Contempo Magazine Blog

By Dr. Tony Magana

Since 2005 Utah has been developing a novel consumer centered health insurance program which is different then the traditional employer health based insurance held by most American workers. A defined contribution plan like Utah’s could be the solution to finding a cost effective way of providing health insurance to the millions of Texans and Americans working for small businesses.

 

The deadline set by President Obama and the ruling Democratic party in Congress will likely come and go without the passage of the progressives’ nirvana, a government run single payer health plan. Up to now the liberal mass media has been so driven to support the Pelosi and her crew that the only discussion going on in the public venue has been that there were two options, the Dems way or the highway.

 

 

This week the chaos on Capital hill created by the predictable insurrection of moderate and conservative Democrats who mostly, it appears, want to be reelected in 2010 has finally been the vehicle to bring the discussion about reform out of the clouds and onto the ground.

 

So far most of the plans put forward as either government health care or insurance reform are based on a type of insurance that actuaries call defined benefit. Under this type of insurance, the employer buys insurance for a specific company and set of benefits for a specific premium. The cost of the premium is based upon the risk of payout. Anything over the defined benefits must be paid by the policy holder.

 

Since World War II, defined benefit plans have been the main type of employer based health insurance used in the United States. Organized labor often used health care benefits obtained by defined benefit plans as a bargaining chip in negotiating for better compensation for their employees. They have generally resisted the concept of defined contribution plans because they would be removing a source of contention in labor negotiations with employers.

 

Since 2005 the state of Utah has been working on a different paradigm called a defined contribution plan. Under this alternative approach the employer promises to make a specific contribution for the workers which will allow them to purchase a health plan of their personal choice. In a recent review of the Utah plan by Edmund F. Haislmaier , Senior Fellow in Health Policy Studies at the Heritage Foundation,  he remarked that there were three key elements:

 

1. Insurance market reforms to create a new “defined contribution” coverage option for businesses and their workers;

2. A board to design and manage a companion risk adjustment mechanism; and

3. A “virtual” health insurance exchange to coordinate the various administrative functions of a consumer-choice market.

Unlike the rushed government health care animus hastily thrown together by Congessional staffers that so far no Congressman has admitted reading (Yesterday Detroit Congressman John Conyers told the press he never reads bills) the Utah reform has been in progressing in development for three years.

 

 

Utah is very similar to Texas and many other states in that the majority of its residents work for small business at modest salaries. The defined contribution Utah plan was created to allow a consumer-centered health insurance market that specifically addresses the needs and concerns of small business and their employees but is also widely applicable for large employers, the self employed, and eventually Medicare or Medicaid enrollees.

 

The Utah plan gives employers the option to offer a traditional defined benefit plan or participate in the new defined contribution plan. Under this arrangement, the employer pays a defined contribution and the employee does as well (pre-tax under existing Federal tax law).

 

The system functions as a “virtual” insurance exchange. Transactions and consumer education will be facilitated by the internet rather then creating a costly bricks and mortar administration.

 

 

This month Aaron Mckethan and his group at the Engelberg Center for Health Reform at the Brookings Institute published a report looking a four state initiatives that were focused on helping small business and the self employed obtain insurance. They looked at the design features of the programs for Arkansas, Tennessee, Massachusetts, and Washington. Previous attempts at pooling traditionally uninsurable patients usually resulted in higher costs because higher risk pools landed in the programs and often the numbers enrolled was too small to make a competitive bid on the insurance market.

 

The Utah model would cut down on administrative costs and make for large pools of enrollees rather just the uninsurable. A board of the interested parties including citizens,providers, and insurers would oversee the process with a new and substantial transparency.

 

If the Brookings recommendation for creating Federal state partnerships is added to the Utah plan then one problem of creating enough economy of scale to draw competitive pricing from insurance companies could be accomplished. Rather then acting as a supervising authority, the Federal government could bring to bear resources to monitor effectiveness. Over time state health programs would be allowed to evolve in efficiency and cost containment by comparing what works and what does not in the various states.

 

 

This type of approach maintains patient choice and provides a scenario to encourage high quality with cost efficiency. Once a year enrollees could have the option to change their insurance. If they wish to change jobs, the plan they have will be portable.

