KANE'S BEVERAGE NEWS DAILY

How to Rescue America's Economy--II:

Focus on Jobs, Restore Full Business Meal Deduction

How do we rebuild America?  Start with jobs.

When the Bureau of Labor Statistics reports nonfarm employment figures on Friday, Nov. 7 -- just three days after the election -- it's a safe bet October job losses will exceed the 159,000 jobs lost in September. We have three suggestions.

Start with the nation's 945,000 restaurants.  They employ 1.3 million persons and have been hard hit by the plunging economy..  We told you back in September that restaurant operators were telling us their sales had fallen more than 20% and their profit margins had shrunk to 2% of sales from 8%.  Since that time, the situation has gotten worse.

Under current law, only 50% of business meals and entertainment expenses can be deducted from Federal income taxes.   Make them 100% deductible, and you increase the ability for businesspeople to eat out -- and help build their needed capital base.

Getting people to eat and drink more in pubs and restaurants would be a good thing, we think.  For that reason, we believe Congress should move quickly to repeal the tax code limits on business meal deductions.

Stimulus Payments

Congressional leaders have signalled their intention to enact a stimulus program after the election.  We think it's important that any stimulus program actually put people to work to meet American needs, not merely give people money to spend.  America plainly has unmet needs.

For instance, the Texas Transportation Institute (TTI) last year reported that traffic congestion continues to worsen in American cities of all sizes, creating a $78 billion drain on the U.S. economy in the form of 4.2 billion lost hours and 2.9 billion gallons of wasted fuel -- the equivalent of 105 million weeks of vacation and 58 fully loaded supertankers.

Congress and the administration should act this year to follow TTI's recommendation to add road and transit system capacity in critical corridors and to relieve chokepoints. 

So ramp up federal grants to build roads, railroads and mass transit where they are needed most.  Make the grants conditional upon work being started within 90 days.

Part of our economic malaise is a result of hundreds of thousands of unsold homes, a result of speculative building by homebuilders and foreclosures.  What we don't need is to add to the supply of vacant homes.

But there is an exception.  Astonishingly, people are still living in FEMA trailers five years after Katrina.  And others are in temporary housing as a result of Hurricane Ike and other storms.  Meanwhile, construction workers need jobs.

Construction workers who've been laid off because homebuilders are on the ropes should head south to build new houses for victims of the various hurricanes, including Katrina and Ike.   

We think putting people back to work bringing cheer to customers in pubs and restaurants, building roads and transit, and getting people out of FEMA trailers into decent housing should be three priorities for the Bush Administration, the Congress and whoever is next to occupy the White House.

Fixing the Health Care Mess

You may have noticed that every time politicians talk about health care they talk about -- not health care, but health insurance. 

The two aren't the same thing.

Not only that, but some of our finest mythology evolves around treating illnesses.  For instance, it's not true by at least a couple of measures that America has the finest health-care system in the world.  Our average lifespan is declining, we pay more than anyone else in the world and some significant groups don't have health insurance.

Still, going without health insurance is a really dumb move.  If one gets seriously injured or sick, the bills are big enough to bankrupt almost everyone. 

In fact, under our current system, if you get seriously sick you may very well get bankrupted even if you have health insurance.  That's because most plans are capped at $1 million.

And somewhere around 15-18% of every health care dollar is absorbed by health insurance companies to the cost of what amounts to money laundering -- they take your premium dollars in today and use them tomorrow to pay for someone else's health care.

This is a bad system.  It needs reform quickly.  We have a plan.  And that plan is not British-style socialized medicine.

A Different System

First, recognize there are three different levels of health care:  Routine preventive care (physician visits, well child care).  There's major medical -- the sort of stuff that lands you in the hospital overnight.  And finally, there's catastrophic medical, which is any care provided once someone has reached the lifetime maximum (usually $1 million) on their health insurance policy.

We think the folks at Monarch Beverage, the MillerCoors distributor in Indianapolis, have pointed us in the right direction.  They've got an in-house clinic.  It's cut Monarch's health benefits cost by hundreds of thousands a year.

Companies which are large enough -- Monarch has 600 employees -- can and should run their own on-site clinics for employees, dependents and retirees.  They don't have to be staffed by physicians.  A physician's assistant should be more than enough.  This retains the concept of employer-based insurance.

Instead of paying premiums to an insurance company to provide major medical, we would suggest paying "premiums" to the place where major medical is almost certain to be provided -- local hospitals.  The hospital would then pay the doctors, nurses, etc.

As for the catastrophic coverage, that would be provided by the hospital with a government backup.

What's Not to Like?

We can think of several objections, but almost all are easy to overcome.

What about those who are self-employed?  Health savings accounts should be able to accumulate enough money to cover routine medical needs.  Self-employed persons would pay "premiums" to the hospital of their choice for major medical.

What about those who don't have a job?  Those who are long-term unemployed are already covered through Medicaid or Medicare.  Medical needs of short-term unemployed should be covered as part of unemployment insurance.

