Of That

Brandt Redd on Education, Technology, Energy, and Trust

18 November 2009


In recent days the first comments have started to appear on this blog. It's taking a while to generate an audience so I was excited to see this. However, since the BlogEngine software I use allows commenters to include a link back to their own website I soon realized that most of the comments are generic compliments with no factual contribution. Most are there as an excuse to post links back to other sites.

In short, I've become an inadvertent participant in Link Farming. So far, I haven't posted a policy about acceptable comments. Despite being "used" to some extent I still am new enough to this to be flattered by any comments on my site even if they are motivated by other purposes. Therefore, I don't plan delete them... at least for now.

However, in anticipation of future problems, I suppose I should have some sort of acceptable comment policy. For now it's this: My policy is capricious and arbitrary. In other words, I reserve the right to delete any comment without explanation. In practice, however, the sorts of things I won't tolerate are foul or abusive language. The sorts of comments I prefer are factual contributions. I also appreciate opinion contributions so long as the reasoning behind your opinions are explained.

02 November 2009

Hacking the Vote

It's Election Day -- albeit an off year election. In Provo we are electing a new mayor and several members of the city council. I've heard and made the argument that local elections like this are actually more important because local officials have a greater effect on our personal lives that those in faraway Washington. Unfortunately I think that's no longer the case.

But I digress.

The subject of this blog entry is election technology. Like many municipalities we have changed to a computerized "Direct Entry" voting system in which the voter enters his or her votes into a touch-screen device. Despite being a technophile, I have serious misgivings with these systems.

To be sure, electronic voting makes tallying the vote quick and easy. My concern is that no matter how secure you make these systems, it remains possible that the vote could be manipulated without leaving any evidence. The computer scientists on Freedom to Tinker have been involved in several reviews of voting system software. They've found numerous security flaws as well as cases of accidental under and over-voting. Even if the flaws were fixed, the systems would be insecure without proper security procedures.

Recently, Sequoia Voting Systems announced that they will be publishing the source code to their voting systems. This is a very important step as it will allow independent reviews to detect and correct security flaws. However, while this makes it more difficult to manipulate the vote it can't prevent it entirely. Even with perfect software, there are other ways to manipulate the data as it passes through the system. And published source doesn't reduce the indetectibility of the manipulation if it does happen.

Another serious problem is attempting to determine voter intent, especially in the case of a recount. Despite dangling chads and other obstacles, at least the recounters in the 2000 U.S. Presidential Election had physical evidence of voter's actions. With direct-entry systems, little physical evidence is preserved. The better systems, like those used in Utah, include a paper tape printer. The voter is expected to verify his or her vote on the printed tape before it is finalized but I suspect that many voters don't bother or don't understand the importance of verification. And for paper verification to work, there need to be random tests where human counters check to make sure the tapes match the recorded vote.

More serious, in my opinion, is that computer security issues aren't intuitive to those not trained in the subject. Despite good intentions (and some training) volunteer election judges can be oblivious to serious security issues simply because they don't know what to look for.
For these reasons, I favor Optical Scan balloting systems. These systems use paper ballots that are marked by hand. For efficiency, they are rapidly counted by an optical scanner.To be sure, optical scan systems remain vunerable to ballot stuffing, voter intimidation and other attempts to manipulate the vote. But these known problems are intuitive to election judges and there are good procedures that can be used to mediate the problems. When using optical scan ballots, paper-only security systems can be augmented by electronic security systems like digital serial signatures that ensure only authorized ballots are cast and that each ballot is only counted once.

Optical scanners are just as vulnerable to computer security issues as direct entry systems. Because of this, published source remains an important security measure. Another verification is random hand-counts to see that optical scans match the counts made by human judges.

