A Low Cost, Mutual Aid Alternative to Obamacare

Make no mistake, The Affordable Care Act (a.k.a. Obamacare) is going away. It will either implode under the weight of its own faulty design, or it will be politically dismantled.  Although extremely popular among those with -existing conditions and those who receive subsidies and tax credits, Obamacare is equally unpopular among those middle class Americans who are required to pay for it. In 2017, federal subsidies to compensate insuranceobamacare-repeal-header companies for the costs associated with covering sick and older people ended, and premiums across the nation rose dramatically. The announcement of significant health insurance cost increases around the time of the 2016 November elections contributed greatly to Republican victories for the White House, Congress, governorships, and state legislatures.  Republicans have been very critical of Obamacare since its inception, and they made campaign promises to repeal it, if elected. Now that Republicans are in power, they must answer to those who supported them in the election. What the Republicans are quickly learning however, is their supporters hate the cost of Obamacare, but they love all the goodies it provides: no lifetime caps, coverage for pre-existing conditions, subsidies and tax credits for low income people, and cost shifting of premiums away from older, less healthy people to younger and healthier folks.  Republicans are now in a quandary over how to get rid of all the unpopular aspects of Obamacare while retaining all the popular ones.

At this point I am not willing to speculate on what is going to transpire, but it is safe to say there are only three options: 1) Obamacare will be repealed without an immediate government replacement; 2) Obamacare will be repealed and replaced slowly over a 2-3 year period to give the markets time to adjust; or 3) Obamacare will be repealed and replaced immediately.

Ambitious politicians have a history of making promises they can’t keep. While they are partly to blame, voters are also responsible when we pressure politicians to accomplish the impossible. An example of an impossible task is providing every American unlimited lifetime health care coverage at a price all of us are willing to pay. E63e728454305e0bd296d183d3181f2abveryone wants the security of knowing that unlimited checks will be written on our medical behalf, but few are willing to pay the requisite 30-50% of our incomes for that security. Politicians can promise us that they will deliver such a plan, but they will fail because it is impossible for a centrally planned program to provide such a level of assurance.

A better way to manage health care cost risk than having the federal government do it is for us to do it ourselves through mutual aid. The mutual aid model has been around for decades in the form of health care sharing ministries (HCSM’s).  As a financial advisor, I have been familiar with HCSM’s for over 20 years, and I wanted to participate when I first heard about them; however, my wife Linda was very skeptical about attempting something so unconventional, so I didn’t press the issue; but, when our health insurance premium and deductible both jumped nearly 20% the year Obamacare was established, Linda softened her resistance and we made the jump to an HCSM.  We are extremely happy that we did.

The most important thing people need to understand about HCSM’s is they are NOT insurance. Whereas the relationship between a policyholder and an insurance company is contractual, the relationship within an HCSM is a covenantal agreement between individual participants.

HCSM’s are not-for-profit religious organizations that act as clearinghouses for people who hold similar strong beliefs and who wish to share their medical expenses with each other.  HCSM’s organize the efforts of their participants by funneling financial support towards those participants who incur medical expenses.

Here’s how it works with our HCSM:  Each month the HCSM publishes a newsletter which it distributes to all participants.  The newsletter lists participants who have incurred legitimate medical expenses, and it directs other participants to send a previously agreed amount of money tmain-health-care-sharing-ministrieso those with medical expenses. The gift givers are also encouraged to pray for those to whom they send money.  Recipients are given a list of participants the HCSM has assigned to send them money, and when they receive it, they cross that gift giver’s name off the list. Assigned gift givers who are late in sending funds are reported to the HCSM who reminds them of their commitment, and if they continue not to send gifts as they agreed, they will be dropped from the program.

There are no financial reserves, no legal protections, and no lawsuits; there are only thousands of participants helping each other with medical expenses, organized by an HCSM.  Eleven months of the year gifts are sent to participants, and one month a gift is sent to the HCSM to cover the costs of running the organization. This demonstrates the overhead cost of the program is only 8.3%, which is significantly less than the 20% of overhead expenses and profit insurance companies are allowed under Obamacare.

Most HCSM’s hold strict lifestyle and moral guidelines for participation: no tobacco, drug use, or sex outside of marriage, and only moderate alcohol use is allowed.  Some require overweight participants to demonstrate good faith efforts and progress towards losing weight.  All participants are ultimately responsible for paying their medical bills, and participants are expected to negotiate lower fees from their health care providers before submitting a medical share need to the HCSM.  HCSM’s don’t pay for preventive care; mammograms, pap smears, and annual physical exams; all these services are paid for by the participants themselves. Most HCSM’s (but not all) require members to be  active church attendees, and several require a pastor’s signature verifying a participant’s commitment to the HCSM’s lifestyle and faith obligations. With that said, there is no reason (other than political) why people of different worldviews and values couldn’t organize their own health care sharing programs around common values and needs.

There are many attractive features of HCSM’s. First of all is the cost. Even though many Americans enjoy tax credits and subsidies for participating in Obamacare, the actual unit cost of health insurance is extremely expensive compared to an HCSM. As a married couple in our 50’s, we pay $440 per month vs.  $1101 per month for an Obamacare insurance plan. Whereas our Obamacare deductible would be $6500 per person, our HCSM out of pocket is only $300 per incident (up to three incidents per year). Many folks – after discovering HCSM’s – have been able to retire before age 65 because their HCSM is significantly less expensive than their previous health insurance plan. Secondly, HCSM’s are much more liberal in what they are willing to cover. If your doctor says you need it, your procedure is covered.

