Some Flaws in Health Care

Recently the Obama Administration announced the time has arrived to appoint health care experts to an Independent Payment Advisory Board as part of its duties under the Affordable Care Act. The legislation gives the advisory board authority to change Medicare reimbursements for doctors and determine new ways to deliver quality health care. The flaws in health care go much deeper than reimbursements.

One of the flaws the advisory board cannot address with reimbursements comes because physician services operate as a separate component of the health care industry. Some of America’s physicians work as salaried employees. However, Bureau of Labor Statistics reports almost 67 percent of physicians practice medicine at over 306 thousand offices of physicians, not including 123 thousand offices of dentists, and still more offices of chiropractors, podiatrists, and a few others. These offices function as independent small businesses where physicians double as doctors and entrepreneurs in a physician services industry.

Combining business and medicine not only diverts physician time and energy away from medicine, it generates many small establishments that need a steady volume of patients to cover overhead expenses for office space, equipment and supplies, to minimize costs and to keep their business financially solvent.

A separate and decentralized physician services industry negotiates billions of transactions, first to provide necessary services, and then to collect payment from patient health care plans. Patients have no incentive, or ability, to be consumers when patient charges will be small co-pays or deductibles. Physician entrepreneurs avoid quoting prices when so many payments come from billed charges to a health plan rather than patients. Physicians decide necessary services and patients generally go along, but suspicion runs high that questionable tests and procedures might be ordered to maintain steady revenues into the firm.

The 306 thousand offices of physicians had employment of 2.3 million in 2011 with almost 820 thousand jobs in office and administrative support. The 820 thousand are more office and administrative support jobs than those reported for the entire hospital industry that has 5.7 million jobs; the 820 thousand are more the 4 times the office and administrative support jobs for the entire nursing and residential health care industry that has 3.1 million jobs.

Offices of physicians have 35 percent of staffing in office and administration support occupations, higher than any other sector or sub sector in health care. By comparison, outpatient care centers have 18.8 percent in office staff. With 2.3 million jobs spread among 306 thousand offices the average office has 7 or 8 staff including physicians. Out of 534.6 thousand physicians working in the health care industry 355 thousand work in offices of physicians suggesting the typical office has a doctor and 6 or 7 support staff. Staffing data implies a sub sector bloated with office staff, much of it underutilized.

Physicians services and all the other disparate sectors could be merged into regional or metropolitan health care providers like we organize school districts. Combining the offices of physicians and dentists with medical laboratories, imaging centers, blood banks, dialysis centers, urgent care clinics, hospitals and other services would eliminate billions of unnecessary transactions between bureaucratic offices of strategizing adversaries.

Regional health care helps squeeze bloated overhead office staff and allows health care providers to concentrate on combining necessary services to fully utilize equipment and personal to minimize costs. Regional health care with salaried physicians and staff available to discuss medical options with other salaried physicians and staff helps reduce the incentive to over prescribe tests or treatment and makes second and third opinions readily available. Regional health care has the potential to introduce a measure of choice like public school choice as long as residents can compare annual or monthly premiums, co-pays and deductibles with neighboring districts.

Solving America’s health care problems will require significant changes in health care delivery such as medical school tuition at public expense, converting doctors to salaried employment and expanding regional health care into HMO style delivery systems. But if the appointed advisory board members are really experts, they will know how hard and how frustrating the job will be.

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Unemployment Benefits in North Carolina

A Washington Post article [N.C. looks to cut jobless benefits, WP, 2/13/13] describes cuts in unemployment benefits as a drastic proposal from North Carolina lawmakers. Under the new plan benefits would drop from 26 weeks to 20 and the maximum benefits from $535 a week to $350.

The governor believes they have little choice, they have a budget crisis, but the quotations from business supporters give another reason: cuts are needed to improve the economic climate and rebuild unemployment insurance funds. Lew Ebert, the president of the North Carolina Chamber of Commerce told journalist Michael Fletcher “Everywhere I travel, there are companies that have jobs and want to hire, but I hear two things: people don’t have the skills, or that it is tough to compete with $500 plus per week in benefits.”

