Representative Paul Ryan (R. Wisconsin) thinks he has found a solution to Medicare inflation.
The cost of Medicare has been spiraling for years, thanks to the climbing cost of virtually every product and service in our health care system. In other sectors of the economy, competition brings prices down. But when it comes to healthcare, each year, we pay more for virtually every test and treatment. Meanwhile, doctors and hospitals do more. Inpatients stays are shorter than they once were, but as Dartmouth’s Dr. Elliot Fisher puts it “more happens to you while you’re there.”
Now, finally, we have health reform legislation that is designed to rein in costs by changing how we pay for care, and how that care is delivered. Rather than rewarding providers for “volume” by paying fee-for-service, Medicare will be rewarding them for “value” in the form of better outcomes at a lower price. The Affordable Care AcT realigns financial incentives, reducing payments to hospitals with the highest rates of errors and infections, while paying bonuses to physicians who create medical homes than manage to keep chronically ill patients out of the ER–and out of the hospital. Hospitals and doctors who collaborate to create accountable care organizations will be able to share in the savings if they squeeze some of the waste out of the system and provide, safer, better-coordinated care. Many communities already have shown how this can be done.
But Ryan says he has a better idea: he wants to shift the risk of health care inflation to seniors. The best way to understand Ryan’s scheme is to think about the difference between a 401-k and a pension.
Once upon a time, many U.S. employers offered their employees pensions: the company guaranteed that it would pay retired workers a certain amount each month — what retirement planners call a “defined benefit.” Typically, this meant that a worker would receive a percentage of the average salary he had earned during his last five years on the job. The employer set aside money for pensions, and took responsibility for investing that money prudently so that the company could meet its commitment. Traditionally, pension fund managers were conservative investors.
Over the past twenty-five years, these “defined benefit” retirement plans have been replaced by “defined contribution” plans. Employers promise to contribute a certain amount to an employee’s 401-k each year, but it is up to the employee to invest the money wisely. The worker shoulders the risk, hoping against hope that he will have enough money when he retires.
In theory, the employee is “empowered” to manage his own retirement funds. In practice, many workers soon discovered that they were not cut out to be pension fund managers: they lacked the training, the time, and the temperament to ride volatile markets.
Now, Ryan would like to turn Medicare into a “defined contribution program.” Under his proposal, which would apply to those currently under the age of 55 , a retiree would be told to choose from an array of private insurance plans, much the way he picks a mutual fund for his 401-k. The government would pay a percentage toward the insurance premium for each individual, just as many employers contribute a defined amount to a 401-k. The plan’s backers suggest that the government contribution for low-income and sicker people would probably be larger. But it would be up to the retiree to pick a good plan at a price he can afford.
Did we learn nothing from the 1990s? At the end of that decade, 401-k investors took a ride that they will never forget. And recent years have been far from smooth. Since October 2007, one out of ten 401ks have lost money, while many others have eked out tiny returns.
Despite the recovery on Wall Street that began in March of 2009, too many individuals picked the wrong funds, putting money into stock funds when they were falling–at a time when they might better have invested in commodity funds or gold. Burned by their losses, they began cutting back on their contributions to equity funds just as the stock market was recovering. This explains why the average 401-k investor with 30-plus years on the job has enjoyed total returns of just 1 percent over the four years ending in March 2011. Meanwhile, workers with 10 to 29 years on the job have not recovered their losses. On March 1 their 401-k balances were 5 percent to 8 percent lower than they were in October of 2007. According to the Employee Benefit Research Institute, today average account balances range from $175,000 for those age 46 to 55, to nearly $217,000 for those age 56 to 65. Many won’t be able to retire at 65–but at least they have Medicare.
Under Ryan’s proposal, however, the 50-year-old 401-k investor who took a beating in the stock market over the past four years now has something else to worry about. He would be expected to “manage” his health insurance, along with his savings. Just as the typical 70-year-old is not a professional money manager, he is not trained as a human resources expert. Yet it would be up to the retiree to choose an affordable plan that provides adequate coverage and access to a network of doctors and hospitals that offer high-quality care. Today, Medicare guarantees that it will cover an essential set of benefits. For example under the Affordable Care Act, Medicare pays the first dollar of all preventive care recommended by the National Preventive Services Task Force. There is no co-pay and the deductible does not apply. In the future, if Ryan’s plan became law, it would be up to the individual decide whether he wants to sign up for a plan with a lower premium and a fairly to high deductible, gambling that he will be able to afford the deductible when he needs care. (Much may depend on his 401-k is doing).