28 October 2009

Quote of the Day: Steve Forbes

Steve Forbes"People say, 'Well, when you make it, you should give back.' ... But 'give back' sounds like you took something that didn't belong to you."
   -- Steve Forbes

23 October 2009

A Brief History of the Crash of 2008

There are a number of contributing factors to our present financial crisis but the biggest issue (and the catalyst that set it off) is the collapse of the financial derivatives market. My friend, Paul B. Allen, has started Crashopedia.com to document the causes of the crash in detail but it can get pretty thick. Here’s my simplified summary of what happened:
1970GNMA "Ginny Mae" issues the first Mortgage Backed Security (MBS). A MBS is a way of collecting money to lend out in the form of mortgages. Bonds in the MBS are sold and the resulting cash is invested into a pool of mortgages. FNMA "Fannie Mae" and FHLMC "Freddie Mac" follow suit.
1977Under pressure from the Community Reinvestment Act banks and other mortgage vendors begin issuing high-risk (also known as sub-prime) mortgages with correspondingly higher interest rates.
Early 1980sIncentivized by the government and attracted by the high interest rates of these mortgages, bankers begin seeking a way to attract capital to invest in high-risk mortgages. Unfortunately, the market for high-risk investments is relatively small and interest rates are high.
1983Bankers invent the Collateralized Mortgage Obligation (CMO) which is a type of MBS in which shares are divided into risk "tranches." The idea is that if a lot of high-risk mortgages are pooled together the risk is reduced because only a fraction are likely to default. Risk can be further reduced for some investors by dividing the bond pool – decreasing the risk for premium tranches and increasing it in lower tranches. Bond rating organizations like Standard & Poors agree with this theory and offer high ratings.
1987Realizing that splitting risk into packages can work for more than just mortgages, bankers invent the Collateralized Debt Obligation (CDO) which is just like a CMO except that it may be backed by corporate bonds, commercial paper or other kinds of loans.
Early 1990sIn pursuit of ever higher interest rates (from higher-risk mortgages) but having trouble placing the higher-risk tranches of CMOs and CDOs, bankers find ways of enhancing the ratings of these tranches by using Credit Default Swaps. This is just a fancy name for an insurance policy. The bankers pay an insurance premium and the insurer pays up if the underlying asset (mortgage or bond) fails to make payments. Bankers can afford the insurance premiums because they collect more interest from the high-risk loan than they have to pay to the low-risk bond. AIG becomes one of the leading insurers of these obligations.
1990s and 2000sBankers come up with all kinds of new derivative instruments such as CDOs that invest in other CDOs (CDO squared), Single-Tranche CDOs in which insurance is used to raise the rating of the entire package, Strips, REMICs, PACs, Floaters and more. The tantalizing returns of these investments cause people to ignore Warren Buffet’s advice to invest only in things you understand.
2001Driven largely by growth in financial derivatives, the Financial sector surpasses Information Technology to become the largest sector in the S&P 500 as measured by market capitalization.
2002-2005Continuation of the longest sustained growth period in U.S. history masks the real problem with derivative instruments. That problem is that an overall decline in the housing sector or in the economy as a whole would cause simultaneous defaults – something that diversity and insurance don’t account for. Unencumbered by hidden risks, derivatives continue to offer stable income to investors and while enriching the investment banks that handle them.
2006The housing bubble bursts. Due to the ease of obtaining mortgages and the recent history of good real estate performance, a great deal of speculative building occurred in the early 2000s. By 2006 there was a surplus of homes in key markets like the West Coast, the Southwest, the Northeast Corridor and Florida. A mild recession at the time coincided with interest rate increases on Adjustable Rate Mortgages. The result was a wave of mortgage defaults.
2007The mortgage crisis cascades into the whole economy. Rumors grow that we may be in for a recession. Mortgages become increasingly difficult to get as investors pull out of the mortgage market.
2008Derivatives turn out to much riskier than their ratings indicated. AIG becomes insolvent as large numbers of CDOs default and they are required to pay up. Only a bailout by the Federal Reserve prevents it from going under. Credit markets freeze because bankers can no longer reliably determine the value of derivates which now account for an enormous part of the financial market. A new tern, Toxic Asset, is used to describe these because not only can they not be valued but neither can any institution that owns a substantial portfolio of them. Hundreds of banks with large portfolios of toxic assets fail and are taken over by the FDIC. The First Bailout Act including the Troubled Asset Relief Program is passed allowing the Treasury and the buy up toxic assets in an effort to relieve the credit markets.
2009As of this writing, the bailouts have had little success except to protect the profits made by irresponsible financiers. Credit markets are still extremely tight, the country is in a full recession, and unemployment is approaching 10% with certain markets well into double digits. Despite this, Congress and the White House have focused efforts on Healthcare Reform rather than considering regulations that might prevent irresponsible use of financial derivatives in the future.
Missing from this history are all of the forewarnings. For example, the General Accounting Office warned in 1994 that regulation of the market was warranted. Congress held hearings on the subject multiple times in the 1990s and 2000s and Warren Buffet famously wrote in 2002 that derivatives are "time bombs." There were many opportunities to prevent the train wreck before it happened. Unfortunately, the financial lobby was strong enough to prevent any meaningful reform.

