Economic Understanding and Health Insurance

A flyer in the newspaper today reminded me how naive consumers are about understanding the economic process, business and insurance, or at least how naïve advertisers think we are.

An ad from AARP promoting their Medicare supplemental insurance plan states that Medicare pays only about 80% of Part B (non-hospital) expenses and the other 20% is up to you.  (True.)  Right below is the statement that a supplemental insurance plan could save you up to thousands of dollars in out of pocket costs.  That looks like a great deal, but where do those thousands of dollars come from, the AARP magic money tree?  Perhaps the insurance company, out of the goodness of its heart, is going to make up the difference – of course not.

The insurance company is going to collect premiums from everyone.  (Since premiums are not out of pocket costs in insurance language, maybe they are ignored when counting up the thousands in savings.)  The first thing the insurance company must do if it intends to stay in business is to pay its expenses (including the cost of the “free” brochure the ad offers to send you).  They also want a little left over for profit.  So already the total amount paid by everyone must be more than the total amount paid back to everyone (or to their doctor).  There will be winners and losers.  The (financial) winners will be the people with high medical expenses for doctor visits, tests, etc.  The losers will be the healthy ones.  This may fluctuate, so in some years you come out ahead and in other years you may be a part of the healthy bunch subsidizing the sickies – paying more in premiums than you receive in return.  Except for people who are chronically ill, this amounts to little more than a smooth-monthly-payment program similar to the one your electric company may offer.  (Actually, it’s a little worse, because you are paying in even installments the same amount you would pay plus those insurance company expenses.)  It is often a good budgeting tool to trade unknown payments for smooth, predictable payments, but you are hardly getting something for nothing as the flyer suggests.

This is a common tactic.  It implies that the money is coming from somewhere else - but there is no money except our money.  Companies and governments handle it, allocate it, and sometimes waste it, but their only source is to get it from us.  Americans must listen to advertisers, news media and politicians with this always in mind to avoid getting tricked by this common something-for-nothing sales pitch.

Pain, Responsibility and Perspective

Earlier this month a few news stories appeared about chronic pain.  The Institute of Medicine reported to the NIH that over 116 million Americans suffer from chronic pain costing the nation around $635 billion each year.  When I see data like this, I naturally think about behavior – what we are choosing, doing, believing that is healthy and positive, and what might be detrimental.  How much of the $635 billion is wasted by poor choices?  I don’t mean to minimize anyone’s real pain, but with almost one in two adults reporting chronic pain, I do see the possibility of failures in responsibility and perspective.

The study presents a “blueprint” with a host of interventions to address the problem and to educate “patients” on how to manage their pain.  But others professionals point out that people too often look to a quick prescription for relief.  This puts their problem in the hands of someone else, classic low-responsibility behavior.  I’m sure we all know someone who does something or eats something that causes them pain, but then just takes a pill instead of heeding the message from his body to change the behavior.  Remember, low-responsibility behavior is an invitation for outside interference in our lives.  Recommendations for pain management actions before resorting to medication already exist.  They include regular exercise, meditation and acceptance. Acceptance of pain is not a kind of martyrdom; it’s changing the focus.  “OK, it hurts, now let’s get on with living.” 

That leads to the perspective question – I wonder where these 116 million came from.  There are about 312 million people in the US, but less than 250 million adults.  The report doesn’t address whether this is a growing problem, but I don’t recall that over 45% of adults in chronic pain was an issue in the past.  What has changed over the last 40 or 50 years?  Are adults indulging in more dangerous or strenuous activities, have they mysteriously started to hurt more, has diagnosis increased, or have they just developed new expectations, expectations that life should be totally pain-free?

Joseph Campbell paraphrased Buddhist teaching calling us to “participate joyfully in the sorrows of life,” to recognize that life contains hardship and to live affirmatively in the face of that unavoidable sorrow and suffering.  Most of us know that this is a more realistic expectation.  Our perspective guides our choices.

I have many questions about this subject and feel we have not been given all the facts, but I have a strong suspicion that a government study of pain in the news is another indication of some lack of perspective and responsibility in our society.  It seems like one more issue that can be resolved by us rather than by a government program.

