Health Insurance Co-Ops vs. Government-Run Health Insurance

* More Honest Debate *

By: Larry Walker, Jr. –

What is a Cooperative (Co-Op)? *

A Cooperative is a business organization owned and operated by a group of individuals for their mutual benefit. A cooperative may also be defined as a business owned and controlled equally by the people who use its services or who work at it.

There are many types of Co-Ops in the United States. I will attempt to address some of the most common cooperatives. If you belong to a credit union, you are already a member of a Co-Op. My electric and natural gas utility company is an EMC, another word for Co-Op. In the insurance industry, Co-Ops are called Mutual Companies, or Mutual Legal Reserves.

Credit Unions are owned by their members. When you join, you must establish a share account and maintain a minimum balance. Your share account is your capital investment in the company. You are paid ‘dividends’ on your savings and checking accounts. Dividends are your share of the Credit Union’s profits. A Credit Union offers benefits for its members such as preference on home and automobile loans.

An Electric Membership Corporation (EMC) is a service cooperative owned by those who receive its services. There are nearly 1,000 electric cooperatives in the United States. When the EMC makes a profit, those profits are shared with customers through credits to their electric bills, or lower rates.

Health Insurance Co-Ops

Health Care Services Corporation (HCSC) is the largest customer owned health insurer in the United States.

  • HCSC operates the Blue Cross and Blue Shield plans in Illinois, New Mexico, Oklahoma and Texas, employing 17,000 people and serving more than 12.4 million members – 38% in national employer plans, 32% in large local employer plans, 10% in small employer plans, 10% in individual plans and 10% in government plans.

  • HCSC is the fourth largest health insurance company in the United States and the largest customer-owned health insurer. In 2008, the company’s gross revenue totaled $39.9 billion (considering all subsidiaries which are not included in the chart below in accordance with GAAP).

  • HCSC is the most financially secure health insurer in the United States, with a rating of AA- (Very Strong) from Standard and Poor’s, Aa3 (Excellent) from Moody’s and A+ (Superior) from A.M. Best Co.

  • HCSC retains full or joint ownership of a number of subsidiary companies, including Fort Dearborn Life Insurance Co., Dental Network of America, MEDecision, Availity, Prime Therapeutics and RealMed.

If the HCSC model is the type of Health Insurance Co-Op being discussed in Congress, then I am a fan. Yes. Here is an idea that would have strong bi-partisan support. We can agree on Health Insurance Co-Ops. In my opinion Co-Ops are in line with the purest sense of Capitalism. On the other hand, if Congress is talking about some kind of partially Government owned, or Government controlled entity, then I am not in favor.

In fact, I would like to join HCSC, or a similar Co-Op, but unfortunately it only operates in 4 states, and none of the health insurers in my state are co-ops. Fostering increased competition by allowing insurers to operate in all states would be an improvement.

The Plan

So if America wants to convert its health insurance industry to Co-Ops, the question is how? Obviously, it would be unfair, and foolish, to force the existing insurers out of business, so how do you get them to convert?

I am a proponent of Binary Economics. Under Binary Economics, the only role of Government in private enterprise is to offer interest-free loans through its central bank. Existing publicly traded insurers will need to buy back all of their stock in order to make the conversion to mutual companies. Interest free loans from the Government will facilitate this conversion. The loans will be paid back over the long-term out of the profits of the insurers. Once the loans have been paid, the insured will be able to participate in a larger share of company profits. Profits will be shared with policy holders either in the form of dividends, or lower insurance rates.

Interest free loans are not hand-outs, or bailouts. The money gets paid back. Granting interest free loans would be a much better use of taxpayers money than the current foolishness being promoted by certain ‘linear’ thinkers (right and left). The World is not flat. In fact, most good ideas come from outside of the box.

Reforms I can believe in:

  1. Conversion of the Health Insurance Industry to Co-Ops

  2. Tort Reform

  3. Fostering Interstate Commerce for increased competition

  4. No denial for preexisting conditions

  5. Tax Incentives for those paying higher premiums due to preexisting conditions

  6. Tax incentives for purchasing health insurance

  7. Portability of policies

Reforms I don’t believe in:

  1. Making health insurance mandatory

  2. Taxing employers who don’t offer insurance

  3. Expanding Government-Run health care

  4. Excessive Government Regulation

  5. Triggers

click images to enlarge

Sources:

http://www.hcsc.com/about-hcsc/overview.html

http://www.investopedia.com/terms/m/mutualcompany.asp

http://en.wikipedia.org/wiki/Co-op

http://www.waltonemc.com/mycoop/

https://blackandcenter.blog/2009/09/02/government-run-vs-private-health-insurance/

Getting Honest About Social Security – Part 3

We begin with the Congressional Budget Office’s Estimate of the President’s Budget (above). Why wait until tomorrow? It’s on the CBO’s website at http://cbo.gov/?