I have some thoughts on how reform can be achieved without government intervention but those will have to wait for a future blog post. Meanwhile, this is yet another example of how government seems to be immune to forewarning. Action, if taken at all, occurs after the crash.

19 October 2009

Business Concept - A Virtual Secure Network


This is the first in a series. Over the years I have come up with dozens of new business ideas. Some fraction of those dozens are viable and quite a number of them have appeared – though I haven’t been involved in most cases. This has taught me several things. My biggest lesson is that if I have a good idea, most likely someone else has that same idea and if I don’t pursue it, someone else is likely to do so.

Despite this long-known lesson my typical approach to a good idea has been to speak little of each idea in hopes that I may someday have a chance to make money from it. This, of course, hasn’t happened except in a few cases. I’m ready to challenge that strategy. Henceforth I’m taking an Abundance approach to new ideas. So long as it doesn’t compromise my obligations to my current employers, I intend to share my best ideas and simply see what grows.

Of course, if you get serious about pursuing one of these ideas we would both benefit if you were to contact me. I’ve given a lot more thought to these ideas than I can fit in a simple blog post.

A Virtual Secure Network

Most people are familiar with Virtual Private Networking (VPN). In a nutshell, a VPN allows you to connect your computer over the Internet to a private network. Usually this is used by businesspeople to connect to their office network and access private resources. It’s also used to interconnect networks between branch offices without the cost of dedicated private lines. Data that passes over the internet is encrypted to prevent eavesdropping. It may be argued that VPN is a misnomer since what you really have is a virtual connection over the internet to an actual network back at the home office.

I propose a true Virtual Private Network that would allow my laptop, my home desktop and my wife’s computer to all communicate regardless of where they are located on the internet. This would enable secure file sharing, Remote Desktop, Remote Assistance and a host of other things to work conveniently without worrying about firewall traversal, routing and other things. It would also use encryption to protect such communications from external scrutiny. To distinguish this from existing Virtual Private Networks and to emphasize the built-in security features I call I call it a Virtual Secure Network or VSN.

The biggest problem with any virtual networking protocol (VPN or VSN) is getting through the firewall. Most firewalls and routers will allow connections to originate inside the firewall but not from the outside. For example, my desktop PC at home can connect to Google.com but Google can’t contact my desktop because the connection is blocked by my home firewall/router. Specialized protocols such as UPnP NAT Traversal and Teredo have been introduced to fix this problem but adoption is limited.

A couple of years ago a colleague pointed me at this paper: Peer-to-peer Communication Across Network Address Translators by Bryan Ford, Pyda Srisuresh and Dan Kegel. It introduces a method of Hole Punching that opens TCP and UDP communication through a majority of firewalls including NAT firewalls. The system requires a publicly available server to coordinate the connection between two computers but once that connection is made, the individual computers are able to connect directly so the bandwidth demands on the public server are modest. This is the primary method that Skype and as those who have used Skype know, it simply works without any special network configuration.The Internet Engineering Task Force has worked on standardizing the similar methods to those proposed by Ford et. al. The original draft proposal is in RFC 3489 and an update is in RFC 5389.

I propose creating a virtual network adapter driver similar to those used for VPN connections. The virtual adaptor would use the real network adapter in a computer to connect with a public server on the internet and register the computer’s availability and the IP address of its firewall. Other computers in the same VSN could connect to that public server to discover the necessary information to broker a direct, encrypted connection.

