MANAGING UNEMPLOYMENT: IS THERE A BETTER WAY?

By Tom Brown

We can handle short term unemployment pretty well.  In most of the states of the US we give 3 to 6 months, depending on the state, of payments based on the individual’s previous wages and number of months worked, up to a limit per week.  We hope that the individual finds work before the benefits run out.  We often supply listings of available jobs, as supplied by area employers.

This works well enough when there are jobs in the same occupation and skill level of the person that becomes unemployed.

We do not handle longer term unemployment well at all.  For example:

--a person no longer employable in his former occupation or skill because there are no jobs in that occupation, or because the person has aged out or the person does not have up to date skills will not find a job.

--when jobs in the skill area are available in another region distant from the area where the unemployed person lives, the person will not get the job unless the person is aware of the opening and moves.

--the unemployed person that needs retraining to possess employable skills must be able to cover the cost of the training to get the job.

Clearly the idea of simply paying a weekly amount to an individual who cannot quickly find nearby work is almost useless.  You are not assisting the individual in re-employment, you are only assisting the person in short term survival.

And these cases are going to grow because of changes to our employment market. Some examples:

First, our economy is going to using more high-skilled service employees.  Health care is but one of many examples.

Second, our manufacturing industries are going to require more highly trained, highly skilled people.

--low skilled assembly lines are less important

--custom-manufacturing using high skills is becoming more important, for example advanced welding or even good general mechanical skills

--maintenance of equipment is increasingly complex and technical

Third our communication, entertainment and advertising industries are changing significantly.

--printing is less important and what is left is highly computer oriented.

--print advertising is being replace by on line advertising which uses a different more technical skill set to produce it.

--computer applications are everyplace including on mobile telephones.

But society has an obligation to help every individual contribute to the economy for the good of everyone.

So what can we do?

We can encourage and help an unemployed person to make a career assessment.

--are there jobs in my field?

--are my skills and current physical and mental capabilities such that I can get one of the available jobs?

--if I cannot get one of the available jobs, what are my options?

--what help do I need to become re-employed? Do I need training, relocation, therapy or medical treatment?

--if I am not employable, how do I get welfare or disability assistance?

--if I need training, relocation or medical treatment, what help can I get?

Probably the career assessment could be accomplished with state employment offices, or there could be a private career counselling opportunity.

We can also set up programs to help with the costs of training relocation or treatments and living expense while in these programs. But help with costs needs to be a sharing proposition.

The individual needs to share in the costs by involving family members in assistance and personally converting assets to cash and agreeing to repay loans…..and saving for difficult times!

Employers need to share in the cost by offering, conducting or funding training, including a share of living expense.

Government probably needs to share in the cost by handling the administration of the program and  perhaps providing some of the living and relocation expense and by allowing use of Health Savings or 401K/IRA funds for employment related needs.

Additionally government needs to pull together a total picture of current needs, trends and future needs for employers, employees and taxpayers.

We need to be in the position of anticipating and preparing for employment and re-employment needs, even anticipating downturns.

It is less useful to react after a downturn, labor surplus or labor shortage happens than before it happens.

It is interesting what other countries are doing.

Germany has a well-developed apprentice program for training skilled workers.

Singapore has reinvented its workforce several times, as it moved from, shop factories to low skilled assembly and to electronics.  They are possibly the most proactive.

For us in the United States, I do not view this as a start of another entitlement from the federal government.

I do view this as an opportunity for political leadership, or even executive orders for existing agencies to participate; maybe even an opportunity for foundation grants to individuals for career assistance

WHAT ROMNEY SHOULD HAVE SAID II-- SOME SOLUTIONS

by Tom Brown

We must start the discussion by saying what we cannot do; namely rely on new programs, financed by tax increases on high income people, to spend our way out of our problems.  There are not enough high income people, and even if there were for this year’s issues, this wouldn’t work on a continuing basis as costs continued to grow.

It is clear from the new demographics that there are not enough people that would vote for a purely conservative approach, even if it would work.

