Potpourri 2007

In the course of a year a few things come up that require only a brief mention and occasionally an addendum to a previous column seems appropriate. As usual I try to address them in my year-end article.

A good friend, and prominent actuary, offered comments on one of my recent columns on health care (“Not Every Haystack Has A Needle”). He pointed out that I did not address one of the major areas of cost shift and one that will become increasingly important as the baby boomers become eligible for Medicare. Specifically he referred to the gap that exists between “billed charges” and what Medicare allows or pays.

To use an example from my own file–Medicare was billed $1,159.22 for a service provided for my wife. Medicare approved $418.85, paid $335.08, and my supplement paid the remaining $83.77. Who paid the $740.37 that was disallowed?

Obviously, if this represented a legitimate request for reimbursement by the provider, those funds must come back to the provider one way or another. The path most often taken is by shifting such costs to insured patients, thereby causing insurance premiums to rise. No wonder premiums for health insurance are high, and as the percentage of the population that is eligible for Medicare rises, the increases will become even more difficult to bear for the generation following the boomers. This will be difficult to solve–but the issue must be addressed.

On another note, a syndicated financial columnist recently wrote that as the financial markets continue to be in turmoil, investors are retreating to Treasury bills and bonds as a secure investment haven. Treasury bills and bonds are an IOU from the U.S. government. They are not backed by a mortgage or any piece of government property or any other security device. The bills and bonds are backed solely by the full faith of the U.S. government and as such are considered the ultimate in safety.

It is, I believe, interesting to note that other government IOU’s with exactly the same guarantee are not afforded the same level of prestige. Specifically I am referring to the Social Security trust funds which are invested in government IOU’s. Such funds have exactly the same backing as Treasury bills and bonds and yet some people still refer to the IOU’s owned by the trust funds as worthless pieces of paper. If that were true then the same might be said of the Treasurys, so prized as a “safe haven.” Nonsense! I still have faith in our government despite the problems we continue to encounter.

One other point on this subject. Critics rightly point out that ultimately our own income taxes will provide the funds to redeem the IOU’s owed to the trust funds. But that is also true of marketable Treasury bills and bonds as they become due, and in this case not all the claimants are U.S. taxpayers. The IOU’s owned by the Social Security trust funds are not marketable so the debt is always internal rather than external. None of the foregoing makes allowances for what the proceeds of any of the government IOU’s are used for. That is a matter of fiscal policy and a much broader subject for discussion.