One feature I find particularly satisfying is the cooperative and democratic nature of our HCSM. Instead of dictating monthly premiums, our HCSM membership votes on whether or not to raise our monthly sharing responsibilities. Membership participation in determining what we all will contribute monthly ensures we are allocating resources wisely, and it encourages all members to behave in ways that result in keeping total costs lower.

Although 99% of medical claims are less than $250,000, a major concern of many prospective HCSM participants is the fear of a catastrophic event, such as a million dollar claim. In the plan we use, we have enrolled in the “Save to Share” program. In the Save to Share Program, Linda and I agree to set aside $266 per year to be used in the event one of our members has a health care need in excess of $250,000.  In the 3 years we have participated in the Save to Share program, we have never been asked to contribute the full $266 in a single year. Unlike with conventional insurance, the Save to Share program allows members to keep their money until it is actually needed, which in turn helps keep costs down.  Here is an example of how the Save to Share might work:

An individual has a $1 million medical need, and the HCSM covers up to $250,000. Assuming there are 30,000 families participating in Save to Share, each participating family would be directed to contribute $25.00 to cover the $750,000 difference.

There are only 6 HCSM’s in existence today, and this is because current law doesn’t exempt HCSM participants from the Obamacare penalty for not having health insurance unless the HCSM has been in operation since 1999.  If the Obamacare penalty goes away, there would no longer be disincentives preventing new HCSM’s from forming, and new health care sharing programs, organized within affinity groups such as religious orders, fraternal organizations, or even local credit union memberships, could proliferate.

Although  more liberal than pre-Obamacare insurance companies, most HCSM’s have strict guidelines for enrolling new members with pre-existing conditions. But there is no reason for the government not to provide incentives encouraging HCSM’s to accept people with pre-existing conditions. The most efficient way  is to offer tax credits to those participants whose HCSM’s allow a percentage of new members to have pre-existing conditions (i.e., 5%). The key to success for this idea is to have hundreds of HCSM’s instead of the current six.  By spreading the risks and costs among hundreds of different HCSM’s, the shared risks and  costs would be significantly lower than under our current health insurance model which is currently drowning in both.

Rather than react to Obamacare’s ultimate demise, the prudent citizen should proactively investake-care-of-each-othertigate alternatives. For many middle class families, health care costs can now be as high as 25-40% of a family’s annual income. HCSM’s have proven to offer lower costs, higher quality, and less uncertainty than conventional insurance or single payer systems. HCSM’s have proven to be economically viable, but their future risk is primarily political. Unless HCSM’s can generate more public interest, there is a risk these wonderful programs could be taken away.

 

The Right (and Wrong) Ways to Provide Affordable Housing in Whitefish

 

I get nervous whenever people in authority begin talking about fixing social problems with economic solutions. My latest anxiety is caused by recent discussions about the “affordable housing crisis” in my ski resort hometown of downtown-whitefishWhitefish, Montana.  What causes me so much angst is the number of people who believe it is the proper role of government to ensure housing is affordable. First of all, it isn’t; and secondly, when government attempts to make housing affordable, it usually does the exact opposite, causing housing prices to grow much faster than the rate of inflation, and oftentimes ending up with housing costs much higher than in communities that didn’t implement affordable housing policies at all.

“Affordable” can be difficult to determine because Americans routinely  make spending adjustments to ensure they can buy things that are most important to them. For example, in Whitefish, housing can be nearly 50% more expensive than in other communities in the surrounding area. Some families may decide that saving money for their children’s education is more important than their zip code, so they may forego a Whitefish residency; and with the money they save living in a less expensive community, they will invest in college funds. Other families might decide not to have children at all, because living in a resort town like Whitefish is their ultimate goal, while other families with children might decide to live in less expensive communities  and spend their savings on transportation to Whitefish and ski lessons for their kids. Different families make different decisions, and so a one-size-fits-all definition of “affordable” can be challenging. With that said, we should give Whitefish credit for attempting to define housing affordability as such:

Housing is affordable when the monthly payment (rent or mortgage) is equal to no more than 30% of a household’s gross income.

While this definition sounds workable, what it doesn’t do is take into account people’s financial positions over time. For example, many small business owners have unpredictable incomes. In a particular bad year, a business owner might be paying out more than 100% of his earnings towards a mortgage while having to buy groceries and gasoline on his credit card, but in other years his income might be high enough to render his mortgage payment only 10% of his gross income. If government programs offer people less expensive housing for having low incomes, it shouldn’t be surprising when applicants for government assistance “under earn” in order to qualify for subsidized or low cost housing; but soon after they move into their affordable home, increase their incomes to satisfy their particular tastes.

In reality, Whitefish doesn’t have an affordable housing problem; it has a poor economic development problem. For the last 30 years, Whitefish has transformed itself from being a relatively high wage railroad and logging town into a world class resort.  Now, 50% of the jobs available are in tourism related service industries (TRSI). Unfortunately, TRSI jobs tend to pay the lowest wages in any economy. In the last few years, Whitefish has seen significant growth in TRSI businesses and a resulting increase in low wage labor demand. Last summer, Whitefish employers reported hundreds of available jobs went unfilled because workers couldn’t afford to live in Whitefish, and those workers who lived out of town often quit their Whitefish jobs when they found employment closer to where they lived.

The second cause for Whitefish’s lack of affordable housing is the desire of current residents to maintain our beautiful wide open spaces and resort town theme.  Many building restrictions prevent land developers from building houses on small lots, and height restrictions make high occupancy apartment complexes impossible.  In 2015, Whitefish voters approved a 1% resort tax increase to help finance the purchase of a conservation easement from F.H. Stoltze Land and Lumber Company that essentially takes 3020 acres of land out of development, thus reducing the supply of available land for future housing projects.  By encouraging low wage TRSI jobs to locate in Whitefish, while simultaneously limiting housing supply, Whitefish has created its own housing crisis via poor planning.