A Brief Review (continued)

Results of opinion polls for at least the past 25 years show consistent agreement with the statement:  America is heading in the wrong direction.  Efforts by both parties in the government have made no difference, so perhaps a new way of looking at these problems, a new model, is called for.  On Monday I reviewed the premise that faulty individual behaviors (our actions and decisions) accumulate to societal trends that lead to outcomes that are currently classified as crises.  We can't continue to attack the symptoms rather than not the problems.

As an example let’s look at the dimension of Discipline.  Last week in the news was an article about obesity rates in the US.  The short summary is that the country as a whole is getting fatter.  In fact, the highest obesity rate by state 15 years ago (Mississippi) was lower than the lowest rate today (Colorado). Despite billions of dollars spent on books and programs promising some magic answer, despite government programs and messages from doctors in the media, the trend continues.  It’s a behavior issue, not a policy issue.  Everyone knows the answer:  eat less and exercise more.  It’s not complex – just hard to do.  It takes discipline.  The consequence, besides the personal health ramifications, is the societal issue of increased demand on medical and drug resources for predominantly preventable illnesses.  (In general, increased demand pushes costs up.)

But this is not the only evidence of a lack of discipline in America.  Consider the number of people who spent more than they earned and the societal impact of the resulting bankruptcies and foreclosures.  Consider those who cannot stay away from smoking or excessive alcohol use.  It’s true that moving in the right direction takes effort and patience, but we tend to shun effort and patience in favor of secrets or easy answers.  Remember, we are not treading water; we are sinking.  The government keeps trying to legislate solutions, not unlike prohibition in the last century and about as successfully.

What's worse, our children are copying our behavior and we do not require better from them.  This may seem an odd example, but I just read that 40 states no longer require that handwriting be taught in school:  reading, keyboarding and arithmetic?  When I see this, alarms go off, not because I am a big fan of handwriting, but because I see one more skill that requires effort and patience dropped.  Though cursive writing may no longer be as useful, education is more than training in practical skills.  It should also develop less tangible, but important traits like patience, concentration, and discipline.  (I think I could have lived very happily without high school Latin – especially when I was in high school – or memorizing a poem, but I understand the benefit.)  When lawmakers eliminate writing to allow more time for reading, do they consider that the discipline required for the first might contribute to the second?

Take some time to think of your own examples of how we are letting our children down by not developing the necessary traits that lead to behavior strong in discipline and about what consequences these failures may have both today and in the future.  Look for your own examples.  I know they're out there.  I see them nearly every day.

A Brief Review

Nearly every day the news media present us with one or more crises, major social problems.  Politicians and interest groups promise solutions.  For years we have waited and for years been disappointed as the majority of Americans consistently agree in poll after poll that America is heading in the wrong direction.  Issues include: obesity, poverty, healthcare costs, the environment, gasoline prices, gun control, climate change, unemployment, frivolous lawsuits, abortion, discrimination, corporate mismanagement/criminal activity, drug prices, illegal immigration, Social Security, waste and abuse at all levels of government, students cheating and not learning, etc.

I contend that these are merely symptoms of more basic problems, problematic individual behavior in five key categories that build to societal trends, trends that have negative consequences.  Consequences take form directly as those issues listed above or indirectly in our inability to deal objectively and constructively with them.

Twice each week I give current examples of behaviors, usually in a single dimension to develop the habit of identifying and classifying behaviors:  word, actions and decisions as opposed to feelings, attitudes and opinions.  These examples are intended to show how common and widespread the weaknesses in these five dimensions really are.

From time to time I also show how the specific behavioral habits lead to one of these so-called crises.  In effect, we are getting what we ask for.  We should not be surprised.  We are reaping the consequences of our behavior and no government program or business initiative can save us.  Without changes in behavior, problems will either persist or be replaced by something even worse.  On the other hand, we can choose more positive behaviors and be rewarded with more positive outcomes.

On Friday I will expand on these thoughts.

Keeping Perspective in a Green Economy

Sometimes keeping perspective means challenging our beliefs or carefully considering the information presented.  Advertisers and others use words like green, all-natural and organic to describe products with the understanding that everyone will accept them as better.  But just labeling something green does not improve it and there are many all-natural substances that can kill you.  Beware the hype!

