We are at the stage at which a new health plan paradigm needs to be adopted by governments and insurance companies.

The Old Paradigm: Healthy people subsidize those who get sick or injured through no fault of their own.

Throughout the history of U.S. health insurance, the prevailing paradigm was that everyone paid for health insurance, with the healthy people paying higher premiums to subsidize those who became sick through no fault of their own.  State insurance regulators authorized the issuance of health insurance policies with three rating frameworks:

• Community rating: everyone paid the same premiums;
• Adjusted community rating: differences in premiums are allowed, based on population demographic factors like gender, age, and geographic differences in health care delivery costs; and
• Experience rating: those with pre-existing conditions either were denied coverage, paid more, or had coverage exclusions.

All these systems assumed that insured people had no control over their health.  Therefore, adjusting premiums based on individual behavioral risk factors, such as smokers’ penalties, allowed in life insurance policies, or premiums based on taking a drivers’ education course, part of automobile insurance ratings, were not allowed in health insurance policies.

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In the March 5-11 issue of The Economist, there was an article entitled “The Perils of Property.” The author made the point that buying a home is the biggest single financial bet most Americans will ever make.  As all too many Americans learned in the recent financial meltdown, buying a home can be a very risky bet.

Our government not only subsidizes home ownership through the home mortgage interest deduction, but it has created a variety of tools to enable lenders to make home mortgage loans to more people.  Lawmakers have always believed that broad-based home ownership is an inherent societal benefit, because they believe it creates a greater stake in the well being of the community.  Independent of whether owning a home is a good investment, American lawmakers want as many Americans as possible to own, rather than rent, their residences.

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In the Sunday, January 23, 2011, New York Times magazine, there was an article entitled “The White House Looks for Work,” written by Peter Baker, a reprint of an article that appeared in the New York Times online version on January 19, 2011. The article contains some hard-hitting photos of people residing in Rockford, Illinois, a city that clearly has faced some very difficult times.  The people pictured in the article are all gainfully employed, but they all comment on how difficult life in their community has become, and how many people are unemployed around them.

One of the most difficult things for people in that situation to understand is that the key to reducing unemployment is to figure out how to create businesses and jobs that bring money in from outside the community.  To do this, a community has to come together, figure out what people somewhere else with extra money to spend need most, determine what they can offer those people, and then develop and implement plans to create businesses and jobs to meet the needs of those distant customers.

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The iconic image, whether a photo or video clip, often shapes the perception of events in profound ways.  As I am learning as a film producer, those who market films specifically look for that one still photo or freeze frame that not only captures the essence of the film, but creates dramatic power.  In an article in the January 20, 2011, issue of The New Yorker, called “The Toppling,” author Peter Maass makes the point that the iconic images of Iraqis tearing down the statue of Saddam Hussein in Baghdad’s Firdos Square on April 9, 2003, was largely a media-staged event.

The significance of these images is that they seemed to convey a sense that Iraqis were ecstatic about the overthrow of the Saddam Hussein regime.  Many commentators compared the statue toppling to the images of Berliners tearing down the Berlin Wall in 1989, or the Rumanians tearing down the statue of their totalitarian dictator Nicolae Ceausescu.  However, whereas these other cases were largely spontaneous expressions of joyous citizens of Germany and Rumania reflecting their newly found freedom, the Baghdad celebrations were clearly premature and, as a result, reflected a strange mix of a few Iraqis, a few media people, and few military personnel.  The power of the images of Iraqis celebrating the American liberation by the symbolic act of toppling Saddam Hussein’s statue may have kept Americans from questioning the wisdom of how the Iraqi war was conducted for quite a while.

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Dan Henninger of the Wall Street Journal wrote a column in the December 16, 2010, issue entitled “What are Taxes For?” This simple question triggered a thought in my mind about the broader purposes of government.

Most people would agree that government has certain roles as a provider of security, a deliverer of basic services, a regulator, an enforcer of societal norms through criminal and civil laws and the court systems that enforce them, and a provider or a creator of certain “safety net” services, such as unemployment compensation and welfare.

