Three Q&A’s About the Statistics in the Email to Sen. McCain

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TO U.S. SENATOR JOHN McCAIN REQUESTING HIM TO SPEARHEAD A BI-PARTISAN LEGISLATIVE EFFORT BASED ON RECOGNITION THAT TRUE CONSERVATISM REQUIRES THE ENACTMENT OF SINGLE-PAYER HEALTHCARE (i.e., MEDICARE-FOR-ALL) IN ORDER TO SAVE THE U.S. GOVERNMENT $300 BILLION/YEAR

Three Q&A’s About the Statistics in the Email to Sen. McCain

Postby Norm Guice » Sun Jul 30, 2017 1:44 pm

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---------------------------- Original Message -----------------------------
Subject: Re: Reading Liberally Salt Lake – CALL TO ACTION
From: Norm Guice
Date: Sun, July 30, 2017 6:12 am
To: ReadingLiberally-SaltLake@johnkarls.com
Attachment:
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John,

I am in total agreement with Medicare for all and that an approach through McCain at present is a great idea; but, I am having trouble getting to your $303 billion/year savings. Put simply, the numbers do not seem to add up.

1. According to your numbers, the % of people covered on various plans totals 96.3% (55.7 % covered by employers + 40.6 % covered by government programs) . If this is of the entire 100% of the population, it leaves only 3.7% uninsured or self paying for insurance. I find it hard to believe that the number of uninsured people plus those that are self insured is that low. At minimum there are people with double coverage not accounted for thereby increasing the remainder who are the self insured or uninsured. Further, all the numbers are limited to "paid" by insurance cost giving no consideration to out-of-pocket cost which are regularly required on top on insurance costs.

2. I am sure that the $3 trillion/year figure includes out of pocket costs as well as the cost of health insurance while the 96.3% captures only the cost of the insurance. You may be able to make a case that the cost of insurance is roughly equal to the cost of health care if you assume that the out of pocket costs not paid by insurance is roughly equal to the profit made by the insurance companies. This also means that there is something of an apples to oranges comparison going on. The Medicare, Medicaid & Military 40.6% sub-total constitutes government costs which are benefits paid to health care providers minus premiums paid (this is certainly true in the case of Medicare) while the 19.5% from health care costs financed by reduced employer taxes only accounts for the cost of health insurance.

3. And mainly, I don't understand the 10.1% savings (i.e. I don't get the 60.1% - 50%). Presumably the cost for the 40.6% currently covered by the US government (hopefully, minus some by allowing Medicare to negotiate drug prices) would remain the same. The cost of the remaining 59.4% (plus dual coverages) would then be additional US government cost. If you assume that this cost will be 50% of the current employer paid, you may be able to say that the cost that would then be paid by the government would be 27.85% (50% of 55.7%) instead of the 19.5% that they cover now. So that is an 8.35% increase. By your reasoning the 8.35% translates to an increase of $250 billion. And this doesn't account for people currently not covered as outlined in item 1.

Bottom line one can certainly make the case that the overall cost for the whole country, government plus citizens, would be reduced but Not that the cost to the government would be reduced.

Norm Guice


---------------------------- Original Message -----------------------------
Subject: Re: Re: Reading Liberally Salt Lake – CALL TO ACTION
From: ReadingLiberally-SaltLake@johnkarls.com
Date: Sun, July 30, 2017 1:04 pm MST
To: Norm Guice
Attachment:
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Dear Norm,

Thank you very much for your e-mail containing questions about the calculations in the Six Degrees-Of-Separation E-mail Campaign to Sen. McCain.

For the sake of good order, here is that calculation –

(1) The 2015 U.S. Census documented that 55.7% of the American population has employment-based insurance. Since the cost of such insurance is deductible to the employer and non-taxable to the employee, then a good estimate of the cost of this insurance to the U.S. government would be the 35% corporate income tax rate * 55.7% of the population = 19.50% of the economy’s total current healthcare costs.

