Reform School 101

2009-Aug-01 - Christopher H. Hause

There is so much talk in Washington about "reforming" various systems that it is impossible to keep up. Even those of us that work in the "financial services" industry are having trouble making sense of the myriad of proposals and rumors (some of them colored by the messenger) emanating from government sources and the media.

Many of us marveled at the speed with which the expensive and far-reaching stimulus package made it through Congress. This stimulus, as well as the 2009 budget, was criticized by some for containing a pent-up wish list of the party that recently found itself in control of both houses and the presidency. If we concede that this is true, why would we believe that the regulatory reform efforts currently being considered would not also contain some similar "wish list" items?

Another complication is that Washington rarely addresses the actual problem. It tends to focus on what people believe the problem is, so that they can be perceived to be addressing the problem. After all, in politics, many times appearances ARE facts because perceptions are what gets you elected.

Financial System Reform

If you believe that the housing bubble was caused by the unrestrained greed of lenders willing to lend money to people who could not afford to repay it, then people who lent to them are the villains. But, where did they get the money to lend? If we follow the trail, it leads to one of two places.

The most popular whipping boy has been a small number of financial wizards who found a regulatory black hole and issued so much high risk paper that it threatened to bring down the entire financial system.

Another path leads to government policies and entities who went a little overboard helping everyone achieve the "American Dream" of home ownership.

Regardless of which path you prefer, it would appear that irresponsible lending coupled with the complete blind faith that house values would never go down is the source.

However, the most visible parts of the plan to reform the financial system are additional restrictions on credit card terms, and the creation of a new consumer protection agency.

These may be popular with the masses, but I refuse to believe either of these steps will provide the smallest protection from the next financial bubble from forming and bursting.

Health Care Reform

Here we have a clear front runner for the villain, as identified by The Speaker. It is the insurance companies who have had their way with the American people. If you believe the rhetoric, insurers always deny coverage for pre-existing conditions (houses already on fire) and terminate coverage (or prohibitively raise premiums) whenever an insured gets sick.

It surprises me how often "health care" and "health coverage" are used interchangeably in the media. Poignant anecdotes relate how individuals have lost their lives due to lack of health coverage. That helps to demonize the insurance industry. While in fact, the health care provider (likely also a "for profit" organization) is equally culpable for not providing treatment because the patient could not pay them.

Certainly the individual health market has some issues. Certainly the small group market has some issues. I will not rule out that a national effort may be required to resolve these issues.

I predict "health care" reform will become "health insurance" reform, and that is unfortunate. Also, the problem will get worse, not better. Insurers will have to take all comers and will have to go out of business to cancel anyone. However, this makes health insurance more expensive, not less. So more people will be unable or choose not to purchase health insurance.

But for gosh sakes, don't even talk about tort reform. That would restrict our God-given right to jackpot justice. Also, how can we expect our health professionals to do their best work without the threat of a lawsuit continuously hanging over their heads?

But, the villain has been identified (health insurance restrictions) and dealt with. Problem solved. Please re-elect me.

I believe the best outline for health coverage lies in a dual approach.

The first approach is a delivery system for basic routine care and prevention, such as screening and immunizations. For those who do not have the resources otherwise, there should be cost-subsidized (or free) local clinics.

The other element is a national stop loss system, where all uninsureds with a medical disaster (say more than 20% of their annual income) can tap into a state or national fund that is financed primarily by assessments against the health care and health coverage industries.

That is my contribution to the debate, and I did it all in much less than 1,000 pages.

Note: The Health Section of the Society of Actuaries has published a number of health care reform essays that are much more thoughtful and involved than my meager offering, and none of those exceeds five pages. It should be required reading for anyone who claims to have the answer to our health coverage challenges.