Quotulatiousness

August 30, 2017

“Houston is built on what amounts to a massive flood plain”

Filed under: Environment, Science, USA — Tags: , , , , — Nicholas @ 03:00

While nobody expects 50 inches of rain to fall in one storm, Houston is still badly situated to withstand flooding even from lesser weather events due to its location on a flood plain:

Houston is built on what amounts to a massive flood plain, pitted against the tempestuous Gulf of Mexico and routinely hammered by the biggest rainstorms in the nation.

It is a combination of malicious climate and unforgiving geology, along with a deficit of zoning and land-use controls, that scientists and engineers say leaves the nation’s fourth most populous city vulnerable to devastating floods like the one caused this week by Hurricane Harvey.

“Houston is very flat,” said Robert Gilbert, a University of Texas at Austin civil engineer who helped investigate the flooding of New Orleans after Hurricane Katrina. “There is no way for the water to drain out.”

Indeed, the city has less slope than a shower floor.

Harvey poured as much as 374 billion gallons of water within the city limits, exceeding the capacity of rivers, bayous, lakes and reservoirs. Experts said the result was predictable.

The storm was unprecedented, but the city has been deceiving itself for decades about its vulnerability to flooding, said Robert Bea, a member of the National Academy of Engineering and UC Berkeley emeritus civil engineering professor who has studied hurricane risks along the Gulf Coast.

The city’s flood system is supposed to protect the public from a 100-year storm, but Bea calls that “a 100-year lie” because it is based on a rainfall total of 13 inches in 24 hours.

“That has happened more than eight times in the last 27 years,” Bea said. “It is wrong on two counts. It isn’t accurate about the past risk and it doesn’t reflect what will happen in the next 100 years.”

Some of the blame (a lot of the blame) for locating vulnerable properties in flood-prone areas is due to the US government’s flood insurance program:

Texans, watch out. An aftershock is following behind the catastrophic flooding produced by Hurricane Harvey in coastal Texas: The National Flood Insurance Program (NFIP) is coming up for reauthorization.

The main lesson that the public and policymakers ought to learn from Harvey is: Don’t build in flood plains, and especially don’t rebuild in flood plains. Unfortunately, the flood insurance program teaches the exact opposite lesson, selling subsidized insurance whose premiums do not come close to covering the risks home and business owners in flood prone areas face.

As a result, the NFIP is currently $25 billion in debt.

Federally subsidized flood insurance represents a moral hazard, Kevin Starbuck, Assistant City Manager and former Emergency Management Coordinator for the City of Amarillo, argues, because it encourages people to take on more risk because taxpayers bear the cost of those hazards.

Federal Emergency Management Agency data shows that from 1978 through 2015, 3.8 percent of flood insurance policyholders have filed repetitively for losses that account for a disproportionate 35.5 percent of flood loss claims and 30.5 percent of claim payments, Starbuck says. Most of these properties were grandfathered in before the NFIP issued its flood insurance rate maps. The NFIP is not permitted to refuse them insurance or charge them rates based on the actual risks they face.

Clearly, taxpayers should not be required to subsidize people who choose to build and live on flood plains. When Congress reauthorizes the NFIP, it should initiate a phase-in of charging grandfathered properities premiums commensurate with their risks. This will likely lower the market values of affected homes and businesses and thus send a strong signal to others to avoid building and living in such risky areas.

July 14, 2017

Brace yourself for the next round of Obamacare [repeal | reform | tweaking | posturing]

Filed under: Health, Politics, USA — Tags: , , , — Nicholas @ 03:00

Megan McArdle doesn’t view this latest attempt to “fix” Obamacare with any great optimism:

Mitch McConnell is once again announcing that the Senate is going to come out with a new health-care bill and try to hold a vote next week. That exhaustion you feel is the same despair that seeps over you when a pair of ill-matched friends announce for the 17th time that they’re getting back together.

As with those friends (we all have them, don’t we?) there seems to be no set of mutual goals upon which a durable partnership can be built. Many Republican legislators want Obamacare to die. Others would probably attend the funeral with ill-concealed delight, but they don’t want a reputation for having killed it. Still others would like to be able to tell voters that they “did something” about Obamacare, even though in reality they are loath to actually, you know, do something — because their states would lose money, or voters would lose insurance.

[Wearily] So what can be done here? Realistically.

As an exercise on paper, the answer is easy:

  1. Stop trying to make this a tax-cut bill, and focus on reforms that can pave the way to fiscal stability, and dismantling many of the perverse incentives that have so distorted our health-care system.
  2. Leave Obamacare’s taxes intact. (Yes, even the dumb ones, of which there are many.)
  3. Turn Medicaid into a fixed grant rather than an open-ended entitlement, either by making it a block grant, or switching to a flat per-beneficiary payout — but don’t try to make block grants a confusing cover for very deep cuts to the program.
  4. Provide generous funding to stabilize the individual health-insurance exchanges, but demand in return very wide latitude for states to decide how they stabilize their insurance markets — including jettisoning any of the Obamacare regulations they think are getting in the way.
  5. Meanwhile, move the system more aggressively toward health-savings accounts plus catastrophic insurance — and get Democrats on board by offering to have the government fund some portion of those health savings accounts for low-income citizens.