From the user’s perspective, it would appear as if all trusted computers in his/her VSN are immediately available and things like Remote Desktop, Remote Assistance, File Sharing, Printer Sharing and the like would "just work" like Skype.

From a business model perspective it’s convenient that a public server is required to set up the connections but the server isn’t involved in the actual transmission of the data. This means that a company could set up the public server and charge a modest subscription fee without the bandwidth cost of actually relaying the traffic. Even if IPv6 and Teredo become popular, the VSN would retain security advantages that preserve the business model.

14 October 2009

Failure Subsidizes Success

Some successes would never occur if it weren't for prior failures.

My father was head of the Mechanical Engineering department at Utah State University when he and others started the annual Small Satellite Conference there. At one of the first instances of the annual event a group of engineers presented a revolutionary idea. A set of small relatively low orbit satellites could form a world-wide cellular phone and data network! Moving the satellites into low orbit would allow the use of simple antennas and satellites would hand off connections as they move past a customer the same way that cellular phone towers hand off as a mobile customer moves around the city.


The initial design was christened Iridium because it utilized 77 satellites -- the same number of satellites as the iridium atom has electrons. As the concept evolved, the number of satellites changed but the name stuck. Iridium is a mesh network; messages are collected at the nearest satellite to the customer then handed off from satellite to satellite until being relayed to a ground station. For such a mesh network to work reliably the entire constellation of satellites plus a couple of spares had to be in place.

The capital cost of launching a satellite network was enormous – estimated at more than $6 Billion. The first phone call was placed on 1 November 1998. Only nine months later they had to file for Chapter 11 bankruptcy protection; the expected business subscribers hadn't materialized. A Wikipedia article offers a number reasons for the failure including better ground-based cellular networks, inter-carrier roaming agreements, unappealing handsets, a bad pricing model and mismanagement.

I think the biggest problem was that real potential return wasn't enough to justify the original investment. If the eventual customer base had been accurately projected, the system would have never left the ground. (Puns are easy in this subject.) The Iridium system shut down service and was considering de-orbiting the satellites and ceasing all operations before the assets were purchased by a coalition of private investors in 2001. The purchase price? About $25 million.

Of course, the new investors had to plow a lot more money into the company to restart operations, run sales and marketing and so forth. Those numbers aren't available as Iridium is privately held but a good guess is a total investment of around $150 million. For the year 2008, ten years after operations started and seven years after the buyout, Iridium LLC reported $320.9 million in revenue with operational earnings (EBITDA) of $108.2 million. This means that the 2008 return-on-investment was around 72% for the buy-out investors. However, if the original investors had hung on instead of writing off most of their investment in 2001, the annualized return at the end of 2008 would only have been 1.8% – certainly not enough to justify a high-risk investment like this.

So, today we have a fantastic asset that supports military communications, offers live television reports from remote locations, keeps our Antarctic scientists in contact with home, provides continuous phone service to aircraft and ships worldwide, offers telemetry from automated outposts and a host of other services. The system is operationally profitable and earning enough money to be maintained and improved. The system exists because the business plan that convinced the original investors was fantastically wrong. Those investors took a loss but society benefitted.

The only other way I can think of for such a system to emerge would be for government to step in and offer a huge subsidy. What's better, subsidy from business failure or subsidy from government? I think we need both which is why I believe capitalist societies must preserve the freedom to fail.

09 October 2009

The Future of Promotion

Though my professional email address at Agilix isn't published it's not too difficult to deduce. Based on the quantity of spam I get, a lot of people have deduced it.

Since my title is CTO, I get a lot of email promoting outsourcing or placement services. This is really surprising to me given that people with my title are very spam-averse and sending the CTO unsolicited commercial email (spam) is a good way to get you on the company-wide blacklist. The success rate of regular spam is extremely low. It's got to be even lower when spamming an email list of CTOs (unless there are a lot of unqualified people out there that share my title).