Whitefish is a wonderful community. With its low crime, friendly neighbors, easy access to outdoor recreation, and quality health care, it is an extremely popular location for older, affluent people who wish to purchase second homes. Because of the high demand, retired transplants from other regions are willing to38277_105092776211022_364462_n-2 pay top dollar to live in our utopia. In order to cater to these wealthy new comers, there has been a proliferation of TRSI businesses, such as: restaurants, art galleries, gift shops, outdoor recreation opportunities, hotels and spas. Success breeds success, and when the first wave of TRSI businesses showed profits, subsequent waves of new TRSI businesses opened in town, creating a shortage of entry level housing. Because there are so many TRSI employers in Whitefish, they are able to place tremendous political pressure on our civic leaders to solve their unique labor problems. From this pressure, we have seen a growing number of community leaders organizing to respond to the TRSI’s self-inflicted labor challenges.

Whitefish is not the first attractive community to experience high demand for cheap housing and a self-imposed low supply.  For many decades, popular cities like San Francisco and New York, as well as resort towns in Vermont and Colorado, have all attempted to find housing for the people who work in their communities. From their experiences we can learn what mistakes not to make.

The first mistake to avoid is implementing  rent caps or price controls. Anytime government artificially sets the price of a good or service above or below equilibrium, the results tend to be the exact opposite of what was intended. This is because rents set below market price discourage investors from constructing new units or repairing the ones they already own. In nearly every community that has implemented rent control, rents increased faster than the rate of inflation. Not only do rent control programs cause rents to increase, they are also notoriously unfair because those who are selected to enjoy rent at lower than prevailing prices are often chosen by lottery rather than financial need, so it is quite often that wealthy, well-connected people who hear about an opening in a rent controlled building will often apply and win.

A second mistake would be to implement programs that force developers to donate lots or homes in new developments for the purpose of allowing  low income buyers to purchase a home at below market price.  While these programs are extremely popular (who wouldn’t want to buy a home at below market cost?), they only help the few people who qualify; but, they force the price of every other newly constructed home in the neighborhood to increase. Let’s say the City of Whitefish only allows a developer to build 20 new homes if he promises to donate 2 of those homes to the Whitefish Housing Authority. These 2 homes would be sold to 2 lucky lottery winners to purchase these donated homes below market cost. The developer in turn, raises the cost of the other 18 homes to compensate for the loss he incurred by the city’s affordable housing policy. When the 2 lucky families eventually sell their homes, they are not going to sell them at below market cost, so those homes are no longer affordable, and new affordable homes will have to be made available to replace them.

Finally, it is a bad idea to use tax dollars to subsidize rent in more expensive neighbstonecreek-apartmentsorhoods. In the same way that federal subsidies in both health care and higher education have led to nationwide cost increases many times faster than inflation, providing government dollars to cost shift the high price of housing will lead to the same fate. Let’s say that a typical home in Whitefish will rent for $1300/month. If a tenant can secure $200/month in subsidies, the cost of that home in time will rise to $1500/month. If the government attempts to offset this rise with even more subsidies, the price will go up every time more subsidies are made available.

There are several ways Whitefish can offer less expensive housing options for its low wage workers. First of all, the city can reduce its restrictions on non-luxury homes, such as manufactured homes, micro houses, and multi-story apartment buildings. Additionally, it can encourage entrepreneurs to provide dormitory-style housing for seasonal workers similar to the kinds of quarters the military uses to house its servicemen and women.  Finally, business owners can be encouraged to collectively develop housing cooperatives to provide low cost housing for their own employees. Businesses could purchase whatever number of housing units they would like, with the stipulation that when they rent or sell they must do so at prices the other co-op members decide.

Make no mistake, affordable housing is not a Whitefish community problem, it is a Whitefish business owner problem. Whitefish TRSI employers aren’t any different than other employers, and if they believe they can get someone else to solve their economic problems via government subsidies affordable-housingor community cost shifting, they are going to try. The easiest way for TRSI businesses to ensure their employees can live where they work is to pay them more.

In spite of the concerns we hear from Whitefish TRSI businesses and their advocate, the Whitefish Chamber of Commerce, we should not succumb to their petitions to have the rest of the community – via government policies and programs – to shoulder their responsibility for keeping their own employees happy. Instead, we should think twice before encouraging more low wage TRSI jobs to locate in Whitefish, and we should encourage our civic leaders to ease up on building regulations that discourage the free market from providing  low cost housing options to meet the current demand.

I Love Free Markets

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“The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed. I, Pencil, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cedar tree, the good earth.”

Leonard Read, “I, Pencil”

I recently ordered a pair of Bluetooth wireless sport headphones with noise cancelling technology that will interrupt the audiobook I am enjoying on my smart phone whenever I receive an incoming call. While hiking up the mountain trails that surround my rural Montana town, I will be able to  carry on a hand’s free conversation through my headphones, and the audiobook will resume where I left off when I end the call. The headphones cost me $19.77, and they will be delivered to my rural Montana doorstep in two days at no extra charge. I love free markets.

In 1958, Libertarian founder of the Foundation for Economic Education Leonard Read wrote an essay titled: “I, Pencil.” In this essay Read highlights the wonders of capitalism. While we take the common pencil for granted – we see them everywhere and they cost practically nothing – the pencil is anything but simple. Although the pencil is only made up of four components: wood, clay, metal, and rubber, none of us has ever made our own pencil, and most of us wouldn’t have a clue how to do so. As the essay describes, free markets have wonderfully brought millions of people together from many nations to produce a product as complex as the pencil in such a way that  is now so inexpensive and ubiquitous that we take it for granted.

