November 15, 2016

Lets Get Real About Repealing And Replacing Obamacare Shall We

By Melvin J. Howard

It is not clear President Trump, and Republican majorities in the House and Senate, whether full repeal is even possible and what replacement might look like. There are several reasons for this. First, Trump would face political and financial fall-out from a repeal. Second, even with Republican majorities now in the House and Senate, it would be hard to repeal the entire bill. It includes not only the establishment of the exchanges, in which people buy insurance, but also cost-saving and quality-improvement measures. Many health care professionals, systems, and tax payers welcomed these. In addition, repealing and replacing the Affordable Care Act with something entirely different without severely reducing access to care may be impossible. That’s because it’s the only system devised so far that uses the private market to increase coverage and that stops short of single payer government-run programs. The health reform framework that became the Affordable Care Act or Obamacare has a long history and many champions from all political philosophies. While the ACA will long be associated with President Obama and is most often called Obamacare, many other politicians and policy makers had been working on similar plans for years.

In the 1992 presidential election campaign, both incumbent George H. W. Bush and candidate Bill Clinton had health care reform plans. Both plans were structured similarly to the Affordable Care Act. They both created insurance purchasing pools (similar to the ACA marketplaces), eliminated pre-existing exclusion clauses, and had individual mandates and subsidies for low-income families. After the election, when it became apparent that the Clinton administration plan would be different from those plans, a group of Republican senators led by Sen. John Chafee (R-R.I.) developed a proposal that had all of these attributes.

Then-governor Mitt Romney of Massachusetts asked his staff to find ways to reduce the burden of the uninsured on the Commonwealth of Massachusetts. Searching for a market-based approach, they found their options narrow to a plan similar to Sen. Chafee’s. At the time the individual mandate penalty was described not as a tax, but as a measure of personal responsibility for paying for one’s own health care.

The Massachusetts plan became the model for the Affordable Care Act. The reason all of these proposals resemble each other and the Affordable Care Act is that there are limited options for creating a sustainable private insurance market that allows individuals access to affordable health insurance. Trump may be able to repeal the law and return to health care coverage as we knew it in 2010. Consequences, however, will be a sudden drop in access to care not just for those who lose coverage, but for many others who will lose access to care because their local hospital closes, or nearest doctor moves out of areas with high percentages of uninsured. Replacement requires something that looks like the ACA. The individual mandate of course is a little more complicated. At one point, it was seen along most of the political spectrum as a promising way to reduce the number of uninsured people in the United States; requiring healthy people to sign up for coverage was supposed to ensure that premiums were affordable. The idea was originally floated by the conservative think tank the Heritage Foundation and was first brought to Congress by Republicans in the 1990s. The mandate has since become one of the most despised aspects of the law.

But there isn’t a clear policy proposal with bipartisan support for how to get more healthy people into the insurance market in the absence of an individual mandate and insurance subsidies. Trump has proposed creating high-risk pool insurance programs, essentially plans that people with pre-existing conditions can buy into. These types of plans existed in many states before the passage of the ACA and by design are not self-sustaining because members use significantly more health care than they can afford. That means they require significant federal dollars ($25 billion in the case of a plan from Ryan), which is one of the many reasons high-risk pools are divisive among Republican lawmakers. I’ve written in the past that I was skeptical of whether it was feasible to just repeal the Affordable Care Act by  illustrating the forgotten man. So let’s just take a look at what would happen without some key important health care mandates from congress in the form of the forgotten man once again. When A takes from B to give to C, the world is well aware of the benevolence of A and of the plight of C; but B is the forgotten man.

The relevant point for us is not that B is being treated unfairly; the point is that B isn't going to stand still for this. He'll look for ways to prevent A from stealing from him. He may begin avoiding or evading taxes; he may earn less so that less will be taken from him; he may move out of A's jurisdiction; or he may start pretending to be C.

