Today, banks have a 95% share of business lending, despite a significant drop-off in lending to small businesses.  Last year, banks rejected 60% of small business loan applications, and they reduced small business loans by 20% during the last recession.  On the other side, credit unions increased loans by 40% during the last recession, but their lending has been capped by an outdated law that suppresses small business access to capital and deters smaller credit unions from serving these businesses. 

To improve small business access to capital, Congress has proposed to increase the current credit union lending cap from 12.25% to 27.5% of assets.  For small businesses, which typically account for 60-65% of job growth in an economic recovery, increasing access to capital would mean investment and growth.  In fact, the proposed change would generate $13 billion in investments and create 140,000 new jobs, as well as indirect economic benefit.  On the other hand, keeping the cap in place maintains an economic barrier to entry that protects near-monopoly status for banks that collectively control the small business lending market. 

Warren Stephens is right in that we need public policies that encourage competition.  In this case, we need to remove market entry barriers that suppress small business lending.  Ending these market barriers would increase competition and stimulate economic investment, and do so without increasing government spending. 

Steve Pociask is president of the American Consumer Institute Center for Citizen Research, an educational and research organization.

• TCPalm on 4/26/2012 (click here to go to the page)  
• The Ledger on 4/28/2012 (click here to go to the page)

Banks’ recent history of callous unfairness toward consumers undermined their credibility.  But now, they want us to believe that the well-behaved, tiny, local credit unions are a looming threat to the banks’ dominance in commercial loans.  They are complaining loudly that the Senate might pass S.2231, a bill that would allow credit unions to loan up to 27.5% of their assets to small businesses, gradually, and subject to careful staffing, monitoring, and other safeguards.

The banks’ complaint is a shameful fabrication; banks control 95% of the business loan market, and even the so-called “community banks” (banks with assets below $20 billion) control 58% of the small business loan market.  And it’s not just aggregate market share; the average credit union has assets of $122 million and the average bank has $1.8 billion in assets – it’s the difference between a hamster and a hippopotamus.   The hippos have nothing to fear.

Hoping to add a little credibility to their whining, the banks dragged in Fitch, a European ratings agency.  Fitch is paid to do ratings work by 3,500 banks, but it failed to foresee the banks’ U.S. mortgage crisis that led to TARP.  Fitch was just as myopic as S&P, Moodys, and the banks themselves.  In its press release on credit unions loaning to small businesses, Fitch admitted it rates no retail credit unions, and that it was relying on what the bank lobbyists told it.  Fitch then added something diffuse concerns about commercial loans adding to “risk.”   But Fitch did not dig very deeply.  It failed to mention that the business loan loss ratio at banks is three-times-higher than the loss ratio at credit unions.   So much for Fitch’s opinion on “risk.”

S.2231 is tailored to add a little competition for small business loans.  It builds on what has been a successful and prudent loan practice by credit unions over many decades.  The Senate can safely pass it.   The banks, credit unions, and small businesses will all survive quite nicely.

Alan Daley is a retired small businessman who writes for the American Consumer Institute

Government has been a major factor in increasing health care prices.  It increases the prices everyone else pays to health service providers through cost-shifting, and it increases the taxes we must pay to offset the subsidies it ladles out to its favored beneficiaries.

Government demands huge “take-it or leave-it” discounts from physicians and hospitals for the services given to Medicaid and Medicare patients.  This has been going on for decades.  The health service providers recover those discounts by jacking up the “rack rates” paid by individuals and hiking the “wholesale rates” paid by big insurance companies.

E.g. in July 2011, a Medicare beneficiary went to a clinic with severe flu symptoms.  The clinic charged $212.00 for services (its rack rate).  Medicare offered $129.33 which the clinic accepted (39% discount).  The patient’s Medicare “gap insurance” paid another $32.33 (15% of total).  The patient paid nothing.

E.g. in another clinic, in July 2011, the same patient was charged a rack rate of $140.00 Medicare paid $82.62 (41% discount) and the “gap insurance” paid 20.66 (15% of total).

