(This is a timely interjection in the "Health Care" debate from Mike Walker, USMC Colonel, retired)

All,

The head of the CBO recently stated that the Pelosi Health Bill will increase not decrease health care costs. To understand why the increase will occur we need to look at the four disjointed and unbalanced revenue streams that influence the price of health care and health insurance.

We also need to make the distinction between getting health care and having health insurance as this will have an impact on the future cost of health insurance. For millions of Americans without health insurance, getting health care is not an issue as they get it the old fashioned "pay-as-you-go" way i.e. they get sick, they go to the doctor's office, get treated and then pay their bill.

They get all the health care they want without having health insurance. I do not recommend this model (due to the cost of a major illness) but it is a component of the system we need to watch. More alarmingly, there is a mutant form of "pay-as-you-go" health care in some government run health care programs that creates a risk to the financial stability of the health insurance program. More later.

Let us return the four major revenue sources for Americans seeking health care.

1. The largest revenue source today is the Federal Government via Medicare/Medicaid

2. Next are those who have private health insurance.

3. We then have those cited above who do not have health insurance but get health care through "pay-go."

4. Finally, we have those without health insurance who cannot afford to "pay-as-they-go" for health care.

As is well understood, the last group still gets health care. The cost is not offset by revenue so the health care system looks elsewhere to pay the bill, primarily by increasing the rates paid through private health insurance. That is why insuring this group, if done right, can benefit everyone paying for health care.

What is less well understood is that Medicare/Medicaid also drives up the cost of private health insurance. The Federal Government does this, in the case of Medicare, through artificial cost controls i.e. they set a price for goods and services through the Sustainable Growth Rate (SGR) calculation that is below the actual cost of the heath care provided.

This distorts/perverts the equilibrium of the market and again, as in the case of those unable to pay for their health care, requires health care providers to look elsewhere for money to pay the bill. Again, the burden primarily falls on those covered by private insurance through higher premiums.

This distorted outcome will be exacerbated under the Pelosi Health Bill, as it proposes to further reduce the Federal Government payments for Medicare, which is one reason why the OMB raised the alarm.

There are only two viable remedies to ensure services match resources (or balance revenues to costs): (a) Limit services or (b) find additional revenues.

Most means of limiting services are not included in the Pelosi Health Bill so that leaves finding more revenues. Further, any government run health insurance program is guaranteed to follow Medicare with an SRG-type mechanism that will further distort/pervert the market calling for more revenues.

In both cases, this will default to Americans who get their health care from the private insurance sector through increased premiums, increased taxes on employers, or a combination of the two. None of this is good news for the economy.

There will be some efficiency savings from improved use of information technology, etc but since the greatest inefficiency in the system is not going to addressed (the effects of litigation) these savings will not add up to much of a change at all.

While the plaintiff lawyer industry only generates about $4 billion annually through health care court cases, up to 9% of the total cost of health care is tied up in excessive malpractice insurance and, even more damaging, medically unneeded testing that is carried out as “prevent-defense” against possible litigation.

Finally, let us revisit the "pay-go" system and the risk of a physically and financially devastating major illness for an individual who can afford but declines to get health insurance. A poorly crafted government health plan can significantly increase the cost of the plan if it does not require long-term participation by the "pay-go" participants in the health care system.

If there is (a) no barrier to/surcharge for entry into the government insurance plan based on pre-existing conditions and (b) the "pay-go" participants are allowed to opt in and out of the government insurance program at will then the plan has swallowed a "poisoned pill" for cost control.

What will happen is that many "pay-go" participants will only enter the government-run plan when faced with a high cost illness. They will then be willing to pay the premium equaling pennies on the dollar for the health care provided. As soon as they are well again they will opt out to save themselves the cost of the premium.

Everyone else in the government plan that is in for the long-term will have to pony up the additional dollars to pay for the bill for the "here-today-gone-tomorrow" crowd. If the cost of the government health plan is capped through an SRG-type mechanism then the costs will once again fall on the Americans in the private insurance sector.

All this has a remote potential of spiraling out of control if a tipping point is reached at some point in the future where the cost difference between the private insurance plans and the new capped government plan is so great that the numbers of Americans leaving the private plans for the government plan will cause the private insurance industry to collapse.

This is mentioned as the possibility of the home mortgage finance industry collapsing was also considered a very remote possibility in 2005 but became a harsh reality a few years later.

Fixing the health care system is critical. Now is the time to do it. But getting it right is the most important thing of all.

Warm regards,

Mike Walker

The author sits on the board of directors for a non-profit health insurance association in Southern California.

