Profits to pay for socialized medicine?

I just read this silly article about health care reform in the Chicago Southtown Star newspaper. It was written by a guy named Phil Kadner for the AP (Associated Press) wire service. Kadner interviewed US Rep Dan Lipinski from Chicago, but it seems Kadner was speaking for himself in this statement:

I support single-payer national health insurance because everyone would be covered, and I believe the billions of profits now made by insurance companies could cover the cost of a government plan.

This is one of the stupidest comments I've heard so far in this entire debate. Kadner knows absolutely nothing about the insurance business and should do some homework before he attempts writing about it intelligently. Do believe Lipinski tried to enlighten Kadner, but most of Lipinski's comments were about the legislative process.

For what it's worth, the largest health insurance companies report only about a 3.3% percent profit margin, and the smaller carriers earn even less. Spending 3.3% more on health care will not cover the cost of single-payer socialized medicine -- although apparently some people want you to think so. And it's altogether possible that those who are broadcasting this misinformation, like Phil Kadner and/or the White House, may be ignorant enough about business to truly believe this themselves. (Somehow, re: the White House, I doubt it.)

Here's a tip for people reporting on any industry: insurance, oil, financial, cars, etc. Do not confuse "revenues" with "profits" or "net earnings."

"Revenues" represents the total amount of money a company takes in. It's usually the first line on a quarterly or annual report. Profits is how much they get to keep, after deducting the costs of doing business, including: the cost for creating their product or service; rent on facilities; wages and salaries; payments to shareholders; employee insurance; paying for telephone service, computers, and all other utilities; paying employee travel and training expenses; taxes, taxes, taxes; any R&D (research and development) they might do; interest on loans and credit; "bad debt" for things like customers who skipped; the cost of legal and accounting services and any other professional or consulting fees; the cost for picking up the trash, watering the plants, cleaning the office, striping the parking lot.....

"Profits" is usually the last line of a quarterly or annual report, and it's often enclosed in brackets (like this), indicating a loss. Just about every line between "revenues" and "profits" or "net earnings" represents an expense and is subtracted from "revenues."

So, you (or a reporter) could say, "Hot damn! Goodfellows Insurance reported record revenues of $4.5 billion last year!" So? That means nothing when they could have spent $6 billion on pay-outs to the insured, losses from investments, and heavens knows what other expenses they may have incurred -- like a $10 million liability suit, maybe?

Matter of fact, a typical survival strategy in a slow economy is to "down-size." Reduced sales means reduced revenues, so you reduce your expenses, thereby remaining profitable -- or at least avoid getting so deep into the hole that you'll never recover. And in many states, any employee who gets laid off still represents an expense to the company -- and without any revenues coming in from that employee. It's not something any company likes to do.

Most corporations don't even look for profits unless they're publicly traded -- offering shares on the New York Stock Exchange, NASDAQ or elsewhere. They just try to balance their revenues with their expenses. Most corporations are family-owned or are "closely-held" by a relatively small circle of investors, often the people who are running the business day-to-day and the company's creditors. Even Ford Motor Co. is closely-held and not publicly traded.

Any sort of government regulation usually adds to business expenses -- if only in terms of adding to paperwork and documentation requirements -- without adding any value to the product or increasing profits. The net result is that the price of the product to consumers goes up to cover the additional expense. And raising prices is usually the last thing any business wants to do, because it can make them less competitive in the marketplace.

Businesses can and do try to reduce production costs by automating or streamlining their internal operations, or by reducing perks to employees, like training, tuition reimbursement, or insurance coverage. They might consolidate the operations of two facilities into one, or stop offering a product or service that costs too much to produce vs. what price consumers will pay for it. Apart from raising prices or cutting expenses, business has no other source of funding unless they borrow money, and then they have to pay interest, the cost of credit.

I can't think of one business, now or from all of human history, that actually had a goose in the back room that was laying golden eggs. I believe that was a fairy tale. I suppose I could be wrong.

The fact that news reporters, White House staffers, or many congresscritters believe otherwise just might be a useful way to measure their belief in fairy tales, or their inability to come to grips with reality.

Congress and apparently the White House now, too, are confronting an unhappy reality in trying to figure out how to offer anywhere from 30 million to 45 million more people health insurance without incurring anymore costs.

Not a remote possibility. Money doesn't grow on trees. There is no Santa Claus. This insurance wouldn't be "free." Somebody's going to have to pay for it. Probably everyone will have to pay for it, especially because a single-payer system would add thousands of people to the government payroll -- and guess who pays their salaries?

So despite their idiotic rhetoric and posturing, I think politicians are finding out that the insurance companies are doing the best job they can and that there's very little slack in the private health care system. To politicians, the fact that health insurance companies can meet expenses and show a profit must look like a miracle. Maybe that's why they think there's some kind of magic involved.

In addition, Medicare and Medicaid are flushing $60 billion per year down the toilet through unchecked fraud and waste, but I doubt any private insurance company would be able to let that kind of money hemorrhage out of their systems. Their accountants and CEOs would be held responsible by the board of directors and the shareholders. The executives could end up in jail.

Who will watch the expenses of government-run, socialized medicine? Who's watching Medicare and Medicaind now? Congress couldn't give a damn where the money goes. It's not their money, after all, is it? Once they appropriate it, who cares what happens to it? If they run out of money, they can just print more... Or raise taxes to cover the shortfalls and hide their shortsightedness. That's what's happened so far with Medicare and Medicaid.

So where would the money come from to pay for socialized medicine? China? Doubt it... China sees how the US is managing its finances and it's backing away. No private investors allowed in socialized medicine.

That leaves two choices: raise taxes or reduce services. Or both. Probably both, if you look at what has happened in every other country on earth that has socialized medicine. We'll be paying more and getting less.

As long as we all live in the real world, Utopia simply is not an option. And given this fact, socializing the health care industry only promises to create the worst of all possible worlds.