Coyote Blog

My column is up at Forbes, and is the fourth in a series on Obamacare.  An excerpt:

Its amazing to me how many ways supporters of government health care can find to rationalize the bad incentives of third-party payers systems.  Take, for example, the prevelance today of numerous, costly tests that appear to be unnecessary.  Obamacare supporters would say that this is the profit motive of doctors trying to get extra income, and therefore a free market failure.   I would point the finger at other causes (e.g. defensive medicine), but the motivation does not matter.   Let’s suppose the volume of tests is truly due to doctors looking for extra revenue, like an expensive restaurant that always is pushing their desserts.  In a free economy, most of us just say no to the expensive dessert.  But the medical field is like a big prix fixe menu — the dessert is already paid for, so sure, we will got ahead and take it whether we are hungry or not.

It should be no surprise that while US consumer prices have risen 53% since 1992, health care prices have risen at nearly double that rate, by 98%.  Recognize that this is not inevitable.  This inflation is not something unique to medical care — it is something unique to how we pay for medical care.

Contrast this inflation rate for health care with price increases in cosmetic surgery, which unlike other care is typically paid out of pocket and is not covered by third party payer systems.  Over the same period, prices for cosmetic surgery rose just 21%, half the general rate of inflation and just over one fifth the overall health care rate of inflation.

This is why I call free market health care the road not traveled.  There are many ways we could have helped the poor secure basic health coverage (e.g. through vouchers) without destroying the entire industry with third-party payer systems.  Part of the problem in the public discourse is that few people alive today can even remember a free market in health care, so its impossible for some even to imagine.

Update: Coincidently, Mark Perry has a post that addresses just the issue I do in my article, that is the positive effects of high-deductible health insurance and out of pocket health expenditures on pricing transparency and reduced costs.  The high deductible health plans at GM seem to be having a positive effect on the health care market.  A shame they will probably be illegal under Obamacare.  Of course, since GM is owned by the government, it can get any special rules that it wants, unlike the rest of us.  But that his how things work in the corporate state.

For the last three weeks, I have been writing about the information, incentive, and rent-seeking issues that will doom Obamacare — for example, how its impossible for a centralized board to set prices, and why a complete end to individual shopping will doom us to both rising prices and increasing frivolous demand.

I really didn’t have to bother, though, because it is unnecessary to hypothesize — we can just look at Massachusetts, which embarked on a proto-Obamacare several years ago.  John Calfee has a great column in the WSJ today.  Some excerpts

• On costs

Massachusetts reformers deferred cost control to the vague prospect of a “Round 2″ of reform—much as congressional Democrats did a year ago when they passed ObamaCare. Meanwhile, economists John Cogan, Glenn Hubbard and Daniel Kessler reported in the Forum for Health Economics & Policy (2010) that insurance premiums for individuals (alone or in employer-sponsored group plans) increased 6% to 7% beyond what they would have without the reform. For small employers, the increases are about 14% beyond those in the rest of the nation. Four years after reform, Massachusetts still has the highest insurance premiums in the nation, and the gap is getting wider.

In 2010, insurance firms announced premium increases of 10% to 30% in the individual and small-group market. Gov. Patrick, on the verge of a tough re-election race, had the state insurance commissioner deny the higher rates.

• On frivolous demand

But the number of emergency room visits, which everyone expected to drop once people had to purchase insurance, is still going up. Surveys show roughly half the visits are unnecessary. Surveys also indicate that finding a primary care physician is becoming more difficult.

• On the end game of a centralized price-control regime

Last month Round 2 arrived. Gov. Patrick introduced a bill that will impose de facto price controls on everyone from solo primary care doctors to prestigious academic hospital systems. An 18-member board will decide how and how much providers should be paid, and the bill gives regulators the power to force private insurers to accept these fiats. Some 30 states experimented with such rate-setting in the 1970s and ’80s. Except for Maryland, all of them—including Massachusetts—deregulated in the 1990s because costs rose even as quality and choice declined

• On politicization of decision-making

Insurance firms protested that they increased premiums because they had to deal with entrenched providers, especially hospitals, most notably the academic giants of Boston and Cambridge. Then the state prepared to introduce highly intrusive price controls over those providers—only to discover that this would provoke formidable political opposition while encountering myriad practical difficulties

To the last point, what happens to prices when providers know that a) consumers aren’t shopping any more; b) consumers will take the service at any price, because they aren’t paying; and c) insurance companies have to pay the bill, not matter how high, based on government rules.  Of course prices go up, because the entire price-discovery mechanism has been eliminated by government fiat.  Then the government has to step in with a doomed-to-failure price-setting plan.  In the end, those with political connections get the prices they want, and those who do not get throttled to make up the difference.

In my Forbes columns over the past few weeks, I have been writing about information and incentive problems with any sort of Obamacare type system.  One of the points I made last week was this:

One of the key selling points of Obamacare was that it would reduce cost, in large part through smart public-spirited people making optimized decisions from the top in Washington.  Ignoring the fact that no other agency that has promised such angels of public service has ever delivered them, we discussed in the last few weeks how this task is impossible.  But we should have known that already through our past experience with the political process.  Political decisions are made politically, not by optimizing some public good equation.    Does anyone believe that come election time, Congress won’t vote to add mandates to procedures to placate powerful groups in their base, irrespective of the future costs this would incur?

Need an example?

In 2007 breast cancer was the third leading source of cancer mortality in the US, but it was by far the largest recipient of government cancer research dollars, nearly double that spent on any other type of cancer.    In 2009, out of hundreds of medical procedures, only two procedureswere on the mandated must-carry list of all fifty states – mammography and breast reconstruction.  It is no accident that both of these are related to breast cancer.  With its links to women’s groups and potent advocacy organizations, breast cancer is a disease that has a particularly powerful political lobby.    Similarly, we should expect that, at the end of the day, pricing and coverage decisions under Obamacare will be made politically.  Not because anyone in this Administration is particularly bad or good, but because that is what always happens.

