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How Much of the US Economy Is Friction?

Tuesday, November 1, 2011, 10:21 AM

Friction is the resistance between moving parts that cause a bicycle in motion to come to a stop once you stop pedaling. If you flatten the bike’s tires, increasing the resistance between the rubber and the road, that increase in friction causes the bike to slow far more quickly than a bicycle with inflated tires. Increase the friction enough, and you can barely push the bike forward.

Though friction cannot be eliminated entirely, it can be reduced to the point that very modest amounts of energy create substantial results. Alternatively, friction can increase to the point that the energy input required to maintain output rises far beyond the value of the output. At that juncture, the system freezes up. The returns are so marginal that they no longer justify the energy and expense needed to maintain the machine.

A bicycle with wheels that barely turn will be tossed aside when the rider realizes he can go faster by walking -- and with much less effort.

How Much of the US Economy is Friction?

Economies have friction, too. When the friction increases to the point that much of the economy’s energy and surplus are being consumed in overcoming systemic friction, then the system will eventually freeze up and be abandoned.

How much of the US economy is friction? It is a difficult question, as we’ve grown so accustomed to our way of doing things that we tend to assume that the present system is the most efficient one possible. If it is visibly inefficient, that we assume it serves a social need so vital that its maintenance overrides the high costs of maintaining the system.

Much of our faith is based on the belief that because we live in a market economy, the efficiencies intrinsic to a market economy -- such as customers gravitating toward the goods and services that offer the lowest costs and highest benefits -- are being effectively captured by the US economy.

But this is mostly wishful thinking, the net result of ceaseless self-promotion by the Status Quo that benefits from the enormous friction that is, in fact, grinding down the US economy. In actuality, market forces influence very little of the US economy, and what they do influence is a series of carefully limited false choices constructed by non-market forces and the immense powers of marketing. 

Ten Doctors, Twelve Billing Clerks

Since some 18% of the US economy is devoted to health care (or what I call sick care, due to its perversity), let’s start with an example of massive friction in the US sick-care system. I recently received an email from a physician (one of many I get from doctors and nurses) who noted that his group has ten doctors and twelve billing clerks who do nothing but fill out forms and try to collect payments from various insurers and agencies.

Note that this does not include care-giving support staff such as nurses or assistants, or general-overhead staffing who handle bookkeeping, accounting, tax preparation, reception, scheduling, janitorial, legal services, etc. It also doesn’t include the cost of malpractice insurance coverage or the hidden costs of “defensive medicine” (that is, the practice of medicine aimed at minimizing lawsuits or thwarting a future claim of malpractice).

Regardless of your political ideology (if any), common sense requires us to ask what the billing-department costs would be in a single-payer or cash-only system. Common sense also requires us to ask whether the enormous cost of billing -- which includes claims, counter-claims, adjustments, revisions, negotiations, disputed settlements, regulatory filings, lawsuits, and fraudulent claims, to name but a few facets of this friction -- adds anything to the quality or quantity of patient care.

Of course, the answer is zero. It adds nothing but expense. This reality is the basis of various estimates that roughly 40% of all our $2.5 trillion in health care expenses is either useless paper-shuffling or outright fraud (for example, it has been estimated that 40% of Medicare’s cost is fraud). If we also subtract malpractice and related costs (very low in single-payer systems), enormously expensive medications that either interact unpredictably with other medications or simply don’t work for the majority of patients, and the opaque but very real costs of practicing defensive medicine, then we can guesstimate that another 25% of the nation’s ballooning health-care costs is essentially counterproductive friction. Thus two-thirds of the nation’s sick-care costs are friction. 

The Sapping Costs of Economic Friction

In industry after industry, we find that instead of market forces, the friction-costs of cronyism, regulation, and gaming the system dominate the cost structure. Thus the pharmaceutical industry spends much of its resources on marketing, not drug discovery (as it touts in its ubiquitous marketing campaigns and lobbying). The Pentagon-defense industry, cozy home to one of the world’s most infamous revolving doors (top Department of Defense employee one week, chief lobbyist for a “national defense” contractor the next week), manages to build fewer aircraft and ships for ever-greater sums of treasure. Where exactly are market forces at work in this incestuous relationship? Does the Pentagon ever get a bid from a South Korean ship maker, for example, or issue an RFP (request for proposal) that doesn’t weigh almost as much as the weapon being procured?

The sources of friction can be found not just in what’s visible, but in what lies beyond our line of sight, purposefully hidden by highly selective, limited choices. This is the essence of the crony-capitalist, Central State/cartel “capitalism” that dominates the US economy. The choices of efficiency/reduced friction are not just unavailable; they are ruthlessly eliminated by all those concentrations of power which profit from monopoly, state control, and the domination of cartels.

To mention another example from health care, ours is supposedly a “free market” system, but try getting bids in your locale for health insurance and you will find that two or three providers are all that’s available. Is that evidence of a healthy free market? If so, why does it look, feel, and act like a cartel?

For a real-life metaphor for this system of limited choice and competition, we might imagine someone who wants to lose weight being offered their choice of fast-food from the national chains. Is a choice between a greasy taco and a greasy burger, or between two salads of iceberg lettuce drenched in fatty dressing, really a choice? 

Many Americans are beginning to realize this same non-choice defines the two political parties. Both are for sale, and both defend the Status Quo at every turn. The only difference between the two is the nature of the payoffs and “sweeteners” paid to their various constituencies -- and in the shrillness of their propaganda.

Which is better, Bud or Bud Light? Wow, what a choice.

The self-serving elites who profit from all this carefully structured and highly profitable friction do not see it as wasted energy, of course. To them, it’s “the way things work” or “the cost of doing business.” The same is true in all deeply corrupt economies -- the bribe in India or China is also “the way things work” and “the cost of doing business.” The elimination of competition via Central State regulations that create unproductive “profit centers” is indeed “the way things work” in America, but the question now is whether a system that is largely friction is sustainable.

