Charlie Crystle is Owner and CEO of Mission Research, a software company in Lancaster, PA (20 employees)

President-elect Obama, the economic news is about to get a lot worse. Imagine for a minute that you’re someone who pays bills from investment income–a day trader, a retiree living off of stock dividends and bonds, a portfolio manager. You can immediately understand that the income from those investments has taken a significant hit since May, when the Dow was over 14,000.

Now it’s November, and since July–when the first popularly obvious signs of collapse emerged with the Fannie/Freddie bailout–the market has slid to the murky range between 8,000 and 9,000. It’s a big drop–about 40% depending on the Dow on any given day.

As someone depending on investment, your income will likely drop about that amount, depending on the mix of stocks in your account, but the S&P and Nasdaq have dropped about the same percentage, so let’s assume your choices aren’t any better or worse than the indexes.

If you typically received $5,000 a month in income and wisely saved 20% of that and spent the rest, you are now losing $1,000 a month ($5k -2k=3k, with $4k in expenses).

Now, imagine you are a health insurance company. You take premiums from customers, pool them together, and pay healthcare bills submitted by healthcare providers. If you have a good healthy pool of customers, you take in more than you pay out, and you work hard to keep from paying claims and to operate efficiently to maximize your profit.

Except that simply pooling the premiums doesn’t generate enough profit for your tastes, so you invest the pool into various markets to get the best return possible. Interest rates are very low, so you don’t buy CDs or bonds. You invest in the best economies of the world. In fact, you diversify across world markets.

And if you’re smart, you probably take a percentage and save it for a rainy day–a contingency fund, perhaps.

Then the rain comes. It’s pouring.

You’ve invested your customers’ premiums into a market that just dropped 40% in value. So now you’ve lost money on the markets, and despite your global diversification you’ve lost anyway, because it’s a global crisis. That play in China that gave you a 70% boost up until January just came crashing down 50%.

Yet you budgeted on your previous gains. Ouch.

So you need money to pay the claims. Where will you get it?

Customers.

Because of the market meltdown and its effect on health insurance investments, businesses are about to experience the largest annual increase in premiums in modern history. In Pennsylvania, the increases will be even more and disproportionately pronounced for small businesses, because the PA Insurance rules allow insurance companies to treat each business as a separate risk pool, which prevents small businesses from enjoying the benefits of spreading the risk, and allows insurance companies to “laser” out poor risk profiles.

They lose money on the market, but they still have to pay claims. So they increase rates to businesses. My business, yours.

If you chart insurance rates against the performance of the stock market over the past 40 years, you’ll find that rates are relatively stable during periods of growth, but grow dramatically during down cycles. And no cycle has been as down as our current one since the Great Depression.

The effect will be this: rates will go up well above average–more than 30% on average. For small companies like mine, rates will jump by over 50%. Maybe even double.

Businesses–who ration for their employees at will–will do some combination of 4 things:

cut employees
cut healthcare coverage
shop longer and harder for health insurance, diluting management resources
shut down
Our rates have more than doubled over the past 4 years. This is already unsustainable. This year, I have no idea what our rates will be, but before the crash they went up 29%. Highmark put a bid in 70% higher than last year. We switched.

We’re a successful startup. After 6 years of invention, development, marketing, evangelizing, mistakes and triumphs, we’ve figured it out. We’re profitable and growing in our core business, and launching a startup within the startup.

Healthcare costs cut directly into profitability and investment in growth. If PA adopts the single-payer payment system, our costs would be 50% lower, enabling us to hire 3 entry-level people, or pay dividends, or invest in marketing and growth.

Instead, that money will go to insurance companies, taken out of our pockets, or out of the pockets of our employees if we decide on their behalf that we can’t afford it.

Multiply this across 7 million small businesses in the US. Cut 1 employee per company to cover the cost of the insurance increases, and our unemployment rate will jump from 6.5% to 10.7%. You think the automotive sector is in trouble now? Take 7 million more consumers out of the marketplace and see what happens. Retail? Neiman Marcus dropped 28% last month. Circuit City will be bankrupt in January. Retailers (and I know this from direct experience selling CircleDog into retail stores) aren’t taking on new products because inventories are high–things just aren’t moving in a lot of sectors.

Add to this more job losses, more pressure on emergency services, and more bankruptcies and foreclosures because of the healthcare financing crisis, and we’re in serious danger of a depression.

“Considered a rare but extreme form of recession, a depression is characterized
by abnormal increases in unemployment, restriction of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations. Price deflation or hyperinflation are also common elements of a depression.”

Now, to me it would make sense to save those 7 million jobs by eliminating the 420,000 jobs in the health insurance industry through the adoption of a national healthcare payment system, a single-payer plan. Everybody would be in the same risk pool, we’d go from the inefficiencies of 8,000 non-competing health insurance companies to a single fund, from 150 different forms to 1 form, from 12 administrators per doctor to less than 1, and from the current rates to about 40 or 50% of the current rates, and a drop in sales, marketing, and executive management costs of 100% to zero.

This isn’t socialized medicine, it’s an efficient, economically solid group payment plan, proven the world over. The group is 300 million citizens. Adopting it will remove significant and frankly stupid friction from the marketplace, easing the way for small businesses to focus on their core missions and less on healthcare, healthcare management, and the annual, costly burden of health insurance shopping.

Sometimes simplifying is the way to deal with complex problems. If we had 8,000 different road companies that we individually paid based on whichever deal might get us roads that take us from here to somewhere else on time more likely than the others, it would be utter chaos. The healthcare system is utter chaos.

There are times when it makes sense to come together as a nation and pool our resources for the greater good: defense, the electric grid, air traffic control, regulation of markets, national highways, hurricanes, police, fire, education, and healthcare. Healthcare is the only one on that list where we don’t join together for efficiency, and it is now the one that threatens all the others.

I have no stake in a single-payer system, other than this: I’m a businessman held back by the current system, who has seen what happens when poorly or partially covered people have healthcare crises, and who understands economics enough to know that GM, Ford, Chrysler, the City of Lancaster, the School District of Philadelphia, and every business, nonprofit and municipality in the United States is about to experience a jarring rise in premiums that will lead to a huge loss of jobs and create huge holes in our healthcare infrastructure.

We must act now.