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Thoughts from the Frontline

The Healthcare Blues

February 27, 2013

It has been some time since we peeked into my worry closet. A few questions this weekend prompted me to think about things I am paying attention to but have not written about, and one thing that I am not worried about at all, despite the apparent media hysteria.

But first, a quick note. My tenth annual Strategic Investment Conference (May 1-3 in Carlsbad, California) seems to be filling up nicely. The speaker lineup is exceptional: Kyle Bass; Ian Bremmer; Mohamed El-Erian; Niall Ferguson and his wife, Ayaan Hirsi Ali; Lacy Hunt; Charles and Louis Gave; Jeff Gundlach; Anatole Kaletsky; David Rosenberg; Nouriel Roubini; and Gary Shilling.

Seriously, where else can you find a roster like that? And the attendee list has a who’s who” feel to it, as well. Those who come regularly know that the real value is in meeting the other attendees. David Rosenberg noted last year that this is the top investment conference he has ever addressed. The speakers all seem to bring their “A” game. The attendees agree, and this year we will have more interaction than ever.

The conference always sells out, and we offer an early-bird registration, which is about to run out. Because of security regulations, we do have to limit attendance to accredited investors and those in the securities/investment business. You can start the process by going to the Strategic Investment Conference page.

But before we go any further, did you know that you can now absorb Thoughts from the Frontline through your ears, if your eyes are otherwise occupied? That’s right – our new audio service delivers my weekly letter to your cellphone, iPod, MP3 player, or computer, whenever and wherever you choose. You can check it out right here.

And now, let’s peek into my worry closet.

On Being a Professional Worrier

I should note that I am a professional worrier. I get paid to think about what can affect our economy, finances, and investments. Over the years I have become quite good at it. But the sheer volume of things to worry about has grown so much that there is not enough time to worry about everything, so I have had to prioritize.

For instance, there was a…

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Phil Bock

March 15, 2013, 8:36 p.m.

What no one seems to be talking about in the healthcare debates is HOW we solve medical problems, and the associated impact on costs.  What are the cost implications of redundant prescription medications for the same problem?  Take high cholesterol for example. We are offered multiple, similar drugs from various competing drug companies, each spending buckets of money to make their product just different enough to avoid legal issues and more buckets of money to get consumers and their doctors to prescribe “their” version of the drug.  Who pays for all this duplication?  We all do.  Then there are the surgical “solutions”.  A friend’s pacemaker battery needed replacement.  He entered the hospital, had the problem fixed, stayed overnight and was released the next day.  His wife told my wife he was presented with an itemized bill for over $100K at check-out.  I have not seen the bill and as at least one other comment has noted there may be a justification for each charge on that bill.  But what incentive do doctors, hospitals and medical device manufacturers have to design products and procedures that are much more efficient and economical?  (In my friend’s case Medicare will assuredly pay much less than the $100K on the bill, but even so my question still stands.  And what would have happened to my friend and his family had he been younger, with little or no healthcare insurance? He would have been been facing collection efforts demanding the full $100K.)

Ernest M Kraus

March 4, 2013, 10:06 a.m.


I also have a worry closet which also revolves around my family; the only ones for which I can help.
A major cause of the cost of health care is the disease diagnosing technology that is so readily available in the United States. How many cardiac cath labs, MRI’s, CAT scans, PET scans, open heart surgery programs do you have in just Houston? Compare that to any major city in Canada or the United Kingdom which are the countries we are being asked to imitate. How long does one have to wait in one of those countries for one of those procedures? How about elective hip or knee replacement? You go on a waiting list. How about renal dialysis or a kidney transplant at a certain age? One is told it’s not an option. Need a dermatologist in one of those countries for a skin condition; good luck: go to your family doctor that may or may not know at what he is looking.
One may say there is excess cost in the system. So what do you do; get rid of the system? You now have the tail wagging the dog. Ration care? That will wake up the public.
And please, stop apologizing for being successful. How long did it take for you to get where you are?
I am still a registered pharmacist, although not practicing. The complaint about costs is not new. It was there when I graduated pharmacy school in 1958 and was probably there before that. The issue is the cost of development of new products. Be thankful for those innovations.
Ernest M. Kraus, R.Ph.
Woodbury, NJ

March 4, 2013, 8:38 a.m.

We need to separate the “health care system” and the “health insurance system” in discussions.

Health care is available, cutting edge, and can be costly.  Just as not everyone can afford to drive a Mercedes, or live in a 5000 square foot mansion, not everyone can afford as much of the best health care as they may want to have.