You will recall from Part 2, that entitlement spending (aka mandatory spending) is comprised of the following:

Entitlement Spending, at $1.595 trillion in FY 2008, is over half of the U.S. Federal Budget. The largest entitlement spending programs based on FY 2006 were Social Security and Medicare, as follows:
  • Social Security – $544 billion
  • Medicare – $325 billion
  • Medicaid – $186 billion
  • All other mandatory programs – $357 billion. These programs include Food Stamps, Unemployment Compensation, Child Nutrition, Child Tax Credits, Supplemental Security for the blind and disabled, Student Loans, and Retirement / Disability programs for Civil Servants, the Coast Guard and the Military
In FY 2009 and 2010 alone, entitlement spending is projected to exceed government revenue by some $290 billion. So the United States is facing a budget deficit, in just two years, before spending one dime on our defense, education, veterans pensions, and other vital programs. And this wasn’t supposed to happen for another 31 years?

Is anyone still seriously considering dumping another $1 trillion dollars into this government-run ponzi scheme?

Obama said he wanted an ‘honest debate’ on his health care proposal. Well, here’s the problem. We can’t afford to waste another dollar on some misguided government program, no matter how noble. Social Security is little more than a government-run Ponzi Scheme. Medicare is only 1/2 funded by premiums. Isn’t Medicare an example of government-run health care?

What kind of health insurance company would only collect 1/2 of what it spends on claims year-after-year, after year? I’ll tell you. A government-run health insurance company. Like that commercial says Mr. president, “You Need A Plan!”

Solutions abound, but what Obama is proposing isn’t one of them.

To even begin an ‘honest’ discussion on Social Security, Medicare, Government Option Health Care, or any other ‘reform’ proposed by ‘government workers’, you first need to get honest with the public, and then your proposals had better include the following:

  • Reductions in government spending
  • Reductions in government programs
  • Privatization of government entitlement programs
  • Budget balancing initiatives
  • Incentives for private investment
  • Incentives for private business growth
  • Incentives for private job creation
  • and, Policies that promote individual liberty

Getting Honest About Social Security – Part 2

What are Entitlements?

Entitlement Spending, at $1.412 trillion in FY 2006, is over half of the U.S. Federal Budget. The largest entitlement spending programs are Social Security and Medicare, as follows:

  • Social Security – $544 billion

  • Medicare – $325 billion

  • Medicaid – $186 billion

  • All other mandatory programs – $357 billion. These programs include Food Stamps, Unemployment Compensation, Child Nutrition, Child Tax Credits, Supplemental Security for the blind and disabled, Student Loans, and Retirement / Disability programs for Civil Servants, the Coast Guard and the Military

How Is Social Security Funded?

Social Security is funded through payroll taxes. Through 2017, Social Security collects more in tax revenues than it pays out in benefits because there are 3.3 workers for every beneficiary. However, as Baby Boomers start to retire and draw down these benefits, there will be fewer workers to support them. By 2040, the revenues to pay for Social Security will be less than the expenditures.

How Is Medicare Funded?

Unlike Social Security, Medicare payroll taxes and premiums cover only 57% of current benefits. The remaining 43% is financed from general revenues (i.e. including any surplus remaining from Social Security). Because of rising health care costs, general revenues will have to pay for 62% of Medicare costs by 2030.

Medicare has two sections:

  • The Medicare Part A Hospital Insurance program, which collects enough payroll taxes to pay current benefits.

  • Medicare Part B, the Supplementary Medical Insurance program, and Part D, the new drug benefit, which is only covered by premium payments and general tax revenues.

How Will the FY 2008 Budget on Entitlement Spending Affect the U.S. Economy?

Through 2012, entitlement spending is budgeted at about 10.5% of GDP, with payroll tax revenue at about 6.5% of GDP, so that these unfunded obligations add to the general budget deficit. For example, in FY 2006 Social Security brought in $608 billion in “off-budget,” extra funds from payroll taxes. However, other entitlement programs had expenses that far outweighed this “extra” revenue, creating a mini-deficit of $574 billion within the entitlement spending budget alone. The amount increases to $784 billion by 2012.

Long-term Impacts

Long-term, however, the impact of doing nothing about these burgeoning unfunded mandates will be huge. The first Baby-Boomer turns 62 this year, and becomes eligible to retire on Social Security benefits. By 2025, those aged 65+ will comprise 20% of the population.

