Health Savings Accounts

This is the first of a longer discussion about health care. It’s a technical topic, so I will spread it out with easier reads in between.
Recently there has been a lot of talk by Barack Obama and John Edwards about Universal Health Care. Hillary has not committed to a particular plan, but leans that way. Republican Candidate Mitt Romney helped pass Universal Health Insurance in Massachusetts. A massive new tax hike to cover this new program is definitely at odds with the ideals of small government. Experiences in other countries have shown that it is impossible to provide every citizen cheap and high quality medical care. Attempts to do so are very expensive or low quality, and sometimes both. Many voters, however, are moving in favor of a government run system that guarantees health insurance for all Americans.

My health insurance, including the portion that my employer pays, costs around $400/month for just me. There are 45 million Americans without health insurance and if it costs the same $4800/year this gives us a $216 Billion tax hike for one year. At a conservative 5% increase in premiums per year, this adds to $2.7 Trillion dollars over the next ten years.

On Barack Obama’s website, he discusses his plans for socialized medicine. He states that he “will create a new national health plan to allow individuals without access to affordable insurance coverage to buy coverage similar to that available to members of Congress”. My analysis above may be too simple, but Congress does not have a cheap or flimsy medical plan. The scale of what he is proposing is enormous. The reality is that being uninsured does not mean that people are not receiving medical care. There are scores of government and charity programs that help with medical costs and many young people simply choose not to go to the doctor. Unfortunately, reality and perception are not always the same. Uninformed sympathies portray conservatives as denying basic medical care to the poor and unemployed by being selfish and miserly. The difficulty is coming up with a strategy that breaks this negative image.
The Club for Growth, a limited-government political action committee sponsors a website called www.freemarketcure.com, which provides an in-depth analysis of the problems with government run medicine. They have some dramatic videos to watch about Canada’s government run system. They also advocate Health Savings Accounts (HSAs), which are the key to fixing our nation’s health care problems. What are HSAs? A Health Savings Account allows someone to put tax-free dollars into a bank account to use on medical expenses. These accounts are often combined with a high deductible health insurance policy. If you don’t spend all the money, you get to keep it for next year. If you don’t spend it by retirement, you get to keep it all to spend on whatever you like. HSAs are nice in that they would let you keep your money to cover medical expenses if you lose your job. A Health Plan Consultant named Michael Rodriguez recently related to me how they keep down medical costs much better than HMOs or PPOs. Their shortcoming in the debate is that they do not do much in regards to expanding health insurance to more Americans.At the end of a recent trip to the ER for my youngest son, I was thinking about this idea of expanding health care coverage without increasing taxes. My idea needs more details ironed out, but it’s a starting place. Right now, the Child Tax Credit gives all households who earn below a certain salary $1,000 per child off their taxes (We are one of these households). Money from the child tax credit could be directed into an HSA for your child instead of receiving this as a tax refund. This would mean $1,000 per year, per child, of medical coverage that would not cost taxpayers one extra cent. You read that right, not one extra cent. Virtually every child in America could have some medical coverage without increasing taxes at all. Call it a Health Savings Refund for Children. If the parent already has insurance for their child, they could fill out an extra form that shows evidence of coverage. This would let them continue to receive the child tax credit in cash. Most parents would likely put some money into this savings account regardless of existing coverage just to be safe. This option is available so that those with no need to put money away would not have to. How do you access your account? Every bank that offered HSAs would be required to have a special debit card that would work at doctors’ offices and certified medical facilities. Can they deny your claim? No, because it’s your money. Do you lose it when you lose your job? No, it’s your money. Can you have a preexisting condition that keeps you from receiving medical care? No, it’s your money. As long as there is money in the account for that child, nobody can take away this medical coverage. What happens if you don’t spend it all? It rolls over to next year, with interest. So, if you don’t have big bills for several years thousands of dollars will build up to cover a major emergency. Imagine being unemployed and finding out that your child needs surgery, but knowing that you already have most of the money in the account to help cover the costs. No paperwork hassles, no getting pre-qualified, no sitting on hold with customer service for hours, and no government bureaucrat arguing with your doctor about medical necessity. Just swipe your card and it’s already paid for.I have debated whether this is a hidden tax hike. I don’t like the idea of the government telling us how to spend our money, but we at least get to keep it. This isn’t perfect and I need to work out some more details, but I figured I would throw it out there and see what people had to say.

