is badly needed to keep the system from wrecking, especially with the coming load of obesity related illness, the increased load of Medicaid due to aging related diseases, and continuously skyrocketing prices. I will make suggestions related to medical economics later in this article.

State of the economy

The Economy is strong. Yeah, well, where have we heard that one before? Actually the economy is strong... it's just a bit under the weather at the moment. OK, OK, on with it.

"During the past six quarters velocity has declined from 1.930 to an estimated 1.902 in the final quarter of 2007." "...nominal growth rate to 4.9%, or 1.7% lower than the six quarter annualized growth rate prior..."

The velocity of money has been steadily declining for six straight quarters. Velocity in practical terms means that you and I and business have money less often to spend. The velocity of money is slowed by rising interest rates. Velocity means turnover, or the frequency with which the same money is spent and re-spent. Additionally, the growth rate over the previous period has slipped 1.7%.

Savings rates by US consumers has continued to plummet. The trend goes back to at least 1980. But since ca. 1997 the savings rate has plummeted precipitously. Investment income has also declined during this period. There are some fundamental problems in the US economy that need to be addressed. Economists have urged us to "Feed the Pig," but it isn't yet happening.

The Fed has some control over the flow of money, which it can do by lowering interest rates, but the Fed has its hands tied by a more important concern: inflation. Lowering interest rates creates a larger money supply, and if this causes inflation it is very destructive to the economy. Today (Jan. 22, 2008), in the face of a drastic drop in market confidence around the globe, the Fed lowered its key federal fund rate, which has an impact on credit card interest, from 4.25 percent to 3.5 percent, a whopping 3/4% drop, and last week gave its nod to the President's plan to offer a quick tax rebate (or something similar) to boost consumer spending. Hopefully these short term fixes will have a positive impact and get the economy moving again.

But these short term fixes don't "fix" the economy. What I believe is that there are two major influences that are damaging the economy. 1) The federal influence over the economy, which has favored business during the Reagan years, and then again during the G.W. Bush years, creates an imbalance. The belief is that encouraging business will increase jobs, which it can. But business is being very conservative on spending, which favors investors. Why? This brings us to 2) Increased worldwide competition, which lowers revenue and drives the need to control costs to maintain profit margins. This is generally seen as a productivity gain. However, when done this way it also means job loss and lower wages, caused by operating on smaller staffs and not giving wage increases, plus moving jobs overseas. This is going to continue getting worse. Balance may be somewhat restored by increasing foreign trade (neaning our products going out - we already have a major trade deficit from other's products coming in).

Dropping trade barriers with other nations is a generally good idea. The writers of Good Capitalism, Bad Capitalism liken it to dropping the trade barriers between states - it is good for everyone and a major boost to the economy. However, I believe that too rapid changes in trade upsets the balance in the affected countries to the point that they are too disruptive. Implementing a good idea is one good thing, but controlling the pace of change so that it isn't disruptive is a much wiser approach.

What we are currently seeing is that people have less and less money to spend. They are borrowing more and getting behind on credit card and mortgage payments. Credit cards eat wages at a rate of 7 to 25% (or more if paid late) which has a very negative impact on money available for spending. The inflation rate (consumer prices) for 2007 was 4.1% led by food and energy prices, despite the best efforts of the Fed to control prices.

Fewer people qualify for home loans, and if they reach financially to get them, they are demolished by rising prices and no wage increases - in a few months they can't make their payments. Normally wages are adjusted for inflation, plus people are promoted and get higher wages. Average wages are not even keeping pace with inflation. Wages have definitely not kept pace with the market hysteria that drove housing prices through the ceiling for years.

People who paid top dollar for housing are now losing it in the housing market, and foreclosures don't regain capital for the lenders. In this climate, lending companies are being very strict about who they approve. The housing bubble that climaxed in early 2006 can be seen for the market hysteria that it was - we have to learn how to control market hysteria because it causes major mistakes and losses. The stock market and housing prices are not commodity futures markets, and market hysteria is a major threat to our economic well-being.

Job creation was well below expectations for all of 2007, almost by half, reaching only 1.3 million new jobs, compared with 2.3 million in 2006. The hourly wages for 80% of the workers in our work force went up ~4 percent (which is a good average) and there was job growth in the technical and professional service industries - both good news, but the wage increase didn't quite match inflation: 4.1%.) Companies have been eliminating jobs at a high rate, so that new job growth is insufficient - it should be around 100,000 to 200,000 jobs a month, and it was just 94,000 a month in 2007. During an economic expansion, there should be average wage and job growth, and there wasn't - companies are remaining very conservative (operating very frugally).

