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Relative Healthcare Costs as a % of GDP

I am sure you have all read/heard or speculated about the many different scenarios that could unfold should the Supreme Court nullify all or part of the Patient Protection and Affordable Care Act, passed as the signature legislative achievement during the first term of President Barack Obama. Whether Obama has a second term might well depend on the outcome of the Supreme Court decision and, if negative, his reaction to it.  Many have argued that if the “individual mandate” of the law is declared unconstitutional, many other valuable features of the bill will still remain intact. The “individual mandate,” which forces individuals to purchase insurance if they don’t have it through their place of employment, will be part of a $477 billion government subsidy to the insurance companies and without that critical source of funds, the entire healthcare plan could easily unravel. While this healthcare bill is projected to provide health insurance for 30 million Americans who lack this fundamental component of a civilized society, it will still leave about 20 million Americans without health insurance; it is thus an incomplete solution to our problem. Yet, isn’t it odd how things have been twisted, as the Democrats are now hoping that the Supreme Court will not rule against a bill that just a few years ago was a Republican plan for national healthcare, not a Democratic solution.

I can personally see the rationale for declaring the bill unconstitutional because the individual mandate forces people to buy insurance from a private company, thereby subsidizing their profits and insuring corporate survival by a mechanism different from the “free market.” We have a 5/4 “free market” Supreme Court, but in this case it’s hard to know how the court will react because government support of corporations is a big, non-verbal part of our “free market economy” (consider for example the government-subsidized military industrial complex or our government subsidies to oil companies that make obscene profits). In contrast to the new healthcare legislation, our other social programs, such as Medicare and Social Security, are government-run organizations, paid for through payroll deductions, not through subsidizing private companies. The Patient Protection and Affordable Care Act was conceived by the Heritage Foundation and its 2000 pages were written by corporate lobbyists representing them–it was designed to meet the needs of the for-profit health insurance industry. When the law was first passed, the stock value of the for-profit healthcare organizations went up–it was perceived as a victory for them by their investors.

There is another downside and inefficiency to the new healthcare law: it doesn’t separate us from our employment. The new law will still connect our healthcare to our jobs and if you lose your job, you lose your healthcare and have to replace it with something else, hopefully something less expensive than the nightmare, very costly alternatives we have now: we still don’t know how well that component will work, as it is not yet part of the system in motion. As we expand government subsidies to the private healthcare industry, we will make them more profitable and more effective in lobbying Congress to chip away at the healthcare laws and rules to make these healthcare giants ever more profitable. We have a history that includes the inability to resist that kind lobbying, particularly in the current iteration of our government: indeed that’s how our system works.  Money means influence and more money means more influence.  Just as we don’t want financial institutions that are too big to fail (even though we have them), we don’t want private healthcare providers to become so rich that they have ample profits to spend money on lobbying against our own healthcare laws. Remember, these companies describe themselves as healthcare organizations and no matter what their ads say, they are determined to get more profit and to do so by minimizing the care they deliver–it’s in their DNA.  Buried in those 2000 pages of the new healthcare bill are exceptions and exemptions that companies can use to deny care in the interests of profits. It is simply not possible to have a national healthcare system where one of the main components is trying to maximize its profits and compete against the interests of a population trying to get decent healthcare.  It’s not that these companies should be regulated more effectively–they should be eliminated as obstructionists to a decent healthcare system. The mere existence of these for-profit health insurance companies will pose a constant threat to our healthcare system, no matter where the Supreme Court decision on this bill should fall.