The Laws Of Physics Apply to Economies, Too: There Is No Perpetual Motion Machine

Right now, the US is maintaining its vast system of unproductive friction by borrowing 11% of its gross domestic product (GDP) every year, a level that is roughly four times what is considered sustainable.   Though in the popular view, this money is being “printed” by the Federal Reserve (a private monopoly protected by the Central State), the money is all borrowed, and thus it requires servicing in the form of interest payments that will continue to burden future taxpayers. In effect, we are simply borrowing from our children and grandchildren. That is a high cost to maintain the friction imposed by a bloated, perversely inefficient, and supremely self-serving Status Quo.

Interest itself is a kind of friction; by making our entire economy dependent on ever-rising debt loads, we have created a source of friction that will eventually freeze the machine.

By borrowing US dollars into existence, our nation is currently able to buy the energy needed to overcome the vast friction generated by this system of interlocking State fiefdoms and private cartels. Even if our ability to borrow money into existence is unlimited, the same cannot be said of oil exporters’ future willingness to accept paper money in trade for their dwindling resources of petroleum. 

Paper money can be printed or borrowed into existence in unlimited quantities, but the same cannot be said of fossil fuels. Yes, there is a lot of it still around, but we don’t control much of it directly, and it is priced, like all things in a truly free market, on the margins. Modest scarcity can drive price up very immodestly. And scarcity need not be physical; if the political will to sell us petroleum becomes scarce, so, too, will petroleum.

All of which says the obvious: A system burdened with unproductive friction is running not just on borrowed money, but on borrowed time. All sorts of things could limit the amount of energy we have on hand to push a machine so gummed up with friction. Unlimited money becomes, well, free (worthless), or those with the dwindling resources might choose to fuel their own friction rather than ours.

The point here is that systems burdened with enormous forces of friction are exquisitely vulnerable to any reduction in the energy needed to maintain them. Once the value of the actual output drops below the cost of maintenance, then the system freezes up within a remarkably short time. Borrowing 100% of our entire economy every nine years just to fund those benefiting from gargantuan friction is not as sustainable a path as the Status Quo is promising.

That leaves us each with a highly subjective and eventually meaningful question: Are we part of the friction, or are we part of the productive machine? There is no laser-cut line between the two, of course, but we might fruitfully ask which parts of our job, work, and life will still be productively in place if the machine freezes up and the unaffordable friction all gets sloughed into the garbage bin of history.

In Part II: The Transition To A Post-Friction Economy, we study how enterprises and work opportunities will evolve as the unproductive “friction” segments of our economy devolve or freeze up - along with a forecasted timeline for when this transition begins in earnest.

Click here to access Part II of this report (free executive summary; enrollment required for full access).

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37 Comments

macro2682's picture
macro2682
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Friction = Financial sector revenue

The amount of friction in our economy is total financial sector revenues.  Banking fees, commissions, and anything measured in terms of "spreads" sum to the total friction in our economy.  Whatever percent of our GDP is made up by financial services firms (20% maybe?)... Thats the friction. 

Law enforcement and government operations constitute friction as well, but those are frictions that cannot be eliminated.  Only trimmed.

Mirv's picture
Mirv
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Friction? or just basic theft/corruption

Another view is that the richest organizations and individuals are spending some of  their vast wealth  (giving tips?) to control politicians and write their own laws to legally steal from the middle class.  The collusion and cheating requires many workers to optimally ream the consumer, with additional complications and shell games  for pricing and payment of health (the  source of a "friction"?).  A shining example of this is the "antitrust exemption"  that the health care industry enjoys from a 1945 law,  which legally allows insurance companies and others to directly steal from us by colluding to fix  prices, all legally.  This will continue because some of the stolen money received by the insurance companies is sent to republican lawmakers in the senate, who block democrats' attempts to remove at least one major law that allows this cheating by the rich. as complained by one lawmaker (DeFazio) from Oregon who succinctly stated: "Right now, it is legal under federal law for insurance companies to collude to drive up prices, limit competition, conspire to underpay doctors and hospitals, and price gouge consumers."  Why dont Americans understand their own legal system enough to see how the rich are using  the law and government to steal from us?  Our government does NOT represent the people and must be replaced after TSHTF.  Obama care has done nothing to address the real problem of corruption of the law by the rich, and actually has helped the unfairly-cheating-rich to steal more and thus made things worse.

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Ken C
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Friction or Fiction

How Much of the US Economy Is Friction?

TYPO 

How Much of the US Economy Is Fiction?

there - fixed that for you

Mark_BC's picture
Mark_BC
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Sorry, another long post

Sorry, another long post from me...

Good article, but I think it's missing some critical points.

Firstly, it seems that some types of regulation are "more equal than others". On one hand we have the average Joe being stangled to death by regulatory red tape preventing him from putting up a fence in his front yard, which then of course fires up everyone's deregulation rallying cries. But where it really matters the most in the economy right now  -- the financial markets -- there is very llittle regulation. It is a gong show. Is JP Morgan able to get away with its silver price manipulation because there it faces TOO MUCH regulation? How about HSBC with GLD? Where is the CFTC at the Comex? The regulators are completely corrupt -- THERE IS NO REGULATION. The entire system is rigged, designed to extract wealth from the middle class and at the same time to infuriate us all into blaming our neighbours.

We have the regulation-hating free marketeers who believe that if we just throw everyone into the crock pot, stir and let simmer for an hour without interference, then at the end of it we'll get a beautifully decorated birthday cake. We will have reached the ultimate "efficient" allocation of trade and "productivity" between all of the participants who got thrown into the crock pot. No ... what you actually get out of that is called anarchy. And anarchy is not free. Anarchy is governed by thugs, aka The Mafia. Like those guys that drive around in Jeeps in Somalia with big guns. That's what is now running America -- the Mafia. So ....  I am to believe that we should be DEregulating the mafia even more???? Because government is bad, because it is owned and controlled by The Mafia? What if that government was a sovereign governmet with the power to print its own currency, one that was owned by, elected by, and accountable to the people that elect it? In other words, the polar opposite of what it is now? Would regulation from that government be bad?