Moreover there is no guarantee that the government’s contribution would keep up with rising premiums. Probably it wouldn’t. After all, the goal of Ryan’s proposal is to shrink entitlement programs.
History shows that health care consumers have not been able to break the curve of medical inflation the way they have in other sectors of the economy. A consumer who wants to purchase a lap-top or a thin-screen TV can sit back and wait until prices come down. But a cancer patient cannot delay purchasing the drug his doctor tells him that he needs. Thus, the prices of cancer drugs only rise; they never come down. Drug-makers do not compete on price; they compete on promise.
Moreover, most of our health care dollars are spent when we are very sick. We are not looking for a bargain. Tell a patient that Doctor X will perform his heart surgery for 25% less, and he will run in the other direction.
Unless the government uses financial carrots and sticks to rein in inflation, the cost of medical care will continue to rise. Only traditional Medicare has the market clout to break the curve. No hospital could stay open if it did not take Medicare. The majority of physicians could not keep a practice afloat without Medicare patients. Even the largest private insurers do not enjoy the same market power. If Medicare is turned over to private sector insurers they will continue to pay what drug-makers, hospitals and others demand, and pass the increases along in the form of higher premiums.
As premiums continue to rise, it would be up to retirees to try to find less expensive plans that still cover the benefits they need. Since insurers would not be required to offer a standard set of “essential benefits,” seniors would no doubt find it hard to compare plans–especially as they grow older. Wealthy retirees will be able to pay higher premiums out of pocket, hoping that the most expensive plans are also the best. Middle-class retirees will wind buying whatever they can afford.
As the Wall Street Journal reported Monday, “The plan would essentially end Medicare.” But I thought progressive reformers were the scoundrels who posed a threat to Medicare?
Ryan’s proposal would destroy Medicare (and perhaps that is his goal).
It requires magical thinking to expect patients will be able to drive a hard bargain. Patients do what they are told by their doctors and if the doctor says they need a cardiac stent or bypass surgery or a CT or MRI or elective preterm pregnancy induction they they will have it and they will not ask about the price (and if they did they would not be able to find out the price).
Patients do not have the medical training to decide which tests, procedures and treatments are necessary and which providers are competent to provide those tests. Even I as a medical doctor cannot do this well.
We need strong government regulation based on sound science which is what the ACA proposes.
As others have said, this is a clear example of ideology trumping both common sense and actual data.
It also is an endorsement of documented waste in the healthcare system: Medicare has long been known to be more efficient in its operation that private insurance. His plan endorses and rewards that inefficiency.
It also would have the effect of making it very difficult to retire. I’m 59, but if I were subjected to Ryan’s plan I would continue to work until I dropped to avoid bankrupting my family.
Mark & Chris
Mark–
Exactly. And it is definitely their goal to destroy Medicare as an “entitlement” program–i.e. something you can count on.
If the govt turns Medicare over to private insurers (as proposed) seniors will abe at the mercy of whatever those private insurers do.
Most likely they will do what they have been doing for the past 10 years– pay brand-name hospitals and doctors what they ask, pay drug-makers and device-makers what they ask, and pass the cost along in the form of higher premiums.
The govt’s contribution won’t keep up witih the rise in premiums because the conservatives have made it clear that their explicit goal is to reduce how much the govt spends on health care in order to reduce the deficit.
Thus seniors will become responsible for a larger and larger share of rising premiums.
And Gov’t will tell them: it’s you’re fault. You’re using too much health care.
But as you point out, a 70-year-old is not in a position to know which tests and treatments he does or doesn’t need. He’ll follow his doctors suggestions. And at this point, most doctors are not cost-conscious.
The good news: I don’t see Ryan’s bill–or legislation like it –passing, unless the Democrats lose the next presidential election.
If they do (and they could) all bets are off.
(See intro to my next post– Health Reform a Realilty )
Chris–
Yes, this opens up a very frigthening and uncertain future for retirees.