Chris Hedges, writing in Truthout, visited the demonstrations held outside the Supreme Court building when the debate was going on. There were those supporting what has become known as Obamacare while the right-wing was entrenched against it and refers to it as socialism (despite its Heritage Foundation origins).  But there were also a small number of thoughtful people, with whom Chris identified, including Dr. Margaret Flowers, who is a well known healthcare activist,  lobbying for the destruction of Obama’s individual mandate and replacing the entire Obamacare with a single payer system that would gut the for-profit healthcare industry and replace it with “Medicare for all.” They have a single payer website which you can visit, join and help advance the cause for a more rational healthcare system. Margaret Flowers’ point is this (quoted from the Hedges article): “If you are trying to meet the goal of universal health coverage and the only way to meet that goal is to force people to purchase private insurance, then you might consider that it is constitutional,” Flowers said. “Our argument is that the individual mandate does not meet the goal of universality. When you attempt to use the individual mandate and expansion of Medicaid for coverage, only about half of the uninsured gain coverage. This is what we have seen in Massachusetts.” Thus the healthcare system in Massachusetts, which has implemented basically the same healthcare system we plan to put in place under the new law, by experiential history , does not lead to universal coverage, something that should be the goal of any national healthcare system. Many people who support this bill believe it’s a start, that an early beginning can lead to later expansion of the system to cover all Americans. I don’t believe that will happen–I think it’s more likely that we will have a two tier system that won’t change for many years, simply because we are too divided as a country to agree on something as profound as universal healthcare–that has to happen through a surging political mandate. The cost factor of our present system is also problematic and seemingly doesn’t get fixed with the new healthcare law and we already top the charts compared to other countries (see chart): currently, our healthcare system costs twice as much as that of most other countries (as a percentage of our GDP) and one reason is the administrative costs incurred by the for-profit system as well as the many unnecessary medical procedures created from the profit motive. If you paid doctors a salary, like the Mayo Clinic and Cleveland Clinic do, you could reduce the motivation behind unnecessary medical procedures. When you consider that we already have the most expensive medical care system in the world, but still leave 20 million uninsured, you have the ingredients of a very sick system, even if the new law gets full backing from the Supreme Court.

But, suppose the Supreme Court rules against the healthcare system? Then imagine that Obama, faced with the reality of a Supreme Court, whose ideological composition may be in place for many years and motivated by public outrage at the Court’s decision, decides to campaign for a single payer system embodied in “Medicare for All.” Although polls show that the majority of Americans are opposed to the Patient Protection and Affordable Care Act, many of them are opposed to it because it doesn’t go far enough in support of a single payer option. Many of us were very unhappy when Obama didn’t give the single payer option more of an opportunity to resonate with the American people before it got pushed aside as an option that couldn’t be passed. Obama’s failure to give the public option more support served as one of the first disappointments in what turned out to be a long string of triangulating and seemingly cowardly attempts to placate the right at a time when everyone but the White House knew that they would not compromise. Not a single Republican voted for the Patient Protection and Affordable Care Act.  Obama has faced this problem for his entire Presidency.  But, the polls show that when the polling questions are formulated properly, the majority of Americans favor a single payer system. The bill that was proposed in favor of such a system was written on a single page, containing a few sentences describing who would be included in Medicare–all those between birth and death. What could be simpler; Medicare already works and has been serving people for more than fifty years. There is enough money to support this system, but part of it must be removed from the expensive, absurd costs of supporting for-profit healthcare and the excessive costs of drugs for seniors passed by a Republican congress and signed into law by GW Bush.  And we should not forget, that by making the for-profit healthcare companies even wealthier, we will be setting the stage for the lobbyist erosion of the best parts of the Affordable Care Act, because those parts will mean less profit to the healthcare corporations and serve as the first targets of their lobbying efforts. These efforts are already underway–these companies will forever be sending lobbyists to Washington to chip away at our healthcare system in order to enhance their profitability. When Bush announced his perception of candidates for the “axis of evil,” he forgot to include medicine for profit in the mix. I for one would be energized if the Supreme Court declared “Obamacare” unconstitutional.What about you?

RFM

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Hacker-Pierson Winner-Take-All Politics