 

Insurance would not be a one size fits all product. This type of plan allows for deferring levels of benefits as well as financial instruments like medical savings accounts.

 

Currently the state of Texas leads the nation in the number of uninsured adults and children affecting somewhere between 25 and 40 percent of the population. If enacted the current Democratic proposals before Congress promise to create severe burdens on the state budget by a massive increase in the Medicaid budget.

 

Our state and Federal lawmakers should take a closer look at the Utah plan because our fellow Westerners have a better idea than the Washington bureaucrats.

 

Thanks for reading Contempo Magazine blog which discusses issues for McAllen, the Rio Grande Valley, and America from a conservative Hispanic point of view. Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years. He is a member of the National Association of Hispanic Journalists and also writes for the American Daily Review. Follow him on twitter http://twitter.com/contempomagazin

Copyright 2009, Dr. Tony Magana. Some rights reserved.
To reproduce or distribute, visit: drtonymagana.icopyright.com

 

 

 

 By Dr. Tony Magana

Recent reports of the inadequacy of the Treasury Department in assisting troubled homeowners serves once again as an example of how the care taker model of government cannot succeed. A review of this is timely at a time when many progressives are clamoring for a new government care taker health program. While Treasury struggled to help only 180,000 out of 4 million homeowners with troubled mortgages about 53 percent were able to find their own solutions without any government “assistance”.

 

 

The onset of the financial crisis last year in the months preceding the Presidential election lead to an impetuously contrived program schemed by Congress which debited billions of dollars of taxpayer’s future earnings for stimulus payments to financial institutions who had been the cause of the crisis by allowing the extension of credit to otherwise poor risk borrowers which subsequently artificially inflated the value of domestic residential real estate in many states.

 

An examination of recent General Accounting Office (GAO) reports on the management and success of the Treasury Departments program to assist home loan borrowers in distress is troubling. The GAO was asked by Congress to study the evolution and the current state of the home loan market.

 

Their focus was the time period which was the heyday for nonprime loans which are divided into Alternative-A and subprime divisions. Alt-A paper loans which were given to borrowers with lower credit scores, multiple existing properties already under loan, and/or the lack of documentation for things like proof of long term income that prevented qualification for a prime loan. The subprime loan was seen as a even greater credit risk with FICO scores usually less then 640. None of these loans would have ever been made had it not been for laws passed by Congress like the Community Reinvestment Act which mandated that banks and other lenders must offer loans to individuals who would otherwise not meet the standard criteria for a mortgage.

 

The nonprime mortgage market had its heyday from 2000 to 2007 with a peak in 2006. The total value of loans in this category went from $100 million to $600 billion. According to the GAO the percentage of home owners who held a mortgage of this type went from just 12 percent in 2000 to 34 percent in 2006 with 2/3 participating in a subprime loan that was adjustable. Between the years of 2000 and 2006 the number of subprime loans actually multiplied in number by a factor of five. These nonprime loans were usually used by borrowers to refinance their homes rather then to purchase a new home. Because borrowers often had multiple loans in force the number of loans is well in excess to the number of borrowers. Thus the government was encouraging people who had suitable housing already to use their home like a credit card discouraging personal responsibility and thrift.

 

 

During the period from 2000 to 2007 about 14.4 million of nonprime loans were made of which 80% were subprime. As of March 31, 2009 about 11 percent or 1.6 million of those loans that failed had completed foreclosure. There remains about 5.2 million subprime loans left in the United States of which 80 percent are subprime. Out of these loans still outstanding about 23 percent or 1.2 million are at risk for serious default. Almost 2.5 million nonprime loan holders are in default or in the foreclosure process.

 

The GAO said there were indications “ that hundreds of thousands of additional nonprime borrowers are at risk of losing their homes in the near future.”Very few mortgages made since the implementation of new credit guidelines was made in 2007 have failed as 93 percent of loans currently in foreclosures were originally made between 2004 and 2007.

 

The Congress created the Home Affordable Modification Program which received $50 billion from the Troubled Asset Relief Program to assist struggling homeowners who were “victims” of inappropriate nonprime loans. The HAMP was supposed to act in four ways to help homeowners including modifying first-lien mortgages for those in danger of foreclosure, encourage the modification of mortgages in areas suffering severe property value depreciation, reduce or pay-off second-lien mortgages, arrange the sales of properties where the debt was more than then the homes value as an alternative to foreclosure, and provide incentives for at risk borrowers to get refinancing.