Another must read from Mike Walker, Colonel USMC (retired) All, Please resist the populist salve of taxing the "rich" that has crippled California public finances. We have a model where 1% of the earners pay about 50% of the income taxes. What could be better? Soak the rich and the rest of us schmoos get it back in the form of government programs. Hurry, hurry, get your free ticket for the Government Gravy Train! Well, as we have painfully found out it California, nothing could be any worse. First, California's spark for job creation is small businesses (and has been since the end of the Cold War nearly two decades ago). They are also the largest percentage of high earners for income taxes. Movie stars and pro-athletes are a fraction of a percent of these earners. Tax small businesses into a cave and kiss job creation good-bye! Second, when 50% of your taxes are tied to 1% of the earners you get a life-long pass on the government revenue rollercoaster (which has no resemblance to the government gravy train mentioned above). It is a wicked ride. It kills you when it's up and it kills you when it's down. When the rich boys and girls are riding high, the government coffers will take in a fortune in taxes as California did in 2000. How is this bad? Because politicians will never believe that this peak is a one-time occurrence. They will put on their rose-colored glasses and assume that the rollercoaster only goes up and up. So instead of pausing to enjoy the view, they commit the government to on-going spending increases that takes them (and the rest of us) right off the rails and out into the wild blue yonder. Which is an even better view until gravity takes over. And what happens when the rich boys and girls in California have an economic sneeze like we do today during the recession? Well, then your handy-dandy government catches pneumonia. We still do not know how sick California government is right now. We do know it is as close to death as it has ever been and will not be getting better anytime soon. So the moral to the story is that when you hear some Wahington D.C. politician (especially one elected from California) tell you the big fib that all your problems can be solved by taxing the rich then grab your wallet, lock your door, and pray for divine intervention. Because if these fools get their way the whole United States will be getting onboard "Mr. Crazy California's Wild-Ride" to governance oblivion. And then we can change the name of Washington from the District of Columbia to the District of California. Party hardy, dudes! All the best Mike

Califoria Asseblyman Paul Cook, 65th Assembly District, from recent "Cook Chronicles"

Real Budget Solutions Require Spending Discipline, Not Tax Hikes

When it comes to balancing California 's budget, many of the special interest groups in Sacramento just don't get it. Despite decades of ever-expanding state spending, they still demand more tax dollars and are battling ferociously against any attempts to bring spending under control. Rather than reducing state spending, they're attempting to balance the budget by piling more taxes on the backs of hard-working Californians. These special interest groups feel tax hikes are the best way to solve the state's financial woes - but this couldn't be any further from the truth.

Facts can be stubborn things. Take for example when taxes were increased in 1991 to paper over a similar budget crisis. Some thought higher taxes would cause state revenues to increase, but, to their surprise, overall state revenues actually declined the following two years.

The reason is simple: taxes take money out of the pockets of California families and stifle job creation – two things that must avoided, especially during an economic crisis like the one our state is currently facing.

What the special interest groups don't understand is that the real solution to California's financial problems is true economic recovery and spending discipline. The Legislature must do everything in its power to unleash the entrepreneurial spirit that allows companies to do what they do better than any government program ever will: create jobs and provide opportunities for the two million Californians who are currently unemployed.

Some of my colleagues and I were successful during budget negotiations earlier this year when we passed a measure to give small businesses tax breaks for hiring new employees. This measure encourages companies to do business in California because they receive $3,000 for every new full-time employee that they hire. And since small businesses make up 99% of employers in California, this measure will undoubtedly help stimulate our economy and provide new opportunities for unemployed workers.

Another successful business incentive that we passed back in February was known as the ‘single sales factor.' This measure will spark economic recovery because it gives corporations the option of being based on their sales - rather than requiring them to pay taxes based off of their sales, payroll, and property. By providing tax flexibility, these corporations have an incentive to do business in California and hire more Californians.

During upcoming budget negotiations, I will continue to fight for measures like these that help revive our economy, not restrict it – because that's how we put Californians back to work and generate more revenue for the state. We must create a business friendly environment in California so that companies aren't forced to move to states with smaller tax burdens (taking their jobs and revenue with them). The only jobs these special interest groups are creating are in Nevada and New Mexico by making it too difficult and expensive to operate here in California.

The big spenders in Sacramento still want to believe that taxes are the solution to all of our problems – I think they are wrong. As your Assembly member, I will do everything in my power to keep their hands out of your wallet. If the Legislature is truly interested in generating more revenue, we must promote real economic recovery, create jobs, and not allow any new taxes or tax increases.