Healthcare Reform Needs Clearer End Goals

This week President Obama’s administration sent tweets and e-mails touting the benefits of healthcare reform. It’s clear that they haven’t worked out the details of what they’re calling for, perhaps because they do not know what’s politically palatable in Congress. As a result, the list of eight basic consumer protections is vague.

No discrimination for pre-existing conditions
This makes no sense to me. What’s to stop someone from carrying no insurance or little insurance, and then buying a high-end plan once they get sick? The idea behind insurance is that you pay on a regular basis and make a claim in the unlikely event a peril affects you. If there truly is no discrimination for people who are already sick, premiums will be significantly higher.

No exorbitant out-of-pocket expenses, deductibles or co-pays
My insurance policy has a $4800 deductible. I’m guessing they’d consider that exorbitant. So even though the insurance company and my family are happy with the contract we have had for the past four years, the agreement would be disallowed. We would have to buy a more expensive plan with a higher premium even though we don’t want to pay for insuring minor things.

No cost-sharing for preventive care
This means insurers have to pay for most or all of preventative care. My plan already covers a good deal of preventative care, probably because the insurer thinks this will decrease claims that exceed the deductible. I don’t see why the government has to mandate this. I’m either going to pay for regular checkups when I get them or as part of my premium. Why does the government want to mandate that I pay it as part of my premium?

No dropping of coverage if you become seriously ill
I think this is already how it works. My understanding of the agreement I have with my insurer is that I pay them a significant bit of money each month, and they will pay if I get sick. They can’t end the agreement just because I get stick.

No gender discrimination
I do not know what this means. I guess it means they can’t charge women of child-bearing age more because of the increased risk associate with a possible pregnancy. This spreads the cost of this risk to men. I don’t think this is a big deal either way.

No annual or lifetime caps on coverage
Whenever I buy insurance, they always offer me different lifetime caps. I can choose a lower one to save money. I have always chosen a high cap. Under Obama’s plan, I won’t have a choice. I will have to buy the more expensive plan with a higher cap. It won’t affect me, but why take away my options?

Extended coverage for young adults (on family plans)
I don’t see how this matters one way or the other. This lets parents pay one big premium instead of having the parents and kids pay separately. This makes no difference.

Guaranteed insurance renewal so long as premiums are paid
This is a good policy. Employer plans always make me nervous because if I change jobs I will have to change insurers within 18 months. What if I got sick before changing jobs? The peril would have already happened, so I couldn’t buy insurance against it. I ought to be able to maintain the insurance I have. The risk of a protracted illness should be something the insurer takes on when they accept you as a client.

So what’s going on with this e-mail the administration sent out? My gut feeling is the problem is modern healthcare is expensive, but people wish it weren’t. Politicians are moving the pieces around as sort of a shell game hoping that if they can rearrange the rules just right, paying for this expensive service will seem less onerous. Here’s my impression of the front-runner plan politicians are cooking up to help people avoid reality:

1. Make basic inexpensive plans illegal.
2. Tax very expensive plans that provide for “executive” medical care.
3. Borrow $100 billion a year to offset the cost of premiums, pushing the cost of paying our premiums to the next generation.
4. Increase taxes on the wealthy to offset the cost of premiums.
5. Pretend premiums are being reduced through increased efficiency due to technology and through better bargaining with providers.

This is disgraceful. I always dreamed if someone like Obama were elected president and we had a Democratic Congress we would do something like declaring “war” on poverty again. Instead they’re spending all their efforts trying to offer the middle class ways to weasel out of paying for something they want.

The healthcare plan is still being worked out. I am optimistic it could be a lot better than what I’m imaging. Politicians need to write up something analogous to an engineer’s “product requirements document” calling out exactly what they’re trying to accomplish with this reform. Then they need to draw up a spec of how they’ll measure success. Every engineer knows it disastrous to start a project based on vague marketing promises. The president and groups within Congress need to state clearly what their end goals are with healthcare reform.

Struggling to Understand How Memristance is Analogous to Other Circuit Elements (Electrical Engineering)

After HP scientists created a memristor, articles appeared explaining how memristance deserves to be considered the 4th circuit element, alongside resistance, capacitance, and inductance. An article in IEEE Spectrum magazine, The Mysterious Memristor, last year attempted to explain the relationship between memristance and the other circuit elements.

Dr. Chua postulated the existence of memristance in 1971 using the idea that the basic circuit elements are relationships between voltage, current, flux, and charge. There was no circuit element relating charge and flux, so Chua proposed memristance to fill this hole.

Image: J. J. Yang/HP Labs via IEEE Spectrum

Trying to understand this, I looked at the math for the circuit elements we know well and then for memristors.

Resistor:
V=IR (ohm’s law).

Capacitor:
dq = C dv.
I is charge per unit time, so I = dq/dt.
Substituting for I dt for dq, I dt/dv = C.
Rearranging, dv/dt = I/C .
When I use a capacitor, I typically think of it this way. The rate of voltage change across the cap is I / C.
=
Inductor:
dφ = L di.
Because dφ = v dt, v dt = L di.
So di/dt = V/L.
When I use an inductor, I think of it as analogous to a capacitor. The rate of current change through the inductor is V/L.

Memristor:
dφ = M dq.
I should still be able to use dφ = v dt, so v dt = M dq.
dq/dt = I = V/M.
That is ohms law, except the value of M is a function of the amount of charge that has flowed through the memristor. Some websites refer to M as a function of q, M(q).

(I do not have access to Chua’s original paper on memristance or the paper last year on HP’s work, so all I have to go on articles referencing the papers.)

