Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

Adventures of an Actuarial Therapist

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It was a dark and stormy night.  I was closing up my office, and this scraggly old man in a red, white and blue top hat came scrambling in.  He called himself Sam.

Sam: Hey doc, you gotta see me.  My fiscal situation is a “ticking time bomb”.  We’re racing toward financial ruin, and I need to talk.

Me: Take a seat on my couch.  Tell me more.

Sam: Let’s talk Medicare.  In the near-term, the aging of the population is estimated to explode its costs beyond our means.  In the longer-term, medical innovation and utilization patterns threaten to bankrupt the country.

Me: Sounds rough.  Any ideas on how to fix the problem?

Sam:  I thought I’d start by offering somewhere between a $1 trillion and $2 trillion entitlement to help working age people get insurance.

Me: I think I missed something.

Sam: No, you didn’t.  I think that if we can wring a trillion dollars of revenue and cost savings out of the American public and Medicare, then we can give that extra entitlement and not speed up our impending fiscal disaster.  If we are lucky, we can put private insurance companies into the same situation I am.

Me: You mean fiscally insolvent?

Sam: Don’t worry.  We’ll set up a public option that will always be there if private insurance can’t survive under our new mandates.

Me:  I’m still stuck on how you are going to help Medicare or your fiscal situation.

Sam: We can set up some egg heads in a “Comparative Effectiveness Bureau” and let them do their magic.  We’ll also measure physician quality, making sure that physicians order every single possible recommended test.

Me: I missed something again.

Sam: Look at the Monkey!

Me: For the last time, could you tell me something that is actually going to reduce your overall financial problem?

Sam: I promise that we won’t make it worse.  Good enough?  No?  Well, then how about experimenting with Medical Homes?

Me: You mean HMOs?  And where are all the physicians for the Medical Homes going to come from?  And to treat the previously uninsured?

Sam: China?

Me:  Ok, I give up.  Maybe I can at least understand how you are going to pay for the additional $1 trillion entitlement program.

Sam: First realize that as employers drop health coverage, wages will spike giving the Treasury tons of tax revenue.  $300 billion worth in the first HELP estimate.

Me: And when have wage increases spiked because people were dropped from their employer’s coverage?

Sam: I can imagine it happening, can’t you?  I’m feeling better already.

Me: Ok, but you are still way short.

Sam: How about taxing the health benefits of people who have rich benefits and currently pay a lot?

Me: Isn’t the point of reform to make sure that people have rich benefits and DON’T pay a lot?

Sam: But if that happened, we wouldn’t raise any revenue to pay for the entitlement!  Geez, you are an idiot.

Me:  So it has been said.  Even with all that money you are way short.

Sam: Well, I’m working on other ways of paying for the $1+ trillion expansion because that stupid CBO can’t understand this any better than you.  One idea I had was to create a new long-term care entitlement program.  I call it a CLASS act.  That stands for “Community Living Assistance Services and Supports”.  Pretty clever, eh?

Me: What?  You’re going to pay for a healthcare entitlement expansion by starting up yet another entitlement plan?  This is getting pretty ridiculous.

Sam: No, you actuaries just don’t think creatively enough.  People will voluntarily pay premiums toward this long-term care benefit.  We don’t allow them to get benefits until after the CBO’s 10 year budget window.  That means the premiums they pay now can be used to fund health insurance entitlements!  Presto, abracadabra!

Me: So the premiums they pay now will be diverted to health insurance entitlements and won’t go toward the actual thing they are “buying”?  You ever heard of Ponzi?  Madoff?

Sam: Yes, they were brilliant!

Me: But what happens when people actually need long term care paid for?

Sam:  CHINA!!  You act like you aren’t listening to me.

Me: I’ll admit that I’m more than a bit confused.

Sam: Well, if you don’t like that answer, I have another: tax the rich!

Me: I thought taxing the rich was how you were going to actually raise revenue to reduce your exploding deficits?

Sam:  Health insurance is more important.  Look, my full faith and credit is behind these things.  They aren’t schemes.  I’m too big to fail!!

Me: is that why you came skulking in here?

Sam: Well, if worst comes to worst, we can always borrow more.  Those economists aren’t any brighter than you.  I’ve always been able to borrow as much as I need.

Me: China?

Sam: Now you are finally catching on.

Me:  Look, if China wanted to invest in a healthcare financing company or a long-term care company, they could do that today.  Why would they want to buy into Federal versions?

Sam:  Hmmm.  Maybe we should talk them into buying so much of our debt that they simply have to buy more debt or they totally lose their money!  Boy, I love it when I get clever.

Me:  I think you have a reality problem.  Can we schedule another session for next week?  I have to go home to my kids.

Sam: Me too.

Me: What?  No, I’m going to go home to MY kids.  You go home to YOURS.

Sam: No, I think I’ll just come home and eat with your kids.  And have them wash up after us, too.  Wouldn’t that be great?  What if washed your car?  Changed your oil?  I can think of all sorts ways that your kids can make both of us richer.

Me:  NO, NO, NO.  We’re done here, Sam.  Please leave my kids alone.

Sam: Tell them not to worry.  I’ll make sure that THEIR kids take care of them, just like I’ll make them take care of you.  What a great country!  I feel much better now.  You are a great doc.  Let’s eat!

Me: You didn’t listen to anything I said.

Sam: Well, you are an actuary, right?  Now how do I get to your house?

It was a dark and stormy night.  No dawn in sight.

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Written by Victor

July 18, 2009 at 2:08 pm

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