There is no such thing as free markets. They are unicorns that exist only in our minds, like "dry waterfalls" or "one handed claps", rainbows promising a pot of gold at their base, but they are only beautiful from afar. The fact is, "fair markets" (free markets are not fair, and fair markets are not free) must be carefully and dutifully regulated. And over most of the US's past, it had extensive and good regulation. Only in the last 100 years has the system become so corrupted and self-regulated by the oligarchs that it more resembles a communist dictatorship than the principles on which America was founded.

I am going to have to disagree with the assertion that the red tape is destroying America. The red tape everyone despises is actually ESSENTIAL for America to continue -- at least in its current form. Of course, at a fundamental level, all this red tape ultimately is pointless, futile, and counter"productive" - but then so is America's economy, which is why the two need each other.... If this red tape ended, so would America's economy.

The unmentioned counterbalance to all this stodgy economic friction dragging down "productivity" has been the continual improvements in per-hour productivity of labour over the years due to technology -- computers and automation. With word processing and related programs, administrative duties are way way more efficient than they used to be. And factories are also way more efficient with respect to labour inputs -- robots have eliminated a lot of the jobs needed to make a car, as well as pretty much everything else we make. But overall, the natural resources necessary to build a car haven't been reduced all that much over the same period. Therefore, the red tape has been providing an essential service -- sucking up unemployment from increased per-worker efficiency that throws half the workforce out of work.

So then ... if we were to hypothetically ditch all of this useless red tape friction, what would the impact be? All of those paper pushing jobs would disappear. Unemployment would skyrocket. This would cause a catastrophic deflationary spiral, exactly the kind of thing the masterminds of our ponzi scheme monetary system constantly race away from by artificially stimulating consumption.

Of course, the free marketeers then counter-argue that the freedom everyone would then experience after eliiminating the red tape would then stimulate all new kinds of business ventures and increased opportunities to counteract this unemployment and deflation -- if we could just let everyone be FUHREEEEE!!! But what about the Crash Course? If all the labour that has been freed up from its paper pushing duties now finds opportunity to pursue geneuine "productive" (no such thng as economic "productivity" BTW) pursuits, to create REAL wealth to build and maintain things that improve people's REAL standard of living, then what does this activity imply? It directly implies greater ecological footprint, and fundamentally, increased energy consumption. Because as Chris points out, all economic activity is going to require energy -- that's the central theme of the Crash Course, right? There are no perpetual motion machines, so if you want to increase the "productivity" of the economy then it's going to require more energy ... period (unless we move into other renewable energy sources but those are not feasible on a grand scale anytime soon). Do you believe we are near Peak Oil? I do. I think it's obvious. Therefore, it will not be possible to power this increased economic activity to provide jobs for all the paper pushers who got thrown out of work by the regulation haters.

We are in the situation where automation technology is creating unemployment, but the economy can no longer grow to accomodate that unemployment, primarily because of resource constraints. So what are we to do? The ONLY solution is to reduce the work week. Nothing else will work! Where are the jobs going to come from in the future when the economy is not growing? Can't we see that all the great ponzi scheme bubbles over the last few decades were merely stalling the INEVITABLE labour glut that a 40 hour work week creates when an economy is no longer growing?

Therefore, the Fed's dual mandate of full employment (at 40 hours a week) along with low prices is NOT POSSIBLE TO ACHIEVE in a resource constrained economy that can no longer grow.

Retha's picture
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Ken C wrote: How Much of the

Ken C wrote:

How Much of the US Economy Is Friction?

TYPO 

How Much of the US Economy Is Fiction?

there - fixed that for you

LOL Ken! Good one!  

ccpetersmd's picture
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Love the Friction Analogy

Charles Hugh Smith's assessment of the healthcare industry is spot-on! Even after two decades as a physician, I remain amazed that this lumbering dinosaur stays on its feet. Great article; thanks!

sundarb's picture
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nice reply

Mark_BC wrote:

Therefore, the Fed's dual mandate of full employment (at 40 hours a week) along with low prices is NOT POSSIBLE TO ACHIEVE in a resource constrained economy that can no longer grow.

Mark,

Very well-written post. Your thoughts on the free market are quite enlightening.

guardia's picture
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Re: Sorry, another long post

Mark_BC wrote:

We are in the situation where automation technology is creating unemployment, but the economy can no longer grow to accomodate that unemployment, primarily because of resource constraints. So what are we to do? The ONLY solution is to reduce the work week. Nothing else will work! Where are the jobs going to come from in the future when the economy is not growing? Can't we see that all the great ponzi scheme bubbles over the last few decades were merely stalling the INEVITABLE labour glut that a 40 hour work week creates when an economy is no longer growing?

Therefore, the Fed's dual mandate of full employment (at 40 hours a week) along with low prices is NOT POSSIBLE TO ACHIEVE in a resource constrained economy that can no longer grow.

It took you a while to get the point alright... So, any guesses about the unemployment statistics in Japan?

Samuel

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Mark_BC wrote: We are in the

Mark_BC wrote:

We are in the situation where automation technology is creating unemployment, but the economy can no longer grow to accomodate that unemployment, primarily because of resource constraints. So what are we to do? The ONLY solution is to reduce the work week. Nothing else will work! Where are the jobs going to come from in the future when the economy is not growing?

Automation technology requires energy.  As fossil fuel energy becomes more expensive and limiting, human energy will replace it.  Locally farming is highly mechanized.  The previous generation harvested most of the produce with human labor, not machines.  This will spread to many sectors of the economy (not all of them).  As more people are required to provide the basics, both the number employed and the nature of what they perform will change.  It's the transition that will probably be long and painful.

Nate

rocketgirl1's picture
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FRIC AND FRAC

Ken C wrote:

How Much of the US Economy Is Friction?