(2) The 2015 U.S. Census also documented the following percentages of the American population receive healthcare from --

19.6% - Medicaid
16.3% - Medicare
4.7% - Military including the V.A.
*****
40.6% – Sub-Total
19.5% - Percentage of economy’s total healthcare costs financed by reduced employer taxes
*****
60.1% - Total of economy’s total healthcare costs currently financed by the U.S. government
*****

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Also for the sake of good order, here are your questions with my comments interspersed --

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Your Question No. 1

1. According to your numbers, the % of people covered on various plans totals 96.3% (55.7 % covered by employers + 40.6 % covered by government programs) . If this is of the entire 100% of the population, it leaves only 3.7% uninsured or self paying for insurance. I find it hard to believe that the number of uninsured people plus those that are self insured is that low. At minimum there are people with double coverage not accounted for thereby increasing the remainder who are the self insured or uninsured. Further, all the numbers are limited to "paid" by insurance cost giving no consideration to out-of-pocket cost which are regularly required on top on insurance costs.

My Answer No. 1

First, these are NOT my numbers. As indicated in the E-mail to Sen. McCain, they are 2015 U.S. Census numbers.

Your suspicion that the 2015 U.S. Census numbers include double coverage may be correct. However, I would refer you to the U.S. Census Bureau for the answer to this coverage question.

Reur point about “the numbers are limited to ‘paid’ by insurance cost giving no consideration to out-of-pocket cost which are regularly required on top on insurance costs” -- that is NOT true re the Medicaid, Medicare or Military including the VA numbers.

As stated, those numbers are U.S. Census Bureau population numbers, not cost numbers.

And the healthcare costs associated with those populations are addressed by U.S. Governmental programs.

The problem, of course, is with the U.S. Census Bureau population number regarding those who obtain healthcare coverage through employers.

The problem is that their coverage is NOT addressed by a U.S. Governmental program.

Instead, the employer programs receive a 35% U.S. Governmental subsidy -- since, as indicated in the E-mail to Sen. McCain, the cost of employer coverage is tax-deductible to the employer but NOT taxable to the employee.

Accordingly, in order to compare “apples to apples” and “oranges to oranges,” it was necessary to reduce this U.S. Census Bureau population number to the portion of that population number covered by the U.S. Governmental tax subsidy.

In other words, it is as if the employers only cover 65% of their employees and the remaining 35% of their employees are covered by a 35% U.S. Corporate Income Tax Savings.

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Your Question No. 2

2. I am sure that the $3 trillion/year figure includes out of pocket costs as well as the cost of health insurance while the 96.3% captures only the cost of the insurance. You may be able to make a case that the cost of insurance is roughly equal to the cost of health care if you assume that the out of pocket costs not paid by insurance is roughly equal to the profit made by the insurance companies. This also means that there is something of an apples to oranges comparison going on. The Medicare, Medicaid & Military 40.6% sub-total constitutes government costs which are benefits paid to health care providers minus premiums paid (this is certainly true in the case of Medicare) while the 19.5% from health care costs financed by reduced employer taxes only accounts for the cost of health insurance.

My Answer No. 2

I agree that the annual cost to the American economy of healthcare exceeds $3 trillion.

However, as explained in my Answer No. 1, the E-mail to Sen. McCain is dealing with U.S. Census Bureau population numbers rather than cost numbers.

[Except, of course, the U.S. Census Bureau population number for employer-based insurance had to be reduced because that portion of the population is NOT covered by a U.S. Governmental program but merely receives a 35% U.S. Governmental income-tax subsidy.]

So how the U.S. Governmental programs are financed (or not) by payroll taxes (e.g., Medicare) or by general revenues (e.g., Medicaid and Military including the V.A.) is NOT relevant to the population numbers.

