Stay Tuned... this is just starting

September 3, 2009 Edition, Volume III

Inside Signature Update

- Stay Tuned… this is just starting
- Just What Are We Reforming - part two


Stay Tuned… this is just staring: Markets Rally on Jobs Report

The US Department of Labor reported an increase in the national unemployment rate to 9.7% early Friday morning in spite of lower than expected job losses… and the US stock market rallied. In fact, the markets have posted gains in the face of every Jobs Report since early February, regardless of what those reports revealed. Why?

It’s not because the market welcomes unemployment. The 9.7% figure was worse than expected and surprised many investors and economists, who had expected a figure closer to 9.5% (the rate coming into Friday morning had been 9.4%). But the rate was also better than feared, and that’s the point.

Even though the economy has begun to stabilize and markets have dramatically improved, there’s enough lingering fear that investors breathe a sigh of relief in the face of a certainty, even if it’s less than had been expected. Remember, the markets disdain uncertainty more than nearly anything else.

We continue to face uncertainty in the credit and labor markets, and both are critical to economic recovery. Manufacturing is up, personal incomes have risen slightly, inventories continue to decline and have yet to be replenished (suggesting the likelihood of further gains in manufacturing), and real estate prices and volumes have improved.

With these trends in the economy, we expect unemployment will continue to increase towards 10%, but likely won’t breach that number. We also look for GDP growth in the 3rd and 4th quarters of 2009, extending to meaningful gains in 2010. As the stock markets are forward looking indicators of future economic performance, we expect moderate gains through the end of 2009 extending to more impressive returns in 2010.

Stay tuned… this is just starting.

Just What Are We Reforming – part two

The debate surrounding healthcare reform may seem to have quieted down over the last week or two, but believe me, it’s just getting started. With the passing of Senator Edward Kennedy (D-MASS), some expect the initiative’s proponents are fired up and will attempt to push inadequate legislation through in an effort to get something done. Others recognize that one of universal healthcare’s fiercest advocates is now gone and with him went critical support. Regardless, the changes to current proposals have been more than anyone can keep up with as legislative leaders shift left and right in an attempt to maintain the support of a frustrated electorate. Most objective observers now believe the existing plans have little more than a faint chance of becoming law.

A side-by-side comparison of the major health care reform proposals is available through the Kaiser Family Foundation’s website (www.kff.org). While each proposal has some merit, none deal with only the important issues. Rather, each reflects the personal agenda of their backers, and the byproduct is a group of inefficient, bloated and unacceptable proposals lacking focused articulation of the most important issues of choice, accountability and expectation.

Of the current legislative proposals, the Wyden-Bennett Healthy Americans Act sponsored by Senators Ron Wyden (D-OR) and Robert Bennett (R-UT) appears to have the best handle on these issues. It is far from perfect, and does not enjoy broad bipartisan support, but merits consideration.

In Part One I stated that healthcare is our opportunity, our privilege, perhaps even our blessing, but it is not our right. Some readers of Signature Update have expressed disagreement by including quality healthcare as a facet of our right to ‘life, liberty, and the pursuit of happiness’. I see their point, but can’t help but return to my original position. Perhaps we can agree that we should all enjoy the right to make our own healthcare decisions, the right to be responsible for the choices we make, and the right to be accountable in light of our expectations of our healthcare system. I should add that it may also be the responsibility of those with greater resources to help provide for those who are less fortunate. Likewise, it is the responsibility of those who have sufficient resources to access healthcare responsibly and not become a burden to the system.

As a society we are already funding the healthcare needs of the poor and elderly, but in many cases we’re doing so in a terribly inefficient manner. Redirecting those resources towards medical insurance specifically designed to cover this part of our population may well be more efficient than dispersing it based on crises. Offering a medical safety net for those unable to care for themselves, not unlike welfare or Social Security, seems to not only be the socially responsible choice but also the fiscally responsible option. Medicare is this type of program; it isn’t handled through a ‘public option’, rather it’s open to the healthcare market at large and is as successful a federal program as one can point to.

Choice is an important issue in this debate. It may be expensive, even a luxury at times, but consumers demand it repeatedly. We hold tightly to our right to choose, even though we often don’t take full advantage of it. The proposed ‘public option’ holds little likelihood of expanding choice and would curtail consumer opportunities to choose, as federal funding of the option would drive out existing insurers unable to compete with the federal capital pumped into the option. The open market has driven choice as a key element of many programs and has passed the cost on to consumers, either directly or through their employers. The ‘public option’ will ultimately limit choice and then pass the disadvantages onto consumers with few options.

Among the rationale supporting the opportunity to make our own healthcare choices is our need to have responsibility and accountability. Our society has so encouraged us to be taken care of, rather than to be personally responsible, that we verge on overt irresponsibility. In decades past consumers weren’t pandered to as they are now. President Obama’s victory last fall was largely due to the millions who expected he would step in and take care of them; many of these same voters are those who have now turned against him in the public opinion polls out of a sense of disappointment, discouragement, or worse.