Health insurance has become a problem over the years because we no longer wish to take the risks our parents took.  My Dad had a $50 deductible in the early 1960s, which would be close to a $2000 deductible today, but getting clients interested in that level of deductible was nearly impossible until just the last few years.  By having low deductibles, people have overused the health care system.  How much hamburger or macaroni do you think you would eat if, after a $500 deductible each year, 80% of your groceries were paid for by someone else, and to top it off they would pay 100% once you spent $5000 per year for groceries.  There is no incentive to be a good consumer.

Hospitals and physicians come in for a portion of the blame, because they began to bill the third party payor (the insurance companies) rather than the patient.  Health care is a service, offered by a few, and the bills should be sent to those who use the service.  It should be no business of the care givers if I have contracted with a third party (the insurance company) to reimburse me for part of my costs, just as it is no business of the repairmen who fix other damaged property I may have.

I began pushing high deductibles on health insurance, with the difference in premiums going into a savings account, many years before the Archer MSA and later HSA became available.  Part of the problem was resistance on the part of the insurance companies to come out with high deductible polices, a problem mostly overcome today. 

HSA type accounts for everyone beginning at birth, and transferable to heirs, along with high deductible health insurance policies would solve most of the problems.

There will be people who resist becoming self reliant, and some who cannot afford as much coverage, or to save as much, as others.  Health insurance polices for “basic care”, stripped of the niceties forced upon the health insurance industry by various state regulators could be developed to make a basic level of coverage more available to the poor.

We need to return to “equality of opportunity” as our founding fathers meant, rather than “equality of outcome” as current politicians desire. 

There will never be “equality of outcome” as there will always be a “bottom quintile”, and as the Bible teaches us that “the poor will always be with us”.

Charles Bell

March 2, 2013, 3:46 a.m.

I always believed that insurance was a means of mitigating the costs and expenses that would be incurred if certain contingent events occurred. While this remains true of most insurance programs, it is not in the case of health insurance. We would never expect our auto or homeowners policy to cover the cost of maintenance costs—but we do expect our health insurance to do this.

To my way of thinking, the modern health plan has three key components: true insurance that covers unpredictable healthcare costs, a health maintenance plan, and negotiated rate structures. I’m comfortable with mandating universal access to true insurance and negotiated rate structures and participating in the related costs. I’m not comfortable with asking “the other guy” to continue paying for my lifetime supply of statins or paying for his lifetime supply of Cialis. To control costs, people must be responsible for managing their use of health resources. If I unexpectedly develop type two diabetes and refuse or am unable to exercise or control my diet, then after a reasonable period health insurance should cease paying or pay less for costs associated with the disease. If expert medical opinion says that annual mammograms or pst tests aren’t statistically justified, then health insurance shouldn’t pay for it. Let the patient decided whether not they are willing to bear the cost based on his or her own risk judgment.

For those of us that can afford it, such a system would be peachy. But, as a charitable society we should provide for those who can’t afford to pay. But charity has limits. We may be willing to expend our entire forture to care for one of our own, but should not be compelled to do so for “the other guy”. And, charity should carry a reasonable burden, perhaps by scheduling your CT scan at an incovenient time. So much of our medical infrastructure is unused and wasted after five or six o’clock.

I should note that as an employee I’ve provided legal advice to large corporations about their health plans, as a small employer I pay the annual premium increases for our employee health plan, and as a father I keep my daughter on my retiree health plan because she has scoliosis and has been turned down for health insurance because she might someday need back surgery. The system we have is nuts!

claudia driver

March 1, 2013, 5:22 a.m.

It seems the most important component of retirement planning may well be divorce. After that, prepare for an early jump to hospice care.

Feb. 28, 2013, 9:53 a.m.

From the article:  “The billing system is out of control: $1.50 for a 1.5-cent acetaminophen pill (Tylenol).”  I find that reasonable.  Let’s break it down.

A doctor who has at least 12 years of post high school education prescribed that pill.
A pharmacist that has at least 8 years of post HS education dispensed that pill.
A nurse that has two to four years of post high school education delivers the pill.
It is delivered to the patient in a semi private or private room that the patient will occupy for four to 48 hours. Where they will receive a bed to sleep in and meals.
Compare this to a baked potato that costs maybe $.25.  As part of a $20 entree, or as a side, the potato may cost the customer $5.  However….
A worker making minimum wage washes the potato,
A worker that may have some post high school education, although none is required, cooks the potato.
A minimum wage worker who works for tips delivers the potato.
The potato is delivered to the customer at a table that he will occupy for an hour or so.
And to top it all off, not only will the customer not complain about paying $5 for a $.25 potato, they will gladly add a 20% gratuity on top of it!!!!