Unemployment rates are rising as the manufacturing, retail, and construction (especially housing) industries laid off workers, and overtime hours are dropping. The retail market is suffering from less spending. If there is less money pumped into the economy for spending, then companies make less, and they pay less in wages, so people have even less money, which as you can see can become a downward spiral (also known as recession).

Where is the money going? Those who still have it are investing it in the stock market - corporations. Corporations are investing it in buying each other to become more competitive in the face of declining revenue - limit competition rather than innovate to create productivity. (Market consolidation to 3 or fewer major players will always happen as products mature and companies try to find a way to remain competitive or just viable.) The value of stock goes up (the stock market surged to record highs), investors have more money to invest, and they invest... in stock - corporations. This is a paper chase. A bubble. Hysteria. Money makes a short trip around in circles. The stock market has dropped significantly in the past weeks as the reality of a weakening economy sobers investors from the previous highs. Investors really need to go back to long term investment growth and dividends, and stop the "guidance reactions," quick profits, and trying to run or ruin business.

Lending to business typically stimulates business growth and expands markets. We are seeing market consolidation instead. So for at least the last six quarters we have seen the velocity of money slow. I believe that this is because of the short circuit in the stock market - investor - corporate buyouts, which doesn't deliver the money to the workforce. Private financial sources are currently less available due to banking losses from the burst housing bubble and the resulting dismal condition of the financial sector. For these reasons I believe that the Fed is powerless to stimulate the economy through lowering interest rates for interbank lending, which commonly goes to business loans. Thankfully the Fed also has the mechanism of the key federal fund rate which can stimulate the economy through helping to lower credit card rates, which is good for consumers in that it can lower credit card payments - if credit card companies so desire - leaving consumers with more cash in their pockets to spend.

What we are currently learning about the economy, I believe, is that you can't squeeze labor while favoring business - you have to promote both equally, especially in the long term. Overly competitive environments and market hysteria end up eliminating jobs plus negatively impact the economy. If people don't get new jobs and increases in money to spend, sooner or later products don't sell. "Reagonomics" (supply side economics) was not even half of the lesson about a healthy economy.

One answer is in new markets and new business, which requires innovation. Innovation typically comes from an entrepreneurial approach to product development, but it has to be accompanied by support from either industry or government. Entrepreneurs are not great business managers and small business can't reach the economies of scale needed to remain competitive, and they often don't have the expertise to know how to impact the markets to stay profitable - that's where big business comes in. (Lesson from the book Good Capitalism, Bad Capitalism.)

The need for new business innovation is why I say that the problems we face now in the energy and healthcare sectors provide us with excellent opportunities to boost the overall economy, providing jobs, providing innovative ways to resolve problems, and providing higher wages. More on this after the economic ratings.

What indicators mean an economy is good?
Perhaps: what things, that are important or vital to society, can we afford?

Scale: -5 to +5

Employment and income security. (2006 was 0)

2007: New job creation was insufficient so unemployment rose. The minimum wage is still an unlivable number and can't keep up with prices.


Income (pay and wages): (was -2 in 2006.)

- Disparity - there is great and growing disparity between wealthy and poor, and the trend of middle class income is downward. 
- Unrealistic minimum wage - inadequate for single living or sharing and our nations most vulnerable can't keep up with prices.
- Inflation rose slightly faster than wages, prices for all products rose due to oil/energy costs.
- Homes are unattainable.
- The number of healthcare uninsured rose from 44 to 47 million.
- Monetary velocity continued to fall.
- The national debt is in unimaginable numbers and growing rapidly.


Economic strength: (was +1 in 2006)

2007:- Money is going into corporate profits and mergers, not employee pockets.
- The slight turn-around that could have progressed from 2006 hit a wall and we are now going backwards and are now threatened by a downward spiral.
- Every segment of the economy is staggering under the effects of the price of petroleum, which has multiplied x 5 in five years.
- Monetary velocity continued to fall.
- The national debt is in unimaginable numbers and growing rapidly.
- The downward spiral doesn't have to be, but government and business have to tread very wisely at this point, and in an election year with consensus out of the question, the promise of the government taking constructive action doesn't look good except as stop-gap measure.


Community security- (was 0 in 2006) Preparedness for industry and job loss, retraining, new industry acquisition

2007: In the face of economic problems, readiness is questionable.