The end result is a society in which everyone wants to be C (or A), and no one wants to be B. But B was the person who originally financed A's generosity; and without him, there will be little to redistribute. In addition, if C doesn’t have to pay for his own needs, it's inevitable that his need will grow larger. Society develops that it has boundless needs and no one to pay for them. We can see how this happens if, we look at one sample of the A-B-C process in the health care reform debate. Health care advocates believe, for example, that people have a "right" to free medical care. Since no "rights" can be asserted against nature, the advocate must not be thinking of a right to live without disease. They are, in fact, thinking that no citizen should have to pay for medical treatment that it should be free.

But since nature doesn't provide medical care, it must come from other human beings. So one person's right to medical care is a claim upon some other person's time, energy, money, or knowledge. The man on whom this claim will be made is B, the forgotten man. Now the politician offers free medical care, but he never says, "You will have free medical care because we are going to force B to pay for it. The plan becomes unrealistic from the start in that it assumes that B will submissively pay the bill without looking for loopholes. It's unrealistic, also, to believe that the costs of the program won't change when the economics of it change.

The politician sees that people presently spend $100 billion per year on medical care. So he plans to collect $100 billion on new taxes or ( medical insurance "contributions"), and use the money to pay for doctors, nurses, medicine, X ray etc. He believes that this will make medical care free. But once the program is underway, the economics change drastically the 100 billion was what people had spent yearly when the money came from their own resources. Now that medical care is free their medical needs suddenly in­crease. Why forgo that operation, checkup, or treatment that might have some value.

Or if your lonely, why not go talk to your doctor? Or if you need a place to stay check into the hospital; they'll find something wrong with you many people will see that this is wasteful-for the nation. But for each individual, the consideration is always that it costs zero dollars to obtain something that might prove to be valuable so free medical care turns out to cost far more than $100 billion per year. And after a while B decides that he’s tired of paying for what he deems these loafers and he checks into the hospital, too from stress. Or at least he stops working so hard. His income is taxed to pay for free medical care and for all the other government programs. And so, leisure (unpaid and therefore untaxed) seems more attractive to him. He earns less; and he saves less, too, because he'd just have to pay tax on the interest his savings earn. And because he and all the other Bs are earning less taxable income, the politicians must raise tax rates even higher than they planned—to collect the money they need for free medical care.

Because even the government's resources are limited (it can't tax what doesn't exist), it is forced eventually to do something to limit the costs of the program. Naturally it won't end the program that’s political Armageddon; it will declare that a crisis exists and impose rationing. So when the cost of free medical care has reached double or triple or quadruple the original estimate of $100 billion, the government announces that it will decide who gets to see the doctor first. You will have to go without—unless you have the right disease or fill out the right form or know the right people.

And most people will have no choice but to wait in line for free medical care. The billions spent on the program will have bid up the price of medical services; only the very wealthy (of whom there are fewer) will be able to afford to hire a doctor on their own. Just as promised, medical care is free; it just isn't available. We would be sobered by the medical situation in Canada and some European countries. Government medical and "Social Security" pro­grams are far advanced there, compared to the U.S. The shortage of medical care is chronic because doctors emigrate to the U.S. and other countries where there are greater op­portunities to earn more money. Waiting lists sometimes are years long and Mr. B. has long since disappeared.

I've used this as an example of the way the health crises develops. The crisis is always a conflict between the government's goals and the actions of individuals. Many in­dividuals will sympathize with the government's position, but none will sacrifice his personal interest.

It isn't a matter of selfishness vs. unselfishness. Every indi­vidual acts in his own self-interest; that's a principle of hu­man action. The conflict is between the individual who selfishly pursues what he believes is best for himself and the politician who selfishly wants the individual to act under his direction. Until the ACA is actually repealed, all its rules and benefits are still in place. There’s an open enrollment period right now. Despite several large insurers scaling back participation in the exchange market in 2017, many health care consultants believe major payers will return next year with recalibrated plans.

There is a feeling of stability within the individual market despite the turmoil of exchange exits by large insurers like Humana, Aetna, and UnitedHealth. Payers are already developing slimmed down, technologically advanced “next-generation plans” with price points that are more suitable for the individual market. Although many have focused on the impact of insurers exiting state exchanges and subsequent concerns over reduced competition, some payers have quietly found success within the ACA marketplace by deploying narrow or tiered networks. Centers for Medicare & Medicaid Services has said the evolving regulatory landscape offers insurers an opportunity for experimentation and innovation.