 

The GAO published an assessment this week of the progress of the HAMP. The Treasure Department was found to not be “fully meeting its goals”. Estimates were that about 3 to 4 million borrowers would be in need of assistance but as of July 20, 2009 only about 180,000 have began the process of loan modification.

 

The main impression one gains from reading the report was that the Treasury was overwhelmed and apparently this is an opinion shared by the Congressional Oversight Panel and Federal banking regulators.

 

 

The good news in this report is that 53 percent of the homeowners without any help from the government were able to find a way to refinance their homes with a better loan or arrange an alteration of their loan with their private lender.

 

The bad news is that the government program to help those who could not help themselves or perhaps were induced to wait for government help rather than seek their own solution has only helped 180,000 out of 4 million.

 

The ugly is that this is what can be expected to happen when the American public becomes too dependent upon government. The current culture of the Obama administration that all problems will be solved by government is a false promise with a high price. The high price occurs because the government’s pledge of support stymies the individuals initiative to help himself .

 

Government programs need to encourage individual responsibility and individual initiative in dealing with the necessities of our lives. We too often forget the American spirit which separates our nation and culture from the rest of the world is greatly due to the contribution of rugged individualism and individual responsibility. Government needs to be about giving people options and opportunities to find ways to help themselves rather then making narrow mandates.

 

 

We should not hesitate to step in, support, and guide those who are unable to help themselves as our Christian values demand but simultaneously we should expect that each individual will bear responsibility for themselves as they are able.

 

Americans should see this failure of the Treasury as a warning about will happen if we let the government take over the health care system.

 

Thanks for reading Contempo Magazine blog which discusses issues for McAllen, the Rio Grande Valley, and America from a conservative Hispanic point of view. Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years. He is a member of the National Association of Hispanic Journalists and also writes for the American Daily Review. Follow him on twitter http://twitter.com/contempomagazin

Copyright 2009, Dr. Tony Magana. Some rights reserved.
To reproduce or distribute, visit: drtonymagana.icopyright.com

 

 

 

By Dr. Tony Magana

Although President Obama publicly criticizes protectionism policies he has yet to articulate a coherent and consistent trade policy. Within the Democratic party a deep division is developing between those who are pushing for extending free trade initiatives and opponents who who seek to institute radical protectionism. Congressmen Henry Cuellar of Texas and Mike Michaud of Maine seem unavoidably headed for a confrontation on the future of American trade policy. Whose side will the President take?

 

On June 24, 2009 Congressman Mike Michaud (D-ME) introduced a bill called “Trade Reform, Accountability, Development and Employment (TRADE) Act,” (H.R. 3012) which is nothing less than a direct assault on the economic vitality of the American export industry and by definition on the future economic well being of the United States. The Congressman is the Chairman of the House Trade Working Group which is determined to implement protectionist revisions into America’s trade policy.

 

 

The new legislation would stipulate  all existing trade agreements become null and void then mandates their renegotiation with some non-negotiable terms always included. All future trade accords will beseech the inclusion of a “Buy American” provision which protects domestic production, a mandate that foreign government follow labor and environmental standards as determined not by their elected governments but by the U.S. government, and throws out patent protections for American drug makers allowing the special import of foreign low cost generic drugs.

 

Under the Constitution, the President has the authority to negotiate treaties and the Senate the duty to ratify them. Now the liberal left in Congress wants to covertly and radically alter the Constitution without going through the formal process of amendment. Instead of the President negotiating trade treaties, the new legislation establishes a “special super congressional committee chaired by the Ways and Means and Finance Committee chairs to work with the President” on formulating treaties.

 

The money and political muscle behind the new initiative is not surprising -a coalition of rust belt groups, labor unions, and liberal social activists. This alliance falsely blames America’s economic decline as primarily driven by bad trade decisions which led to a decline in domestic manufacturing and ever increasing trade deficits. They are scheming that the perpetuation of politically convenient myths about trade will allow organized labor to become the predominant factor in American politics.