As Boomers leave the work-force and apply for benefits, three things happen:

  1. The percentage of the labor under 55 stops growing, providing less payroll taxes to fund Social Security.

  2. GDP growth declines to less than 2% due to fewer workers.

  3. By 2040, Social Security alone brings in less than it spends.

Getting Honest

Obama has stated that any further debate on his health care reform proposals needs to be “honest debate”. He implies that critics have been dishonest, which means we’re just lying.

In looking at the facts above, one need only ask the following question:

Are the budgetary problems facing ‘government workers’ in Washington, DC caused by the private sector, or by the government?

Obama wants to overthrow the private health insurance industry and fold it into a government run entitlement. Yet, the federal government has proven itself incapable of managing its current programs. How is adding more of the burden to the government going to resolve the baby boomer issue?

With all due respect, as a wise man once stated, “government is not the solution to our problems, government is the problem.”

What we need to be discussing is a way to turn over the government’s primary entitlements: Social Security and Medicare to the private sector, not the other way around. If not, the next thing ‘government workers’ will be proposing is how they can fold State, and private pension money into the black hole of the Social Security Ponzi Fund.

Obama’s solution: Solve a problem by compounding it. “We have to spend more money to keep from going bankrupt.”

American’s are simply saying, “No”.

Getting Honest About Social Security – Part 1

Reality

The maximum social security benefit for 2009 for a person retiring at full retirement age (66) is $2,323. This is based on earnings at the maximum taxable amount for every year after age 21.

Analysis based on maximum benefits:

  • The total paid into the system by, or on behalf of, the recipient by the age of 66 is $266,377 ($235,042 of this since 1980).
  • The total paid in by the age of 66 with 3% compound annual interest is $394,785.
  • By the age of 74, the recipient will receive a full return of the amount paid in on their behalf without interest.
  • By the age of 77, the recipient will receive a full return of the amount paid in on their behalf with interest compounded at 3% annually.
  • Assuming the funds continue to receive a return of 3% through the annuity phase, the funds would last up to the age of 80.

So by the age of 74 the total paid in by the recipient plus amounts matched by employers are exhausted. If the government were able to achieve a meager 3% rate of return, the total savings at the time of retirement would be exhausted by the age of 77. Assuming a 3% return on investment during the annuity phase, the funds should last through the age of 80.

However, in reality, the average monthly benefit for social security recipients is only $1,061 per month or $12,732 per year in 2009. There are currently some 51.8 million recipients receiving some $55.0 billion in benefits each month.

Dishonesty

The only problem and it is a major problem, in fact it is a problem many times worse than the alleged health care crisis, is the fact that the government has stolen the Social Security Trust Fund. There is no trust fund. There are ‘no’ dollars in savings for the government to invest and receive even a meager 3% return. Every dollar paid into the fund this month will be spent this month, and then some.

Worse than that, the Federal Government has run up a National Debt of $11 trillion, and intends to increase this debt by another $9 trillion over the next 10 years. With the peak of baby boomers hitting retirement age in 2019, a $20 trillion National Debt, longer life expectancy, and a smaller workforce, how are politicians going to be able to keep this “ponzi” scheme going?

Honesty

It is clear to me that Washington, DC cannot be trusted with taxpayer’s money. We need to get the Federal Government the heck out of the retirement business. And don’t even talk to me about letting the government take over health care. I’m not hearing it.

We need to work on solutions that will allow American citizens to save for their own retirement, and to be able to pay for their own health care. At the same time, we have to figure out how to untangle ourselves from this massive ponzi scheme which politicians have gotten us into.

As far as I’m concerned, any solution that involves spending another dollar of taxpayer’s money better include a detailed cost benefit analysis. Any solution to the problems of our time that doesn’t involve drastic cuts in spending by the federal government is not a solution.

To even begin an honest discussion on social security, Medicare, health care or any other political issue being discussed these days, ‘government workers’ had better get honest with the public, and their proposals had better include the following:

  • Reductions in government spending
  • Reductions in government programs
  • Privatization of government entitlement programs
  • Budget balancing initiatives
  • Incentives for private investment
  • Incentives for private business growth
  • Incentives for private job creation
  • Policies that promote individual liberty

References:

http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/

http://ssa-custhelp.ssa.gov/cgi-bin/ssa.cfg/php/enduser/std_adp.php?p_faqid=5&p_created=955050377

http://www.socialsecurity.gov/OACT/COLA/cbb.html

https://blackandcenter.blog/2009/08/16/the-cbo-and-our-common-welfare/

http://www.cbo.gov/doc.cfm?index=10297

http://www.usnews.com/articles/opinion/mzuckerman/2009/08/10/deficit-means-massive-tax-hike-years-of-misery-if-obama-wont-cut-spending.html