Dec. 17, 2009: A Subprime Teaser Mortgage—For Health Care?
Well, it looks an awful lot like a subprime teaser mortgage, but with a twist.
Just like a subprime mortgage, Harry is going to sell this to us taxpayers without any loan documentation or income verification to see if we can afford this trillion-dollar albatross. Never mind that we already owe $13 trillion and are going into the hole at the rate of another $1 trillion per year. Of course we can afford it!
Just like a teaser mortgage, this loan has an artificially low payment for the first few years, but then, BANG, the payment will double after ten years. But don’t worry, in the bizarro-world of the Senate, we only look at your payments for the FIRST TEN YEARS!!! After that, uh, er, KEEP QUIET. (If I taught corporate finance like this, I’d get fired, and rightly so.)
As for the twist, it's a doozy--you don’t get to “live in the house” for the first three years. In other words, you PAY into the kitty for the first three years, but get no health insurance policy. Aren't these Senators creative?
Hmm. Do we as a country really want to go down the "subprime" path—AGAIN?
How about if we try to calculate how much this “reform” is going to cost per policy-year. Now that is a metric we all can understand. We all have a pretty good idea about how much a health insurance policy costs, at least if we count the subsidy that most of our employers throw in pre-tax. A good ballpark estimate for an average person is about $400 per month or $4,800 per year.
How does the Senate bill stack up? The bill is supposed to cost about $1 trillion and provide health insurance for about 15 million persons for six years. Yes, only six years. Harry’s financing plan forces you to pay into the kitty for three years before you get ANY insurance! What a financial genius Harry is! Bernie Madoff has nothing on our Harry! Ok, back to the calculations. So that’s six times 15 million or roughly 90 million policy-years. We now divide $1 trillion by 90 million to get our estimated cost per policy-year, which comes in at about $11,000.
Oops. We forgot to account for the $500 billion in “savings” from fraud and waste in Medicare. This is a "cost offset," so the real cost of coverage is not $1 trillion, but $1.5 trillion. Now, our cost per policy-year jumps to almost $17,000! For a policy that you or I could buy today for $5,000. Now, that is what I call “bending the cost curve.” Unfortunately, it is bending it in the wrong direction!
Now, I think that there is a lot of room for agreement on the need for health insurance reform. Most agree that we need to cover pre-existing conditions. Most agree that we need portability of coverage across employers and across state lines. Most agree that we need to cover the uninsured, who now clog the nation’s emergency rooms, which they use as their primary provider of health care, at massive cost to the rest of us.
Portability is going to require a total revamping of our payment system, which, since World War II, has relied upon employers instead of individuals. So long as you get your health insurance where you work, you will NEVER have true portability because it is your employer’s plan as much as it is your plan. Let’s put this one aside for now.
We can cover pre-existing conditions. Most large employers where I have worked during my career, such as the federal government and even DePaul University, already cover pre-existing conditions because their “risk pools” are large enough to spread the costs of covering these workers across the pool. By making such pools available to other employees, we can easily deal with this problem. Of course, it will require legal reforms to allow insurance companies to sell plans across state lines in order to create risk pools that are sufficiently large. Politicians don't like this reform because they get a lot of political contributions from insurance companies with near-monopolies in individual states.
We can cover the uninsured. For less than half of the cost of Harry’s plan, we can simply BUY coverage for 15 million uninsured. For a lot less than that, we could provide a tax credit enabling the uninsured to buy their own plan. Health savings accounts sell for as little as $100 per month. While bare-bones plans are not for everyone, they certainly fill a niche for the young and relatively healthy who are willing to bear the risk of non-catastrophic health care costs; the HSAs cover the risk of catastrophic costs. Isn’t this a better way to deal with the problem than forcing everyone to buy a Cadillac plan on the taxpayer’s dime?
I think so, but, then again, I’m an economist . . . .
Comments
Do you have a blog feed I can subscribe to? I looked around but couldn't find it, thanks in advance.
Posted by: Bank Account | December 29, 2009 03:56 PM
Thanks very much for sharing this interesting post. I am just starting up my own blog and this has given me inspiration to what I can achieve.
Posted by: Chandra Bodiford | January 1, 2010 08:45 PM
While surfing Bing I clicked on your link...very informative! I enjoy informed about this type of information. I'll certainly bookmark your page for additional reading
Posted by: California Refinance | January 2, 2010 04:56 AM
Nice post, thanks! I gained a lot of great information from it. I just saw a very informative video about learning PHP. It does a fair job of getting you started learning this language, I come from a C background so this was a good jump-start for me.
Posted by: Kirk Winslette | January 2, 2010 02:42 PM
Hi there, great blog and interesting content you keep adding, I'll be back again soon
Posted by: Nail Fungal Disease | January 3, 2010 02:20 AM
Great article here. I am running my own home improvement blog throughout the winter months because the economy is so slow. I have a lot to learn about blogging and making money online in general. I have tried to start commenting on other peoples blogs like yours recently to help get noticed. Anyways...thanks once more for a nice site. I will work to follow a number of the points and methods you use on your blog. Take care.
