Being above average, and how this costs us all more money

We humans delude ourselves frequently. A 1981 study in the US showed that 93% of drivers thought their driving skills were above average. We know this can't be a fact. Look at Billy Joel, and the number of times he crashed his car. We all wish to be above average in all things, and in a cursory examination of this concept, we'd think this is a good thing. But think again...

Insurance can be explained very simply. Everyone pays a premium based on their plan rate. The insurance company pays against claims, and after paying the claims, compensating their staff, and covering operating expenses such as marketing and customer service, they log the rest as profit (income - expenses = profit). If their claims payments and operating expenses exceed the premiums collected, they lose money. Companies can't lose money and survive.

Well, actually, some companies can operate for years losing money, since they have a stranglehold on the taxpayers, such as  the US Postal Service, and their $3.5 billion loss in the last quarter alone. They can count on our inept Congress to just raid the Social Security Trust Fund, or add another tax to cover the losses by taking more money out of our pockets.

As consumers of health care, we want to be above average, since this means we get out more than we put in. This is basic human nature. If we are paying a premium, and the total of my premiums is less than what our medical care cost, then we would be better off self-insuring. We are provided an incentive to consume more than our premiums.

Health insurance benefits were originally focused on major medical expenses. Most people fear the loss of their wealth trying to treat a life-threatening illness. Routine care was paid for out-of-pocket by the consumer, and the costs were way cheaper as a result. A doctor wouldn't turn a patient away, unless they couldn't take new patients. I remember my parents would work out a payment plan with our family doctor. He delivered me and my 8 siblings, and treated all of us until he passed away.

After World War II, the inept and well-meaning federal government instituted wage freezes in a booming economy to keep employees from jumping to higher paying jobs. If employers couldn't entice employees by using cash on the open market, they started to offer health insurance plans, which also covered routine care. As a result, many companies offered gold-plated insurance plans for life for their employees. As humans, once we start getting something for free, we don't want to give it up. Starting in 2011, our health insurance values will be put on our tax forms... why? A tax on our health insurance, which originally started out as a non-cash incentive. So who pays for health insurance - employer or employee?

Everyone wants cheap insurance. What they should want is market driven health pricing. If doctors didn't have to submit claims to dozens of different insurance companies, each with different forms, while conforming to the limitations of each, they could decrease office staff. The 15 billing codes they have to fill out for your office visit to treat the cold you have, where you only pay $15 co-pay with the rest of your risk pool (the below average) kicking in to cover your costs, would become an office visit that may cost you $30-$50, but would go directly to the doctor. All of the administrative load would be removed from the relationship with your doctor. A solution to all of this overhead is concierge service, where a doctor won't accept insurance, patients pay for their own services, and patients agree not to sue the doctor. If I were a doctor, this would be my business model.

Think of insurance in terms of a car. New cars come with a warranty, where certain components are covered for a specific period of time. When you buy a new car, the cost of this "free" warranty is built into the purchase cost. The peace of mind allows us to drive off the lot and feel confident that if our engine dies, the automaker will fix it free or cheaply. Think of this as major medical insurance. If the big "C" hits us, we likely won't go broke in the process of fixing our "engine", and living longer.

If our car insurance also covered oil changes brake pads, and other routine care, our car insurance costs would soar to out of control levels. This routine care extends the life of the car, and we can expect many more years from it, or a higher resale value for a well-maintained car, so it should be encouraged, right? So we would get all the oil changes, new tires, new brakes, and replace anything that shows any wear. And there'd be no incentive to be thoughtful about how or where we drove. We could overload the car with cinder blocks, run it at high RPMs, skid, peel out, and bang into stuff. The insurance would cover it. It wouldn't cost us, at least not in the sense of having to lay money out for routine maintenance. None of the routine care would be our fault, the repair is an entitlement we paid for. Do you think you'd see $14.95 oil change specials in a routine car care insurance world? No, the cost would probably be about $80, with you paying $5 at the counter after waiting 3 months to get an appointment.

Health insurance for routine issues are the same. I am fit, watch my weight, have a fitness lifestyle, am an educated eater, and as a result live a very fulfilling life. We all know people who are overweight, with failing joints, poor diets, sedentary lifestyles, and failing health. They need medicine to treat the symptoms of their poor lifestyle - diabetes, weight control, sleep disorders, joint pains, and all the rest of the pains of not taking responsibility for their lives. This excess weight can sometimes cause death when the person dies during a surgical procedure to remove a leather couch the person's body attached itself to.

We all pay more for routine care insurance where 70% of our health care costs are lifestyle related. These controllable health issues need more medicine, more care, and more doctors. I am against government regulating what people can and can't eat, and in what quantities. The government keeps regulating ingredients in food, using the "common good" as a motive. If we removed the routine care insurance, it wouldn't attract bureaucrats to find a solution, and we could get people to pay their own way. This is more likely to get people to become responsible for themselves. If we want smaller government, we need bigger people - not fat unhealthy people.

