Friday, 25 October 2013

Thoughts about the 2010 Affordable Care Act

President Obama and Congress passed the Affordable Care Act to help 48 million Americans gain health insurance. With a population of 300 million Americans, roughly 16% of the U.S. population has no health insurance. Unfortunately, I find this law troubling because, in the old days, people had a choice to buy insurance or not. Insurance was voluntary. People bought insurance because they were preparing for emergencies or unexpected losses. Regrettably, the U.S. government has ignored simple economics, which I explain in this blog.

U.S. government creates a problem by forcing people to buy insurance. Out of that 48 million Americans, how many young people do not want health insurance? Young people believe they are invincible, and few would buy insurance. Usually people who buy insurance expect to use it. Some of 48 million include low wage earners, or the insurance companies had denied medical insurance to people with preexisting medical conditions.

Insurance companies reject applicants with health problems because the companies expect to pay out more in insurance claims as the applicants seek more medical treatment, boosting the insurance companies’ costs. Consequently, the new federal law may help low wage earners and people with preexisting conditions acquire medical insurance. However, the young people will help subsidize the health insurance because most are healthy and rarely seek medical treatment.

Another side effect of the law is insurance companies gain market power. With a population of roughly 300 million Americans, the United States has 38 insurance companies. I listed the companies in Table 1 at the end of this blog. U.S. government has conferred monopoly power to the insurance companies because the government guarantees these companies 300 million consumers. On average, each company would insure 7.9 million people. Consequently, the companies can hike insurance premiums and offer lower quality insurance because consumers cannot choose whether they want health insurance or not. They must choose one of the 38 companies in the United States. Then Aenta, one of the largest insurance companies, announced it plans to exit the health insurance market.

Using a perverse example, we can show how this health care law can limit market power. Let’s say the U.S. government forces all drivers to buy road flares that must be stored in the car’s trunk. That way, a driver with car trouble can pull over and place flares on the road, so another driver does not crash into the car. What would happen if the United States has three companies that made road flares? U.S. government has granted them market power, so they can increase the price and earn massive profits. Subsequently, the companies could funnel some profits to the politicians as campaign contributions, showing their appreciation of the new law.

New health care law shows the problem of pathetic news quality. Since the 1990s, I held a low opinion of the U.S. news and newspapers because reporters never cover news stories in detail as the reporters always skim the important facts. I became angry when the reporters ignore essential facts of the new health care law. Most reporters wrote the U.S. government would fine any person $95 in 2014 for not having medical insurance. That is not completely accurate. Fine is $95 per adult or 1% of a person’s income, whichever is greater. Thus, an adult earning $20,000 per year would pay a $200 penalty for not having health insurance and not $95. Then the penalty rises to $325 per adult or 2% of income in 2015, and $695 or 2.5% of income in 2016 and after.

I listed the penalties in Table 2 for individuals, children, and families. Furthermore, experts claim the IRS has no enforcement powers to collect the tax. When a bureaucrat has a will, he or she will find a way. IRS will devise a method to collect the penalty. Most likely, the IRS would rearrange a taxpayer’s payment. IRS would apply a taxpayer’s money to the penalty first and then demand more money to apply for the actual taxes. Of course, everyone assumes the taxpayers will continue submitting forms to the IRS. People in many countries, such as Italy, Greece, Spain, and Portugal, evade and elude taxes as tax dodging has become a favorite pastime for some of their citizens.

U.S. government created another problem because it had promised the people that they could keep their current medical insurance and current family physicians. Unfortunately, the U.S. government did not anticipate how businesses and people would respond to the law.
1.     Some insurance companies offered health insurance that does not comply with the new law. Consequently, insurance companies had canceled these plans instead of complying with the law, leaving between 7 and 12 million people and families without health insurance.
2.     U.S. government taxes people and families with generous health insurance plans. A tax penalizes an activity or behavior, and government penalizes people with generous health care plans. Hence, insurance companies, people, and families have an incentive to reduce their plan’s benefits to reduce their tax burden.
3.     U.S. government has left some doctors out of the health insurance network. Thus, some families who saw their family doctor for years can no longer see them. This raises a good question – if the government leaves some doctors and hospitals out of the health care plan, will the hospitals close, and the doctors retire? This would reduce the supply of medical services that raises prices for medical services.
4.     Employers do not pay for health insurance if they work their employees fewer than 30 hours per week. Some people have lost hours as their employers switch them from full time to part time. Unfortunately, the people with reduced hours may have to purchase health insurance out of their own pocket if their salary exceeds $10,000 for a person or $20,000 for a family.

