Can't Get Coverage

Some background: when I left the dayjob last year (o happy day!), I decided to stay on their small-group health coverage through COBRA. But COBRA has an 18-month limit, and I hit the end of that period on September 30th. So in mid-September I started looking for new coverage, knowing full well that as an individual, not a member of any kind of organization, I wouldn't be able to get the same level of excellent coverage.

Some further background: a couple years ago I was having trouble with my right shoulder. Turned out to be a little tendonitis and a wee bone spur. Couldn't raise my arm above my shoulder without a lot of, you know, screaming. So I went to my doctor, who sent me to a specialist, who sent me for an MRI. The MRI revealed that I didn't need surgery, and that the problem would most likely find a way to resolve itself. (Sloooowly.) The specialist gave me some specialized exercises, I did them, and the problem did in fact resolve itself. (Sloooooooooooooowly.) It's quite gone now, and I can raise my arm above my shoulder, all the way to the ceiling, easily. Yay, me.

I first applied for a health-care plan tailored to young people. They saw the MRI, laughed in my face, and turned me down. So I started over again, and ended up applying for a plan linked to an HSA, thus allowing me to actually own a substantial portion of my own health-care money rather than simply send it to the Aetnas of the world and maybe never see it again. The application was just about the meanest, nastiest application I've ever completed, and it took a good ninety minutes to complete it and get it submitted.

There was, obviously, a great deal more detail requested. And when I filled out the section about that MRI, since I don't have the actual medical records, only the claim forms, I tried very hard to remember what specifically happened then, and when the application essentially defaulted to a choice of "Rheumatoid Arthritis," I figured that was probably pretty close to what had happened, and selected that.

Ninety minutes to complete the form. Ninety seconds to get turned down again.

Bear in mind, there's a section in the application where you can write an explanation of whatever you wish, so I described exactly what happened with the MRI, how it successfully ruled out a costly operation, and how I am now entirely trouble-free. But of course the computer making the decisions doesn't bother with that, it was "Rheumatoid Arthritis" and that was it, end of story.

I had to visit the specialist's office, get copies of the medical records, and send them in with a letter requesting a review. That was ten days ago, and still no word on a decision. In the meantime, I haven't had health-care coverage all month, and am rightfully worried about what would happen if something should happen to me. Because you know--if something should happen while they're still reviewing my file, it's an ironclad guarantee that they'll find some other reason to turn me down.

All this while I am, in fact, completely healthy. Nothing wrong with me. Look at that shoulder, what a terrific shoulder.

This has, of course, given me some perspective on the health-care debate going on between the candidates. There are two proposals, and boiled down (thanks to an analysis by some guys at Bank of America), they are:

McCAIN: Eliminate deductibility of employer-sponsored insurance and replace with refundable credit of $2500 for individuals and $5000 for families.
OBAMA: Universal health care with affordable health coverage and benefits similar to those available to Members of Congress ... Creation of National Health Insurance Exchange for people without access to employer insurance or public programs...

Okay. So McCain would provide me with a $2,500 tax credit to spend on health care however I wish. (The plan I applied for would cost around $4,000, including money put into the HSA.) But here's what caught my attention: if I were still employed at the law firm, the incentive for that law firm to provide health insurance, namely the tax deduction, would disappear. That means it's pretty much a sure thing that the firm would discontinue the program, and everyone would have to obtain coverage as individuals rather than members of a group.

Having gone through exactly that process, I can tell you: plenty of people would be declined, particularly people with any kind of preexisting condition, and everyone would end up spending more, more, more on their coverage, no matter how big the tax allowance provided for by Mr. McCain.

The real winners? The insurance companies. If they get to charge everyone individual rates for the same (or worse) coverage those folks were getting as employees at group rates, the insurers will rake in the cash.

Ask me if I'm surprised.

Stop Using Your Credit Cards

It's Our Fault

No one buys a house at the bottom of their price range.

We are deep in the realm of human nature. If you've got a price range of, let's say, $500,000 to $700,000 for a house, it's because on a certain day you sat down with the family, looked at your income and your expenses, and went through a laborious process to determine how much you could possibly afford to spend on a new house.

A new house. The fundamental component of The American Dream. This is what we dream of. And after that laborious process, knowing that your lives will be far easier if you buy a house for $500,000 rather than $700,000, inevitably you end up buying a house that costs $710,000. Because it's the American Dream, it's our dream, our big dream, and on this we want as much as we can possibly get. This is, has been, and will always be true.

And it is one of the keys to understanding why we're in the economic fix we're in. We bought houses at the top of our range, and a whole lot of us bought houses slightly above what we could afford, and when the bills, the reality of the bills rather than our optimistic guess at what those bills would be, finally hit, we discovered that we couldn't make it work.

Discovered this as we sat in our new houses, firmly committed and with no way out. Exactly this has happened, by the thousands, all across the nation. That's why all the foreclosures, that's why the weakness at the heart of the credit system, that's why commercial banks and investment banks are failing left and right.