Unemployment benefits are always competition for employers while the unemployed receive benefits. Therefore the duration and amount of the benefits reflect a states political attitude and policy toward cheap labor. If benefits are $535 per week for 26 weeks then the unemployed have incentive to stay on unemployment for wages under $13.37 an hour and for the whole 26 weeks. They will be unlikely to become a part of the labor force until after 26 weeks unless an offer comes above $13.37, assuming a 40 hour week. If the benefits are $350 per week for 20 weeks then the unemployed have incentive to stay on unemployment but only for wages under $8.75 an hour for 20 weeks.

By lowering the benefits North Carolina will, as they intend to do, increase the supply of cheap labor. However, $350 is the maximum when few make the maximum. Benefits are always scaled back for filers who had lower wages than those eligible for the maximum. The article cites $296 a week as the average benefit, which is $7.40 an hour. The Bureau of Labor Statistics reports the median wage for cashiers was $8.80 an hour in 2011. At $7.40 an hour we can be sure the Chamber of Commerce has jobs as their president told the Washington Post, but only if the Legislature will help them to hire at lower wages.

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The End of Men and the Rise of Women

Hanna Rosin, The End of Men and the Rise of Women, (NY: Riverhead Books, 2012), 271 pages, $27.95

Think of The End of Men and the Rise of Women as a labor economics book with a narrow focus on gender and jobs. Rosin compares men and women as job seekers and job holders after 40 years of feminism and a decline of gender discrimination.

The book opens with an introductory chapter that defines plastic women and cardboard men. A plastic women is the stay at home mom of the 1950’s transformed into an assertive college educated women who keeps her old role as mother and homemaker while succeeding in a career and taking over the role of breadwinner. Cardboard man hopes he can hold on to the past. He wants to keep defining manliness from work and the role of breadwinner even though manliness defined that way only matter in the major league team sports. These become the stock characters to compare and contrast with the people and families we meet in narrative material divided into seven chapters and a brief conclusion.

In the chapter, Hearts of Steel, we meet young single women experimenting in a hook up sub-culture and what can happen to sexual roles in college and work when women compete for jobs and status formerly reserved for men.

The next chapter, Seesaw Marriage, explores old and new gender roles in marriage and family with more varied material than other chapters. There is discussion of gender in old and new television shows, the literary work of Sylvia Plath, Philip Roth, and the Richard Yates novel Revolutionary Road set in boring suburbia with a settled husband and a frustrated but adventurous wife. Of course it ends badly, but that’s the point.

Rosin also cites a sociology study from the 1930’s titled the Unemployed Man and his Family, an era when the men were either providers or failures. A few quotes come from the interviews with 59 depression era families. One wife said “What a woman wants in a husband is a good steady worker who will support the family.” When the interviewer asked how she felt about her husband’s unemployment she said “Certainly I lost my love for him.” Her husband accepted that he was a “fallen idol.”

Seesaw Marriage includes a mix of interviews with contemporary couples. David and his live in girlfriend Clare have degrees and jobs but David feels discomfort with the dads he sees at the playground. “Yeah it haunts me. It doesn’t matter how Brooklyn-progressive we are we still think he’s pitifully emasculated. I’m progressive and enlightened, and on an ideological political level. I believe in that guy. I want that guy to exist. I just don’t want to be that guy.”

Rosin finally asks David: Why? He says “It’s certainly not resentment.”

“And it’s not really confusion.”

“I don’t think I could categorize my feelings about my situation as either positive or negative.”

Then “It’s because our team is losing. All the things we need to be good at to thrive in the world we imagine existing ten or twenty or even fifty years from now are things that my female friends and competitors are better at than me. Than us. And I am loath to tell that to someone who is going to put it in print, but it’s true.”

