Posts tagged ‘Obamacare’

My Wish for the Republican Debates: Less Talk on Taxes, More Talk on Regulation

I would be all for reductions in tax levels, but I don't think that current Federal tax rates are particularly a barrier to growth and prosperity.  A much bigger, and ever-growing barrier to growth is regulation.

5-10 years ago, in my small business, I spent my free time, and most of our organization's training time, on new business initiatives (e.g. growth into new businesses, new out-warding-facing technologies for customers, etc).  Over the last five years, all of my time and the organization's free bandwidth has been spent on regulatory compliance.  Obamacare alone has sucked up endless hours and hassles -- and continues to do so as we work through arcane reporting requirements.  But changing Federal and state OSHA requirements, changing minimum wage and other labor regulations, and numerous changes to state and local legislation have also consumed an inordinate amount of our time.  We spent over a year in trial and error just trying to work out how to comply with California meal break law, with each successive approach we took challenged in some court case, forcing us to start over.  For next year, we are working to figure out how to comply with the 2015 Obama mandate that all of our salaried managers now have to punch a time clock and get paid hourly.

Greg Mankiw points to a nice talk on this topic by Steven Davis.  For years I have been saying that one effect of all this regulation is to essentially increase the minimum viable size of any business, because of the fixed compliance costs.   A corollary to this rising minimum size hypothesis is that the rate of new business formation is likely dropping, since more and more capital is needed just to overcome the compliance costs before one reaches this rising minimum viable size.  The author has a nice chart on this point, which is actually pretty scary.  This is probably the best single chart I have seen to illustrate the rise of the corporate state:

decline of new business employment


Postscript:  I had thought that all the difficult years converting all of our employees from full to part time to avoid Obamacare sanctions would be the end of our compliance hassles (no company will write health insurance for us, so our only defense against the mandates and penalties is to make everyone part-time).  But the hassles have not ended.  For every employee, next year we must provide a statement that has a series of codes, by month, for that employee's health care status.  It is so complicated that knowledgeable people are still arguing about what codes we should be using.  Here is a mere taste of the rules:

  A code must be entered for each calendar month January through December, even if the employee was not a full-time employee for one or more of the calendar months. Enter the code identifying the type of health coverage actually offered by the employer (or on behalf of the employer) to the employee, if any. Do not enter a code for any other type of health coverage the employer is treated as having offered (but the employee was not actually offered coverage). For example, do not enter a code for health coverage the employer is treated as having offered (but did not actually offer) under the dependent coverage transition relief, or non-calendar year transition relief, even if the employee is included in the count of full-time employees offered minimum essential coverage for purposes of Form 1094-C, Part III, column (a). If the employee was not actually offered coverage, enter Code 1H (no offer of coverage) on line 14.  For reporting offers of coverage for 2015, an employer relying on the multiemployer arrangement interim guidance should enter code 1H on line 14 for any month for which the employer enters code 2E on line 16 (indicating that the employer was required to contribute to a multiemployer plan on behalf of the employee for that month and therefore is eligible for multiemployer interim rule relief). For a description of the multiemployer arrangement interim guidance, see Offer of health coverage in the Definitions section. For reporting for 2015, Code 1H may be entered without regard to whether the employee was eligible to enroll or enrolled in coverage under the multiemployer plan. For reporting for 2016 and future years, ALE Members relying on the multiemployer arrangement interim guidance may be required to report offers of coverage made through a multiemployer plan in a different manner.

Here are some of the codes:

  • 1A. Qualifying Offer: Minimum essential coverage providing minimum value offered to full-time employee with employee contribution for self-only coverage equal to or less than 9.5% mainland single federal poverty line and at least minimum essential coverage offered to spouse and dependent(s).

    This code may be used to report for specific months for which a Qualifying Offer was made, even if the employee did not receive a Qualifying Offer for all 12 months of the calendar year. However, an employer may not use the Alternative Furnishing Method for an employee who did not receive a Qualifying Offer for all 12 calendar months (except in cases in which the employer is eligible for and reports using the Alternative Furnishing Method for 2015 Qualifying Offer Method Transition Relief as described in these instructions).

  • 1B. Minimum essential coverage providing minimum value offered to employee only.
  • 1C. Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) (not spouse).
  • 1D. Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to spouse (not dependent(s)).
  • 1E. Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) and spouse.
  • 1F. Minimum essential coverage NOT providing minimum value offered to employee; employee and spouse or dependent(s); or employee, spouse and dependents.
  • 1G. Offer of coverage to employee who was not a full-time employee for any month of the calendar year (which may include one or more months in which the individual was not an employee) and who enrolled in self-insured coverage for one or more months of the calendar year.
  • 1H. No offer of coverage (employee not offered any health coverage or employee offered coverage that is not minimum essential coverage, which may include one or more months in which the individual was not an employee).
  • 1I. Qualifying Offer Transition Relief 2015: Employee (and spouse or dependents) received no offer of coverage; received an offer that is not a qualifying offer; or received a qualifying offer for less than 12 months.

An Obamacare Alternative

After criticizing Obamacare at a party, another person said something like "well you can't criticize it without suggesting an alternative."  This of course is total bullsh*t.  The passage of a bad law to imperfectly achieve objectives with which I disagree does not obligate me to craft alternative legislation to achieve those objectives.

But I decided to take a swing at it anyway.  Taking a step back, I said that I thought there were two overriding problems in health care that the government might address.

The first is a problem largely of the government's own creation, that incentives (non-tax-ability of health care benefits) and programs (e.g. Medicare) have been created for first dollar third-party payment of medical expenses.  This growth of third-party payment has eliminated the incentives for consumers to shop and make tradeoffs for health care purchases, the very activities that impose price and quality discipline on most other markets.

The second problem that likely dominates everyone's fears is getting a bankrupting medical expense whose costs are multiples of one's income, and having that care be either uninsured or leading to cancellation of one's insurance or future years.

So my suggestion I made up on the spot (and I am a little fuzzy on the details as my friend had actually cracked open a bottle of Van Winkle bourbon for a few of us, my first taste of that magic elixir) was to scrap whatever we are doing now and have the government pay all medical expenses over 10% of one's income.  Anything under that was the individual's responsibility, though some sort of tax-advantaged health savings account would be a logical adjunct program.

I obviously make policy better when I am drinking absurdly rare and expensive bourbons, because Megan McArdle (who knows a hell of a lot more than I about health care economics) has apparently been advocating something similar for quite a while

How would a similar program work for health care? The government would pick up 100 percent of the tab for health care over a certain percentage of adjusted gross income—the number would have to be negotiated through the political process, but I have suggested between 15 and 20 percent. There could be special treatment for people living at or near the poverty line, and for people who have medical bills that exceed the set percentage of their income for five years in a row, so that the poor and people with chronic illness are not disadvantaged by the system.