I read an article yesterday from a local newspaper about the growth of “green jobs” in a particular state and the state’s ranking nationally.  The industry that supplied the most green jobs was waste management and disposal.  Gee, trash collectors are now considered as working in a green industry.  Many years ago there was a joke about garbage men (as they were often referred to at the time) listing “sanitary engineer” as a job title on a resume, but now the media and whoever tracks such things categorize them as green-collar workers.  Now I don’t mean to demean the job in any way.  It’s not right that the only time we seem to appreciate trash collectors is when they are on strike, but relabeling the job to be trendy or popular does not do anything to change the work done or its importance.  Incidentally, one of the other jobs to top the list was public mass transit.  Can you say bus driver? 

Oh, for a simpler time when we just had bus drivers and trash collectors and no one was trying to use them to impress us with how environmentally minded we were.  Oh for a simpler time when people could shop at the grocery store and pick up nice fruits, vegetables and other products without insisting on paying more for all-natural or organic products without an iota of evidence that they were better tasting or better for you – but that’s a subject for another day.

Perspective and Gasoline Prices

Last time I referred to organizations that obstruct efforts to build oil refineries.  These, for the most part, are well-meaning organizations run by well-intentioned people.  The problem is that they often get so wrapped up in their cause that they lose perspective, the balance between the necessary and the extraordinary; they lose the concept of moderation.  In the case of gasoline prices they protest and challenge in court each proposal to build a new refinery or drill a new well on the basis of safety or environmental conservation.   This leads to a chokepoint in the gasoline supply line, which leads to higher prices.

Refining is a necessary step in producing petroleum products.  The crude oil is pumped out of the ground or extracted from oil sands, then transported to the refinery where it is converted into gasoline, lubricating oil, diesel fuel, kerosene and a number of other products.   These are then transported to market.  When refineries are concentrated in one part of the country, as they are today, problems arise.  First, severe weather can shut down many of them.  Also, the cost of the second leg of the transportation adds to the price.  When a hurricane hits the Gulf Coast, much of the refinery capacity in the US is in peril.  People in other states who have supported the fight to ban refineries have contributed to the resulting high prices.  Alternative refinery capacity is limited.  There may be plenty of oil at the time, but not enough can be processed into gasoline – so prices rise.

Everyone pays for the cost of these decisions.  Some have contributed to these special interest groups, giving them the funds to carry out the court challenges and to produce ad campaigns soliciting public support for their cause, that of forbidding the construction (or drilling) in a particular location.  As the system works today, it is then up to the companies to prove they will not cause problems (assumption of guilt), rather than the interest groups to prove that they will.  At the end of the day, all end customers for gasoline, you and I, pick up the legal costs, which are passed along in higher prices, plus the cost brought about by the supply and demand imbalance.  It is our basic weakness of perspective, buying into the arguments that the air is never clean enough or the environment never safe enough that drives these problematic outcomes.  Behavior has consequences, and we pay more at the pump.

Critical Thinking and Gasoline Prices

How many people who complain about high gasoline prices behave in a way counterproductive to their own interests?  There are many factors involved.

After a fill up, do they drive away with the same lead-foot, racing to the next red light, changing lanes to pass the car that isn’t moving quite fast enough, just to apply the brakes a few seconds later?  This waste costs us all, because it drives up demand for gasoline, resulting in higher prices.

Do they continue to contribute to organizations that resist and obstruct efforts to build new oil refineries in the US?  Many of these organizations represent themselves as aware and caring, showing pictures of distressed whales and polar bears to tap an emotional response.  But when they step forward in the name of clean air and clean water to erect roadblocks to the process moving petroleum products from the well to the pump, they impede supply, and drive prices higher.  Of course conservation, clean air and clean water are important, but perspective reminds us that there are limits to everything.  Waste is bad and we should make every effort to use resources wisely, but saving every tree or polar bear on the planet is not only impossible, but foolish.  Currently most of America’s refining capacity is concentrated near the Gulf Coast where one good storm can disrupt our supply, so when construction in other regions is blocked, one possible solution to the problem of high prices is eliminated.

Do they continue to support politicians who believe that there is less danger of leakage and pollution drilling in the Middle East and shipping oil across the ocean in tankers than be drilling in Alaska or Montana and shipping it only hundreds of miles instead?  (Some politicians argue that approval of domestic drilling today does no good since it takes 7-10 years for it to pay off, but that’s what they were saying ten years ago!)  Just the prospect of additional sources would push prices down due to speculation about future oil prices.

Some people blame a Big Oil conspiracy for high prices, but how high must prices go before alternatives become more attractive?  Is it in the interest of the oil companies to artificially set prices high enough to let these upstart new technologies get an economic foothold?