The remaining chapters focus mostly on women, their career ambitions, how they cope with the responsibilities they are taking on, and how they deal with the men in their lives. We go to Alexander City, Alabama where many wives took over the bread winner role after Russell Athletic Ware Inc. closed up and left the country. The chapter titled Pharm Girls highlights the lives of some of the 64 percent of women earning pharmacy degrees. In Degrees of Difference we learn men make up a minority of college graduates while women pursue degree skills with a determined and single minded purpose.

Women wrestle with the trade offs of career and family in the last two chapters. A woman in a white house job got a call from her boss about 8:00 PM. He demanded to know why she was home and not at work. “I’m putting my children to bed.” He wanted to know if it was some sort of emergency. These last two chapters review the feelings of women confronted with those tradeoffs: American women in one chapter, South Korean women in the other.

The book reads easily as journalism with interviews and elements of academic research that includes citations of data and from previous work in books and journals. Except for a chapter on women and crime the narrative does not stray into other areas or topics. Some of the women interviewed for the book sound wistful and sentimental more than angry or resentful, but all sound determined to press on. I do not recall anyone looking backward.

Reading through the narrative I gradually decided the book is an invitation to think about gender roles in a service economy. The author ends the interview of David without comment, which I took as a hint to her own opinion, but the book primarily describes the declining condition of men and personal feelings of women without the heavy hand of instruction. Near the end Rosin tells readers she would not cook dinner while her husband drinks beer, but that is about it for advice.

There was a time when families depended on the physical strengths and skills of the mister, which helped define their masculinity. Those days are over but competition for money and status on the job was always a wearing and destructive substitute. The End of Men and the Rise of Women makes that much clear, but no answers on gender roles. Possibly real men drink beer before they cook dinner, but I’m not sure. You’ll have to think it over.

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Virginia Money

In the Chicken Little folk tale, Chicken Little becomes hysterical along with friends Henny Penny, Lucky Ducky, and Foxey Loxey when they all agree the sky is falling. In Virginia, delegate Robert G. Marshall believes the Federal Reserve Bank will bring financial hysteria with hyper inflation like Germany after WWI. He wants to protect Virginians by having a new Virginia currency. [Virginia-only currency one step closer to reality” 2/6/13] He got the Virginia legislature to allocate $17,440 to study a metallic-based currency for Virginia. He was quoted to say “This is a serious study about a serious topic. We’re not completely powerless.”

As every good capitalist knows the value of money is determined by the supply of it relative to its demand for needed transactions. Obsessive worriers like Delegate Marshall think money has to be a supply of something they can pick up and store: commodity money. In this worry Delegate Marshall acts like everyone else: the worriers all want their metallic base to be gold.

To protect themselves from inflation and rising prices with a metallic-based currency, Virginians will need to be able to exchange their inflation devalued currency for gold at a fixed price. If Delegate Marshall could exchange a unit of Virginia currency for an ounce of gold at a known price he would have gold that might hold its value, or rise in value, to protect from the rising price of cars, clothes and corn flakes that devalues his currency.

If Delegate Marshall was a little more curious he would ask himself how the Virginia treasurer happens to have an inventory of gold ready to exchange with a line up of worried citizens. If Delegate Marshall would ask himself how Virginia could remain ready to exchange gold at a fixed price if the market price of gold goes up, he might notice a problem with a metallic standard. After all gold is a commodity like cars, clothes and corn flakes, all subject to rising prices.

If the market price of gold starts to rise there might be someone who would show up at the Virginia treasury to exchange their currency for an ounce of gold to resell it for a profit at the higher market price. The line might be long and drain the gold out of the Virginia treasury ending the metallic-based standard.