And whether the U.S. Governmental programs cover 100% of the healthcare costs of the beneficiaries (or whether there are co-pays, for example, with Medicare) is also NOT relevant to the population numbers.


**********
Your Question No. 3

3. And mainly, I don't understand the 10.1% savings (i.e. I don't get the 60.1% - 50%). Presumably the cost for the 40.6% currently covered by the US government (hopefully, minus some by allowing Medicare to negotiate drug prices) would remain the same. The cost of the remaining 59.4% (plus dual coverages) would then be additional US government cost. If you assume that this cost will be 50% of the current employer paid, you may be able to say that the cost that would then be paid by the government would be 27.85% (50% of 55.7%) instead of the 19.5% that they cover now. So that is an 8.35% increase. By your reasoning the 8.35% translates to an increase of $250 billion. And this doesn't account for people currently not covered as outlined in item 1.

My Answer No. 3

As explained in my Answers 1 and 2, 60.1% is a U.S. Census Bureau population number.

[Adjusted, in the case of employer-based healthcare recipients, as explained in Answers 1 and 2.]

So U.S. Government programs (including the tax subsidy for employer-based plans) already cover 60.1% of the U.S. population.

But according to the Organisation for Economic Co-operation and Development (OECD), U.S. healthcare costs (and now we are dealing with the $3 trillion/year total cost to the economy) is a percentage of America’s Gross Domestic Product (GDP) that is more-than-double the average GDP percentage paid by the other 34 countries that are members of the OECD.

[This for “healthcare system performance” that the U.N. World Health Organization ranks only 37th in the world -- behind ALL the other 34 OECD countries AND two third-world countries.]

So if a single-payer system (such as Medicare For All) is the only thing that is common to all of the other 34 OECD countries, it would appear that a single-payer system that does not tolerate all of the non-sense described in our focus book, would reduce American healthcare costs to bring them in line with the other civilized countries.

So yes, the final conclusion does compare the 60.1% U.S. Census Bureau population number of those already covered by U.S. Governmental programs, with the 50% of total American healthcare costs that are legitimate.

In other words, if total American healthcare costs can be cut by 50% to bring them into line with the rest of the civilized world, then the fact that 60.1% of the U.S. Census Bureau’s population number is already effectively covered by U.S. Governmental programs means that there should be a 10.1% cost savings to the U.S. Government.

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Thank you again for your e-mail.

I’m sure that if you have any further comments or questions, that since you are not shy you will let me know.

Your friend,

John K.

PS – Although I know you had a long and successful career in business, the e-mail that went out yesterday morning to all 150 members of our organization and contained the E-mail Campaign to Sen. McCain, mentioned that I had to lobby four of the RSVP’s for our 7/12/2017 meeting who would ordinarily be classified as “conservative” in conventional terms. All four signed off on the calculations and concepts discussed above. Two of the four started their long business careers with MBA’s and the other two were NYC partners together in Ernst & Young (one of the world's “Big Four” CPA Firms) and indeed, one of them ranked 2nd out of 28,788 candidates on the Fall 1971 national uniform CPA examination.

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8/1/2017 Addendum by John Karls

As explained above, we calculated the percentage of Americans covered by U.S. Governmental healthcare plans and by the U.S. Governmental income-tax-subsidy for employer-based healthcare plans based on U.S. Census Bureau population numbers.

The primary reasons for doing this, rather than trying to ascertain how much the U.S. Government actually spends on healthcare costs, were --

(1) Just like the CIA budget and the NSA (aka “No Such Agency”) budget, healthcare expenditures are buried in zillions of different places. (e.g., military and God knows whereall else).

(2) The budget does NOT include income-tax subsidies (commonly called “tax expenditures” in “Washington Speak”) such as the income-tax subsidy for employer-based plans.

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Fine-Tuning Our Calculations

According to the CIA (http://www.cia.gov > World Factbook > United States and then scrolling down to “Economy”), American Gross Domestic Product (GDP) for 2016 was $18.56 trillion (estimated) and for 2015 was $18.27 trillion (final).