What about companies with multiple locations, especially those in multiple states?  This used to be a reason for national companies to pick a health insurer. After all, why write five checks when you can write just one.

But with the growth of large national and regional hospital chains, we don't think this is so important anymore.  Instead, a multi-location company should be able to contract with one or a few hospital chains to provide major medical coverage to their employees.

            For example, Hospital Corp. of America, for instance, operates 173 hospitals and 107 freestanding surgery centers in 20 states.  Bon Secours Health System operates 18 acute care hospitals in several states and one psychiatric hospital.  In short, a company could contract with hospital chains where it has a number of employees.

            But what about the single salesman operating out of his home office?  We think there are two solutions.  The first is similar to AAA, the automobile club.  If you're a member of AAA Mid-Atlantic but break down in Napa Valley, you can still get roadside assistance, trip planning, etc.  The Napa Valley AAA club simply bills the Mid-Atlantic club. 

            Under this AAA-like plan, the single salesman would be part of a group at whatever hospital the company does business with.  But when or if he needs hospitalization elsewhere, the hospital that provides the services simply bills the hospital to which the company subscribes.

            The alternative is to simply pay a hospital in the salesman's hometown the "premium" needed to cover him each month.

            We think a plan such as we've outlined -- one that cuts out insurance companies -- would result in superior health care at a substantially reduced cost.  How reduced?  Consider this:  Provena Health Systems in Joliet, Ill., near Diageo's Plainfield, Ill., plant provides a 30% discount for uninsured persons plus a 10% prompt pay discount, again for uninsured patients.

It's Already Here

Seven years ago, Johns Hopkins Health System, which runs America's top-ranked hospital, decided to use the millions of dollars it was spending to purchase medical benefits for its employees to run its own health plan.

It now has nine clients, six of which are related to Johns Hopkins.  It covers 38,000 persons who can choose from a network of more than 8,400 providers in Maryland, Delaware, Southern Pennsylvania and Washington, D.C.  Out of area medical emergencies are covered at 100% of reasonable and necessary charges.

Monarch Beverage is saving hundreds of thousands of dollars a year simply by providing an in-house clinic for employees and dependents.  Johns Hopkins Health Care is saving millions.  In both cases, they are doing it by cutting out the insurance company's bureaucracy and money laundering.           

What to Do About Housing

We don't think the government should be in the mortgage business.  But extraordinary times call for extraordinary measures.

This economic collapse began with mortgages, and it won't come to an end until the mortgage mess is resolved.

We think -- in addition to ramping up spending on long-deferred infrastructure project -- ending the mortgage crisis is essential.  Thus far, the private sector has done virtually nothing, and government's actions have been little better.

We have a plan.  If you think it's a good one, please share it with your elected representatives.  (And, if you have ties to President-elect Barack Obama, House Speaker Nancy Pelosi or Senate Majority Leader Harry Reid, please share it with them.)

Replace a Lot of Mortgages

We would set up a new temporary government agency to issue new mortgages to people whose current mortgages for owner-occupied housing are in foreclosure, underwater, have usurious interest rates or where the payments account for more than 38% of income.

Our plan essentially expands actions currently being taken by the Federal Deposit Insurance Corp.  What's different is that it's not restricted to mortgages held or, sometimes, serviced by banks that have failed.  Rather, it proactively seeks to remove the mortgage cancer before it metastasizes to other banks.

In a nutshell, here's what we propose:

A new, temporary federal agency would stand prepared to issue 30-year, self-amortizing rescue mortgages for owner-occupied housing.  Monthly payments would be set at not more than 38% of a family's income.  If necessary, the mortgage term would be extended to 40 or even 50 years. 

The only qualifying financial condition for these rescue mortgages would be that the borrower must have at least 3% equity in the property, or have a net worth -- excluding the home -- of at least 10% of the face value of the mortgage.

What about those mortgages that are currently underwater -- where the value of the property is less than the mortgage amount, but the borrower is currently making payments?  We would make rescue mortgages available to these people, on the same terms and conditions.

How would it be funded?  The new agency would issue mortgage-backed securities, where the principal of each mortgage is 100% guaranteed by the federal government.  The guarantee would end once a borrower has a 10% equity in the property.

Problems

But what about the borrower who has neither a 3% equity in their house, nor a net worth equal to at least 10% of the mortgage but could make payments equal to 38% of their income?

We'd give that person what amounts to a zero-down mortgage.  But until that person has 3% equity in the property, it would not be a mortgage, but a lease-to-buy contract, under which the person would be a tenant, and could be simply evicted, if payments aren't made.  Once he has achieved a 3% equity, the contract automatically converts to a conventional rescue mortgage.

There is little that is radical in this plan.  It simply represents a conventional refinancing arrangement, with very generous terms intended to make the mortgage affordable.  The agency should be restricted to refinancing existing mortgages on owner-occupied housing. 

This plan solves a large part of the problem, refinancing mortgages that are dragging down the U.S. economy, and insures people can remain in their homes if they can make the payments.