Presumably all of us would vote for a more efficient caring government responsive to a broad range of issues deemed important to most demographic groups.  Here would be my priorities.

Regarding employment:

1.      Make retraining a requirement to receive extended unemployment benefits.

2.      Try to minimize what an employer must pay above and beyond a basic wage or salary, such as unemployment insurance, social security or health insurance so it is easy and cheap to hire people.  Taxes and benefits should be the responsibility of the individual but forgiven (in the case of taxes) or accrued (in the case of insurance or retirement) when the individual is unemployed.

3.      Make vocational training available at the secondary school level, as an alternative to college preparation.

4.      Make any federal school aid dependent on test scores and improvements realized so that we are promoting and graduating many more students that meet standards for their grade level

Regarding immigration:

1.      There must be a path to a work visa and later to citizenship that exacts a one time penalty for being here illegally that is high enough discourage future illegals, but reduces the number of undocumented illegal immigrants.

2.      There must be sufficient temporary and seasonal  work visas for needed unskilled and semiskilled workers.

3.      There must be better policing of professional work visas to prevent abuse and allowing foreigners to take jobs that young people should be training for and getting.

4.      We must take politics out of immigration and work visa quotas, by having congress write the principles and the INS to do the numbers.

Regarding government’s contribution to the cost of living:

1.      Justify all government services on a cost versus benefits basis.

2.      Privatize services where appropriate in a way that access is not impeded and fraud on the part of the public and providers can be kept low.  Health insurance and road plowing are examples.

3.      Minimum wage must follow inflation, at least on a lagging basis, so as to be understood by the public as contributing to being able to earn a living wage.  We must understand and accept that there will be some impact on low level jobs.

4.      Any regulation, existing or proposed, must be justified on the basis that the harm it would avoid is significantly greater (say 100x) than the effect on the cost of living plus the cost of establishing  the regulation plus the ongoing cost of enforcing the regulation

Regarding health care:

1.      Go to two levels of care for all.  Basic which uses proven cost effective practices and efficient delivery systems, available to all on a subsidized basis with the subsidy depending on income. Advanced which is private where the delivery system and practices followed are as agreed between the policyholder and the insurance provider and not subsidized by the government. A board of experts is to determine on an ongoing basis what constitutes basic care.

2.      More effort to identify what works, especially with analysis of electronic medical records on an anonymous basis.

3.      It should be noted that some of the Obama care program is valid certainly including the requirement that all people should have insurance.  This concept would accomplish this in another way.

4.      It is also important to note that a health savings account and catastrophic insurance, with a deductible equal to the health savings account balance at the policy anniversary should be an acceptable way of meeting the requirement of being insured.

Regarding the tax code:

1.      We should move to a highly simplified tax code with one or two progressive rates and few if any tax deferrals, exemptions and deductions.

2.      We should strive for very low corporate taxes.

3.      A minimum tax might be considered but might not be necessary with low rates and almost no deductions and exemptions.

4.      We could also use the alternate minimum tax concept to simplify taxes.  And in any case tax revenue analysis must take it into account.

Regarding retirement:

1.      All pension contributions from a company or government agency must be placed in a trust account in the year earned.

2.      Retirement age must be increased based on current life expectancy; savings must be increased by removing IRA contribution limits.

Regarding infrastructure:

We need to catalog and prioritize infrastructure that serves interstate commerce.  We should pay for it partially with an increased fuel tax and partially through eliminating ‘pork barrel’ projects.

Otherwise infrastructure must be a state and local issue.

Regarding the balanced budget:

We must remember that we are now inflicting a horrible financial burden on our children, grandchildren and beyond by having a budget deficit.

We need spending cuts to balance the budget within 5 to 10 years.  Maybe 8 years for political reasons.

We need a temporary revenue increase to reduce the deficit and finance the transition over a 5 to 10 year period.

The spending cuts need to be thought out and carefully studied to minimize the impact on citizens.

