Ravengate
Partners - Stock market, economic and political commentary by Patricia Chadwick

While stuck in the Sarasota airport on Friday, I downloaded the Wall Street Journal to my iPad. The notation on the app was FREE which was my only incentive because I had no intention of giving up the print version which is delivered to my door at 5:30 each morning. There are few things more pleasurable than curling up in a chair with my several newspapers while sipping a cup of tea. Newspapers in particular, it seems to me, are designed for visual exploration.

When the FREE online version of the Wall Street Journal wouldn’t upload in full, I called the telephone number provided with the application. The gentleman at the other end of call informed me that the FREE notation was an error and I would have to pay for the online subscription. But he promised that the iPad online edition was a complete and perfect replica of the printed newspaper. I reluctantly agreed to subscribe for $17 per month. It was my curiosity that now needed to be sated.

Over the weekend I spent a couple of hours comparing the two versions of the Wall Street Journal. Armed with the newspaper in my lap, I searched the iPad and after a bit of maneuvering I was indeed able to locate every article. Most importantly, the Opinions were given their own heading, which meant that Peggy Noonan was easy to find. She is the best reason for getting up on Saturday morning. An added bonus with the iPad version was the ability to adjust the font size. And I discovered that I could save as well as send articles to friends. Good old Apple Computer – once again it had scored a winner.

Admittedly, it was not a cozy way to read the newspaper, but it was efficient. And I still had my local newspaper and the New York Times to fall back on for “curling up in a chair with a cup of tea”.

I was now left with a dilemma. What should I do with my subscription to the print version of the Journal? Most assuredly I did not need to pay for both services, which would total around $600 per year. The answer was obvious but old habits die hard. I pondered the pros and the cons and came to the logical decision. I had crossed the Rubicon; there was no turning back. I would cancel my delivery of the Wall Street Journal to my front door. I counted the ancillary benefits: I would save money (the iPad version is half the cost of the printed paper); I would help the environment by saving at least a few trees. And from now on all those articles I cut out of the paper and save for future reference would no longer pile up on a table getting yellow and frayed.

And In March, when I go to China for two weeks, I will have the Wall Street Journal at my fingertips each morning and won’t have all that catch-up reading to do when I return home.

Maybe the New York Times will be next – who knows?

Patricia W. Chadwick
President, Ravengate Partners LLC
www.ravengate.com

Believe it or not, there is some good news regarding health care reform. Legislators, employers and employees are actually in agreement on a number of important issues facing the industry. If only both political parties in our legislature could come together to implement changes that are not controversial, perhaps the remaining disagreeable items could be tackled later.
From all my conversations, it appears that there is nearly universal consensus supporting the elimination of pre-existing conditions, which are deemed unfair and basically un-American. The notion that a pre-existing condition could disqualify one from insurance coverage is not only grotesquely unfair, but it stands notionally to thwart one of the most powerful economic forces in the U.S. economic system, namely the mobility of labor. People in this country willingly move from company to company in an effort to advance their careers, and the existence of a pre-existing condition clause that pertains not simply to the employee but to any member of the family has the effect of tethering an otherwise upwardly mobile worker to inferior conditions.
Secondly, there seems little reason not to allow health insurance companies to compete across state lines. In the personal property insurance market, the practice has existed for over a century. One can go shopping for automobile, home, marine, motorcycle and liability insurance coverage from a host of separate insurance carriers. In fact, there are websites that help one to navigate the vast array of coverage options and there are companies in the business of finding the coverage that best suits individual needs. So why not with health care? If in Connecticut (where I live) the number of health insurers were to increase from the three available today to ten or twelve, I’m inclined to think that premiums might even decline, instead of endlessly rising.
Tort reform may not be an issue that many of our legislators want to tackle, but their constituents most assuredly want them to do so. Even President Obama has fired a shot across the bow of the Congress by admitting that tort reform is necessary. Almost everyone I know can give examples of doctors engaging in the practice of defensive medicine to reduce the likelihood of being sued. It is a hugely costly tariff of sorts, far more expensive than the ‘extra five percent’ that is bandied about.
Somehow I have to think that if one pooled together hundreds of small companies that individually do not have enough employees to provide the diversified risk that an insurance company needs to underwrite, one could generate a large enough population – say 50,000 – to be attractive to underwriters. It seems so simple a notion that I cannot fathom why it can’t be done. Admittedly, many health insurance companies today are not truly providing insurance. Rather they are acting as facilitators for large corporations and managing an insurance budget predetermined by the employer. But I believe that a pool of any randomly selected twenty, or thirty or forty thousand people could provide good insurance characteristics.
One of the legislated changes in the current health care reform law is the requirement for companies to adopt electronic recordkeeping. Many companies were already engaged in making the shift from paper to electronics. The requirement to do so will improve productivity, will reduce costly and risky errors and will allow for improved health care.
The above set of issues don’t seem to be controversial – except for legislators’ anxiety about losing funding from the all-powerful lawyers’ lobby if they enact tort reform. So I say, “Let’s get a move on, Congress.” The President has admitted that things need to be changed in the current law. Use it as an opportunity to improve competition and productivity and let the private sector do what it does best, namely compete on price.
The issue of the many other people who remain without insurance will not go away. But somehow I find it counterintuitive to entrust the Federal Government with the oversight of millions more insureds when it is experiencing close to $100 billion annually in Medicare fraud. If Medicare were a private company, I can assure you its fraud rate would preclude it from winning a federal contract. I say, “Clean house, eliminate the fraud, prove you can run your existing book of business effectively and honestly, and then maybe there is logic to expanding your contract.”