Graphing an American story: the Bill Moyers website shows a graph derived from Jacob Hacker and Paul Pierson and their excellent book “Winner-Take-All Politics: How Washington Made the Rich Richer–and Turned its Back on the Middle Class.” The book itself is worth a read, while the graph, electronically upgraded so when you move your mouse pointer over different features of the graph (like the downward arrows at along the top), pop-ups appear and give some of the historical context to explain how income was  dramatically elevated for the top 1% while that for the bottom 90% changed very little. The graph uses the dollar value in 2008 to illustrate gains for the top 1 percent, while the bottom 90% have been flat-lined for 38 years. The period covered is from 1970 to 2008, so it included the decline and fall of The New Deal and the rise and dominance of the neoliberal financial agenda. During that period of flat-lining for everyone else,  the top 1% of wage earners started in 1970 at more than $ 318,000 and by 2008 they tipped the scales at more than $905,000. The graph covers the presidencies of Nixon all the way through to GW Bush; a few of the facts along the way included Reagan’s firing of PATCO (Professional Air Traffic Controllers Organization), which began the steep downward decline in union representation in the United States work force and the introduction of supply-side economics, the idea that lowering taxes actually increases Federal Revenue: the execution of this concept pushed the Reagan budgets into deep debt. Before Reagan, America was the biggest creditor nation in the world and after Reagan, we were the biggest debtor country on the planet. If a graph about income distribution can make you angry this one should do the trick. We now have a culture where the neoliberals consider most Americans to be a bunch of losers, with a small number of winners based strictly on income; since the most recent recession/depression, we have done nothing to change this hostile dynamic, and, as we all know, this trend continues unabated and will not change until we change it. By change, I don’t mean just recovering what we lost during the current recession/depression, but making gains in such a way that everyone in our culture can be treated as a stakeholder, living a life with the expectations of someone who is living in a wealthy country that cares for its citizens, not the soundbite, throw-away culture that we have created by chasing the illusory objective of winning the lottery. This graph does not illustrate the creation of new wealth–that is not what happened–the differences between the 1% and the 90% were created by the transfer of wealth from the middle and lower classes to the wealthy. It does not reflect creativity, but exploitation and it cannot continue. Our current version of casino capitalism has failed to create a just and decent society and, if anything, the Tea Party members are merely the most recent victims, even though they are too obliging for comfort.  We need to demand changes in the way we grow, educate and care within our society. We need a new revolt!

Michael Klare on America as the new Third World petro-state. If you still have energy left after reading about our wage history from the 1970s on, then you won’t want to miss Michael Klare’s article in Tomdispatch which appeared today. Klare discusses how Big Oil has exhausted its search for oil reserves in Third World countries and is increasingly focused on North America as the new epicenter of oil and gas exploration. But to be successful in this new enterprise the major oil companies will have to roll back years of regulatory restrictions that have prevented oil and gas drilling because of environmental concerns. Of course the environmental concerns were precipitated by disastrous oil spills that did extensive environmental damage, like that in Santa Barbara in 1969, the Exxon Valdez spill in 1989 and the Macondo blowout in the Gulf of Mexico in 2010.   Using their influential weight in the art of political persuasion, Big Oil is intent on unraveling these restrictions as they lay an aggressive  strategy to establish North America as another Third World energy source. One component to their motivation for refocusing on North America is the increasing resistance that Third World countries have against giving Big Oil a blank check for extracting their oil while trampling on the environment. Oddly enough this resistance to unfettered access to Third World oil has been created by more democratic or socialist governments who either nationalize their oil reserves or demand a far larger share of the oil wealth extracted from their oil fields. Thus, in North America, we can expect a far more intensive push from the oil companies in the coming months and the high cost of gasoline will keep pressure on any U.S. President to continue giving out leases for oil exploration even on our most environmentally sensitive regions that have heretofore been off limits. As Klare puts it, “in the process, as has so often been the case with Third World petro-states, the rights and wellbeing of local citizens will be trampled underfoot.” Will we allow oil companies to run roughshod over our national parks and other Federal lands that have long been considered off limits to these interests? Are we willing to reverse the long-standing taboos against oil exploration in sensitive regions in order to serve the interests of economic arguments and our failure to engage in a more robust development of alternative energy sources?

None of us expect that North America will become another Nigeria, which has been described by NY Times writer Adam Nossiter as (quoting from Klare’s article) “the Niger Delta, where the [petroleum] wealth underground is out of all proportion with the poverty on the surface, has endured the equivalent of the Exxon Valdez spill every year for 50 years by some estimates.” But do we carry with us today, the same capacity for public outrage that we demonstrated over the Exxon Valdez oil spill (where today you can put a shovel into the nearby shoreline and see oil oozing around the shovel mark)? And will it make any difference who is elected President and who controls Congress in this coming debate? The oil companies see our internal weakness in the form of a bad economy and deep concerns about our economic future and they see the opportunity to strike while the iron is hot, while we are disarmed and confused.  Oil exploration will be pushed as a source of new jobs and the model of North Dakota, with the lowest unemployment in the country as a result of their oil reserves, will make it difficult for any politician to resist, especially if the environmental lobby remains on life support. It seems that in the present climate, Big Oil may have the upper hand.  Congress has already banned the EPA from regulating the controversial method of hydro-fracking in which huge quantities of water and toxic chemicals are forced under pressure to release oil and gas and the growth of this technique is unparalleled as a potentially dangerous source of contamination to our water supply.  We cannot allow energy companies to make decisions about threats to our health and safety and yet this is precisely what Big Oil is pushing to achieve in this coming election. If the oil industry gets their way, then as Micheal Klare would say, stay tuned for the Third Worldification of the North American continent. To win this war we will first have to mobilize and declare one of our own.