A couple of years ago, Linda and I wintered in Arizona. As we traveled throughout the state, I marveled at how much food is grown in what I considered a desert wasteland. We didn’t have to drive far from town to see acres and acres of citrus groves, dairy farms, fields of lettuce, or grape vineyards that supply Arizona’s growing wine industry. It fascinated me to see Americans producing more food than they could personally eat out of ground that seemed incapable of growing anything.

Recently, I have seen a steady stream of  news stories reporting Venezuela’s food
shortages. Photos of empty grocery store shelves and toilet paper riots are shown on social media every day. It seems strange a country with such an agreeable climate for growing food, and adjacent to a ocean teeming with fish, would have so much trouble feeding its people when Americans living in the Arizona desert 14600624444589are able to grow a cornucopia of plenty.

Venezuela is an example of a centrally planned economy where the government controls nearly every aspect of the food market. Recently, the government forced farmers and food manufacturers to sell anywhere from 30-100% of their products to the government at prices lower than the what the private grocers and supermarkets are willing to pay. This has caused the farmers and food manufacturers to stop producing food at a loss. Instead, a black market has developed where toilet paper, rice, flour, cooking oil and other staples are being sold at six times higher than the government’s fixed prices.  In other words, the Venezuelan government’s efforts to force food producers to produce below market prices has essentially caused shortages that have pushed prices up significantly higher. Nowadays, a pound of cheese purchased on the streets of Caracas costs 50% more than my new headphones.

In spite of the fact that we take cheap pencils, toilet paper, and basic food staples – not to mention refrigerators, birth control, contact lenses, cell phones and jet travel – for Venezuela-supermarket-looting-reuters-640x480granted,  there are many people who believe that free markets “don’t work,” and that there is something nefarious about the profit motive. What we are seeing in Venezuela is an excellent example of what happens when bureaucrats rather than customers determine the prices of goods and services sold in the marketplace. In Venezuela’s case, when the government dictated prices lower than producers could profitably meet, they just stopped producing food, and as demand increased, black marketeers began smuggling  in and selling those same products at prices high enough to compensate them for their risk of being arrested and possibly thrown in prison.

The Venezuelan people are capable of producing more than enough food to feed themselves and others; unfortunately, their government’s policies discourage them from doing so.  But in spite of the Venezuelan government’s well documented blunders, there are millions of Americans who believe there is something immoral about the profit motive that inspires Americans to do back breaking work in the Arizona desert harvesting lettuce so that people in New York City can enjoy a nice salad. Markets do work when they are free, and it is ironic to see so many people using smartphones made in China, intellectual property from the United States, and materials mined in Africa, to communicate on social media that they prefer an economy that more closely resembles Venezuela’s food distribution system to that which produced their phones. Free markets aren’t perfect, but I prefer living in a society where UPS deliverymen have incentives to deliver my inexpensive luxury headphones to my doorstep rather than a society where we have to stand in long lines for hours to pick up our weekly government allotment of toilet paper and cooking oil. Sometimes the blessings of free markets are so abundant it is easy to lose our appreciation for them.

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I am a Christian Communist

I love to debate. Recently in the heat of an ongoing Facebook argument, my opponent accused me of being a communist.  I believe the last time I was accused of being a communist was grade school. However, after much introspection, I had to admit that I am a communist.  In 1991, on the border between Saudi Arabia and Kuwait, I became a Christian communist, and I have been a passionate member of my commune ever since.

In my Christian commune, we are taught to behave in ways that bring honorgroup-people-holding-cross-praying-back-lit-41953590 to our leader, and there is a rulebook that hasn’t changed for centuries. In my commune people are expected to follow the leader and the rulebook, and we are guided by a worldview that inspires us to give more to the commune than we take, and what we take from the commune we believe are gifts, not entitlements. There are some in the commune who habitually give less than their ability and take more than they need, but the system seems to overcome its challenges when properly lubricated with grace and forgiveness.

In my commune people often choose to deprive themselves of luxuries so they can afford to help the less fortunate in and outside our cUntitledommune. Although my commune is often ridiculed, insulted, and despised by its beneficiaries, my commune gives more than it takes from the outside community. My commune feeds the poor and heals the sick outside my commune, even when those outside my commune curse our leader’s name.

There was a heavy price I had to pay to fully reap the promised benefits of my commune membership: I was required to voluntarily choose the leader’s ways over my own. While I wasn’t necessarily kicked out of the commune when I was selfish, it appeared the more I gave, the more I received.  Because this contract was built on a supernatural belief, it was difficult to accept until I experienced it.

When I used to live outside the commune, life was more cynical and unhappy. It was confusing and frustrating living outside the commune because the rules were always changing, and they were so complicated everyone was afraid.  Outside the commune, people didn’t talk to their neighbors, and they used lawyers to solve even small disagreements.  Outside the commune, I was taught that inside the  commune life was oppressive and boring, but I discovered the people inside the commune are every bit as fun loving as those living outside the commune. Once inside the commune, I observed that many of the behaviors the outside proclaimed to be liberating were actually enslaving. Until I actually joined the commune, I was a supporter of the anti-commune movement; however, now that I am a communist, I find great comfort in my membership. What I experienced outside the commune routinely failed me, but what I have experienced inside the commune has been consistently positive. For me, life outside the commune was scary and unreliable; however, inside the commune life has been secure and reliable.