In exchange, we would get rid of the tax deduction for employer-sponsored health insurance, and all the other government health insurance programs, with the exception of the military’s system, which for obvious reasons does need to be run by the government. People would be free to insure the gap if they wanted, and such insurance would be relatively cheap, because the insurers would see their losses strictly limited. Or people could choose to save money in a tax-deductible health savings account to cover the eventual likelihood of a serious medical problem.

The missing piece here, as was in my plan, is I have no idea how much this would cost.

A Fundamental Shift in the Economy, At Least for Entrepreneurs and Small Business

When politicians argue about small business growth, they argue about stuff like taxes and access to capital and, god help me, completely irreverent (to small business) stuff like the ExIm Bank.

I would argue that there has been a fundamental shift in the economy relative to small business over the last four years, but it has nothing to do with any of that stuff.  I would summarize this shift as follows:

Ten years ago, most of my company's free capacity was used to pursue growth opportunities and refine operations.  Over the last four years or so, all of our free capacity has been spent solely on compliance.

Let me step back and define some terms.  What do I mean by "free capacity?"  In a small, privately-held company, almost all the improvement initiatives spring from the head of, or must heavily involve, the owner.  That would be me.  I have some very capable staff, but when we do something new, it generally starts with me.

So OK, our free capacity is somewhat limited by my personal capacity as owner and President.   But actually, I have a head full of ideas for improving the company.  I'd like to do some new things with training that takes advantage of streaming video.  I'd like to add some customer service screening to our application process.  But my time turns out not to be the only limit -- and this is one of those things that HBS definitely did not teach me.

In the real world, there are only so many new things I can introduce and train my line managers to do, and that they can then pass down to their folks.  An organization can only accept a limited amount of new things (while still doing the old things well).  This is what I mean by "free capacity"  -- the ability to digest new things.

Over the last four years or so we have spent all of this capacity on complying with government rules.  No capacity has been left over to do other new things.  Here are just a few of the things we have been spending time on:

  • Because no insurance company has been willing to write coverage for our employees (older people working seasonally) we were forced to try to shift scores of employees from full-time to part-time work to avoid Obamacare penalties that would have been larger than our annual profits.  This took a lot of new processes and retraining and new hiring to make work.  And we are still not done, because we have to get down another 30 or so full-time workers for next year
  • The local minimum wage movement has forced us to rethink our whole labor system to deal with rising minimum wages.  Also, since we must go through a time-consuming process to get the government agencies we work with to approve pricing and fee changes, we have had to spend an inordinate amount of time justifying price increases to cover these mandated increases in our labor costs.  This will just accelerate in the future, as the President's contractor minimum wage order is, in some places, forcing us to raise camping prices by an astounding 20%.
  • Several states have mandated we use e-Verify on all new employees, which is an incredibly time-consuming addition to our hiring process
  • In fact, the proliferation of employee hiring documentation requirements has forced us through two separate iterations of a hiring document tracking and management system
  • The California legislature can be thought of as an incredibly efficient machine for creating huge masses of compliance work.    We have to have a whole system to make sure our employees don't work over their meal breaks.  We have to have detailed processes in place for hot days.  We have to have exactly the right kinds of chairs for our employees.  We have to put together complicated shifts to meet California's much tougher overtime rules.  Just this past year, we had to put in a system for keeping track of paid sick days earned by employees.  We have two employee manuals:  one for most of the country and one just for California and all its requirements (it has something like 27 flavors of mandatory leave employers must grant).  The list goes on and on.  So much so that in addition to all the compliance work, we also spent a lot of work shutting down every operation of ours in California, narrowing down to just 3 contracts today.  There has been one time savings though -- we never look at any new business opportunities in CA because we have no desire to add exposure to that state.

Does any of this add value?  Well, I suppose if you are one who considers it more important that companies make absolutely sure they offer time off to stalking victims in California than focus on productivity, you are going to be very happy with what we have been working on.  Otherwise....

I fully understand the dangers of extrapolating from one data point**, but for folks who are scratching their head over recent plateauing of productivity gains and reduced small business origination numbers, you might look in this direction.

By the way, it strikes me that regulatory compliance issues set a minimum size for business viability.  You have to be large enough to cover those compliance issues and still make money.  What I see happening is that as new compliance issues are layered on, that minimum size rises, like a rising tide slowly drowning companies not large enough to keep their head above water.  We are keeping up, but at times it feels like the water is lapping at our chin.


**Unrelated Postscript:  I have found that in the current media/political world, people love to have only one data point.  Why?  Well, with two data points you are are stuck with the line those points define.  With just one, you can draw any line you want in any direction with any slope.

Thanks Obamacare!

I just got the first year bill from my payroll company for the extra reporting we have to do each year vis a vis Obamacare:  $7195.50 for 2015.  Note that this adds absolutely no value -- this is not the cost of insurance or cost of any extra taxes sent to Uncle Sam.  This is merely the cost to handle all the new paperwork required in the law.

I will repeat what I have said before -- the Republicans tend to focus narrowly on taxes and often tend to miss or downplay the regulatory issues, which I think actually loom larger in destroying economic growth.

Barack Obama Poised to Convert Millions of Junior Managers into Timeclock Punchers

The title of this post is my alternative to Politico's headline which reads, "Barack Obama poised to hike wages for millions." What is actually happening is that Obama is proposing to raise the threshold for how much money an employee can make before he or she can be considered exempt from overtime rules (and thus exempt from filling in a time sheet).

As early as this week, the Labor Department could propose a rule that would raise the current overtime threshold — $23,660 – to as much as $52,000, extending time and a half overtime pay to millions of American workers.

The Obama Administration and its supporters (and apparently Politico, by how they wrote the headline) are smoking something if they think employers are going to react by raising salaries of current exempt employees being paid 23,660 or 30,000 or 40,000 to $52,000.  Absolutely no way.  There may be a few just under the $52,000 threshold that get a bump, but that will be a minor effect.

Everyone else is going to suddenly find themselves converted from a junior manager back to a wage earner.   Companies are not going to allow these newly minted wage earners to earn overtime, and so I suppose one good outcome is that we may see a new boost in productivity as companies find ways to automate or eliminate junior management tasks to get all these folks down to 40 hours a week.

Five years ago, I might have really been in a panic over this in my company, but fortunately our experience with Obamacare has given me confidence we'll figure it out.  With Obamacare we were facing enormous costs which we (like many service and retail companies) managed to eliminate by converting almost all of our full-time employees to part-time.   Compared to that effort, figuring out how to get all of our managers down to 40 hours seems like child's play.

As usual, most of the costs of this regulation will be born by workers.  As with other minimum wage-type laws, some will be better off, actually getting the "raise" promised by Politico, while some will be worse off, dropped to straight 40-hour work which does not pay as well, or out of work entirely.

However, this law has an even bigger impact-- it changes the relationship between the worker and their employer.  There are important differences between hourly and salaried work in the relationship with employers.  Some are psychological -- for better or worse, management things of salaried workers differently than hourly workers.  And some are real -- salaried workers can try to demonstrate that they are worthy of promotion by working extra hours and taking on extra tasks, things that hourly workers really can't do.