TYPO 

How Much of the US Economy Is Fiction?

there - fixed that for you

A LARGE FRACTION OF THE FICTION IS FRICTION

pretty sure

mansoor114's picture
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Here is how the banker's game works:

Here is how the banker's game works:

 

1)  Get the government to issue some currency (cash -- paper or reserves at the central bank -- reserves are government issued cash central bank deposits).  Government issued cash is around 5% of the currency (money) supply.  The government issued currency is put into circulation by the government simply spending it.

 

2)  The rest (95%) of the currency is issued by the private banks.  Each customer loan is a new bank deposit (i.e., new currency) and increases the currency (money) supply of the economy.  Note that this newly created money (currency) is put into circulation by the borrower spending it.  Most currency (about 95% America's currency supply) has been borrowed into existence and when bank customer pays the loan back that amount of currency is removed from circulation.   The banking system cannot go backwards (fewer net loans) as time moves on because fewer net loans means fewer currency in circulation in the economy.

 

Accumulation of interest charges on outstanding loans means that the currency supply must constantly increase even if it means giving out lower quality loans.  Think of it like a plane flying it must fly at some minimum speed or else the plane (the banking system) will crash (i.e., banking system collapse).

 

3) The bankers make dam sure that the common public does not understand how the monetary system works meaning that the private banks issue 95% of the currency. This is whole another topic how they do this.

 

4) The system works until real economic capacity of the economy grows and debts can be serviced and interest charges paid.  Most of the time the economy oscillates between boom (growth) and bust (recession) because bust is needed to clear debts and start a new lending cycle.

 

5)  Eventually, one of these cycles goes so deep that currency supply (and demand) falls so low that too many debts become un-serviceable.  The recession becomes a depression now.

 

6)  The bankers then have to decide how to "reset" the system.  One way to reset the system is to let the depression takes its course.  But of course this path is very chaotic because people lose jobs and may become violent.  Once most debts are cleared lending can start again and the currency supply is replenished.   Wars are a good way to get initial money (currency) into an economy after a depression to get demand going again.  This is the great depression scenario.

 

7) Another way to "reset" the system is to get the government to print too much money and spend and destroy the currency and blame it on the government.  This justifies issuance of a totally new currency (note that hyperinflation clears debts) and the lending cycle can start again.

 

8) The banking system (as is) is setup to maximize the power and influence of the global bankers and NOT for the maximum general well being of people.  By the way this is a global game.  This is the only system around no matter what country you are in.   The global banking cartel makes sure that no competing systems are allowed to exist (so they might be copied and global bankers will lose power).

 

For more details on this stuff please read the following articles in order listed below:

 

http://seekingalpha.com/article/209386-modern-monetary-system-there-is-another-way

 

http://aquinums-razor.blogspot.com/2011/08/what-is-relationship-of-money-to.html

 

http://aquinums-razor.blogspot.com/2010/07/why-is-deflation-and-depression.html


http://seekingalpha.com/article/210346-should-newly-created-money-be-a-private-or-a-public-asset


http://seekingalpha.com/article/192375-cause-of-today-s-economic-crises-too-much-thrift


http://seekingalpha.com/article/160269-a-radical-solution-for-america-s-insolvent-financial-system


http://seekingalpha.com/article/146658-great-banking-confusion-is-there-a-better-way

 

 

Mansoor H. Khan

 

http://aquinums-razor.blogspot.com/

 

jbtbga's picture
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healthcare friction

Could not agree more.  Same stage in my medical career and same frustration.  I spend more time (and considerable money) negotiating the overall system than taking care of people, or so it seems at times.  Always amazed that people / patients don't realize that more.  A single payer / single system-EHR has considerable potential advantages in terms of decreasing friction in the healthcare system.  My $0.02.

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An Alternative to Capitalism

An Alternative to Capitalism (if the people knew about it, they would demand it)

 
Several decades ago, Margaret Thatcher claimed: "There is no alternative". She was referring to capitalism. Today, this negative attitude still persists.
 
I would like to offer an alternative to capitalism for the American people to consider. Please click on the following link. It will take you to an essay titled: "Home of the Brave?" which was published by the Athenaeum Library of Philosophy:
 
http://evans-experientialism.freewebspace.com/steinsvold.htm
 
John Steinsvold


Perhaps in time the so-called dark ages will be thought of as including our own.
--Georg C. Lichtenberg
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ao
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John Steinsvold wrote:  An

John Steinsvold wrote:

An Alternative to Capitalism (if the people knew about it, they would demand it)

 
Several decades ago, Margaret Thatcher claimed: "There is no alternative". She was referring to capitalism. Today, this negative attitude still persists.
 
I would like to offer an alternative to capitalism for the American people to consider. Please click on the following link. It will take you to an essay titled: "Home of the Brave?" which was published by the Athenaeum Library of Philosophy:
 
http://evans-experientialism.freewebspace.com/steinsvold.htm
 
John Steinsvold

Perhaps in time the so-called dark ages will be thought of as including our own.
--Georg C. Lichtenberg

John,

Can you give it a rest? I think this has been posted a sufficient number of times to get your point across.  Once more and I'm going to flag it.

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Real costs of health care

jbtbga wrote:

Could not agree more.  Same stage in my medical career and same frustration.  I spend more time (and considerable money) negotiating the overall system than taking care of people, or so it seems at times.  Always amazed that people / patients don't realize that more.  A single payer / single system-EHR has considerable potential advantages in terms of decreasing friction in the healthcare system.  My $0.02.

Hi jbtbga,

If you had to give a rough estimate of the percentage of the health care dollar consumed by the friction you describe, what would it be?

By "single payer" I'm assuming that you are referring to some sort of federal system (please correct me if I'm wrong.) Other than the reduction of your time dealing with multiple insurance agencies, how would this reduce overall healthcare costs?

Now for a purely hypothetical question: If someone "in need" came to you without insurance, but was willing to pay with vegetables, meat, or precious metals ... and promised not to sue ... what percentage discount would you offer?