Now that I am a communist, I am often insulted and ridiculed  by people outside the commune for being a communist. (I guess it is only fair because I used to attack Christian communists myself). My commune is often attacked for being selfish, even though it has proven to be less selfish than the society outside the commune. My3a0bf7c1d41f7d1323ac327205bd52f9cd0de7fc90ef30b17c7bda7781a15895 commune is routinely called racist, even though my commune’s record on race is superior to that outside the commune. Finally, my commune is accused of propagating untruths, even though little I experienced outside the commune proved reliable. I guess what ultimately led me to exit the society outside and join my Christian commune was the continual disappointments I experienced out there.

I am often encouraged by people living outside to leave my commune and rejoin the society-at-large; however, I already know from experience how frightfully bad life is outside the commune.  I no longer desire to live outside my commune, where people are tricked into creating governments strong enough to force their neighbors into behaving and thinking a certain way, only to have those same strong governments oppress the very people who created them, and in ways the creators never intended.

I am proud of my commune’s record on social issues.  I know throughout history there have been embarrassments identified by those living outside my commune, yet the historical transgressions of my commune weren’t a reflection of the teachings of our leader, nor were they worse than the transgressions of societies living outside my commune. Though far from the perfection required by those living outside of my commune, my commune’s history has been net positive. It is a shame when those outside my commune bring light to our shortcomings and ignore our successes.

There are some in our commune who live their lives like they really believe our leader is the Truth. From the successes I have observed from these hard core communists, I want to be just like them. Others in our commune live like they believe some of what our leader says is true, and this group experiences varying levels of success. Many who join our commune live their lives exactly like they did when they lived outside the commune, and they are just as insecure and frustrated as they were before they joined.  The funny thing about our commune is it only works for the people who live their lives like they believe the leader’s teachings are true.

After living both outside and inside my commune, I prefer living inside. I often get frustrated when those outside my commune want the material benefits  my commune produces without the worldview that makes those material benefits possible. It is sad those who choose to live outside my commune don’t understand that it is our worldview, not its resulting benefits, that holds the real power.

Within my commune good and evil are easily discerned, and they are never changing; but outside my article-new_ehow_images_a07_4k_jp_fundraising-ideas-christian-youth-groups-1-1-800x8001commune, good and evil change every election. In my commune I am free to be good; outside my commune I am forced to be whatever is contemporarily decided by the majority (or a panel of life-appointed judges) to be good.

It would be wrong for me to force anyone to join my commune; however, I will testify it has proven better for me than life outside the commune. While it appears life outside my commune is spiraling towards destruction, I know I am secure within my commune. If my choice to voluntarily join my commune and follow the teachings of my leader makes me a communist, I plead I am guilty as charged.

Refugee Sponsorship and Christian Charity

I recently finished an interesting eBook titled: “The Three Languages of Politics,” by economist Arnold Kling. The premise of the book is that most of us view politics through one of three heuristic lenses in what Kling calls the “three axis model.” Kling opines we both transmit and receive information along one of three completely  Three Axesdifferent axes: an oppressor-oppressed axis, where the oppressor is evil and the oppressed is good; a civilization-barbarism axis, where civilization is good and barbarism is bad; and a freedom-coercion axis, where freedom is good and coercion is bad. While the purpose of this article is not to unpack Kling’s thesis in great detail (I will let readers invest their own $1.99 to do that), I will use the three axis model to suggest we often discuss politics in our own political language and when we do, we  render our positions greatly misunderstood by others who don’t speak the same political language. Case in point is Donald Trump’s recent comments on the presidential campaign trail, where he stated he wants to see a “total and complete sh1006687-trump-1449642179-968-640x480utdown of Muslims entering the United States until our country’s representatives can figure out what is going on.” The social media outlets exploded with outrage from many who saw his comments as racist and bigoted,  while others claimed his common sense approach to national security is sorely needed. One side is arguing against Muslim immigration along a national security axis; another side is supporting Muslim immigration along a religious freedom axis. Unfortunately, neither side is acknowledging the concerns of the other, and as long as we argue in our own political language exclusively, it will be next to impossible to develop a policy that comes close to being acceptable to half our population.

I believe there is a way to solve this dilemma that addresses the concerns of most, and it is through the practice of private refugee sponsorship. Unlike Canada, which has had a policy of private refugee sponsorship for years, there is currently no legal program available in the United States for individuals and/or groups to sponsor refugees. This has not always been the case. Under the Reagan Administration thousands of refugees were resettled in the United States by private sponsorship with very little taxpayer support, and the program was largely successful.

While much of the refugee argument has been framed in terms of Christian charity, I am not so sure there is anything particularly Christian or charitable about a policy of extracting taxes from all Americans to redistribute the funds to government selected voluntary agencies  and using the funds to resettle refugees where they are largely unwanted. The way to demonstrate Christian love for the refugee is to get the government out of the refugee resettlement business (with the possible exceptions of using federal agencies to conduct background security checks and public health examinations). Rather than allow politically motivated bureaucrats decide which immigrants will be net positives as new citizens, let individual private sponsors take the financial and social risks of bringing refugees to our shores. There are thousands of individuals and groups willing to use their own resources to demonstrate Christian love to refugees, and I say we let them.

By removing government from the equation, the sponsor will then be able to demonstrate genuine agape love rather than what I call “Facebook crusader feel good love.” The sponsor rather than the taxpayer can ensure the refugee has food, shelter, healthcare, education, and employment, as well as oversee the refugee’s assimilation into American culture.

The first step in demonstrating America’s Christian charity is to stop doing so by government decree. By allowing private sponsorship, we speak to the concerns of progressives, who will witness oppressed peoples not only being tolerated but embraced by individual sponsors. We speak to the security concerns of conservatives when refugees are supervised by interested private sponsors working towards the ultimate assimilation of the refugees. And finally, we speak to the concerns of  libertarians because citizens will not be forced to fund or participate in a government program against their will.

