Is Health Care a “Right” We Can Afford?

President Obama and others have said that health care is a “right”, like the right to bear arms, rather than a privilege, like driving.  Rather than debate that one, I was curious, can we as a nation afford that right?

The bottom line, for those unwilling to read more than 100 words, is that the US government cannot afford to insure all citizens.  It is a “right” that the government cannot provide or enforce without nearly doubling taxes.

As background, the more wealthy a nation becomes, the more it can decide how much of that wealth it wants to invest in producing more wealth versus improving the lives of current (or future) citizens.  So the health care “right” is an example of using wealth to improve the lives of citizens.

Time for the math.  How much does health care cost a person in the US over their lifetime?  The answer is $316,600.

For the government to pay that, it uses tax dollars.  How much does this average American get taxed over their lifetime?  The average lifetime income of an American is around $1.8 million according to the US Census Bureau (in 1999 dollars), and the average effective tax rate (2003) was 19.7% according to the Congressional Budget Office.  So that works out to about $360,000 in lifetime taxes.

So essentially, 90% of existing taxes would have to go to health care coverage to provide government funded healthcare for all.  Or, at least a 50% increase in federal taxes could allow us to cover it.

Whahuh?  just 50% increase?  Remember that the government is already in the insurance business, paying nearly 40% of its total budget to Medicare, Medicaid and social security.  So to keep all government programs and add some more, it’s about 50% more.  It could be even higher, of course, because it’s possible that the government’s version of insurance may be *more* expensive to administer than the private version.  Seldom do I hear it said that “the US government is the low cost provider” of anything.

Savings from “efficiencies” in the existing system or even from reducing profit of companies is very tricky.  Most health care companies have pretty thin margins.  Kaiser Permanente, a large integrated provider, has profits margins of around 10%.  I like them as an example, because they integrate provider and payer.  There are fewer layers of profit to consider between providers, and it reduces the principal/agent problem as well.

Principal/agent is a subject for a different article.  Briefly, the people who pay for healthcare are not the people who receive healthcare.  There is no real cost implication of eating Krispy Kreme donuts with every meal, or putting butter on your bacon.

To find some efficiency,  we don’t need government.  We need some of the things that make the rest of the economy more efficient.  Like comparison shopping.

I recently went through a bout of exciting intestinal parasites due to international travel.  I went to three different doctors.  They all charge different amounts, and the doctors didn’t know those amounts.  “It doesn’t work that way,” was their answer when I asked them.  “Insurance deals with that.”  The amounts, when I got the confusing bills, were not correlated to quality of service.

If you graduate H.S., we’ll pay for college. Free.

A draft press release from a non-profit I cofounded, Community Promise.  If you’re interested, we can help your community as well.

=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

We are about to make a stunning promise to local high school students, and we need your help.

The Problem:

Our communities are suffering historically large high school dropout rates.  The official high school dropout rates hover between 20-30%.  The unofficial rates are even higher.  High school dropouts could earn 50% more as graduates and 200% more as college graduates.  In addition to these wage differences, the latest studies show that each year’s “class” of high school dropouts costs California $46B in incremental social services and lost wages over their lifetime.  We want to help fix this.

Our Promise:

+++IF YOU GRADUATE HIGH SCHOOL, WE WILL PAY YOUR CALIFORNIA COLLEGE TUITION+++

. . . and our promise to the community is that we can do that for just a $50 parcel tax.

The benefits are clear:

1) For students, a major barrier to high school graduation and college attendance is removed.  High school graduation and college attendance increases, which in turn increases individual salaries and opens opportunities for employment in an increasingly competitive global economy.

2) For the taxpayer, better property values. People want to live in and are willing to pay for a community with this program.  Kalamazoo, Michigan’s property values have remained flat over the last 12 months, while most of the US is down 20%, including our local neighborhoods.

Huh?  How can we do that?

We’ve structured a program that can pay off students’ college tuition.   All this benefit for just a $50 parcel tax per year.  I’m not a huge fan of taxes.  Who is?  But this one is more than just a social benefit.  It has a clear, selfish economic benefit.  Which do you think will increase property values more:  2 cans of paint for your white picket fence or this unique feature of your community?

Who is covered?