November 11, 2016

Trump Care Will It Work...

 A recent survey by Healthcare Finance magazine show the perils and anxiety of a new President tinkering with the health care system that the country was just starting to get a handle on albeit with flaws, comments range from. “Doing away with some of ACA provisions that will be a disaster for women's health, behavioral health, the disabled and those with pre-existing conditions," a senior clinical business analyst said”. "Healthcare quality will also decline if the federal standards are removed. It will be a total disaster."

Other respondents added that a Trump presidency would set the U.S. healthcare system back in time.

"Due to the lack of his understanding healthcare, he will push the system backward by at least 25 years," a retired healthcare administrator noted. "Patient care will suffer and provider fraud will increase because of poor documentation."

 Let’s look at his plan and see if it is all doom and gloom. First his plan has two major components. First, it would fully repeal the Affordable Care Act (“Obamacare”) and replace it with several new policies. Second, it would turn Medicaid into a “block grant” program. By the Committee for a Responsible Federal Budget estimates, President-elect Trump’s plan to repeal and replace Obamacare would cost roughly $330 billion over ten years including estimates of faster economic growth, and $550 billion under conventional scoring.


The largest component of this estimate comes from the “repeal.” The campaign website proposes to “completely repeal Obamacare,” which they assume to mean repealing the Affordable Care Act’s regulations, subsidies, Medicaid expansion, Medicare savings, and tax increases. Although repealing the coverage provisions would save about $1.1 trillion, based on Congressional Budget Office (CBO) estimates (adjusted for recent legislation and changes in the budget window), repealing the legislation’s tax increases and Medicare cuts would cost a combined $1.6 trillion. In total, this means repeal would cost $480 billion – or $260 billion including the economic benefits of repeal.

President-elect Trump’s plan to replace Obamacare would entail further costs. Most significantly, President-elect Trump would create a tax deduction for individuals buying their own health insurance. This would equalize the tax treatment between individually-purchased and employer-provided health insurance, but at a cost of roughly $100 billion over ten years. The cost of these policies would partially be offset by savings from expanding prescription drug importation and re-importation and allowing people to purchase insurance across state lines. Policies to require price transparency and promote health savings accounts will likely have small effects in opposite directions, roughly canceling each other out.1 As a result, the replacement plan would cost $70 billion.

The total cost of President-elect Trump’s repeal and replace health care plan would be $330 billion over a decade under dynamic scoring and $550 billion under conventional scoring. Those numbers would be smaller (and the direction could differ) if he retained some of the Medicare cuts and/or tax increases from Obamacare. Note that this analysis does not include President-elect Trump’s call to negotiate aggressively for Medicare drugs, a policy that is not listed on his website. He has previously claimed that $300 billion a year could be saved through negotiation, a claim the Committee for a Responsible Federal Budget rated as false because Medicare will only spend an average of $111 billion each year on prescription drugs. Based on previous estimates by CBO, actual savings would likely be small or negligible.

The Coverage Impact of Repealing and Replacing Obamacare

According to (CBO) The Congressional Budget Office, about 27 million Americans will lack health insurance coverage in 2018. Repealing Obamacare would increase that number by 22 million, whereas President-elect Trump’s replacement plan would only increase coverage by 1.1 million. In other words, the plan would increase the number of uninsured individuals by about 21 million and only cover about 5 percent of individuals that would lose coverage from Obamacare repeal.


The 1.1 million of gained coverage comes from the policies to allow insurance companies to sell across state lines, which would increase coverage by 400,000, and the deduction for individual health insurance, which would increase coverage by 700,000. (Estimates from CBO) Other elements of Mr. Trump’s replacement plan might reduce costs but would not significantly impact coverage.

Block Granting Medicaid

In addition to repealing and replacing Obamacare, Mr. Trump proposes to transform Medicaid into a block grant to the states. Effectively, this means replacing the current system where the federal government pays for a portion of state Medicaid costs (based on a matching rate) with a system where the federal government gives each state a fixed allotment of dollars each year.