Transportation (Was -3 in 2006)

2007: Major transportation industries, part of the backbone of the US infrastructure, are still struggling. Defaults are lessening on pension and insurance plans.
- The nation failed to maintain vital infrastructure, so bridges are collapsing.
- Good news: The airline industry may actually cease to decline in 2008.
- Automotive is still closing plants and services, while foreign cars for the first time take the lead in sales. Green cars are too expensive for anyone to actually purchase (marketing pricing is just nuts - almost as bad as new pharmaceutical introductions - they are all self limiting).
- Trucking is maintaining its own, but freight prices are likely to rise as truckers see less business because of reduced retail product sales. The transportation sector has been hit hard by rising oil prices, but products still have to move, and despite around 3 or more major overhauls for big rigs a year, they manage to survive.


Debt VS Savings (Was -2 in 2006)

- Individual debt: very high, rapidly growing, and defaults are accelerating.
- Individual savings: very low and continuing to decline.


Higher education costs (Was -2 in 2006)

2007: College tuition costs continued to rise much faster than inflation, and federal aid has diminished (to try to cease subsidizing tuition increases). Availability: Cost is too high for those who want it - starts future at a $40 to 80,000.00 deficit.


Total (2006 was -1)

2007: -2 - Yuck! (Hmmm, are we driving backwards? What's in the rearview mirror?)


Onward, upward, innovation, solutions?

I said in my 2007 State of the Onion, "If you think of the economy as a balance of intentions in a triangle, business must do well, people must do well, and the economy must have a mechanism that encourages growth (banking). One can't thrive without the other." The main thing we need to do is keep the money moving at the right velocity, and to the right places. [I would add to the triangle alongside banking: appropriate regulation - over regulation is a very bad thing, but rules have to be established, as they are now in most economic sectors. - Clearly set forth in Understanding the Process of Economic Change by Douglass North.]

An interesting idea - drop the income tax in favor of a sales tax

There is talk about doing away with the income tax and corporate taxes, and just having a sales tax. Cool idea. This idea was put forth by Mike Huckabee, whose staffers are now working for no pay. Aargh! : ) Overlooking that financial misfortune for a moment, what would such a plan cost us? The government budget for 2008 is ~$3 trillion, which means that the US collects ~$3 trillion in revenue from all sources, both individual and corporate.

If 133,917,068 tax filers are considered the family retail purchasers (actually it's more) of $4t in goods and services annually, then the average family tax burden on $3t in taxes would be $26,316.00 annually. This is the tax rate (21%) currently paid by those families earning $125,000.00 a year (not including Social Security tax). Bear with me on this - it is better than it looks.

In return, there would be no income tax, and the cost of purchases would go down by up to 15% (depending on pricing calculations) because corporations would no longer be paying taxes on materials they purchase or products they sell. If prices fall, people can purchase more products, which stimulates the economy and growth. Currently the average family spends $29,850.00 a year on retail products. After a 15% decrease (25,372.50 annual individual spending), average retail prices plus taxes would increase (to $303,400,000,000,000.00) to $51,688.50 per family, approximately double what they are now, compared to their current outgo ($29,850.00 products + 26,316.00 taxes) $56,166.00. That is an average savings of $4,478.00 per year per family for families that earn $125,000.00 per year.

While at first glance it doesn't seem like this would be a proportional tax, it is not a flat tax. Spending tends to be proportional to wages. Most people would pay the same percentage. Those who make more or larger retail purchases would automatically pay more total tax, but still the same percentage of their income. Those who spend less would automatically pay less total tax, but still the same percentage. So families that spent $20,000.00 a year on retail purchases (Those earning $95,000.00 a year) would only spend a total of $20,000.00 a year on taxes. Incomes below $80,000.00 a year, and above 200,000.00 a year would likely pay less or more.

Eliminating most of the cost of the IRS would also save taxpayers ~$10 billion, which actually only amounts to around $75.00 per family.

Twenty-five percent of the population can barely make ends meet. What of that $4478.00 average savings? If we decide that 15% of the population can't afford to pay taxes at all, and another 10% should only pay an average of 10% tax (instead of 21%), the total for the other 75% would go up by 4,477.00, which breaks even with the amount saved.

If we decided to cover $338 billion for uninsured people, the total would go up for each family to annually pay. Every family should take some responsibility for its own health insurance (which is $2,965.00 per individual annually) - 25% of this would be good. So each uninsured person would have to pay a minimum of $1,800.00 annually in taxes (through the retail tax system) to cover medical coverage. This leaves $2,224.00 for others to pay. Estimated current costs of the uninsured on the system are $171 billion. By eliminating this cost, the savings for each tax paying family would be $1,277.00 annually. This amount would leave only a $946.00 annual increase that each taxpaying family would pay to cover the uninsured (4% tax increase). Through other economies proposed below in the healthcare system, this 4% would be covered.