Despite the low rate of success on emailed solitations the method remains popular due to its extremely low cost. Thus, for some products (Viagra and Mortgages to name a couple) it remains cost-effective though illegal. But there's a broader issue involved. Our society is becoming increasingly advertising-averse. Among the reasons for TiVo popularity is its ability to skip commercials. So, if people are throwing away junk mail, filtering and deleting spam and skipping commercials, how will future vendors make contact with customers?

A related question is, "How will TV and radio programming remain profitable?" I'll save that one for a future post.

We can find a microcosm of this problem in my experience with outsourcing providers. With the advent of the recession, they've become increasingly aggressive (probably out of desperation). At present I average between fifteen and twenty individually addressed placement or outsourcing solicitations a week. I would get more if I wasn't so aggressive about shutting them down. There a few variations, some offer offshoring services to India, China or Russia. Others offer contract programmers based in the U.S. and others are executive placement firms. The last type are the most entertaining. There are several utah-based placement agents that have been calling and emailing me for the better part of a decade. They treat me with familiarity since they've been doing this so long despite the fact that I have never responded to an email or a phone call.

About a year ago I decided it might be rude of me to ignore some of the more personal messages (or blacklist their addresses). Pasting a canned reply only takes slightly more time than deleting the message. Here's my original version:

Dear Outsourcing, Consulting or Placement Provider:

Your inquiry is one of dozens we get every week. Unfortunately the inquiry rate has increased dramatically with the recession. We are presently fully staffed with very capable engineers. We also have one outsourcing partner that offers excellent service. As a result, we have no need for additional services at this time. If, at some future date the need for outsourced services does arise, our first choice will not be someone who sent unsolicited email to a purchased contact list or interrupted my day with an unsolicited phone call.

Brandt C. Redd
Agilix Labs, Inc.

I got some replies to my reply. Some took offense at my attitude. I suppose that they think their messages are in some way above the rabble of conventional spam. I don't see the difference. Whether you're promoting Viagra or offshoring the message was unsolicited, useless and it clutters my mailbox. However, I decided to lighten the message. The new one is more polite but also less informative:

Dear Outsourcing, Consulting or Placement Provider:

Your inquiry is one of dozens I get every week. Unfortunately I don't have time to offer individual replies or to discover what distinguishes your organization from all of the others. Suffice it to say that we are content with our current service providers and are not shopping for new ones.

Brandt C. Redd
Agilix Labs, Inc.

One soliciter called me (I didn't answer) and followed up with an email. After receiving my canned reply he complained: How did I expect him to do his job? If I thought it was bad receiving these messages, did I have any idea how difficult cold calling was? Didn't my company generate sales the same way?

I have no doubt that cold calling is difficult. But the difficulty is due mostly to its ineffectiveness. When cold-calling someone you have no idea whether they are shopping for your product. And, in cases like mine an unsolicited interruption is unlikely to buy you favors. Of course, there are much better options. The key is knowing where CTOs shop for services and being in those places.

I was in a charitable mood that day and so I took the time to respond:

I usually don't offer a personal response to blind inquiries. For some strange reason I feel like making an exception this time.

Our sales people follow up on leads generated by the marketing department. The marketing group uses advertising, conference attendance, viral marketing programs, business partnerships, and word of mouth. I think some of our resellers use cold calls but they aren’t very effective.

The point is that I'm not shopping right now so it doesn't matter how you contact me, I won't be interested. Your challenge is to find those who _are_ shopping. Then figure out how to appear in the areas where they shop.

Google Adwords is a good start for CTOs like me. That's usually my first stop when shopping for goods and services. My second stop is to ask colleagues in my industry who they work with. So, the next best thing is to cultivate a word of mouth network.

You need to be very careful when cold-emailing tech people. The usual response is that you get quietly added to their blacklist and there's a lot of blacklist sharing in this industry. We have a strong bias against the mailing list vendors and as a result we actively strive to make that marketing method as unrewarding as possible.


In my opinion, that's the future of product promotion. Find out where people shop and then be in those places. Tech people shop on Cnet and we share experiences on various forums. For other products or audiences, the shopping areas may be different but the principle is the same. Find out where people shop and be there.