As the name suggests, the Affordable Care Act should reduce medical costs. Can you name a government program where government had reduced costs or prices? Every industry and market a government interferes with cause greater market prices. Putting this fact to the side, everyone overlooks one important fact. If the supply of medical services remains the same while people demand more health care because they have medical insurance, the market price always rises. As more consumers compete for the same supply, the consumers bid up the prices. Then I read articles here and there. For instance, the IRS will hire 6,700 agents to enforce the insurance penalty. Then federal and state governments must hire bureaucrats to work in the new medical insurance exchanges. Through my readings, I never read a story where hospitals and clinics plan to hire more doctors and nurses. If the U.S. government wants to reduce the price of medical care, it must expand the supply for medical services. If the market supply grows faster than market demand, subsequently, the market price always falls. As hospitals and medical clinics expand their services, they would lower their prices to attract more consumers to their facilities. On the other hand, I have read several hospitals will close.

The Affordable Care Act does not fix the flaw with the medical industry because the health insurance companies isolate the payments between patients and hospitals. Our current health care system provides no incentives for patients, hospitals, and clinics to reduce costs. Patients pay a fixed price to visit a doctor, usually $20 copay. Patient could request the doctor to perform 20 tests, and the doctor would comply even if he or she thinks some of the tests are unnecessary. Doctor bills the insurance company for the tests and not the patient, thus sticking the third party with the bill.

Healthcare system would change if the patient had to pay a percentage of each test. For example, if the patient must pay 10% of every test cost, the patient would start asking more questions about the tests and would question whether the doctor should perform 20 tests or not. Patient’s bill becomes tied to the number of tests the doctor performs. Furthermore, the doctor may limit the number of test especially if the doctor knows the patient has little income to pay for them.

The Affordable Health Care law creates another problem - intrusiveness. People who cannot afford health insurance or do not qualify for Medicaid or Medicare can buy health insurance through exchanges. Unfortunately, applicants must fill out a government form spanning across 21 pages. Most questions cover financial information and contain little health information. Supposedly, as a person enrolls into an insurance plan, the exchange shares information with other federal agencies such as the FBI, IRS, NSA, et cetera. Our political leaders think similarly to the Soviet planners. Soviet citizens applying for a government program or need a government document had to supply numerous documents to the bureaucrats. I call it the bureaucratic shuffle because a trip to one bureaucracy would lead to multiple trips to other bureaucracies as citizens gathered various documents.

Patients lose their privacy as the state and federal government collect information about them. I tried to research which agencies the health insurance exchange shares information with, but this information had disappeared from the internet. Remember George Orwell’s novel - 1984. Government controlled information and the main character, Winston Smith, worked for the Ministry of Truth. As the government changed and updated information, Winston had to correct every book, newspaper, and piece of information with the new information. I apologize for digressing, but I became surprised this information had disappeared from the internet so quickly. I know I read about the exchanges sharing information with the federal government agencies because people had trouble enrolling into insurance plans. Computer system experienced bugs as it shared information with these government agencies, preventing applicants from enrolling into a plan. Of course, thousands have browsed the exchange website to check rates, but the U.S. government has not revealed how many people it has enrolled. Analysts estimated the U.S. government had enrolled a half million people in mid-November 2013, far below its projections.

Government leaders forget economics is about choices. I liked how Kazakhstan had set up its medical industry. Kazakhs have a choice. They can go to a state hospital or to a private medical clinic. Government supports state hospitals that charge very low prices while private medical clinics charge a market price for its services. Of course, patients receive a lower quality of care in the state hospitals than the private ones. I remember well my trip to a state hospital in Almaty, Kazakhstan. I walked through run down, dirty corridors. State hospital looked more like a factory than a hospital. A nurse yelled at me in Russian. Subsequently, I went to the private medical clinic around the corner from my apartment. Clinic was clean and new with friendly staff. I also received my medical services quickly. That was the thing. Kazakhstan grants its residents the choice which medical services they want. United States could copy this plan. U.S. government could dissolve Medicare and Medicaid and give the funding to the county governments to support state-funded hospitals. Then the government exits the health care business and allows private hospitals and medical clinics to provide services to paying customers. Then Americans can choose which health care system they want.