 

Recently a symposium was held by the libertarian CATO Institute where their Associate Director for the Center for Trade Policy, Daniel J. Ikenson, reviewed these myths.

 

While it is true that overall jobs in manufacturing peaked in 1979, the years since that time have seen significant evolvement in the economy. Gone are the days where America was the only major consumer in the world of major goods. The emergence of India and China into modern economies with populations more than several fold larger than the United States has transformed this equation forever. The new reality is we cannot prosper in a world of protectionism.

 

 

Protectionism was tried at the beginning of the Great Depression following the stock market crash at the end of the 1920s. There is essentially universal agreement among historians and economists this historical blunder prolonged the duration, delayed the recovery, and increased the intensity of the economic woes of the time.

 

Ikenson points out that in the emerging world economy the role of the United States in manufacturing has not declined but  undergone a positive metamorphosis. While it is true that America no longer produces many low cost and low tech items that is not the whole story. The future for America and the best promise for America has been and will continue to be the conversion of manufacturing from low tech and low added value items to high tech and high added value items.

 

 

Americans complain that simple every day items like tools are made in foreign countries but they fail to appreciate that while those jobs have left,  high tech items like computer components are the real catalysts for economic prosperity. Outsourcing of simple manufacturing has only been responsible for 3% of America’s recent job loss. The replacement of low tech and low value added manufacturing with high value added industry relatively increases jobs and the overall gross domestic production of the country many fold more than older conventional manufacturing.

 

Another common myth surrounds the concept of trade surplus and trade deficit. The Japanese economy has had a trade surplus for many years but still has been saddled with “anemic” growth in their domestic economy. Most of the trade deficit experienced by the United States is due to oil imports rather than the importation of relatively low tech goods. It is good for China to make low tech and value added items but it is even better for the United States to make high tech and value added items.

 

The liberals pushing protectionism claim that a major failure of trade agreements has been their lack of enforcement. They cite the fact that there was a dramatic reduction in trade disputes brought up in the setting of NAFTA and WTO agreements during the last Bush administration as compared with the Clinton administration.

 

Advocates for free trade including not only the CATO Institute but also a leading Democrat, Congressman Henry Cuellar of Texas, who represents one of America’s most important trade zones extending between Laredo and McAllen Texas on the border with Mexico see the decrease in disputes as a positive sign. The Congressman points out that the initiation of trade agreements forms the foundation for an interdependent relationship between nations which fosters dialogue and cooperation. Once both countries are benefiting there is a tremendous incentive to avoid disputes and act in mutual interest.

 

 

On his website, Congressman Michaud makes some very incorrect and important deceptions about the Hispanic community and trade. He openly claims that Latinos are for protectionism and support the new legislation but nothing could be further from the truth.

 

Congressman Cuellar is not a signatory or supporter of the protectionist trade bill. Instead he has formed a Pro-Trade Caucus and unabashedly opined that protectionism should have no place in the “Democratic Creed”.

 

The growing commerce with Latin America has seen the development of a vibrant Hispanic business sector. As Congressman Cuellar frequently points out, the thousands of American companies who do business with Latin America are more often than not small to medium size businesses. Many of these concerns are Hispanic owned or contain Hispanics in major positions of management. The familiarity with culture and language not only helps foster business cooperation but also allows these Hispanic entrepreneurs to be positive role models for Latin American development. Their businesses function as unofficial ambassadors of good will and influence for American interests in the region.

 

Research performed by the University of Houston and others has shown that one of the key ingredients contributing to the explosive growth of Hispanic businesses in the Southwest United States has been a symbiotic relationship between native born Hispanics and newly arrived immigrants. In a very real sense, this symbiosis is extended when these companies participate in international trade with Latin America.

 

 

Congressman Cuellar has become a principal voice for trade policy. He is quick to point out that he does not believe in absolute unconditional free trade. His approach to trade however is quite different then what is being espoused by Congressman Michaud.

 

During a recent symposium, Cuellar outlined his trade philosophy. America he says is in a new era of trade that requires a new bi-partisan approach. He recalled that as a Democrat in the minority during the Bush administration he was often excluded from discussion by the Republicans and warns that the new Democratic majority needs to avoid the same mistake.