Is that my ideal health-care system? No. But it gives Republicans some of what they want (a more consumer-driven, pro-market program in the individual market, and a big start toward reforming the bloated and byzantine mess that is the Medicaid program). It gives Democrats some of what they want (money for people who don’t have very much of it, plus they don’t get splattered by the fallout of Obamacare exchanges melting down). In theory, it could pass.

And in theory, I could play third base for the Yankees, if Joe Girardi were willing to hire me. The truth is that after years of complaining about obstructionism, Democrats have developed a sudden taste for the stuff; there’s a substantial faction of both politicians and voters who want the Democrats to stand by and do nothing, nothing, that Republicans might like. And even among those who think they want bipartisan compromise — well, I spend a lot of time listening to those folks, and when you get down to it, frequently their idea of a “compromise” is that they get a huge government program that costs hundreds of billions of dollars, and Republicans get trivial increases in the size of health-savings accounts, and maybe to twiddle with a few of the outer decimal points on growth rates. In other words, what they think is a vision of compromise is too often actually a vision of America ca. 1992, when Republicans were a minority party who had to come begging for crumbs.

March 14, 2017

“Most policy ideas are bad” (especially in US healthcare)

Filed under: Government, Health, Politics, USA — Tags: , , , , , — Nicholas @ 03:00

Megan McArdle says that the best plan the Republicans could come up with to deal with Obamacare is to do nothing, at least in the short-term:

For a policy columnist, “Don’t do that” is the easiest column to write. Most policy ideas are bad. If you simply blindly oppose everything that anyone ever puts forward, you’ll end up being right most of the time.

However, that’s not very useful for politicians. If they just sit around Congress playing tiddlywinks all day, voters will get cranky. Congress is supposed to do things. So, having spent a few days saying unkind things about the Republican health-care plan, it probably behooves me to state what I think they should do.

Well, boy, that’s a hard question. Here’s the thing: For all the unkind words I’ve said, I get the forces that have brought Republicans to this point. As I wrote Thursday, Democrats built a shoddy and unworkable structure out of the political equivalent of concrete: nearly impossible to repair or renovate, and darned expensive to demolish. The task is made even harder by the fact that Democrats currently control just enough votes in the Senate to keep Republicans from passing any sort of clean, comprehensive bill.

[…]

What would I do in this situation? Well, the first thing I’d do is accept, deep in my heart, that there are no great outcomes possible at this point. The second thing I’d do is remember that nothing is always a policy option: If you can’t do something better than the status quo, don’t do anything. It’s what I said to Democrats in 2009, and it’s what I’m saying to Republicans now.

So what would I do to minimize the damage, within the constraints of political reality? Well, I foresee two potential futures for the current status quo. One, the exchanges where individuals buy policies could fail, leaving people unable to buy insurance. Or two, the exchanges don’t fail, and we’re left with an unsatisfactory but still operational system.

In either case, the Republicans’ best option is to wait. Why? Because what they can do now — hastily, without touching the underlying regulations that have destabilized the individual market — is worse than either of those outcomes. The partial-reform structure they think they’ll be able to get through the Senate is likely to make the problems in the individual market worse, not better. And the fact that they’ve tinkered with the program means that Republicans will take 100 percent of the blame.

She also re-iterates her own ideal solution (which she admits wouldn’t fly with the American public):

Longtime readers of my column know that my pet proposal is a radical overhaul of the whole system in which we zero out all the existing subsidies and just have the government pick up 100 percent of the tab for medical expenses that exceed 15 or 20 percent of a family’s adjusted gross income: basically, a single-payer catastrophic-care system for expenses that no one can realistically save for. Let people buy insurance for expenses below that, or, if it’s not too expensive taxwise, let people set aside more money tax-free in Health Savings Accounts. And make some more generous provisions for people closer to the poverty line, such as prefunding Health Savings Accounts for them. That’s the whole program. It fits on a postcard, though the finer details — like which cancer treatments we’re actually willing to pay for — obviously aren’t.

However, this is completely politically infeasible, because voters don’t want genuine insurance, by which I mean a pool that provides financial assistance for genuinely unforeseeable and unmanageable expenses. Voters want comprehensive coverage that kicks in at close to the first dollar of spending, no restrictions on treatments or their ability to see a doctor, nice American-style facilities, and so forth. They are also fond of their health-care professionals and do not wish to see provider incomes slashed and hospitals closed, nor do they want their taxes to go up, or to pay 10 percent of their annual income in premiums. This conflicting set of deeply held views is one major reason that Obamacare — and American health-care policy more generally — has the problems it does.