For those who pay nothing for health care, Government’s cost-shifting may feel benign.  For everyone else it means higher out of pocket costs.  In the proposal, government is entitled to a volume discount geared to any documented efficiency it delivers (in administration) for the service providers – but it is not entitled to discounts related to its powers of clout and retribution (interactions with IRS, FDA, DoJ).  Government cost-shifting should be limited to documented efficiency.  Likewise, insurance company discounts should not exceed the efficiency they deliver to providers.   These proposed “green eyeshade” measures will decrease the prices that consumers pay directly.

Malpractice lawsuits are a massive waste of the health care dollar.  Tort lawsuits cost 1% of health spending ($27 billion per year) and are responsible for another 4.7% ($124 billion/year) in “defensive” medicine.  “Defensive medicine” is the ordering of extra tests and procedures that are not required by the patient’s condition but are required to insulate the physician from accusations of medical malpractice or inadequate treatment.  Malpractice attorney talking-points include platitudes about making health treatment safer, but clearly their aim is to become very rich on their 1/3^rd share of lawsuit winnings.  While victims of inappropriate treatment should have a right to sue, awards should be limited to actual damages, court costs (the loser pays) and a cap on pain and suffering (e.g. $100,000 or less).  So far, politicians have not restrained the cottage industry of trial attorneys.

In the proposal, legislators must scrap the malpractice gravy train (cap on pain and suffering, and loser pays court costs), and physicians are not off the hook.  They need to stop wasting 5% of health costs on CYA behaviors such as “defensive medicine,” and at the same time, physicians and hospitals need to address the 44,000-85,000 U.S. deaths of each year from iatrogenic illness, (illnesses acquired as a result of medical error, drug interactions, hospital–acquired infection, etc.).  The cost of iatrogenic illness treatment is $35 billion per year of imbedded costs borne by consumers.  ACA advocates claim 1.8 million of those injuries and 60,000 deaths could be averted.  But those adverse outcomes do not automatically justify invasion by the malpractice pirates.  Instead, the public deserves unbiased review by medically competent specialists.  There’s no value in the deeply emotional frenzy that malpractice attorneys whip up to influence judges and juries.

The AMA conducts medical peer reviews where skilled arbiters assess the care given to the patient.  If the AMA wants to retain its control over the practice of medicine and see malpractice suits brought under control, it needs to do more medical peer review, remove deficient practitioners and most of all, it should publicize the results.

Patents on pharmaceuticals and medical devices offer copycat protection to manufacturers who invested resources to invent or refine new technologies.  The patent allows manufacturers to set a higher than competitive price, but it is not a license to treat American consumers unfairly by setting a higher wholesale in the U.S. than they set for outside the U.S.  In this proposal, U.S. consumers should not be denied access to the lowest “high price” the manufacturer sets for an equal volume.  If the manufacturer refuses to offer U.S. consumers his best price, then the patent protection can be rescinded.  In the wake of patent protection loss, the consumers can benefit from another manufacturer making a competing “generic” version of the product.  The government does not need to set prices, nor should it grant pricing advantages to a firm that discriminates against U.S. consumers.

Electronic health records (EHR) are used by 35% of physicians now and will be the norm for documenting the patient’s treatment plan and history before the end of the decade.  In an EHR, handwriting-error is greatly reduced, medical coding and charging can be automated, and patient records are ready for consults on treatment.  Administration costs can be reduced through EHR, and the costs associated with pursuit of inappropriate treatment plans can be cut.   From EHR gear, there are additional benefits such as faster communication among treatment teams, coordination of referrals, and highly relevant in-service training for health professionals.  If EHRs are required for large institutions that participate in government-paid and insurance company-paid services, the uptake of EHRs can be accelerated and health care costs reduced.  Rand estimated $80 billion in yearly EHR cost savings, but recent studies say that some doctors order more tests because EHRs make that so easy to do – perhaps defensive medicine is showing its ugly head.

An aging U.S. population and the one-in-six who remain uninsured are increasing the demand for health services, but the supply of health professionals does not appear to be keeping pace.   The successful experience with nurse practitioners and other specialized non-physician health care providers suggests a way for the U.S. to add capacity to meet health care demands.  Widespread EHR availability should readily accommodate the physician “supervision” that the AMA arrogantly thinks is needed.  No doubt the AMA will see consumer benefits from increasing the supply of professionals.

And finally, the walk-in clinics sprouting up at Walmart and other big-box stores cut 30% to 40% off the cost of the same service rendered at a doctor’s office.  These clinics are often run by a nurse-practitioner.  Patients seem pleased with the service and delighted with the convenience.