As an example, we cannot simply cut Medicare reimbursement rates.  We need to establish qualifying criteria for a given treatment and establish treatment protocols so that only the lowest cost effective treatment is allowed.  This must be coupled with changes in how the treatment is delivered to further lower costs.

We probably need to negotiate reimbursed drug costs; we have high costs on branded costs the in some cases subsidize the cost of drugs to other countries.  It would not necessarily hurt to have reduced drug research; we have a lot of “me too” drugs.

Regarding efficient government:

1.      We cannot pay people who are not working except for a relatively brief period.  Some of what is now extended unemployment could possibly be spent on retraining the unemployed for available jobs.

2.      We cannot guarantee home loans for people who cannot get them in normal private channels, as there are big risks of downstream defaults guaranteed by the taxpayers.

 

WHAT ROMNEY SHOULD HAVE SAID I -- THE PROBLEMS

by Tom Brown

We do not have enough people employed and will not unless we change course.  The present system of government investments, bailouts and unemployment insurance is not working.  It is especially disheartening that the massive alternative energy investments have not worked, yet have consumed precious taxpayer dollars.

We have a lot of unemployed and marginally employed people, often with skills that do not match the needs of the job market.

We have an education system that often does not train our children on the basics as measured by test scores.  Nor does the education system help the children sort out whether college is right for them or if they should pursue a job skill directly.  Needless to say college is very costly and, for most, unaffordable without financial assistance and loans.

We have a large number of illegal immigrants, some with citizen children, that cannot or will not go back to their home country for a variety of reasons.  We also have a dysfunctional immigration system for legal immigration.  Adding to this there have been some border protection and immigration scandals that the present administration has not been able to fix.

We have an extremely high cost of living with many people that cannot afford health care (or health insurance) because it is so expensive.  And we are spending perhaps 50 to 75% more than other developed countries without more results.

We have a retirement system that is underfunded for both social security and private pensions.

The public sector for now is the most generous, but is the most underfunded and may not be the most generous for long.

The private sector has some generous retirement programs, but most people in the private sector have little or no benefits beyond Social Security and Medicare both of which are going broke, Medicare being in the worst shape.  And if payroll taxes are not collected, Medicare and Social Security go broke faster. It should be understood that these programs rely on the general fund subsidizing them for the deficit in payroll tax collections.

Our infrastructure is crumbling and is not being generally repaired or replaced.

When you add federal, state and local taxes together, our taxes are as high for most as in other countries, but we are not getting the mix of services that we need most. Yet we are spending nearly 1/3 more than we are collecting on government services.

We have a tax code full of loopholes, preferential rates and exemptions that is making it difficult to raise sufficient revenues without hurting taxpayers who do not have access to these loopholes.

Besides, it is clear that we cannot simply add spending or tax our way out of this. We need to make government much more efficient and tuned more to our real needs and priorities, which would include some economically efficient stimulus in the short range.

Sorting through this requires hands on leadership and compromises between the political parties

 

THE REAL COST OF HEALTHCARE

By Tom Brown

 

In the United States we are approaching 20% of GDP spent on healthcare.  This is the greatest in the world; double what many developed countries are spending, with no worse life outcomes.

It is too much! And it is growing faster than the economy.

It is highly significant for people with middle class incomes or less, and not simply a chosen expenditure.

Employees only pay a portion of their insurance costs yet they often decline to take insurance for themselves or for their dependents.

Clearly health insurance adds to the cost per employee, more so than employment taxes, and it is reducing hiring.

It definitely adds to the cost of living even if the employee doesn’t buy the employer offered insurance, since the public sector pays for necessary health care for the uninsured, or it is somehow paid for as more costly deferred care.

And it definitely adds to the cost of products we make and services we offer, so we are less competitive on a global basis. And it adds to our public budget to support insurance for seniors, poor people and veterans.

We must reduce it

Obama care will not reduce health care costs sufficiently, or perhaps at all.