[For inflation-aficionados, these figures are in 2016 dollars.]

Also according to the CIA (http://www.cia.gov > World Factbook > United States and then scrolling down to “People and Society” and, within that category, scrolling down to “Health Expenditures”) America spent 17.1% of its GDP on Health Expenditures in 2014 (the most recent data available).

So assuming that the 2014 percentage of GDP spent on Health Expenditures held constant through 2016 and assuming that the 2016 GDP estimate of $18.56 trillion is accurate, America spent $3.174 trillion on Health Expenditures in 2016.

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“Fake GDP”

Since, as stated in our E-mail to Sen. McCain, the Organisation for Economic Co-operation and Development (OECD) reports that the percentage of American Gross Domestic Product (GDP) spent on healthcare is more than twice the average of developed countries, America OVERPAYS 50% of $3.174 trillion/year, or $1.587 trillion/year on healthcare.

This is the result of the healthcare industry’s ability to influence the pols NOT to enforce the nation’s anti-trust laws and patent-law requirements for decades, etc., etc.

Accordingly, it is helpful to think of a $1.587 trillion/year OVERPAYMENT as comprising FAKE GDP.

[And this doesn’t even take into consideration that we are overpaying $1.9 trillion/year for what the U.N.’s World Health Organization reports is THIRD-WORLD “Health System Performance.”]

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Fine-Tuned Final Conclusion

As calculated above, the American economy OVERPAYS $1,587 billion/year for healthcare costs.

And, as set forth in the E-mail to Sen. McCain, the U.S. Government pays for the healthcare costs of 60.1% of the American population through U.S. Governmental programs (Medicare – Medicaid – Military including the V.A.) plus the portion of the American population covered by employer-based healthcare plans courtesy of the income-tax-subsidy (aka, “tax expenditure”) enjoyed by such plans.

Accordingly --

$3,174 billion/year (total American healthcare costs per the CIA as set forth above)
x 60.1% (the percentage of the American population covered by US Gov programs/subsidies)
*******
$1,907 billion/year (estimated portion of total healthcare costs covered by the US Gov)
$1,587 billion/year (total healthcare costs LESS THE OVERPAYMENT)
*******
$320 billion/year = estimated SAVINGS to the US Gov with a SINGLE-PAYER system that, like the SINGLE-PAYER systems used by ALL of the other 34 members of the OECD, should bring American healthcare expenditures into line with civilized nations while providing Medicare for All.

Assuming, of course, that American corruption can be held down to the level prevailing in other civilized nations!!!

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Better Statistics than the CBO (aka, the SWAG Budget Office)

It is respectfully submitted that the foregoing calculations (and those contained in the E-mail to Sen. McCain) are far superior to the SWAGS that the CBO might produce.

[Just like the term “red neck” has morphed from its original meaning (“racist”) that existed when Yours Truly was young to mean “hillbilly” (without any racist connotation) today, “SWAG” has morphed from its original universal meaning when Yours Truly was an Unrestricted Line Officer in the U.S. Navy during the Vietnam War to refer to a “Silly Wild-Ass Guess” to mean today anything from a brazen attitude to illicit loot.]

And when Yours Truly was the Senior Tax Counsel for Worldwide Tax Planning for Texaco Inc. 1974-1987 (when it was still a Fortune 10 company), and when he was the Chief International Tax Partner (Technical) for Ernst & Young International 1987-1997 during which he chaired 1994-1996 the American Bar Association’s International Tax Committee (America’s top 300 international tax attorneys with 22 working subcommittees), the CBO was commonly called the SWAG Budget Office because so many of us could see from confidential client information how “wildly silly” the CBO estimates were.

So yes, it is true that our calculations are only an estimate. But it is virtually certain that our estimate will prove more accurate than any estimate that the CBO may provide.
Norm Guice
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