RFM

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American Pad and Paper Company: A Bain Capital Story

Mitt Romney has already made my list for his dangerous, reckless attitudes towards Iran, for which he runs the risk of getting us into another war in the Middle East should he be elected President. But Romney also brings big baggage in his defense of our current casino economic model and that is the subject of this posting. Mitt Romney started and ran Bain Capital from 1984-1999; he still gets profits from the company. It has been estimated that 1/4 of the companies bought or managed by Bain during his tenure were driven into bankruptcy.  One of the companies purchased and managed by Bain Capital, under Romney’s leadership, was American Pad and Paper (AmPad), purchased by Bain in 1992.   The accompanying visual representation of the AmPad’s history under Bain is summarized in the elegant, detailed graphic, put together and available as a pdf by the Boston Globe: you can download it, put it on the wall and distribute as an educational blueprint for how private equity firms operate. The story of AmPad has a beginning, when Bain purchased AmPad in 1992 and it has an ending, when AmPad was forced into bankruptcy and liquidation in 2001. In between those bookends is the story of how private equity firms generate profits for their owners and investors, but fail the company that generated those profits and the workers who ran the business. It tells the story of how a private equity firm ran the company into bankruptcy by forcing it to carry a huge debt load  (measured by the negative numbers and the green line), compared to the company’s sales, indicted by the blue line. The management fees Bain collected are illustrated with bright green circles, while the “other payments” and their amounts are represented by the dark green circles. This graph is not an outlier of the performance of private equity firms and how they manage the companies they buy or control as the major share holder. Rather, this is a graphical template of how private equity firms operate. A decent American, someone who is committed to better equity in America’s income distribution, as well as good management practices for American businesses, should be shocked by this story, but the financial industry of America and the Republican Party as its political representative, celebrate this kind of predatory behavior, because it’s the free market economy at work! If they get their way, the future will be more of the same and then some. A huge failure of our own regulatory agencies, including the SEC,  led to the era of corporate raiding, which forms the basis of our failure to support American manufacturing and the jobs that were slowly created through this process. Private equity firms are a festering wound in America’s manufacturing integrity.

Bain’s initial investment for AmPad was $ 5 million, after which they charged the company “advisory fees” for managerial services. As you can tell from their website describing the private equity branch of the firm, Bain specializes in “leveraged buyouts.” These buyouts are accomplished by putting very little money up front to purchase the company, financing the rest, either by using the companies assets if they have any or saddling the company with a substantial debt load, used to payoff the loan to purchase the company  and provide lucrative profits for the new managers–putting the company in debt is the primary means by which private equity firms generate short-term profit for their investors. Leveraged buyouts should be illegal!

The story of AmPad is hardly unique, but it encapsulates the mechanisms by which private equity firms extract money from the companies they purchase and ostensibly “manage.”  They are not interested in job creation. Their interest is purely in short-term profit-making. For Romney to talk about his work at Bain Capital as one of job creation is absurd–no one else in the private equity industry considers that as one of their motivations (see quote below from the LA Times below). The array of profit-making mechanisms imposed on companies is mind-boggling: no businessman committed to a sensible, strategic growth of their business would ever endanger his company with the kind of debt Bains put on AmPad: debt forms include leveraged buyout loans, management fees and when Bain decided to take the company public, the profits earned from the stock sale, as well as the administrative costs of issuing the IPO (Initial Public Offering) were derived from the stock sales or charged to the company. The purpose of the IPO was to was to generate stock with some value: shortly after AmPad went public Bain sold 40% of their shares, making even more money from their ownership. Private equity firms are also inclined to enhance the growth of the company through the purchase of other companies creating further debt and more job loss through additional downsizing, something usually associated with increased stock value. It should be evident that private equity firms manipulate manufacturing firms without any consideration about the future of the firm–instead they are only interested in short-term profit.