If the goal is to open America’s opportunity to foreign refugees while being mindful of national security concerns, and Christian charity is the banner under which we rally, then I believe a private sponsorship program for refugees is our best option.

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Anyone of Average Ability Can Pay for College: Here’s How

For all the rhetoric we hear about college being unaffordable, the fact is, ANYONE with normal ability can attain a college degree. For the 2015-16 school year, the University of Montana’s  cost of attendance for an in-state resident is $16,599. While that figure sounds high, it is not overwhelming. The concept of seeking employment to raise funds for one’s own education currently resides outside societal norms, but working and saving are sure-fire ways to graduate debt free. Additionally, working one’s way through college ensures a  graduate will be more competitive against peers who lack any meaningful work experience.

Truth is, if you can get accepted into a state school, you can afford to graduate debt-free. Here’s how:

1) Beginning in your sophomore year of high school, find a part-time job and save $500/month working after school, and $1000/mo during the summers by working full-time. This job can be anything from flipping burgers in a fast food restaurant to stocking shelves in a hardware store. If you do this for 3 years, you will a save $22,500.Student-friendly-Part-Time-Jobs

2) Upon graduation from high school, live at home for the next year, and by working full-time and saving $1500/month, you will be able to save an additional $18,000.

3) Once you enter college, earn $750/month during the school year, and $1500/month during the summers. If you do this for 4 years, you will have earned a total of $45,000

Grand total: $85,500, which is more than enough to earn a 4-year degree at the University of Montana. I am making the assumption that the only jobs available to teenagers pay only $8.00 per hour, but a college kid with 4 years work experience should be able to make a much higher income waiting tables or working construction. For those kids able to earn scholarships or government grants, all the better,  and students willing to live at home and attend a local community college to complete their general requirements will experience even greater cost savings. However, the program above is a sure-fire way to guarantee there will be enough funds for college even if you have no other options but to pay your own way at a 4-year state college.

While some will argue that the work described above will rob kids of the joys of youth, I have seen how college debt and no previous work experience rob college graduates of the joys of young adulthood. Trying to manage the cost of an apartment, transportation, food, utilities, and a social life while simultaneously servicing a monthly student loan payment of several hundred dollars a month can be a real challenge; but, as I have demonstrated, student loan6194417_f520 debt is completely unnecessary for the student willing to think and act outside the box.

If someone convinces themselves that work is drudgery, it will be; however, if they choose to see work as a valuable way to please others, gain valuable work experience, and save the necessary funds to attend college, it is quite possible that work during high school and college will be a social and emotional -as well as financial – net positive.

Failing Health Insurance Cooperatives and the Future of Obamacare

Utah’s nonprofit health insurance cooperative, Arches Health Plan, recently announced it is shutting down.  This is the 10th health insurance cooperative (10 out of 23) to close their doors, citing lower than expected enrollment as the culprit. Billions in federal loans were made to these health insurance cooperatives for the purpose of providing a non-profit, credit union-like alternative to profit centered health insurance companies, under the theory that by removing the profit motive, health insurance cooperatives would be able to pass on their savings to policyholders. Unfortunately, those funds loaned to the now  shuttered co-ops are gone forever. (These failed co-ops should not be confused with the very successful health care sharing ministries (HCSM’s)). These closures were highly predictable. When the Affordable Care Act (ACA) was signed into law on March 23, 2010, it was a political victory but an economic disaster. Now that we are entering Obamacare’s third year, the full weight of what happens when policymakers ignore the tenets of basic economics are unfortunately starting to appear.

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Because we understand the law of gravity, we know if we drop an object from a height it will fall towards the Earth. Similarly, because we understand the principle of adverse selection and the laws of supply and demand, we know that if not repealed or drastically adjusted, the ACA will ultimately end in failure.  Here is the sequence of events I wrote about in another blog back in July of 2012 before the implementation of the ACA that predicted some of the outcomes we are observing today:

(1) The ACA will increase the per unit cost of healthcare for everyone.
(2)  Some fortunate Americans will see their increased premiums subsidized by their neighbors, giving those subsidized the illusion of a cost reduction.
(3) Some unfortunate Americans will see astronomical increases in their health insurance premiums and income taxes.
(4) Healthy middle class Americans will eventually drop their expensive coverage and opt to pay the less expensive “tax.”
(5)  Insurance companies will incrementally leave the health insurance market until the whole scheme fails.

While governments can pass laws to suspend gravity or change the speed of light, they will fail because physical laws are unaffected by human desire. Health Insurance operates by certain economic laws in the same way matter follows physical laws in the natural world. According to the economic laws of supply and demand, if you increase the demand for a good or service and the supply remains constant (or decreases), the unit cost for that good or service will increase.  Good intentions can’t change this economic reality. Predictably, the ACA is increasing  demand for health care by entitling unhealthy, expensive patients to unlimited access. With state insurance commissioners  recently announcing premium increases of 5-35% across the nation, we will begin seeing rational, healthy, and inexpensive patients dropping their expensive health insurance policies by opting to exercise one of the several insurance mandate exemptions  allowed by law, or by paying the cheaper “tax” instead. The ACA magnifies the insurance problem known as “adverse selection,” where only people needing immediate health insurance buy it. Adverse selection is pushing  the cost of health insurance to astronomical levels. Using price controls and federal subsidies, the ACA attempts to prevent insurance companies from raising their premiums, making the sale of health insurance a losing proposition (too few healthy people paying in, and too many sick people making claims). As we are seeing with health insurance cooperatives, for profit health insurance companies are also exiting the market due to their inability to run profitable businesses under the ACA. Losing health insurance providers will eventually lead to reductions of quality as well as access to health care.
When governments violate economic laws by artificially holding down the price of a good or service, they inadvertently reduce the supply of that good or service. In the early 1970’s the government set the price of gasoline below market equilibrium, and the supply dropped overnight because gas station owners refused to sell gas at a loss. The same thing has happened historically with rent control. Whenever government uses its coercive powers to hold down rent prices below market equilibrium you get a predictable reduction in the number of landlords willing to rent property at a loss. We are now observing the identical experience with health care; governmental price controls are reducing the number of health care providers resulting in rationing and an erosion of health care quality and access.