Not surprisingly, the amount of money this proposal would save (or cost) depends entirely on the size of that allotment, and how much it grows each year. For example, block grants could be designed to maintain current projected spending levels, or they could be designed to save hundreds of billions of dollars (this year’s FY 2017 House budget resolution assumed over $1 trillion in Medicaid savings). However, President-elect Trump transition team has not provided any information on the size of their proposed block grants, making it impossible to score any savings.

If President-elect Trump intends to generate aggressive savings from block granting Medicaid, it could more than pay for the cost of repealing and replacing Obamacare – though perhaps at the cost of a further reduction in coverage.

President-elect Trump’s plan to repeal and replace Obamacare – based on the details available – would both add to the deficit and significantly reduce coverage. Meanwhile, his plan to block grant Medicaid could generate significant savings; however, insufficient details are available to estimate if there are any and how much. What is clear is the uncertainty and that is no good for the industry, insurers or patient care.

January 20, 2014

Healthcare and the Impact on the Federal Budget

By Melvin J. Howard

There appears to be at least as many permutations and combinations available for presenting the US Federal Budget and Government Spending data as there are years that it would take you to count to $2 Trillion dollars, which is about 60,000. Note that in the US the number One Trillion is One Million times by One Million, or 10 to the power of 12. For the mathematically inclined, the correct mathematical definition of One Trillion is One Million to the power of 3, and the correct mathematical definition of One Billion is One Million to the power of 2. But in America numbers work differently, so it came to be that One Billion got redefined as One Million to the power of 1.5, and One Trillion is redefined as One Million to the power of 2. The effect and advantage of being the Imperial Superpower is that everybody else in the world now had to adopt this number conversion.

Rome is Burning

The U.S. Federal Budget has been in the news a lot lately both Republicans and Democrats both showcasing their version of the numbers. How you present the Federal Budget depends entirely on the bias you start with and the point you are trying to make. Therefore I decided to admit the bias up-front and then you can better decide what to do with the data. My bias in looking at U.S. federal spending was the thought that maybe we might be on fire just like the Roman Empire was over 1,000 +-years ago. To be sure, the Roman Empire had many similarities with the modern U.S. Empire - both being Empires built on a combination of clever legal systems, hard-work, confidence, much brutality in military conquest and extensive use of slave labor, coupled with a system of desirable, tempting, and free entertainment to warm the masses to the Empire (think Roman Idol), as well as erratic spouts of helpful assistance to the poor. Certainly also, a widespread Roman currency and trade system, and an extensive taxation and government spending program were just as critical to the success of the Roman Empire, as they are now in today's American Society.

The comparisons of Budgets started with finding a Roman budget at a time around when their leaders stopped being elected and instead were "appointed" and when ancestral lines of Emperors became very popular. So I started with the early Empire days of the 1st - 2nd Centuries AD. The approach I have taken is based on historical data from those days, to calculating the Roman budget in this period. The total Roman budget was about $1 billion sesterces, a common Roman currency that started in the BC years as about 1/4 of the Moneta denarius. These are estimates for the Roman budget in 150 AD broken down into the following expenditure categories. Roman Empire Budget Distribution Source of Roman Data Expense Item Percent Outgo:

Military 70%
Civil Service - Judiciary, Police, Government Departments 10%
Social Spending 5%
Economic Infrastructure 5%
Other - Mostly Foreign Affairs 10%

Now compared to U.S. Actual Government Spending in earlier years subtracting both Social Security and Medicare, which have been fully self-funded by separate taxes (the FICA taxes) since the early 1980s. Then you subtract interest on public debt for comparison purposes since the Roman Empire did not have a consistent, well-developed system of Sovereign debt issuance like America does today.
Some other adjustments to be made to U.S. Spending were to include Veterans Benefits, Military Retiree benefits and Military Assistance to the Provinces (Countries) of Judaea and Egypt (Israel and Egypt) with Military Spending. The inclusion of benefits to ex-military employees is consistent with the way the Roman data was derived, and the inclusion of military aid to Israel and Egypt was done because these were the two most expensive outer-Provinces to maintain under both Regimes. The following distribution of expenses on a comparable basis can be derived from the full current Budget of the U.S. Government. We are focusing on the demands on the Budget coming from the aging of the population and society's increasing medical expenses. America’s Budget Distribution Expense Item Percent Outgo breaks down to something like this:

Military 40%
Civil Service Admin, Justice, Treasury, Fed Civil Retirees 10%
Social Spending - Medicaid, Food, TANF, Unemployment, Housing, SI 30%
Physical and Economic Infrastructure 10%
Other - Education/Training, Research, Foreign Affairs 10%

Clearly the data indicates that social spending in the Roman Empire was generally at a very low level. However social spending tended to happen erratically in much larger amounts, depending on the Emperor of the day, and the need to win over public opinion. What is clear from looking at the two budgets is that the current U.S. budget has more regular proportions of social spending, especially in comparison to military spending. However, it should be noted that the U.S. budget looked much more Romanesque in earlier decades of the last century, notably during the 40s for WW2 and during the 50s in gearing up for the Cold War, where military expenditures were close to, and sometimes even exceeded, the Roman proportion.

The move from a Romanesque budget of the 1950s to current U.S. spending distribution has a lot to do with increased healthcare expenditures such as Medicaid, and the introduction of things like the Earned Income Tax Credit, and changes to Unemployment, Housing and Food Assistance Programs. Note that most of these social spending items included in the 30% fall under the grouping of "Means Tested Entitlements" which means that they make up the social safety net for people whose income and assets fall below a certain threshold.

The other primary social spending benefits or social safety net items are Social Security and Medicare, which apply to Retired and Disabled Persons and are not means tested. As noted earlier these benefits have been self-funded through separate employer and employee contributions (known as the "FICA taxes") for the past two decades and half. In general, rising medical costs affect both Medicare and the means tested healthcare entitlements such as Medicaid. In fact, one of the Historical Data Tables in the Budget shows total government spending on all health programs to have increased from about 2% of the Budget in 1962 to just over 10% by 1980, to almost 25% or one quarter of the Budget by the year 2001.

The USS Ark of Healthcare Reform

As anyone with a health insurance policy will tell you, healthcare costs under private sector coverage continues to rise. Overall, an increasing amount of America's total Gross Domestic Product (GDP - a measure of the total economy) is spent on healthcare. To keep score of the size of an economy and the size of national income people often talk about GDP . This measure of national income is also equivalent to Annual Consumption Expenditure plus Government Spending plus Investment - which are the only three places your money can go. That is, any income you get either goes to taxes, you spend it or you invest it. U.S. GDP is about $14.6 Trillion US dollars. Consumption Expenditure makes a Trillion dollars a year. Today healthcare expenditure makes up about 16.5% of U.S. GDP. About 30% of this is picked up in Government Spending; the rest is in private spending. At the current rate of growth, healthcare costs are predicted to nearly double to $4.5 trillion in the year 2019. At that point, those costs will account for 19.3 percent-almost a fifth-of our GDP. America spends more on healthcare as a percent of its GDP than any other developed nation, but has less public coverage for this cost and a large uninsured population. So, the high spending on healthcare in the U.S. must be explained by something other than a general concern that everyone has adequate care.

To a very large extent the high level of American healthcare spending is a result of America becoming victim of its own technological success, its sedentary lifestyle and a culture obsessed with longevity, overcoming natural cycles and the desire to "stay young". The latter appears to be common to inhabitants of Great Empires of the past. This cultural obsession, fed by medical technologies far superior to those of any other country, may suck up so much of the US economy that it won’t be able to sustain its global super power status. Indeed it is perhaps the very fear of this that is really driving the attempt to reform and redefine Healthcare, Social Security, Medicare and Medicaid.

Now moving on to some of these other expense items, it should be noted that "Other Spending" includes Foreign Affairs expenditure other than the expenses of maintaining the outer provinces of Israel and Egypt, which are included in the Military item. Under both Empires so-called "foreign aid" is or was an important part of keeping peace with peripheral provinces or countries. Unlike Rome, the U.S. also successfully uses loans through various multi-lateral institutions such as the IMF, World Bank and Inter-American Development Bank to maintain optimal relations with peripheral sovereigns.

