Thursday, September 2, 2010

personal finance books

An Introduction to Insurance

Insurance is a way to manage risk. As you go through your life, there’s always a chance that you’ll be in a car accident, twist your knee, or that your home will burn down. The risk of these accidents is small, but if one of them were to happen, the effects could be catastrophic. Without insurance, you’d have to come up with the money on your own to repair your car, have knee surgery, or rebuild your home.

Although these things happen to some people, they don’t happen to everyone. With enough data, it’s possible to know roughly how many people are likely to experience these setbacks — and how much it will cost to recover from them. Using this info, an insurance company can spread the risk among all its customers.

An Elementary Example

Imagine Eastside Elementary, a school with 100 students. Every year for the past 25 years, one Eastside Elementary student has broken an arm in the schoolyard, resulting in about $5,000 in medical expenses. Without insurance, every family would have to save $5,000 to cope with the odds that their little tyke would be the one with the broken arm. At the end of the year, 99 families would have paid nothing (and have $5,000 left in savings), but one family would have paid $5,000 (and have nothing left).

With insurance, the Eastside Elementary families can join together to spread out the risk. If they created an insurance fund, all 100 families would pay $50 at the start of the school year. This $5,000 total would then go to the family of the child with the broken arm.

By spreading the risk, each family only has to save $50 instead of $5,000. Sure, that $5,000 is gone if it’s not your child who breaks her arm, but for most people, that’s an acceptable trade. Instead of having to scrape together the full $5,000, they’d rather risk losing $50 for a chance to avoid $5,000 in medical bills.

But is it really fair to have every family pay $50 into the insurance fund? Some kids go to the library at lunch to read Harry Potter and Mysterious Benedict Society books; others climb around on the jungle gym and throw stones at each other. The bookworms are much less likely to break an arm, aren’t they? And maybe the 25 years of data show that girls break their arms less often than boys. With enough info, the Eastside Elementary Insurance Fund could charge each family a different rate depending on how likely their child is to break an arm.

I got home a little late tonight. Against my better judgment, I plopped down on the couch with my family to watch cable news. There was Majority Leader McConnell crowing about the Senate's passage of what's been dubbed the "Stop Taxing 'Ur Personal Income, Dude" Act. This extends the Bush tax cuts for dudes earning more than $250,000 per year while piling up the deficit over the next decade and beyond.

Some talking head from the Center on Budget and Policy Priorities explained to Rachel Maddow why the fine print was actually worse. Much of the true $1 trillion ten-year cost wasn't shown on the government's books, since the tax cuts were nominally slated to nominally expire in a few years. Despite such budget shenanigans, Republicans still needed to cut $300 billion to partially finance their favored tax cuts. So a Senate coalition of 53 Republicans and 8 moderate Democrats voted to reduce affordability credits designed to help people buy health insurance, while reducing funding for community health centers, nutrition and unemployment assistance, aid to states and localities.

Although Republicans lacked the votes to overtly reverse health reform, they have already chipped away at the fine print and at the infrastructure of health reform. HHS Secretary Sebelius was blocked from enforcing key provisions designed to deter large insurance rate increases. Funding was cut for the already-stressed temporary high-risk pools that serve uninsured men and women with pre-existing conditions.

Answering Democratic complaints that these policies made insurance even less affordable, Congress eliminated penalties associated with the "individual mandate," causing a significant (though at this writing imperfectly understood) challenge to measures that protect Americans with preexisting conditions buy coverage.

Although the American economy continues its anemic recovery, Republican leaders ruled out the possibility of additional stimulus, arguing: "We already spent $800 billion, and it didn't work," and that was that.

Speaker Boehner has been on TV every night trumpeting Holder-Gate. Joe Barton, Chairman of the House Energy and Commerce Committee, has announced lengthy hearing regarding allegations that Attorney General Eric Holder had failed to recuse himself from an investigation of the New Black Panther Party, whose former Secretary-Treasurer turned out to be one of Holders' distant relatives, Shamika Azziz-Epstein.* Ms. Azziz-Epstein has been called before the Committee for extended testimony. As one self-described Republican strategist put things: "We must know who Ms. Azziz-Epstein really is," slowly pronouncing AZZIZ-EPSTEIN with particular relish. "And What did Mr. Holder know, and when did he know it."

Yeah, it's been a lousy April, 2011.

