Monday, February 22, 2010

That trick never works 

For many, price controls may seem like a tempting solution to holding down health care costs. However, past attempts at price controls teach us a very different lesson�this is one government policy guaranteed to do more harm than good. In fact, throughout history, price controls have been a notorious flop, bringing on economic stagnation and decline, rationing, hoarding, black marketing and organized crime, assaults on civil liberties, and even inflation, not to mention untold waste, graft, and human suffering.

In fact, from Babylon�s King Hammurabi to presidents Richard Nixon and Jimmy Carter, the thirty-eight-century history of price controls is a recurring economics lesson for any modern Luddite seeking a quick fix to health care costs. For instance, after he and previous emperors had debased the currency, creating rampant inflation, the Roman emperor Diocletian set maximum prices on more than one thousand products and services. Goods disappeared in legal markets, and reluctantly consumers and producers turned toward black markets despite a penalty of death for participating in these markets. After much suffering and bloodletting of the unfortunate caught violating the law, the law was revoked and Diocletian abdicated.
Thus wrote Simon Rottenberg and David Theroux in 1994 when we last debated price controls in health care. Some of the stories they tell come from overseas with regards to health care:
Price controls always lead to non-price rationing. If any of my students are reading, they will know my slogan -- all scarce goods get rationed somehow. If you aren't using price to ration, you can't say it isn't rationed, you just have to define the mechanism that does the rationing. The Fraser Institute's Waiting Your Turn annual survey is a measure of an alternative rationing mechanism called a queue, or first-come-first-served.

The Obama Administration's proposal leads to rationing of health insurance (or as Arnold Kling calls it, health insulation) that probably will not be on a queuing system. It creates a shortage, as any effective price control does. To provide the health insurance to others you will have government subsidies paid for by additional taxes. The growth-damaging effects of those additional taxes will not be recognized.

And as prices are reduced and people continue to be promised health care at near-zero marginal cost, insurance companies will slowly suffocate. Who will save us?

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Wednesday, January 27, 2010

An object lesson for health care 

Last week Ed Morrissey commented on another "public option" stalking a market: the college loan market. In order to get more students into colleges -- driving up demand and thus raising tuition above the rate of inflation -- the government wanted to encourage private lenders to give credit to teens and 20-somethings, a group that tends to be quite risky to lend to. So government decided it would share the risk with banks and other creditors by covering interest rate risk (subsidizing lower interest rates) while taking back some money if interest rates drop too low. Most of you educated in the 1970s and on know these as Stafford Loans.

The Clinton Administration had government directly enter the marketplace through direct lending -- skipping the banks. That in effect was the public option, and for about 15 years its had between a fifth and a fourth of the market. Both co-existed but, since the private market lenders were subsidized by the state, the government had both sides of the market. And along with that you had asset-backed securities backed by student loans (with great ratings, naturally -- example) to encourage even more lending. Unsurprisingly that part of the market was not spared in the credit crunch of 2008-09.

Now as the credit crunch subsides, some lenders are trying to get back in the market, some say, the Obama Administration intends in tonight's State of the Union Address to turn student loans even further into a plan to create a larger public sector.

As part of the White House�s �middle-class� aid initiatives unveiled today, President Obama proposed that students making payments under federal college loan programs would have monthly payments capped at 10% of income exceeding a �basic living allowance.�

That would lower the payment cap for qualified borrowers from the current maximum of 15% of income. The 15% maximum took effect in July under the government�s income-based repayment program, although some very-low-income borrowers are making no payments at all under that program.

As an example, the White House said, the 10% cap would mean that the maximum monthly payment for a borrower earning $30,000 a year who owes $20,000 in loans would be $115 a month, instead of $228 under the standard 10-year loan repayment plan.

The administration also proposed expanding the government�s debt-forgiveness program for student borrowers. Under current rules, all remaining federal student debt can be forgiven after 25 years. The White House wants to cut that to 20 years.

Already, borrowers who take public-service jobs can have their remaining debt canceled after 10 years. The administration would retain that cutoff for public-service workers.
Andrew Clark lists many things wrong with the legislation, including the possibility of having AFSCME getting into the student loan processing business, while Neal McCluskey shows how the bill includes billions in new dollars to colleges and university supposedly for retention and graduation of students, but with fairly easy guidelines to get the money. Ed points out that this should be instructive:
This is a perfect example of what the government will wind up doing to health care, either in the near term or somewhat down the road. [Obviously more down the road now that last week when Ed wrote this --kb] They intervene to promote a social agenda, and eventually decide that total government control is �more efficient� than the private sector. We need to stop the nationalization of student loans, but more importantly, we need to learn the right lesson of what happens when we allow the federal government to compete with the private sector. Eventually, the private sector gets eliminated, and we�re seeing that unfold in real time with student loans.

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Wednesday, January 13, 2010

Important graph 

On average, consumers� out-of pocket healthcare costs increased 6.7 percent each year, while national healthcare expenditures increased by an average 9.8 percent each year.

By contrast, increases in expenditures by private insurers, Medicaid, and Medicare accounted for the majority of this excess cost growth�since 1965, private insurers� spending has increased by an average 10.8 percent annually, Medicaid spending has increased by an average 15.4 percent, and Medicare spending has increased by an average of 15.6 percent each year. Also, as you can see, the rate of growth in both Medicare and Medicaid spending far outpaces the rate of growth in out-of-pocket and private insurance costs.

And it�s about to get much worse. On Christmas Eve, the Senate passed the Patient Protection and Affordable Care Act, which further expands Medicaid and Medicare�s roles in the U.S. healthcare system.
Veronique de Rugy. I can't remember or find who said this first -- it does not originate with me -- but the difference between conservative and liberal solutions to health care are that conservatives think holding down costs requires us to make individuals responsible for more of the spending. (That could be vouchers, as Arnold Kling points out, if you worry about distributional effects.) Liberal solutions require a shifting of costs onto a broad tax base and use monopsony to control costs. But doesn't the graph say we've already tried this?

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Tuesday, December 29, 2009

Look at all those mandates 

There was an item in WSJ's Political Diary that discussed a study by the Small Business and Entrepreneurship Council on ranking health care costs for small business across the 50 states. It is what I feared it was, an arbitrary summing up of a series of qualitative measurements, without any explanation of why the scale was chosen as it was. For instance, if you have no high-risk pool to handle the "medically uninsurable" in your state you get a 1 (getting points is a bad thing -- you want to be close to zero), since leaving those people in the general insurance pool leaves some uninsured and pushes up emergency room use. A mandate in your state health insurance law adds 0.05. So why do 20 mandates equal a lack of a high-risk pool? These are the kinds of questions we tried to get at in the book, and it's one of those things that drives me mad with these mystery meat indicators.

Still, the underlying raw data was interesting, and so with that big caveat here are the rankings for upper Midwestern states.

HSA deduct GI/SE
CR/ SG GI/ Ind
CR/ Ind
High Risk
Man- dates
2 Nebr. 0 0 0.33 0.00 0.00 0.00 1.60 1.93
4 Iowa 0 0 0.33 0.00 0.33 0.00 1.30
SDak 0 0 0.33
0.00 0.33 0.00 1.50 2.16
11 NDak 0 0 0.33 0.00 0.33 0.00 1.70 2.36
21 Wisc 1 0 0.33 0.00 0.00 0.00 1.70 3.03
37 Minn 0 0 0.33 0.00 0.33 0.00 3.40 4.06

Thanks to HTML Tables for formatting. Here's a brief guide to the labels, and see the study for details:
So you can see Minnesota's low ranking is almost all due to mandates, double or more of any of its neighbors. So what are those? SBEC's source is a study by the Council for Affordable Health Insurance, which finds 68 separate mandates for Minnesota. (This study was previously discussed on this blog.) Some of them are relatively rare: MN is one of five states that requires coverage for Lyme's Disease, though in that case I can see a case. In others, such as being one of only two states that mandates coverage of port wine stain elimination, one of two for reconstructive surgery or one of three for psychotropic drug therapy, one might see some places we could reduce costs. But any one of them has a small intense group that lobbies for coverage and nobody really interested in elimination because the change in the price of health insurance coverage might be less than 1%. The problem is, 20 such items -- which would get us to about the median -- would create some real savings. It's a classic Olson collective action problem.

