Municipal workers in major cities (e.g. New York, Boston, etc), whether they be police, fire, sanitation, or transit workers have pension programs that are unmatched in private industry. Those of us who work in private industry actually pay for those pensions. Workers, including management workers at every level, after 20 years, can retire with full pension benefits, usually at 50% pay for the rest of their lives. Those pensions, unlike private industry which normally starts full pensions at age 65, are paid immediately no matter what the age of a retiree. A person, starting their job at age 18, can retire at age 38 and collect their pension. Some double dip and take another city job for 20 years and collect a second pension. Their pensions, unlike private industry, are indexed to inflation and therefore go up each year by the rate of inflation. The pension is based on the last year’s pay including overtime. Both management and non-management get paid for overtime. Private industry commonly uses a five year average which lowers the annual income on which a pension is based. It is common practice for municipal workers to be given unlimited overtime work the last year, often doubling their normal annual income. Therefore, their 50% pension benefit actually becomes their normal annual salary. This is unheard of in private industry (because any company who tries that will soon become bankrupt). Management workers including the ‘top guy’ also get paid overtime (again unheard of in private industry) and also often pad their retirements through working as much overtime as they can the final year. Apparently, there are no controls on overtime worked and paid in big city municipals (I do not know if state workers have similar benefits) as there would be in private industry as this would be a serious budget matter for a corporation. Also, workers can accumulate unused sick days throughout their working life (again, nearly unheard of as a private industry practice). Some accumulate more that a year’s worth of sick days to collect a huge check at retirement ($50,000 to $100,000 is not that unusual and some checks have exceeded $200,000).
How are benefits like this possible? Municipal unions negotiate with city governments. In other words, the politicians who run city government and therefore need the votes of the city union members and their families negotiate these contracts. Talk about a conflict of interest! It should be illegal. Not only do you get these outrageous pensions, but often wages far exceed the going market price (e.g. compare a municipal sanitation worker’s wages and benefits to private industry). City unions have the right to strike or if they don’t (e.g. fire and police) use tactics as massive sick ins to achieve the impact of a strike). They have extensive and unacceptable impacts on citizens by the nature of their work by using the strike weapon or call in sick tactic. In other words, bargaining power is not evenly matched between municipal workers and its citizens.
Now, before going forward, I don’t want any of the above to lead anyone to ‘demonize’ municipal workers. The vast majority are very good people trying to support themselves and their families as best they can. You cannot blame them for trying to get as good a deal as possible for themselves and their families. Cost of living is higher in metropolitan areas and their normal wages are not going to make them rich. Much of the blame needs to go to ourselves and our politicians for not having the backbone to match municipal benefits to normal private industry standards.
The current system of pensions and benefits are unfunded. The future liabilities to pay these benefits far exceeds the anticipated tax revenues needed to pay them out. This brings up a dual concern for both workers and citizens. Citizens (only 20% of whom work for companies that pay pensions) will have to ante up such huge increases in taxes that their standard of living will significantly diminish (e.g. give up your house and move to an apartment; or give up that apartment and move out of state or to a smaller house or apartment; spend less on other necessities or ‘wants). There’s also a possibility that cities may have to mimic the airlines who have gone bankrupt and defaulted on their pensions with court approval). Nobody wins in this scenario. Not the citizen; not the municipal worker.
Solutions are daunting. Hiring through a bid process private industry companies for transportation and sanitation is one place to start. If possible, expand this to other city jobs, especially administrative. Also, it is obvious that municipal pensions and benefits need to reflect the policies of private industry. However, what city union will voluntarily give up the benefits its members enjoy. I would venture to predict none. I think the bankruptcy option eventually will become the solution. I think we need to hasten that day by imposing federal laws forcing all levels of government to pay for future pensions now through cash investments into independently monitored funds at sufficient levels to pay for future benefits. Currently, these pensions are way under funded by trillions of dollars combined. they amount to a ticking finacial time bomb that will not only result in the default of these pensions someday, but the total financial demise of America. By enacting laws forcing public pensions to be funded just as we do for corporate private pensions, the true costs of these public pensions will be known today along with our ability to afford or not afford them. We cannot depend on the inherent conflicts of interest between politicians and union members (who are also city voters) at the bargaining table to fix this problem.
Wednesday, May 28, 2008
Tuesday, May 13, 2008
Health Care
Just as competition drives costs down in other areas, it should do the same in health care. For insurance, state and federal government too often interfere with private industry by specifying requirements (e.g. must cover pregnancy, must cover office visits, etc.). Though well meaning, it forces people to buy more insurance coverage than they need. That drives prices up. Let the marketplace determine what medical coverage to offer. There will be more choices and better prices.
More difficult are hospital and surgery costs, especially for emergency care. When you are taken by ambulance to a hospital because you are critically ill, you are brought to the hospital the ambulance crew thinks is best and close for your condition. It is impractical for you to ‘shop around’ for best prices on the hospital cost, surgical costs if needed, even the ambulance ride cost. You are at the mercy of all those providers and locally, they pretty much have a monopoly (never a good thing) on your health situation. To some degree, your medical insurance if you have it can help limit your liability and introduce some competition on costs. Most insurance companies have a policy of paying ‘fair and reasonable’ rates for your medical services. If they have a contract that the hospital and surgeon can’t charge more than those rates, you have some protection. Otherwise, you must make up the difference and it may be much more than the 20% of the bill you thought you had to cover.