Posted by: portable homebar | January 4, 2010 11:42 PM
I just couldnt leave your website before saying that I really enjoyed the quality information you offer to your visitors... Will be back often to check up on new stuff you post!
Posted by: Lucretia Glander | January 5, 2010 05:25 AM
Lennar Corp. said Thursday that orders for new homes increased for the first time in more than three years as homebuyers took advantage of lower prices and a federal tax credit.
Posted by: Checking Accounts | January 7, 2010 11:40 AM
Hallo friends! Really nice place here. I found a lot of interesting stuff all around. Just what I was looking for. Great joy!
Posted by: cheat at poker | January 10, 2010 03:25 PM
Keep up the good work. Your article is really great and I truly enjoyed reading it.Waiting for some more great articles like this from you in the coming days.
Posted by: Garmin Forerunner 305 review | January 13, 2010 03:17 AM
A thoughtful insight and ideas I will use on my blog. You've obviously spent some time on this. Well done!
Posted by: Winston Boom | January 13, 2010 05:22 PM
Cool website, I'm very happy I stumbled here through yahoo. I'm going to need to add this one to the blogroll.
Posted by: install firebug | January 14, 2010 03:11 PM
Very informative, this was just the information I was looking for. You are dead on the money.
Posted by: Albert Fang | January 15, 2010 12:09 AM
I came here from google. After reading
Posted by: Brigitte Nakhle | January 16, 2010 10:50 AM
This is the first time I've ever visited your website and I think the information here is simply awesome!
Posted by: Vanauken | January 18, 2010 03:47 PM
Hi there,
what a nice informative site you have here.
Posted by: Carroll B.@FHA Home Loans | January 19, 2010 01:27 PM
Always nice to stumble across a new site this great! I will be coming back here for sure.
Posted by: data backup solutions | January 23, 2010 07:37 PM
Very well thought out site.
Posted by: Lashandra Denisco | January 25, 2010 09:33 PM
Really great info! Appreciated.Thanks and regards from Rome!
Posted by: Find Markets and Niches | January 27, 2010 05:37 AM
Like this post! :D I found this website on google.I will be coming back here for sure!
Posted by: Raymond Soros | February 2, 2010 11:02 AM
Very well written...
Posted by: vinyl siding around windows | February 6, 2010 10:11 PM
I've been reading your site for the last few days and wanted to say how much I appreciate it. Excellent job.
Posted by: Lynwood Guilford | February 7, 2010 06:36 PM
Awesome looking page!
Posted by: Adolfo Neiswoger | February 7, 2010 07:09 PM
This site was well done. I have been searching for just this kind of site.I am indebted for this information.
Posted by: DAMIAN MEDINA | February 7, 2010 09:51 PM
The article was awesome. I have been looking for just this type of blog.Thank you for this information.
Posted by: EMILE GOODMAN | February 8, 2010 07:22 AM
I saw this really good post today, found it on google. i think i may return soon.
Posted by: Carlos Mcinnish | February 13, 2010 08:38 PM
Hi there, when viewing at your blog i see some sort of weird codes all over the page, in case it's important I just thought I'd let you know it says this with all sorts of other stuff after it: "Warning: Cannot modify header information – headers already sent in wp-settings.php line 12"
Posted by: magellan roadmate 300 | February 16, 2010 10:50 AM
Saw your site bookmarked on Reddit.I love your site and marketing strategy.Your site is very useful for me .I bookmarked your site!
I am been engaged 5 years on the jeans g star If you have some questions, please get in touch with me.
Posted by: jeans g star | February 16, 2010 09:33 PM
Great ! Nice post. Thx for share
Posted by: Martin Franklyn | February 17, 2010 03:48 AM
Found this post through Ask. The theme you are using now could be of use to me. Where is the source?
Posted by: Issac Maez | February 17, 2010 01:32 PM
Thanks for taking the top out to write this great/ topic.
Posted by: Kelli Ratulowski | February 20, 2010 02:49 AM
I see a great improvement in your writing, I'd love to get in touch. Keep up the great work! Your writing is very inspirational for someone who is new to this type of stuff.
Posted by: ways to earn extra money | February 20, 2010 04:45 AM
Hey. Submitted this post to reddit. I think it needs to be on there.
Posted by: victorian faucet | February 21, 2010 06:56 AM
Franky, the site is great and has been my first search priority for updates since introduced.
Posted by: Clyde Truncellito | February 22, 2010 10:20 AM
I admire the valuable information you offer in your articles. I will bookmark your blog and have my children check up here often. I am quite sure they will learn lots of new stuff here than anybody else!
Posted by: Donovan Lessenberry | February 22, 2010 08:19 PM
Thanks for the info.
Posted by: kitchen cabinets | February 23, 2010 05:18 AM