This post from Q&O is a tad old but gets at just this point with a real-life Obamacare example

The opening line in a New York Times piece caught my attention.  It is typical of how government, once it gets control of something, then begins to expand it (and make it more costly for everyone) as it sees fit.  Note the key falsehood in the sentence:

The Obama administration is examining whether the new health care law can be used to require insurance plans to offer contraceptives and other family planning services to women free of charge.

Yup, you caught it – nothing involved in such a change would be “free of charge”.   Instead others would be taxed or charged in order for women to not have to pay at the point of service.  That’s it.  Those who don’t have any need of contraception will subsidize those who do.  And the argument, of course, will be the “common good”.   The other argument will be that many women can’t afford “family planning services” or “contraception”.

But the assumption is the rest of you can afford to part with a little more of your hard earned cash in order to subsidize this effort (it is similar to other mandated care coverage you pay for but don’t need).  Oh, and while reading that sentence, make sure you understand that the administration claims it has not taken over health care in this country.

The next sentence is just as offensive:

Such a requirement could remove cost as a barrier to birth control, a longtime goal of advocates for women’s rights and experts on women’s health.

So now “women’s rights” include access to subsidies from others who have no necessity or desire to pay for those services?  What right does anyone have to the earnings of another simply because government declares that necessary?

It is another example of a profound misunderstanding of what constitutes a “right” and how it has been perverted over the years to become a claim on “free” stuff paid for by others.

Administration officials said they expected the list to include contraception and family planning because a large body of scientific evidence showed the effectiveness of those services. But the officials said they preferred to have the panel of independent experts make the initial recommendations so the public would see them as based on science, not politics.

Really?  This is all about politics.  The fact that the services may be “effective” is irrelevant to the political questions and objections raised above.  This is science being used to justify taking from some to give to others – nothing more.

The third installment of my series on Obamacare is now up at Forbes.  An excerpt:

In the health care field, the Holy Grail of rent-seeking is to get one’s medical device, drug, or procedure added to state health insurance mandates.  Before Obamacare, health care insurance regulation had been a state function, and each state had written laws mandating that all health insurance policies written in the state must cover certain services.   By getting one’s particular service added to such a mandate, the service essentially becomes “free” to consumers in that state  (of course it’s not free — everyone pays in the form of higher premiums, but the marginal price for the service goes to zero).

Imagine you have a procedure — let’s use laser elimination of birthmarks as an example.   This procedures requires a series of treatments using a fairly expensive piece of equipment to produce results that are of enormous value to a few people with extensive birthmarks, and of smaller value to many other people with smaller birthmarks.  Business growth in such a field is typically good at first as those who most value the procedure pay for it.  But it can be hard to grow outside of a relatively small niche, as most potential customers may consider it to be an expensive elective cosmetic procedure that, given other uses for their money, they can do without.  What can an aspiring dermatologic surgeon do?  Run to the government!

In 1997, the University of Indiana conducted a study of the laser treatment of these birthmarks.  I don’t know who funded the study, but tellingly the study findings did not really touch on the efficacy of the treatment or its risks.  The study surveyed a number of dermatologic surgeons.  What was its primary finding?  ”Based on current health care policy guidelines, laser treatment of port-wine stains should be regarded, and covered, as a medical necessity by all insurance providers.”  In other words, the sole purpose of this research was to convince legislators to add this procedure to their state’s  insurance mandates.   To date, this procedure has been added to the must-carry list in only two states, but in those two states doctors no longer have to convince price-sensitive patients that this elective procedure is worth the cost – after all, its free!

As you can imagine, the cost of these mandates are staggering for those of us who pay the premiums.  State governments are requiring us to pay higher insurance rates in order to cover procedures we might never consider.   Four states have mandated coverage for naturopaths;  three for athletic trainers; one for oriental medicine; eleven for hair prosthesis; four for massage therapists; and three for pastoral counselors.  The state with the most such mandates is Rhode Island, with 70, a state which not coincidently also has the third highest insurance premiums in the country.

On a quasi-related note, John Goodman has thoughts on “government failure” (an analog to market failure) as it applied to health care.  It is a point that cannot be made too often.  Merely pointing out supposed imperfect outcomes from private action does not immediately justify government action — too often people take the default position that if an improved outcome can be imagined, the government can achieve it.  But does this ever happen?  In health care, the irony is that many of the supposed market failures we are “fixing” with Obamacare are in fact results of past ham-handed government action.

It is kind of an interesting exercise to compare the police account of this encounter with the video.   What do your eyes see?

I find it fascinating that so many commenters seem to believe that the police are entirely in the right to physically assault anyone who diss them.    One example:

For the 3 of you who commented above, I hope you never really need the cops.. You have no idea “what’s called for” as you have no law enforcement training (watching “police academy” doesn’t count). the Metro police go out there and do their job as best they can….

Bottom line, don’t mouth off to cops or plan on carrying really good dental insurance.

Or this  (remember, all she did was use words):

She was told to leave, she left and came back and started in with the officer. Too bad for her, she asked for it.

Thanks, police, for making sure we don’t ever have to encounter people in public who are not like ourselves

Finally Metro does something right. I ride the Metro regularly and I am sick and tired of this type of behavior. As a senior citizen I get fed up by the unruly behavior of today’s youth. … As for the cop, thank you

Or this one, where it is implied that it is the state’s duty to use physical violence to enforce etiquette:

What kind of home schooling did she have? Why is she acting like this? I can’t have any pity for her. She needs to take her uncivilized behavior somewhere else. Show some respect please. It appears she has no respect for authority or right or wrong. I feel for her parents if they should see this. Shameful, just shameful. The cop seems to just be doing his job. All she had to do was shut her sailor mouth and act like an adult.