This use of loans gets to one of the fundamental differences between Rome and America - the role and leverage of the financial system. The U.S. success is largely due to the success and complete faith in its monetary system. In contrast, the Roman Empire's monetary system was almost entirely metal based and while there was easy access to credit for the ruling classes this was not true for other classes. There appears to be much debate among historians about what stopped the Roman Empire from having an industrial revolution. But whatever one's opinion, surely a pre-requisite is a highly leveraged, monetary system with sophisticated, widespread access to credit. But Rome never got to such sophistication with its financial system.

This provides us with another reason why its success was always more driven by military conquest than anything else. In contrast, for the modern American superpower, financial influence is on a par with military power, and both feed off each other. The financial success of the American Empire has also made its tax collection process far more efficient than any previous Empire before. In Roman time the tax collector had to go door to door to collect heavy coins, cattle, feed etc. But still just like then the biggest problem being with collecting from the rich. Remember the biblical character of Noah and the Ark warned of an impending storm like no other storm in history. Well our storm has arrived in the form of healthcare spending. And if we don’t take swift action the USS Ark of Healthcare Reform will close its doors and sail off leaving the bulk of its people medically stranded and unprotected. And just like Noah’s Ark the USS Ark of Healthcare Reform will not have any place to dock instead it will continually drift in a sea of red ink! 


November 11, 2013

International Countertrade With A Social Purpose


Global trader with a social cause in the making
By Melvin J. Howard

Circumstance has away of preparing you for life without you knowing it. For example when I was in College I got a job that was arranged by my alumni department head. It was working for a major defense contractor in their countertrade division. Little did I know at the time it would play a major roll in my life now? Countertrade is a term used for parallel business transactions, linking sellers and buyers in reciprocal commitments, which usually lie outside the realm of typical monetary trade. Some of the common forms of countertrade transactions include barter, counterpurchase, compensation, buyback, clearing arrangements, offset and switch trading. More than 10% of world trade today involves some form of countertrade.The World Trade Organization estimates that 15% or $8.43 billion  of the $5.62 trillion in international trade is conducted on a non-cash basis.

My mentor was a great teacher he was a Vice President of the defence firm I was working for. I was learning first hand how to do world trade not in the classroom but on the front lines. He took me under his wings and taught me the most basic and the most complicated forms of Trade.  Offsets–an umbrella term for a broad range of industrial and commercial compensation practices required of foreign suppliers under primarily government agency of state-owned enterprise acquisitions–were made a common requirement for the procurement of either military (e.g., fighter aircraft) or high-cost civilian hardware (e.g., commercial aircraft). Both defense and non-military offsets may entail overseas co-production of the procured item, as well as other economically beneficial transfers to the importing country that are not related to the original export. To assist their exporters some industrialized country governments also promoted countertrade under government agreements. For example, the French Ministry of Agriculture signed in 1989 an agreement with the USSR Council of Ministers which provided for exchanges of Soviet commodities for French agricultural and food processing equipment and technologies. Other Western governments, such as those of the United States, Canada, Belgium, Holland, the United Kingdom, and Italy, established special countertrade service units within public agencies to provide countertrade-related advisory assistance to their exporters. The French Government has supported instead the formation of a separate countertrade assistance entity in the private sector. The Swedish Government was until 1990 a major stockholder, through interests by the Swedish Investment Bank, in a private sector company involved in countertrade. Now with trade agreements like NAFTA in 1994, which integrate regional trade, based on free market principles some countertrade has abated somewhat.

International countertrade practices are now increasingly associated with bidding on major defense and non-military government procurement contracts and with project financing–a contract-based, off-balance-sheet finance technique whereby revenues generated from the output of the financed project are directly allocated to service outstanding debt and principal. A variation of the countertrade buy-back contract which links foreign contractors’ repayments to the output products of the production capacity they supplied, project financing relies instead mainly on contractual recourse to the project’s revenue streams. (According to the World Bank, developing countries are now spending around $200 billion a year on new infrastructure investment, one-fifth of their total investment.) High procurement costs and tighter budgets have prompted many emerging country governments in the 1990s to issue new civilian offset regulations (e.g., United Arab Emirates, Kuwait). Civil offset requirements, therefore, are increasingly acquiring a financing rationale in these markets. In a global environment of budgetary constraints, the ability of suppliers to meet offset requirements and/or to provide their clients with financial packages that can best those of competing bidders is a major competitive edge.