Right after we eliminate routine health insurance, we need to address airline baggage limits. If I am 165 pounds, and have 40 pounds of luggage, why should I pay more than a 300 pound person with 20 pounds of luggage? Please explain that one to me.

Disclaimer: I know many overweight people, and I have lots of compassion for them, and know how hard they try to lose weight. They are bombarded with messages on food, subjected to all you can eat buffets, and see their problems as medical for the most part. I am not in any way trying to make overweight people feel bad. I am using this as an example of how insurance becomes an enabler for this national crisis of obesity.

Economics, the dismal science - Junior Achievement class

"How come rich people like Donald Trump get richer in a recession?", followed by "how come the government doesn't tell companies they have to charge less for their products so people who are struggling can pay their bills?" were two of the questions that came up today in the high school class where I am teaching Economics through Junior Achievement. I put on my screen saver face and formulated my answer in my head... but first a little aside.

I don't remember anyone explaining economics to me as a kid, at least not in a structured sort of way. Economics was taught in real-time, with instant feedback for wrong answers. If I wanted to purchase something, I wasn't able to go to the governing entity (my parents), and get a bail out (allowance). I had to come up with ideas on how to make money. This environment forced me to become an entrepreneur at an early age.

My first few businesses were started when I was around 9 or 10, and revolved around filling a need in our household. My older brother didn't want to feed the family dog, which was his job. So he paid me $1 a week. He also hated to put his clothes in the laundry, so I would load the hamper in return for any loose change in his pockets, or from the floor. This business soon grew into cleaning cars in our driveway, and getting to keep the change. After a time, the money was not so good, since it takes months for change to fall out of a pocket at a rate I could justify doing the work for, so I started charging for car washes. As the youngest of 9 kids, there were lots of cars in the driveway.

Tom Finnegan was a nice guy on our street who was friends with my father. Tom asked my dad if he could pay me to cut his grass, and my dad agreed. So at about 12 years old I started to cut grass, which grew into 40 lawns spread across Pompton Plains and Pequannock Township, and was my primary income until I was in my early twenties. During that time, I worked regular jobs, such as at a local nursery where I started out planting mums, and stayed on for a couple of years picking vegetables and working in the greenhouses.

When I started to work, my parents made me buy my own work clothes, such as jeans, work boots, and whatever I'd wear to work. They covered school and church clothes. When I turned 16, 1/3^rd of my income was taken to cover my home expenses, plus I covered my own work clothes costs. At 18, the third was capped at $20 a week, and if I didn't work, they ran me a tab.

We learned early about economics. So back to the class today. In one of the first classes I taught, I asked who had a job that paid money. About 25% of the students raised their hand. I then asked who received a weekly allowance from their parents, with no strings attached - meaning they just received it, no chores required. Over half of the hands went up. Things have changed since I was a kid, and it is bad.

So my answer to the questions at the start of this blog were real simple, and derived by asking questions of the students. First, smart people make money in a recession. Having money going into a recession allows you to purchase at a deep discount. So don't waste your money buying stuff in a good economy, at least not on credit. Cash is king in a recession. But this recession has not been an opportunity for everyone. By taking money from the taxpayers and using it to prop up poorly managed banks, the government artificially kept home prices high, eliminating the opportunity for the average person to take advantage of the cheaper homes in the recession. As low as the home prices are, they are still artificially high because the banks don't have to sell the homes the foreclose on, since they now have our money to keep their business running. So Donald Trump got rich because he is smart, not because he is rich.

I also asked who pays for employees' health insurance - "employers". Does the company consider the cost of health insurance when determining how much to pay an employee? - "yes". So who pays for health insurance? - "the employee". So is government forcing insurance good for small business? We'll leave it there...

We covered many topics, mostly around entrepreneurship, risk and reward, taxes (including hidden taxes), regulations, and how much a company must to do comply that costs them money and time, without revenue for them. My last comment was that I talk economics with many people, and few understand it in even a basic way. Learning economics will act as insurance against being poor. The market cycles, and they are in school in a down cycle, and knowing about cycles, and not getting into debt will give them a much better chance at a good life.

It is very fulfilling being involved with Junior Achievement. If you haven't been involved yet, you should contact your local school and see if they participate, and how you can help.

The weekend project has been selected - garage siding!

We moved in here last June. When we bought the place, the detached two car garage had a tree growing through the back wall of the garage, leaving a shark bite in the wall and roof. We knew this when we purchased.

Our first order of business for this project was to find a tree service to remove the tree. I called about 5 tree services, and one showed up. He grimaced when he saw the tight quarters, and told me he needed to come back with a colleague to estimate. It would take a crane to take the tree down. I never saw him again, I hope he wasn't abducted by aliens after he left.

I then called my next list of tree services, and ended up with several $2,500 estimates. I finally called one last service, and he quoted $1,000. I asked for a certificate of insurance, and as soon as I had it, we hired him. His crew climbed the tree, and roped the pieces down, leaving me wood for the anticipated fireplace (it's in now, more on that another time). Based on how much most tree services charge, and how few actually came out to offer an estimate, I would think that starting a tree service would be a great opportunity for someone not afraid of heights - which counts me out.

