Economics

A Critical Insight.

by

Today, Belmont club has a post, with a link to another blog post, that I think explain a lot of the Obamacare fiasco.

Fernandez begins with a discussion of Obama’s technique with favored columnists.

get him in an off-the-record setting with a small group of opinion columnists — the David Brooks and E.J. Dionne types — and he’ll talk for hours. …

“It’s not an accident who he invites: He reads the people that he thinks matter, and he really likes engaging those people,” said one reporter with knowledge of the meetings. “He reads people carefully — he has a columnist mentality — and he wants to win columnists over,” said another. …

These people are, like him, unsophisticated in technology. They are lawyers or journalists and the numbers of math and science courses represented in the room are few.

The other blog post is titled “Government is magic.”

Our technocracy is detached from competence. It’s not the technocracy of engineers, but of “thinkers” who read Malcolm Gladwell and Thomas Friedman and watch TED talks and savor the flavor of competence, without ever imbibing its substance.

These are the people who love Freakonomics, who enjoy all sorts of mental puzzles, who like to see an idea turned on its head, but who couldn’t fix a toaster.

This strikes me as a huge insight into why this administration doesn’t understand the trouble it is in.

Read more

Where health care may be going.

by

UPDATE: I posted this as much for myself as for others to read. Today, Peggy Noonan weighs in. In case this is behind the paywall, here is her conclusion.

Even though it’s huge, and those who are reporting the story every day are, by and large, seasoned and have seen a few things, no one seems to know how it will end. Because it’s new territory. Does anyone believe the whole technological side can be fixed quickly? No. The president may eventually accept a brief delay in implementation—it is almost unbelievable that he will not—but does anyone think that the economics of the ACA, the content as set out and expressed on the sites, will flow smoothly, coherently, and fully satisfy the objectives of expanding health-insurance coverage while lowering its cost? You might believe that, but early reports of sticker shock, high deductibles and cancelled coverage are not promising. Does anyone think the president will back off and delay the program for enough time not only to get the technological side going but seriously improve the economics? No. So we’re not only in the middle of a political disaster, we’re in the middle of a mystery. What happens if this whole thing continues not to work? What do we do then?

This is the Titanic, folks.

I have watched the failed rollout of Obamacare this past three weeks and wondered where it was going. I have some suspicions. There is a lot of talk about delaying the individual mandate, as Obama did with the employer mandate. Megan McArdle has a post on this today. I think it is too late to fix or delay Obamacare.

With Nov. 1 storming toward us and the health insurance exchanges still not working, we face the daunting possibility that people may not be able to sign up for January, or maybe even for 2014. The possibility of a total breakdown — the dreaded insurance death spiral — is heading straight for us. The “wait and see if they can’t get it together” option no longer seems viable; we have to acknowledge that these problems are much more than little glitches, and figure out what to do about them.

She has already described the insurance death spiral. I think it is here.

Am I exaggerating? I know it sounds apocalyptic, but really, I’m not. As Yuval Levin has pointed out, what we’re experiencing now is the worst-case scenario for the insurance markets: It is not impossible to buy insurance, but merely very difficult. If it were impossible, then we could all just agree to move to Plan B. And if it were as easy as everyone expected, well, we’d see if the whole thing worked. But what we have now is a situation where only the extremely persistent can successfully complete an application. And who is likely to be extremely persistent?

Very sick people.

People between 55 and 65, the age band at which insurance is quite expensive. (I was surprised to find out that turning 40 doesn’t increase your premiums that much; the big boosts are in the 50s and 60s.)
Very poor people, who will be shunted to Medicaid (if their state has expanded it) or will probably go without insurance.

Levin points out: It is now increasingly obvious to them that this is simply not how things work, that building a website like this is a matter of exceedingly complex programming and not “design,” and that the problems that plague the federal exchanges (and some state exchanges) are much more severe and fundamental than anything they imagined possible. That doesn’t mean they can’t be fixed, of course, and perhaps even fixed relatively quickly, but it means that at the very least the opening weeks (and quite possibly months) of the Obamacare exchanges will be very different from what either the administration or its critics expected.

The insurance industry is already reacting to Obamacare and this will quickly become irreversible. This article is from September.

IBM, Time Warner, and now Walgreens have made headlines over the past two weeks by announcing that they plan to move retirees (IBM, Time Warner) and current employees (Walgreens) into private health insurance exchanges with defined contributions from employers.

The article calls it “maybe a good thing” but that supposes the exchanges will function. What if they don’t for a year or more ? What will health care look like in November 2014 ?

What happens next — as we’ve seen in states such as New York that have guaranteed issue, no ability to price to the customer’s health, and a generous mandated-benefits package — is that when the price increases hit, some of those who did buy insurance the first year reluctantly decide to drop it. Usually, those are the healthiest people. Which means that the average cost of treatment for the people remaining in the pool rises, because the average person in that pool is now sicker. So premiums go up again . . . until it’s so expensive to buy insurance that almost no one does.

Will that be apparent a year from now ? I’m sure the administration, and the Democrats, will do almost anything to avoid that. What can they do ? They’ve already ignored the law to delay the employer mandates. It’s too late to delay the individual mandate because individual policies are being cancelled right now.

Read more

The Shutdown

by

Since I am a Department of Defense contractor, examining military recruits. I expected that we would not be called to come in after Monday but I worked Tuesday and was told they expect no slowdown. Of course, maybe they won’t pay us but that is still in the future.

UPDATE: Today is the 8th and I have been called again for tomorrow.