As a final note, I have to give the Coyote Academic Arrogance Award to Daniel Hamermesh of UT Austin who is quoted as follows:

“It’s hard to believe that somebody making $30,000 is a supervisor,”

He knows this, how?  We have supervisors who do a fabulous job for $2500 a month and are happy to be making that.

But that is actually not the Hamermesh statement that I would rank most ignorant of reality.  This is:

But Hamermesh said that to whatever extent employers reduced hours to avoid overtime the result would be more job creation, not less, since someone else must [be] hired to perform that work. Jared Bernstein, an economic adviser to Vice President Joe Biden during President Barack Obama’s first term, added that for many workers reduced hours would be a plus: “Their salary is the same but they have more time with their families.”

Are these guys for real?  Employers are not going to give employees the same salary for fewer hours.  They are going to try pay them less if they are getting fewer hours of work (of course their ability to do so depends on the labor supply).  But the change is worse than this.  They are not only getting fewer hours, but they are getting a different person and a different relationship.  Before, say for a junior manager job, employers could get go-getters who worked 60 hours a week to impress management with their diligence and dedication, signaling they were ready for promotion.  Now, employers will get time-clock punchers.

Who's Subsidizing Whom? And Should We Oppose All New Anti-Poverty Programs as Crony Giveaways?

Well, the new meme on the Left in favor of higher minimum wages seems to be that since many minimum wage workers also receive government benefits, those benefits "subsidize" the employers paying minimum wage.  Example from Kevin Drum here.  This is utter madness.  A few responses:

  • The implication is that the choice is between a job at $8 an hour or a job at $15 an hour.  But this assumes the jobs still all exist at $15 an hour.  Clearly, many would disappear over time, either as companies automate or as consumers reduce purchases at now higher cost establishments.  If the alternative to offering a $8 an hour job is in fact offering no job at all, then minimum wage employers are reducing government benefits payouts.
  • The Left has pushed eligibility for many programs (e.g. the changes in Obamacare to Medicaid) into higher income bands of people making more than 100% of the poverty line.  How is this creeping up of transfer program eligibility somehow the fault of employers?
  • Does this mean that all right-thinking Americans should oppose any future expansions of transfer programs as crony giveaways?  And if you say no, that they should not be thought of crony giveaways in advance of their passage, why should they be considered such afterwards?
  • The whole point of many of these programs, like the EITC which is listed among the programs in Drum's post, is exactly this -- to provide transition assistance from not working to supporting oneself.  The Left's view on this is, as usual, entirely static.  What are the folks who are on benefits and working in food service doing 5-10 years from now?  Would they look back on that time as a stepping stone to something better?
  • If you require that all employers pay a salary such that none of its workers are on assistance of any sort, which is the logical conclusion of this meme, then you divide the world into two classes -- those 100% employed and those 100% on benefits, with most people in the latter having little or no prospect of moving to the former.
  • My company pays minimum wage to the vast majority of our 300+ campground workers.  But who is subsidizing whom?  Most of these folks are over 60 and on Social Security and find that they need or want more money than their Social Security can provide.  One reason for this is that Social Security is a horrible retirement savings program, essentially paying a negative interest rate on the money contributed to the system in the retiree's name.  If Social Security were a private retirement plan, its proprietors would be in jail by now.  Because Social Security is so lame, older people seek work, and come to me, happy to stay active and earn money to supplement their government checks.  So am I subsidizing the SSA's inability to provide a fair return?

Republicans Are Crazy for Wanting Dynamic Scoring at the CBO

Dynamic scoring of budget proposals has been on the Republican wish list for decades.  They have always been frustrated that tax cut proposals look like such budget losers with static scoring.  In their supply-side bones, Republicans know that tax cuts will stimulate economic activity and thus increase future tax revenues.  Taking this second order effect into account is what they mean by dynamic scoring (see: Laffer Curve).

I have some sympathy for this argument, but in making it Republicans are falling for the "this will work great when our guys are in charge" fallacy  (I need to find a name for that).  Democrats fall into this all the time, expanding government power only to be shocked at what their political enemies do with this power once in charge.

Because it is pretty clear what dynamic scoring will mean in a Democratic Congress.  Remember that stimulus bill?  Democrats all thought that expanded the economy, so its costs would, by their Keynesian assumptions, appear much lower under dynamic scoring.  The Left thinks the auto bailout was stimulative.  They even think that Obamacare was stimulative.  Do you really want some BS Keynesian fudge factor obscuring the true cost of such proposals in the future?

Related:  Greg Mankiw discusses why, if I read him right, dynamic scoring is impossible to do correctly


Wow -- Two Obama Administration Economists Write Paper Saying Obama Administration Policy Was Great

I followed a link the other day to this academic paper purporting to show that the bailout of GM and Chrysler was a success.  I was flabbergasted to see that the authors are Austan D. Goolsbee and Alan B. Krueger.  WTF?  These folks were part of the Obama Administration.  This is their own policy they are passing historical judgement on.  This is roughly equivalent to a economics journal seeking a paper on the success or failure of Obamacare and having Valerie Jarrett write it.  How does this kind of conflict of interest pass any kind of muster?

I only skimmed the paper.  I know these are two smart guys but it seems to include exactly the sort of facile analysis you would expect from a political hack, not two smart economists.  I can't believe these guys would have accepted many of the assumptions they make here had they not been directly involved.  Just to pick two things at random:

  • They seem to stick with the assumption that millions of jobs would have simply gone *poof* had the government not intervened.  Yes, this happened at Solyndra, but in most cases industries operate almost seamlessly in bankruptcy.  The odds are, for example, that you have flown on an airline in Chapter 11 and didn't even know it.  They make a specific argument that somehow it would be bad to have both in bankruptcy at the same time, but I can remember several times when there were multiple major airlines in bankruptcy.  In fact, if both went bankrupt at the same time, one could argue it would lessen their market share loss since a major competitor was in the same boat.  To the extent that the companies would have continued to operate under Chapter 11, which is 99.9% likely, then all the government did was insert itself into the bankruptcy process to overrule laws about who gets what in a bankruptcy to redirect spoils to their favored constituencies
  • Yes, GM and Chrysler are doing OK now, but they usually do OK at the top of a business cycle.  To my eye though, nothing fundamentally changed about how they are managed and operate.  The same structural and cultural problems that existed before exist today.  The same under-utilization of talented workers and valuable assets that existed before exists today.  No real reckoning occurred -- in fact the bailout looked to me at the time as an exercise to use taxpayer money to avoid a true housecleaning.  These companies have done OK, but what would they have done with a more thorough housecleaning?