The problems this would resolve are: 1) any illegal alien purchasing a product would automatically pay for the same benefits received in the US as the rest of us. 2) All products sold, foreign and domestic, would receive the same tax burden and make the same contribution to the economy. 3) All companies would be relieved of a tax burden that puts them at a competitive handicap nationally and internationally. 4) The IRS, and the resultant costs, inefficiencies, tax fraud, unpaid taxes, filing burdens (costs) on corporations and individuals - would all disappear. 5) Taxes on investments, which are a restrictive burden, would disappear. Most of the corporate savings could go into paying people a fair and livable wage, which would bring a lot of people into line for paying taxes. 6) All companies would be relieved of the accounting burdens for wage and profit taxes (except possibly Social Security).

The advantages are, 1) The uninsured problem would be resolved, 2) the manufacturing and retail sectors would be stimulated, 3) the minimum wage would raise without impacting the economy, which would create more taxpayers, 4) US businesses would be more monetarily competitive by at least 15% both nationally and internationally, and the need for import regulation would be lessened. 5) Savings and investment would be encouraged because there would be no tax on interest or on payouts (no longer viewed as taxable income).

As mentioned in a previous article (Change: Elections 2008), those who get a tax discount (because of low income, or because of mortgage interest) would carry a card to use for their tax discount when purchasing retail products (all goods and services).

Implementing such a plan would carry the following risks. Companies and retailers might tend to keep their prices the same and pocket the tax difference. Some mechanism would have to address this. Also, the higher tax amount would cause problems at the register. Prices posted on items would need to include taxes to avoid this. This is similar to the problems faced by the EU when the currency was converted to Euros across all of Europe, and this kind of problem can be handled effectively.

One addition to this plan would simplify sales tax collection for everyone. Since most transactions are by plastic, and these are processed mostly by major credit card processing centers (even though they are associated with a bank or other institution), when a transaction is made at a point of sale, the processor would receive the electronic transaction, and when it cleared the bank it would automatically send the tax (minus a 1/4 of 1% processing fee).

This system would automatically result in 4 benefits. 1) The load of processing taxes would be removed from the point of sale (except maybe for cash or check transactions). 2) It would speed up tax payments to the IRS by at least a month, resulting in a gain for that year that would never be lost. The gain would likely be enough to pay for the system (speaking from experience), and enough to give people a one time tax discount which would boost the economy. 3) The tax code number for the individual could be right on (in) the credit card, so it would not require an additional processing step, and identification would be automatic. 4) It would allow for such features as when the economy needs a boost, the government could give the entire country a "tax free day" through this system. Even boosting segments of the economy could be done by creating a "tax free day" for businesses in selected classifications.

I'm not an economist, and the sales tax system that I just described probably has some rather large flaws in it. But the thing is, some variation of this system is actually worth considering because of the benefits it offers. Salute to Huckabee for innovation. (This doesn't mean I'm voting for him. : ) )

Change for the medical system

The need to address several problems in the healthcare system presents major opportunities to control costs better, include everyone, drive technology, and stimulate the economy. The major problems are the high cost of technology, the lack of skilled professionals (such as nurses (RNs)), The uninsured (17% of the population in 2008), the aging population, and the need to switch to preventive care as opposed to reactive care for both the economy and to limit suffering. As people age, their medical problems increase dramatically. Chronic disease conditions are those that are treated but not cured, so continue the need for treatment indefinitely, usually to the end of life. Much of chronic disease conditions affect the aging, so the burden comes from them.

Technology is a major driver in healthcare costs, and is largely responsible for the double-digit inflation in healthcare costs. Technology makes possible the advances in medical science. You can be reactive, subject to constant price increases, and with everyone on the tail of the system waiting their turn to get expensive new equipment and products. You can be proactive, driving the system, so that the market is automatically there for new products, and at a substantial savings. Companies get a major boost from a market they can count on being there, and can give better discounts. It's a market economy either way, but obviously it is better to be proactive. Can the government encourage a proactive approach to technology in the medical system?

Yes. This is how it would work. The government establishes financially independent medical care facilities throughout the nation (as I described in my article on the 2008 elections). These facilities are responsible first for preventive care of the entire population (educational and screening mission).

Secondly these facilities house independent chronic care available to everyone in the nation. This is paid for by health insurance (I prefer the term health coverage).

Third, these facilities house laboratories for everyone in the nation (restricted to the area they service). (Hospitals and independent labs would not be forced out of business, but they would find it necessary to compete.) These labs would do preventive screening for all diseases.

Fourth, these centers administer insurance (health coverage) - advocating needed medical care and prices from insurers (instead of doctors or patients), and administer public health care. One or more physicians, nurse practitioners, and RNs would serve as coordinators for medical care.