That's a lousy scenario. It's pretty likely, too. Democrats inherited a bad economy and a series of daunting challenges at home and abroad. Now that we own these problems, voters are responding accordingly. We face an uphill battle in this year's midterms.

What makes this especially frustrating is the lack of intensity and focus among so many people who were so central to the 2008 victory. Political pros across the ideological spectrum expect low midterm turnout. They expect the electorate to be older, whiter, and more conservative than the group that was so fired up and ready to go only two years ago. Younger voters, Latinos, African-Americans, and many progressives are expected to stay home without Barack Obama's name on the ballot. Many of those who fought hard for health reform are expected to stay home, too. Some are complacent now that the bill passed. Others are jaded and alienated because valuable provisions, principally the public option, didn't make it to final passage.

Again, this is maddening. If Republicans win the House, the most likely outcome, they will capture the committee chairs required to harass the Obama administration with crazy or trivial investigations. They will capture critical leverage over the budget that will allow them to undermine valuable legislation passed over the next two years. They will have an elevated platform to identify every unpopular change in the American health care system with health care reform.

Just this week, I received an email describing a proposed bill that would gut health reform's public health and prevention investments to finance some small-business thing. In dollar terms, that's one of the tiniest items one can expect to see.

From a tactical perspective, you've got to hand it to Republicans. With some exceptions such as the stimulus and health reform, they have profited from their lockstep discipline and their efforts to run out the clock on every Democratic initiative. The need for 60 Senate votes, along with the outsized influence of sparsely populated states, provided the essential tool for Republican resurgence. On issue after issue, working to assemble a wafer-thin supermajority, Democrats were forced to cut unseemly public deals with the most parochial and conservative members of their coalition.

The process didn't look right. It also led Democrats to bicker with each other while Republicans escape much of the blame. Progressives blame the President for missteps. The administration blames progressive legislators for being naively over-optimistic. Both sides of the argument blame apathetic progressive voters for lending too little help. Core Democratic voters became bored and dispirited with the whole thing. Many uninformed voters who gave President Obama the benefit of their doubts to enact better policies and to change the culture of Washington, became even more alienated.

Then there are the many drops of poison that Sarah Palin and company inject to exploit Americans' cultural anxieties about various frightening others. In my adult years, the list of negative icons extends from Willy Horton to undocumented immigrants to Will and Grace and gay people who want to marry, and most recently to an Islamic community center near Ground Zero. As Michael Cohen observes, the Bush years provided a certain welcome and honorable break from this sort of thing. That break is over.

Most recently, Newt Gingrich compared building an Islamic community center to waving a Nazi sign near the Holocaust museum. Jews who find such comments appealing might remember Gingrich's cracks to Georgia voters that Democrats favored Woody Allen family values. It's hard to know what to gasp at first: the ugly regional and religious overtones or Gingrich's monumental chutzpah given his own disgraceful personal life. In the long-run, exclusionist rhetoric risks driving the GOP down to its most conservative base in a relative handful of states. Without a doubt, though, the GOP is deriving some immediate political benefits from anything that makes President Barack Hussein Obama identify publicly with things Islamic.

If you are still reading, you are probably a progressive activist or potential activist. I can't tell you what to do. I would suggest: Find some cause you are passionate about that is helping in the midterm fight. If you are a core Obama supporter, maybe that cause is Organizing for America. If you are in the netroots, maybe MoveOn is your cause. Maybe you support Speaker Pelosi after her leadership in enacting progressive legislation. Maybe you are drawn to nonpartisan advocacy groups concerned with the environment or with health care reform. Whatever the vehicle, get involved.

Your time, money, energy, and talent are really needed. Right now, many progressives are passive. Much of the energy, passion, and organization seem to be on the other side. President Obama's name is not on the ballot. We're all pretty jaded, for good reasons and bad, about the United States Congress. Right now, the prospects of a Republican majority are pretty abstract. Yet I promise you: Progressives will find new energy and enthusiasm at the sight of Republicans assuming House or Senate majorities. If this happens, six months from now we'll be livid with Republicans. We'll be wondering how to undo or minimize the damage.

I hope we won't have to ask ourselves why we were so lazy, complacent, or disorganized this Fall, and, by failing to do our best, made a tough midterm election avoidably worse.

*Yeah, I made up this name.

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