It's Well Past Time

Another day, another disaster.

The news yesterday that the “trust funds” for Medicare and Social Security will both be depleted before previously thought left me with the sense that the only way forward is through an honest and frank discussion about our current financial predicament. But too often those conversations, even between people who care about the subject, are so overwhelming that they don't proceed very far. To understand how much debt we already carry and the trillions more we face in the very near future is to understand what hopelessness feels like.

Some will want to focus on what happened to bring us to this brink of financial disaster. Others will just want to scream from the rooftops until everyone is outraged enough to act. But neither approach will move us closer to fixing the mess – and fix it we must. We can talk about how we got here later, but for now the focus needs to be on how to get out of this mess.

So let's talk.

The Medicare trust fund will pay out more than it takes in this year for the first time since it was created. It will continue to do so over the next 8 years until 2017 when it will be completely depleted. This projection assumes that the tax rates do not increase. As of today, only the first $100,000 (or so) that a person earns each year is taxed to fund Medicare and Social Security. That means the bulk of funding comes from low to middle wage earners.

But so what if Medicare fails? What does it have to do with those of us who don't utilize Medicare? Well, for those of us who work in health care, we can expect that hospitals, clinics and nursing homes will close. Quite simply, health care cannot survive on reimbursements from private insurers alone – even if those insurers were in better financial shape and not in danger of going off the cliff themselves. Health care providers (and our patients) would have to make due with much less and accept it as the norm.

If Medicare fails, those who pay for private health insurance plans through their employers will see their rates go up dramatically. Since the health care system will have to function at some level, if Medicare is underfunded and/or not available, the private insurers of the world will have to make up the difference. Thus, premiums will rise as will co-pays and out of pocket expenses, and the list of uncovered conditions and procedures will grow as insurers quickly go broke.

It's likely that tens of millions of people would be added to the 48 million currently without insurance in this country. How pathetic. As the last wealthy industrialized nation on Earth who does not provide even a minimal health care safety net for its citizens, we should hang our heads in collective shame. That we will abandon citizens who have faithfully paid their taxes each year and believed that they would have at least some level of care available to them should make people furious.

As has long been the case with the United States, we have waited until the last possible moment to address major issues with more than just rhetoric.

What will need to happen is that taxes will need to be raised. It's really that simple. We need to bring in more money than we are now so that we can collectively pay for the programs we will all need. And before anyone starts to complain about how our taxes are too high already, just remember that without a social safety net like universal health care in place, financial disaster is as close as any traffic accident, stroke, heart attack or major surgery for too many. You think the financial world is in tough shape when people default on home loans? Wait until millions of families go into bankruptcy every year because of health care related debts.

We are well past the time to fix our health care system. A new system must be created that is adequately funded, financially responsible, realistic, fair and accessible. We need a system that will approach care from the direction of doing the most good for the greatest number with the funds available.

We do not need a system that is wasteful, or panders to what patients feel they need. We need a system that is responsible in its care decisions and realistic in its judgments. We can no longer afford to pay specialists outrageous sums to perform procedures that have little to no impact on outcome or quality of life. Our new system must cover the basics like preventative care, medications and necessary hospitalizations. We need to stop spending massive amounts of money on care that only benefits the providers and not the patients.

And people need to understand that we cannot live forever. People die. It's what we are all destined to do – no one is exempt. But we have a hard time with this reality in the U.S. We feel like we should go on forever if we so desire.

Well, thinking like that is why we spend a majority of Medicare dollars in the last 6 months of a person's life. It's O.K. to want to live as long as possible. It's unacceptable to expect the rest of society to pick up the tab for those extra few months that can cost more than the previous 25 years.

Because any new responsible system would be available to all, it should be funded by all. This can be done via a tax on all things consumable. If we had such a tax, it would collect from those who eat caviar as well as those who live on cheap booze and everyone in between. No one would be exempt from paying, just as no one would be exempt from utilizing. And we can afford this – especially if we all stop paying premiums to insurance companies. Insurance can be handled here as it is in most other countries – as a supplement to the government provided minimum plan.

Fixing this mess will not be easy. The lobbyists are out there already, spending their money and exerting their influence on our government trying to keep the status quo. It will be necessary for all of us to be willing to vote out any representative who refuses to help build a realistic universal health system. Show them their jobs are not our concern. Get involved – write letters, educate yourselves, call offices of representatives and let them know you expect more from your government. Turn off Fox News and get real. The truth is painful, but it must be faced.

If we don't fix health care now, all the other things that need fixing won't matter.

Better Than Expected

The dream may very well be over.

The dream of economic recovery in 2009 that is. The rally in the markets that began in March of this year is about to fizzle and take the next big legs down. Why? Well, it seems that reality is about to take hold. The results of the stress tests done on the banks are due out today (in about 90 minutes from now as I write) and they will show that many of the tested institutions need more capital on hand because their reserves are not large enough to withstand additional defaults from tapped out, strapped and unemployed borrowers. The real problem, though, is that the stress tests were conducted using better than current figures.

So if the stress tests are fundamentally flawed, yet they show that the banks are largely under-capitalized, then banks are in even more trouble than we are about to be told. If BOA needs an additional 34 billion per the regulators, reality dictates that they need a lot more than that.

I have read over and over that the numbers, while very bad, have been “better than expected”. Talk like this swirls around the financial media and news outlets. But while “better than expected” may sound good in the twenty second sound bite that encapsulates it, it really still means “bad”. Unemployment numbers “better than expected” as only 490,000 people lost their jobs. Housing sales “better than expected” as people buy foreclosed properties. Bank losses and under capitalization “better than expected” as banks pass faulty stress tests.

But the fundamentals have not changed. The numbers of unemployed in the U.S. continue to CLIMB, not decrease. That's still nearly a half million people who lost jobs – not who got jobs – they LOST them. Housing sales are still down when you break out new construction and existing homes, separating them from sales of foreclosures. Banks have made “profits” this quarter, but have received boatloads of money from the government via TARP and through cheap loans via the FED, which have kept costs down and coffers partly filled.

So, if BOA and its like are “making money” it's all a farce, because they are using our bailout funds to make themselves look better than they are. I can look well capitalized too if someone gave me billions of dollars, but if I have to pay it back, it's not really mine now is it? And if some regulator comes to look at my books and says that I may need to save a lot more money because the future looks pretty bad, but reality is already worse than what they used for the evaluation, then I am up the proverbial creek sans paddle.

Tomorrow may be a very bad day in the markets, or it may not. But I know that until I start to see more substance and less flash, I'm still not going to be spending money I don't have on things I don't absolutely need. And that goes for stocks as well. I don't absolutely need to own any – especially not now.

And the number of people like me is growing. That's a bad sign for the "better than expected" crowd because ultimately, they need us.