Worst Argument for Regulation Ever

We generally use startup activity as a proxy for positive innovation and future increases in productivity and consumer value.  But it is only a proxy - based on the theory that in a free economy new startups generally add new value or die.  Startups per se are not inherently positive, especially when all they are doing is fixing the inefficiencies and mandates imposed by government regulation

I wrote about a new study suggesting that new federal regulation doesn't inhibit the creation of new startup companies in an industry. In fact, it might actually stimulate the creation of startups. This seems counterintuitive, but a reader with some experience in the education and health care sectors—which were influenced by NCLB and Obamacare, respectively—proposes an explanation for this:

Healthcare startups have absolutely exploded post-ACA....This was pretty well anticipated by venture capital; a bunch of Sand Hill firms started putting together ad-hoc health IT teams shortly after the ACA was passed, on the basic logic that anything that changed an industry as much as the ACA did would necessarily create a lot of startup opportunities.

Drum says, well this may be good or may be bad.  Look, it HAS to be bad.  All this investment and activity is going into trying to get back to even from productivity losses imposed by the government, or is being spent addressing government mandates for new services that the market did not want or value.  This is a diversion of resources from new value-creation to fixing things, and as such is just the broken windows fallacy re-written in a new form.

The language he is using, of shaking things up, is a bit like that of chemistry.  He seems to imagine that markets can reach and get stuck in local maxima, so that government action that shakes the system out of these maxima (like annealing in a metal) is positive in that it allows the system to progress to a better state over time even if the government's action initially makes things worse.  I know of absolutely no evidence for this being true, and my strong suspicion given how many industries the government has trashed is that this is rare or non-existent.  And impossible to spot, even if it did exist.  Not to mention the fact it is a total joke to talk of health care as if it was some pristine untouched-by-government industry before Obamacare.

Why Large Corporations Often Secretly Embrace Regulation

I wrote the other day about how Kevin Drum was confused at why broadband stocks might be rising in the wake of news that the government would regulate broadband companies as utilities.  I argued the reason was likely because investors know that such regulation blocks most innovation-based competition and tends to guarantee companies a minimum profit -- nothing to sneeze at in the Internet world where previous giants like AOL, Earthlink, and Mindspring are mostly toast.

James Taranto pointed today to an interesting Richard Eptstein quote along the same lines (though he was referring to hospitals under Obamacare):

Traditional public utility regulation applies to such services as gas, electric and water, which were supplied by natural monopolists. Left unregulated, they could charge excessive or discriminatory prices. The constitutional art of rate regulation sought to keep monopolists at competitive rates of return.

To control against the risk of confiscatory rates, the Supreme Court also required the state regulator to allow each firm to obtain a market rate of return on its invested capital, taking into account the inherent riskiness of the venture.

I Hate to Say I Told You So, But Retail Sector Full-Time Work At An End

I have to say I told you so, but, from a reader, Staples threatens to fire anyone who works over 25 hours:

Part-time Staples workers are furious that they could be fired for working more than 25 hours a week.

The company implemented the policy to avoid paying benefits under the Affordable Care Act, reports Sapna Maheshwari at Buzzfeed. The healthcare law mandates that workers with more than 30 hours a week receive healthcare.

If Staples doesn't offer benefits, it could be fined $3,000 in penalties per person.

I can tell you from personal experience that $3000 is a staggering penalty.  For a full time worker at $8 an hour, this is over 2 months pay -- 2 months pay extra the company has to pay but the worker never sees.

As I have written before, we have moved heaven and Earth to get every employee we can in our company converted to part-time.  We had absolutely no alternative -- after seeking quotes from about 20 places, no one would offer our company any sort of health insurance plan at any price**.  So no matter what we did, we were facing the $3000 penalty for each full-time workers, so all we could do to manage the situation was convert full-time workers to part-time.


** We have seasonal workers, which makes insuring us awkward and expensive because there are high administrative costs with people constantly going on and off the plan.  We also have a very old work force.  Obamacare prevents insurers from charging the much higher premiums to older people that our costs might justify -- it milks younger people with prices well above their cost to serve to pay for subsidizing older people.  Insurers would be crazy to voluntarily add groups that are purely old people, they would lose their shirt.  So they refuse to quote us.

"Dysfunctional Congress"

This weekend I went to a one-day university and saw four different lectures (as usual, about half were good, one was OK, and one was a soft-of WTF).  In one of those lectures, a Brown professor kept talking about Congress being "dysfunctional".

It strikes me that it is time to demand that people define what they mean by this.  A lot of people, I think, would answer that they mean that Congress is dysfunctional because it has not passed X, where X is immigration reform or climate change legislation or a repeal of Obamacare or a list of many other things.  But in these cases, I am not sure it is fair to say that lack of Congressional action really represents dysfunctionality when the public itself is sharply and somewhat evenly divided on the issues themselves.

No one can best me in a competition of disdain for elected officials.  But I am always suspicious that folks using the whole dysfunctional Congress meme are really using it as a proxy for a strong desire to keep expanding government.  After all, are we really facing a shortage of laws that Congress desperately needs to address?  Is Congress somehow greedily hording laws in a time of need?

In the spirit of defining terms, I will say what I think is dysfunctional about Congress:  When it fails to fulfill its Constitutionally-mandated roles.  It is not required to pass immigration legislation, but it is required to pass a budget and give up and down votes on appointments.  Neither of these tasks have been accomplished very well over the last few years.   Again, Congress is not required to give the President what he wants (as the media seems to imply, at least when the President is a Democrat), but they are required to pass some sort of budget and take a vote in a reasonably timely manner on appointments.

If You Like Your Health Plan...

We received a letter from Blue Cross / Blue Shield of AZ saying we could keep our plan, but the cost goes from about $579 a month to $739 a month in January of 2015 (a 27.6% increase).  Note that this is for a pretty high deductible health plan, something like $5000.  We wrote to our broker to explore options.  We got this response:

Crazy as this latest BC [Blue Cross] rate increase is it is a lot better than Obamacare.  I ran the same plan under the Affordable Care Act with BC and the rate for 1/1/15 would be $963.70 a month and if you went to the $6300 deductible plan the rate would still be $914 a month.  So I guess we are all lucky to be out of ACA until we are forced into it.  Now there is one variable that could lower your cost and that is if your household income in 2015 will be under $92k you could go into the Marketplace for premium assistance from our wonderful Federal government. If it is going to be higher than that be grateful you are where you are!

As predicted in advance, Obamacare and the exchange are not about saving money.  The only people who are saving money are those getting taxpayer subsidies in the exchange.

Well, My Company Is Officially Required to Buy a Product That Does Not Exist For Us

As of next year, my company is required to offer health care plans to our full-time employees or else pay a penalty.    Unfortunately, after an extensive market search, no one will sell me such a policy -- not even the government health care exchange for small businesses.