Woe to the person with no insurance. I only learned this first hand recently when my mother was taken to a hospital and diagnosed with brain cancer. Hospital bills averaged 25-$40,000 per week ($150,000 total for four weeks). That didn’t include the surgeons and assistant surgeon’s fee. $45,000 for a 90 minute operation just for the main surgeon (who does several in a single day; think about this, he could make a million dollars a month or more if he actually collected that amount).
As a Medicare and Blue Cross patient, the normal and reasonable amounts they combined covered amounted to a little over 10% of the total bills. I sweated bullets because the hospital had required me to guarantee her bills would be paid as a condition of admission since she was in no condition to sign for herself. What I found out much later is that Medicare contracts doctors and hospitals to accept their fair and normal rates and not charge the patients any more than that. They forgave almost 90% of the total bill.
Imagine the poor families without that kind of contracted limit (e.g. no insurance, or weak insurance)! How can the same medical service be legally allowed to vary by a factor of 10 times on price?! The price of a medical service should be the same for all patients regardless of insurance type or no insurance. It ought to be the law. I believe it is the law for most any other product or service (for example, two woman buy the same dress at the same store on the same day, pay the same price). Then maybe when normal and ordinary expenses were negotiated between the medical community, government, and private industry, real competitive pricing might occur. I’m not advocating fixed pricing because that just creates shortages in medical services as is common in Europe. There needs to be real price negotiation taking place leading to the same price charged for the same service to all patients.
Any discussion about medical costs needs to address the issue of legal costs. Doctors pay huge liability insurance expenses because the alternative is financial ruin. Doctors in high risks fields such as pregnancy and delivery pay so much insurance that many are dropping out, unable to pay the premiums. Those costs, necessarily are passed to us. Yes, we need to weed out and stop incompetent doctors from practicing medicine. Self-policing by doctors has not worked well and needs to be addressed. However, multi-million dollar awards also do great harm to all of us as those expenses are passed down to us plus ‘defensive’ medicine practices are increased, not for our health benefit, but for legal defense reasons, further increasing medical costs. We have to start thinking of doctors as infallible and able to figure out every subtle or complex medical issue perfectly. Nobody is or can be that good. We need to limit legal suits plus also introduce penalties for frivolous suits that should never have been filed to bring balance and reasonability back into play for this issue.
Much of the health care discussion revolves around socialized medicine as practiced in Europe and Canada. Unfortunately, they are no panacea for our problems. They amount to price controls which due to the enforced low cost results in over usage – that is high demand for medical services because the user has no financial incentive to self regulate his/her trips to the doctor or hospital for every minor ailment. What’s the problem with that? The problem is the supply side of medical services. Less financial incentive to practice medicine leads to less doctors and nurses and therefore shortages in their ranks so that there are not enough of them to render all the services requested. Consequently, patients can wait for months for needed operations that are not immediately life threatening, often in pain. Even prescription drugs can be in short supply as drug companies cannot recoup their research costs due to fixed governmental pricing. If we follow suit and fix prescription prices, there would likely not be enough worldwide profit for drug companies to continue to develop, test, and introduce new drugs (average cost about a billion dollars for each drug) to help all of us live longer and healthier. Finally, let’s not forget that medical services in Europe and Canada are not free. They pay incredibly high taxes as a result and so would we if we model ourselves after them. There is no free lunch here!
Another part of the health care discussion involves government taking over for the medical insurance industry. Government already interferes at both the federal and state levels through mandated insurance requirements preventing those with less insurance needs to buy more insurance than they need, raising costs. Also, government never ran anything more efficiently or cheaper than private industry. Private industry has the incentive of going out of business to run their business efficiently. Government has no such problem and therefore no incentive to run an effective, efficient operation. In fact, government employees are financially incented to run the biggest, costliest operations they can to qualify for higher job levels and pay.
The best action government could take would be to repeal all the mandated medical insurance requirements and stay out of it completely. If it proves politically unstoppable to keep government out of the medical insurance business, then it should concentrate only on the catastrophic end of the business. For example, if government was responsible for medical expenses above say $100,000, then that would become the limit of coverage for private insurance companies which should lead to a reduction of insurance rates for all of us. Again, this is not free. We collectively have to pay for the government’s insurance expenses through taxes. In any case, rather than have the government start with total medical coverage, let it start small and affordable and possibly work up to higher coverage incrementally in later years. That’s a whole lot smarter than creating huge, unfunded future liabilities such as the government has today with Medicare, Medicaid, and the senior drug prescription program. Currently, no one has a plan to fix/fund them and finding a viable solution my prove impossible and/or very financially painful for all of us
More difficult are hospital and surgery costs, especially for emergency care. When you are taken by ambulance to a hospital because you are critically ill, you are brought to the hospital the ambulance crew thinks is best and close for your condition. It is impractical for you to ‘shop around’ for best prices on the hospital cost, surgical costs if needed, even the ambulance ride cost. You are at the mercy of all those providers and locally, they pretty much have a monopoly (never a good thing) on your health situation. To some degree, your medical insurance if you have it can help limit your liability and introduce some competition on costs. Most insurance companies have a policy of paying ‘fair and reasonable’ rates for your medical services. If they have a contract that the hospital and surgeon can’t charge more than those rates, you have some protection. Otherwise, you must make up the difference and it may be much more than the 20% of the bill you thought you had to cover.