Fifth, Primary care, specialists, home care, and quick care (acute conditions more like emergencies) are invited into the facilities for visits, outpatient surgery, and care. Note that hospitals would remain the place for extended care, major surgery, and serious emergencies. Those who elect to take part in this new preventive system would be rewarded with lower rates. The current system would remain available to those who prefer it, particularly for reasons of competition and choice.

Primary care physicians (PCPs) are supposed to coordinate medical care for their patients. Specialists only treat a specific disease condition, and leave the treatment of other medical conditions to the PCP. Specialists usually don't do intensive types of chronic care - this is usually done by chronic care facilities. Neither a specialist nor a PCP can afford to do many types of chronic care in their facility. PCPs communicate with specialists, hospital doctors, and chronic care facilities on medications and continued care, and make sure that the patient takes medications that don't interact with each other. This is the way that it is supposed to work. The medical system is fractured. PCPs have very little time for coordinating care. Patients often see multiple doctors that the PCP isn't even aware of (insurance plans offer specialist choice). Continued care often gets dropped because no single entity is responsible for it. The legacy system is losing control. But with a central system coordinating care and records, and communicating with physicians and treatment specialists, this mess would come to an end for those who choose to take part in it. (The top rated medical plans do a better job of getting the medical community to communicate.)

The physician's business model doesn't support what people need. Physicians run a business. They have to pay the cost of supplies they keep on hand and the personnel that do treatments, interviews, and keep the records and arrange visits and medications. Insurance companies waste physicians time and costs payers money. The cost of paperwork and calls alone account for ~10% of the cost of medical care. Preventive medicine currently can't be done by physicians. Physicians estimate that the burden of doing preventive medicine and chronic care would add nine hours onto their day. Forced by the insurance companies and market economics, the profession is based on the number of patients that they can move through their office, and they can treat only acute disease, not long term chronic disease or prevention. Every additional burden that they take on means adding staff and raising prices.

Individualized preventive testing almost has to be the next step in medicine. The current model, Evidence Based Medicine, is based on "what works," and both insurance companies and physician practice has discouraged further testing because it is usually overkill for most conditions. Testing is expensive, time consuming, and requires additional contact. But the medical community is not finding the root causes of some medical conditions that require advanced testing, and is misdiagnosing various communicable diseases whose symptoms mimic common diseases. Delayed diagnosis leads to amputation, medical complications, and death. These include the hospital mutating superbug MRSA, which is found on environmental surfaces; adenovirus 14, which turns into killer pneumonia, affecting healthy people and rapidly spreading in infected areas; and lime disease, which is debilitating and a killer. Various of these diseases are spread through common environmental surfaces such as doors in public areas and hospital equipment, and even through the air (adenovirus 14) to rapidly infect thousands of people. With the current population density, and because people continue to work and go to school when sick, these problems are going to grow, so specific rapid diagnosis is becoming imperative. Specialized testing labs are often thousands of miles away - they need to be centrally located.

With this approach, the cost of medical care for the general population would shrink over the next couple of decades. Currently we spend ~$100 billion per year treating diseases that are preventable, and this is going to rapidly get much worse. (I haven't even put savings on this figure into these calculations.) More and effective healthcare would be consolidated requiring fewer government agencies to administer. Medicare, Medicaid, health insurance, and possibly even veterans care, would also be administered and furnished through these consolidated healthcare facilities. (The VA, which offers a quality medical system for veterans that is very caring, has difficulty getting chronic treatment for patients in many areas. This system would alleviate this problem, and reduce many medical expenses through negotiating power.)

These facilities would create the critical mass necessary to demand better prices, which result from economies of scale. They would request through contracts that companies keep the best (newest, proven, efficient) technology (such as testing equipment, pharmaceuticals, reagents, supplies) at their facilities. Now, companies are smart and typically will keep older technology at contract sites to sell reagents (milking the cash cow). So what you do is, put the contract up for bid every 1 to 3 years, with the winner going to the best newest technology with the best price for reagents and supplies. The demand for new machines that can process new reagents goes up. In reality, technology is good for 3 to 10 years, but 1 to 3 year competitive contracts drive innovation, because if the company doesn't keep innovating and competing, they lose the contract.

National security would also be enhanced through these centers as they could pick up the community roles of public health preparedness and coordinating emergency response preparedness (Homeland Security).

Pharmaceutical company pricing has nothing to do with supply or demand pricing. To them, a newer and better product is simply worth a lot more money and they gouge customers. Often their prices prevent them from even getting on hospital and insurance formularies (the list of drugs that can be used), yet they hike the price up anyway. In this system, all drugs would be available if they can meet the competitive price. A large and competitive contract process means that they have to sell at a competitive price. This would make newer drugs available to more people, which would also benefit the pharmaceutical companies. (The older equipment which has been sold or leased would be sold to small hospitals that have limited demand and provide limited service.)

