Thursday, September 10, 2009

It is time for another apology

“I have insisted that like any private insurance company, the public insurance option would have to be self-sufficient and rely on the premiums it collects. But by avoiding some of the overhead that gets eaten up at private companies by profits, excessive administrative costs and executive salaries, it could provide a good deal for consumers.”

--- B. Hussein Obama addressing a Joint Session of Congress on August 9, 2009.

To the people of the world - I apologize for not doing more to prevent the election of the nincompoop who uttered the words above. I truly hope that, by his hubris and ignorance, he does not drag the world into an economic collapse that will last for generations.

Before I begin my exegesis, I should present my bona vides. Like Mr. Obama, I am an attorney. Unlike him, I've never edited a Law Review. I quit the Wisconsin Law Review after one semester, when it became clear that the editors were politically correct and I was not. Also, unlike Mr. Obama, I have spent 20 years in commercial law. I understand how the market works - how one takes risks in the hope increased return - those evil things called "profits." Profits allow a company to grow and hire more people, or to re-invest in new processes and drive down costs. Or the profitable company may simply pay its people more as a reward for a job well done. Also, I was for many years an attorney to a health insurance company. I understand where the premium monies go. Surprisingly, little goes to "fat cats" living, or even vacationing on Martha's Vineyard.

Let's start with Mr. Obama's basic premise: "the public insurance option would have to be self-sufficient and rely on the premium it collects." Presumably this statement is meant to reassure us that the public option would have to be competitive - rather than reliant on tax payer subsidies. While this approach seems sound, it is unconstitutional. The Constitution does not give Congress authority to enter into competitionn with the free market. The Bill of Rights was added to protect us against people like Mr. Obama, who argue that "I can do whatever I want unless it is expressly prohibited."

In his next sentence Mr. Obama makes a problematic reference to "overhead that gets eaten up at private companies by profits, excessive administrative costs and executive salaries." I have never before seen "profits" referred to as "overhead." In business parlance "profit" is what remains after overhead (costs, interests on debt, taxes, etc.) is paid. People invest in companies to earn profit. Mr. Obama's statement suggests that he is ignorant of basic business practices and vocabulary, or that he believes profits do not belong in the pockets of those who own the business.

As for excessive administrative costs, I know of no successful company that is not constantly attempting to cut "fat." Fewer people doing more, faster and smarter, is a recipie for business success. It has never been a description applied to any government enterprise, with the possible exception of the military. For example, why does Mr. Obama need 30-odd "tsars" to help him with his work when the Executive Branch already employes tens of thousands? Neither do the health insurance companies control their administrative burden. Health insurers are regulated by the 50 states, and the laws are not uniform. What is permitted in California may not be permitted in Maine. Alaska may require the same financial information as Florida, but on a different form. The cost of regulatory compliance for a company that operates in several states can be staggering. Mr. Obama's suggestion that private companies willfully fritter away money and excuse it as "administrative expense," is, at best, groundless and more probably another display of his ignorance. (He was perhaps referring to luxury retreats for executives and sales folk, often at large expense. Having somewhat Spartan tastes, I do find these offensive, and I elect not to invest in companies that permit such things. But I am also offended by Mr. Obama's lavish "date nights" with Mrs. O, at my expense and yours.)

There remains Mr. Obama's comment about "premium" being eaten up by "executive salaries." As a general rule, executives are paid for results. Mr. Welch of GE was very well paid. He also made the company VERY profitable. If Mr. Obama were CEO of a private company, in contrast, the deplorable results of his first seven months would probably get him fired.

There are other flaws in Mr. Obama's statements that add to the concern that he is arrogant and ignorant. For example, he appears to know nothing of the importance of investment income to insurance companies, or how reinsurance works. But he does believe he knows how to turn a phrase.

In two brief sentences we have a disturbing portrait of the commander in chief of the greatest military force ever known. He acknowledges no limits on his powers, has the most superficial understanding of the issues he confronts and is secure in his belief that he has all the answers. It may be entertaining, to some, to watch him squeeze dry the American private sector. But, once that task is accomplished, what will deter him if he decides that Venezuala, for example, has more oil than it needs?

1 comment:

  1. Note that millions of average, middle class Americans own insurance stocks through the mutual funds in their retirement accounts. Cutting insurance company profits thus hurts almost everyone with a 401K

    Bob Hall