Under the ACA, the unit cost of health care is rising for everyone; but, the cost increase of insurance premiums for lower income citizens is paid by someone else, giving the voting poor the illusion that the ACA has driven down costs.  If Citizen A is currently paying $400/month for health insurance that costs $400/month, but on 1/1/2016 he is charged $200/month for insurance that costs $500/month, Citizen A will think the ACA reduced the cost of health insurance when in reality someone else will be saddled with the increase. Unfortunately for Citizen B, he will experience a health insurance cost of $800/month; $500 for his own insurance and a $300  tax increase to subsidize his neighbor.
pull quote 2Whereas government subsidies and price controls almost always lead to increases in the unit costs of regulated goods and services, free markets allow unit costs to drop for all Americans. The unregulated costs of Lasik surgery, laptops, digital watches, and flat screen TV’s have dropped in unit price for EVERYONE. There has been no cost shifting for the aforementioned items, but instead universally experienced cost reductions in real terms for all Americans.  Poor people and rich people can buy a flat screen TV for prices much lower today than they could 10 years ago. The same can’t be said for the over-regulated health care market. The free market brings unit costs down and drives quality up for ALL consumers. Because the ACA has removed most of the free market forces that drive costs down and quality up, nearly everyone is experiencing higher costs per unit of health care and a simultaneous reduction in access and quality.

Many of the ACA’s supporters are claiming the law is a resounding success. They state that millions of people who once were denied health insurance because of pre-existing conditions or expensive premiums now have access to it. What the ACA’s supporters don’t admit is that millions of different Americans are rapidly finding health insurance so unaffordable they and/or their employers are dropping coverages due to unaffordability. Insurance programs don’t survive when unhealthy, expensive people sign up to buy at the same time healthy, inexpensive people are leaving.

While it is true the American health care system is in need of a complete overhaul, the Affordable Care Act is not the answer. Due to the immutable economic laws of adverse selection and supply and demand, the ACA, is failing, When the ACA does fail, I hope we learn from our mistakes and consider using free market solutions that have reduced prices and increased quality and access wherever free markets have been allowed to operate.

Investing in Real Estate

I have been in the finance business for 20 years, and I personally own rental properties.  I understand the concept of using real estate to help save for retirement, but I would caution anyone before using leverage to accumulate wealth, whatever the investment may be.

Real-Estate-Investment-Principles-KeyI know several people near retirement age who own investment properties with mortgages that are “underwater,” meaning the owner owes more on the mortgage than the property is worth.  As a result, their prospects for retirement look grim.  In the early 2000’s, many people bought real estate with borrowed money, either as their primary residence or as an investment property.  Even though home prices have bounced back since the real estate market crash of the late 2000’s, many mortgages, and not just those on investment properties, are now “underwater,”

That leaves many people who own investment properties in an unenviable situation: sell the property at a loss and pay the difference in cash if they can afford it, or rent it out at monthly rates that in many cases are lower than the mortgage payment.  Both options lead to a financial loss.

One third ruleWhen asked about rental property as an investment, I tell clients to consider the “1/3 Rule”: no more than 1/3 of your net worth in your residence(s), no more than 1/3 of your net worth in rental real estate or illiquid businesses, and at least 1/3 of your net worth in liquid assets like cash, stocks, bonds, mutual funds, etc.  Like stocks and other investments, real estate can experience dramatic price declines. It is nearly impossible to buy only a small amount of real estate (i.e., $10,000 or so), and selling property isn’t as quick and easy as calling your financial advisor and placing a stock trade.  If you decide to buy investment real estate be careful not to become “real estate rich” and “cash poor.”  When the economy goes sour, cash is king, so always keep a little hay in the barn for emergencies. With proper diversification, an investor has options and won’t be forced to sell real estate and other investments at a time not of their own choosing.

I discourage investors from using borrowed money to buy real estate unless they are sure they can make the necessary payments or pay off the mortgage. Could your spouse go back to work if you lose your job? Did you make a large enough down payment (20% for a home, 30% for investment property) that you could sell the property without being underwater on the mortgage? Leveraged real estate deals have a way of being perfect storm magnets. I know folks who not only made their living in real estate, they also speculated on real estate deals, losing both their jobs and future retirement funds in the 2008 real estate crisis. Inevitably, the same time real estate values are dropping, both you and your tenant are bound to lose your jobs.
 
If you are interested in buying investment real estate, then I urge you to follow the 1/3 Rule  as well as the WealthMasters Milestones.  Be mindful of not owning too much of any one type of investment, or using excessive leverage to reach your retirement goals.  Buying rental properties with borrowed money can easily become a nightmare if you find yourself pinched. If your properties lose value, the lenders are going to expect you, not the renter, to make good on your mortgage payments.

There Is No Such Thing As Free Tuition: Who Then Must Pay For It?

Many politicians view the world through a  “normative” lens. Normative statements often include the words “ought” or “should.” This is in contrast to viewing the world through a “descriptive” lens, which explains how things actually are. Case in point is higher education.  Several candidates are hitting the campaign trail stumping for “free” college education. While it would be nice to offer “free” college, the reality is there are no free educations in the natural world. Someone must pay, and the challenge is determining who will ultimately be handed the bill.