Grover

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Bartering

Before you consider an answer to that question for any form of commerce, people should know the IRS sees barter income as taxable. 

http://www.irs.gov/taxtopics/tc420.html

Of course how much grey market activity gets reported is anyone's guess. Probably not much. How one figures out fair market value is beyond me. 

The problem for a lot of small businesses (including physicians) is that you still need to pay your employees and other overhead in cash.  Still bartering certainly is a fair alternative if both parties can work it out IMHO.

Just a point to consider.

take care

Denise

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ao
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Grover wrote: jbtbga

Grover wrote:

jbtbga wrote:

Could not agree more.  Same stage in my medical career and same frustration.  I spend more time (and considerable money) negotiating the overall system than taking care of people, or so it seems at times.  Always amazed that people / patients don't realize that more.  A single payer / single system-EHR has considerable potential advantages in terms of decreasing friction in the healthcare system.  My $0.02.

Hi jbtbga,

If you had to give a rough estimate of the percentage of the health care dollar consumed by the friction you describe, what would it be?

By "single payer" I'm assuming that you are referring to some sort of federal system (please correct me if I'm wrong.) Other than the reduction of your time dealing with multiple insurance agencies, how would this reduce overall healthcare costs?

Now for a purely hypothetical question: If someone "in need" came to you without insurance, but was willing to pay with vegetables, meat, or precious metals ... and promised not to sue ... what percentage discount would you offer?

Grover

 

The problem with discounting is that, in doing so, most health care practitioners in the US will be in violation of Medicare and/or other insurance contracts that they sign.  Patients don't realize that and some practitioners don't realize that either until they are caught and punished.  And there are very few health care practitioners who are "flying solo" and not accepting Medicare or private insurances.

jbtbga's picture
jbtbga
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contract violations

You are quite correct that the Insurance companies and MCR don't allow a practitioner to waive co-pays.  But if someone is cash only, I don't think my contract with BCBS comes  into play on patients not covered by those companies.  I have yet to have someone with insurance try to barter their co-pay.  Unfortunately the more common complaint is to try to get out of paying it at all!!!   Dr. House was right.  All patients lie. 

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Taxes owed is IMO opinion -

Denise2257114 wrote:

Before you consider an answer to that question for any form of commerce, people should know the IRS sees barter income as taxable. 

http://www.irs.gov/taxtopics/tc420.html

Of course how much grey market activity gets reported is anyone's guess. Probably not much. How one figures out fair market value is beyond me. 

This is another good reason to abolish the IRS. The tax code full of "grey" rules. Who owes what is basically opinion. The tremendous waste of brain activity on how to legally reduce the amount of taxes owed is beyond belief. Before making a decision on any purchase, I always consider if it is (or could possibly be) business related. If it is not business related in any way, I will often not make the purchase at all. 

For instance, a tax advisor once suggested that I put brochures for my business on the tables (and take pictures) whenever I have a party. This way the party can be considered a promotion for the business and therefore the costs of the party would be tax deductable. 

As far as bartering is concerned, I would imagine that gets reported about as much as winning bets on ball games. 

SS

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Money - the most regulated thing of all.....

Mark_BC wrote:

But where it really matters the most in the economy right now  -- the financial markets -- there is very llittle regulation. It is a gong show. Is JP Morgan able to get away with its silver price manipulation because there it faces TOO MUCH regulation? How about HSBC with GLD? Where is the CFTC at the Comex? The regulators are completely corrupt -- THERE IS NO REGULATION. The entire system is rigged, designed to extract wealth from the middle class and at the same time to infuriate us all into blaming our neighbours.

You look at the financial industry as the least regulated.  I disagree. The problem is that money is the most regulated of all things.  We have legal tender laws and taxation that forces us as citizens to use un-sound money to prop up the financial institutions of the world.  If money were not regulated, sound money would triumph and the regulating effect a sound currency would quickly stop the shenanigans by the financial industry.

You can't correct the problem with more band-aid regulations on the financial industry until we correct the underlying root cause - manipulation of the value of currency (by either banking cartels or governments).  Competition is needed in currency.

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Real solutions to health care ???

Denise, ao, jbtbga,

I apologize for dancing around the real question, but interestingly, I didn't get a real answer to any of the questions I posed.

We should be able to agree that the current system isn't sustainable. Regulation, insurance, and lawsuits add cost and reduce the benefit that is being sought by the patient. When these (and other) costs gum up the health care system to the point that it simply doesn't work, we need to explore other options. That is what I'm attempting to do - explore other options.

We all know people who are chronically unemployed. The economic system needs fewer workers to produce the goods and these folks are falling through the cracks. I've got a few friends in their  50s and 60s who aren't quite ready to retire, but aren't really attractive to employers anymore. One friend jokes that he is in "pre-retirement training."

As more and more systems fail, more and more people will join the ranks of the chronically unemployed. These folks will likely be without insurance and have limited cash available. How would you advise someone in this predicament to negotiate needed medical services?

Grover

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ccpetersmd
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Grover...

Grover wrote:

Denise, ao, jbtbga,

I apologize for dancing around the real question, but interestingly, I didn't get a real answer to any of the questions I posed.

We should be able to agree that the current system isn't sustainable. Regulation, insurance, and lawsuits add cost and reduce the benefit that is being sought by the patient. When these (and other) costs gum up the health care system to the point that it simply doesn't work, we need to explore other options. That is what I'm attempting to do - explore other options.

We all know people who are chronically unemployed. The economic system needs fewer workers to produce the goods and these folks are falling through the cracks. I've got a few friends in their  50s and 60s who aren't quite ready to retire, but aren't really attractive to employers anymore. One friend jokes that he is in "pre-retirement training."

As more and more systems fail, more and more people will join the ranks of the chronically unemployed. These folks will likely be without insurance and have limited cash available. How would you advise someone in this predicament to negotiate needed medical services?

Grover

Grover,

For those without healthcare coverage, or with high-deductible plans and an HSA (health savings account), I would recommend trying to negotiate prices. When I was in a private practice, as I have been for much of my career, I did this repeatedly in the past. It would be much more difficult to negotiate costs with an employed physician, particularly one who is hospital-employed, as I am now.