I wonder why Delegate Marshall wants to worry so much about something that is not happening. Inflation rates are low, generally below two percent where they have been for over a decade. I wonder why Delegate Marshall wants to worry about the Federal Reserve Bank when it bailed out the rogues and scoundrels who engineered the financial collapse of 2008. I am certain though this piece qualifies as a study of the metallic based standard, which is why I expect to receive that $17,440. My bill will be in the mail shortly.

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A 2013 Job Review

The Bureau of Labor Statistics published its January report showing a seasonally adjusted December increase of 155 thousand jobs. The increase for the 12 months ending December 2012 is 1.836 million jobs, a respectable, but hardly spectacular increase for the year. The job totals for 2012 will be subject to review and possible revision next month, but the end of the year totals gives an opportunity to make an assessment of job growth for the future.

During the recession jobs declined 8.78 million from January 2008 until February of 2010. After the turnaround beginning March 2010 jobs are up 4.78 million to just over 134 million for December 2012. If we have 26 months in a row with 155 thousand new jobs, America will have just over 138 million jobs, which will bring jobs in March 2015 up to jobs in January 2008.

Through the recession months government employment and the share of government employment in total employment continued to rise while manufacturing employment and the share of manufacturing employment in total employment continued to fall. Manufacturing had its highest employment in 1979 followed by nearly unbroken decline until the end of February 2010.

After March 2010 when jobs started to recover manufacturing and government service reversed their long term employment trends. Government including education lost 546 thousand jobs while manufacturing gained 526 thousand. In 2012 manufacturing gained 180 thousand jobs while government lost 68 thousand jobs.

The unexpected increase in manufacturing helped provide a higher job total for the year ending December 2012. The increase in manufacturing gives a reason to be optimistic for 2013, but unfortunately much of the other 2012 gains came in service sectors that also did much better than their long term trends. For example, wholesale and retail trade added 260 thousand jobs for the 12 months ending December 2012, but their average annual increase for the last 22 years including 2012 is 94 thousand. The last 12 years including 2012 did not have job gains, but losses that averaged 65.1 thousand a year.

Trade uses computing technology that holds down job growth, but other service sectors like finance, insurance and real estate also have long term trends with slow growth as a result of computing technology. In the process of recovery from the 2008 recession all of them did much better in 2012 than their long term growth rates. Finance, insurance and real estate gained thousand 80 thousand more jobs than their long term trends would suggest.

If all sectors of the economy in goods production, private service providing industries, and government return to growth at their long term trends then 2013 job growth will have only 1.475 million more jobs, 360 thousand below the gains for 2012. It will be a slow year for jobs if that happens.

If manufacturing repeats last year’s gain and adds 180 thousand jobs and government does not decline further, while the rest of goods production and service industries grow at their long term trend then 2013 with have 1.691 million more jobs; better but still 144 thousand jobs below the 2012 gains.

Health care has been a mainstay of job growth for two decades, but last year’s increase of 391 thousand new jobs was below long term trends. Health care will add 477 thousand new jobs by December 2013 if health care industry jobs grow at their 1990 to 2012 growth rate of 2.78 percent. Lately though, health care has slowed down and last year jobs were up only 2.15 percent for the year. The time to assume health care will contribute the largest share of replacement jobs may be coming to an end. Other sectors like manufacturing and professional services will need to play a bigger role in job growth if America can meet the job needs of the future.

The recent decision on federal taxes that was part of the fiscal cliff negotiations will not help job growth. The two percent reduction in social security taxes ends. Social security taxes go up 2 percent, but the new rate schedule for the personal income tax does not reduce rates enough for a reduction in combined federal taxes. Based on the tax rate changes published in the Washington Post wage earners earning up to $60,000 will pay as much as $1,000 more in 2013 than they did in 2012.

The fiscal cliff solution makes another year with 1.836 million new jobs a doubtful forecast. Americans will need more buying power to keep the job mill going another year. To match last year’s performance for 2013 will be problematic without a continuing recovery in manufacturing, and without an unexpected boost from another service sector or sectors. Expect less.