Let's take a step back.  Business owners have had the rules pounded into us over the last few years, but many of you may not be familiar with the details.  The detail rules are here, as "simplified" as much as possible by the NFIB, but don't read them unless you have to or your head will explode.  The simple way to think of it is that there are two penalties out there:

  • The "A" penalty is for companies that do not offer any sort of health plan, no matter how crappy, to their full-time employees.  The A penalty in this case is $2,000 per full-time employee, with the first 30** free (so with 60 FT employees and no health plan, the penalty is (60-30) x $2,000 = $60,000 a year.
  • The "B" penalty is for companies that avoid the "A" penalty.  If a health plan is offered, but is not affordable (ie the employee monthly share of premiums is higher than a government-set floor) then the company gets penalized $3,000 for every full-time employee who both goes into an exchange and gets a plan with a government-subsidized premium.   There is a cap on the "B" penalty that it can be no higher than if the "A" penalty was applied to the whole company.

We have always pretty much assumed we were going to get the B penalty.  For minimum wage workers, the floor contribution is something like $9o a month, so the company share over a year for a typical employee of ours would be way over $3000.  Also, since over half of our full-time employees are on Medicare and another portion of them are on some sort of retirement plan from a corporation, we don't expect that many to go into the exchange anyway.  So we plan to just pay the penalty.

But we had expected to avoid the A penalty by offering some sort of policy to our employees.  When experts present this stuff, they act like only the dumbest of the dumb companies would ever be saddled with the A penalty.  After all, the company does not even have to pay anything for the policy, they just have to offer something.

But it turns out that all the things that protect us from the B penalty make us almost un-insurable.  First and foremost, insurers have a minimum participation rate they demand.  They are not going to go through all the overhead costs of setting you up on their plan if no one is going to sign up.  In the Government Small Business Health Care Exchange (SHOP), that minimum participation rate is around 70%.  No WAY we can meet that, since over half or our employees are on Medicare and would thus not sign up for anything.  The fact that the average age of our workforce is in the 60's, maybe even the 70's, just makes things worse.  Obamacare gives insurers only limited ability to price for higher risk, so they lose money on older people.  That means they are going to avoid like the plague signing up any group like ours that is all older people.

So, as a result, I am required by law, under harsh financial penalties, to purchase a product that is not available to me.  Had President Obama required that I buy 2 pounds of rocks from Mars, the result would not have been any more unfair.

By the way, I have for a couple of years now been discussing my efforts to convert all our full-time employees to part-time.  I have gotten a lot of grief for that in the comments.  But do you see why now?  The Administration is levying a penalty on me that I cannot avoid.  That penalty is calculated as a multiple of the number of full-time workers I employ.  The only way I can reduce the penalty is to reduce the number of full-time employees.

It is a sorry state of affairs to have to see my greatest business achievement of the last year was to get my number of full-time employees in a workforce of over 350 people down to just 42.  This year, we will work to get it under 30.  If we can do that, we will avoid all penalties entirely without having to mess with the health insurance marketplace.


** As a transition measure, the first 80 are free in 2015, which means my company will avoid penalties in 2015 no matter what but not in 2016 unless we can get our full-time employee count down further.


Postscript:  One of the oddball and confusing parts of the law is that the word "full-time" has multiple meanings.  This year, companies with more than 100 full time equivalents (FTE) are subject to the mandate.    Because of this, at cocktail parties, I have people walk up to me all the time saying the law does/doesn't apply to me based on a factoid they heard about minimum workforce sizes.  I have 350 total employees of whom 42 are full time.  Some say that puts me over 100 (the 350) and some say that puts me under the 100 (the 42).  It turns out that neither are relevant in determining if I am under or over 100, it is a third calculation that matters.  We do have more than 100 FTE, but we have less than 80 full-time employees that triggers the penalties in 2015.  Go figure.

Arrogance of the Elite

I am pretty freaking cynical about the political process, so it takes something pretty bad to catch my attention.  This attitude by Obamacare architect Jonathon Gruber, which is likely shared by most of the Administration, simply makes me sick:

An architect of the federal healthcare law said last year that a "lack of transparency" and the "stupidity of the American voter" helped Congress approve ObamaCare.

In a clip unearthed Sunday, Massachusetts Institute of Technology Professor Jonathan Gruber appears on a panel and discusses how the reform earned enough votes to pass.

He suggested that many lawmakers and voters didn't know what was in the law or how its financing worked, and that this helped it win approval.

"Lack of transparency is a huge political advantage,” Gruber said. "And basically, call it the stupidity of the American voter or whatever, but basically that was really, really critical for the thing to pass."

Gruber made the comment while discussing how the law was "written in a tortured way" to avoid a bad score from the Congressional Budget Office. He suggested that voters would have rejected ObamaCare if the penalties for going without health insurance were interpreted as taxes, either by budget analysts or the public.

"If CBO scored the [individual] mandate as taxes, the bill dies," Gruber said.

"If you had a law that made it explicit that healthy people are going to pay in and sick people are going to get subsidies, it would not have passed," he added.

By the way, Jonathon Gruber was the one in 2012 who said over and over that the limitation of subsidies to state-run exchanges was not a drafting error, but was an intentional feature meant to give incentives to states to create exchanges.  Now that it is clear that incentive did not do its job, and a case is in front of the Supreme Court attempting to enforce the plain language of the law, Gruber is now saying that he mispoke (over and over again) in 2012 and it was a typo.  Given the fact that he has now admitted he would gladly lie (and has) to the public to defend Obamacare, how much should we believe his current claims?

Healthcare Deductibles Rising -- Why This is GOOD News

Things like Obamacare cannot be discussed, it seems, in anything but a political context.  So if you don't like Obamacare, everything that happens has to be bad. But I actually think this is good news, and goes against my fears in advance of Obamacare.  I had been worried that Obamacare would just increase the trends of more and more health care spending being by third-party payers.  And my guess is that this is happening, when you consider how many people have gone from paying cash to having a policy, either a regular policy or expanded Medicaid.

A report out today puts numbers behind what hit many workers when they signed up for health insurance during open enrollment last year: deductible shock.

Premiums for employer-paid insurance are up 3% this year, but deductibles are up nearly 50% since 2009, the report by the Kaiser Family Foundation shows.

The average deductible this year is $1,217, up from $826 five years ago, Nearly 20% of workers overall have to pay at least $2,000 before their insurance kicks in, while workers at firms with 199 or fewer employees are feeling the pain of out-of-pocket costs even more: A third of these employees at small companies pay at least $2,000 deductibles.

“Skin-in-the-game insurance” is becoming the norm,says Kaiser Family Foundation CEO Drew Altman, referring to the higher percentage of health care costs employees have to share.

Honestly, this is good news, sort of.  I don't like the coercion and lack of choice, but the main problem with health care is that the person receiving the benefits is not the person paying the bills, which means there is no incentive to shop or make care tradeoffs.  Higher deductibles mean more people are going to be actively shopping and caring what health services cost, and that is a good thing for prices and health care inflation.

If You Like Federal Curbs on School Bake Sales, You Are Going to Love the Results of Obamacare

From George Will, the logic behind what I call the health care Trojan Horse

Washington’s response to the menace of school bake sales illustrates progressivism’s ratchet: The federal government subsidizes school lunches, so it must control the lunches’ contents, which validates regulation of what it calls “competitive foods,” such as vending machine snacks. Hence the need to close the bake sale loophole, through which sugary cupcakes might sneak: Foods sold at fundraising bake sales must, with some exceptions, conform to federal standards.

So if school lunch programs are a platform for so much micro-regulation, how much regulation do you think the government takeover of healthcare will justify?  If government is paying most of the health care bills, then any activity that might affect your health is then logically subject to government regulation, if for no other reason than to protect against additional costs.  Motorcycle helmet laws have been justified for years on this logic that helmetless riders impose additional costs on government health programs.  Well, if that works for motorcycling, why shouldn't government be heavily regulating skiing?  Or for that matter, why should it allow people to drive cars at all?  Perhaps we should have to get government approval before every car trip to make sure it is not "frivolous" and creating future health care costs through accident risk.

Or how about that most costly-to-health-care activity of all: sex.  Sex spreads expensive diseases.  It can lead to expensive procedures like abortion.  And of course it can lead to costly pregnancies and, worst of all, new lives that have to be maintained for another 80 years by the government health care system.  If funding school lunch programs leads logically to banning cupcake sales at schools, why won't Obamacare lead logically to micro-regulation of our every activity?

The Other Shoe Drops on Businesses From Obamacare: Reporting

A lot of discussion has gone into the costs of the employer mandate.

These costs certainly were potentially high for my company.  If we had to provide health care for all of our employees, it would cost us an annual sum between 3 and 4 times our annual profit.  As many of your know, my company runs public parks and campgrounds.  Already, we have struggled to get government authorities to approve fee increases driven by local minimum wage increases.  Most of these authorities have already told us that they would not allow fee increases in most cases to offset the costs of the PPACA employer mandate.   So we have spent a lot of time converting between 90 and 95% of our employees to part-time, so the mandate would not apply to them.  I have gotten a lot of grief for my heartlessness on this in the comments, but I have zero idea what else I could have done short of simply shutting down the business.

Yesterday I was in an information session about the employer mandate and saw that the other shoe had dropped for companies -- the reporting requirement.  Despite the fact that the employer mandate was supposed to kick in almost 9 months ago, until recently the government had still not released the reporting requirements for companies vis a vis the mandate.  Well, apparently the draft reporting requirements was released a few weeks ago.  I may be missing something, but the key requirement for companies like mine is that every employee must receive a new form in January called an IRS 1095-C, which is parallel to the W-2 we all get to report income.

I know that many of you have probably been puzzled as to what some of those boxes mean on the W-2.  Well, you are going to love the 1095C

click to enlarge

Everyone is scratching their heads, wondering what this means.  For someone like me who has seasonal and part time workers, this form is a nightmare, and I have no idea how we are going to do this.  Just to give you a flavor, here are the code choices for line 14:

1A. Qualified Offer: Minimum Essential Coverage providing Minimum Value offered to full-time
employee with employee contribution for self-only coverage equal to or less than 9.5% mainland
single federal poverty line and Minimum Essential Coverage offered to spouse and

1B. Minimum Essential Coverage providing Minimum Value offered to employee only.

1C. Minimum Essential Coverage providing Minimum Value offered to employee and at least Minimum Essential Coverage offered to dependent(s) (not spouse).

1D. Minimum Essential Coverage providing Minimum Value offered to employee and at least Minimum Essential Coverage offered to spouse (not dependent(s)).

1E. Minimum Essential Coverage providing Minimum Value offered to employee and at least Minimum Essential Coverage offered to dependent(s) and spouse.

1F. Minimum Essential Coverage not providing Minimum Value offered to employee, or employee and spouse or dependent(s), or employee, spouse and dependents.

1G. Offer of coverage to employee who was not a full-time employee for any month of the calendar year and who enrolled in self-insured coverage for one or more months of the calendar year.

1H. No offer of coverage (employee not offered any health coverage or employee offered coverage not providing Minimum Essential Coverage).

1I. Qualified Offer Transition Relief 2015: Employee (and spouse or dependents) received no offer of coverage, or received an offer of coverage that is not a Qualified Offer, or received a Qualified Offer for less than all 12 Months.

Completing lines 14-16 will require an integration of our payroll provider with our health insurance information that I have no idea how we are going to pull off.

It May Be Hard to Go Back To Full-Time Work

Back in April of 2013 I wrote about how Obamacare was increasing incentives for offering part-time rather than full-time work.   I warned at the time that once employers got used to scheduling based on part-time shifts, they might never want to go back because it could actually be cheaper and easier than using full-time workers

The service industry generally does not operate 8 hours a day, 5 days a week, so its labor needs do not match traditional full-time shifts.  Those of us who run service companies already have to piece together multiple employees and shifts to cover our operating hours.  In this environment, there is no reason one can’t stitch together employees making 29 hours a week (that don’t have to be given expensive health care policies) nearly as easily as one can stitch together 40 hours a week employees.   In fact, it can be easier — a store that needs to cover 10AM to 9PM can cover with two 5.5 hour a day employees.   If they work 5 days a week, that is 27.5 hours a week, safely part-time.  Three people working such hours with staggered days off can cover the store’s hours for 7 days.

Based on the numbers above, a store might actually prefer to only have sub-30 hour shifts, but may have, until recently, provided full-time 40 hours work because good employees expect it and other employers were offering it.  In other words, they had to offer full-time work because competition in the labor market demanded it.  But if everyone in the service business stops offering full-time work, the competitive pressure to offer anything but part-time jobs will be gone.  The service business may never go back.

The future American service worker will likely be faced with stitching together multiple part-time shifts.  Companies may partner to coordinate shifts so that workers split time between the companies, and third-party clearing houses may emerge in a new value-added role of helping employers and employees stitch together part-time shifts.

Today Virginia Postrel sees this effect in action

The worst thing about being on jury duty isn’t actually serving on a jury. It’s having to check in every day -- possibly several times a day, depending on your local system -- to see whether you’ll be needed. You can’t plan either your work or your personal life. Your schedule is unpredictable and completely out of your control.

For many part-time workers in the post-crash economy, life has become like endless jury duty. Scheduling software now lets employers constantly optimize who’s working, better balancing labor costs and likely demand. The process demands enormous flexibilityfrom part-time workers, sometimes requiring them to be on call all the time without knowing when they’ll work or how much they’ll earn. That puts the kibosh on the age-old strategy of working two or more part-time jobs to make ends meet. As my colleague Megan McArdle writes, “No matter how hard you are willing to work, stringing together anything approaching a minimum income becomes impossible.”