With the tree down, I was able to start on the garage repair. At this point we had a roofing company lined up, so I was under the gun to finish it. Before I could start the wall replacement, I had to replace the joists that hold the walls together, and the roof up. A previous owner had installed electric garage door openers, and the installer notched the joists, weakening them severely. So I called one of my brothers, and he educated me on rafter ties and collar ties, and we decided I needed rafter ties. While I installing the rafter ties and pulling out the damaged rafters, I modified the construction so our sea kayaks could be hoisted above the garage doors. I'll put some pics up eventually to show that.

So I took a few days off work, and started on the repairs. I built a wall inside the garage, and with sledge hammer in hand, I started hitting the wall. The walls are stucco, which is concrete on iron mesh which is nailed to planking. It isn't easy to take down. As I took the wall out, I disturbed carpenter ants, spiders, and termites. the three foot section of wall I planned on replacing, became a whole 20 foot wall, from the ground to the roof ridge. It took a couple of days to complete. With the wall complete, and the roof installed, my priorities moved on to other areas of the house.

Before I started swinging the big hammer. See the shark bite up top.

A bit more than I expected, and the insect damage continues

I eventually made it all the way to the right, I did sections at a time to maintain the load of the roof

So last weekend I blocked time out to do the siding. I headed to Lowes in Paterson, NJ, and after spending way too long discussing the fine art of vinyl siding installation, I finally had a cart full of what I needed. I headed to the customer service desk to pay, and to rent a truck. Sounded easy to me, but woe was me. The name on my insurance card has my wife's name, and - you guessed it, my license is in my name. Same address almost same last name, but the policy of Lowes very strict customer service department was that the names must match. I tried to make my case with the manager, but realized I would have more luck convincing an inflatable Santa that reindeer can fly, than I would have in winning my case. I left the store. I generally try to avoid big box stores, but they have cheap vinyl, and give me a 10% military discount.

Last night I returned with my honey to Lowes, we purchased the stuff, and I drove the loaded truck home and back empty. The outcome didn't change, I still drove the danged truck.

The deal I have with my honey is that I have rationalization money I can spend to compensate myself for being our contractor. So I purchased a new log maul and a hatchet. My last log maul broke when I tried to split a log, and it was closer than I thought it was. The hatchet was for making kindling, because right before I broke the maul, I caught two fingers between the sharp side of the maul and the wood. I luckily was able to check my one-handed swing, and ended up with a bruise, and a small indented cut on two fingers. There's no cure for stupid, but stupid sometimes gets lucky.

So Saturday you will be treated to the story of the siding. From start to finish. For now, I need to get back to projects. I just painted the laundry room, and am finishing the spackle in our storage closet.

Why governments must lead the fight against obesity - McKinsey Quarterly - Health Care - Strategy & Analysis

Why governments must lead the fight against obesity - McKinsey Quarterly - Health Care - Strategy & Analysis

Why do we insure health care? Food has a much bigger impact on our health, yet we don't insure food. With health insurance, we purchase a policy at a rate that ensures that all of the collective health expenses of the group can be paid for, that administrative costs are covered, and that our collective premiums provides a profit to the insurance company shareholders. Anyone who consumes less than the average amount is paying too much for their services. Someone in Minneapolis determines how much a doctor can charge for a service, and the doctor must figure out how many people he can pump through his office, and what he can bill the insurance company for to make a living. The consumer has few choices, and has little say in what they can consume.

If we applied this model to food, we'd all pay our money to a food insurance company at a rate above the average per person grocery bill, with additional money to cover administrative costs and profit. Once we pay our premium, we'd have no incentive to only take food that we need. Instead our incentive would be to make sure we get more food than our premium cost us. And this would drive the food insurance premiums up.

This is what happens with health insurance. We all pay a premium, and try to consume all of the medical services we can in order to ensure the policy is a good value, while staying within the limits of the policy. Feeling sick? Call the doctor.

A better system would be to eliminate routine health care insurance, and only insure catastrophic events. If I get sick, I could decide if I want to pay the doctor to confirm I have a cold, prescribe bed rest and liguids, and maybe an unnecessary anti-biotic, or if I want to wait a few days to see if I feel better. The costs would decrease, since a doctor can charge you twenty five cents for a Band-Aid^(r), and still make a profit. This is far less than the $4 the insurance company pays. The doctors would also be able to reduce staff, since they generally have someone who spends their day submitting claims to the many insurance companies.

I remember growing up, if I was sick, my parents would wait to see if I got better. If I didn't get better, they'd take me to the doctor. We were tight on money growing up, so I know my parents would often work out payment plans with the doctor. It was a personal relationship, and he always got paid.

McKinsey thinks government should lead the fight against obesity? What a crock. The politicians are just as obese as the general population, and have no solutions other than bigger government and more taxes.