For primary care needs, seek out a family practice or internal medicine physician who is willing to take self-pay patients, and make an appointment with the physician and/or practice manager to discuss costs, payment options, etc. Explain fully and honestly your situation, your intention to pay for services rendered, and discuss possible discounted price options in exchange for cash up front as opposed to having to file insurance paperwork. In a few markets, there are dedicated practices that entirely or partially cash-based, and those would definitely be worth checking out, if available.

For procedures which will require any amount of hospital exposure, the availability to negotiate is much more limited, but not absent. Ambulatory surgical facilities will generally be less expensive than full service hospitals, and usually more open to negotiated services. Dedicated speciallty hospitals (heart hospitals, etc.) will also usually have more flexibility with regard to pricing. Similarly, for imaging needs, free standing imaging centers will usually be cheaper and more open to price negotiation than full service hospitals.

If financial means allow it, I strongly recommend a high-deductible (catastrophic) healthcare plan and self-funded HSA.

Christopher

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Grover
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We're all on the treadmill

Christopher,

Thanks for responding to my question. You provided sound advice that I can relate to my friends. I have some thoughts below, and I ask some questions, but I really don't expect an answer.

I was watching a rerun of a '70s TV show on one of the local over-the-air stations on Friday. The advertisements generally fell into 3 categories - for profit higher education, pharmaceuticals to cure a malady, and lawyers who want to sue the doctors/hospitals/drug manufacturers/etc. for prescribing yesteryear's promising drugs/procedures. It reminded me of why the medical system is as expensive as it is. Doctors have incredible expenses and have to pass those on to the consumer or they go bankrupt. Because expenses are so high, people need to have insurance to help pay the costs. Because their health insurance premiums are so high, they want to get more than their money's worth and demand more services and perfect accountability. When things go awry, the blood sucking lawyers swoop in to ensure "your right to financial compensation." The threat of lawsuits increases the cost of medical products. Wash -> rinse -> repeat.

This spiral cannot continue forever. As energy becomes constrained, systems will have to become simpler or they will simply vanish - to be replaced by simpler systems. The groups who profit from the economic friction (regulators, lawyers, insurers, etc.) will not want to see their fortunes disappear. They will fight an ultimately losing battle to maintain the need for their services.

I don't expect the next few decades to resemble the future vision being sold to the populace. If you're purchasing insurance to protect yourself in a future that likely will not exist, is it worth getting? Wouldn't it be better to simplify ahead of the herd and invest the insurance premiums in PMs, land, or tools? I frequently wrestle with this question and the potential consequences.

As long as the music is playing, we have to keep dancing.

Grover

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Healthcare, the most unsustainable field of all...

Grover wrote:

Christopher,

Thanks for responding to my question. You provided sound advice that I can relate to my friends. I have some thoughts below, and I ask some questions, but I really don't expect an answer.

I was watching a rerun of a '70s TV show on one of the local over-the-air stations on Friday. The advertisements generally fell into 3 categories - for profit higher education, pharmaceuticals to cure a malady, and lawyers who want to sue the doctors/hospitals/drug manufacturers/etc. for prescribing yesteryear's promising drugs/procedures. It reminded me of why the medical system is as expensive as it is. Doctors have incredible expenses and have to pass those on to the consumer or they go bankrupt. Because expenses are so high, people need to have insurance to help pay the costs. Because their health insurance premiums are so high, they want to get more than their money's worth and demand more services and perfect accountability. When things go awry, the blood sucking lawyers swoop in to ensure "your right to financial compensation." The threat of lawsuits increases the cost of medical products. Wash -> rinse -> repeat.

This spiral cannot continue forever. As energy becomes constrained, systems will have to become simpler or they will simply vanish - to be replaced by simpler systems. The groups who profit from the economic friction (regulators, lawyers, insurers, etc.) will not want to see their fortunes disappear. They will fight an ultimately losing battle to maintain the need for their services.

I don't expect the next few decades to resemble the future vision being sold to the populace. If you're purchasing insurance to protect yourself in a future that likely will not exist, is it worth getting? Wouldn't it be better to simplify ahead of the herd and invest the insurance premiums in PMs, land, or tools? I frequently wrestle with this question and the potential consequences.

As long as the music is playing, we have to keep dancing.

Grover

Grover,

There is absolutely no way that our current healthcare system can continue for much longer. Even if our monetary system doesn't go belly up, I'd give our current healthcare system no more than 10-20 years; if/when our monetary sytstem does go belly up, our healthcare system will end even more quickly. Everyone involved in the healthcare system, to include physicians, have a vested interest in maintaining the current system for as long as possible, as the change that is needed will be very disruptive (although ultimately beneficial). Not only is their tremendous friction within the system, as you note, but their is incredible friction opposing any meaningful reform.

Personally, I think that a high-deductible healthcare plan, paired with an HSA, still makes sense. If, at some point in the future, when things truly begin to unravel, that may change. For now, though, for most people, a high-deductible healthcare plan/HSA is a prudent move. For someone who is relatively young and in good health, and without a worrisome family medical history, "going bare" is not a bad idea. Even without a high-deductible healthcare plan, an HSA still might be worth considering. An HSA is like an IRA, taken from pretax income, and used for covered healthcare needs as they arise (to include prescriptions, dental work, optometry, etc.). Any unused amount is rolled over year to year, and any remaining at the age of retirement can also be used for retirement needs.

Christopher

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The question was...

"how much of the health care system is friction?"

Oh - about 60% - 80%

When you consider everything already discussed, malpractice, insurance "profits", haze created by insurance companies to decrease provider payment - decrease competition - increase premiums, let's not forget rules concerning "not" discounting fees lest Medicare fines providers, etc. etc. etc. I'd say about 60 - 80 cents of every "healthcare" dollar is pure "friction."

Now, I believe that when someone says, "single payer system" they don't mean a system that looks anything like the blood-sucking system that we have today.  