Conservatives already
have undermined retirement by advocating 401-ks and the notion that every individual should “own” his retirement plan, free to lose money as he invests,usually blindly, in treacheruous markets.
Old-fashioned pension fund managers put most of the money in bonds and other fixed-income investments, and often held them to maturity, eliminating market risk. They weren’t aiming for double-digit returns, they were aiming for security– moderate growth without too much risk.
They understood that when people retired, the money had to be there.
OF course WAll Street didn’t make huge fees because good pension fund managers were not constantly buying and selling stocks and mutual funds.
On Medicare being more efficient– IN truth, in the 1990s, when private sector insurers were tryin to “manage care” they actually managed to break the curve of health care inflation.
But then, in ’99, the backlash against managed care caught up with them, and they went back to approving most treatments at whatever price.
For the past 10 years Medicare has been more efficient–but still extra-ordinaly wasteful. (1/3 of dollars squandered.)
Going forward under the Affordable Care Act, Medicare has a good plan for beginning to curb that waste and insist on greater efficiency.
We just need to give the ACA time to take effect.
“And at this point, most doctors are not cost-conscious.”
Here’s an opportunity for market disruption. Suppose insurers develop credible, easy to use price and quality transparency tools that help referring doctors determine which specialist groups and hospitals provide the most cost-effective care with good quality. Suppose a primary care group made it clear that we will always prescribe a generic drug first if one is available. We will not send a patient for diagnostic imaging unless we would send our own family member under similar circumstances and were paying the bill out of our own pocket. Assuming insurance paid for palliative care consults, we will ensure that patients have all their options clearly explained to them and will store end of life preferences on a registry so the information is available to providers anywhere when needed. If we need to refer a patient for surgery, we recommend surgeons who believe in shared decision making. For those who need an oncologist, we refer to those who work closely with palliative care specialists and are mindful of costs. For dialysis patients, we refer to nephrologists who will honestly explain to patients that the often exhausting treatment may not extend their lives and they may be better off with what is now being called “medical management without dialysis.” In short, for patients who want high quality, caring and cost-effective treatment, come to us at ABC group. If you prefer doctors with an independent I know best mentality who don’t consider it part of their job to know or care about costs, the XYZ group across town may be the practice for you. The Ryan approach or something like it could become a patient driven catalyst to move healthcare in a more cost-effective direction. As for choosing from a menu of insurance options, federal employees have done this for years and they seem to be quite satisfied with the approach though many probably wish that they didn’t have to pay 25% or more of the premium themselves.
Separately, on 401-K plans, many large employers now offer conservative default choices of a 50-50 blend of stock and bond index funds or target date funds. Companies started to move away from defined benefit plans when new accounting rules in the early 1990’s forced the inclusion of unfunded pension liabilities on the balance sheet. That’s another example of an unintended consequence of a rule intended to better inform investors about companies’ total obligations. For remaining defined benefit plans, especially in the public sector, aggressive rate of return assumptions are used to calculate unfunded liabilities in order to make them look as healthy as possible. Many plans, for example, use an 8% annual return assumption which requires at least a 60%-65% exposure to equities to have any chance of actually earning it in the future.
Barry–
Just a quick response to your comment on 401ks (I’ll come back and respond to the rest of your comment later).
You write: “Separately, on 401-K plans, many large employers now offer conservative default choices of a 50-50 blend of stock and bond index funds or target date funds.”
Would you want your life savings locked up in U.S. stock and bond index funds over the next 10 years? (Or over the past 10 years?)
I wouldn’t. Look at how index funds pegged to the S&P have done since 2000.
Then look at how gold has done. (For example, see SGGDX.)
Or Asian funds like MACSX.
Or commodity funds like Rogers.
Or a great many closed end funds that invest in international bonds or corporate bonds and pay nice dividends.
(Recently, see PTY. If you bought it at the right time, you’d now be making 9% annually–plus capital gains. The time to buy it? When Bill Gross bought more.
Or individual stocks if you bought them when they were hit by very bad news:
GSPRA–if you bought it when Warren Buffet did.
A nice dividend.
or BP if you waited a bit after the oil spill until it was very, very cheap.
This is a stock-picker’s market. Not a market for index funds.