Forget Halbig. Obama May Have Lost the Senate By Giving Subsidies to the Federal Exchange

In Halbig, the DC Circuit argued that the plain language of the PPACA should rule, and that subsidies should only apply to customers in state-run exchanges.  I am going to leave the legal stuff out of this post, and say that I think from a political point of view, Obamacare proponents made a mistake not sticking with the actual language in the bill.  The IRS was initially ready to deny subsidies to the Federal exchanges until Administration officials had them reverse themselves.  When the Obama Administration via the IRS changed the incipient IRS rule to allow subsidies to customers in Federal exchanges, I believe it panicked.  It saw states opting out and worried about the subsidies not applying to a large number of Americans on day 1, and that lowered participation rates would be used to mark the program as a failure.

But I think this was playing the short game.  In the long game, the Obama Administration would have gone along with just allowing subsidies to state-run exchanges.  Arizona, you don't want to build an exchange?  Fine, tell your people why they are not getting the fat subsidies others in California and New York are getting.  Living in Arizona, I have watched this redder than red state initially put its foot down and refuse to participate in the Medicaid expansion, and then slowly see that resolve weaken under political pressure. "Governor Brewer, why exactly did you turn down Federal Medicaid payments for AZ citizens?  Why are Arizonans paying taxes for Medicaid patients in New Jersey but not getting the benefit here?"

Don't get me wrong, I would like to see Obamacare go away, but I think Obama would be standing in much better shape right now had he limited subsidies to state exchanges because

  1. The disastrous Federal exchange roll-out would not have been nearly so disastrous without the pressure of subsidies and the data integration subsidy checks require.  Also, less people would have likely enrolled, reducing loads on the system
  2. Instead of the main story being about general dissatisfaction with Obamacare, there would at least be a competing story of rising political pressure in certain states that initially opted out to join the program and build an exchange.  It would certainly give Democrats in red and purple states a positive message to run on in 2014.

Obamacare Newly Insured Numbers Miss by at least 50% vs. Projections

With our new prosthetic memory, called the Internet, it should be easy to go back and look at past predictions and see how well those predictions played out.  Heck, sports talk radio hosts do it all the time, comparing their beginning of season predictions with what actually happened.  But no one ever seems to hold the government or politicians similarly accountable.

Here is one I found by accident.  In July of 2011, Kevin Drum quotes this prediction from the CMS (Center for Medicare and Medicaid Services, a government agency).

In 2014, the Affordable Care Act will greatly expand access to insurance coverage, mainly through Medicaid and new state health insurance exchanges which will facilitate the purchase of insurance. The result will be an estimated 22.9 million newly insured people.

In March of 2014 Kevin Drum quotes this from the LA Times

As the law's initial enrollment period closes, at least 9.5 million previously uninsured people have gained coverage. Some have done so through marketplaces created by the law, some through other private insurance and others through Medicaid, which has expanded under the law in about half the states.

The tally draws from a review of state and federal enrollment reports, surveys and interviews with insurance executives and government officials nationwide.

....Republican critics of the law have suggested that the cancellations last fall have led to a net reduction in coverage. That is not supported by survey data or insurance companies, many of which report they have retained the vast majority of their 2013 customers by renewing old policies, which is permitted in about half the states, or by moving customers to new plans.

This is presented as a great victory, but in fact it is nearly 60% below expectations of less than two years earlier.  We don't know the final number.  Drum, who should be expected to be on the optimistic end of projections, has upped his estimate to 11-13 million, but this is still barely half what was expected.   The disastrous Obamacare exchange rollout did one thing at least -- it hammered expectations so low that even a 50% miss is considered a great victory.


Halbig & Obamacare: Applying Modern Standards and Ex-Post-Facto Knowledge to Historical Analysis

One of the great dangers of historical analysis is applying our modern standards and ex post facto knowledge to analysis of historical decisions.  For example, I see modern students all the time assume that the Protestant Reformation was about secularization, because that is how we think about religious reform and the tide of trends that were to follow a century or two later.  But tell John Calvin's Geneva it was about secularization and they would have looked at you like you were nuts (If they didn't burn you).  Ditto we bring our horror for nuclear arms developed in the Cold War and apply it to decision-makers in WWII dropping the bomb on Hiroshima.  I don't think there is anything harder in historical analysis than shedding our knowledge and attitudes and putting ourselves in the relevant time.

Believe it or not, it does not take 300 or even 50 years for these problems to manifest themselves.  They can occur in just four.  Take the recent Halbig case, one of a series of split decisions on the PPACA and whether IRS rules to allow government subsidies of health care policies in Federal exchanges are consistent with that law.

The case, Halbig v. Burwell, involved the availability of subsidies on federally operated insurance marketplaces. The language of the Affordable Care Act plainly says that subsidies are only available on exchanges established by states. The plaintiff argued this meant that, well, subsidies could only be available on exchanges established by states. Since he lives in a state with a federally operated exchange, his exchange was illegally handing out subsidies.

The government argued that this was ridiculous; when you consider the law in its totality, it said, the federal government obviously never meant to exclude federally operated exchanges from the subsidy pool, because that would gut the whole law. The appeals court disagreed with the government, 2-1. Somewhere in the neighborhood of 5 million people may lose their subsidies as a result.

This result isn’t entirely shocking. As Jonathan Adler, one of the architects of the legal strategy behind Halbig, noted today on a conference call, the government was unable to come up with any contemporaneous congressional statements that supported its view of congressional intent, and the statutory language is pretty clear. Members of Congress have subsequently stated that this wasn’t their intent, but my understanding is that courts are specifically barred from considering post-facto statements about intent.

We look at what we know NOW, which is that Federal health care exchanges operate in 37 states, and that the Federal exchange serves more customers than all the other state exchanges combined.  So, with this knowledge, we declare that Congress could not possibly meant to have denied subsidies to more than half the system.

But this is an ex-post-facto, fallacious argument.  The key is "what did Congress expect in 2010 when the law was passed", and it was pretty clear that Congress expected all the states to form exchanges.  In fact, the provision of subsidies only in state exchanges was the carrot Congress built in to encourage states to form exchanges. (Since Congress could not actually mandate states form exchanges, it has to use such financial carrots and stick.  Congress does this all the time, all the way back to seat belt and 55MPH speed limit mandates that were forced on states at the threat of losing state highway funds.  The Medicaid program has worked this way with states for years -- and the Obamacare Medicare changes follow exactly this template of Feds asking states to do something and providing incentives for them to do so in the form of Federal subsidies).  Don't think of the issue as "not providing subsidies in federal exchanges."  That is not how Congress would have stated it at the time.  Think of it as "subsidies are not provided if the state does not build an exchange".  This was not a bug, it was a feature.  Drafters intended this as an incentive for creating exchanges.  That they never imagined so many would not create exchanges does  not change this fact.

It was not really until 2012 that anyone even took seriously the idea that states might not set up exchanges.  Even as late as December 2012, the list was only 17 states, not 37.  And note from the linked article the dissenting states' logic -- they were refusing to form an exchange because it was thought that the Feds could not set one up in time.  Why?  Because the Congress and the Feds had not planned on the Federal exchanges serving very many people.  It had never been the expectation or intent.