History has demonstrated that whenever the federal government provides citizens something for “free,” the actual cost of that good or service rises faster than the rate of inflation. Additionally, the quality of that good or service tends to go down commensurate with the level of government subsidy received. Public education, health care, and even the food we buy at the grocery store are all heavily subsidized, and their costs have risen much faster than the rate of overall inflation.

Young people who support the idea of universal college should also ask themselves whom should be saddled with the responsibility to pay for it. Historically, the most productive people have been those between the ages of 25 and 55, so it isn’t a stretch to assume they are the ones who will be saddled with tax burdens to pay for other people’s “free” educations.

It doesn’t make sense to support programs that unnecessarily raise the cost of education, which must then be paid primarily by 25-55 year olds. It stands to reason that when governments offer 18-22 year olds “free” college, they will eventually pay for their artificially raised tuition via a lifetime of increased taxes. It is economically wiser for young people to support policies that will keep their current college expenses AND future taxes lower, as they will eventually leave the ranks of the subsidized and enter the ranks of tax payer.

TO THINK POOR IS TO BE POOR

I enjoy debating ideas on social media, and a topic of particular interest is economic inequality. A surprising number of people are convinced the economy is rigged in favor of the wealthy class.  I believe this is an inaccurate depiction of reality. Having professionally helped hundreds of people over the last two decades move from the lowest wealth quintile to the highest quintiles, I have observed the game IS rigged: in favor of those who don’t think poor. In this article, I’ll explain exactly what it means to “think poor” and how to stop.

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The majority of the people I encounter who struggle financially are perfectly capable of being prosperous, but they have the wrong mindset about money and their personal finances.  They “think poor.” And, to paraphrase René Descartes, they think, therefore they are. In fact, for the person of average intelligence and ability, I believe prosperity is 80% mental attitude and only 20% mental aptitude.

EXCUSE TENNISA crippling effect of thinking poor is fixating on obstacles rather than opportunities. When I counsel poor-thinking people, they often prefer playing the game I call “excuse tennis.” Excuse tennis is played whenever someone shares with me their goals, but every time I offer a suggestion to increase their odds of achieving them, they knock down the suggestion with an excuse. For example, let’s say someone wants to increase their income, so I recommend they seek different employment that offers higher income opportunities. Once I send my recommendation “over the net,” they volley it back with an excuse such as: “I really like my current job,” “I don’t want to move,”  or “I would need to go back to school first, and I don’t have the money.”  When I return their excuse with a recommendation to sell some toys, get a temporary part-time job, or start a small business to come up with extra money, they declare their toys too important to be sold, they don’t want to be a slave to work, or their health or pride won’t allow them to engage in physical labor. People must stop playing excuse tennis if they want to escape poverty.   Focusing exclusively on problems prevents us from dedicating our full attention on solutions resulting in lost opportunities. .

Another trap of poor-thinking is trying to achieve immediate prosperity with borrowed money. Benjamin Franklin once said: “The second vice is lying, the first is running in debt.”  Debt is not now, nor will it ever be, your friend.  When you are in debt, the money you earn does not belong to you. You simply work for two masters rather than one, and you keep less of your earnings for doing so.

A third trap of poor-thinking is comparing one’s circumstances to others instead of  contending with one’s own circumstances. The person who fixates on the man who has more is wasting valuable time and energy that could be better spent on activities capable of creating and obtaining financial security. I have a friend I see regularly who is frustrated by how much others have, and his envy makes it virtually impossible for him to see his own opportunities for improving his economic situation. When one man makes $20,000 per month and another only one-tenth as much, it does the lower paid man no good to concern himself with the higher paid man’s income, how he spends it, and thWealthMasters Milestonese level of the higher paid man’s compassion and generosity. By following the WealthMasters Milestones of avoiding debt, and staying gainfully employed, even the modestly paid person can achieve financial security over time.

Insanity is often defined as doing the same thing over and over again and expecting different results. To improve one’s situation it is important to adopt a lifestyle of self-improvement. It’s easy to see what’s wrong with others, but self-improvement is much more difficult. The first step in shedding poor-thinking is committing to make tomorrow better than today. Once this commitment is made, goals can be established for improving one’s spirituality, physical health and nutrition, relationships, intellectual growth, and personal finances, and an action plan can be developed to ensure activities are completed in pursuit of these established goals.

Self-improvement requires courage, especially if one’s most intimate social circles are also caught in the traps of poor-thinking. Successful people tend to enjoy assisting others who are pursuing success, and most communities have more mentors than there are people seeking their help. Good mentors can be found in most churches, local chambers of commerce, or even within one’s family, but it takes courage to ask for help.   I have mentored dozens of young people over the years, and I am often frustrated that more haven’t been interested in being mentored.

Anytime someone embarks on a path of self-improvement and personal growth, there will be hardships and challenges. Poor thinkers succumb to these hardships, even though most obstacles can be overcome with perseverance.  By enduring difficult times, we become stronger and more experienced, and over time the obstacles seem smaller and less obstructive. When times get tough, seek out mentors who have endured similar challenges on their own paths to success.

poor thinkingMost success takes place between the ears. For those who are tired of the trappings of poor-thinking: 1) stop playing “excuse tennis; 2) avoid debt; 3) stop fixating on what others have; 4) commit to a plan of self-improvement; 5) seek out mentors; and 6) practice endurance when things get difficult. When we stop “thinking poor” and start actively working towards positively change in our lives, we position ourselves to obtain financial security and human flourishing.