As I wrote at the end of Bull in 2003, buy-and-hold stragetes involving index funds are a brilliant move in a long-term bull market– a disaster in any other market.
After an 18 year bull market (82-2000), it’s unreasonable to think that we’re going to have another long-term bull market in U.S. equities anytime soon. As for bonds– eventually the Fed will have to raise rates . . .
Unfortunately, most 401-k investors don’t have the time, training or experience to pick stocks or time them. Most buy high and sell low.
Meanwhile, I’m among those who believe that the economy is Not recovering in a substantial way, and that the S&P (and the Dow) are in for very rocky times ahead.
I wish a really good old-fashioned pension fund manager was managing my money. Someone who survived the 70s. (Unfortunately, I don’t have enough savings to make it worth a really good manager’s time to run it. )
The problem with Ryan’s “reform” is that it completely ignores — in fact by proposing to junk the ACA it throws away the slight progress that has been made — the most important idea in US health care reform: changing payment patterns to emphasize proven effective care and to discourage ineffective care. That is where the real dollars are, unless you are willing, as Ryan seems to be, to exclude large numbers of people from access to good health care by financial rationing.
The bad thing for Ryan and other people who want to dump money into the private insurance market without any control to push policies toward effectiveness regimes is that history suggests that patients are certainly too poorly informed to make appropriate choices, doctors and hospitals are unwilling to make appropriate choices, and insurance companies — under pressure from patients, doctors, hospitals, and vendors — are all too likely to fall into patterns that emphasize dollar rationing rather than rational care.
The late 90’s gave us an unfortunate example of private insurers tripping over themselves to abandon rational management in favor of trying to be the most irrational company out there. Unfortunately, in an environment where the press has largely abandoned any efforts to actually spread real information about health care and where advertising, PR, powerful political forces, and much of the media are actively spreading disinformation, expecting insurance companies to come up with winning strategies to introduce rational care patterns is almost undoubtedly a bridge or two too far.
We need some force, and as far as I can see the government is far and away the most likely candidate, to be the grownup here. Conservative fantasies about market driven health care systems just make things worse.
If one thing is clear it is that with rational care in place there are many possible approaches to successfully operating the American health care system, but without it all systems are doomed to failure. An approach that ignores it will only dig America and most Americans deeper into the hole that our political system has made of health care.
Speaking of pension funds – for California government employees a solution might be to let them invest additional funds in the California Public Employees Retirement System. It made over 13% last year.
Maggie –
Like I said, the index funds are a default choice for people who don’t want to make an investment decision. They are free to buy other fund choices offered by their employer including target date funds which essentially outsource the asset allocation function between stocks, bonds, REIT’s, etc. to a professional money manager.
People investing for retirement should have a long time horizon, especially if they are below 45 years old. Your reference to gold’s price performance in the last few years ignores the fact that anyone who bought gold in 1980 would have been killed. Gold’s price languished below $300 an ounce in the early 2000’s and was depressed for a long time vs. $800 an ounce in 1980 while the Consumer Price Index about tripled during that period. Nobody, including most professional money managers, consistently get the timing of either the market generally or asset classes and individual stocks specifically right over long periods. Hindsight is always 20-20. I recall at the market bottom you said that one of the very smart investors that you respect, I think it was Marc Faber, was calling for the S&P 500 to go to 450 when it was in the 600’s. It didn’t happen. Warren Buffett has long counseled passive investors with neither the time nor the inclination to do investment research to buy index funds. Even the S&P 500 companies derive a much larger percentage of their business overseas than they did 20 or 30 years ago so they participate in the growth of emerging markets as well as the other first world economies.
Many of these politicians who advocate free-market solutions to the transaction of the priceless capital of human health need an education.
1. Strip them of the great health plans currently afforded to them as govt. workers.
2. Give them individual policies, and throw in a pre-existing condition.
3. Have them experience a major complication from said condition so that they fully understand concepts such as ‘maximum-out-of-pocket’ and inability to get insured again.
4. Have them receive an insurer letter announcing closure of the plan to any potentially new members. Throw in a 20% rate hike and reduction in benefits.
5. Offer them the opportunity to exit the death spiral plan by choosing a worse plan, since it will not require underwriting (healthy patients can move freely…until they are not healthy anymore, and that is usually a surprise).