So far, the shutdown seems to be working with the assistance of Democrat verbal and active mistakes. I always thought Gingrich fumbled the ball in 1995. This time, the GOP strategy of passing small directed bills to fund popular programs, seems to be working. Certainly the Democrats like Harry Reid and the National Park Service are helping all they can.

Washington politicians may have the time to debate how to fund the government, now that their pig-headedness has shut it down, but the nation’s World War II veterans don’t.

“World War II veterans are dying by the hundreds every day,” says Fred Yanow, of Northbrook, Ill., who spent 1942-45 in the Pacific theater as an Army private. “It’s a shame that they don’t care about World War II veterans when so many of them are dying off.” The 16 million men and women who wore their nation’s uniform in the so-called “Good War,” from 1941 to 1945, are leaving for eternal R&R at the rate of 650 a day.

Which Washington politicians ?

Harry Reid ?

Claire McCaskill had some clever comments.

Read more

The Drug War

by

My sentiments on the whole drug question have been influenced by some experience with the medical aspect of the problem. Drugs are slipping out of any control due to developments in synthetic variations of older substances that stimulate brain chemistry, sometimes in unknown ways. The traditional drugs, if we can use that term, are also slipping out of control with Mexican drug wars replacing the Columbian cartels even more violent than their predecessors.

What about marijuana ? It is widely used by the younger generation and, while I do think there are some harmful consequences, especially in potential schizophrenics, the fact is that the laws are widely ignored and do little good and much harm. First, what about the link to psychosis ?

Epidemiological studies suggest that Cannabis use during adolescence confers an increased risk for developing psychotic symptoms later in life. However, despite their interest, the epidemiological data are not conclusive, due to their heterogeneity; thus modeling the adolescent phase in animals is useful for investigating the impact of Cannabis use on deviations of adolescent brain development that might confer a vulnerability to later psychotic disorders. Although scant, preclinical data seem to support the presence of impaired social behaviors, cognitive and sensorimotor gating deficits as well as psychotic-like signs in adult rodents after adolescent cannabinoid exposure, clearly suggesting that this exposure may trigger a complex behavioral phenotype closely resembling a schizophrenia-like disorder. Similar treatments performed at adulthood were not able to produce such phenotype, thus pointing to a vulnerability of the adolescent brain towards cannabinoid exposure.

This suggests that adult use may be less harmful.

Read more

Alternatives to Obamacare

by

As Obamacare looks more and more as though it will collapse, there are some alternatives beginning to appear. Several years ago, I suggested using the French system as a model. At the time, the French system was funded by payroll deduction, a source affected by high unemployment, and used a national negotiated fee schedule which was optional for doctors and patients. The charges had to be disclosed prior to treatment and the patient had the option of paying more for his/her choice of physician. Privately owned hospitals competed with government hospitals and patient satisfaction was the highest in Europe.

Recently the French system has run into trouble.

French taxpayers fund a state health insurer, “Assurance Maladie,” proportionally to their income, and patients get treatment even if they can’t pay for it. France spends 11% of national output on health services, compared with 17% in the U.S., and routinely outranks the U.S. in infant mortality and some other health measures.

The problem is that Assurance Maladie has been in the red since 1989. This year the annual shortfall is expected to reach €9.4 billion ($13.5 billion), and €15 billion in 2010, or roughly 10% of its budget.

This may be due to several factors. The French economy is in terrible shape with high unemployment. More of the funding for the health plan is coming from general revenues. This was not how it was supposed to work. It was payroll funded, much as the German system is, with a wider source than individual employers. This allows mobility for employees and allows employers to distribute risk among a larger pool. Germany allows other funding sources such as towns and states. I think it is still a good model for us but, with the passage of Obamacare, it will take a generation before another large reform would be viable. Obamacare must stand or fall first and I think it will fall but, as in most government programs, it takes years before the sponsors will admit defeat.

Another proposal has been made by a serious study group.

1. The government should offer every individual the same, uniform, fixed-dollar subsidy, whether used for employer-provided or individual insurance. For everyone with private health insurance, the subsidy would be realized in the form of lower taxes by way of a tax credit. The credit would be refundable, so that it would be available to individuals with no tax liability.

2. Where would the federal government get the money to fund this proposal?

We could begin with the $300 billion in tax subsidies the government already “spends” to subsidize private insurance. Add to that the money federal, state and local governments are spending on indigent care. For the remainder, the federal government could make certain tax benefits conditional on proof of insurance. For example, the $1,000 child tax credit could be made conditional on proof of insurance for a child.10 For middle-income families, a portion of the standard deduction could be made conditional on proof of insurance for adults. For lower-income families, part of the Earned Income Tax Credit could be conditioned on obtaining health coverage.

3. If the individual chose to be uninsured, the unclaimed tax relief would be sent to a safety net agency providing health care to the indigent in the community where the person lives, so that it would be available there in case he generates medical bills he cannot pay from his own resources. The result would be a system under which the uninsured as a group effectively pay for their own care, without any individual or employer mandate. By the very act of turning down the tax credit for health insurance in choosing not to insure, uninsured individuals would pay extra taxes equal to the average amount of the free care given annually to the uninsured. The subsidies for the insurance purchased by the insured would then effectively be funded by the reduction in expected free care the insured would have consumed if uninsured. [See Figures II and III.]

The paper goes on to explain the proposal The trouble is that this is another major reform and I see no chance for it in the foreseeable future.

What then is the most likely development ?

Read more