This mentality has overwhelmed our nation’s healthcare providers. Many who are unwilling to consider the real cost of their lifestyle and care simply go to the emergency room when they could have sought primary physician care; had they prepared for it. Others accept any treatment offered, regardless of the cost or likelihood of proposed benefit. And yet others look for outcomes that are unrealistic, which consumers have come to commonly expect ‘medicine as miracle’.

The pressures on the medical community as a byproduct of these expectations and lack of personal responsibility/accountability are enormous and the costs born by insurers have accelerated at an unexpected pace. When consumers are required to see the real expense of their health care, even if they’re not paying these expenses directly, and are expected to share in the burden, whether through better planning, prevention, or direct fiscal responsibility, then the system will be prepared to provide for those who want, and are willing to accept, the outcome of excellent care and all it entails.

Over the years I’ve become a believer in High-Deductable Insurance plans accompanied by well funded Health Savings Accounts (HSA). For those not familiar with how these work we can look at a simple example: John and Mary have an insurance plan that has a $2,500 deductable; in other words, they need to pay the first $2,500 of expense before the insurance covers anything. If the plan is accompanied by an HSA, the funds in the HSA can be drawn on to pay the deductable. Funds accumulated in the HSA can be used for any qualifying medical expense such as eyeglasses, prescriptions, co-pays, dental work, etc. If the consumer has contributed funds to the HSA, they have done so on a pre-tax basis, similar to making contributions to retirement accounts. This gives the consumer the opportunity to scrutinize their health care costs, make sure they know what they’re paying and why, and it allows them to feel as though they’re personally invested, even if they didn’t contribute to the HSA directly.

I’m not advocating that all consumers be responsible to fund the HSA themselves. If there is an employer sponsored plan, or a plan funded with state or federal resources, then it can still be a high deductable plan with an amount being credited to the HSA by the body underwriting the program. If a consumer wants a co-pay for routine visits, then I’m supportive of that, as long as the consumer gets to see the cost of this added convenience and choose it just as we choose accessories on other consumer items. I feel the same way about prescription, dental, eye care plans, etc.

The point here is to allow the consumer to see the fiscal impact of their choices. If we see where our dollars are going, we’re more likely to make efficient choices. If we see the impact of those choices on the balance in an HSA, we’ll be more likely to seek better value in our health care choices, especially if we can also see that a growing balance provides some form of future personal benefit.

So many are willing to turn their healthcare choices completely over to others, and as a byproduct they end up with care that neither meets their needs nor is cost effective. Choice, accountability and responsible expectation are crucial to a successful reformation of our health care system and we simply mustn’t accept anything less.

In an effort to reduce needless cost from the healthcare system, we must advocate specific limits to the liabilities the medical community faces when treating a patient. There are established formulae on which awards can be offered when a physician is found negligent or has made a mistake and these need to be adopted through regulation. They are fair and reasonable, but can in no way make up for emotional suffering; but neither can any amount even the most generous court or jury could provide. These changes would reform the legal process as it pertains to medical liability and substantially reduce liability costs for all in the medical community.

Speaking from a purely economic point of view, the best outcome in this process is one that will limit excess, create surplus and allow for responsible competition while promoting choice. These aren’t hallmarks of government programs of any kind and when dealing with an issue that touches so many lives it’s difficult to keep legislative programs at bay. There is a place for regulation and oversight to keep the healthcare industry safe for consumers and within the bounds of the law, but there ought not to be a place for the government to make our healthcare choices for us.

The medical community must be bound to a standard of care that is both reasonable and responsible, which takes into consideration technological advancements and their costs, and weighs them against the benefit they offer. Those expecting a higher standard of care must be expected to pay for it rather than transferring the cost of low probability procedures to insurers and their broad base of insureds.

Too often tests and procedures are entered into based on a thin possibility of success, but at a high cost. Often times these procedures are performed at specialty hospitals or clinics which only deal with treatments and procedures that are more profitable for the care providers, leaving local hospitals and clinics to provide lower margin care or care for all who seek it regardless of their ability to pay. This needs to change for the benefit of the consumer who may be subjected to low probability treatments, for the benefit of insurers required to pay for costs which may be higher than necessary, and the benefit of a healthcare system required to offer medical treatment even when it isn’t profitable.

Additional solutions to problems in our current healthcare system include providing incentives for those who invest in their own health, providing for ongoing research into the treatment and eradication of diseases, and continued education designed to assist consumers in making choices when it comes to their health and healthcare. Consumers must be allowed to have medical insurance they can take from one job to another and the way in which pre-existing conditions are currently handled must change to meet the needs of a social economy in which mobility has become key.

As consumers we need to expect access to healthcare at costs representative of the level of care we’re receiving. We should take upon ourselves the responsibility to participate in healthcare decisions and understand the real costs and likely benefits of any course of treatment. We should expect to always have access to care as a privilege and treat it as such rather than projecting unreasonable expectations on our system of care providers. Only then will consumers, employers and policy makers be able to enjoy a cost efficient, responsible and excellent healthcare system.



Signature Update is offered by Richard Haskell, Managing Director of Signature Wealth Management and CEO of Signature Management, LLC