6. Have them experience relentless hikes in premiums and reductions in benefits, while their condition gets worse and premium- and co-payments start chewing them alive.
(Force them to examine the balance sheets, including insider holdings, of all the companies that are leading them to the poor house, at least).
They are locked into their plan and will not even be able to move to another state.
Then, challenge them to defend ‘free market’ principles in health care. Have them denounce universal care.
Ask them to pay their next premium just ONE day late….just out of curiosity.
This is their brief introduction to the 37th ‘best’ system in the world (NEJM; Jan 2010).
A portfolio could have done very well over the last 10 years….IF short-selling by the lay public was implemented on a vast scale (or money was converted to gold, a routine task for the lay investor).
Maggie: it is almost like you read my mind. As soon as I heard about the Ryan plan the first thing I thought about was the converting of defined benefit pension plans to 401k’s. I’m 53. Thanks a lot, Paul!
I am baffled at why anyone thinks this plan can work. If the private insurance sector was out performing the federal sector, the ACA would never have seen the light of day. This justs makes it so much worse. And if you look closely at the entire plan more wealth is shifted to the top 1% on the backs of the poor and the deficit gets worse for a very long time.
This is nothing but power politics to further concentrate power into the hands of the very few. I feel like I’m reading a very bad book of fiction.
Everyone-
Thanks for the many comments.
I’m tied up writing an issue brief, but will reply over the week-end.
Maggie
Pat S. Barry, Ruth, Martha, Brucefreyer:
Pat S.
You write: “the most important idea in US health care reform: changing payment patterns to emphasize proven effective care and to discourage ineffective care. That is where the real dollars are . .”
I agree. The structural reforms in how we pay for care and how it is delivered are most important, even though CBO could not “score” how much wil be saved–because these changes are unprecedented.
In addition, I would point to the fact that under the ACA, Medicare plans to shave increases in payments to hospitals, nursing homes and home health care agencies by 1% a year, for 10 years, in order to put them under pressure to improve productivity.
MedPac reserach shows that when hospitals are under some financial pressure–either because they have few well-insured patients, or lack the market clouot to demand high reimbursments from private insurers– they actually turn a profit on Medicare payments of 3.7%.
Hospitals that are under no financial pressure– because most of their patients are well-insured and they are in a position to demand very high reimbursements from private insurers–lose money on their Medicare patients.
This suggets that if hospitals must tighten their belts, they can.
And we know that bilions are wasted each year thinks to hospital errors, (which often add to hospital costs as well as payor costs) and a lack of co-ordination of care.
So I’m very hopeful that this, too, will lead to more rational care.
I also agree that “the press has largely abandoned any efforts to actually spread real information about health care . . . ”
This is in part, I think, because the public just isn’t interested in hearing that the well-insured are over-treated and they’re definitely not interested in trying to understand a complciated piece of reform legislation. But I think there’s another factor at work: newspapers tend to defend local hospitals,who are major advertisers, and hospital management at many hospitals does not want to reduce costs. They want only to grow revenues.
Moroever, those who control our media are well-insured, and fear that change might mean that they will lose something–or wind up paying higher taxes.
I, too, think that the govt is the most likely candidate to be the grown-up here–if only by default. But unfortunately, I see little hope that this Congress will play the role of grown-up. . . .
Nevertheless, the ACA is being implemented on the ground,and in many areas, like-minded people are moving forward. This includes hospitals that, however reluctantly, are preparing for the time when Medicare is going to be much tougher on hospitals with high infection rates, high rates of preventable errors and high rates of preventable admissions.
But I am worried about the next presidential electon. I don’t see Obama as a sure winner.
Barry–
I would not have bought gold in 1980. It has just had a long bull run.
And gold has not done well just “in the past few years.”
This bull market in gold started 10 years ago.
Over the past decade, my main gold holding –SGGDX
(mutual fund originally run by Jean Marie Eveillard) has made 600%.
And there are many reasons to think that this bull market in gold will continue (weakness of the dollar, U.S. economy, global anxiety, U.S.. deficit, demand for gold jewelry in Asia–)
Eveillard is a superb conservative investor. If memory serves, over a 25-plus year career, he lost money in onlly one year, and then it was a small amount.
One cannot time a market exactly, but one can avoid buying toward the end of a very long bull market (anyone buyinig the S&P in the late 1990s was taking a huge risk– the bubble was bound to burst ). And anyone can figure out (just by looking at the history of market) that long bull markets beget long bear markets, which in turn beget long bull markets.
This is why anyone was foolish to invest in the S&P after the 2000 crash.
If you look at a 10-year chart, you’ll find that over the past decade, teh S&P has returned very little. (The line looks flat, but I think that over that period the S&P returned roughy 12%–not keeping up with inflation in a period of very low inflation. Divididends would help, but not enough.
Meanwhile, over the same ten years, my gold fund returned 600% and my major
Asian holding (MACSX) returned 100% –PlUS very rich dividends. (Over 10 years, $10,000 grew to $40,000.)
After a long bear market, gold was due for a long bull market. At the beginning of this century, fundamental factors signaled that it was beginning . . .
I am not a brilliant market timer– I merely follow the advice of people who understand cycles and the importance of diversification.
As for Faber’s prediction, what I wrote in my book was that over the 1st decade of the 21st century the second shoe might drop, and the S&P would plunge to something like 450
OR (the alternative scenario) the S&P would simply go nowhere over the next decade, and investors would be “sandpapered to death” –as they were in the 1970s–losing their money slowly.
This is what happened. And now, if we are, indeed in a double-dip recession, the S&P is probably poised for another drop.
We stil haven’t worked off the excesses of the 1980s and 1990s.
Most 401ks do not give employees the option of investing in commodities or the equities and bonds of developing countires (without also buying U.S. equities in a global fund.)
Thus 401-k investors have a very hard time diversifying– and if they did, they wouldn’t know how or when to diversify.
They Need a Pension Fund Manager.
Ruth–
You are right, a person could have done well selling the market short over the past 10 years (though short-selling is an art, and fine timing is all. Converting to gold was much easier.
As for our health care system, yes our politicians could learn a bit if they suddenly found themselves struggling to cover themsleves and their families on a middle-class income. (For the wealthy– and many of our Congressmen are wealthy– the 10% one-year hike in premiums is not a big deal. They don’t have to trade down to an inferior plan.
Martha– Yes, it is exactly parallel to going from defined benefit plans to defined contribution plans– the risk is shifted to the invididual.
Brucefryer–
The Ryan plan makes no sense UNLESS you really don’t care whether we have universal coverage or whether many Americans remain uninsured.
The conservatives really don’t care.
At the same time they would like to see the nation’s total health care bill rise (higher insurance premiums, hospital costs, drug and device prices and doctors doing more to the few who can afford care) because they represent the medical industrial complex that profits from our exorbitantlly expensive system.
The goal of this plan is not to cut costs and save money. It’s all about ideology– shrink government so that we can continue to lower taxes for the wealtlhy.
Maggie –
You probably don’t want to hear much more about gold as this is a healthcare blog after all. I’ll just say this, though. Over the long term, gold tends to hold its value in purchasing power terms as paper currencies depreciate, but it provides no current income along the way and costs money to store. Even the gold ETF’s have storage and management fees associated with them. I think both gold and silver are significantly overpriced now though psychological and emotional factors could drive both higher for awhile. If you go back to 1974 when it first became legal for Americans to own gold in bullion form, it sold for $128 per ounce while silver was a bit above $4. If you index both for inflation (CPI increase) since then, the normalized price for gold today would be about $650-$700 per ounce while silver would be $20-$22. Also, for at least 100 years or so, an ounce of gold would usually buy a decent quality man’s suit. It bought two suits in 1980 and does again today. It’s overpriced now both in suit terms and relative to the CPI increase since the early1970’s.
Separately, regarding the potential for coordinated care and ACO’s to reduce healthcare costs, I was surprised and disappointed to read in the most recent issue of Health Affairs (pp. 510-518) about a study in Switzerland that found that primary care doctors currently practicing individually or in small groups would want a 40% increase in compensation to participate in coordinated care networks while consumers would require a 35%-40% reduction in their insurance premium to induce them to join an ACO that restricted their choice of doctors. The paper is titled “Swiss Experiment Shows Physicians, Consumers Want Significant Compensation to Embrace Coordinated Care.” The author is Peter Zweifel, professor of economics at the University of Zurich.