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In the early 1980’s, shortly after George Harvey became the Chairman and CEO of Pitney Bowes, I asked a more senior colleague why he thought George was the best candidate among those who vied for the CEO position.  He talked about George’s wisdom and track record, but he also said: “Unlike many adults who collect a paycheck, he actually makes tough decisions.”  He went on to explain that many highly-paid, well-credentialed people are afraid to put themselves at risk by making difficult decisions, but that no leader of a major organization could afford to be afraid to take the risk of being wrong or pretend to be taking certain actions.

That comment has not only stuck, but seems more astute than ever.  I have been both more admiring of people who stick their neck out, and more frustrated with those who should, but do not, when tough situations occur.  In the last few years, we have moved into the most difficult economic environment since the 1930’s.  It has effectively “smoked out” whether people want to embrace tough decisions and engage others in constructive conflict, or whether they will develop even more elaborate ways to avoid those decisions.  I have seen more of both kinds of people in the last three years than ever before, especially the non-performers who have learned to survive by “pretending” to perform.

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Catherine Rampell of the New York Times wrote an article that, unfortunately, reports on an all-too-common problem, the increase in the long-term unemployed population, on December 2, in a story entitled “Dwindling Prospects.” I know people who fit her description. In fact, I have spoken to a local support group of individuals who are part of the long-term unemployed population, in one of the wealthiest communities in the world, Darien Connecticut.

I was effectively unemployed once in my life, for about a 4-month period  (January, 1979, through May, 1979) between my second law firm job and my hiring by Pitney Bowes.  I was told in October, 1978, that I would not be offered a partnership, was given a few months to look for a job while on the payroll, and then was put in an “of counsel” status, meaning that I would be hired only for hourly project work. I had a little work, but nowhere near enough to support my family.  It was initially scary, and I felt all the self-doubt that Ms. Rampell described in the people she profiled.  When I became unemployed, despite a Harvard Law degree, I did not know when I would be hired to work again.

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On the set of the film From the Rough, which I am producing and which is in production until November 5, I spoke with the film’s costume designer.  She told me that there is a shortage of tailors, shoe repair people, and weavers everywhere she goes. I can believe what she says, because it is consistent with my experience.  When my wife and I lived in New York City between 1981 and 1991, I needed to get a tear in a nice suit repaired.  A Saks Fifth Avenue sales professional referred me to a weaver, an elderly Italian woman, who was the only weaver he could identify.  She had a four-week backlog of work, and had hundreds of suits, trousers, and coats piled in her small retail space.

When I hear or read about the latest unemployment statistics, which, by the way, are significantly understated (the real unemployment rate is probably about 15-16% instead of 9.6%, since someone who is “discouraged” from seeking work is still unemployed, even if he or she is not formally applying for jobs), I get frustrated with the inflexible and short-sighted way in which governments and individuals are addressing the problem.

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In the Thursday, September 9, 2010, New York Times, Matt Bai, a political columnist, in an article entitled “In Obama Economic Stance, Risk of Confusion,” points out that President Obama made a significant, and probably mistaken, decision to turn the crafting of the 2009 stimulus legislation over to Congress.  As Bai points out, the legislation could have achieved one or both of two goals: first, to create targeted, short-term economic stimulus; or second, to fund longer-term investments in infrastructure, technology, and human capital that would have provided the foundation for sustainable growth and competitiveness.

As Bai points out, while the legislation had some investments that accomplished each of the two goals, neither potential goal was adequately pursued with the stimulus legislation. Instead, as Bai stated, Congress essentially used the legislation to address the most vocal “demands of disparate constituencies.”  There is a political consequence to this conclusion, which is that the majority of Americans now consider the stimulus legislation to have been a failure. Bai quotes Rahm Emanuel, the White House Chief of Staff, “you should never let a serious crisis go to waste.” The crisis, which precipitated the passage of the legislation created an opportunity for fundamental societal change that was not taken.

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There is a relatively easy pair of solutions to the unemployment crisis.  The biggest issue for private sector employers which have provided retirement benefits for their employees is the burden of providing for future benefits for current and future retirees. (Government accounting is different. Government employers only have to provide for what they out in the current year.)  What many people do not understand is that when a private employer provides such benefits, it not only covers what it pays in the current year, but a share of what it will pay out in future years.  The exact allocation between current and future year benefit expenses varies from employer to employer, but there is no question that portion of current-year benefit expense allocable to future years is huge and it gets in the way of employers hiring new workers.

So how do we solve this problem?  It’s very simple, but the answer varies between pension and retiree medical expenses.

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