There then is some use for this study: It focuses us on what the issue for health care costs in Minnesota is. It also suggests that reducing these will be hard. Alas, federal health legislation may reduce the differences in mandates between the Nebraskas and the Minnesotas before much longer.

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Wednesday, December 23, 2009

Game theory and ping-pong 

There's been a lot of moralizing about the holdout strategies of Lieberman and Nelson, but under some game-theoretic accounts it is a blessing in disguise, a blessing for Obama at least. For instance Rahm Emanuel can now say to the House: "look, we just can't renegotiate this any more or the coalition will fall apart. You'd better get on board with the Senate version of the bill" A lot of these legislative games don't otherwise have a core, or it takes so long to find the core that the deal falls apart in the meantime.

The holdout behavior of one decisive Senator decreases the need to cut bargains with other members of Congress. The key words here are "credible precommitment to no further renegotiation." The more anxious or wavering Nelson and Lieberman were/are, the more credible this precommitment.

Tyler Cowen. No offense to my friends who are waging the battle against the bill by holding out for conference committee, but my best bet is that it never gets there. Keith Hennessey wrote last week: "When one legislative body credibly says 'We cannot pass anything but X,' and the other says 'We don�t want to pass anything but Y,' X wins." John Fund concurs:

When Democrats took over Congress in 2007, they increasingly did not send bills through the regular conference process. "We have to defer to the bigger picture," explained Rep. Henry Waxman of California. So the children's health insurance bill passed by the House that year was largely dumped in favor of the Senate's version. House Ways and Means Chairman Charles Rangel and other Democrats complained the House had been "cut off at the knees" but ultimately supported the bill. Legislation on lobbying reform and the 2007 energy bill were handled the same way -- without appointing an actual conference.

Rather than appoint members to a public conference committee, those measures were "ping-ponged" -- i.e. changes to reconcile the two versions were transmitted by messenger between the two houses as the final product was crafted behind closed doors solely by the leadership.
So even if they can't get 218 on this version of the Senate bill, they may just circumvent conference and send something back to the Senate to which Reid and Pelosi have already agreed.

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A bit of Davy Crockett 

Crockett is said to have created the word logrolling (used in the post below). I wanted to see where it came from, and it does appear in "Sketches and eccentricities of Col. David Crockett of west Tennessee" by J.S. French in 1833. Crockett apparently wrote a narrative as a preface to the book to correct any wrong impressions, but from this I think we can say the word comes perhaps from a story about Crockett more than from Crockett's own mouth. French relates the following story at pages 79-80 -- I've corrected what appear to be typos, Crockett's words in italics:
While in the legislature, there was a bill before it for the creation of a county. The author of if wished to run the boundary line, so as to support his popularity ; to this the colonel was opposed, because his interest was affected by it. They were hammering at it for some time ; whatever the author of the bill would affect by speaking, the colonel would undo by logrolling; until the matter was drawing to a close, when he rose and made the following speech:

"Mr. Speaker, � Do you know what that man's bill reminds me of? Well, I 'spose you don't, so I'll tell you. Well, Mr. Speaker, when I first come to this country, a blacksmith was a rare thing; but there happened to be one in my neighbourhood : he had no striker, and whenever one of the neighbours wanted any work done, he had to go over and strike till his work was finished. These were hard times, Mr. Speaker, but we had to do the best we could. It happened that one of my neighbours wanted an axe, so he took along with him a piece of iron, and went over to the blacksmith's to strike till his axe was done. The iron was heated, and my neighbour fell to work, and was striking there nearly all day ; when the blacksmith concluded the iron wouldn't make any axe, but 'twould make a fine mattock ; so my neighbour wanting a mattock, concluded he would go over and strike till his mattock was done ; accordingly, he went over the next day, and worked faithfully ; but towards night the blacksmith concluded his iron wouldn't make a mattock, but 'twould make a fine ploughshare ; so my neighbour wanting a ploughshare, agreed that he would go over the next day and strike till that was done ; accordingly, he again went over, and fell hard to work ; but towards night the blacksmith concluded his iron wouldn't make a ploughshare, but 'twould make a fine show ; so my neighbour, tired working, cried, a show let it be � and the blacksmith holding up the red hot iron, threw it into a trough of water near him, and as it fell in, it sung out show. And this, Mr. Speaker, will be the way with that man's bill for a county ; he'll keep you all here doing nothing, and finally his bill will turn out a show, now mind if it don't."
Any parallels between this story and the Senate health care bill are coincidental. Or not. Anyway, seemed worthy of its own post.

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I'm shocked, shocked there's vote-trading in Casablanca 

Say then, my friend, in what manner does tyranny arise? --that it has a democratic origin is evident. -- Plato, The Republic.

I guess I had thought it was pretty well known that legislators trade votes and seek favors. Rentseeking has been around for centuries. Ever since James Madison wrote of factions in Federalist #10, we have known that we cannot remove the causes of special interests without removing liberty itself, so we have to control its effects.

Madison wrote, "When a majority is included in a faction, the form of popular government, on the other hand, enables it to sacrifice to its ruling passion or interest both the public good and the rights of other citizens." This is the situation in which we find ourselves today. The majority in the Senate prefers to gain control of the health industry, as it would any other if it found a pretense. This is the tyranny of the majority. So why did Madison think this would be nevertheless a good form of government? This is why he preferred a republic to a democracy, because a republic could better infuse the minority position into the legislative process:
In the next place, as each representative will be chosen by a greater number of citizens in the large than in the small republic, it will be more difficult for unworthy candidates to practice with success the vicious arts by which elections are too often carried; and the suffrages of the people being more free, will be more likely to centre in men who possess the most attractive merit and the most diffusive and established characters.

It must be confessed that in this, as in most other cases, there is a mean, on both sides of which inconveniences will be found to lie. By enlarging too much the number of electors, you render the representatives too little acquainted with all their local circumstances and lesser interests; as by reducing it too much, you render him unduly attached to these, and too little fit to comprehend and pursue great and national objects. The federal Constitution forms a happy combination in this respect; the great and aggregate interests being referred to the national, the local and particular to the State legislatures.