The proposals above are intended to provoke discussion on ways to cut the cost of health care for consumers.  We welcome other perspectives that can promote the same goal.

Alan Daley is a retired businessman living in Colorado who follows public policy from a consumer’s perspective.

In the proposed system, a basic coverage policy is offered by each insurer.  The basic policy limits coverage to just that needed for the treatment of illness and injuries.  Advanced and esoteric services are offered in an optional “extended coverage” policy that some insurers might choose to offer.

In this proposal basic coverage includes: generic drugs, most medical and surgical services provided in a local clinic or general hospital setting; prenatal and childbirth; limited stay in psychiatric or addiction treatment or orthopedic rehabilitation facilities; and other common treatments for illness or injury.  The basic policy is the pathway to essential services and its limits and copays are the main defense against runaway costs.  Since drugs are a crucial part in the treatment of many illnesses and injuries, they are included in basic coverage.  Most drugs under patent protection are priced at nose-bleed levels in the U.S.   Despite some differences in efficacy, an illness can often be treated by either proprietary or generic drugs.  Since generic drugs are much cheaper, they are included in the proposed basic policy.

E.g. in 2011, at a Publix Pharmacy, 30 tablets of Crestor (under patent protection) cost $142.00 and 30 tablets of simvastatin (generic) cost $11.32.  Both are drugs for cholesterol control.

Despite widespread public disdain for ACA, some lobbyists still advocate coverage for every health service or lifestyle want and insist that the public should bear the cost even though they  cynically plead ignorance of the cost.  Long term care was dumped from the original ACA because it could not be made affordable.  At about $60,000 per year over the average stay of 3 years, long term care is unaffordable for most consumers who’d have to pay their own way.

At an insurer’s option, an extended coverage policy may be offered that includes: long term care; advanced reproductive interventions such as IVF; some proprietary drugs (those for which there are no generic drugs with similar curative powers); dentistry, vision and hearing care.     The aim is to make extended coverage as affordable and attractive as possible to people with more sophisticated wants and matching budget.  Beyond “extended,” some insurers may offer “designer” policies that include; a personal DNA map, tattoo removal, cosmetic surgeries, chronic psychiatric counseling and perhaps “new age” cures they find to be marketable.

Prices for medical services should be posted at the point of service delivery.  Those who feel this is crass probably have not had to pay the extortionate rack rates charged.   Some consumers are insulated from knowing the high cost of services they consume because someone else does the actual “paying.”  To force a conscious decision by the patient on whether the service is necessary, there should be a copay for each service delivered, and the copay should be more than just a token amount.

Prudent consumers should not be stuck with the costs of another person’s intentional misbehavior.   So for the cool kids who ride a motorcycle or bicycle or ski without helmet, drive an automobile without seatbelt, overdose on street drugs or alcohol, participate in fight-club, ride Niagara Falls in a barrel, or suffer injuries while committing a felony, the cost of getting patched up should be painfully theirs.  The Emergency Room copay charges for injury and illness due to those misbehaviors should be 100%.  The costs must not be tossed onto the backs of well-behaved consumers and taxpayers no matter how much the cool kids admire high risk behavior.

In the proposal, insurance policy prices (plus copays) should cover the actual services costs.  Policy premiums for each of the basic and extended coverage policies should reflect the insured party’s age (coarse strata such as 18 years or less versus 19 and older) and health condition (coarse strata such as standard risk versus higher risk).  Standard risk may include the lower two-thirds of the risk pool.  Higher risk may include the top third of the risk pool.  The high risk category is where many “pre-existing condition” consumers would be placed.  But, the “higher risk” boundary puts about 100 million people in the category so the premiums will be closer to “reasonable” than to “ridiculously high.”

Covering only the essential services, paying noticeable copays and being very aware of prices are proposal elements that drive costs down.  Paying for what we consume is a topic that tends to awaken our inner-Ayn Rand or inner-Karl Marx.  No doubt there will be strife over what copays are fair.  It is essential that the insurance prices cover actual costs – because that’s what helps align prudent behavior and lower costs.

Alan Daley is a retired businessman living in Colorado who follows public policy from a consumer’s perspective.