I agree. That is why I posted Consumer Driven Health Care will Fail. Market forces don’t quite work the same way in health care as in other industries.
http://thehealthcareblog.com/blog/2011/03/07/why-consumer-driven-health-care-will-fail/
–
Davis Liu, MD
Author of Stay Healthy, Live Longer, Spend Wisely: Making Intelligent Choices in America’s Healthcare System
(available in hardcover, Kindle, and iPad / iBooks)
Website: http://www.davisliumd.com
Blog: http://www.davisliumd.blogspot.com
Twitter: davisliumd
Barry–
As you say, this is not a finance blog, so I’ll be brief on gold.
Let me urge you to subscribe to Richard Russell’s financial newsletter — or see if you can get access to it at work.
Take a look at the most recent issue and the chart showing value of gold relative to the Dow for the past 20 years. It’s eye-popping.
The purcahsing power of the Dow has been plunging while the past ten years while the purchasing power of gold has been climbing.
And utlimately what people care about is the purchasing power of their money.
On Switzerland– it’s never been a model for what we’re looking for in the U.S. It’s the second most expensive health care system in the world (after the U.S.) The Swiss way over-pay for drugs (Pharma is a major industry, with much power.)
And the Swiss have many fewer low-income and lower-middle-class citizens than we do. So the cost of universal coverage is lower.
Despite that, Swiss citizens are expected to pay 10% of their gross income for heatlhcare before getting any help from the government.
Most U.S. individuals earning $60,000 to $100,00 a year would be shocked if told that they had to pay $6,000 to $10,000 a year for individual health insurance — with no help from an employer, and no tax deduction.
Barry–
I don’t care if gold doesn’t pay dividends if it is payiong me 200% over 10 years in capital appreciation.
If the price begins to drop,I can begin selling off. This is not hard. And a commodity like gold does not plunge all at once. (By contrast, a stock might plunge 30% in a day or two on terrible news.)
The supply-demand equation for gold does not change that quicly. (I’m assumign that person has most of their money invested in gold itself, not gold mines, which are much more volatile.)
If you watch the price of gold, you have time to take profits as it slides.
And no one has to pay storage costs: they can buy a mutual fund that puts much of its money in gold itself (rather than mines) as I do, or they can invest in GLD (here, they are buying buillion, not mines–and not taking hte risks involved with mining companies–accidents, natural disasters, strikes, etc.
David-
Thank you–and thanks for sending the link to your post on THCB.
I read it, and agree.
I urge HeatlhBeat readers to take a look at it!
To all readers–
It occurs to me that in
my conversation with Barry about Gold, I may seem to be endorsing gold as an investment.
I’m not. I would Not encourage most individuals to buy gold unless they have an experienced financial advisor who approves the choice–and is watching gold.
As it happens, Barry is a professional pension fund manger and I used gold simply to make the argument that individuals need pensions; they don’t have the knowledge, training, time, experience or temperament to diversify into investments like gold.
Maggie –
Switzerland is a country with only 7.8 million people, smaller than quite a few of our states. That said, I think the general structure of their healthcare and health insurance system is the best fit with our culture if we were to try to change our employer based health insurance system (for the under 65 population) in a material way. The Swiss use private insurers, though they’re not allowed to make profits except from the sale of supplemental plans. They negotiate with providers as a group so they all pay the same price for a given service, test or procedure in a given canton. There are no public payers, even for the elderly. A significant percentage of hospital operating costs are paid with general tax revenue as opposed to insurance premiums. Moreover, while they have fewer poor people than we do relative to their population, about 30%-40% of the people there qualify for a health insurance subsidy. As of 2010, average monthly health insurance premiums in CHF per person, which vary considerably by canton, were as follows: age 26 and over, 351; age 19-25, 293; and age 0-18, 84. Deductibles can range from 300 to 2,500 CHF. What they have that we don’t is universal coverage. As you say, they spend the 2nd most as a percentage of GDP of any country but they’re at 5 percentage points of GDP below the U.S. We would probably consider it a huge victory if we could get our healthcare spending down to 15% of GDP and sustain it there.
I won’t say anything further on gold.