After examining the Affordable Care Act, I am shocked the President and Congress would offer such a terrible plan. At least the Congressmen did not exempt themselves from the healthcare law. I believe the law requires our Congressmen to enroll in health insurance similarly to everyone else, but the U.S. federal government pays up to 75% of the insurance premiums. In the old days, government passed a program to help people. Instead, the government had passed a program that will cause problems, but it does create two benefits. First, insurance companies cannot deny insurance to people with preexisting conditions. Second, the insurance premiums could be reasonable in the beginning. For example, I looked up the cheapest plan for my state, which was $200 per month. That was not bad, but this was an estimate and not a quote. However, the health insurance costs will continue rising from the following problems.


  • Health companies may hike premiums because they gain more market power. Government guarantees them consumers, and consumers can only choose insurance from 38 companies.
  • Health insurance companies must cover patients with pre-existing conditions. These patients may require more medical care, and the insurance company would pay these medical costs.
  • People may increase their demand for medical services because they have insurance. Consumers bid up prices for medical services (unless the supply also increases).
  • U.S. government has left some doctors and hospitals out of the health insurance plan. Consequently, government will reduce the supply of health care and drive up its prices.
  • Health care plan expands state and federal government bureaucracies, and the government gains and collects more information about its citizens. Furthermore, bureaucracies grow continually, and hospitals, medical clinics, and insurance companies would pay greater compliance costs as bureaucrats expand the rules and regulations.

Table 1. List of the Health Insurance Companies
Companies Companies Companies
AETNA AFLAC American Family Insurance
American Medical Security American National Insurance Company  Anthem Insurance
Assurant, Inc. Asuris Northwest Health BlueCross BlueShield Association
Celtic Insurance Company CIGNA College Health IPA
Connecticare Inc. Continental General Insurance Company Golden Rule Insurance Company
Group Health Cooperative Group Health Inc. Harvard Pilgrim Health Care
Health Markets HUMANA Insurance Services of America
Intermountain Healthcare Kaiser Permanente LifeWise Health Plan of Arizona
LifeWise Health Plan of Oregon LifeWise Health Plan of Washington Medica Minnesota
Medical Mutual Oregon Health Insurance Oxford Health Plans, Inc.
Principal Financial Group, Inc. Shelter Insurance Unicare Health Insurance
UnitedHealth Group Inc. Vista Health Plan Walter Jarvis Insurance Services
WellPoint WPS Health Insurance

Table 2. Penalties for not carrying health insurance

2014 2015 2016 and beyond
Adult $95 or 1% of your income $325 or 2% of your income $695 or 2.5% of your income
For every child $47.50 $162.50 $347.50
Family max. of $285 or 1% of family income max. of $975 or 2% of family income $2,085 or 2.5% of family income

Friday, 4 October 2013

The Underground Internet

I have always surfed the Internet since it took off in the early 1990s. I remember the days when the Internet comprised of text messages with no color pictures and graphics. I am even knowledgeable in computers and can write a little code in several languages, build basic websites, and other little stuff. However, I never even guessed a whole, hidden world existed in the Internet that most users would never see. They call it the deep Internet, or a better term is the underground or hidden Internet.

Before describing the hidden Internet, I define the standard Internet. For example, a user types the URL into the web address, such as www.hotmail.com. Many things happen that a user never knows. His or her computer looks the IP address for the URL in the DNS database. IP address identifies the web server’s location within the Internet. It is a unique address similar to a mailbox where people send and receive letters. DNS database lists the world’s websites like an address book, including the user’s Internet provider. IP address comprises of four digits ranging from 0 to 255, and a period separates the digits. Subsequently, the user’s computer connects to Hotmail’s servers. User connects to the Internet with an IP address via his or her Internet provider. However, the user’s computer and Hotmail’s servers exchange IP addresses. As the user’s computer and Hotmail servers exchange information back and forth through routers. Routers read the destination and source IP addresses, so they can send the information to the right places. Consequently, a mailman knows where to deliver the mail. Every letter he delivers has a send and return address. As you probably guessed, law enforcement officers can trace IP addresses and track down users who use the Internet for illegal purposes. Once they know the IP address, they know where the server exists in the real world.