Today’s consumers are saddled with a $2.6 trillion health care system that we pay for directly in “out of pocket” installments, indirectly in current taxes and indirectly in future taxes that repay government borrowing for current needs.  The system is unaffordable and cost cutting must precede expanding coverage or new classes of beneficiaries.

The proposed cost-cutting ideas that follow are part of an integrated system that provides consumers with coverage for essential services including some that ACA omitted.

Who’s covered?  In the proposed system, most consumers will choose a health care policy from competing insurers and those policies will be paid for by the consumer or by the consumer’s employer – just as occurs today.  Some consumers will avoid insurance and pay practitioners directly.  Some beneficiaries (e.g. Medicare, Medicaid, or VA) will receive government-paid care.  In the proposed system, the government pays for its beneficiaries insurance bought from private insurers or the government may provide them with medical services directly (as does the VA).

In the proposed system, insurance coverage and who pays are similar to today’s arrangements, but costs are lowered through changes to:  the services covered, copays, health records, government cost-shifting, malpractice costs, drug pricing, and risk-based policy pricing.

In the proposed system, ideally, all consumers would sign up directly or their employer would pay for an insurer’s coverage policy.  An individual can sign up with an insurer from any state.  In some cases government will pay for health coverage.

Members of a family would be eligible individually for basic or basic and extended coverage. There is no “family price” per se.  A family could have parents and one child in the standard risk category and one child in the higher risk category.  Since pricing is per individual, the age of children in the parent’s home is irrelevant, all policies are individual policies.

In the proposed system, those who sign up for health care only after a skiing accident or car wreck (treat as pre-existing condition) are eligible for basic coverage, but if a new signup was not covered by a basic health policy for 91 of the last 180 days, then the minimum signup commitment is 4 years.  This open-entry makes for portable coverage in that anyone can sign up for a basic policy anytime, most preferentially within a few months of dropping coverage elsewhere.   Extended coverage policies are available to anyone who meets the underwriting requirements of the insurer.  A newly motivated skiing victim would make a terrible cost burden for any extended coverage carrier and may be deemed ineligible.

A few lobbyists want health coverage offered for 11 million illegal residents at the public’s expense, but coverage for illegals should require explicit prior approval by a majority of state voters.  The federal government should limit itself to providing basic coverage and only for those American residents as authorized in federal statutes – no new entitlements.

The federal government made longstanding commitments for health care coverage to armed forces veterans, social security tax payers and their dependents, and to those incarcerated.  Recently bureaucrats have extended health coverage to many others, often through games such making a political choice of where poverty “starts.”  While politicians may get a thrill from minting new classes of entitlement among potential voters, other people’s money and patience is now officially depleted.  So a hard edged moratorium is needed – no more additional commitments of federal government-paid health coverage.  Where federal government-paid coverage is in place, it should be set at the basic coverage level.  Congress, not politically appointed bureaucrats, must be in charge of and on the record for “where poverty starts”.

Everyone can be covered, especially if they pay the health policy premium.  This proposal treats everyone as an individual, allowing basic coverage to those with pre-existing conditions; limiting federal Government-paid coverage to Medicare, Medicaid, and VA beneficiaries, and to those that the voters authorize.  In the next part, the service coverage is proposed.

Alan Daley is a retired businessman living in Colorado who follows public policy from a consumer’s perspective.

The public’s verdicts on ACA are not aligned along a single dimension.  Some people dislike government intrusion in health care; some feel ACA is unfair to them.  Most know that the politicians sculpting ACA ignored “low total cost”- an irresistible theme for consumers.  ACA will foster a health system with major omissions and only a token effort to control costs.

In the short life of the ACA, misstatements on cost have been pathetic.  Originally, ACA was touted to reduce the federal deficit by $143B over 10 years.  But when the long term care component of ACA was found to be a financial impossibility, the $70 billion in premiums had to be backed out of the scoring.  The President’s fiscal 2013 budget proposal included an additional $111B for premium subsidy shortfalls in the ACA.  That made it a quarter trillion dollars uglier than when we were first allowed to read it.