Offering health insurance to all will not reduce health care costs even considering reducing future health care costs of an individual because of preventive care according to reported Medicare studies on the effect of preventive care.

Reducing health care costs significantly means changing the system for:

--greater use of clinics where a cheaper person than the is the first contact of the patient

--greater use of generic drugs

--less defensive medicine including imaging and lab work

--pre-approval for non-emergency treatment and drugs, where the payer looks at the patient’s overall health, life prognosis and treatment history

--use of treatments and drugs with the lowest calculated cost benefit

--giving everybody a financial incentive to minimize their health care costs

--giving everybody an incentive to have a healthy lifestyle

--the end of group insurance, where some people pay too much and others too little, and the ones paying too much do not know

Obviously there will always be individuals who can afford to pay for costly treatments or what is called concierge care themselves or to pay extra for insurance to do so.

Ideally the individual will choose his insurance trading off copays and maximum out of pocket costs and HMO network coverage versus using any provider and even tax deductibilty.

In that sense, private insurance companies would seem to be a good way of creating a variety of offerings for this transition.

Also it would seem valid to allow an individual’s dedicated health savings to reduce that individual’s insurance cost by matching the deductible to the savings amount at the beginning of each year, and charging accordingly.

It is clear that this is not simply a discussion about Medicare. It is about health insurance for corporate employees, poor people, working families, self-employed people, veterans and retirees. Most, by the way get subsidized health insurance, including a tax subsidy.

All health care costs must come down.

Everybody should have some access to health care.  All tax subsidized health insurance including insurance offered employees and company retirees should operate with the same rules and principles.

No one should be advantaged or disadvantaged by the size of their employer, and whether they are full time, part time or self-employed.

Finally, no one should be able to game the system by not being insured. You need to have minimum insurance yourself or pay a tax to have access to a high risk uninsured individual insurance program to insure that need treatment will be paid for.

A PHYSICIAN'S VIEW OF HEALTH CARE

By Tom Brown

On May 19, 2010, Dr. Basil Papaharis, President and Managing Director Soundview Associates, gave a presentation to the Wilton, CT Lunch Bunch on a Physicians View of the Health Care System.   I have added a few comments where I thought it appropriate,
As he said, we have a broken or at least very inefficient system, since we:
spend 17% of GDP on health care in the US.  This is roughly double what other developed countries spend. 

Yet we have a worse outcome if you compare life span and infant mortality,
have a greater incidence of curable disease than other developed countries,

spend 50 to 90% in the last months of an individual's life, raising the argument that we spend too much on terminal patients and

spend 25 to 50% on treatments that are unnecessary or more costly than other equally effective available treatments.

To understand this you need to know and understand the principal players in healthcare, namely the patients, providers, drug companies, insurance companies and the government.

To begin with the patients....

They are overweight, in many cases morbidly obese.  That in itself leads to many cases of diabetes, cardiovascular disease, cancer and joint replacements.  And they smoke.

They are demanding of medicines for everything, especially when insurance pays.  There is an unintended consequence that Medicare patients do not take their medicine during the coverage gap from the drug payment plans and suffer or worsen accordingly.

But ironically they are resistant to taking vaccines, which leads to a resurgence of diseases thought to be eradicated.

Then the providers...

There are of course specialists and primary care providers as well as hospitals. There are 3 to 4 specialists for every primary care provider, which is the reverse of most other developed countries.  Specialists apply the state of the art from their specialty to the patients.  Primary care doctors, for the most part, successfully, try to recommend the most cost effective remedies and preventive practices or treatments for their patients.

There is lots of excessive, expensive imaging, recommended for defensive reasons, and certainly for profit when the emergency room is involved.

There is no standard of treatment for a given condition and each physician does his or her own thing.

It should be said in passing that hospitals are required to 'stabilize' all persons needing treatment, irrespective of their ability to pay.  The effect of this on total health costs is not known, except that it is one of the reasons that hospitals charge private patients, including those with private health insurance more than is ultimately received from public reimbursement for the uninsured, Medicaid and Medicare.