 

The beginning a good trade policy begins with the recognition of the sovereignty of a potential trading partner. He says “why should we know whats better for those countries than their own elected officials.”

 

Rather than be confrontational at the outset, the goal should be to establish a good working dialogue which allows the partner nations to work to their mutual interest. This approach is substantiated when one compares the current status of trade with nations that are in free trade agreements versus those without says Cuellar.  Overall in 2008, trade with the United States grew by 18% within which a $10.3 billion surplus was created with the fourteen nations who have free trade agreements with the U.S. representing a 158 percent increase against only a 7 percent increase with non-free trade agreement nations.

 

The effect of fostering trade he is proud to say has transformed his home district on the Texas-Mexican border and says those who advocate a turn back to protectionism will be making a mistake.

 

 

During his Presidential campaign, Obama was very critical of the current Secretary of State, Hillary Clinton’s support of NAFTA and promotion of trade. Since his election he has been very obtuse about what are his true intentions. During the G-20 summit in Europe and in comments about protectionist measures included in the Democratic cap and trade legislation he voiced misgivings about the appropriateness of the timing of restrictions on trade. The President seems to be complaining about the degree of protectionism and the timing of its application rather than making a frank and clear statement against a policy of protectionism.

 

This week Ikenson and Scott Linicicome, an international trade attorney, complained in article for the CATO Institute that Obama’s lack of a trade policy is “de facto protectionism” and subversive to the economic and foreign policy well being of the nation.

 

Obama appears to have muzzled his new trade representative, Ron Kirk, the former mayor of Dallas who liberal Democratic critics felt was too pro-trade and Secretary Clinton in that they have made essentially no public statements about trade for months of any substance.

 

Under pressure from unionized labor interests and truckers, the President unilaterally violated the NAFTA agreement by stopping a program to develop the ability of Mexican trucks to operate on American highways. At the time Obama promised to quickly come to a new agreement but instead has essentially taken no action which invited the Mexican government to impose $2.4 billion in duties against American products and will likely result in the United States government paying in excess of $6 billion dollars in damages of taxpayer money to Mexican truckers.

 

Many are wondering why the handling of Canadian truckers has been so different compared to Mexican truckers. Concerns about creating appropriate insurance allowing Canadian trucks to drive on American highways was handled expeditiously by the Obama administration with an announcement this week that all problems had been solved.

 

The additional financial costs, fuel costs, and time delays of unloading semi-tractor trailors on the Mexican borders results in $8.4 billion of price increases that American consumers and industrial buyers have to pay for Mexican imports. The result has been the American government has added almost another $20 billion dollars to the national debt for the sake of a few politically placed labor unions.

 

If the the warnings of Congressman Cuellar are ignored, low income Americans can expect to pay higher prices for food, clothing, and housing. The ill conceived no trade policy advocated by Congressman Michaud will irrevocably damage the future of the United States as a meaningful trading partner with the emerging democracies of Latin America and Asia. As the true intention of the liberal left to create new era of protectionism is recognized by other nations a flood of counter protectionist reactions will occur. Just as it did in the 1930s, this reaction will only damage the economy by reducing the number of exports, raising the prices of imports, and inevitably drastically lower employment.

 

 

The dream of many American small business innovators and their descendants to become major contributors in world commerce will be shattered by the misguided principles of protectionism and labor cronyism.

 

If Obama is really committed to developing trade then he must stop the delay and push for the acceptance of free trade agreements with Panama, South Korea, and Columbia as recommended by his fellow Democrat, Congressman Cuellar.  Some have called Congressman Cuellar, the most educated man in the Congress because of his multiple graduate degrees in International Business and Law, it is time for the President to listen to voice of intelligent reason offered by Cuellar and clearly disavow Congressman Michaud and his anti-trade agenda.

 

Thanks for reading Contempo Magazine blog which discusses issues for McAllen, the Rio Grande Valley, and America from a conservative Hispanic point of view. Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years. He is a member of the National Association of Hispanic Journalists and also writes for the American Daily Review. Follow him on twitter http://twitter.com/contempomagazin

Copyright 2009, Dr. Tony Magana. Some rights reserved.
To reproduce or distribute, visit: drtonymagana.icopyright.com