Those who don’t show respect for the state will be tackled and taken to jail.  Metro police might as well come on over to my house and drag we away, because I have no respect for you either.

It pains me to admit that 30 years ago I was just such a “law and order” Conservative.  Bleh.

I just got a note from Bank of America telling me that some of my accounts now have unlimited deposit insurance from the FDIC through 2012, above and beyond traditional limits.   We are worried about reckless banks so we are …  further reducing and socializing the costs of risk-taking?  Notice I received below, I cannot yet find any info on FDIC site.  As usual click to enlarge.

Radley Balko tells his frustrating stories about dealing with the IRS.  These stories seemed totally familiar to me because in my business life, I deal with very similar problems nearly every day.  Doing business in 12 states, I don’t just deal with the IRS but 12 sales tax agencies, 12 employment tax agencies, 12 unemployment insurance agencies… you get the idea.   Multiply this story times 100 and that is what I spend most of my time on running my business.

Just as one example, 8 years ago Florida switched our company from quarterly to monthly reporting  for sales taxes.  They did this in the middle of a quarter, so the reporting for that quarter was a funny mix of a partial quarter plus one monthly report.  The next year a letter was triggered automatically from their system saying I hadn’t submitted two months of reports.  It took me several hours and multiple phone calls and two faxed letters to get them to understand the situation and promise to update their system.  Frustrating but case closed.  Or not.  Their system again triggered a threatening letter to me over the same issue in December 2004.  And then 2005.  And 2006.  2007.  2008.  2009.  This comes up again every dang year.  Every year after hours of work someone swears I have finally found the right person and I would never hear about it again.  But the next year it pops up yet again.  In 2009 they actually sent a sheriff to our Florida location to start attaching assets over the non-issue.

It is a really weird mental block we have against paying out of pocket for medical bills, particularly since this is probably the most, not the least, important thing we can spend our money on.  Having a high-deductible health insurance plan has been a real eye-opener for me.  As in this post from Maggie’s Farm, I too have found doctors will very often give a discount for cash.  My son has a great sports medicine guy (he plays 3 varsity sports so we seem to be at the doctor a lot for one injury or another) who gives us a $40 cash rate for a visit.  Further, when he needs X-rays, the radiology place downstairs usually does 2-3 films of the injured appendage du jour for around $35.  The X-ray place has a special cash price book they pull out when I show up.  I shudder to think what rate they charge insurance companies.  And t just think of the piles of infrastructure from my doctors office to the insurance company to Washington DC that would have had to come into play had I sought 3rd party payments for these bills.

And when it comes to the expensive things, it is amazing what price cuts you can find with just a little shopping.  Previously, I had spent less time in my whole life shopping medical care prices than I had price-shopping my last hard drive.  But when my son had to get a CT scan on his head (yes, another sports injury) we saved hundreds of dollars just calling a second place for a quote.  In fact, even mentioning that we were going to price shop the first quote got a few hundred dollars knocked off.  The lack of any rigor in health care pricing is just appalling, and will only get worse as government / single payer solutions crowd out approaches like mine under Obamacare.

In a European-style corporate state, very large corporations (and their unions) get special protections, privileges, and exemptions, to the detriment of consumers, entrepreneurs, small businesses, and taxpayers.  Here we go, via Russ Roberts:

Nearly a million workers won’t get a consumer protection in the U.S. health reform law meant to cap insurance costs because the government exempted their employers.

Thirty companies and organizations, including McDonald’s (MCD) and Jack in the Box (JACK), won’t be required to raise the minimum annual benefit included in low-cost health plans, which are often used to cover part-time or low-wage employees.

The Department of Health and Human Services, which provided a list of exemptions, said it granted waivers in late September so workers with such plans wouldn’t lose coverage from employers who might choose instead to drop health insurance altogether.

Without waivers, companies would have had to provide a minimum of $750,000 in coverage next year, increasing to $1.25 million in 2012, $2 million in 2013 and unlimited in 2014.

“The big political issue here is the president promised no one would lose the coverage they’ve got,” says Robert Laszewski, chief executive officer of consulting company Health Policy and Strategy Associates. “Here we are a month before the election, and these companies represent 1 million people who would lose the coverage they’ve got.”

Actually, the real political question is why McDonald’s gets special treatment, but the folks who run the deli downstairs in my building, who effectively compete with McDonald’s, does not get to operate under the same law, merely because they are not large enough to get the President’s special attention.

I had not realized that some Federal employees did not have to participate in Social Security.  Intriguingly, this fact was raised by people who were defending government pay as not being excessive — they said something like, “well, some workers don’t even get Social Security.”  Via Bryan Caplan

Some government employees don’t participate in Social Security. How does that change the benefits picture?

[T]hat’s irrelevant because they’re neither paying nor receiving benefits. If you follow Social Security, you know it pays a low rate of return… [N]ot to participate in Social Security is actually a benefit, because they’re keeping more.

I agree. Not participating in Social Security is a huge benefit.  The implicit return on “premiums” paid by you and your employer is typically below zero.  In other words, if you took your social security taxes and stuffed them in a mattress, you would get a better return.  As I wrote in the link above

as a retirement program, [social security] is a really, really big RIPOFF.  Ever worker in this country is being raped by this retirement plan.  In fact, it is the worst retirement program in the whole country:

• As we see above, it pays a negative rate of return
• It is not optional – you go to prison if you choose not to participate
• Unlike a private annuity contract, the government can rewrite your benefits level any time, and you have to take it.  In fact, my statement says “Your estimated benefits are based on current law.  Congress has made changes to the law in the past and can do so at any time.  The law governing benefit amounts may change because, by 2040, the payroll taxes collected will be enough to pay only about 74 percent of scheduled benefits.”
• There are no assets backing this annuity!!  An insurance company that wrote annuities without any invested assets backing them would be thrown in jail faster than Jeff Skilling.  The government has been doing it for decades.