As always, tell me what you think. I had my first person disagree this past week, which is always healthy. Pass this on to anyone interested.

Brian Shelley

Getting back to Principles

Friends, First, I have to thank some of you for passing this newsletter on to friends and colleagues. I was told of at least 10 forwards this past week. It’s very flattering to think that I can make such a positive impression.
The father of a friend of mine in high school had been a smoker for years, and I have no doubt that he had heard a million messages about the dangers of smoking. One day his four-year-old daughter asked him if he was going to die from smoking cigarettes. He put his cigarette down and never smoked again. It wasn’t data or public service announcements; it was the realization that if he truly loved his daughter and wanted to be with her for as long as possible that he needed to quit smoking. A higher reason compelled him than his own health.
Recently there have been a number of articles posing the questions, “What happened to the Conservative movement?” and “Where did they go wrong?” Obviously, the war in Iraq has really hurt the Republicans, but conservatives started to lose their way before 9/11. The massive increases in government spending and the big entitlement program for prescription drugs, Medicare Part D, were choices Republicans made without regard to the war on terror. Bush passed the tax cuts and passed a few free trade bills, but other than that, his record on small government does not look much better than that of Bill Clinton.The Bush Administration has pushed some good smaller government initiatives like Social Security Private Accounts and Health Savings Accounts, but these never got out of the gate. The public never got inspired because the White House sold ideas like financial services on the technical merits of how they might help increase our income. Those are good reasons for voting for an idea, but they are not stand up and cheer good reasons.

Looking at Congress and the new Presidential candidates is there hope that the champions of small government can turn things around? Many seem to be afflicted like the President by their inability to communicate their ideas effectively. Michael Medved, a conservative syndicated radio talk-show host wrote a post this past week that echoes some of these thoughts in the excerpt below. http://michaelmedved.townhall.com/blog/g/bf4284e3-c94b-4a2a-bfca-c8476299cf5d
And Republicans are promising….what, exactly? So far, our only response to the Democratic promises on Peace, Health Care and the Environment is that liberal solutions don’t work and tend to make situations worse than before. These arguments need to be made, and the public should be appropriately frightened by the huge increase in the size and cost of government implicit in liberal plans. But these warnings hardly constitute the sort of positive program or soaring vision that can [energize] a cynical and dispirited electorate.
Everyone saw the crushing defeat that the immigration bill experienced. In a news report afterwards, several Republican Senators from the committee that created the immigration bill expressed bewilderment at the outcry. The first thing out of their mouths was a defense of its technical merits. With egos bruised, they lashed out with claims of prejudice as to explain why their bill failed.My first interpretation of what has happened echoed many other columnists I read. Conservative lawmakers had simply stopped paying attention to their constituents. However, suggesting that they shouldn’t have ignored the majority of voters presents a new problem. Where is the room for courageously standing up for what you believe in? Isn’t this why we remember Jimmy Stewart giving his passionate speech at the end of “Mr. Smith Goes to Washington”? How do you draw a line between being a suck up who follows popular sentiment like Clinton and going down with the ship like George Bush? It comes down to principles and some humility. Politics isn’t science. Statistics and rigorous logic will only take you so far. You must ground what you believe in and what you say on good principles if people are going to become passionate about your ideas. Strong principles hit deeper than strong data. One of the defenses I heard for the immigration bill was that it would help the Republicans woo the Hispanic vote, which is important for future voting patterns. It may be true, but what kind of principle is this based upon? Anything to win? Anything to stay in power? Tactical behavior doesn’t motivate, principles motivate. This is why Mel Gibson made Braveheart about William Wallace, dedicated to the freedom of his country, and not Robert the Bruce, who vacillated to gain long-term advantage.
Just having strongly held principles is not enough. Reason and experience must strengthen them continually. You can’t be that nut pulling a gun on city employees because it’s your God given right to pour battery acid down the sewer. You can’t be like Hugo Chavez spouting wild claims with nothing to back them up. Exercising humility and self-reflection are necessary to ground yourself in reality. The more developed your principles the better you can defend the other things built upon them. The conservatives lost power because they became convinced that winning elections was all that mattered. As long as they were in power, they thought that good legislation would just happen. George Bush and Karl Rove came up with brilliant tactics and statistical analysis to find the votes they needed to win. They hired market researchers to investigate which words to use when selling their ideas. What they failed to do was establish a core set of principles so that America could accept the downsides because of the goodness of the purpose. Americans do not get passionate about passing legislation that is beneficial to most and harmful to few. They get passionate about legislation when their principles demand it be passed. As always, tell me what you think. Do not let me be a hypocrite. Point out anything that is not principled that I espouse in these letters. Pass this on to anyone interested.