So, yes, the government can lead this effort by organizing and restructuring the system, initially providing loans to companies to build and staff the facilities, and providing the incentives for various existing or new healthcare businesses to take up residence. However, these should not be the only provider - that builds runaway government sponsored businesses that grow without control. Other competitive services must remain in business.

But why must the government intervene at all? Many physicians groups have formed small outpatient care facilities, specialized groups have created specialized chronic care facilities, and hospital and medical chains have opened other remote service centers. But none reach the organizational breadth or critical mass necessary to provide this kind of health care. If left to happen on its own, it is unlikely to happen as each segment of the medical systems protects the profitability of its own turf, medical prices will continue rising at astronomic rates, and many will continue to be pushed outside of better healthcare because of un-affordability.

Is this really so? What I said in my 2007 State of the Onion, is that we have learned from experience that, "What we now know of economics is that the natural tendency of business is to keep the money within tight trading circles of preferential wealthy trading partners, underpay their workers, and maintain the status quo in the market place. This risk-averse position "guarantees" income, making supply, demand, manufacturing costs, and the market predictable and controllable. It is a formula that works well for business in the short term, but not for the economy." This defines the medical system just as well as any other business. Government has to know when and how to intervene in a capitalist system. Healthcare is going to be an ever larger (and major) player in the economy whether we control it or ignore it. If we ignore it, it threatens to dominate the US budget.

Universal health coverage and the economy

What about universal health coverage? Divorced from the Huckabee tax idea, how would this work. If we decided to cover 338 billion for uninsured people, the total would go up for each family to annually pay. Every family should take some responsibility for its own health insurance (which is $2,965.00 per individual annually) - 25% of this would be good. So each uninsured person would have to pay a minimum of $1,800.00 each annually in taxes for mandated coverage. This leaves $2,224.00 a year for other families to pay.

Estimated current costs of the uninsured on the system are $171 billion. By eliminating this cost, the savings for each tax paying family would be $1,277.00 annually. This amount would leave only a $946.00 annual increase that each tax-paying family would pay to cover the uninsured (4% tax increase). If we can successfully switch to a prevention based system that is effective, the economy would soon realize a $7.4 billion savings in sick days and lost productivity which would indirectly benefit us all. We would realize a $100 billion (and rapidly growing) reduction in treating chronic disease. That 107.4 billion would cover the 4% tax increase.

It could be that a humanitarian approach to health coverage will actually save us money in the long term while providing a better quality of life for everyone. We just have to get rid of the short-sighted economic thinking and the phobia of government action now present in much of government.

Renewable energy investment - creating a better economy

These paragraphs on energy are from my Change: Elections 2008 article.

In the 1960s we envisioned solar power as one day being the main power source. Solar is very viable, but for one method, solar panels, research has not developed panels that are efficient enough. Solar cells convert sunlight directly into electricity, but efficiency is only around 12% and current research may bring it only to 18%. This means that it takes a much larger area covered with solar panels to get the results you want. But solar cells aren't the only viable method of converting energy. Passive solar methods that convert light directly to heat energy work well. And there are other methods for converting and storing solar energy. US 2007 wind energy production rose to 5,244 megawatts, a record rise of 45%. It's happening.

What will change the nation's over-dependence on oil? The growing energy crisis from the excessive use of oil is characterized by hysteria and market manipulation. Oil has become a "futures" commodity, so the price has little to do with supply and demand, responding instead to world political developments, and to supply maintenance issues that potentially could affect supply. It would be in Iran's best interest to keep the world on the edge of political turmoil, just to keep the price of oil up. Iran recognizes the value of their oil and is converting their nation's energy supply to nuclear power.

The price of oil is harming the US (and European) consumer money supply and the cost of goods. Purchasing a house for most people normally puts them right on the edge of financial viability, and they depend on controlling expenses and a rising income to make ends meet. It makes a severe impact on your ability to buy a house or other goods when your energy bill doubles or quadruples, and the price of other products rise because of the price of oil. Affordability isn't changing much. Corn alcohol looked like a good alternative, but as expected by many, the use of corn alcohol fuel is now making food more expensive. Alternatives, such as cellulose conversion look more appealing because of the supply of wood material from lumber production. We have brilliant scientists and plenty of raw material... but we're not having much progress on finding alternative fuels. The focus just isn't there.

Part of the problem is leadership and direction. We don't have a good energy policy. The other problem is the market and related market impact. Solar energy is plentiful, but US technology is more expensive than foreign. Development costs are high and the market demand just isn't there except in specialized applications. Markets benefit from knowing that things are going in a certain direction (meaning investment will pay off), and from demand (the market will pay, and there can be competitive gains from the efficiency of mass production). What can the government do?