23 September 2009

Liberal Republicanism - My Political Philosophy

I call my political philosophy “Liberal Republicanism.” In doing so, I use the classic definitions of these terms under which they are surprisingly compatible.


Princeton University's WordNet offers the following definitions of “Liberal:”

  • (n) A person who favors a political philosophy of progress and reform and the protection of civil liberties.
  • (n) A person who favors an economic theory of laissez-faire and self-regulating markets.
  • (adj) Showing or characterized by broad-mindedness.
  • (adj) Having political or social views favoring reform and progress.
  • (adj) Tolerant of change; not bound by authoritarianism, orthodoxy, or tradition.

These definitions fit my self-view: I'm a strong believer in free or self-regulating markets; I believe that there is much to be reformed (though I am skeptical of some contemporary directions); I'm a protector of civil liberties; and I love progress.

Despite adopting the liberal label, I find my self at odds with most contemporary liberal and progressive philosophy. My observation is that modern liberals seem to think that the proletariat are too dumb or unenlightened to govern themselves. Therefore, they need enlightened leaders to protect them. The pathological case is when a self-appointed leader sets out to provide for some “oppressed” class while ensuring that they never progress out of their dependent state lest the leader lose his political base. This is a travesty of progress.


I believe in a representational government with governmental powers limited by a constitution and associated laws. The Latin root of “republic” means “the law.” This is the form of republicanism associated with a Constitutional Republic. There are a variety of other definitions. The one I choose focuses on limited government and the rule of law.

When describing the political spectrum it's important to understand what a person means by “left” and “right.” One scale defines the spectrum in terms of governmental power. Dictatorships and monarchies exist on the extreme left where the government has all power. On the extreme right there is anarchy or no government. A Constitutional Republic exists on the moderate right where governmental power is limited by laws and by the people.

At the center of this scale is Democracy which means “rule of the people.” At first this seems to be the ideal we should seek. The Constitution begins with the words “We the People of the United States” indicating the belief of the Founding Fathers that governmental power originates with the people and is delegated to the government, not the other way around. However a pure democracy places power with the majority at the expense of the individual. The only difference between “Majority Rule” and “Mob Rule” is whether you belong to the majority.

Aside: This definition of the political spectrum comes from a great video entitled Overview of America produced by the John Birch Society. Before you write off the “John Birchers” as extremists I suggest you watch the video and consider their cause.


Despite calling myself a Liberal Republican, I more frequently find myself aligned with the contemporary conservative movement than with liberal politics. Like Republicanism, there are multiple definitions of "Conservative." Here are some from Princeton WordNet.


  • (n) A political or theological orientation advocating the preservation of the best in society and opposing radical changes.


  • (adj) Avoiding excess
  • (adj) Resistant to change
  • (adj) Unimaginatively conventional

For me, this is a mixed bag. It’s important to me to conserve many traditional values and I dislike the excesses of Washington. It’s these principals that align me with the conservative movement. While I’m not resistant to change, I’m frequently skeptical of its directions. Too often reforms only create bigger problems – especially when they mean more government programs. I’ve seen so many unintended consequences to government regulation that I want to be sure that changes are correct and well-thought-out before supporting them.


It’s curious to me that the classic definition of Liberalism includes support for laissez-faire markets yet contemporary liberals favor highly regulated markets. Likewise, I believe in the protection of civil liberties and yet I disagree with nearly every cause pursued by the ACLU.

In each case the difference is because I strongly believe in the power of liberty. My focus in free markets is protecting them from fraud and exploitation while preserving the freedom of individuals or companies to succeed or fail according to their skill, timing or luck. My focus in civil liberties is in preserving the freedom of individuals or groups to live according to their beliefs but not force one group to adopt or accept another group’s standards.

So, my philosophy is liberal republicanism with a dash of libertarianism. I believe in limited government, preservation of individual freedoms, free trade and markets, progress and reform. What’s your political philosophy?

16 September 2009

Toy Story in 3-D

Toy Story

When Cars came out in 2006 it was the first Pixar film rendered in high definition (in this case, 2048x1024 pixels). All previous Pixar films and most other CGI movies (like the Dreamworks titles) had been rendered at or around DVD resolution (typically 720x480). So, despite viewing them on a big screen in a movie theater, the actual detail of previous Pixar movies was little better than you could get on a standard (pre high-definition) TV.