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Taxes and Entitlements

During the Presidential campaign candidate Romney had a speech secretly recorded where he told listeners that he could not expect to get votes from the 47 percent of tax payers who do not pay federal income taxes. In the speech Romney characterized that group of income-tax-free Americans as being “dependent on the government” and feeling “entitled to health care, to food, to housing, to you-name-it.”

Americans have often worried about people who do not support themselves working. Back in the great depression after unemployment peaked at 25 percent President Franklin Roosevelt said in a speech of October 1934, “Continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fiber. . . . We must preserve not only the bodies of the unemployed from destitution but also their self-respect, their self-reliance and courage and determination. . . . The Federal Government must quit this business of relief.” [quoted from The Crisis of the Old Order, 1919-1933, Arthur Schlesinger, 1957, p 267-268]

It sounds to me like Mr. Roosevelt worried that Americans getting governmental assistance would become dependent on the government whereas Mr. Romney worries that Americans getting governmental assistance are already dependent on the government. Otherwise they sound like identical statements reflecting the cultural notion that work is uplifting and makes us free and independent.

Mr. Romney’s statements generated many comments. I am sure I read only a fraction of them but most of the comments I read assumed the 47 percent of filers who pay no income tax are low paid or unemployed people of modest means. Other comments discussed the matter in general terms without actually going to last year’s tax Form 1040 and doing some calculations.

When I did that I found a single person with one $3,700 exemption and a $5,800 standard deduction could earn up to $9,500 in 2011 with no income tax liability. A married couple with no children, two exemptions totaling $7,400 and an $11,600 standard deduction could have $19,000 of untaxed income. If the $9,500 or $19,000 earned was wage income then both single people and married couples would owe social security taxes.

I am not sure what share of the 47 percent include people with wages too low to tax, but many with higher incomes pay no tax because dividends and capital gains get special tax treatment not available to wage earners. In 2011 income composed of dividends and capital gains up to $88,000 for a married couple pay no federal tax at all assuming those who file take the standard deduction. For those who have itemized deductions above $11,600 untaxed dividends and capital gain can range much higher.

The exact same income earned as wages would pay $9,500 of personal income tax and $4,972 of payroll tax for a total tax of $14,472 and the payroll tax is 2 percent less than normal. Any combination of income with wages, dividends and capital gains pays less tax than the same income earned as wages.

Government programs that aide the poor and the poorly paid are now almost universally referred to as entitlements in the popular media and by politicians, but always in negative terms, as something to get rid of, or cut back. Get a job; work and be independent that is the message from Mr. Roosevelt to Mr. Romney. It might work better if wage earners were entitled to equal treatment in taxation.

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The Benefit and The Burden

The Benefit and The Burden: Tax Reform, Why We Need It and What it Will Take, Bruce Bartlett, (NY: Simon & Shuster, 2012), 258 pages, $26.00

In the opening sentences of the Introduction author Bruce Bartlett tells readers the Federal tax code needs regular attention like a garden needs weeding. Even though the present weedy tangle can only be changed by Congress, Bartlett hopes his book on “the fundamentals of taxation at the simplest level” will help inform the public in the debate.

Bartlett uses the introduction to tell readers he wants to be fair and so confesses a short list of biases. He accepts the need for Federal taxes to take a higher share of GDP and recommends taxing consumption to get it. He believes tax expenditures to be the equivalent of spending. He supports a Value Added Tax but not the Alternative Minimum Tax.

The book has 24 chapters, none of them long and each confined to a single topic or focus. Bartlett labels the first nine chapters, the Basics, and starts with a brief history of federal income taxes and the legislative process of getting a tax bill through Congress.

Chapter 3 reviews many definitions of income that sometimes include and sometimes exclude capital gains, rents, dividends and interest. Bartlett cites economist Irving Fisher who believed interest was not income but the discounted value between present and future consumption. Others have argued it should be consumption and change in net worth, meaning taxes on unrealized capital gains.