Reverse Income Tax

Friends,

Last week I mentioned the “Reverse Income Tax” and I got a couple questions about it so I decided to make this week’s post about reforming poverty programs.

I recently ran across a woman who has a lot to say about these programs. Star Parker was born in a poor neighborhood in LA and like the African-American stereotype she got pregnant, got on welfare, admits to four abortions, and racked up a criminal record in her youth. However, she made a series of decisions and an acceptance of faith that changed her life. Today, she is a columnist and head of Coalition on Urban Renewal and Education. She is also a die hard Conservative who hates the welfare system.

I found this quote from her first book that puts our poverty programs in great perspective. “We have two economic systems working for America: capitalism for the rich and socialism for the poor. The problem with a government that lets both systems operate is that the middle class gets stuck working for the rich to support the poor.”

For me, it is not the existence of a poverty program that is the biggest problem, it’s the design. Before reform in 1995, Welfare (AFDC) was designed to give aid to unemployed parents of dependent children. The flaw was that for every dollar you earned at work you lost a dollar of welfare. Someone qualifying for welfare is unlikely to make much, so oftentimes they didn’t actually start earning any extra income until their work hours hit 30 or 35 hours per week. Why would anybody work 30 to 35 hours for nothing? That’s the problem. They didn’t.

Today, many of the poverty programs have the same design problems. If you work you lose a lot of benefits. If you put money into savings you lose benefits. Recently, a study by the National Center for Policy Analysis showed that for every dollar someone on benefits puts into savings, they lose $2.60 in benefits. If they get married or live with the other parent of their child they lose benefits. Those on benefits work less, save less, and they choose not to marry or stay with the father of their children because the system rewards irresponsibility. We have placed these people in a position where they must choose between dignity and putting food on the table for their kids.

How do we expect people to stay out of poverty if they aren’t building a career? How can we expect them to weather their next job loss or medical emergency without a decent savings account? The financial and emotional stability brought by marriage helps many stay out of poverty and rear healthy children. Why would we punish them for doing so? Like I mentioned last week, some on the Left have the idea that “bad luck causes poverty” so engrained in their heads that they never consider that we are eroding the strength and character of those on benefits by a poor design. We have made children out of adults and have trapped them in poverty. The reforms in 1995 accomplished a lot, but we still have a long way to go.

So how does the “Reverse Income Tax” come into this and what is it? The “Reverse Income Tax” raises your income if you make below the poverty level based on a percentage (40%) of the difference between your income and the poverty level. My idea takes the math from this and tweaks it a little. What do I mean by a percentage of the difference? Say a mother makes $7.00/hr as a day care worker. That’s $3.00 less than $10.00/hr. She would receive $3.00 * 40% = $1.20/hr added to her paycheck, giving her $8.20/hr. If this mother made $9.00/hr she would be given $0.40/hr ($10-$9=$1 * 40%).

This isn’t a perfect plan, but why is this better? Under the old system you earned nothing for each additional hour you worked until you hit 30 to 35 hours a week, so few worked. Under this system you earn not just your typical pay of $7.00/hr, you would earn $8.20/hr. It preserves the incentive to work just like Friedman’s plan. I could go into more detail, but the spirit of his idea created a system that didn’t seriously erode their character. While my idea is similar to Friedman’s, I think it offers a stronger incentive by adding it to their paycheck instead of having to wait until the next year to file a tax return.

The points of my idea are:

For every hour that a parent with children at home works they would receive 40% of the difference between their pay and $10.00/hr as long as they worked at least 20 hours a week.
Being married or living with the other parent would not count against your ability to receive the benefit.
Neither contributions to 401K, IRA, nor holding up to $10,000 in savings would count against your ability to receive benefits.

This Character Based idea is Marriage Neutral, Savings Neutral, and helps to provide a better wage to low income parents. By neutral, I mean it doesn’t discriminate for or against. Obviously there would be more details to work out to prevent fraud and cover other problems, but this is the basic framework.