We’re starting in the Sequoia Union High School District.  But after we’re successful there, we’re expanding to your community.  Feel free to contact us for technical assistance and support

Who is “we”?

“We” are Community Promise, a non-profit modeled after a successful program in Kalamazoo, Michigan (www.kalamazoopromise.com) that has already been working in the school district to improve educational outcomes.

What can I do?

Suggested tax-deductible donations are:

$100 – Supporter
$250 – Believer
$1,000 +  – Leader

Please make your donation at www.cpromise.org.

The venture capital business is bad. The stock market is worse

As a venture capitalist, I worry about the future of our industry.  Too much money, high valuations, and no exit markets are just a few of the structural problems to worry about. But, at least we’re better than that bastion of capitalism — the stock market.

The latest data is out on Venture Capital performance through March 31, 2009.  Rather than detail every performance number, think of it this way.  If you had invested $10,000 every year since 1999 in the average venture capital firm, you would have converted your total investment of $100,000 into just $85,000 (after paying the VC partners for their expertise).  Yes, you just lost money.

Well, let’s say you know the best venture capitalists and you know how to “stock pick” your way towards the future winning firms.  Your portfolio of investments would have been all the top quartile firms — the best performers.  In that case, you could have turned your $100,000 into $121,400.  Better, but that’s not even 2% return per year.  That’s worse than inflation.

Your alternative, of course, is the stock market.  If you had put $10,000 each year into the NASDAQ or the Dow Jones Industrial Average, you’d have $69,700 or $72,000 of your $100,000 remaining, respectively.  That’s even worse than the venture capital returns.

(Note that for expert observers I’ve ignored some timing details of IRR calculations and the fact that recent venture funds haven’t had a chance to “ripen”.  These results are still consistent through various assumptions, including looking at the venture returns just up through 2005.)

So what would the stock markets have to be to make you indifferent between the markets and venture capital?  If the NASDAQ reaches 1850 or the DJIA reaches 9,000, a stock market investor would equal an investor in average venture funds.  Those are believable attainments, and the stock markets are way more liquid (you can buy and sell whenever you want or need to.  That’s an advantage).

But to reach top quartile venture returns, the NASDAQ needs to find 2650 and the DJIA needs 12,850.  Those aren’t historically impossible, but they seem a bit far from where we are today (currently NASDAQ is at 1730 and the DJIA is 8418).

While I’m clearly biased in favor of venture capital, the simple fact that I can compare VC to the stock markets doesn’t bode particularly well.  VC is an illiquid investment and it’s riskier, with higher variations than the broad stock market.  For that, venture capitalists have to provide a premium.  Over the 40 years ending in 1998, that premium was about 6% per year higher returns than the stock market.  That means your $100,000 would have to be worth $148,500 dollars today — something not even the top quartile firms have provided.

New radio interview on Microfinance

Just did a radio interview with  Steve Bonenberger for Business Talk Radio on May 6th.  The topic was Microfinance, and I was talking about the upcoming Microfinance 2.0 conference as well as my microfinance class at UC – Berkeley Haas Business School (which I simulcast to 13 campuses last year and perhaps 30 to 50 this year).  Loaded up here for your pleasure.

radio show

Which is more contagious? Swine Flu or Swine Flu Press Coverage

I was wondering which was more contagious – Swine Flu, or the Swine Flu press coverage?

To answer that question, I used the sometimes flaky data from Google News search (meaning it gives different answers at different times).

The results are in and it’s a landslide.  Swine flu press coverage is far more contagious than swine flu.

With 279 confirmed cases of swine flu in the United States as of May 4th, the number of press articles on that day was 154,617,297.  That’s 554,184 articles per patient.

But wait, the confirmed cases is cumulative.  So I have to accumulate the swine flu articles since the first US case on April 23rd.

Again, Google News search gives different answers to each search, but adding up the returns of articles on each day, there have been roughly 2.5 billion news article hits through May 4th.   That’s nearly 10,000,000 articles per confirmed case.

Even more interesting (at least to me).  It is essentially one article, per day, for every person in the United States, including those that are illiterate or do not speak English.

So we are far more infected with press coverage than we are by the swine flu virus.  Even worse, press coverage may be more lethal.