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Physicians are Friction, Too...

While many of my colleagues probably have not considered this, physicians are one of the most protected entities in any market, resulting in a huge amount of friction compared to what a truly free market would allow. Medical schools are limited and defined by goverment and professional agencies, especially the AMA. Residencies and fellowships are similarly limited, with prescribed numbers of positions in order to limit competition in crowded fields and (sometimes) to promote entry into fields that are less well served. Physicians are examined at various levels in their training by government and professional associations, then licensed by individual states.

Admittedly, many would find this degree of examination, licensing, etc., comforting, and to some degree, it certainly is. But, it still entails a huge amount of friction in limiting competition, driving up salaries, etc.

Most of the medical fields are understaffed already, particularly in less urban markets, and are headed for profound shortfalls given the progressively aging demographics. So, added to the friction already noted, we will be faced with one of the greatest sources of friction in the coming couple of decades, a bottleneck due to provider shortages.

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What would be sustainable?

ccpetersmd wrote:

There is absolutely no way that our current healthcare system can continue for much longer. Even if our monetary system doesn't go belly up, I'd give our current healthcare system no more than 10-20 years; if/when our monetary sytstem does go belly up, our healthcare system will end even more quickly. Everyone involved in the healthcare system, to include physicians, have a vested interest in maintaining the current system for as long as possible, as the change that is needed will be very disruptive (although ultimately beneficial). Not only is their tremendous friction within the system, as you note, but their is incredible friction opposing any meaningful reform.

Christopher,

Looking at the numbers the government puts out on Medicare/Medicaid, I would agree with you. Knowing how many unjustified assumptions are included in those numbers, I think you are quite the optimist.  What kind of system do you envision as being sustainable? If the social fabric ruptures and chaos ensues, will it still work?

ccpetersmd wrote:

Personally, I think that a high-deductible healthcare plan, paired with an HSA, still makes sense. If, at some point in the future, when things truly begin to unravel, that may change. For now, though, for most people, a high-deductible healthcare plan/HSA is a prudent move. For someone who is relatively young and in good health, and without a worrisome family medical history, "going bare" is not a bad idea. Even without a high-deductible healthcare plan, an HSA still might be worth considering. An HSA is like an IRA, taken from pretax income, and used for covered healthcare needs as they arise (to include prescriptions, dental work, optometry, etc.). Any unused amount is rolled over year to year, and any remaining at the age of retirement can also be used for retirement needs.

I don't know much about HSAs, but have to generally concur with this advice. I carry high deductibles on other forms of insurance and it limits my claims to catastrophic events only. Because I have higher initial costs, I question the need to file a claim and look for alternate remedies. That just makes economic sense. Why wouldn't it work the same with health care?

Grover

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Thanks for the estimate

RNcarl wrote:

"how much of the health care system is friction?"

Oh - about 60% - 80%

When you consider everything already discussed, malpractice, insurance "profits", haze created by insurance companies to decrease provider payment - decrease competition - increase premiums, let's not forget rules concerning "not" discounting fees lest Medicare fines providers, etc. etc. etc. I'd say about 60 - 80 cents of every "healthcare" dollar is pure "friction."

Now, I believe that when someone says, "single payer system" they don't mean a system that looks anything like the blood-sucking system that we have today.  

Carl,

Thanks for providing the estimate. Not knowing any better, I have to say it wouldn't surprise me that it were that high. At 80% friction, we're essentially paying 5 times as much to get the product we want/need. At 60%, it works out to paying 2 1/2 times as much.

I have never been a fan of "single payer systems." Generally, the economy of numbers becomes overwhelmed by the massive bureaucracy needed to administer it. I like Christopher's suggestion of high deductibles. Since "high" is a relative term, perhaps the deductible should be based on annual income.

Grover

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Single payor system cost

Administrative costs in a single payor system may be far less than our current bloated private system

According to to a study published in the New England Journal of Medicine, the administrative costs in Canada under their single payor system are substantially less than those costs incurred here in the US on a percapita basis - "The gap between U.S. and Canadian spending on health care administration has grown to $752 per capita".   -  A large sum might be saved in the United States if administrative costs could be trimmed by implementing a Canadian-style health care system" or "$1,059 per capita, as compared with $307 per capita in Canada"

See the full report at  www.pnhp.org/publications/nejmadmin.pdf

Jim

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Single payor friction

Friction can be "good" and "bad."

Friction in the medical community that keeps qualified people providing quality care - I would define as "good" friction. The friction that Dr. Peters is speaking of has elements of "bad" friction in it when one looks at the protectionism, cronyism, nepotism, and any other "isms" that apply.

In a single payor system, the large "for-profit" entities have the most to loose. So look at who is backing the resistance to a "health system" that levels the opportunity for access.

Our current system also adds friction by stunting small businesses by keeping talent handcuffed to large corporations. 

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A Free Market Solution is Probably Most Sustainable, but...

Grover wrote:
What kind of system do you envision as being sustainable? If the social fabric ruptures and chaos ensues, will it still work?

As jpitre noted, healthcare costs in America are substantially higher than in Canada, and in the rest of the world. 40 years ago, American healthcare costs were more or less on par with other developed countries, but beginning in the 1980s and continuing to the present, sharply diverged.

http://economix.blogs.nytimes.com/2009/07/08/us-health-spending-breaks-f...

So, the single-payer, government-sponsored healthcare systems in place in much of the rest of the world have been better able to contain costs than America's 50:50 mix of government-sponsored and private payer mess. But, is a pure single payer, government-sponsored healthcare system sustainable? Even though that model has been successful in avoiding the three-fold cost increase seen in the U.S., it has still seen a doubling of healthcare costs in the past 40 years. In Canada and Britian, for example, there are regular articles regarding the sustainability of those models, too. Their problems are not as acute as ours, but they still exist.

Much of the rise in healthcare costs can be attributed to the fact that modern medicine is a relatively new entity, only a little over a century old, and that the marked technological innovations seen in the past 40 years are associated with increased costs. We are also victims of our own success, cost-wise, as people are living longer to acquire new illnesss that require additional costly treatment.