Nothing in this idea requires us to bash the poor. In fact, it’s about giving them back their self respect. We can never know what they can accomplish if we don’t let them leave behind low expectations. How many Star Parkers are still trapped in poverty?

If you like this idea and can come up with a better slogan for this that would be great. As always, let me know what you think, and pass this on to friends. I got some good feedback this week so keep it coming.

From You: In Oklahoma, the state government is apparently running TV ads to encourage more people to get on welfare so that the state can maximize their grant from the Federal government. Another great incentive set up by poorly designed legislation!

Links:
Technical discussions about the reverse income tax. www.citizensincome.org/findings/abatkinson.html
Star Parker
http://www.urbancure.org/
http://www.amazon.com/ (Search for Star Parker)
http://www.wikipedia.org/ (Search for Star Parker)
National Center for Policy Analysis stat
www.latimes.com/business/la-fi-save7jun07,1,2701901.column?coll=la-mininav-business&ctrack=1&cset=true
http://www.ncpa.org/

Introduction

Friends, This being the first of what I hope to be many weekly political posts I thought I would talk about the topics I plan to discuss in them.

Those of you who know me, know that I fall into the “Republitarian” slice of political belief. Obviously, my posts are going to support free-markets, small government, and occasionally some commentary on social issues from my more traditional viewpoint. What I don’t plan to do is engage in character bashing and blowing small quotes from left wingers out of proportion to scare everyone into believing what I have to say. I think that market is more than saturated. I plan to deal in facts and solutions. My hope is that you will help me develop a plan for persuasion and not just good one-liners to throw at those who disagree with the ideals of a free society that we hold dearly. For example, I recently read a poll from Zogby International that only 44% of Americans believe that most people who are poor got that way by making bad decisions. I was really surprised by this at first, but it really helped explain why so many people continue to vote for politicians who blindly hand out money to the poor with little to show for it. In their minds they see poverty as a matter of chance, so the ethical thing to do is to help out those who suffer from it because it’s not their fault. If this was true, I can understand their logic. But it’s not true. The vast majority of the poor are able bodied people with plenty of brains to fix their own lives. In his book “Choice Theory”, Dr. William Glasser really explains how we are the result of our choices and that each of us has immense power to change our lives. I have seen this in dramatic ways in my own life in the last several years. I have also seen the mountains of evidence that our poverty programs do not work, and that they have actually made many things far worse than before. We’ve all heard the horror stories of welfare abusers and the astonishing lengths that lazy or brutish people will reach to secure their free check from the government. The problem with our approach to convert people to limited government is that we fail to recognize how deeply the beliefs of many go. Those on the Right have a habit of dismissing the poor as lazy bums, but using this as a way to convert those in favor of poverty programs doesn’t work. Some of them believe that poor people got there by accident; it’s not their fault because all people are inherently good, and we know this to be true because God wouldn’t have created a world full of bad people. Sure we could spend the weeks and years it would take to show them the evidence that they are misguided, but we don’t have the time or resources to do this, and many would still never change their minds. Believe me, I have tried. The point of these posts will be to build a bridge between the ideals of a small government/free society and the deeply held, and at times religious, beliefs that many in our society hold. How do we build this bridge? The answer is the same for any task worth doing: Hard work. I will find the information, create ideas, and pass them on to you. You tell me what’s wrong with them, and give me your own ideas. As an example, I ran across an article a while back written about the most revered economist of the last half of the 20th century, the late Nobel Laureate Milton Friedman. He suggested replacing our welfare system with a “reverse income tax”. Those with low incomes would be given money in reverse proportion to their income. His analysis showed that this would do the least harm in perverting the incentives to improve themselves, and would be the least costly to implement. While it might strike some that giving any tax dollars to them is abhorrent, we need that bridge between a truly free market and what we have today. Dr. Friedman has provided a loose framework with the “reverse income tax” with which to build our bridge. If we propose a social safety net that encourages work, encourages savings, and encourages strong families we can not only create a more free society, we can also begin to salvage the lives of millions of Americans trapped in poverty by the awful system we have today. In the coming weeks, please let me know what you think. If you see any articles that pertain to what we have talked about, please forward them to me. Pass these posts on to anyone you know who might be interested and sign them up to receive them by sending an e-mail to me. I plan to upgrade to all the snazzy tools the internet offers if your interest justifies it.