An organization, Tor, developed a unique browser that does not use IP addresses. Thus, users’ computers and websites do not use IP addresses as they exchange information. Then the computers can encrypt all data, so no one intercepting a communication can decrypt it or at least not easily. Consequently, a user can remain anonymous as he browses the Internet. Tor becomes the critical software for accessing the hidden Internet.

A user can download Tor for Windows, Apple, Linux, and Android operating systems. The hyperlink is https://www.torproject.org/index.html.en. Designers use a modified version of Firefox that serves as a browser. Then users can use the browser to surf the Internet like a standard browser such as Internet Explorer, Chrome, Firefox, and Opera. If users take precautions, then they can remain anonymous.

I surfed the Internet and checked my IP address. One minute, my IP address placed me in the Netherlands. Then later, I was in Los Angeles, California. Subsequently, my IP address switched to Germany, and so on. I did find this annoying. When I visited Yahoo, the Welcome Screen was in Dutch. After I had returned, it was in English and then German because Yahoo and some websites personalize webpages depending on the user’s country. They use the IP address to determine the user’s location and country.

I found the technology cool, although the Internet speed crept at a slow pace. I could be wrong in my interpretation, but the metaphor of the mailman still works here. How does a mailman know which house to deliver the mail if he has a letter with no send or return address? Communications bounce from router to router in cyberspace until it arrives at the correct router. As a router receives information, it only knows the previous router that sent the communication and the next router where it sends the communication. After a communication passes through several routers, the sender has no link to the receiver. Do you see the secrecy? How can a policeman or agent track down someone if he or she does not know who sent it, or who receives it?

This technology is legal, and users have legitimate reasons to use it. Some believe the U.S. Naval Research Laboratory sponsors this technology to allow the U.S. government to send communications secretly. Spies, military, law enforcement officers, and delegates can send communications secretly without terrorists and enemies intercepting messages. However, the Tor developers use this technology to defend against government surveillance. We know the NSA is eavesdropping on everyone’s communication. Journalists, activists, dissidents, and whistleblowers can use this technology to send secret information to others and have some protection from an autocratic government.

This technology is not foolproof. Government agents can use malware, hacks, and other techniques to reveal a user’s identity. For example, the FBI exploited a security hole in Firefox that copied malware onto a user’s computer. Malware read the user’s IP address and MAC address and relayed that information to the FBI headquarters in Virginia. IP address reveals the user’s location while the MAC address identifies the unique serial number of a computer’s network card. IP address leads the enforcement officers to a person’s location while the MAC identifies the user’s computer.

As you probably guessed, users can use this technology for illegal purposes. FBI arrested Ross William Ulbricht, the founder of Silk Road. He also uses the alias the Dread Pirate Roberts. Ross created a hidden website called Silk Road, where users and vendors bought and sold a variety of drugs. Ross Ulbricht earned commissions from the sales as buyers and vendors generated 60,000 hits per day. FBI claims he earned between $30 and $45 million in revenue annually, and the Department of Justice seized $3.6 million in Bitcoin – virtual money. Feds claimed Ross hired a hitman through the hidden Internet to murder both a blackmailer and witness. The URL for the Silk Road is:

http://silkroadvb5piz3r.onion/

If you type the URL into your browser, nothing will show. Your browser looks the URL up in the DNS database, searching for that IP address. However, this website does not exist in the DNS database, and your browser cannot connect to it. You would need to download the Tor browser and type the URL into that browser. Then the browser would connect to the Silk Road. Did you notice the word onion in the URL? Onion refers to the onion network, the hidden world of the Internet. When I typed the URL for Silk Road, I saw the message below:


I surfed this underworld to see what I could discover. I found a search engine, called Torch that indexes the hidden sites. When I clicked on the links, less than half the websites would display. I do not know if some vendors temporarily shut down their websites because the FBI seized Silk Road, or this technology is young and unreliable. For the real Internet, the DNS database organizes the Internet world, where the onion network is decentralized. Nevertheless, I became shocked at what several websites were selling. I could buy guns from Europe, marijuana from the Netherlands, buy counterfeit euros and U.S. dollars, order phony driver’s licenses and passports, or hire a hacker to create hell for my enemy. Then I saw another website where I could hire a hitman if the hacker could not create enough hell for my enemy. I listed the snapshots of these websites at the bottom of this blog. I could give you the website addresses, but they mean nothing in the real Internet world. Did you notice the currency? All vendors accept Bitcoin, but they send the products through regular mail or package delivery company.