One of the arguments Democrats have made for nationalized health care is that government expenses will be much lower than private companies.  This is on its face absurd, given most people’s experience with government agencies, but is nominally supported by low expense ratios in Medicare.  I won’t go into this today, but this is more an artifact of the way government does accounting as well as operations decisions at Medicare which may be non-optimal (e.g. Medicare does much less claims verification and investigation than private companies, which is why we see huge fraud cases from time to time).

Anyway, we get a fresh example of private vs. public expenses on a very comparable basis in California workers comp.  The public State Fund acts as an insurer of last resort as well as a competitor to many private providers.  The fact that it is an insurer of last resort will increase its loss ratios, but its expense ratios of management or “claims adjustment” expenses should be similar.  But of course they are not.

State Fund’s unallocated loss adjustment expense ratio was a whopping 51.4% last year compared to 8.9% for private carriers, while State Funds allocated loss adjustment expenses were 9.8% compared to the industry’s 13.8% respectively.

This means the management expense ration of the state agency is 61.2% of premiums vs. 18.7% for private companies.  This just makes laughable the pious requirement in Obamacare that insurance companies keep their expense ratios under 20% — or else the more efficient government agency will take over.

We are facing a huge 29.6% increase in workers comp rates in California, in part because the very high State Fund expense ratios are averaged into the calculation.

I have written before about carbon offset scams — even well intentioned programs are unlikely to achieve their promised benefits because

• The projects they fund are typically not incremental — many likely would have proceeded without the offset funds, so that the benefits are effectively double counted.
• I have never seen any of these programs submit themselves to 3rd party offset of their supposed CO2 reductions.  In most cases, these are faith-based programs where it is impolite to ask if the promised reductions actually occur.

Randal O’Toole has a good example of a program that makes all these mistakes, and compounds them with absurdly high administrative costs.  One is left to wonder whether the Oregon state-run program is actually reducing CO2 or simply making sure a number of government salaries get paid.

In 2006, Climate Trust spent about two-thirds of its funds on carbon offsets, while most of the rest went for payroll and professional fees. In 2007, the share going to carbon offsets declined to 64 percent. By 2008, as near as I can tell, none of Climate Trust’s money went for carbon offsets. Instead, 73 percent of its $1.65 million budget went for salaries, fees, and other compensation. It also spent more than $120,000 on travel and conferences and $95,000 on rent and office expenses. In 2008, Climate Trust paid its executive director $154,000, not counting health insurance and other fringe benefits. At least one other staff member whose title was “director of offset programs” was paid more than $100,000 and a third one received $88,000.

Megan McArdle writes:

There was a great deal of back-and-forth in the left half of the blogosphere this weekend over employers who use FICO scores as a way of weeding out job candidates.  In a sort of peculiarly American fashion, our nation seems to have decided that one’s credit history is a good proxy for one’s worth as a human being, and thus should be used to determine eligibility for everything from employment to excellent rates on car insurance.

I have no trouble believing that the FICO score is often a proxy for what some researchers call conscientiousness; I’ve certainly had roommates and others around me who had terrible credit because, well, they didn’t bother to pay their bills, and regarded rent as something optional that could be turned in if no more exciting commercial opportunities immediately presented themselves.

That said, it’s going to be at best a weak proxy.  It’s also a proxy for things that, as a society, we may not want employers to consider, like a past history of depression.  And for things that have nothing to do with your job performance, like a car accident that left you with huge medical bills and no job, or a sudden job loss.  Looking at our national savings rate, lots and lots of Americans live very close to the edge of their paychecks; they can’t all be terrible employees.

I have never really even considered asking employees for their FICO score, in part because all small business people hate these scores as, even with perfect credit records, our scores tend to be smaller than people with similar income and history due to the constant credit checks made on us by vendors and other partners.

That being said, as someone who has 500 service employees working for me, I understand the insatiable desire for information on employee reliability and conscientiousness.  A large number of our employees we hire who interview well tend to get released within 60 days of their hire.  I can’t tell you how many people who seem totally normal and friendly turn out to be raving maniacs in stressful customer contact situations.

The elephant in the room that neither McArdle or folks like Kevin Drum mention is that businesses are starved for reliability information on potential employees.  It used to be the best source was to check job references.  Nowadays, though, very few employers will give a honest job reference, or will provide any information at all.  I know I am guilty of that — my company does not allow any manager to give out performance data on past employees.  I only needed to be sued once over somehow interfering with someone’s living by giving honest information about that employee’s reliability to change my behavior.

I understand that this is exactly what the Left is shooting for – an environment where the competent have no advantage over the incompetent.  If employers are resorting to FICO scores, it just demonstrates how all the other reasonable avenues of obtaining information have been closed to them.

The only saving grace in this country is that employment is still mostly at-will, meaning we can fire our hiring mistakes and move on.  Of course the Left wants a European-style system where it is impossible to fire anyone too — this is the system the post office has, and one can see how well it works out.  If they are victorious on this final front, I will be forced into a game of Russian Roulette, where I can’t find out anything about those I hire, I can’t fire the incompetent people I do hire, and I am infinitely legally liable for any mistakes any of these employees make.

Further proof that the only cost control idea the Obama administration ever had was service cuts and price controls.