International trade in medical services will become increasingly more important. For ensuring quality, well-known medical facilities are likely to invest (commercial presence) in countries. Likely to be the destination of “consumption abroad” mode. Likely to be the supplier of patients mainly due to “poor quality” of medical care rather than the cost of care. International migration of foreign medical graduates will likely to be associated with commercial presence rather than traditional migration. New migration pattern will further encourage adoption of consumption abroad approach for reducing overall healthcare cost in both developed and low-income developing countries. Further expansion of consumption abroad will discourage purchase of expensive health insurance plans. In high medical care cost countries; international trade in health services will encourage purchase of catastrophic insurance plans. Health expenditure in the world in 2005 was about $4.8 trillion ($60 trillion was the global income) $4.0 trillion in OECD countries,  $800 billion in the remaining 160 countries of the world. Globalization has increased trading in health care services. Cost of international communication, travel has declined. Time lag has declined significantly and for electronic transfer of information, it has become almost zero (origin to destination). Cost of obtaining services of similar quality varies significantly among developing countries as well as between developing and developed countries of the world. There are types of medical care services that are extremely time sensitive. Waiting will rapidly reduce the benefit of treatment.

 The benefit function declines rapidly. If the time lag between the onset of the condition and reservation benefit level is shorter than the time needed to travel to a country, the service will be demanded locally. Worldwide, 1.3 billion people do not have access to effective and affordable health care. Low- and middle-income countries bear 93% of the world's disease burden, yet account for only 18% of world income and 11% of global health spending. What governance structures are necessary to encourage the right mix of public and private health care provision? What regulatory framework is needed to induce businesses to provide insurance, provision and finance for health in poor countries? How can the fruits of medical knowledge and technologies be shared among rich and poor countries without destroying incentives to generate more knowledge? What forms of international cooperation are conducive to the finance of health systems in developing countries? What international institutions are required to make health care for the poor an attractive opportunity for business? One thing is clear groups or individuals who think health care is static or promote the status-quo are sticking their heads in the sand. Recent economic conditions highlight the need for new sources of capital to be brought to bear on social problems.

At the heart of the social enterprise movement is the ongoing challenge of accessing investment capital for socially responsible purposes.  Acquiring start-up capital is a common issue for many nonprofits. It's exacerbated by federal tax laws that restrict nonprofits from accessing traditional forms of equity, such as venture capital and, sometimes, commercial debt. For the most part, nonprofits must rely on private foundation grants, government support, and, for some, earned income such as fees for services. To subsidize their earned income, some nonprofits have set up separate social enterprise business sidelines. The for-profit sector faces its own challenges in funding charitable activities because federal tax laws generally restrict private business entities from accessing foundation grants and government assistance. In addition, for-profit investors expect market-rate returns and maximized profits. Their expectations don't align well with social mission-focused entities, which need "patient capital" and typically have slower, more modest growth.

There is a growing body of thought that new business models and possibly new tax incentives or structures are needed to effectively bridge the "sector" gap. These new models would eliminate the need for social entrepreneurs to either choose between the for-profit and nonprofit business models or create and manage both. One such model, could be a form of business that blends attributes of nonprofit and for-profit organizations in order to promote investment in socially responsible objectives. “It’s time we utilize innovative ways to stimulate the economy and create jobs we need to spur the growth of socially responsible business by simplifying partnerships between nonprofit foundations and for-profit investors. Hybrid financial tools can generate a vast pool of investment funds needed to develop companies dedicated to the public good.

There are major lessons learned from the global greed era we are leaving behind to a new era which creates an opportunity for the investment of private capital to further social purposes.

November 04, 2013


The Washington Award Program has chosen Melvin J Howard Foundation, Inc for the 2013 Washington Awards in the Non-Profit Organizations classification.