About that time I conjectured to some of my colleagues that, since Pixar movies are rendered from 3-D digital models, they could be re-rendered at higher resolution or even with 3-D effects. Sure enough, Pixar has done just that. The original Toy Story and Toy Story 2 are being re-rendered at high resolution and in 3-D. The release will be limited to two weeks as a double feature.

Of course, it's a promo intended to generate interest in next June's release of Toy Story 3 which will also be 3-D. Presumably Disney will follow up with a Blu-Ray high definition release of the two titles.

Official Site More Information from Collider.com

03 September 2009

Safety in India

We just received the following email from one of our Indian partners:

Due to the unfortunate demise of our State’s Chief Minister in a Helicopter accident, all the Companies in the state have declared half-a-day holiday from 1PM (local time) today.

In order to ensure the safety of our employees (from anticipated riots on the streets by supports), our company has also declared half-a-day holiday today.

There's more detail on the story here. My condolences to the residents of the state of Andhra Pradesh and the families of Minister Reddy and his companions.

This is another reminder that most of the world lives under a threat of violence. I continue to ponder solutions.

02 September 2009

Thoughts on Health Care Reform

A few weeks back I sent the following thoughts on health care reform to my family:

I've tried in vain to find an article or opinion that matches my views regarding healthcare reform. So, I suppose I have to take the time to compose my own essay on the subject. This isn't too long; here's the outline:

  • What are the problems with healthcare?
  • How does the President's proposal attempt to address these problems?
  • What do I suggest?

What are the problems with healthcare?

I grow tired of pundits who repeat “we have the best health care in the world” as if there were nothing that needs fixing. Anyone who knows a married college student, who is self-employed or who is acquainted with their HR director knows that we have serious problems. As I see it, here are the most pressing problems:

Healthcare costs are skyrocketing: As premium increases have rapidly outpaced inflation most employers can no longer cover the whole cost. My employer and I split a premium that could nearly pay for a new car every year. This rate of increase is unsustainable.

The biggest factors contributing to increasing costs are the following:

  • Lawsuits and liability driving high costs of malpractice insurance.
  • Physicians defensively ordering tests and procedures that would be unnecessary in a less litigious environment.
  • Bureaucratic insurance claims processes that account for 25% to 50% of the cost of treating patients.
  • Pharmaceutical companies driving demand for newer and more expensive drugs by pushing information to physicians, lobbying for treatment standards and direct-to-consumer advertising.
  • An enormous increase in the number of treatable diseases.

Many find it impossible to obtain reasonable coverage: The option for catastrophic insurance has evaporated. The few plans that apply to students or the self-employed are either too expensive or offer too little coverage to be useful. The number of patients relying on Medicaid or charitable care keeps growing.

How does the President's proposal attempt to address these problems?

The centerpiece of the bill is the “public option,” a government-run health insurance policy offered as an alternative to private health insurance. The theory is that if a lower-cost alternative is available, private insurance companies will be forced to lower their premiums in order to retain their customers. The public plan would also offer a policy at reasonable cost to those who are excluded by existing options.

The trouble with this proposal is that it does little to reduce the actual costs of providing healthcare. If healthcare costs remain high then insurance premiums must also remain high. Some of the president's spokespeople have promoted the public option as a method to “break the monopoly” of existing health insurers. With dozens of existing insurers large and small there certainly isn't a monopoly. And if there was one, the right approach would be to use antitrust law. Consumers and HR directors have put great pressure on the insurers to keep premiums down and yet premiums continue to rise. This can only mean that the actual cost of health care is rising consistently across all insurers.

The only way a public option can offer the same benefits for lower cost than private insurers is if it is subsidized or receives some preferential treatment under the law. Private insurers cannot compete with artificial advantages like these. Therefore they would be driven to bankruptcy leaving the public option as the only option.