There are many other factors involved in high gasoline prices including global demand and the strength of the dollar.  We should think it through and not accept one-sided solutions.

Freedom and Responsibility

Some think the opposite of freedom is slavery or perhaps living under a dictatorship, but in our society the opposite of freedom is the benevolent authoritarianism of warnings and legal restrictions resulting from our failures in the dimension of responsibility.

We are told that we are all victims of the economy, our high-stress jobs, and our non-stop lifestyles.  The word is used in ads everyday, one even asking me if I am the victim of hair loss.  We are victims of big oil when gasoline prices rise, of big drug companies, or of big insurance companies when they raise their rates or dispute our claims.  Especially in legal cases involving civil suits, attorneys first persuade prospective clients that they are victims (you’ve seen the ads on TV) then persuade juries that their clients are victims and someone should pay.  (In those same ads on TV you often hear the word settlement because the main targets of these suits understand that most juries have bought into this point of view.  The juries also believe that a big corporation or insurance company will pay the cost and it will never get back to us, but those who understand the economic process know better.)

Victimhood is an easy answer.  It takes no effort.  What went wrong is someone else’s fault; we are not to blame; we share none of the responsibility.  It’s a passive stance.  I don’t have a high-paying job, not because I didn’t bother to finish high school, but because I am being discriminated against.  I didn’t get lung cancer because I refused to quit smoking, but because the tobacco companies tricked me.  My kids don’t have too many toys because I bought them, but because of the cartoons on the TV.  The banks fooled me into getting a mortgage I couldn’t afford.  When I have a sore knee, I ask the doctor for a pill or for surgery rather than lose some weight.  I get to put all my problems in someone else’s hands.  Responsible people don’t act like this, but victims do.

When we feel and act this way, we need to be protected.  That’s when the warnings and regulations begin.  “These people can’t take care of themselves so we must put warnings on cigarette packages, on ladders, on hairdryers, and on almost every other product, telling them not to use them in ways that may seem stupid to the average person.”  When we sign up or sign our kids up to play sports, we must sign “hold harmless” forms.  All the warnings don’t stop the lawsuits, so next come the regulations:  all playgrounds must provide soft landings, all car trunks need an escape handle, all lawnmowers must have an automatic shutdown device, etc.  Some cities have banned the sale of certain foods or of fast food in certain neighborhoods.

Where does it all end?  The old analogy of boiling a frog applies.  Throw a frog into boiling water and he jumps back out.  Put him in a pot and slowly increase the temperature and he sits complacently until it’s too late.   Likewise, when we don’t behave responsibly, our freedoms are slowly taken away.  Each of those efforts seems well-meaning and harmless, but each is another example of someone restricting our choices for our own good.  Each is a loss of freedom, the consequence of patterns of behavior showing weakness in the dimension of responsibility.

The Economic Process

Recently my son told me that he was closing a checking account, one he had opened in college.  They were raising fees and the minimum balance to avoid the fees.  I told him that he could thank Congress and their consumer-protection efforts for placing new restrictions on credit cards and banks.  When they ban certain practices, the banks adjust, changing the rules of the game because bankers are a lot smarter than politicians when it comes to business and finance.

I refuse to believe (as the government apparently does) that we are not smart enough to protect ourselves by closing accounts, moving away from credit cards with the highest interest rates and forcing the banks to compete for our business.  Instead we have an elaborate dance between the banks and Washington, turning personal finance into a moving target and wasting time and money on all sides.

The economic process, the law of supply and demand along with corporations’ need to make a profit to stay in business, always have a way of circling around and finding the funding they need in our wallets.  No matter how people try to tinker, there is no magic money tree; you don’t get something for nothing.  Banks, insurance companies and other organizations can only get money by taking it from customers (in exchange for something we value).  When additional costs are imposed, they stay in business by figuring out how to get customers to pay for them.

Yesterday’s newspaper reported another regulation reducing the amount banks can charge retailers for credit card transactions.  Half way through the article was the statement:  “Banks have warned that they will make up the lost revenue by shifting costs to consumers.”   This is a no-brainer to those who understand the economic process, yet citizens keep looking to the government and government keeps getting credit for these well-meaning efforts.  The ones who are hurt the most are the ones who can least afford it, small customers who don't have those minimum balances.