That last bit, "State legislatures", of course refers to the fact that Senators at that time were to be appointed by the state legislatures and not by popular, direct election. It seems highly unlikely that, if they were so elected today, that Sen. Ben Nelson would have an opportunity to be vote #60. But that's not how we pick them today, even though I believe it means senators do not have enough "acquaintance with all their local circumstances." A couple of paragraphs later,

It will not be denied that the representation of the Union will be most likely to possess these requisite endowments. Does it consist in the greater security afforded by a greater variety of parties, against the event of any one party being able to outnumber and oppress the rest? In an equal degree does the increased variety of parties comprised within the Union, increase this security. Does it, in fine, consist in the greater obstacles opposed to the concert and accomplishment of the secret wishes of an unjust and interested majority? Here, again, the extent of the Union gives it the most palpable advantage.
Madison clearly understood the ability of legislative leaders to vote-trade, as Harry Reid and Ben Nelson and the rest of the Democrats have now done. I don't think we should be surprised by it. Colbert King tells us to simply get over it: "My friends, dry your eyes, suck it up, and get on with it." And truly, Mr. King is right that the temptation to trade votes and to place pork in legislation is a temptation to which their has been bipartisan surrender and failure. This shock that Sen. Nelson has engaged in vote trading is a bit disingenuous. Challenge the constitutionality of the language of Nelson's bribe, or that of the binding of future Senates not to change the actions of the Independent Medicare Advisory Board. And sure you can point out who got which thirty pieces of silver. But let's not pretend this doesn't happen. It is the nature of government to logroll and always has been. (More on this in the preceding post.) James Joyner concurs:
This doesn�t mean we shouldn�t shine a light on these abuses. By all means, we should. But let�s not pretend that they�re a recent invention.
But it would be a good outcome if his most brazen legislative language -- how often do we explicitly name the state who gets the goodies? how often do we get a Senate Majority Leader so unashamed that he accuses those who don't get pork as having failed? at least Dodd had enough shame to drag a stick behind his tracks as he snuck off with $100 million for U Con -- reminded our populace of how voting out one set of pork-consumers doesn't mean you get clean government. Sometimes you get hungrier pork-consumers.

Boettke and Rogers, in a wonderful (and wonderfully thin) volume The Beginners Guide to Liberty (whole thing at that link), remind us of a story:
There is an old tale that many economists use to set up the discussion of how well the market works in comparison to government policy. A Roman Emperor is asked to judge a contest between two singers. After hearing the first contestant sing, the Emperor awards the prize to the second singer under the assumption that surely the second cannot be worse than the first.
The point of the story is that even when markets fail -- and the authors acknowledge that they do -- governments can fail too. When government failed in the second Bush Administration, people chose a different government. Perhaps next time they'll realize that when markets fail, the answer is to use markets to solve the failure.

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Friday, December 18, 2009

By very small steps 

Pick up the Senate health-care bill�yes, all 2,074 pages�and leaf through it. Almost half of it is devoted to programs that would test various ways to curb costs and increase quality. The bill is a hodgepodge. And it should be.
Atul Gawande in the New Yorker this week. Hat tip to James Kwak, who adds the sentence of the day:
So the only political option is incremental reform through small programs that experiment with different ways to change the incentives of private-sector actors at the margin.
Yes, a thousand times yes, and it will cost you much, much less than the Senate health-care bill. Why can't they just pass all the experimental programs and leave the crushing taxes behind?

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Tuesday, December 15, 2009

Are they inconsistent? 

I have made the increased economic literacy of adults my new cause. As evidence that there's demand for what I want to do I add this from Victor Fuchs:

My reading of the replies leads to the following conclusion: Despite all the media coverage (or maybe because of it), most of the public has a very limited understanding of the health care system and health policy. They think the insurance companies are the main problem. They think an employer mandate is a good idea because employers pay for care. They want to control cost, but oppose every policy that might do that except for thinking that drug company and insurance company profits are too high. They say they want everyone to have access to care but only one in four favors an individual mandate.

Why is the public�s understanding so limited?

I don't really follow why wanting access to care necessarily leads to favoring individual mandates, but the rest of it is rather consistent with the view that people don't get economics well. H/T: Bryan Caplan, whose writings have helped me come to decide this should be a cause we support, and who calls normal voters both economically illiterate and childish. If I can fix the former, I think the latter cares to itself.

Caplan also notes a poll question, "If the government makes these changes to health insurance [i.e., extending coverage], would that probably cause you to pay more, less, or the same amount for your own health care?"
And that comes as a result of the individual mandate. As of the moment, the latest CBO numbers indicate that in the individual market (about 33 million people) average premiums go up; those below twice the federal poverty level get a subsidy that brings down the number below what they had before. For those in employer groups (159 million) on average the benefits stay the same, but there could be substantial variation says CBO. (Thanks to Gary for the link.) CBO still insists that any cost-shifting that occurs with Medicare cuts gets offset by scale economies from more standardized policies (meaning, you don't get to choose which benefits you get as much as you used to) and fewer uninsured. That isn't impossible, but it's arguable and offered without much evidence.

Should voters care about other people's costs rather than their own? And how would improving people's understanding of health care policy improve public attitudes? Is it the job of economic education to soften these people up for a greater public role in health care?

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Monday, December 07, 2009

I'll say this until I'm blue in the face 

All scarce goods are rationed somehow. It doesn't matter how the good is allocated: If there is more of the good desired at a zero price than is available, some mechanism develops that determines who gets it. Thus for mammograms, California now wants to bar those under 50 from getting the good for free. The Senate, meanwhile, wants free mammograms for any woman over 40.

Steve Chapman runs the cost-benefit for us:
The task force's rationale was that the benefits of routine breast cancer screening to women in that age group are insufficient to justify the harms it causes them. Yes, it can be expected to save one life for every 1,904 women age 40 to 49 who get mammographies, but it also yields false positives, which require additional procedures.

Even when the positives are not false, they often lead to unnecessary treatment -- surgery, radiation and chemotherapy -- for tumors that pose little risk. The panel noted that mammograms often serve only to detect "a slower-growing cancer that would have eventually become clinically apparent but would never have caused death."
In the open market, mammograms are about $100. (Source.) So one might ask how to solve the question: If a mammogram saves a life one time in 1,904 procedures, it would be rational for you to spend $100 on one if you valued your life at $190,400. Given that most statistical value of a life calculations are measured in millions (Dept. of Transportation example, article in Regulation) this means that the rational person under the age of 50 will pay for the procedure herself, if someone else does not pay for it. The vote on the Mikulski amendment was only to decide who pays for them, not that they won't get done. Unless somehow we conclude that health reform is going to force mammograms into back alleys, we're only fighting over income distribution here.

A note for my conservative friends then: First, there's always rationing. Second, there can be such a thing as too many mammograms, just as there could be too many prostate tests. There may be, in fact, more mammograms now than would happen in the free market, or there may be less. We don't know, we don't live in a free market for mammograms. Where there are free markets, like LASIK, prices seem to come down. Perhaps the price of a mammogram would drop significantly if only we told the government don't pay for them, let us decide for ourselves.

Let's drop the "they're rationing!" bogeyman. When government says it wants to control costs ask "whose costs are those?" If it wants to control its costs say "fine, let us keep our money and let us bear the costs. We might make a better decision than you do anyway."

(h/t for Chapman link: Russ Roberts)

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Friday, December 04, 2009

Mrs. S writes 

A second column on health care. She says "the devil is in the details." She gets a lot of them into 650 or so words, working through an interview with state Rep. Steve Gottwalt. A couple people have said to me they really liked this one, so please check it out.

To see more devils, behold Canada, where the rate of increase of medical spending is growing faster than available revenues.
Provincial government health spending has grown at an average annual rate of 7.4% over the 10-year trend period examined in this report (1999/2000 to 2008/2009). At the same time, the average annual growth rate for total available provincial revenue has been only 6.5%. Provincial government health spending has also grown faster than provincial GDP, which grew at an average annual rate of only 6.4% over the same period.

...The most recent one-year growth in government health spending was 8.3% (on average across all provinces), while the growth in total available revenue was only 5.2%.
So how do you fix that? In Canada, they queue:
Unfortunately, provincial governments typically attempt to slow the growth of health spending by restricting or delaying access to publicly insured health care. For example, the most recent data show that wait times for access to medical services have increased in every province over the 10-year trend period (Esmail et al., 2008). In addition, provincial publicly funded drug programs are, to an increasing degree, covering only a small percentage of new medicines. Such policies have the effect of slowing growth in government health spending in the short term. However, the rationing of health goods and services cannot continue indefinitely without increasing medical risks for patients.
Link added.