U.S. Health Care expenditures in 2010 were $2.6 trillion.  There were 121 million “consumer units” (families and singles) in 2010, so total health care spending per consumer unit was a heart-stopping $21,470.  But the 2010 “out of pocket” per consumer unit was just $3,157.   Although they don’t realize it, most consumers are deeply insulated from the full costs of health care.  Since the average U.S. consumer unit has pre-tax earnings of $62,490, the full cost of health care would be a crushing 34% of a typical consumer unit’s earnings, not just the 5% “out of pocket.”  Most of the U.S. health care costs are paid directly by government, employers, insurance companies or other entities.

The ACA pandered to some voters with its consumer premium subsidies, but it tried to hide the total costs from the majority of consumers.   The constitutionality of ACA is currently being scrutinized by the Supreme Court.  We expect a ruling in June 2012, but many assume that the ACA will be ruled unconstitutional or have its individual mandate ruled unconstitutional.  In either case it would become unworkable, and Americans need replacement legislation that better serves their health care needs and budgets.  In the segment that follows, we will look at some ideas that can reduce total health care costs and provide consumers with coverage for essential services that ACA omitted.  These recommendations are presented as parts of an integrated system.

Alan Daley is a retired businessman living in Colorado who follows public policy from a consumer’s perspective.

Many small businesses that sought loans have been rejected by banks.  During the banks’ latest financial crisis, credit union loans to small businesses increased by 45%, but bank loans to small business dropped by 15%, and 60% of small business loan applications were denied during 2010.

Banks still control 95% of the business loan market – 19 times as much as credit unions, and community banks control 58% of the small business loan market — 12 times as much as credit unions.  The banks’ claim of any credit union “threat” is risible.

Some credit unions have decades of successful experience in managing business loans.  They have the staff, the monitoring systems and cash management tools that help borrowers.  Credit unions are better at underwriting business loans than are banks.  In 2010, credit unions experienced annual business loan losses of 0.65% compared with the 1.83% experienced by banks.  Banks were 3 times riskier.

A bill in the Senate, S.2231, would improve small business access to capital by allowing credit unions to increase loans.  The bill would raise the cap on small business lending from today’s 12.25% to 27.5% (percent of assets) and codify the staffing, controls and safeguards that successful credit unions have used.  Because today’s low cap means credit unions with less than $50 million in assets cannot justify the staffing and safeguards expense of offering business loans, the bill would make it possible for more small businesses to get loans.

In November 2011, small business loan demand peaked at a 4 year high.  But, the National Federation of Independent Businesses says loan demand is low for the second quarter of 2012.  Getting more reliable sources for small business loans makes sense for the long run.  Businesses will eventually want to make capital outlays and to hire more workers – $13 billion by one estimate – which would encourage economic growth and create over 140,000 jobs.

S.2231 can authorize credit unions to be ready with the right kind of help.

Alan Daley is a retired small businessman who writes for the American Consumer Institute

Given the shortage of capital available to small businesses in the last few years, you would think that having more lenders, more capital and more competition is a good thing.  “Not so,” says the American Banking Association (ABA), whose members account for the vast majority of small business lending.  They estimate that only a fraction of the credit unions would see expanded small businesses lending if the bill were passed.  They suggest that the bill not would accomplish enough in their view. 

If the ABA is correct, then the organization’s opposition to the bill is quite nonsensical.  Do you believe that the ABA is opposed to the bill because it provides too little benefits to credit unions?  No — of course not.  In fact, the ABA’s observation concedes the point that giving more help to the credit unions would be better. 

I think there is some confusion here on the ABA’s part and I would like to clear it up. 

Increasing the lending cap means more competition, greater choice, and increased access to capital.  If the bill passes, this will mean new investment, not just replacing the investment source.  There is plenty of pent up demand for capital as a result of very restrictive lending by banks.  During the last recession, bank loans fell by the double digits, while credit union lending increased toward its cap.  In 2011, banks denied 60% of small business bank loan applications.  So the legislation would increase small business access to capital and increase market investment. 

The reality is that banks oppose this bill because it increases market competition.  Given the shortage of capital available to small businesses in the last few years, having more lenders, more capital and more competition is a good thing.  Because credit unions are pretty good in managing risks and providing affordable loans, banks do not want the market competition – they want market protection.  The reality is that heightened market competition would benefit the economy. 

The ABA doesn’t like the bill, and that is precisely why the bill is a step in the right direction.  It is as simple as that.  It’s time to let the market work.

Steve Pociask is president of the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization.