I was pleasantly surprised and gratified to see the U.S. Securities and Exchange Commission sue the State of New Jersey for fraudulently misrepresenting its financial health because of its failure to report on the status of its pension funding.  According to the SEC, New Jersey had 79 separate bond offerings between 2001 and 2007, representing over $20 billion in tax-exempt bonds, on which it made false and misleading disclosures to investors and prospective investors.

I would hope this is a first step to getting government finances in order.  Like many people with discretionary assets, my wife and I own tax- exempt bonds.  We are deeply concerned about whether we are getting accurate and complete information about the state of finances in Connecticut, and in the few other states in which we have government bonds.

According to an editorial in the Friday, August 20, 2010, Wall Street Journal, entitled “The SEC’s Jersey Score” Congressman Barney Frank believes that the credit-rating agencies should apply different standards to government securities issuers because they rarely default.  He is wrong.  They do default, and California defaulted last year by paying in IOU’s instead of cash for a period of time.  During the Great Depression, many units of government were essentially insolvent.

The issue is much bigger than whether states and localities pay their bondholders on time.  They are cutting back vital services to their citizens and punitively raising taxes and user fees and reducing their base of employees in clumsy and dysfunctional ways to meet their payment obligations.  They are essentially becoming nothing more than conduits for payments from all the citizens to a much smaller group of militant, well-organized state and local employees and retirees who are receiving excessive benefits.

This is not an income transfer from the rich to the poor, but from all the citizens, rich, middle class, and poor, to a small group of citizens who are taking a greater share of the citizens’ wealth than is justified by the type and duration of services they perform for the state and its citizens.  The reason this income transfer system has arisen and persists is because it is the path of least resistance for government officials.  More state and local employees, particularly as union members, means more votes and more campaign contributions, and a greater chance of being re-elected.

Only time will tell whether this lawsuit is an aberration or whether it scares risk-averse public officials into doing the right things in terms of disclosing the true story regarding the financial health of the governmental entities they lead.

As the son of a mother who, mercifully died suddenly as a result of an automobile accident when she was in the early stages of Alzheimer’s disease, and a father who deteriorated over an 15-month period, all of which was spent in a rehabilitation center and a nursing home after he broke his hip at age 82, I have thought a lot about end-of-life issues.

As a result, I was gratified to see an incredibly incisive and thoughtful article on this subject by Dr. Atul Guwande of Harvard Medical School in the August 2, 2010, issue of The New Yorker. The subject of end-of-life care for individuals with terminal illnesses or diseases is not a new one, but Guwande brings new insight to it.

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I have received two comments regarding the recent health care legislation.  The one I just approved, from Congressman Chris Murphy, is obviously thoughtful and took considerable time and effort to draft.  I have some reactions to that comment, as well as the comment received earlier in the week, but I will be deferring response to both comments until this weekend, when I am back home and have an opportunity to look at some research I have accumulated on health care.  I am honored that Congressman Murphy, a thoughtful and dedicated public servant, considered this blog of sufficient value that he would make the effort to comment.  I owe him and all of you reading this blog a better effort than I can make from my hotel room after a lengthy conference.

One of the fundamental issues with health insurance reform, and the reason it has been so difficult to get done is that health insurance differs fundamentally from other risks.  One of the basic principles of insurance is that an insurer creates a mechanism to protect against a defined risk event, with a defined financial payout, by collecting an amount in advance from each policyholder that, along with investment returns, allows for the insurance company to make an adequate profit.

This plays out very well in insurance products like life insurance, auto insurance, and property and casualty insurance.  Life insurance is the simplest because the insurance company determines, for an entire policyholder population, when people are likely to die, and sets premiums to make sure it can pay out when people die.  Auto and property and casualty insurance work similarly, with the defined benefit being either the fair market value of the auto or the legal liability level of the policymaker.  Because the definition and scope of fair market value and the potential risk of legal liability have not changed very much over time, these are relatively stable risks to insure.

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In the September 7, 2009, issue of the New York Times, reporter Michael Lud wrote an article entitled “Out of Work and Too Down to Search On,” which essentially made the point that the economic environment is so bad that many people stop looking for work.

Unemployment is psychologically devastating.  I know: I was unemployed for several months in early 1979, when I left my law firm and was trying to secure another legal position.  I was asked to look for another job because I was told I would not be made a partner.  My stay on the unemployment rolls was brief, but terrifying.  As a result, I empathize with anyone who has lost his or her job.

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At a time when businesses are trying to reduce costs to continue to be profitable when revenues are either declining or flat, it is tempting to reduce spending on government advocacy, especially if a business believes that it is adequately represented by trade associations or coalitions.  Nothing could be riskier.  Let me illustrate my point by discussing the evolution of health care legislation.

Contrary to what is sometimes reported in the popular media, large, self-insured employers want to continue to control and manage their own health plans for their employees, and are unenthusiastic about the “single payer” system, which would take control of health care costs away from them, and place it with a government-owned organization.  While some employers think a single payer plan will reduce their health care cost outlays, this is probably not the case, and, more likely than not, they will pay more, except that it will be in the form of one or more kinds of taxes.  In fact, when I hear the comment that Toyota has an advantage over GM because Toyota does not have to pay health care costs, I am astounded that any intelligent person accepts this argument uncritically.  Someone, whether it is Toyota or another category of Japanese taxpayer, pays for the health care costs of Toyota employees.  While a single payer system spreads the cost over a larger population, the real driver of health care costs is not who pays, but how much is paid, based on usage and cost-per-unit.

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Given the recent attention to “millionaire’s tax” proposals, I have been asked about higher tax rates on high-income individuals.  Whether I support paying higher taxes depends on whether government is spending those tax revenues wisely.

We have many unmet societal needs for which increased government spending could be helpful.  In fact, we spend too little on public transportation, supportive housing for people ready to leave homeless shelters, but not ready to pay for market-rate housing, and cutting-edge medical diagnostic tests. 

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Last week, I was at a series of meetings in Washington, D.C. talking with members of Congress and their staffs about the recommendations of a coalition of which I am a member called the CEO Health Transformation Community.  One of the other members is Dr. Ray Zastrow of Quad Med, a provider of onsite corporate clinics based in Milwaukee.

Dr. Zastrow made a memorable comment many times during the day.  He said that Quad Med increased the quality of care, and significantly reduced its cost, by “slowing down the practice of medicine.” He said that Quad Med health care professionals are expected to spend 30 minutes with each patient even if they diagnose the problem in the first five minutes. He said that every visit to the clinic is a “teachable moment,” and the health care professional must take the opportunity to learn more about how the patient is feeling overall. (more…)

One of the deepest potential conflicts in every society is the conflict between the roles we have as workers versus consumers.  As a consumer, we want the best product or service at the lowest cost, and, if we have unique needs, we want those unique needs addressed at no additional cost.  We want the worker who is serving us to go the extra mile, and we only want to pay top dollar for exceptional service.

The worker role can be made consistent with our consumer role with exceptional management by those who lead the workers providing us with the products and services, whether those leaders are managers or, in the case of a unionized work force, union leaders.  Too often, however, the path of least resistance for a product or service provider is to design or allow the design of their processes for the convenience of the worker at the expense of the consumer. 

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In the Sunday, December 28, 2008, New York Times, professor Alain Enthoven has a cogent op-ed piece entitled “Health Care With a Few Bucks Left Over.”

In his piece is a compelling argument that our current health care system, neither the patients nor the providers are rewarded for cost-effective, high-quality health care.  He believes strongly that giving more provider choices to health insurance plan participants, particularly large, efficient multispecialty group practices, would significantly reduce health care costs. (more…)