Health and Human Services is once again playing freelance actuary, demanding that the health insurers hold down increases in the premiums for their Medicare Advantage plans.  As far as the administration is concerned, this is a two-fer.  When people have to pay more for their insurance, they tend to ask what the hell good this gargantuan new health care bill is doing–not the question you want them asking as they head to the polls.  But in the case of Medicare Advantage, there’s another benefit.  The health care reform bill mandated a substantial cut in payments to Medicare Advantage providers, which everyone expects will translate into cuts in the extra services that Medicare Advantage plans now provide.  If they make those cuts a year early, maybe the administration gets to claim that the cuts don’t have anything to do with the new health care bill.

Of course, for the insurers, it’s not such a good deal.  The administration doesn’t seem to have offered any evidence that insurers are overcharging; basically, they’re saying that they ought to underprice their product, even if that means losing money.  Which is what has happened in Massachusetts, where the state insurance regulator refused substantial rate increases, even though as far as I know they never found an actuary to sign off on their orders.  The insurers posted big losses shortly thereafter.

Via the USAToday

Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.

At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.

Those records reflect a long-term trend accelerated by the recession and the federal stimulus program to counteract the downturn. The result is a major shift in the source of personal income from private wages to government programs.

Buried in the ariticle is a quote that I have to cite as perhaps the worst analysis I have ever seen:

The shift in incomeshows that the federal government’s stimulus efforts have been effective, says Paul Van de Water, an economist at the liberal Center on Budget and Policy Priorities.

“It’s the system working as it should,” Van de Water says. Government is stimulating growth and helping people in need, he says. As the economy recovers, private wages will rebound, he says.

How does the income shift prove the stimulus worked?  The problem is, as usual, a difficult one of evaluating what the economy would have done without the stimulus.  The mere shift in income is a necesary outcome of the stimulus — all it means is that we have succesfully robbed Peter to pay Paul — it says nothing about whether Peter and Paul are more wealthy in aggregate had we not moved money around by force.  In fact, proponents of the stimulus never, ever address a very simple fact – someone was using the money to run a business or invest or buy things or employ people before the government took it for stimulus programs.  And it is really, really hard to look at the body of stimulus programs and come to the conclusion that the private sector was investing the money worse, which is the only way stimulus would occur.

I have not read the relevant text of the law, so this may be an exaggeration, but it sure would not surprise me:

Remember when Obama and congressional Democrats made a big show of dropping the public option government insurance program that was supposedly going to give private insurers competition and drive rates down? The truth is the public option is alive and well, residing in Section 1334, pages 97-100, of the new health care law. That section gives the U.S. Office of Personnel Management — which presently manages the federal civil service — new responsibilities: establishing and running two entirely new government health insurance programs to compete directly with private insurance companies in every state with coverage for people outside of government.Quoting the new law, former OPM director Donald Devine notes that it makes the OPM boss a health care czar, with power to set “‘profit margin premiums and other such terms and conditions of coverage as are in the interest of enrollees in such plans.’ That’s open-ended. You can do anything.” Dan Blair, another former OPM director, calls the new program “nothing but a placeholder for the public option.” Indeed, the OPM head is also given the authority to “appoint as many employees” as needed to run the program, and to spend “such sums as may be necessary” to establish and administer it.

It sure looks like the Feds are bending over backwards to make sure R. Allen Stanford, accused of massive investment fraud, is not allowed to defend himself.  The Feds are running the whole playbook at him, from onerous pre-trial detention requirements to asset forfeiture (the latter to the point that the Feds are working to make sure the insurance policy he had to pay for his defense in such actions is not allowed to pay him.)  I understand that a guy who has substantial interest in offshore banking centers might be a flight risk, but this is absurd:

Mr. Stanford has been incarcerated since June 18, 2009 and was moved to the [Federal Detention Center] on September 29, 2009. Immediately upon his arrival at the FDC, he underwent general anesthesia surgery due to injuries that were inflicted upon him at the Joe Corley Detention Facility. He was then immediately taken from surgery and placed in the Maximum Security Section — known as the “Special Housing Unit” (SHU) — in a 7′ x 6 1/2′ solitary cell. He was kept there, 24 hours a day, unless visited by his lawyers. No other visitors were permitted, nor was he permitted to make or receive telephone calls. He had virtually no contact with other human beings, except for guards or his lawyers.

When he was taken from his cell, even for legal visits, he was forced to put his hands behind his back and place them through a small opening in the door. He then was handcuffed, with his arms behind his back, and removed from his cell. After being searched, he was escorted to the attorney visiting room down the hall from his cell; he was placed in the room and then the guards locked the heavy steel door. He was required, again, to back up to the door and place his shackled hands through the opening, so that the handcuffs could be removed. At the conclusion of his legal visits, he was handcuffed through the steel door, again, and then taken to a different cell where he was once again required to back up to the cell door to have his handcuffs removed and then forced to remove all of his clothing. Once he was nude, the guards then conducted a complete, external and internal search of his body, including his anus and genitalia. He was then shackled and returned to his cell. In his cell there was neither a television nor a radio and only minimal reading material  was made available to him. He remained there in complete solitude and isolation until the next time his lawyers returned for a visit.

In short, Mr. Stanford was confined under the same maximum security conditions as a convicted death row prisoner, even though the allegations against him are for white collar, non-violent offenses. He is certainly not viewed as someone who poses a threat to other persons or the community, nevertheless, he has been deprived of human contact, communication with family and friends, and was incarcerated under conditions reserved for the most violent of convicted criminals. Officials at the FDC informed counsel that this was for Mr. Stanford’s “own protection” and to minimize their liability.  .  .  .

Remember, he has not been convicted — this is pre-trial detention.  The sole goal, legally, is supposed to be to keep him from fleeing before his trial.