Perhaps the one thing that Texas Governor Rick Perry got right in his political campaign for the Presidency this year, was when he described private equity tactics as “vulture capitalism.” By forcing companies to run up huge debts and charging exorbitant “management fees,” companies lose their ability to make plant investments which would keep them more competitive and modernized. In its eagerness to provide a summary soundbite of private equity firms, the mainstream press is completely incapacitated. I watched on PBS news the other night as someone was trying to explain the value of private equity firms, based on whether they had created jobs or lost jobs. But that is only part of the problem–the major question is what are they doing to companies that secure their future and make them more competitive? What have they done to a company that couldn’t be done better by the ownership of the company and how stable was the company when acquired by the private equity firm?  It’s as if private equity firms and leveraged buyouts are an indication that financial institutions who make money through this sordid mechanism, have given up on American manufacturing and act as though it’s time to sell off the country’s assets and that is  a large part of what happened to the American manufacturing in the Neoliberal era (whose cloud hangs over us today). The first leveraged buyout took place in 1968, but gained momentum in the Reagan era. The practice could have been  stopped by the SEC and financial regulatory agencies, but they progressively proved to be emasculated by the frenzy of the corporate buyouts at the time. In addition, a hidden motivation for this strategy was the benefit of breaking the power of unions, whose presence made it more difficult to downsize companies and reduce wages. Wages, benefits and even whole retirement packages have been swallowed by the mechanisms that private equity firms have used to create wealth for a few investors.

Mitt Romney was hugely successful in running Bain Capital; during the time he ran the company, the investment return averaged 88 percent each year–phenomenal profit levels. These years were the fabulous growth years of our financial industry, which in the 1990s became the largest single sector of our economy and began to outpace manufacturing. In fact, the rise of financial America was created by buying, selling and destroying American manufacturing–that is how the financial sector grew–not by growing something new, but by tearing down what we already had built as a manufacturing economy. At one time America was the envy of the world for its manufacturing base. Where did it all go? And where is it written that a private equity company like Bain has people in their management structure that know how to run AmPad, better than the people running the firm in the first place? It is true that AmPad sales had a period of boom, accompanied by plant acquisitions and closures, but those kinds of performances are typically unsustainable: when a slowdown occurs or if good plant management doesn’t exist to make the appropriate investment decisions for maintaining productivity (and keeping the best people around that know what they’re doing), a company loaded with huge debts will show a drop in profits followed by a decline in the value of the stock, at which time it becomes more challenging for the company to stay afloat, something that AmPad couldn’t achieve. Many of the companies infected with the Bain virus were not new and had been around for a very long time. Take for example, Worldwide Grinding Systems (WGS), established in 1888; the went belly-up less than a decade after Bain became its majority stakeholder. Furthermore, WGS had to turn to a federal insurance agency to bailout its pension system, in large part because Bain  forced the company into a very heavy debt load.

A recent article in the Los Angeles Times describes Bain Capital as follows:

• Romney and his team also maximized returns by firing workers, seeking government subsidies, and flipping companies quickly for large profits. Sometimes Bain investors gained even when companies slid into bankruptcy.
• Romney himself became wealthy at Bain. He is now worth between $190 million and $250 million, much of it derived from his time running the investment firm, his campaign staffers have said.
• Bain managers said their mission was clear. “I never thought of what I do for a living as job creation,” said Marc B. Walpow, a former managing partner at Bain who worked closely with Romney for nine years before forming his own firm. “The primary goal of private equity is to create wealth for your investors.”