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Friday, November 20, 2009

Two good paragraphs 

The individual insurance mandate, then, is a solution to a problem the bill itself would create. The authors invoke the Commerce Clause to protect interstate commerce from a threat they themselves pose to it. They could avert the threat simply by not imposing guaranteed-issue on insurers.
From Sheldon Richman today. I know I've heard constitutional lawyers say this use of the Commerce Clause meets legal standards, but even CBO says it's unprecedented. How do they know? That CBO report also wondered whether the costs of complying with the mandate should be included in the budget documents. The current CBO report only reports an "unfunded" mandate but does not estimate the size.

I don�t want a single standard of health care, one standard of what�s �best.� Everyone is different and what is best for me may not be best for you. More importantly, what is best is unknowable to a committee of experts. Not hard to know. Not difficult to discover. Unknowable. What age should a women have a mammogram is not a question that has an answer. There are many answers. One reason is that women are different. A more important reason is that our knowledge evolves. What is thought to be �best� (wait until 40) may turn out to be different (wait till 50). But even more importantly, when power is centralized, the very idea of �best� no longer applies. The incentives aren�t there. When there is one standard set by the political process, the experts� incentives on whatever committee determines the universal standard are inevitably going to be politicized. So give me �inefficient� competition among standards. Let different standards vie for attention.
Russ Roberts. BTW, I picked up and re-read The Price of Everything last weekend, deciding to use it in a freshman gen ed course this spring. It's better than I remembered. I am really looking forward to that course now.

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Thursday, November 19, 2009

The limits of a CBO score 

I've been reading the CBO/JCT report on the Reid health care plan. See Keith Hennessey for your first cut on new taxes; I'm going to confine this post to things I found interesting that he does not mention. Ed Morrissey links to a second CBO letter today that combines the Reid proposal with the "doc fix", and finds that the deficit goes up not down if you include it.

Let's first make sure we understand a CBO score, which only looks at the deficit (rather than private sector impact) and only for ten years. Director Elmendorf writes:
In the decade after 2019, the gross cost of the coverage expansion would probably exceed 1 percent of gross domestic product (GDP), but the added revenues and cost savings would probably be greater. Consequently, CBO expects that the bill, if enacted, would reduce federal budget deficits over the ensuing decade relative to those projected under current law�with a total effect during that decade that is in a broad range around one-quarter percent of GDP. The imprecision of that calculation reflects the even greater degree of uncertainty that attends to it, compared with CBO�s 10-year budget estimates. The expected reduction in deficits would represent a small share of the total deficits that would be likely to arise in that decade under current policies.
That's a good score for Sen. Reid. Both the Reid and Pelosi plans have been written in ways that provide for deficit reduction beyond 2019. Of course, that means government can't pass things like doc fix in the future, as Elmendorf notes in his letter.

Reid's proposal ends up covering 94% of Americans who live in the U.S. legally, while Pelosi's is expected to cover 96%. Should this matter? If health care is a right, wouldn't you want the 96% bill rather than the 94% bill?

Down towards the bottom, however, you find discussion of unfunded mandates.
The total cost of mandates imposed on the private sector, as estimated by CBO and JCT, would greatly exceed the threshold established in UMRA for private entities ($139 million in 2009, adjusted annually for inflation). The most costly mandates would be the new requirements regarding health insurance coverage that apply to the private sector. The legislation would require individuals to obtain acceptable health insurance coverage, as defined in the legislation. The legislation also would penalize medium-sized and large employers that did not offer health insurance to their employees if any of their workers obtained subsidized coverage through the insurance exchanges. The legislation would impose a number of mandates, including requirements on issuers of health insurance, new standards governing health information, and nutrition labeling requirements.
Similar costs are imposed on states and municipalities. One of those unfunded mandates is Medicare Advantage, which would be withdrawn under the Reid substitute in 2011. Democrat Sen. George Voinovich recently said that health care reform "should not come at the cost of limiting choice and access to physicians and health services for seniors." Medicare Advantage cuts provide $118 billion of the savings in the Reid proposal.

One other paragraph indicates the limitations of a CBO score:
Based on the extrapolation described above, CBO expects that Medicare spending under the bill would increase at an average annual rate of roughly 6 percent during the next two decades�well below the roughly 8 percent annual growth rate of the past two decades (excluding the effect of establishing the Medicare prescription drug benefit). Adjusting for inflation, Medicare spending per beneficiary under the bill would increase at an average annual rate of roughly 2 percent during the next two decades�much less than the roughly 4 percent annual growth rate of the past two decades. Whether such a reduction in the growth rate could be achieved through greater efficiencies in the delivery of health care or would reduce access to care or diminish the quality of care is unclear. [Emphasis mine]
The goal has been to "bend the curve" and CBO indicates that it is bent a little. But it may be that this is all taken out of hide, particular out of the hide of seniors.

Overall, the CBO cannot tell us whether the share of GDP spent on health care will rise or fall or stay the same. If the goal really is to lower the share of spending we do in America on health care, shouldn't the Congress be able to answer this question?

I close with a hear! hear! for Hennessey's point on what Reid is proposing with the violation of the health insurance model implied by Reid's proposal:
...most people think their individual taxes paid are being used to finance their benefits, when in fact the funds are used to subsidize other people�s benefits. But the social insurance model and dedicated payroll taxes have been a core principle of Social Security and Medicare financing since they were created, and advocates (especially on the Left) of those programs have fiercely defended this principle.

Leader Reid�s bill would use new Medicare payroll taxes to finance a new health entitlement outside of Medicare. His bill would turn Medicare payroll taxes into a general financing mechanism like the income tax. There is a slippery-slope argument against this that I would normally expect from the Left. If Republicans had proposed this, I would expect AARP to come unglued and raise fears among seniors that, if this proposal becomes law, future Congresses might take payroll tax revenues and use them for highways or defense or other non-social insurance spending. I am interested to see how AARP reacts. Will they support the Reid bill as they did the House bill? (Reporters: There�s a story for you. Ask AARP.)
If the Reid bill lays bare the fiction that our Social Security and Medicare contributions sit in a box waiting for us to claim them in old age, I would almost find this debate worth the headaches it causes. Almost.

UPDATE: Nice chart from the Tax Foundation:

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Wednesday, November 18, 2009

Waste, fraud and abuse 

Every time some report comes out about it, the White House gets all wee-wee'd up. No different this time:
The federal government made $98 billion in improper payments in fiscal 2009, and President Obama will issue an executive order in coming days to combat the problem, his budget director announced Tuesday.

The 2009 total for improper payments -- from outright fraud to misdirected reimbursements due to factors such as an illegible doctor's signature -- was a 37.5 percent increase over the $72 billion in 2008, according to figures provided by Peter Orszag, director of the White House Office of Management and Budget.

Sheldon Richman says sarcastically "Yes, a well-worded executive order should do the trick." $24 billion of the improper payments came from Medicare according to this report; another report over the weekend suggested Medicare lost $47 billion. But the Feds are now saying they are going to count as improper incomplete or illegible documentation, which the Bush administration did not. This then permits them to "multiply by 10 the number of agents and prosecutors targeting fraud in Miami, Los Angeles and other strategic cities where tens of billions of dollars are believed to be lost each year." These will be claimed as savings ... which will be spent on expanded coverage.

Got that? Define a scribble as fraud, hire more government workers, get doctors to reduce scribbling, and claim savings of $9.7 billion. (The extra $1.3 billion is payroll for those new prosecutors and agents making our health care experience better.)

No word on how many agents and prosecutors will be used to find phantom districts receiving $6.4 billion in stimulus cash. Perhaps we should get another executive order wherein Obama calls for the elimination of phantom districts. Imagine the savings!