The government has the opportunity to become a major market stimulus through efforts to resolve energy problems. For example, there could (should) be an initiative to "convert" all state lighting to solar by 2010, including highway and office lighting, all state operated vehicles by 2012, and 50% of all state heating and air conditioning. We have hundreds of thousands of miles of superhighway space that could support solar collectors or other green energy, so space is not lacking. All commercial and residential lighting could be targeted by 2015. What would be the result? Competitive market forces would step up to supply solar and other green energy. This would result in less demand for oil, lower oil prices, less oil consumption, reduce the greenhouse effect and other environmental impact, lower energy prices after startup costs, and make possible technology sales to other countries with development costs already covered so the US could be more competitive.

The government could stimulate production of a combination of passive solar (light shines in to light and heat the building), direct solar supply (solar panels and storage on site), remote solar energy production (solar panels in another location which use the electric grid), wind and geothermal collection, and remote energy storage (hydroelectric storage, other electromechanical storage, and batteries).

Is solar energy a workable concept? "About 660 homes and other buildings in San Francisco already have solar installations. Officials said they hope to bring the number up to 10,000 over the next decade by cutting property owners' out-of-pocket costs by half, if not more." - CNN

Is the natural physical power concept viable? In the 1980s, in a cold and windy city near Chicago, one successful area home builder was building homes that were so efficient that he guaranteed that heating and cooling costs would be no more than $1.00 per year. They were large beautiful homes, two story, above ground, and used a combination of passive solar and good insulation and sealing. If you are familiar with Chicago's ferocious wind and frigid winter temperatures, you understand that the concept is very viable. No solar panels were used - it was a strictly passive solar approach. A quick search of available technology shows that we know volumes about energy conservation and production - we just don't use it. Builders primarily build for low cost, quick construction, and quick sales, not energy efficiency. The government has to require or motivate such efforts because builders and buyers almost always go for the bottom dollar. That's one of the side effects of competition.

Wind energy production, through windmills, is rapidly rising. The cost of energy from these is strictly from installation and maintenance - there are no fuel costs. The current cost of windmill produced energy is more than coal produced energy, but less than natural gas. The beauty is, the cost is fixed. Plus, there is very little environmental impact and the lead time to build the sites is small compared to conventional plants. The price of coal is likely to rise, but the cost of wind power is fixed. The major difficulty has been congressional support, which falters from year to year and disrupts developer’s plans, drastically slowing the process. (The problem is typically pork legislation added to this popular legislation, which burdens it and gets it killed.)

If the government places orders for their own use, they get the product at competitive prices (bids) and the product supply system will become established and more efficient. Other buyers will benefit from the government lead. You stimulate business and make it competitive primarily by doing business, not by subsidizing it unless that is the only way. Without leadership, the free market will continue to slowly create energy that maximizes utility profits without regard for the source. The government has to be an instigator of change.

Post script

We face another difficult problem that economists are to some extent ignoring, believing that the economy always finds a way to rebound. Perhaps it will. The problem in question is, as the population ages we are going to have nearly every age range from 0 to 85 (eventually even higher) equally represented in the population. Twenty-five percent of the population (Those in the range of 65 to 85) will want to not work or support themselves through productivity, while they place a large healthcare burden on the medical system.

In 20 years, population growth will be near 0 for one or more decades. Additionally, competitive pressures will continue driving down salaries and people's purchasing power. In 20 years technology may have maxed out in some areas, and technology is the major driver of new sales and productivity gains through innovation. (People are very imaginative and innovative - technology may continue being a driver offering new variations even if not changing much itself.)

Much of our technology research and manufacturing is moving offshore. These things add up to the earmarks of a flat or shrinking economy without potential for growth, except where markets open or expand in other countries. (I have experience growing a medical business in a limited growth market - it isn't fun or easy.) Europe is facing part of that situation now, and we need to learn from Europe's experience.

Is the outlook dismal? I don't have a crystal ball or even the sophisticated reckoning tools of the economists. Our future is up to us. What will likely help us is that other country's economies will match ours, and transportation costs will make a larger difference, leveling the playing field for local economies. The "lipstick economy," as I have labeled it in my previous wide ranging State of the Onion 2007 on the economy, will continue the demand for variations in products. Most likely the economy will become more balanced as each company and individual fight for their fair share.

Energy production from alternative sources, and healthcare, will become larger parts of our economy, employing more people. As the Internet makes visual communication possible, it will make substantial impact on the need to travel, the ability to get higher education, the ability to work from home, the types of games and pastimes we use, where we do our work, offer new jobs, etc.