Patricia W Chadwick
February 22, 2011

The Federal budget deficit cannot be brought under control or meaningfully reduced without addressing the looming insolvency of Social Security.
The heart of the problem lies in demographics. More than seventy five million baby boomers will be retiring over the next eighteen years. That is approximately one quarter of the entire U.S. population today. As they depart the workforce, they will immediately go from contributing to the funding of the program to taking from it. And thanks to medical technology, life expectancies continue to improve. Since the first baby boomer was born in 1946, life expectancy at age sixty-five has risen by nearly five full years. Good news to be sure, but it up-ends the arithmetic of funding. It is both logical and essential to raise the eligible retirement age for social security, even more that what has been done to date.
Most major corporate and government pension/retirement plans in this country are required by law to be safeguarded and managed separately from the operating finances of the company or government entity. The Social Security taxes received by the Federal Government, by contrast, are not segregated. There is no “lock box” into which Social Security payments are made and invested for future retirees. The system is truly “pay as you go” which means that the burden of funding the growing liability associated with the baby boomer generation will increasingly fall on their children and grandchildren.
Social Security legislation was signed into law by President Franklin Roosevelt in 1935 as part of the New Deal in the midst of the Great Depression. The law’s intent was to provide a social insurance program during a period of massive unemployment and poverty in this country. It certainly wasn’t intended as supplemental income for the wealthy.
Forty years ago, when I was hired for my first “real” job (which I define as one with a salary and not an hourly wage), I was excited at the offer of an annual salary of $10,800. I remember believing I was on the path to a career that would allow me to make enough money to forego Social Security when I retired. That was my goal.
Today, with the magical age of “retirement” and Social Security within sneezing range, I am pleased to have attained that objective. I neither need Social Security nor should I receive it. However, the system will not let me even opt out, much less allow me to register that I do not need it. And therein lies a big part of the problem. Social Security should be provided on the basis of need. The money withheld to fund social security is a tax pure and simple; it is not a savings plan. It is not my money, despite much rhetoric to the contrary. Means testing would be complicated no doubt. There are many who might appear to have adequate retirement income but in fact may be caring for children and grandchildren. But simply because the solution might be complex does not mean it should be eschewed.
I realize that I have already uttered what is heresy to many, so let me add more fuel to the fire. If a portion of the 6.2% of gross income that an employee pays into the Social Security system were instead put into a private personal savings account and invested over the forty years of her working life, it would generate a level of assets by retirement that would be able to supplement and possibly even exceed the social security benefits provided today. And most important of all, that money would belong to the person who saved it, not to the Federal Government. That means it could be passed on to the family in the event of death before retirement. It is a ”no lose” solution for workers. You can do the arithmetic yourself. Even if you use a conservative 4% annual growth rate for investment return, you will be amazed at the power of compounding. For minimum wage earners or those making too little money during their working years to build up a sizable private savings pool, they could still be provided social security through the contributions made by the employer.
The fiduciary oversight of those assets would need to be addressed. In the wake of the decimation of many 401(k) plans during the stock market decline of 2008/2009, there is much skepticism about private savings as a secure means of generating retirement income. But even if the private accounts invested only in Government bonds, they would be far ahead of the system today.
Social Security has been tagged as the “third rail of politics”: touch it and die. And since the “courage deficit” exceeds our budget shortfall, this growing fiscal crisis has been shunned and cast aside for some other lawmakers to address some other day. And now we face the next twenty years of having to pay the piper – well seventy five million baby boomer pipers lining up to be paid back after having contributed for forty years.
Here is the good news – it is not too late to solve this problem so long as there is a will to do it. Social Security can be fixed. It will take courage to change. The solution will almost certainly include raising the age of retirement, means testing and partial privatization. Let’s fix it for our children’s children.
Patricia W Chadwick
President
Ravengate Partners LLC
February 3, 2011