Woe to the person with no insurance. I only learned this first hand recently when my mother was taken to a hospital and diagnosed with brain cancer. Hospital bills averaged 25-$40,000 per week ($150,000 total for four weeks). That didn’t include the surgeons and assistant surgeon’s fee. $45,000 for a 90 minute operation just for the main surgeon (who does several in a single day; think about this, he could make a million dollars a month or more if he actually collected that amount).
As a Medicare and Blue Cross patient, the normal and reasonable amounts they combined covered amounted to a little over 10% of the total bills. I sweated bullets because the hospital had required me to guarantee her bills would be paid as a condition of admission since she was in no condition to sign for herself. What I found out much later is that Medicare contracts doctors and hospitals to accept their fair and normal rates and not charge the patients any more than that. They forgave almost 90% of the total bill.
Imagine the poor families without that kind of contracted limit (e.g. no insurance, or weak insurance)! How can the same medical service be legally allowed to vary by a factor of 10 times on price?! The price of a medical service should be the same for all patients regardless of insurance type or no insurance. It ought to be the law. I believe it is the law for most any other product or service (for example, two woman buy the same dress at the same store on the same day, pay the same price). Then maybe when normal and ordinary expenses were negotiated between the medical community, government, and private industry, real competitive pricing might occur. I’m not advocating fixed pricing because that just creates shortages in medical services as is common in Europe. There needs to be real price negotiation taking place leading to the same price charged for the same service to all patients.
Any discussion about medical costs needs to address the issue of legal costs. Doctors pay huge liability insurance expenses because the alternative is financial ruin. Doctors in high risks fields such as pregnancy and delivery pay so much insurance that many are dropping out, unable to pay the premiums. Those costs, necessarily are passed to us. Yes, we need to weed out and stop incompetent doctors from practicing medicine. Self-policing by doctors has not worked well and needs to be addressed. However, multi-million dollar awards also do great harm to all of us as those expenses are passed down to us plus ‘defensive’ medicine practices are increased, not for our health benefit, but for legal defense reasons, further increasing medical costs. We have to start thinking of doctors as infallible and able to figure out every subtle or complex medical issue perfectly. Nobody is or can be that good. We need to limit legal suits plus also introduce penalties for frivolous suits that should never have been filed to bring balance and reasonability back into play for this issue.
Much of the health care discussion revolves around socialized medicine as practiced in Europe and Canada. Unfortunately, they are no panacea for our problems. They amount to price controls which due to the enforced low cost results in over usage – that is high demand for medical services because the user has no financial incentive to self regulate his/her trips to the doctor or hospital for every minor ailment. What’s the problem with that? The problem is the supply side of medical services. Less financial incentive to practice medicine leads to less doctors and nurses and therefore shortages in their ranks so that there are not enough of them to render all the services requested. Consequently, patients can wait for months for needed operations that are not immediately life threatening, often in pain. Even prescription drugs can be in short supply as drug companies cannot recoup their research costs due to fixed governmental pricing. If we follow suit and fix prescription prices, there would likely not be enough worldwide profit for drug companies to continue to develop, test, and introduce new drugs (average cost about a billion dollars for each drug) to help all of us live longer and healthier. Finally, let’s not forget that medical services in Europe and Canada are not free. They pay incredibly high taxes as a result and so would we if we model ourselves after them. There is no free lunch here!
Another part of the health care discussion involves government taking over for the medical insurance industry. Government already interferes at both the federal and state levels through mandated insurance requirements preventing those with less insurance needs to buy more insurance than they need, raising costs. Also, government never ran anything more efficiently or cheaper than private industry. Private industry has the incentive of going out of business to run their business efficiently. Government has no such problem and therefore no incentive to run an effective, efficient operation. In fact, government employees are financially incented to run the biggest, costliest operations they can to qualify for higher job levels and pay.
The best action government could take would be to repeal all the mandated medical insurance requirements and stay out of it completely. If it proves politically unstoppable to keep government out of the medical insurance business, then it should concentrate only on the catastrophic end of the business. For example, if government was responsible for medical expenses above say $100,000, then that would become the limit of coverage for private insurance companies which should lead to a reduction of insurance rates for all of us. Again, this is not free. We collectively have to pay for the government’s insurance expenses through taxes. In any case, rather than have the government start with total medical coverage, let it start small and affordable and possibly work up to higher coverage incrementally in later years. That’s a whole lot smarter than creating huge, unfunded future liabilities such as the government has today with Medicare, Medicaid, and the senior drug prescription program. Currently, no one has a plan to fix/fund them and finding a viable solution my prove impossible and/or very financially painful for all of us
Subscribe to:
Posts (Atom)