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Monday, November 16, 2009

Actuary: Pelosicare adds 23 million to Medicaid, 18 million to pay health care tax 

Courtesy of Keith Hennessey. Memo from Chief Actuary of Medicare and Medicaid Rick Foster here. Hennessey notes that the 18 million who are "uninsured and paying the penalty tax" are "clearly worse off than they would be under current law" because they end up paying the lesser of 2.5% of their income or the average premium for health insurance. These are likely to be younger and healthier people. Why would someone who makes a high income not buy health insurance if the tax was equal to what she or he would pay in premiums?

Hennessey also notes that Medicaid is largely considered to be fiscally unsustainable now. How does adding 23 million to Medicaid help this?

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Thursday, November 12, 2009

The most important graph you'll see today 

The taxation story is not about the rich, folks. It's about the young earner. What this says is that, if you fully use the various transfer payments available to you as working poor (making $15,000) you can have goods priced at $40,000. If you earn $40,000 you can have goods and services worth ... a but less than $40,000. Maybe it's the same goods, maybe not. But the point of the graph is that when you combine the federal and state income taxes, payroll taxes and deduct the lost subsidies from various government programs from SCHIP to housing to food stamps, you lose sometimes more than a dollar of goods for each dollar you earn. Your incentive to improve your condition is de minimus.

Graph from here with details. H/T: Greg Mankiw who asks that this be redone by someone with more authority, like the Congressional Budget Office. Health care reform as a transfer system will only make this worse.

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Wednesday, November 11, 2009

Best question I read today 

How can one insure against a volitional act? -- Sheldon Richman on the Stupak Amendment debate. Emphasis mine.

If the Republicans were more willing to push this, they could show that the catastrophic plans in their proposal are the only ones that do not violate the concept of insurance. The Pelosi plan is, instead, an entitlement program that provides the illusion of help for the middle class while engaging in a transfer from young to old.

UPDATE: Should have known Milton Friedman said about the same thing, notes Mark Perry.

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Tuesday, November 10, 2009

Grandma and the necktie 

Arguing that �economic incentives in health care� are perverse, David Leonhardt asserts that �As long as doctors and hospitals are paid for each extra test and treatment, they will err on the side of more care and not always better care. No doctor or no single hospital can change that. It requires action by the government� (�Making Health Care Better,� Nov. 4).

Hogwash. To see why, change just a few words in the above quotation: �As long as sales people and clothing stores are paid for each extra necktie and nightie that they sell, they will err on the side of more selling and not always better customer service. No salesperson or single clothing store can change that. It requires action by the government.�
From Don Boudreaux. He suggests the real problem is third-party payer. Certainly so. But does the difference in short-run demand elasticities between a necktie and an emergency bypass surgery on a beloved 75-year-old grandmother play any role here?

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Monday, November 09, 2009

Ein Volk, Ein Plan, ... 

Courtesy Steven Horwitz, from last weekend in Ithaca, NY. That sign is created by this group. If you scroll all the way to the bottom of their pages, you find a symbol for this group that would indicate the latter is parent of the former.

Yes, them be Wobblies.

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Wednesday, November 04, 2009

If you don't use price to ration, someone else may 

An unemployed Gatineau man has been doing a modest but steady business in the past week by standing in line at flu clinics for people who can�t line up themselves.

And he says the city�s security measures haven�t slowed him down.

For $15 an hour, the man who calls himself Johnny Z lines up for hours to get the ticket, or more recently the wristband, that entitles the wearer to a flu shot.

The person who hires him takes his wristband and comes to the clinic for a shot later in the day.
From Canada, hat tip to Tyler Cowen. I saw kids do this for World Series tickets for scalpers in Los Angeles many years ago (sorry, Angel and Dogder fans!) sometimes getting in line before midnight for a sale the following morning. The Canadian health system tried to switch from tickets to wristbands to restrict reselling, but Johnny's found a workaround for that.

All scarce goods get rationed somehow. Question: If you were Ontario police, would you arrest Johnny? Why or why not?

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Tuesday, November 03, 2009

The right to wait in a long line 

The title is the most salient thing I got from this video. You can give people a right, but short of a government supervising and forcing patients to be seen by conscription at specified intervals -- a practice unknown in any country I know of, please offer counterexamples if you should have them -- all this does is replace the price with a queue.

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Monday, November 02, 2009

But I have a right! 

Philip Greenspun:
Health insurance is a basic human right ... which is why Congress proposes to leave 18 million people still uninsured in the year 2019 (source). I�m getting more and more confused by our politicians. A lot of them have offered beautiful speeches about how it is both a tragedy and a violation of basic human rights for a person to live in the U.S. without health insurance. At present, millions of Americans are not customers of health insurance companies. After the proposed $1 trillion health care reform has had six years to work, we�ll be left with� millions of Americans who have no insurance. If this is indeed a moral issue, how can it be moral to leave millions in the same supposedly inhuman situation that they�re in right now?
I am trying to remember who said this first -- maybe it was Philip Howard? -- but you get in arguments with people about costs and benefits and what should be paid for by whom, and then someone stands up and says "but this is a right." And argument stops, because if something is a right you can't demand that it be limited by feasibility or cost-benefit studies. It just ends debate.

And while they end debate, they add 111 new bureaucracies.

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Thursday, October 29, 2009

Both demand AND supply 

John Palmer, coauthor of the Canadian edition of my favorite intro text, puts this much more simply than I have:

While some politicians talk about programmes designed to bring more people under the health-care umbrella, others talk about making health care more affordable. The former (combined with an aging population) will shift the demand curve outward; the latter will cause a movement downward along that shifted demand curve (a lower price increases the quantity demanded).

But if the supply curve doesn't shift outward, the above two policies will create more shortages and longer waiting periods (and committees of death, due to the shortages, no matter what they are called).

The only way to shift the demand curve outward, lower the prices to the users AND avoid shortages is to increase the supply.

So how to do it? Stop controlling the supply of medical professionals, says John. I'm not as sure of this, though, unless somehow you address the question of which professions they enter. The incentives for specialty doctors vs family/general practitioners are still skewed. Is there a way to change the price signal there without upsetting the provision of all those high-quality specialized services we enjoy? I am not sure how.

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Thursday, October 22, 2009

Whose costs are these? 

Ed Morrissey has a fabulous post on price fixing as a remedy to something costing you too much.
Fixing prices does not lower costs. ... �Costs� are borne by providers, who get reimbursed by either consumers (in a rational market) or by third parties (American health care) for their goods and/or services. In a competitive market, providers have to set their prices at an attractive level in order to get business without missing out on profit opportunities, but their prices have to cover their costs � or they go out of business.
Prices provide many services to a market economy. One is information on the value of something. When you offer more for a pair of World Series tickets you are informing everyone who owns them what the opportunity cost of their use is. Those who don't sell are in essence saying "these tickets are worth more to me than what I can sell them for on the street/on StubHub/etc."

Costs, though, are much more subjective than prices. As I've blogged before, costs are always costs to someone. Actions have costs, not things. Heyne, Boettke and Prychytko put it best: "All costs are costs of action or decisions, all are attached to particular person, and all lie in the future." So when someone asks "what does health care cost", you have to ask "cost to whom?" To use an extreme example, suppose government says to anyone holding an M.D. "You are now required to work one day every week -- we'll pick the day -- at a public free clinic, and we will pay you $0 for your day." To the taxpayer and to the government's budget, that costs nothing. But to the doctor this is tremendously expensive. She loses the income she would have earned had she been permitted to go to her clinic or hospital instead. Maybe this is more or less than what would have been paid if the patients who attended the "free" clinic, but for sure it is not free. It's only a question of who bears the burden.