If, in 2010, on the day after Obamacare had passed, one had run around and said "subsidies don't apply in states that do not form exchanges" the likely reaction would not have been "WHAT?!"  but "Duh."  No one at the time would have thought that would "gut the whole law."

Postscript:  By the way, note how dangerous both the arguments are that opponents of Halbig are using

  1. The implementation of these IRS regulations are so big and so far along that it would be disruptive to make them illegal.  This means that the Administration is claiming to have the power to do anything it wants as long as it does it faster than the courts can work and makes sure the program in question affects lots of people
  2. The courts should give almost unlimited deference to Administration interpretations of law.  This means, in effect, that the Administration rather than the Courts are the preferred and default interpreter of law.  Does this make a lick of sense?  Why have a judiciary at all?

Hobby Lobby, Obamacare and Contraception

A few thoughts

  1. This is one of those "bad policy conflicts with bad policy" decisions that I have trouble getting excited about.   The government should not be mandating tiny details of health insurance policies.  On the flip side, personal religious beliefs should not trump the rule of law (example:  the fact someone has a religion that says it is legal to beat his wife should not create an exception allowing spouse abuse).
  2. That being said, the case only seems legally difficult if one completely ignores the existence of the 1993 RFRA, which most on the Left seem to want to ignore.
  3. I have zero patience with the facile argument that corporations have no individual rights.  Corporations are just assemblies of people.  Our right to assembly should not cause us to lose our other rights.  If I have freedom of speech as an individual, I don't give it up when I create a corporation.
  4. I am even more exhausted with the argument that opposing government subsidies of an activity is the same as opposing the activity itself.  Though half the readers who see this post will assume that I am anti-abortion or anti-contraception, which I am not. (Update:  This seems to be a prevalent argument today, though -- see here)
  5. The most ignored fact of this case in my mind is the absolute insanity of the government mandating that regular, predictable purchases be covered in an insurance policy.  Intelligent health insurance policies should no more cover routine contraception than home insurance policies should cover the cost of light bulb replacements.   Sure, I have no problem if some private person wanted such a policy and a private company offered one -- but mandating this craziness is just amazingly bad policy.
  6. If you really want to help women and reduce their net cost of contraception, stop requiring a prescription for certain contraceptives, like birth control pills.

Bureaucracy and Incentives

Loved this passage from Glen Reynolds on the VA:

There's a naive tendency to believe that whatever a government agency's mission is supposed to be, is really the mission that its people pursue. That's seldom the case for long.

Science fiction writer Jerry Pournelle, observing such things, has formulated what he calls the Iron Law of Bureaucracy: In every organization there are two kinds of people: those committed to the mission of the organization, and those committed to the organization itself. While the mission-committed people pursue the mission, the organization-committed people take over the organization. Then the mission-committed people tend to become discouraged and leave.

As a result, the strongest priority of most bureaucracies is the welfare of the bureaucracy and the bureaucrats it employs, not whatever the bureaucracy is actually supposed to be doing. That's worth remembering, whenever someone says they've found something else that we should "choose to do together."

This is not unique to government, but a rule for all organizations.  However, in a private-sector, organizations that devolve in this way get slaughtered (except of course for crony favors and bailouts, but that is another topic).  Accountability never ever comes to government organizations.

Update:  One other observation -- in criticizing Obamacare in advance of its implementation, I never mentioned computer systems problems.  And I always assumed that if you threw enough money and mandates at the problem, the number of uninsured (not to be confused with the number of people with access to quality care) would be reduced.  So all the current triumphalism around Obamacare are about issues that were in fact never raised in advance as criticisms.

One issue that was raised time and again was the information and incentives issues that make it almost impossible to government health care to deliver quality care at a reasonable price.  And the heart of the VA disaster is all an incentives issue.  And it will not get solved.  In part because the incentives issues are endemic to monopoly government services (see: public high schools).  But the government is not even trying to solve the incentives issue.

Why We Are Seeing Long Waits And Shortages of Doctors and Basic Medicines in Health Care

This is a re-post of an article I wrote in 2012.  I am re-posting it to demonstrate that recent stories about doctor shortages and wait times are absolutely inevitable results of government interventions in the health care economy.

My son is in Freshman econ 101, and so I have been posting him some supply and demand curve examples.  Here is one for health care.  The question at hand:  Does government regulation including Obamacare increase access to health care?  Certainly it increases access to health care insurance, but does it increase access to actual doctors?   We will look at three major interventions.

The first and oldest is the imposition of strong, time-consuming, and costly professional licensing requirements for doctors.  At this point we are not arguing whether this is a good or bad thing, just portraying its inevitable effects on the supply and demand for doctors.

I don't think this requires much discussion. For any given price for doctor services, the quantity of doctor hours available is certainly going to increase as the barriers to entry to the profession are raised.

The second intervention is actually a set of interventions, the range of interventions that have encouraged single-payer low-deductible health insurance and have provided subsidies for this insurance.  These interventions include historic tax preferences for employer-paid employee health insurance, Medicare, Medicaid, the subsidies in Obamacare as well as the rules in Obamacare that discourage high-deductible policies and require that everyone buy insurance rather than pay as they go.  The result is a shift in the demand curve to the right, along with a shift to a more vertical demand curve (meaning people are more price-insensitive, since a third-party is paying).

The result is a substantial rise in prices, as we have seen over the last 30 years as health care prices have risen far faster than inflation

As the government pays more and more of the health care bills, this price rise leads to unsustainably high spending levels, so the government institutes price controls.  Medicare has price controls (the famous "doc fix" is related to these) and Obamacare promises many more.  This leads to huge doctor shortages, queues, waiting lists, etc.  Exactly what we see in other state-run health care systems.  The graph below posits a price cap that forces prices back to the free market rate.

So, is this better access to health care?

I know that Obamacare proponents claim that top-down government operation is going to reap all kinds of savings, thus shifting the supply curve to the right.  Since this has pretty much never happened in the whole history of government operations, I discount the claim.  When pressed for specifics, the ideas typically boil down to price or demand controls.  Price controls we discussed.  Demand controls are of the sort like "you can't get a transplant if you are over 70" or "we won't approve cancer treatments that only promise a year more life."

Most of these do not affect the chart above, since it is for doctor services and most of these cost control ideas are usually doctor intensive - more doctor time to have fewer tests, operations, drugs.  But even if we expanded the viewpoint to be for all health care, it is yet to be demonstrated that the American public will even accept these restrictions.  The very first one out of the box, a proposal to have fewer mamographies for women under a certain age, was abandoned in a firestorm of opposition from women's groups.  In all likelihood, there will be some mish-mash of demand restrictions, determined less by science and by who (users and providers) have the best lobbying organizations.

My longer series of three Forbes articles on this and other economic issues with Obamacare begin here:  Part 1 InformationPart 2 IncentivesPart 3 Rent-Seeking

Update:  Pondering on this, it may be that professional licensing also makes the supply curve steeper.  It depends on how doctors think about sunk cost.