I am sensitive to this from my climate work.  My gut feel is that people who are truly confident in their case do not work overtime to make sure their opposition is not allowed to make their case.

How else could they have gotten the idea for the hospital unification plan, except by modeling it after the steel and railroad plans in Ayn Rands novel.

The Massachussetts plan:

In hopes of bringing down the state’s skyrocketing health care costs—which are currently growing about 8 percent faster than the state’s GDP—the Massachusetts Senate is reportedly considering a bill that, among other things, would “require hospitals in better financial shape to put money back into the health care system to lower premiums.” At first glance, this might sound like an easy way to bring down prices: Cut into provider profits to bring down insurance premiums. And the AP article doesn’t provide much in the way of detail about how the provision would work, so it could be basically harmless. But it looks to me like the Senate is pushing for a system in which hospitals that set prices and contain costs successfully enough to find solid financial footing subsidize those that don’t. Does this strike anyone else as an odd way to attempt to curb costs?

From the Atlas Society, describing a scene from Atlas Shrugged:

In one scene government dictators explain to steel magnate Hank Rearden how they intend to save his industry as a whole—read his incompetent competitor—through a Steel Unification Plan. All income from steel producers will be placed into a common pool and distributed to manufacturers based on how many furnaces each company owns. Follow the math here for a moment as an incredulous Rearden explains their own plan to them:

“Orren Boyle’s Associated Steel owns 60 open-hearth furnaces, one-third of them standing idle and the rest producing an average of 300 tons of steel per furnace per day. I own 20 open-hearth furnaces, working at capacity, producing 750 tons of Rearden Metal per furnace per day. So we own 80 ‘pooled’ furnaces with a ‘pooled’ output of 27,000 tons, which makes an average of 337.5 tons per furnace. Each day of the year, I producing 15,000 tons, will be paid for 6,750 tons. Boyle, producing 12,000 tons, will be paid for 20,250 tons… Now how long do you expect me to last under your plan?”

Rearden can’t believe that these bureaucrats actually believe such nonsense. And their only answers are “In times of national peril, it’s your duty to serve” and “You must make certain sacrifices to the public welfare” and “You’ll manage.”

First, the background.  Veronique de Rugy writes something that is undeniably true, though the Left has played semantic games with words like “trust fund” and “lockbox” for years to try to “shelter” the public from this reality:

In practice, [] the trust fund and interest payments it receives are simply accounting fiction. For years, the federal government has been borrowing the Social Security Trust Fund assets for its daily spending. The fund has nothing left in it except IOUs from the federal government. In fact, even the interest is paid in IOUs.

Hence, the only way Social Security will not go into the red this year and in future years is if the federal government pays back Social Security. But since the money has long ago been consumed, it must borrow money from the public or raise taxes to pay its Social Security debts.

In response, Kevin Drum whips out this absolutely stunning statement:

Back in 1983, we made a deal. The deal was this: for 30 years poor people would overpay their taxes, building up the trust fund and helping lower the taxes of the rich. For the next 30 years, rich people would overpay their taxes, drawing down the trust fund and helping lower the taxes of the poor.¹

Well, the first 30 years are about up. And now the rich are complaining about the deal that Alan Greenspan cut back in 1983. As it happens, I agree that it was a bad deal. If it were up to me, I’d fund Social Security out of current taxes and leave it at that. But it doesn’t matter. Once the deal is made, you can’t stop halfway through and toss it out. The rich got their subsidy for 30 years, and soon it’s going to be time to raise their taxes and use it to subsidize the poor. Any other option would be an unconscionable fraud.

I really had a WTF moment when reading this.  Its hard to know where to start, so here are some reactions in semi-random order:

• For those of you over 40, do you remember such a deal?  No, you don’t, because there never was one.  What happened was that Congress decided to sweep the Social Security surplus into the deficit calculation in order to disguise the magnitude of unsustainable spending, to help prevent the kind of electoral backlash we may well see later this year.  This is Soviet-style history making.
• Here is a thought problem: Picture Tip O’Neil, Speaker of the Democrat dominated House of Representatives at the time, publicly signing on to a deal that the poor would pay higher taxes for 30 years to give the rich a tax break.  It is a total joke to even consider.   The absurdity of such a notion is mind-boggling.
• It took me a while to parse this and figure out what he was even talking about.   For example, there was never a tax increase to the poor during the 1980′s, so what does he mean that the poor would pay more for 30 years?  The only way this can even be the correct view of the world is if one makes two assumptions:
  1. Everything Congress chooses to spend money on is perfectly, morally justifiable and therefore spending levels are a fact of nature beyond our ability to challenge or question
  2. Rich people have the moral obligation to pay for all incremental government programs, and all budget gaps will be closed by new taxes on rich people.  Taxes on rich people, as a corollary, are never too high.

Given these assumptions, then the “Deal” sort of kind of makes sense.  By the progressive “logic” of these two assumptions, social security taxes in an alternate world would have been reduced during the surplus and the general budget deficit would have been filled not with social security surpluses but higher taxes on the rich.

• The previous logic depends on treating social security taxes as unfairly regressive taxes as part of an income transfer / welfare program.  If you treat them as premiums in an insurance program, the retroactive logic trying to cast this as a “deal” in 1983 doesn’t work.  Interestingly, many on the left in other forums have argued against calling social security taxes anything but insurance premiums, including….Kevin Drum

The men in my family of my father’s generation returned home after serving their country and got jobs in the local steel mills, as had their fathers and their grandfathers. In exchange for their brawn, sweat, and expertise, the steel mills promised these men certain benefits. In exchange for Social Security taxes withheld from their already modest paychecks, the government promised these men certain benefits as well.