This is the simple explanation, by the way, of why the Congress tried unsuccessfully to pass the Medicare fix for doctors. No costs would be changed by the act: The decision was whether or not to shift those costs from doctors to future taxpayers.

Likewise, the use of the public option is to, in short, provide pressure on the insurance companies to negotiate lower reimbursement rates for doctors or else lose customers to the government insurance plan. But at best this only changes the distribution of health spending between doctors, patients and insurance firms. What increases the supply of health care is a reduction in the opportunity cost of providing health care.

A misunderstanding of costs applies as well to patients. Alan Krueger wrote last February about the cost of patients' time waiting for health care. Question: Will the wait for health care rise or fall under Baucuscare? Does anyone know? Does anyone care? Not Congress, because it's not their costs.

This is also why the question "is the bill deficit neutral" hides the cost question. All this asks is whether the cost arises through the tax system and through government expenditures. Many costs can be hidden in mandates and "cost controls" that in fact increase costs, just not on the government's budget. Theirs are not the only costs that matter.

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Wednesday, October 21, 2009

Mandates and the information problem 

I was rummaging around (my term for following a Google search through several places looking for something) in my quest to comment on this excellent post by Gary Gross on government mandates. It relates to the post just below -- mandates create rents for some people and deadweight costs born by society. I came upon this from Art Carden:
I came across a great quote from C.S. Lewis yesterday that summarizes my views on the modern state: "Aristotle said that some people were only fit to be slaves. I do not contradict him. But I reject slavery because I see no men fit to be masters." I would rephrase this as follows: "Many people say that some people are so irresponsible or evil that they require the state's regulation, oversight, and direction, but I reject statism because I see no men (or women) fit to be their masters."
Gary (by email) points me to a report from the Council on Affordable Health Insurance that shows 50 states having 2133 different mandated benefits and providers. In Minnesota that comes out to 38 benefits every health insurance plan must provide, 21 types of providers that must be covered, and nine separate categories of individuals that must be provided for in a plan. Multiply this by 50 and you have an astronomical number of combinations possible. Who will decide which of these will be the mandate that goes in to a federal plan? Leave out my genuine concerns over coercion, and there's still a huge problem, Carden argues:
...any proposal for intervention has to overcome the knowledge problem. Hayek showed that even under the best of circumstances, the absence of profits, losses, and prices means that no government official can know whether they are creating value or wasting resources.
Hayek wrote that no central planner can get access to the information that is needed, and that the price system gets you information from the "man on the spot". To date nobody has found a system that can duplicate that feat. Maybe Congress will discover it this time, but are you willing to bet your health on it?

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Tuesday, October 20, 2009

Who gets benefits from their employer? 

Here's an interesting statistic: 78% of workers in Minneapolis-St. Paul-St. Cloud metro area have access to a medical care benefit through their employer. The national average is 74%. The survey is experimental, covering 15 large metro areas. Atlanta and Seattle checked in with highs of 84%, Los Angeles at 70%. 70% of Twin Cities (plus St. Cloud) area workers have access to life insurance benefits. The data does not reflect how many participate; that data is judged less reliable.

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Monday, October 19, 2009

Supersize me 

You knew this would be true. The Senate's version of the health care bill, in legislative form and still without an official bill number, checks in at 1502 pages. How long will it be before Senators are asked to vote on this monstrosity? How long will it take to read this sucker?


The technology we don't see 

David Henderson points out a passage in a June report on health care reform by the Council of Economic Advisers:
In medicine, however, technological progress in recent decades has been almost exclusively cost-increasing, without generating a commensurate increase in value. Undoubtedly, provider incentives, which largely reward finding an expensive way of treating a previously untreated condition rather than finding a less costly alternative to an existing treatment, contribute to this trend. (p.20)
Henderson writes that surely they don't mean no value. A disease that was untreated previously but now is, must provide value. Perhaps they're not valuable enough using a benefit-cost principle. But how would you know?

The conversation on this post last week ended up being an argument over this very same question: How do you put values on lives? The point is public policy has to. A statistical value of a life is part of any decision on regulation that goes towards someone's safety or health. To get at that question requires one to observe human choice and infer value on the basis of those choices, assuming those choices are rational. Since there are finite resources and potentially infinite demand for safety some measures simply aren't done. Which ones? How do you choose? Public policy relies on a marginal approach. At the margin, the cost of saving one more life is higher than the benefit received. As Viscusi [1993] posited, there is a 6,000-to-1 chance of someone dying from an asteroid, so why do we not have a "doomsday rock defense" if not for the prohibitive costs of building the gun? Both costs and benefits matter in the decision: There are many things that have a statistical chance of fatality less than 1/6000th, but we do them because the cost of avoiding the hazard is quite low.

The CEA quote I began with misses one other point, though. The first attempts to solve a problem will likely be rather expensive. There is a learning-by-doing aspect at play (in the sense of Stokey [1988]) -- new goods enter and those that provide value at lower cost push the higher cost ones out. But one cannot know what provides value without the entry of some good first, be they higher- or lower-priced. Creating higher cost goods allows one to learn how to produce at lower cost. The CEA seems to support short-circuiting that discovery process. That would be technology we don't see, Bastiat-style.

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Wednesday, October 14, 2009

"HI Mom! Send health insurance!" 

A couple of items in this Huffington Post piece are astonishing. One, an astonishing admission. See if you see it without my italics.
A new provision being rolled into the unified House health care bill would allow young adults to stay on their parents' health care plans until they turn 27, House Speaker Nancy Pelosi told reporters Tuesday.

Flanked by young adults from 30 states, Pelosi and Rep. Chris Van Hollen (D-Md.) joined the bill's sponsor, first-term Rep. Kathy Dahlkemper (D-Penn.), to support extending eligibility for a parent's insurance plan well past graduation from high school or college. Given that nearly one-third of America's uninsured are aged 19 to 29, Pelosi said the bill would both expand coverage and reduce the amount of subsidies the government would need to provide for coverage.

"Young adults are the most uninsured group in the country. They often lose coverage at age 19 when they graduate from high school or a few years later when they graduate from college. Once they enter the workforce, they face new obstacles to getting insurance," Pelosi said. "Now with this legislation that takes them to their 27th birthday, we take them a long way down the path of some independence, some liberation to follow their aspirations right out of school.
I'll wait: Did you see it?


OK, here it is with the italics:
A new provision being rolled into the unified House health care bill would allow young adults to stay on their parents' health care plans until they turn 27, House Speaker Nancy Pelosi told reporters Tuesday.

Flanked by young adults from 30 states, Pelosi and Rep. Chris Van Hollen (D-Md.) joined the bill's sponsor, first-term Rep. Kathy Dahlkemper (D-Penn.), to support extending eligibility for a parent's insurance plan well past graduation from high school or college. Given that nearly one-third of America's uninsured are aged 19 to 29, Pelosi said the bill would both expand coverage and reduce the amount of subsidies the government would need to provide for coverage.

"Young adults are the most uninsured group in the country. They often lose coverage at age 19 when they graduate from high school or a few years later when they graduate from college. Once they enter the workforce, they face new obstacles to getting insurance," Pelosi said. "Now with this legislation that takes them to their 27th birthday, we take them a long way down the path of some independence, some liberation to follow their aspirations right out of school.
So one third of the uninsured (I assume that means a third of the 30 million out of the 307 million) are between 19 and 29, youth that don't really need much insurance. As Robert Reich said in his talk at Stanford in 2007, an honest president would say
we have the only health-care system in the world that is designed to avoid sick people. [laughter] That's true, and what I'm going to do is I am going to try to reorganize it to be more amenable to treating sick people. But that means you--particularly you young people, particularly you young, healthy people--you're going to have to pay more.
But of course the young both don't have much money, and they voted overwhelmingly for Obama. So we make the cool kids' parents pay, or even better we make their parents' employers pay more. It's not clear whether covering one's child would be under the individual mandate or not. My son is 25 and works two 30-hour-a-week jobs in the restaurant industry, neither of which provide health insurance. If he remains uncovered under the individual mandate, who gets fined -- him or me? (As the HuffPo article states, we don't know if the coverage will have price caps on it, so I won't go into that additional problem.)