The other three circuit elements are constants, not functions. This makes M fundamentally different from the other circuit elements. I would love for someone to explain in a comment why I am wrong and why memristance is mathematically analogous to the other three circuit elements.

Even NPR Buys Into Banks' "Credit Score" Pitch

NPR’s Marketplace ran story a couple weeks ago about things to avoid charging on a credit card because banks or credit agencies might hold the charge against you if they don’t like the risk profile. I suspect this is not completely independent reporting. People involved in the banking industry actively promote “negative sell” ideas regarding their product. They want to sell loans. They say, “I don’t know if this product is for you unless our formula says it is.” You’re supposed to say, “Oh yes. The product is for me. I want to buy it!”

The banking industry has managed to get financial reporters to write articles about how worrying about your credit score is part of responsible personal finance. It is not. The credit score is based entirely on using their product (loans):

• Timely loan payments
• Outstanding loan balances
• Amount of time using loans
• Types of loans
• Number of loans opened/applied for recently.

Of course using their product makes them like you.

Net worth, income, and cash flow are not part of the formula, but they are way more important than whatever benefit you get from banks liking you as a customer.

I have amazingly heard of people in disputes who are more worried about the other party getting negative information on their credit report than they are worried about the other party suing them and taking their money. I certainly don’t want people giving me a bad reputation, but spreading lies via the credit report is far more innocuous than actually taking my money.

Banks have done an amazingly good job convincing people that to be responsible you should buy their product.

I have no axe to grind with banks or credit agencies. My report contains only accurate positive info, and as far as I know, their score for me would be decent even though I don't use loans. I am very satisfied with the local banks my wife and I use for personal and business banking. My complaint is with the industry as a whole.

House Health Care Plan Is Needlessly Broad and Costly

From the NYT: House Health Plan Outlines Higher Taxes on Rich

It sounds like a good thing that the government is proposing: a reasonable tax on the wealthy to provide healthcare for the poor. But is that what’s really going on? This tax is higher than it needs to be because part of the subsidy goes to the middle class. I suspect this is getting pushed through because the middle class has an emotional reaction to paying for healthcare. It’s a mistake for the government to treat that emotional paralysis by taking over that aspect of people’s lives.

The healthcare problem has two elements: the poor and the middle class. The poor can’t afford healthcare because not being able to pay for one’s expenses is the basic definition of poverty. Giving money to the poor, perhaps in the form of a healthcare subsidy, makes sense to me, esp if it is in some way geared toward helping people earn enough to get out of poverty. The House plan, by the way, doesn't even provide insurance for all the poor.

The middle-class healthcare problem is more subtle.

• Premiums paid by employers are deductible while premiums and healthcare expenses paid by individuals are not.
• Employees have to change plans within 18 months of changing jobs.
• Medical technology is getting better at predicting illness, which makes it harder to spread the risk of illness among a population.
• Some people get overwrought about the thought of buying healthcare services, even though they are emotionally capable of making other purchase. The media stoke their fears.

Creating a federal plan for the middle class, partially subsidized by the rich, causes multiple problems:

• It needlessly removes market forces from middle-class healthcare purchases.
• It makes the taxes on the richer more onerous. As marginal rates exceed around 50%, we start to see it affect people’s incentive to work and create value. Marginal rates are not that high yet, but this is a step in that direction.
• It gets the federal government involved in a big sector of the economy. It will be very difficult to extract the gov’t from this sector if we decide we want to in the future.

I’m really glad Obama is promoting healthcare reform. I just wish he could use a scalpel instead of a mallet.

Madison Should Maintain Community Development Authority Funding

The city of Madison should find a way to avoid cuts to its Section 8 housing program.

The program subsidizes poor families’ rent such that they pay 30% of their income toward rent. The Section 8 program pays the remaining rent up to a maximum. That maximum is being reduced. For a family of three, it’s going from $931 to $762.

Consider a family of three earning $20,000 per year, $1667 per month. The program aims for them to pay 30% of their income, $500, in rent, with program paying the rest up to a maximum of $931. If they were currently renting a $900 apartment, they will now have to come up with an extra $138 per month or move to a cheaper apartment.

$900 is not as much rent as it sounds. These families may be paying extra to live close to work and school to save on transportation costs. They may be struggling to keep their kids in a better neighborhood.

The federal government has many programs designed to keep people in their $250,000 houses they can’t afford. It’s a shame that they're not doing more for programs aimed at the poor. Madison should find a way to maintain funding for the program despite the recent decrease in anticipated federal funding.

Using the Web and Social Media to Promote Saving

On the most recent edition of the poorly-named Consumerism Commentary podcast, the show interviews a co-founder of a banking website called Smarty Pig. Smarty Pig is a website that helps people save up money for specific goals. Users can allow friends and family to track their progress toward the goal and even make contributions toward it. This could provide accountability for people who have trouble saving and provide a venue for relatives to provide monetary gifts toward important goals. Money contributed toward the goal goes to an FDIC-insured account based on funds Smarty Pig invests in CDs, so the rate of return is superior to a typical money market account.

Most people get no formal education in personal finance. All their knowledge comes from people selling financial products. They take on too much risk and therefore experience the slightest blip in the economy as a crisis. It’s nice to see a financial product that actually encourages good financial decisions. I have no experience with Smarty Pig apart from hearing a 10-minute interview, so I do not endorse the service. I personally wouldn’t be sanguine about sharing my family’s savings goals. I am happy, though, to see a financial business creatively promoting saving instead of using their creativity to get people into debt.

I would love to see the government get on this saving theme by creating tax-advantage accounts for various purposes like Emergency Fund, Saving for a Home, Saving for Transportation (a new bicycle in my case). We already have similar accounts for retirement, college savings, and healthcare.