….These were church-attending, flag-waving, football-loving, honest family men. They are rightfully proud of providing homes and educations for their children and instilling the sorts of values and manners that serve them well as adults. And if I have to move heaven and earth, now that they’ve retired, the Republican party is NOT going to redefine them as welfare recipients.

• Note by the way, that if this really is an insurance program, any private insurer or private pension fund managers in America would be in jail had they done what our trustworthy federal government did.  In effect, they spent other people’s pension money on current operations.

If we want to describe the last 30 year history of Social Security surpluses as a deal, here is what the actual deal was without ex post facto varnish:  Congress in the eighties said that they were going to spend that surplus money now to get themselves re-elected, and some other Congress 30 years hence would have to figure out how to deal with the bare cupboard.   That was the deal.  It was a simple screw you to future generations.

Drum, given his progressive assumptions, fantasizes a deal based on his assumption that the only way to fill in the hole is with higher taxes on the rich, because his mind is incapable of wrapping itself around any other alternatives (see the two assumptions above).

But it is worth noting that the surplus was in the main handed away by the Democrats to the poor and middle class through new entitlement spending.  Its hard to figure how a series of actions that took seniors pensions and frittered it away in a variety of programs that at best helped the poor and in reality probably helped no one but government bureaucrats somehow obligates the rich to pay 30 years of new taxes to clean the whole mess up.

… because I won’t have to face the full consequences of this:

The 2009 federal balance sheet indicates that the government’s net position (total assets less total liabilities) is a negative $11.5 trillion, 12.3 percent worse than the previous year. But that’s just the tip of the iceberg. That negative balance excludes government obligations for social insurance programs, mainly Social Security and Medicare.

Whether social insurance should be booked as a liability has long been a controversial issue among government accountants….

Unable to reach agreement as to whether social insurance should be included as a balance sheet liability, the members of the FASAB compromised, and thus, immediately following the balance sheet is a “Statement of Social Insurance.” In the 2009 annual report this indicates that the total present value of estimated social insurance expenditures over revenues is $45.9 trillion.

Hence, simple addition indicates that the total net position of the government is a whopping negative $57.4 trillion.

I think this article makes it clear that, no matter what the rhetoric, the only health care cost control idea Obama and the Democrats ever had was saying “no” to care.  Whatever one calls this (managed care, rationing, death panels) it is really not that much different from what insurance companies have been doing for years.  And it is areal irony that Democrats passed this legislation feeding off anger of voters with insurance companies saying “no”, when their plan really depends on the government saying “no” even more often  (or else there won’t be any cost savings).

The author argues that information is important for patients to make better decisions:

When patients are given information about potential benefits and risks, they seem to choose less invasive care, on average, than doctors do, according to early studies. Some people, of course, decide that aggressive care is right for them — like the cancer patient (and palliative care doctor) profiled in this newspaper a few days ago. They are willing to accept the risks and side effects that come with treatment. Many people, however, go the other way once they understand the trade-offs.

They decide the risk of incontinence and impotence isn’t worth the marginal chance of preventing prostate cancer. Or they choose cardiac drugs and lifestyle changes over stenting. Or they opt to skip the prenatal test to determine if their baby has Down syndrome. Or, in the toughest situation of all, they decide to leave an intensive care unit and enter a hospice.

I agree, but I would go further — information and incentives are important.  And the absolute most important bit of information when it comes to cost control is price, and patients under Obamacare have absolutely no incentive to give a sh*t about price even if they were informed of it.  Exactly the opposite of the incentives I have had since I took on a high-deductible health care policy several years ago.

Update: Brad Warbiany discusses the proposed IPAB and its powers to shape health care spending in the context of Congress as an addict trying to control its impulses.  However, I think Brad underestimates the power of the board to be captured.  What will result is rulings for more coverage of procedures with powerful lobbies, offset by less coverage of procedures with weaker lobbies, irrespective of the science.   Just look at the diseases the NIH and NSF gives grant money for — the grants have nothing to do with the science of where research could be most productive and everything to do with diseases that have large and powerful constituencies.

Update #2: Isn’t it interesting to see the NY Times, after arguing for months that Obamacare was not about rationing, is now admitting that rationing is the key to success.  It reminds me of this that I wrote a while back:

I have decided there is something that is very predictable about the media:  they usually are very sympathetic to legislation expanding government powers or spending when the legislation is being discussed in Congress.  Then, after the legislation is passed, and there is nothing that can be done to get rid of it, the media gets really insightful all of a sudden, running thoughtful pieces about the hidden problems and unintended consequences of the legislation.

From Boston.com. via a reader:

Thousands of consumers are gaming Massachusetts’ 2006 health insurance law by buying insurance when they need to cover pricey medical care, such as fertility treatments and knee surgery, and then swiftly dropping coverage, a practice that insurance executives say is driving up costs for other people and small businesses.

In 2009 alone, 936 people signed up for coverage with Blue Cross and Blue Shield of Massachusetts for three months or less and ran up claims of more than $1,000 per month while in the plan. Their medical spending while insured was more than four times the average for consumers who buy coverage on their own and retain it in a normal fashion, according to data the state’s largest private insurer provided the Globe.

The typical monthly premium for these short-term members was $400, but their average claims exceeded $2,200 per month. The previous year, the company’s data show it had even more high-spending, short-term members. Over those two years, the figures suggest the price tag ran into the millions.

Other insurers could not produce such detailed information for short-term customers but said they have witnessed a similar pattern. And, they said, the phenomenon is likely to be repeated on a grander scale when the new national health care law begins requiring most people to have insurance in 2014, unless federal regulators craft regulations to avoid the pitfall.