Private equity firms are predatory capitalists, willing to force the companies they buy or control to take long-term risks for short-term profits. In the process, part of the short-term profit involves down-sizing the companies they own, eliminating jobs, reducing wages and creating conditions that jeopardize the long-term future of the company. The financial interests who run companies into the ground have absolutely no interest in long-term outcomes, whether it’s related to profits way down the road or our planetary future. They are hooked on short-term profits like junkies in search of a new high. We live in a country turned upside down. Too many economists, those with whom we placed a certain level of confidence that they would be our watchdogs and make certain that the country had a healthy economy, vitalized by a concern for important issues like social stability, equitable income distribution, education opportunities and retirement pensions and programs, have abandoned the ship: our faith in them turned out to be completely misplaced. Most economists are completely supportive of the role that private equity firms play in improving the “efficiency” of companies. This word “efficiency” as derived from their vernacular equates to “downsizing” and increased corporate profitability. Few economists of today have a sufficiently broad enough view of their subject to clearly see the destructive social damage that financial investment organizations like private equity firms have created, not only in terms of our economic future,  but also for the future of our species on this planet. We are badly in need of a new discipline, one that fuses our economic future with the environmental crisis that we are in today. We are deeply in need of new kinds of experts for our badly needed new economy–a new compass that takes into account the needs of a shrinking planet. Where will these new experts come from? Not from economics departments–they had their chance and blew it. We need to build a new economy and put in the kinds of safeguards needed to prevent predatory capitalism from destroying these businesses, while at the same time investing appropriately in the infrastructure improvements needed to place the globe on a better trajectory for the future.

Perhaps we will eventually thank Mitt Romney for the social service he is about to perform as a candidate for the Presidency of the United States. By forcing the public as a whole to get better educated on the sinister motivations of greed that characterize companies like Bain Capital and how private equity firms create so much wealth for their investors, while actually diminishing the wealth of the Middle Class, Americans might finally wake up to the nature of the country we have become. Americans will also need to come to grip with their own naive trust of financial leaders and see the destructive swath that unfettered capitalism has reaped upon the stability of our society and the uncertain future we face as practicing humans trying to make it on this planet. We do not know how much of our manufacturing base was destroyed by the crazy leverage buyouts over the past thirty years and we can only imagine what kind of country we would have today if our government had intelligently stepped in and prevented these corporate disasters from ever taking place–they helped bring on the casino economy we have today.

In closing, I want to quote from a book by Walter Adams and James W. Brock, “Dangerous Pursuits: Mergers and Acquisitions in the Age of Wall Street” published in 1989, reflecting on the impact of leveraged buyout and the absurdity of the practice:

• “In 1983, Esmark, marketer of Swift meats, Butterball turkeys, Playtex products, and STP oil treatments, spent $1 billion to acquire Norton Simon, producer of Hunt’s tomato products, Wesson oil, Reddi-wip, Orville Redenbacher’s popcorn, Johnny Walker Scotch, the Avis car retinal service, and Max Factor cosmetics. The next year, Esmark-Noton Simon was acquired by Beatrice Foods, maker of La Choy, Rosarita, Tropicana fruits drinks, Jolly Rancher candies, Milk Duds, Air Stream motor homes, Samsonite luggage, Stiffel lamps and Culligan water softeners. Two years later, in 1986, Beatrice-Norton Simon-Esmark (which now ranked as the nations’s 26th largest industrial concern) was bought out by Kohlberg Kravis Roberts in a $6.2 billion deal. And for what purpose? To sell off the various Beatrice-Norton Simon-Esmark divisions that had just been consolidated.”

Leveraged buyouts and corporate merger mania made no rational sense for building continuity in manufacturing experience and expertise. The government under Ronald Reagan helped to issue a new gaming license for a new kind of sport: corporate raiding. The new sport was aided by Reagan’s abandonment of antitrust enforcement, his corporate tax cuts and his relaxation of securities regulation. Reagan followed through with his political slogan that “government was the problem, not the solution.” These forces accelerated a reduced motivation to invest in America for fear of corporate takeover. The financial industry of America  had no problem adapting to this new gaming license and showed no concern for jobs lost, companies shattered or assets sold off for profit. The original corporate raiders and arbitrageurs had names like Ivan Boesky, T. Boone Pickens and Carl Icahn, who became the new robber barons preying on companies whose stock had been devalued by economic hard times and foreign competition, some of which was induced by the actions of these robber barons themselves. Bain capital is simply another version of the corporate raiders from an earlier era. We can’t afford to allow the continuation of this silly, but destructive behavior. Too much of our future depends on eliminating this disastrous “free-market” childish behavior and getting serious about human survival and our own economic well-being.

If you want to see how private equity funds have endangered the Danish Economy see my article “Borrowing From Denmark”

RFM

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