And the drug companies...

They have very high R&D costs, often on new substitutes for old treatments.  They have 21 years of patent protection on new drugs during which time they can charge what the market will bear.  It is well known that prices vary by country. There are obviously some miracle drugs and cures thanks to drug companies. 

The approval processes that they are subject to are certainly arduous, but seemingly most oriented to not harming people, somewhat oriented to helping at least some cases and not really concerned whether a treatment is really worth it to society.

Then come the insurance companies...

People that are not retired and also working usually have insurance with a private company.   That company has priced its program to each company according to the age mix of its employees rates it has negotiated with providers and services that are mandated or that its employees want.   Such programs are tax deductible so that they are government subsidized.  Companies have good risk pools for the insurance companies with mostly healthy people and a mix of ages below retirement age.

People that are self employed or unemployed have difficulty getting individual insurance as they are of unknown risk at best or high risk.  They would like to buy insurance only after they need it.  They are not good business for the insurance companies

There is also insurance for Medicare recipients which is partially paid for by a subsidy from Medicare.
Insurance companies want to not pay claims.

And the government.

State governments regulate insurance companies and run the Medicaid programs in their state to meet federal standards.  Medicaid is the mostly free health insurance for very poor people.  It is very costly and growing as medical costs grow and the population of poor people increases.  It is co-funded by state and federal governments.

The federal government besides setting standards and co-funding Medicaid, runs the Medicare program.  Medicare is available to all people at age 65.  It is very costly and growing as medical costs grow and the population of retired people grows.  It is commonly believed to be funded by payroll taxes, but in fact only the hospital care is so funded in part by payroll taxes and the other parts are funded in part by Medicare recipients.  The balance comes from the general fund of the federal government and relatively small copays by recipients.  Provider reimbursement for Medicare recipients is mandated by the government at very low levels.  Probably the "squeeze" is ill advised as a cost control.

And finally the lawyers.

Lawsuits are an issue, but hardly the biggest issue. And in the view of Dr P, the main issues are punitive damages and jury trials, both being relatively easy to correct.

Another issue out there is medical records.  Electronic medical records are useful but not the biggest issue. Ironically there are several providers of the software and they are incompatible with each other without software translators.  Dr P's firm has a system best for them but not compatible with the local hospital.

So there are lots of things wrong

Obama care has possibly solved some problems and created others.

--it has dealt with the right of access

--it has dealt with the donut hole in Medicare drug plans

--it will exacerbate the shortage of primary care doctors

--it will sharply increase demand and do almost nothing to reduce costs

These are the major issues in the view of Dr. P, but shared by most I'd think.

--we need to get many more primary care providers and reverse the ratio of primary care to specialist

--we need to get comprehensive treatment guidelines that work and have a reasonable cost

--we need buy in to care for terminal patients to emphasize comfort not cure

--we need to lower costs for people that do not pay for their care, like Medicaid, or want to pay less for it

I'd add that:

--We need to seriously limit use of any tax favored funds, including, presently, insurance premiums for expensive or less justified procedures that cannot be made available to the general public. Obviously, anybody has the right to use their own funds to buy any treatment they want and can get providers to furnish.

--A recent NY Times op-ed piece by a medical professor and cardiologist cited estimates that Medicare spending on unnecessary, ineffective or unjustified procedures is 75 to 150 billion per year!  The professor said that this cannot be fixed except by some sort of preauthorization that looks at the patients overall health and prior treatments.

National Deficit Reduction

(a presentation to the Wilton Lunch Bunch, a leading edge Connecticut discussion group on Jan 20, 2011)

I was attracted to an article about the US National Deficit and how to reduce it published in the Sunday NY Times in November 2010.  http://graphics8.nytimes.com/packages/pdf/weekinreview/20101114-deficit-graphic.pdf

It offered modules of cost or revenue that could be moved up or down to accomplish the reduction. It also gave a target of 1.345 trillion that needed to be cut by 2020. My colleagues in the group were sufficiently impressed to invite me to present it to the group in January 2011 along with my analysis of what to do.