To be fair, the president's plan does include some cost-saving measures such as centralizing and standardizing medical records and attempting to streamline the claims process. However, I don't think these will save enough to overcome the cost of a new government bureaucracy. The records proposals also raise serious privacy concerns.

What to I propose?

The focus of a proper reform process needs to be cost reduction. By its nature this eliminates any programs that add government offices, staff or oversight. That's because government is always less efficient than the private sector. So, we start with the requirement that any reform has to be budget-neutral as far government spending is concerned.

That limits government action to regulatory changes. Here's what I suggest:

Tort Reform: It has been estimated that lawsuits and liability defense account for 20%-30% of the cost of healthcare. We can't eliminate malpractice suits entirely but a ceiling should be put on that liability. Alternatives to lawsuits, such as public record of physician performance, could be used to maintain physician oversight while reducing the number of malpractice suits and the size of the awards.

Restore the Catastrophic Insurance Option: There aren't any proper catastrophic insurance policies available. Such a policy would only kick in when medical costs exceed some, relatively large, deductible. I have read that this has gone away due regulations making catastrophic insurance illegal but, unfortunately, I don’t have a good reference. Regardless, regulations should be changed to restore this option.

Make Health Savings Account Legislation Permanent: A health savings account is a tax-free savings account that can only be applied toward healthcare. HSA's are usually combined with catastrophic insurance. The HSA covers normal health care needs and the catastrophic insurance picks up in bad cases. This reduces the costs of healthcare in two ways. First, the consumer becomes aware of health care costs and is more selective in determining what procedures, drugs or tests are to be performed. Second, insurance claims only have to be filed in big-ticket situations thereby reducing the paperwork costs both at the provider's office and at the insurance company.

HSA laws exist but they haven't caught on very well because the backing insurance is too expensive. Also, existing laws are set to expire and companies aren't interested in investing in programs that may disappear.

Eliminate Group Health Plans: An insurance company should be required to offer the same plan to all customers regardless of their employer or other group membership. This would level the field for the self-employed, students and so forth.

Create an Electronic Claims Submission Standard: Much of the cost of processing insurance claims is dealing with different processes and standards at each insurance company. A consortium of insurance company representatives should create a standard format and process for electronically submitting claims.

Create an Independent Source of Drug Information: The pharmaceutical lobbies drive the dissemination of treatment information to physicians and patients. An independent evaluation would offer unbiased information leading to greater use of lower-cost treatments. Since I've precluded government funding for such an option I suggest that it would be funded by a consortium of insurance companies (that are motivated to reduce costs).


Variations on most of my proposals exist in some of the bills being considered. There's still hope that a proper healthcare reform package can be assembled. But this will only happen if our politicians are willing to ignore the lobbyists, set aside their personal agendas and serve the people who elected them.


What to put in my first blog entry? I think I'll just give credit where credit is due:

BlogEngine.net: OfThat.com is based on the open source BlogEngine.net written in C# running on Microsoft ASP.net. I chose it because it's a solid platform, open to modification (which I intend to do) and I'm familiar with programming in C# and on ASP.net. I'm not a bigot about these platforms. I'm just more experienced with them than with others.

Windows Azure: OfThat.com is presently hosted on the Microsoft Windows Azure cloud platform. That's because it's free during the technology preview and should be inexpensive and scalable in the future. It took a bit of adaptation to make BlogEngine.net run on Azure. After looking over what was available, I started with the 1.5 release of BlogEngine.net and the AzureBlogProvider built by Pierre Henri Kuate for his blog. Kuate based his work on the AzureBlogEngine so mine is third-generation. My claim to fame on the port is that I was able to isolate all of my adaptations to the AzureBlogProvider with no changes to the rest of the BlogEngine source. I'll detail how this was done (and some of the Azure pitfalls) in a future post. Likewise, I'll be making source code available as required by the Microsoft Permissive License

Indigo: The design of the site is based on the standard "Indigo" theme that comes with BlogEngine. It was originally designed by Arcsin, and adapted by RazorAnt. I've made a few more tweaks.

Dedication: OfThat.com is dedicated to my wife, Julie, without whom life wouldn't be nearly as meaningful or entertaining.