Investments in real estate will likely decline in value as older homes become worth less and demand for new and old homes falls way off, and then values stabilize as energy inefficient homes are replaced with more durable and energy efficient homes. Investment revenue in business will likely decline as companies cease to make major yearly gains, and profit margins narrow, so the divide between low income and the wealthy will likely narrow, except for those helping to build third world economies that will likely grow quickly.

Service businesses such as healthcare, home maintenance, and business consulting (contractors who work from home or provide specialty services) will most likely boom because they are more economically efficient (minimal overhead costs). The Internet will provide an avenue to education and licensing or certification for these people.

While manufacturing will only decline some, and then stabilize, the economy will probably turn much more sharply toward being a service economy operated by entrepreneurs, replicated services, contractors, and mom and pop shops. New business organizations or consortiums will probably develop to offer services to these much smaller businesses that have to "do it all themselves." It is anyone's guess where these trends will take the economy, but I don't think it looks bad - just different. It is really up to us and how we apply our innovation to new problems.

Statistics (and damned statistics) - just the facts, mam.

US 3rd. Q retail sales: 1,020,404,000,000.00 (4 quarters ~4,000,000,000,000 or 4t).

In 2007, 47 million US citizens (16%) lack health insurance, and most of them are employed citizens. This number is increasing at the rate of 20% (1.3 million) a year.

"The United States spends nearly $100 billion per year to provide uninsured residents with health services, often for preventable diseases or diseases that physicians could treat more efficiently with earlier diagnosis (14).

Hospitals provide about $34 billion worth of uncompensated care a year (14). Another $37 billion is paid by private and public payers for health services for the uninsured and $26 billion is paid out-of-pocket by those who lack coverage (14). The uninsured are 30 to 50 percent more likely to be hospitalized for an avoidable condition, with the average cost of an avoidable hospital stayed estimated to be about $3,300 (14). The increasing reliance of the uninsured on the emergency department has serious economic implications, since the cost of treating patients is higher in the emergency department than in other outpatient clinics and medical practices (11)." - National Coalition on Health Care

US citizens pay 171 billion a year to care for the uninsured. This number is inflated because of late diagnosis of preventable disease, lack of education about health conditions, lack of treatment of chronic disease, and visits to emergency rooms instead of standard venues.

Health insurance that adequately covers catastrophic disease costs around $250.00 a month per person. It costs another $350.00 a month to cover physicians visits and medications. Individual plans cost an average of $600.00 per month, while employee plans cost the employee (pays 27%) and employer (pays 73%) $744.00 plus deductibles and copays.

"Spending for health care services continues to rise, in total ($1.4 trillion in 2001; $3.1 trillion projected for 2012) and as a share of the country’s gross national product (14.1% in 2001; 17.7% projected for 2012)." - Kaiser Foundation

"Premium costs for people with private insurance have risen dramatically in recent years, with double-digit rate increases each of the first three years of the new millennium. At the same time, consumers have seen their out-of-pocket costs for deductibles, copayments, and other cost sharing rise significantly over the same period." - Kaiser Foundation

47 million x 380.00 x 12 = 338 billion - cost to US gov. to cover uninsured. From percent of healthcare spending: 250 million (insured) citizens, 2 trillion 2008 = 8,000 per person? From insured payments/80% = 250million x 384/.8 x 12 = 1,440,000,000,000.00 (1.4t) (trillion 1000 billion (1,000,000, 000,000). billion 1000 million (1,000,000,000). )

US Federal Budget for 2008 = 3 trillion. 300, 000,000 people.

Number of US IRS returns filed in 2007: 133,917,068. Amount collected: 1,236,259,000,000 (not including Social Security taxes). 8585.00 average per return.


- Scott

Suggested reading:
Good Capitalism, Bad Capitalism, by William J. Baumol, Robert E. Litan, and Carl J. Schramm.
Collapse - How Societies Choose to Fail or Succeed, by Jared Diamond.
The Tipping Point - How Little Things Can Make a Big Difference, by Malcom Gladwell.
The Commanding Heights - The Battle for the World Economy, by Daniel Yergin and Joseph Stanslaw.
Understanding the Process of Economic Change, by Douglass North.
The Battle for the Soul of Capitalism, by John C. Bogle.
Right-sizing Government - making government effective, by Dorian Scott Cole
The Economy - State of the Onion 2007, by Dorian Scott Cole.
2006 State of the Onion. by Dorian Scott Cole. This article Covers healthcare and the economy.
Elections 2008. by Dorian Scott Cole. This article has a lot to say about the economy.

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