Healthcare in small chunks, part 3

How are WE paying for healthcare?

Some of the terms below (red plan, green plan) originated earlier in this series of healthcare posts. If you are not familiar, just jump back and check them out.

I could go uber policy wonk and dive into the federeal budget. But let's be real, the average person does not want that level of detail. Here's an extremely short version of health care cost savings from the White House. You can determine how much you believe the numbers and your interest level. Consequently, I wanted to think about funding health care in simpler terms. It's about money from inside the system and outside the system.

Inside money comes from cost savings based on things that we do within the healthcare system. If you used to buy a medicine for $3/pill and you now get it for $2/pill, there is a $1/pill cost savings. You multiply that by the number of these pills used in a year and that is your annual cost savings. The trick is to only count the real cost savings and not the fake ones. A fake one would be a savings of $1 per interoffice call if the price of the call truly stays inside of the hospital. If the cost savings does not show in a reduced cost from the phone company that provides the service, it is a false savings.

There is a lot of money to be saved inside the system. While I prefer that the government stay out of competitive, private industry things, when they do get involved, the Feds MUST get cost savings inside of the healthcare system based on the large quantities they control. This is true for medicines, medical tests, and all sorts of activities that support the basic (previously called red level plan) healthcare. The same is true for all of the current medicare & medicaid level healthcare.

Here is an example of how that inside savings can work for private companies. I need a medical test and for some reason get a 2nd opinion. Let's use the same information when possible instead of running the tests again. If the test are run again, let's have a follow up step to determine the value of the additional testing. If it is a low value test, the reimbursement for that testing is split--some to the testing organization and most to the red level fund. Now wasted tests are helping to pay for basic levels of healthcare. Either the testing becomes more efficient and effective or it helps to fund healthcare for those that cannot afford it. Either way, the system gets better.

One other area that could save money and improve healthcare in the long run is centralized patient information. Instead of relying on the memory of a sick person, let's put all of that healthcare information in a centralized place where medical professionals can access it. We would save money on record keeping. The severe downside is privacy and how the information might get (mis)used. If you want an extreme example, see the movie, Gattaca. You could let people opt out of the system, but they would be responsible for the storage, cost, and accuracy of their own records. No chance to sue the doctor who got the wrong medical information from you.

On the public side, few if any people want to pay more taxes. In reality, the people that have the most resources are probably least in need of healthcare reform. It is politically unpopular to put the burden of healthcare expenses on people with fewer funds. We often turn away from the fact that it is easier to get $1 from the average family than it is to get $1 million dollars from a rich person. There are only so many rich people to go around. How do we balance these concerns for a shared sacrifice? I'd suggest a combination of a consumption tax that impacts everyone and a tax on the high end (green level plan) medical services that are more optional than necessary.

That's my 2 cents on paying for healthcare. Is it enough to make change? Ask your congressperson and senators--soon.

Bare Naked Bucks--Prepared for Sudden Wealth?

Last week a number of young men have moved into an expected sudden wealth financial category based on their draft status with the NBA and NHL. While this is good news for them, it also comes with a number of strings attached.

Because these guys were expected to make big money, I am sure that tons of "lost" relatives have come calling. In addition, some of them will have collected best buds faster than Facebook friends.

What some of these people will not do is protect the long term investment. The average NBA career was just under 5 years. If we apply the average (mid level) exception salary for the past 5 years (2004-2008), we get about $26 million. HOWEVER, the NBA pays its stars very well and most players on a roster make LESS than the average salary. The more acccurate number to use is the MEDIAN salary. (You get this number by ranking the salaries from smallest to largest and stopping in the middle.) For this past season it was just above $3 million. If we assume that the median salary and the mean salary have grown in similar percentages over the past 5 years, then the median salary over an average 5 year career is actually $14,213,779.

Take the rookie scale for draft picks. In 2005, out of 30 first round draft picks that are given automatic raises annually, their first option year is the 3rd year of the contract. At that point, only the top 4 picks exceed the median. So 26 rookies are actually trying to get above the median on their 2nd contract, which many may never see as it comes after their 4th year in the league.

Anyhow, take that almost 3 mil/yr and subtract federal taxes (34%) and a standard agent commission (4%). We will skip over the variety of state and local tax possibilities and look at the average player as a person with $1,762,509 annually for 5 years. After that time it is likely that the salary will drop significantly for the remaining work years.

By the time the player gets a place to live and spreads some of that money around to the "friends & family" just how much will really be left to live on when you retire in your mid 20s?

To all my newly rich "friends" that were drafted, be careful with your money and don't collect an entourage...unless it is the DVD box set!

Taxing Facts - Stressful thoughts?

Think about the current state of banking. If I went to a bank and started borrowing money on a deal where I offered to pay interest only, how many banks would run my way? Take this story deeper. Assume I already had a ton of debt out there, but I wanted more. In this age where credit card companies are raising rates and cutting credit limits -- I want more credit and a lower rate. While I am doing all of this, I also lend out massive amounts of cash to businesses that have crappy financial health themselves.

Some might think this scenario is either crazy, a scam, or comes from the psycholgically unstable.

Actually, it comes from the US Government. Check out how much the government owes. 

Lot's of details in the links if you are curious about who the Government owes. Maybe we'll get into that another day.

For now, I'd like to link this big debt deal back to your taxes.

We hear a lot of comments about taxes. The rich should pay more. The rich pay too much. Too many don't really pay at all. The poor make money off the progressive tax system; they don't pay their fair share...and so on.

Here are some tax facts.

If we look at the term, middle class, to represent the middle 20% of taxpayers, we can generally describe the middle class as those making $37,771 - $60,000 in 2006 tax year. If you want to break that out with more details or you prefere a braoder range for middle class, check the source link.

Source: The Tax Foundation

Average household income for these levels in (parentheses)

Source: Congressional Budget Office

In 2006, the top 20% of individual income tax payers ($248,400) were responsible for 86.3% of the individual income taxes paid. In 1986, that top 20% ($167,800) was responsible for 68.9% of the individual income taxes paid.

The middle 20% of individual income tax payers ($60,700) were responsible for 4.4% of the individual income taxes paid. In 1986, that middle 20% ($52,500) was responsible for 9.2% of the individual income taxes paid.

The bottom 20% of individual income tax payers ($17,200) were responsible for -2.8% of the individual income taxes paid. In 1986, that bottom 20% ($14,800) was responsible for 0.2% of the individual income taxes paid. This means there was a very small tax liability in 1986 which became a rebate in 2006.

Let's loop that back to the whole deficit thing. As a country, we do not collect enough taxes and fees to cover our expenses on a national federal government level. As the deficits continue to grow this is an issue for all of us regardless of political affiliation. The US has had deficits for most of the last 50 years, but they usually just grow.

Good thing that Riley's beef is with Santa instead of the people that back the savings bond in his drawer. (Clip has foul language.) Is this a future step for those modern day tea parties? I hope not.