Feb. 28, 2013, 8:29 a.m.

I teach microeconomics at a small, private 4-year college, and we spend some time every semester dealing with healthcare.  Although I am not an economist (engineering is my background), I am becoming more and more convinced that out-of-control health care costs are due primarily to the insurance structure.

My reasons:

1) Look at a health care market where insurance is almost never used: plastic surgery.  From 1992 to 2005, costs for plastic surgery rose about 22%, consumer prices rose about 39%, and health care costs rose about 70%.  When the person who is getting the treatment is also paying for ALL of it, it makes the market more competitive and transparent.

2) No other market is dominated by insurance payments (approximately 80% of the money paid for healthcare).  Insurance payments for car repair or home repair or any other significant insurance market is a small proportion of the overall market.

3) Ultimately, this is unintended consequences of government policies: wage & price controls in WWII and under Nixon led to a preponderance of employers providing health insurance, Medicare & Medicaid helped reinforce an insurance mentality on the health care market.  Look at the other large market where costs are rising much faster than inflation: higher education.  Why?  Student loans are government subsidized so that almost anyone can go to college.  When you get away from normal market forces, prices rise much faster than they otherwise would be able to in a competitive market.  (Public education also costs about 50% more per student, adjusted for inflation, that 15 years ago - where has that money gone?)

I don’t have any great solutions here - high-deductible health plans (for truly catastrophic health events) coupled with health savings accounts represent the best current option I see, but it won’t help much until we get away from most people/plans using insurance for health “maintenance.”  We don’t use insurance for oil changes in your car, house painting, or any other maintenance activities; why does insurance seem like a good model for health care (maintenance)?

Joe Goebel

Feb. 28, 2013, 4:31 a.m.

Two thoughts - one on the role of the individual, the other on the system.

Here is the 2011 OECD health statistics report:
A few highlights:  We are #1 in perceived health - Americans more than anyone see themselves as healthy, yet we rank below average on overall quality of health, are #2 in the world in type II diabetes and #1 in obesity.  We have some of the best technology, but on a per capita spend, we are a distant outlier to the rest of the OECD.  One word keeps coming to mind - GLUTTONY.  If you think things are fine while you stuff yourself, with a disconnect from reality to your current state, you have a big (no pun intended) problem.

I would also encourage John and the rest to read the following:  Unaccountable:  What Hospitals Won’t Tell You and How Transparency Can Revolutionize Health Care, by MARTY MAKARY, MD.  this is a great book by a bold Dr. who was warned that speaking the truth about health care would get him ostracized and ruin his career.  Turns out the opposite was true - many in the profession thanked him for being courageous enough to publish the truth - the true performance of doctors and hospitals is hidden and allows the system to remain incredibly inefficient, and worst of all, highly inconsistent for the user.  We DO have great health care, but not everywhere, all the time, and its not controlled by money, believe it or not.

on both fronts, America simply needs to get real and honest, humble and hungry again.  The same signs are in our financial health, and it all points to a mindset that needs renewal.  Sadly, this usually only happens through crisis.  Lets hope we can avoid the worst, and work together to change our trajectory.

Feb. 27, 2013, 9 p.m.

Let’s be clear: the US has the best medical care on the planet.

That’s simply not true.  On performance measures like life expectancy, infant mortality, and so forth, the US ranks right near the bottom of OECD comparison tables.

It’s possible that _rich_ people in the US have the best medical care on the planet, but I’d like to see some actual evidence for that.

Greg Fridholm

Feb. 27, 2013, 5:23 p.m.

“OK, let me generate a lot of negative comments with an example.”


“I find the belief that there is a ‘Plunge Protection Team’ simply bizarre.”

Why ‘believe’ anything?  Do the research:
Executive Order 12631—Working Group on Financial Markets

“You know, the guys who are supposed to control the stock market? The ‘Working Group on Financial Markets’? If there is one somewhere, deep in the bowels of government, they are the most incompetent conspirators ever assembled.

Ad hominem circumstantial and abusive?  Incompetent and conspiratorial?

“And no one has come forth and spilled the beans in a memoir after 25 years? Puh-leeze!”

Or did I miss the joke?

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