I would argue that these numbers for system gamers would be even higher save for a residual sense of honor in the population that resists such gaming, a sense of honor that will tend to be eroded over time by these incentives.  This is a theme I have discussed before, in answer to the question of why socialized nations seem to do well at first.  My answer to that question was that residual work ethic and values tend to mitigate, initially, against the horrible incentives inherent in socialism, but that these values erode when people see themselves effectively punished for their values and work ethic.

It’s hard to imagine a more naked example of rent-seeking than this one

A group representing Arizona hospitals is pursuing a ballot initiative that would tax the state’s high-income earners to help pay the health-care tab for the state’s neediest kids and adults.

The Arizona Hospital and Healthcare Association expects to file paperwork for the initiative later this week, aiming for a place on the November ballot.

It asks voters to raise the state income-tax rate 1 percentage point on income exceeding $150,000 per individual and $300,000 per couple.

The association estimates the initiative would raise more than $140 million each year to pay for health insurance for low-income children and adults, graduate-school medical education and reimbursement to hospitals that care for the poor.

In other words, the government will take the money and hand it over to hospitals to do the things they are already doing.  I could put together a heartwarming story too for my industry — we think there should be a 1% tax on all Arizona residents for kids to visit parks and campgrounds to fight childhood obesity and improve their connection with nature — but you don’t see me rent-seeking like this.

My gut feel, though I have no direct evidence, is that this is being rushed through to beat the deadline on Obamacare implentation — my guess being that this will be somehow moot once that program is in place so the hospitals want to get their licks in before anyone really figures out the new health care law.  Once the tax and program is in place, it will be virtually impossible to kill, even if it is irrelevent post-Obamacare.  Anyone have knowlege about this one way or the other?

As is usual when I make an immigration post (wherein I am supportive of open immigration and suspicious of gung-ho enforcement efforts) I got mail saying that the real concern here is the rule of law.   People inevitably want to inform me that this immigration is ILLEGAL (usually in caps) and that these immigrants are BREAKING THE LAW and that the law cannot be enforced unevenly.

First, I am happy to listen to this argument from any commenter who has never broken the speed limit or done a rolling stop at a stop sign.

Second, I would like to offer the rule of law folks, especially those on the right side of the aisle, a thought problem:  Soon, it will be illegal to not purchase a health insurance policy that meets specifications set by Congress.  It is anticipated, however, given relatively low fines, that many people will break this law and not obtain health insurance.   This failure will be ILLEGAL.  These people will be criminals.  Do those of you who seek higher penalties, more robust enforcement, police sweeps, and reduced standards of probable cause for people committing the crime of illegal immigration also plan to seek the same higher penalties for lawbreakers who do not buy an insurance policy?   After all, as you have said, this is not about the law itself but respect for the rule of law.

By your immigration logic, we should be ruthless about lawbreakers who do not have the right insurance policy.  We should encourage the Minutemen to patrol for people without health insurance — after all, they have said that their concern is with people breaking the law, not immigration or Mexicans per se.  There should be sweeps where people can be arrested for suspicion of not having health insurance, just as they can be arrested under our new AZ law for suspicion that they do not have a green card.

If there is a difference, please explain it to me.  I understand that you may be opposed to open immigration or high immigration rates or immigration by poor uneducated people or whatever.  If so, fine, we disagree — but stop saying that this is all about the rule of law, or telling me we can’t pick and choose what laws we violate.  Because we do the latter all the time.  Our willingness to challenge the state is a large part of American exceptionalism.

PS- Just to avoid misunderstandings from trolls who do not usually read this site, of course I do not advocate the above for health insurance violations.  Just as I don’t for Mexicans seeking a better life in this country without obtaining a license to do so from the government.

Disclosure: I have several good friends who are illegal immigrants.  They are wonderful, hard-working people who have been in this country for years.  If we were to conduct tests of people’s acceptability to be present in this country, they would pass with scores far ahead of many US citizens.

Update:  I find the argument that open immigration and an overly-generous welfare state can’t coexist to be moderately compelling, though I don’t see why we could tie citizenship narrowly to receiving these benefits.  I have problems saying that a government license in the form of a green card is required for mere presence in the country.  I have no problem imposing this licensing requirement for receipt of unearned goodies.

My health insurance policy, which is an actual “insurance” policy that insures me against catastrophic medical costs but leaves me with responsibility for day to day expenses, just became illegal.   Over the last couple of years, I have documented my learning curve as, for the first time, I actually had an incentive to shop around for medical care, or to push back on doctors when I thought they are calling for too many tests and procedures.  I have learned a lot about saving money, but all of this education is now for naught, as I will now be required to buy a pre-paid medical policy that leaves very little of the decision-making to my family and provides zero incentives for me to be cost conscious.  Apparently, the operators of the US Postal Service and US military procurement felt they were better qualified to manage these cost/value trade-offs than I am.

Here, by the way, is my favorite quote from today, from Nancy Pelosi (who else):

House Speaker Nancy Pelosi praised the health care legislation for its ability to “unleash tremendous entrepreneurial power into our economy.”

Only if one considers rent-seeking to be entrepreneurship.  There will certainly be a mad rush of special interests to Congress to get their pet procedure or drug included in national must-cover rules.  I discussed this rent-seeking process, which used to have to proceed inefficiently state by state but now can be achieved single-source, here.   Naturopath coverage, anyone? (already required under coverage rules in 4 states).   Already a lot of so-called medical research is really just thinly disguised pleas to have a certain procedure in must-cover rules.  For example, I wrote about one study:

In other words, the study surveyed a bunch of cosmetic surgeons.  They were asked “should an expensive procedure you provide be covered by insurance.”  They all answered “Hell YES!”  Anyone want to bet whether the funding for the study came from the company that makes the laser equipment?