I believe that a free market solution would better contain costs than a government-sponsored, single-payer system, but either system would be better than the one we have. In any case, I think the likelihood that America will realize either a fully free market solution or a fully "socialized" system of healthcare deliver is nil, at least until complete collapse of the current system.

If the "social fabric ruptures and chaos ensues", it is anyone's guess what will be the effect on our healthcare system. I suspect that for routine, non-hospital, care, free market conditions will likely be much more important. For hospital-based care, well, given the complexities involved already, it is hard for me to imagine what would happen.

Grover wrote:
I don't know much about HSAs, but have to generally concur with this advice. I carry high deductibles on other forms of insurance and it limits my claims to catastrophic events only. Because I have higher initial costs, I question the need to file a claim and look for alternate remedies. That just makes economic sense. Why wouldn't it work the same with health care?

It probably would work the same. HSAs are just a means of paying for routine healthcare needs out of pretax income, which is desirable. For catastrophic healthcare needs (serious injury, heart attack, cancer, etc.), I think a high-deductible insurance plan makes sense, if one is available at a reasonably affordable price. A major illness or injury that lands one in the hospital can quickly result in a bill of hundreds of thousands of dollars. Even if such an event were statistically unlikely, the financial risks are considerable, and mitigating that risk with an insurance policy seems prudent to me.

Carl, good comment about "good" and "bad" friction! Perhaps the testing and licensing of physicians (and nurses) is a "good" friction, and worth maintaining. I'm not absolutely certain that is true, but it makes sense, and makes me feel better!

Christopher

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An Example of Free Market Healthcare

Here's an article about a primary care physician opening a cash-based (and barter!) practice in my hometown of Lawrence, Kansas:

http://wellcommons.com/groups/nosurance/2011/nov/13/new-lawrence-doctor-...

This is a slowly growing phenomenon, and I think we will see much more of it in the years to come. Unfortunately, its largely limited to primary care physicians; for surgeons and other hospital-based proceduralists, its much more difficult (yes, I've looked into it).

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Other Market Options...

I wrote to the primary care physician opening a cash-based practice in my hometown, referenced in the message prior. He wrote back, and mentioned a cash-based surgery center in Oklahoma City (where I happened to have done my thoracic training, coincidentally), and provided the following link:

http://www.surgerycenterok.com/index.php

Resources like this might be available in other areas, particularly for same-day or overnight procedures, and would be worth looking into, if available.

Also, joe2baba sent me a PM and reminded me about options for care outside of the U.S. Particularly for elective surgical procedures, this is a very good option to consider, with much lower prices and comparable care (as with everything, though, thoroughly check out references and statistics).

Christopher

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Grover
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Single payer government managed system or ...

ccpetersmd wrote:

Here's an article about a primary care physician opening a cash-based (and barter!) practice in my hometown of Lawrence, Kansas:

http://wellcommons.com/groups/nosurance/2011/nov/13/new-lawrence-doctor-...

This is a slowly growing phenomenon, and I think we will see much more of it in the years to come. Unfortunately, its largely limited to primary care physicians; for surgeons and other hospital-based proceduralists, its much more difficult (yes, I've looked into it).

Christopher,

Thanks for providing the link. I'd certainly check into this option if someone like Dr. Neu were available in my neck of the woods.

Other than limiting the multitude of insurance forms to be filled by patients/doctors/others, I can't see much benefit to a single payer system. It may lower costs at first blush, but once the competition has been eradicated, inflation will be baked in the cake. Also, a single payer system will have to be run by the government. If you think this is a positive development, go visit a government run DMV to see how long the simplest of tasks take to be performed. There is no bottom line profit/loss calculation with government agencies. Well meaning individuals get swallowed by the bureaucracy and end up doing just enough to not get fired. It is the curse of a government job. (Does anyone really think this is a good idea?)

I'm eligible for retirement in the next few years. My employer will allow me to continue my health care coverage; however, I must pay the entire premium. The premium is slightly lower because of a group rate, but still much more than I need. The high-deductible catastrophic policy that you mentioned is sounding like a really promising option. If you have some favorites, I'd appreciate hearing about them (either here or in a PM.)

Thanks,

Grover

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ccpetersmd
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Market versus Government

Grover,

No, I'm not really a proponent of a government-run, single payer system. I think such systems will ultimately fail, and some are showing signs of strain already. But, it is also clear that a government-run, single payer system would be better than our current system, at least from a cost perspective. In the end, though, such a switch would just be a "kicking the can down the road" maneuver.

We've had a high deductible plan for our family for several years. I'm 51, in good health, and nobody in my family has any health issues, so this is a good choice for us. When I was in private practice, I purchased my own high deductible plan. When I became a hospital employee earlier this year, my hospital had a high deductible plan as an option, so I chose that. I'd recommend checking with your current employer as to whether this is an option now, or might be in the near future (you should encourage them to look into it, if not already available), and if you could maintain such a plan after your retirement.

Unfortunately, when considering insurance options, we once again are faced with the problems of government influence in the marketplace. Insurance plan options, which also included high deductible plans, differ from state to state. Each state has certain mandates which dictate which options are available. As a result of this state influence, there are usually only one or two major insurance players in each state, plus a handful of minor ones. Not all will offer a high deductible plan. In Iowa, for example, only two insurers offer a high deductible plan. Until this patchwork system of mandates is eliminated (and legislation to do so is regularly proposed, but has yet to be enacted), we will not have competition in the healthcare insurance industry like we see in other insurance sectors. So, I cannot recommend any particular plan; you'll just have to see what is available in your state.

As an aside, I think a health insurance advertisement featuring the Allstate "Mayhem" character would be hilarious! Instead of "I'm your blind spot", we might see "I'm your colon polyp". Or, Flo from Progressive would be another good character, as she's already dressed like a medical person, in her whites and pharmacy-like setting.

Chris

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