It's Their Fault

Fully understanding that buying a house is the fundamental component of The American Dream, mortgage lenders decided to cheat you.

It's as simple as that. There was a story on CNN about a week ago, typically made little of, in which two Bank of America employees talked about how they were required to sell as much debt as possible to people who called in for any reason. This sort of thing was going on all over.

But balloon mortgage payments are the chief culprit in the foreclosures mess. We are what we are, and if we're presented an offer for a 30-year mortgage at 10% that balloons to 20% in two years, all we're going to see is the 10%. That's what we'll run our numbers on, only that. And surprise surprise, when we run the numbers, it's not so bad. "Things'll be a little tight, but I'll probably get a raise and then another raise, so it'll get easier." And when we think about the 20% at all, we tell ourselves something like "Okay, well I'll just refinance before that happens, and I'll be fine."

But a little recession starts to happen. Your daughter decides she has to go to a very expensive school, and you're damned proud of her so she goes. Your raise isn't as big as you'd hoped. The cost of gas and food goes up, and there's a lot more squeeze being applied to your expenses than you ever anticipated. But still, you're managing, you're getting the bills paid, barely, and you're managing to make it all work.

Then one month, you get the bill for the mortgage, and it's twice what it was. And when you try to refinance, you discover that because of all those other people who've already defaulted, no one's interested in lending to you anymore, and you can't refinance.

For now, we won't even talk about the commoditization of those mortgages into securities bought and sold on the investment market. That made the whole problem worse, a lot worse, in fact it was like a magnifying glass that took a smoldering problem and set it aflame. But for now, let's just concern ourselves with this process, this balloon mortgage problem, that sits at the heart of everything else.

Your lender understood your nature better than you do. They sold you a mortgage with full knowledge that in a couple years you would be deeply burdened, and they didn't care. They saw two years of lovely profits, several months of really lovely profits, and if you defaulted, well now they would be able to take possession of your lovely new house for not much money, which they would be able to resell for a nice fat profit.

You're homeless, but big deal, they've got what they want.

Did your mortgage lender ever stop for a moment to wonder what might happen when thousands of people defaulted, more or less at the same time? Probably not, any more than you stopped to consider the consequences of what a balloon mortgage could, in the long run, do to your finances.

It's your fault, it's their fault, we're all in this together.

But wait, it gets worse.

The Bigger Problem Hasn't Hit Yet

Just as a guess, I'd say that for every homeowner, there are ten people who rent somewhere. And both the homeowner and the renter have multiple credit cards.

And the credit card companies are doing exactly what the mortgage lenders have been doing.

Ever taken advantage of one of those deals? Zero percent for twelve months!

It's exactly the same. Zero percent for twelve months, but after that it's 15.99% for forever, and it's a variable rate. Meaning that if the prime rate rises, so does your rate. You spend a year buying stuff, living the miniature version of The American Dream that basically consists of acquiring shiny new things, and for those twelve months you're being very responsible. You pay a little more than the minimum, and you don't quite reach your credit limit. For twelve months the bills come in and the payment isn't bad because there's no finance charge. Then one month a bill comes in, and it's different. Massively different.

It's their fault, too. Because they understood your nature better than you do, and sold you that variable-rate, twelve-month zero-percent credit card knowing that you wouldn't fully appreciate what it would mean in that distant day when it got expensive.

But then they also decided to have some extra fun with you: on your bills, they set a minimum payment due of $0.00. "You owe nothing at all now," they said, and you accordingly complied. The principal just sat there. Thus completely negating the whole idea of having twelve months to pay it all off before the rate ballooned.

The credit card problem, it is at heart exactly the same as the mortgage problem. And the worst news of all? It hasn't hit the economy yet.

The Looming Catastrophe

Credit card companies have, as I understand it, put aside about a trillion dollars in cash to deal with people defaulting on their credit cards, so they have a much bigger cushion against shortfalls, they can ride out the problem a lot longer before it becomes a strain on their bottom lines. In other words, they can allow the problem to get really, really big before it ever becomes apparent to their stockholders and the rest of the marketplace.

Then there's this scary note from Andrew Leonard's "How the World Works" economic column this morning:

Americans are increasingly turning to their credit cards to pay for consumption, while credit card companies are jacking up interest rates. . . .

Because here's the thing no one ever tells you: at any time, even if you've got a fixed rate credit card, your good friends at CitiBank or Capital One or wherever have reserved the right to raise your rate anyway. So even if you've been completely responsible, never signed up for a variable-rate card, never bought into that whole zero-percent nonsense, they can still raise your rate at any time, and do to you exactly what they've been doing to everyone else.

The American Dream = debt, and lots of it. On the housing side, that has led to the near-collapse of the American economy (which could most definitely still happen). But the credit card problem, when it happens, will be much bigger and much worse, and if we're already weak from the existing crisis, then good night Irene.

Stop using your credit cards. Do whatever you have to. Do it now.