Second, since most health care has restrictions at the state border, what does this do to labor mobility? Pelosi acknowledges that health insurance for the young is more difficult, because the per person cost of health insurance creates a bigger wedge for lower-productivity workers. (See Wikipedia on tax wedges -- a mandate for health insurance is in essence a wedge.) So these 20-somethings are now put on their parents' plans, which are designed for families in the state where Mom and/or Dad work. Suppose Missy wants to work in New York and leave her parents in Missouri. Her NY job doesn't have health coverage. How do Mom and Dad cover her?

This really is nonsense.

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Why health care reform takes a thousand pages 

I drove last night to a local grocery store to get my wife and daughter some NyQuil D. Because of government regulation (to control manufacturing of meth) there is a law in MN that requires me to ask the pharmacist, have them swipe my drivers license and sign for the bottle. While waiting I see a sign for a walk-in clinic next to the pharmacy. There is a menu of prices for a variety of tests and services. And I wondered, "Here's a cash market that works. Requires, as best I can tell, no insurance card. The prices don't look absurd (I don't think I saw any three-digit prices.) What will happen to this when the Congress and Administration are done with their reform?"

Eric Falkenstein suggests the clinic's future is dark by analogy to Henry Manne's story of the parking lots.
The story describes what happens to a college town when parking lot owners decide to get together and squelch competition. Specifically, this was targeted towards those Saturdays when football games generated an abnormal number of cars, and many people and businesses sold space on their private driveways. The parking lot owners noted horror stories about 15-year olds parking cars, or the inability to fully insure the cars! They had a meeting where they said parking cars 'wasn't a business, it was a profession', and set up a slush fund for political action. The 'unfair and dangerous competition' was made illegal, by basically mandating fixed costs that made it uneconomic for small providers of parking spaces to operate. The new law allowed the parking lot owners to increases prices under the pretext of quality, yet the result was more congestion because the parking lot owners were not equipped, or incented, to deal with the new volume efficiently. Quality was merely redefined to mean fully licensed and bonded parking lots. Creative people got around the prohibitions by offering people $5 'car washes' on their driveways that lasted several hours, which then provoked new regulation. Each new regulation created a new problem, which then motivated more regulation.

The parable supports the principle that 'quality oriented' guild monopolies conspire with legislators under the banner of 'the public interest'. They then can raise their prices by outlawing all sorts of competition. The unanticipated inefficiencies created simply raise the cry for more regulation. The net result is worse for everyone except a few parking lot owners and the legislators they support.
The analogy to health care is then made, with a prediction:
The US health care system involves a myriad of regulations, rights, and tort liabilities, that conspire to make this market highly perverse. Any current health care provider is already playing the game, thus, doctors in the US average a salary of $150k/year, almost double that in other developed countries. Unions are growing in health care, with the common result of inflexible rules, high salaries, and an inability to fire workers. As with our education monopoly, expect the health care professionals to make out best in any solution (Michelle Obama, after all, was a $317k/year 'diversity outreach coordinator' for the University of Chicago Hospitals once her husband became a senator--we need more of those!).

The current modifications are just like the parking lot parable: more patches for problems created by prior patches. One law government obeys is the The Second Law of Thermodynamics, so the new system will certainly be more complex. Spending more money will not make it better, just create new inalienable rights and patronage jobs paid for via the magic of deficit spending.
One thing I learned in observing the tea party movement was that people are generally suspicious of laws they can't read and understand. Perhaps it's because we instinctively know that within complex laws come favors and sinecures for the connected (of whom we are not a part.) It is impossible to provide all the favors needed to satisfy the selectorate (definition) if you don't have laws that are dense. It is in the interest of this entrenched lobby in health care to conceal those gains, and Sen. Baucus and Rep. Waxman and the other legislators are simply serving those whose support they require.

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Tuesday, October 13, 2009

Mugged by reality, health care edition 

Growing up is hard to do, but Wendy Button does it well:
In the past, I paid attention to the health care debate as a speechwriter who prepared speeches, talking points, op-eds, and debate prep material on the topic at different times for John Edwards, Barack Obama, Hillary Clinton and others. Now, I'm paying attention because I'm a citizen up the creek without a paddle.

Throughout my life, I have been very lucky because my insurance has always been there whenever I had a crisis. When my 10-speed hit a patch of leftover winter sand, and I went flying into a telephone pole, it covered the x-rays and stitches and concussion diagnosis. When a half a ton of sheet rock fell on me, my insurance paid for the cast on my foot. When my depression kicked in and I was hospitalized and painting ceramic pieces in art therapy to boost my self-esteem (sheesh), it made sure that when I got home my medical bills didn't make me reach for a razor. And when there were growths in my uterus, it covered that medical procedure and every regular check-up, lab test, broken bone, sports injury, and antibiotic prescription in between.

Since I care more about my country than my personal pride, here's how I lost my insurance: I moved. That's right, I moved from Washington, D.C., back to Massachusetts, a state with universal health care.

In D.C., I had a policy with a national company, an HMO, and surprisingly I was very happy with it. I had a fantastic primary care doctor at Georgetown University Hospital. As a self-employed writer, my premium was $225 a month, plus $10 for a dental discount.

In Massachusetts, the cost for a similar plan is around $550, give or take a few dollars. My risk factors haven't changed. I didn't stop writing and become a stunt double. I don't smoke. I drink a little and every once in a while a little more than I should. I have a Newfoundland dog. I am only 41. There has been no change in the way I live my life except my zip code -- to a state with universal health care.

Massachusetts has enacted many of the necessary reforms being talked about in Washington. There is a mandate for all residents to get insurance, a law to prevent insurance companies from denying coverage because of a pre-existing condition, an automatic enrollment requirement, and insurance companies are no longer allowed to cap coverage or drop people when they get sick because they forgot to include a sprained ankle back in 1989 on their application.

...What makes this a double blow is that my experience contradicts so much of what I wrote for political leaders over the last decade. That's a terrible feeling, too. I typed line after line that said everything Massachusetts did would make health insurance more affordable. If I had a dollar for every time I typed, "universal coverage will lower premiums," I could pay for my own health care at Massachusetts's rates.
My hat's off to you, young lady. I hope you have a good employer, because you just painted a target on yourself.

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Thursday, October 08, 2009

The whole Baucus debate in one question 

Everybody knows that the US spends much more on health care than anyone else, without getting better results. Everyone also knows that health spending has outpaced GDP growth everywhere, thanks to medical progress. What I didn�t realize was just how clearly the evidence shows that the rising trend is steepest in the US. We have the biggest increase as well as the highest level. We�re #1!
Paul Krugman, 3/28/08.

So here's the question: If we pass Baucuscare, what would happen to the share of GDP devoted to health care? I thought the whole idea was to "bend the curve downward." You won't find that in the CBO report -- that's not their job. How else can we get the unfunded mandates included in the conversation?

Martin Feldstein thinks that the share of health care in income should be no more than 15%; I don't know why that's the right number, but if what we want is a cap on spending that is a more direct way to do it.

Megan McArdle shows that's not the case for Massachusetts. John Lott could add the question "what will this proposal do to cancer survival rates"?