Bitcoin constitutes virtual money or cryptocurrency. No central bank or government issues Bitcoins, and 11.75 million Bitcoins were circulating in the world in October 2013. Bitcoins’ supply continuously grows until 2140, stopping at 21 million Bitcoins. Cryptography plays a key role in Bitcoins. Every Bitcoin has a unique, encrypted number. A person opens an account or wallet and can buy Bitcoins from online vendors. A person can store his Bitcoins on his computer or cellphone or use an online wallet. Of course, a person does not show his identity. Then he or she can settle transactions by sending the other party his account information. As a buyer completes a transaction, software encrypts that person’s private key into the transaction along with the Bitcoin number. Ensuring people do not spend the same Bitcoin for multiple transactions a miner clears the transaction. Miner is not the proper terminology. It functions more as a bank or clearinghouse. A miner decrypts the transaction and records it in a ledger. Then it re-issues the Bitcoin to the seller.

Think of a Bitcoin where you send a check to the seller, and he deposits the check into his account. Once the bank receives the check, they change numbers in their ledger by deducting the check amount from the buyer’s account and adding it to the seller’s account. A miner can earn transaction fees and receives newly created Bitcoins by clearing transactions.

This sounds complicated, but do you remember the old days? Rich people could take a suitcase of cash to a Swiss bank and open an account. They get a numbered account that contains no personal information. Then they can use the account to settle transactions secretly. For example, a rich person pays a Congressman a bribe. Rich person contacts the Swiss bank and asks the bank to transfer the bribe amount from his bank account into the Congressman’s bank account. Rich person gives the banker a code (or private key for Bitcoin) to approve the transfer. Transaction remains secret because no one has revealed his or her identities. Consequently, Bitcoin brought the secrecy of banking to the regular people.

I did not think Bitcoins would succeed because the system has several flaws. First, people who deposit their savings into banks have deposit insurance. If their bank fails, FDIC guarantees the depositors will not lose their money up to $250,000. However, no government agency insures Bitcoin or protects people from losses. Second, hackers broke into online wallets and stole the Bitcoins. Since all transactions are electronic, they erased history. Third, the price of Bitcoin fluctuates greatly between $80 and $220. Refer to the chart below: For people to use and accept money, money must retain its value. Some people view Bitcoins as an investment, hoping to buy at a low price and sell for a high price. Finally, a limited number of sellers accept Bitcoins as payment. This was true until I had discovered the hidden world of the Internet, where Bitcoin has become the means of payments.


I became puzzled when the U.S. Department of Homeland Security shut down Mt Gox, the largest Bitcoin operator in the United States in May 2013. U.S. law requires all money exchangers to register with the Financial Crimes Enforcement Network. Feds even seized its bank accounts. I thought the U.S. government was petty because Mt Gox converted government-backed securities into Bitcoins and Mt Gox did not participate in illegal activities.

I thought Bitcoins had no future until I discovered how criminals can use two methods for Bitcoins. First, criminals can launder money using Bitcoins. For example, they buy Bitcoins in the United States utilizing money from illegal proceeds and spend or convert the Bitcoins in any country circumventing government controls on transferring money abroad. Russian government has banned Bitcoins for this reason. Second, criminals use Bitcoins on the hidden Internet. Feds believe that if they can shut down the money, they would kill the black markets operating in the hidden Internet. Feds have one severe problem. A person can use Bitcoins anywhere in the world. It sounds as if the U.S. government has started another war that it cannot win. (I find this amusing, but the sellers send the products through the mail or package delivery companies. I guess the U.S. government does not have enough agents to check all that mail).

I found this technology incredible as it opened a new world before my eyes. I became amazed after I had read the instructions to setup a hidden website. I could convert my laptop into a website server and use my Internet connection to allow users to connect to my website. (It appears most vendors pay a company to host their websites). Then I could submit my URL to Torch search engine so users could find me unless I did not want to be found. Instead, I could pass my URL by word of mouth if I were doing no good. Of course, I am not doing anything illegal, and I have no need for any of these products or services. So I have no real need for this technology unless the U.S. government starts banning books and restricting free speech of professors. Then I could use this technology.

Samples of websites I found after surfing the hidden Internet within fifteen minutes. I do not condone or recommend using these products and services.