My remarks.

We are looking at a 1.345 trillion per year deficit.
It must be dealt with or it will get worse.   Think Greece!

I submit that congress does not do this well, so we have to be able to do better. After all, congress lacks the political courage, its solutions always create unintended consequences and it always seems entangled with special interests.

There was a presidential commission appointed by President Obama that created a starting point. Then the NY Times created  a work sheet from their numbers.

The worksheet is being used today for the presentation, obviously with caveats:
--it must be an incomplete list
--some of the savings claims may not be correct
--there are lead times to start up or close down any initiative

Yet it is good enough to start our work.

I will explain what I did and why, then you can make comments and ask questions.

The approach I took:
1.    Look for items with real, net savings
2.    Look for big items
3.    Try and eliminate unproductive costs such as tax deductions and subsidies
4.    Avoid increasing taxes except to right a wrong

Well, I actually reached 1.47 trillion, more that was said to be required.
--no farm subsidies saved 15bn
--10% less federal emps saved 15bn
--canceling or delaying weapons programs saved 20bn
--less nuclear weapons saved 40bn
--speeding up troop withdrawals from the middle east down to 60000 by 2015 saved 150bn
--medical malpractice reform saved 15bn
--having Medicare start at age 70 saved 105 bn
--cap Medicare growth at GDP growth + 1% by restructuring saved 560bn
--tighten the eligibility for social security disability saved 15bn
--slow the growth of initial Social Security payment for top earners saves 55bn
--slow annual Social Security increases with a new inflation calculation based on wages saves 80bn
--having full social security benefits start at 70 saves 245bn
--reducing the tax deduction for (employer) health insurance saves 155bn

My conclusions:
--it wasn't so hard
--it must be done carefully.  We do need a military and a safety net
--taxes on business per employee should be avoided.  They increased the cost of employees and the cost of doing business
--little things alone will not make it

Of course there were concerns raised.  Family farmers?  I think most farm subsidies go to corporate farming.  Kill corporate health insurance?  I think they hide issues in that they pull out of the population and cover mostly healthy people leaving sick people on their own.

For the record, the list of cuts I chose from was prepared by a bipartisan commission to reduce the deficit The sides agreed in advance that significant military cuts and repeal of  Obama Health Care would be off the table.

The following spending cuts were identified. Figures in billions per year.
--15 eliminate farm subsidies*
--15 cut foreign aid in half
--15 eliminate earmarks
--15 reduce federal workforce by 10%*
--15 cut 250,000 government contractors
--15 cut civilian worker pay by 5%
--20 cancel or delay some weapons programs*
--25 reduce navy and air force fleets
--40 reduce nuclear arsenal and space-based missile spening*
--50 reduce active military personnel by 200,000 to 1.3 million
--50 reduce non-combat military compensation and overhead
--150 speed up withdrawal of troops from Iraq and Afghanistan*
--15 medical malpractice reform*
--105 increase Medicare starting age from 65 to 70*
--560 cap Medicare growth at gdp  +1%*
--15 tighten eligibility for social security disability*
--55 reduce growth rate of social security benefits for high income earners*
--80 use alternate inflation measure to slow annual social security increases*
--245 raise social security retirement age to 70 from 67*
--20 to 105 exempt only first 5 million (or 3.5 million or 1 million) of estate from taxation
--25 or 45 raise capital gains and dividends tax on high income (or all) households
--95 make surtax on income above 1 million
--100 raise wage ceiling on social security tax base
--155 reduce tax deduction  on employer health insurance*
--115 to 250 let Bush tax cuts expire for above 250,000 income (or all)
--55 reduce home mortgage tax deduction
--175 to 315 reduce individual and corporate tax breaks
--70 gradually increasing carbon tax
--105 risk tax on banks
--280 5% national sales tax

Others have made deficit reduction proposals that are beyond the scope of this discussion.