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Monday, October 05, 2009

Pricing waiting 

Gary Gross sends me a link to a chart showing how long wait times are in Canada for a variety of procedures, and how much you'd have to pay for a private-market alternative, which I've placed to your right. This chart seems very interesting as an economic study -- if this is the supply curve of private services and there's a public "free" option, what does this chart say about the demand for health care services? You have the time saved, and there is information on how many more QALYs each of these presents. Wouldn't you like to have information like this on demand for QALYs rather than just supply?

Unfortunately, if you live in many parts of Canada, you don't get to make those choices. So you use a broker.
Enter Rick Baker, a Canadian determined to improve health care in his country. Baker joined Gilbert Monday at a Vancouver hotel to speak with American reporters as part of a health care dialogue organized by the Colorado-based Independence Institute, a free market think tank where I am a public policy analyst.

Baker began by offering a blunt disclosure. �I make my living sending patients to the U.S.,� he said. �This is medical tourism, but instead of sending someone to Thailand, we�re sending them to Delaware.�

Through an innovative partnership with 22 independent American surgery centers and doctors in 13 states, Baker and his American counterparts transport Canadians to the U.S. for timely care at cost savings up to 80 percent. The partnership operates largely outside the traditional health insurance system. And this isn�t just about helping Canadians. Baker now also provides a similar state-to-state service for Americans seeking more affordable or timely care.

Under Canada�s controversial federal health legislation, surgeons are prohibited from charging patients to provide �medically necessary� treatment. In addition, they are limited to performing surgeries to six hours a week. Gilbert recalled one surgeon telling her, �I spend six hours in surgery each week, less time than I spend explaining to sick patients why I can�t perform theirs.�
Had I waited 3 years for my gall bladder removal, there's a pretty good chance I would not be typing this now. A friend of mine's wife became ill on Friday and they were planning a long trip outside the country in a few weeks. If they did not get the surgery for her quickly, their plans would have been canceled. No doctor in St. Cloud was available to do it this week, so they are driving up the road to get this done. Were they in Canada, they probably do not have the option.

Baker notes that his country's system treats certain things very well. Routine care for pregnancy or for a broken leg is fine. The question is how a system deals with the not-routine. And in those cases, wouldn't you want a system allows consumers to incentivize production versus a system of command and control?

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Test-driving health care legislation 

Many years ago I was in a debate with some other (then-young) economists over the concept of rational expectations. The discussion was about whether market participants would have enough information to make expectations about inflation, for example, that reflected all the relevant information available. The answer, I argued, was that it wasn't necessary for everyone to have the same information. James Tobin's disparagement of "yeoman farmer econometricians" (a model of firms used, for example, in Ball and Mankiw [1994]) was that the average person didn't have the information or analytical skill to enforce rational expectations over the price of corn. But what matters is not the average but the marginal farmer. As I had understood Hayek then and now, a world with dispersed knowledge requires only that the farmer with the relevant information has the capacity to act in the marketplace; her actions influence the price, which communicates that knowledge to the others in the market without that information.

I have always thought this applies much more broadly than the price of corn. Thus I think the argument we see today about plain language versus legislative language in the health care debate ignores the very real fact that what rules us is legislation and we only need the marginal analyst to tell us what really matters.
Sen. Thomas Carper (D.-Del.), a member of the Senate Finance Committee, told that he does not �expect� to read the actual legislative language of the committee�s health care bill because it is �confusing� and that anyone who claims they are going to read it and understand it is fooling people.

�I don�t expect to actually read the legislative language because reading the legislative language is among the more confusing things I�ve ever read in my life,� Carper told

Carper described the type of language the actual text of the bill would finally be drafted in as "arcane," "confusing," "hard stuff to understand," and "incomprehensible." He likened it to the "gibberish" used in credit card disclosure forms.
If it's gibberish in the credit card disclosure, why does Congress insist on them? We know why, because the newspapers have consumer affairs reporters who find experts that help us understand that gibberish. This takes a little time. So too would the legislative language. When Congress says it cannot provide time to us because we wouldn't understand it anyway, this misses the point. I don't want to see it myself -- Carper and the other Democrats are probably right that I can't get through it in three days. But I want someone who is expert in reading health care legislation who is not a member of the majority to read it. Such people exist at think tanks up and down Washington, from a Keith Hennessey to a Bob Moffitt. Their input is vital to those of us who believe in checks and balances, and I believe it to be antithetical to good policy for either party to jam through legislation as consequential as this without time for review. At the margin, it's the analysis of the experts from the other side that provides the most information.

UPDATE: At least we will get a CBO scoring thanks to Senator Snowe, says MKHammer. Sort of like having the home team hire the referees, but at least the referees seem to have some integrity.

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Friday, October 02, 2009

The governor made me do it! 

For many years my parents paid for my meals. By the time I was 30, they decided they didn't have to do this anymore. I could afford to buy my own dinners.

While I was holding up a pedestrian on the street, the victim asked me why I was doing this. "Well, it's my parents' fault. They stopped buying my dinner. They had always done it, and now just because one of them is out of work and I turned 30, they stopped. What ingrates."

Of course the above story is farce, unless you're the Hennepin County Board of Commissioners.

County Administrator Richard Johnson presented a $1.6 billion budget Tuesday to the county board for next year, down about 6 percent from this year's $1.71 billion.

But even after cutting 163 jobs and reducing capital improvements, the county still needs to raise property taxes by 3 percent solely to pay increased costs at Hennepin County Medical Center, Johnson said.

Those higher costs were caused by the state's cancellation of General Medical Assistance for poor adults, he said.

Hearing that, county commissioners began their budget deliberations by blasting Gov. Tim Pawlenty again for shifting the state's budget problems to them. The county estimates that 40 percent of the state's poor adults who were covered by General Medical Assistance live in Hennepin County.

The tax increase is required "just because the governor cut the legs out'' from under thousands of low-income adults who depended on General Medical Assistance, Commissioner Gail Dorfman said.

So rather than have property owners in Hennepin County pay for the poor in Hennepin County, the people in the entire state of Minnesota should pay for the poor in Hennepin County? The county had already planned to raise taxes. Commissioner Jeff Johnson writes about the negotiations earlier this month.
I�ve heard a lot of talk the past few weeks about the needs of county government, the needs of HCMC and the needs of those who receive government benefits. I�ve heard much less talk about the needs of the taxpayers who fund county government, HCMC and the government programs that provide those benefits. I�m hopeful as we move forward toward a final levy decision in December we place a little more emphasis on the well-being of Hennepin County taxpayers.
But it's not their fault, Jeff! It's the mean parent in the governor's mansion done made them do it! When you decide it's the right of one person to live at the expense of another, it's little surprise that you make a villain of those that do not.

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Friday, September 25, 2009

Stiffing Soldiers 

Many car dealers have not yet received their promised payments from the US government under the wastefully inefficient Cash for Clunkers program. Now we have this Washington Times report that payments promised to our veteran soldiers similary have not been paid:
Out of more than 277,000 veterans who have filed for the college tuition benefits this semester, more than 200,000 claims have been processed and approved, but fewer than 11 percent of the veterans have received the funding, according to the Iraq and Afghanistan Veterans of America (IAVA).

The group says it has been contacted by thousands of veterans who have not received their benefits and that they are forced to take out loans or pay the money out of their pockets.
The US government would be responsible for millions of payments under a single payer health care system. Washington politicians who care about their re-election should be unwilling to risk extending demonstrated government incompetence into such a huge and important sector of our economy.

My husband and I will be attending a departure ceremony at Ft Bragg, NC on Tuesday morning, as our son's army unit deploys to Iraq for a year.

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