Chapters 4 through 8 explain the mechanics of marginal, average and effective tax rates and their affect on tax revenue, economic growth and the business cycle. While explaining the mechanics he finds the wealthy have low average tax rates and then contradicts Senator McConnell and others who claim that tax cuts raise revenue in the long run. The Bush tax cuts reduced federal revenues $2.8 trillion from 2002 to 2011.

Bartlett turns a dubious eye on tax incentives promoting saving and growth, which he suggests do not guarantee more savings, especially if the government has to use them to pay for deficits. The question of progressive taxes gets a 6 page review where he shows progressive rates schedules do not guarantee progressive taxes when there are many exemptions and deductions.

Chapter 9 compares U.S. taxes to other countries. Many other countries have a higher ratio of taxes to Gross Domestic Product than the U.S. He provides tables to compare growth rates with the ratio of taxes to GDP, which also demonstrates that low taxes do not necessarily mean high growth and vice versa. He chides Americans for their provincial views on taxes. Other countries tax consumption more than the U.S. and make use of wealth taxes and environmental taxes that Americans refuse to consider.

The second section of eight chapters identifies and reviews problems of United States taxes: tax expenditures and tax treatment of health care, housing, state taxes, charitable contributions, capital gains, corporations, and tax administration. The tax expenditure chapters take on a disgusted tone describing how current practice erodes the tax base and primarily helps the well to do who save more with deductions from income in high tax brackets.

Bartlett cites health care as the biggest tax expenditure that treats employer sponsored health care as a business expense but not taxable for employees. Where other countries tax their citizens to provide health care, our Federal government disguises their spending through a tax deduction to business. He gives a federal income tax loss of $184 billion and another $250 billion of loss in payroll taxes, although he does not cite his numbers.

Bartlett reminds readers that tax expenditures make things like health care and housing artificially cheap and encourage over use. Deductions for mortgage interest and property taxes do so twice by encouraging more home building and then encouraging local governments to pad local projects paid with property taxes home owners can deduct from their federal taxes, but no benefit to renters.

The last section of seven chapters looks at the future. Bartlett does some review of previous tax reform and reform proposals like the flat tax, a national sales tax proposal, the Herman Cain nine-nine-nine and a few more, but reminds readers that tax cuts alone are not reform. A whole chapter makes the case for more federal revenue, but readers get a big dose of pessimism and a summary of views on the consequences of unsustainable debt.

Two chapters outline the case for and against the Value added tax, but the material includes so many political objections along with a variety of pros and cons these pages reads like a digression or a diversion. Finally, it is on to the Bush Tax cuts and what to do. He gives a listing of the many Bush tax cuts and some archival background before totaling $3 trillion added to Federal debt and declaring the failure of the Bush tax cut policy. Bartlett also gives an unfavorable review of the anti-tax Republicans and Grover Norquist before declaring they will probably be able to prevent tax reform. He gets more pessimistic by suggesting tax reform will be delayed until we have a Republican president and a Democratic Congress.

The book provides basic information to understand taxes and the larger economic issues they raise, but the book is not elementary. Previous effort working and experimenting with the arithmetic of tax calculations for a variety of personal income situations should be considered a minimum prerequisite. All his chapters end with a long list of further reading that allow advanced study for those with the interest.

Bartlett has had a long career in taxes, especially in Congress where he helped draft the Kemp-Roth tax reform back in 1986, but his knowledge and experience do not make him optimistic. He makes recommendations to expand the tax base and raise revenue to meet the needs of spending that “can’t be cut,” but tells readers how and why entrenched political attitudes will prevent them. The book feels sour in a way that befits the public mood for a book published in the year of the fiscal cliff. The fiscal cliff will pass but for better or for worse I am certain the Benefit and the Burden will continue to be relevant, I’m afraid for quite a few years. In that we can be sure Mr. Bartlett will agree.

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