March 13, 2017

“It’s not really a debate over Obamacare, it’s a debate over Medicaid”

Filed under: Government, Health, Politics, USA — Tags: , , , — Nicholas @ 04:00

Robert Tracinski explains why the Republicans are having such a hard time with their oft-promised “repeal” of Obamacare:

House Republicans have released their proposed measure to “repeal and replace” Obamacare, and the whole enterprise is already losing steam right out of the gate. The measure is too small and incremental, less a repeal of Obamacare and more of a repair of it, keeping numerous basic features intact.

If you want to know why Republicans have bogged down, notice one peculiar thing about the Obamacare debate so far. It’s not really a debate over Obamacare, it’s a debate over Medicaid. That’s because Obamacare mostly turned out to be a big expansion of Medicaid. The health insurance exchanges that were supposed to provide affordable private health insurance (under a government aegis) never really delivered. They were launched in a state of chaos and incompetence, and ended up mostly offering plans that are expensive yet still have high deductibles. Rather than massively expanding the number of people with private insurance, a lot of the effect of Obamacare was to wreck people’s existing health care plans and push them into new exchange plans.

Ah, but what about all those people the Democrats are claiming were newly covered under Obamacare? A lot of them — up to two-thirds, by some estimates — are people who were made newly eligible for a government health-care entitlement, Medicaid. But shoving people onto Medicaid is not exactly a great achievement, since it is widely acknowledged to be a lousy program.

Conservative health care wonk Avik Roy explains why: “[T]he program’s dysfunctional 1965 design makes it impossible for states to manage their Medicaid budgets without ratcheting down what they pay doctors to care for Medicaid enrollees. That, in turn, has led many doctors to stop accepting Medicaid patients, such that Medicaid enrollees don’t get the care they need.” Partly as a result, a test in Oregon found no difference in health outcomes between those with access to Medicaid and those without.

February 3, 2017

QotD: Obamacare, or something like it, was probably inevitable

Obamacare? Well, here’s the truth of the matter: America is addicted to medical care and demands that it be delivered in infinite quantity, in flawless quality, no matter the cost, as long as no one has to pay anything like full price, directly. Unfortunately, the cost does matter, and even if we were willing to devote infinite resources to medicine, we lack the human quality to provide what’s demanded. Short version: [Obama] had to do something; eventually we were going to bankrupt ourselves in the interests of keeping someone’s great-grandmama alive another day or so. I’m not sure what that something was, mind you, and I am pretty sure that Obamacare wasn’t it. But, be fair; he really had to try to do something. So will Donald Trump, and I don’t mean just repeal Obamacare. You may as well get used to the idea.

Tom Kratman, “Free at last! Free at last!”, EveryJoe, 2017-01-23.

September 15, 2016

Asymmetric Information and Health Insurance

Filed under: Economics, Health — Tags: , , , — Nicholas @ 02:00

Published on 23 Sep 2015

In this video, we discuss asymmetric information, adverse selection, and propitious selection in relation to the market for health insurance. Health insurance consumers come in a range of health, but to insurance companies, everyone has the same average health. Consumers have more information about their health than do insurers. How does this affect the price of health insurance? Why would some consumers prefer to not buy health insurance at all? And how does this all relate to the Affordable Care Act? Let’s dive in.

November 20, 2015

We’re in “a terrible, horrible, no good, very bad news cycle for Obamacare”

Filed under: Business, Health, USA — Tags: , — Nicholas @ 04:00

Megan McArdle on the plight of some health insurance companies as they try to offer healthcare policies and still make some sort of profit in the current American market:

… UnitedHealth abruptly said it expected to lose hundreds of millions of dollars on its exchange policies in 2015 and 2016, and would be assessing whether to pull out of the market altogether in the first half of next year.

This was part of a terrible, horrible, no good, very bad news cycle for Obamacare; as ProPublica journalist Charles Ornstein said on Twitter, “Not since 2013 have I seen such a disastrous stream of bad news headlines for Obamacare in one 24-hour stretch.” Stories included not just UnitedHealth’s dire warnings, but also updates in the ongoing saga of higher premiums, higher deductibles and smaller provider networks that have been coming out since open enrollment began.

It now looks pretty clear that insurers are having a very bad experience in these markets. The sizeable premium increases would have been even higher if insurers had not stepped up the deductibles and clamped down on provider networks. The future of Obamacare now looks like more money for less generous coverage than its architects had hoped in the first few years.

But of course, that doesn’t mean insurers need to leave the market. Insurance is priced based on expectations; if you expect to pay out more, you just raise the price. After all, people are required to buy the stuff, on pain of a hefty penalty. How hard can it be to make money in this market?

What UnitedHealth’s action suggests is that the company is not sure it can make money in this market at any price. Executives seem to be worried about our old enemy, the adverse selection death spiral, where prices go up and healthier customers drop out, which pushes insurers’ costs and customers’ prices up further, until all you’ve got is a handful of very sick people and a huge number of very expensive claims.

Some commentators, including me, worried a lot about death spirals in the early days of the disastrous exchange rollout. Some commentators, also including me, have eased off on those fears in recent years. Why the change? Because when the law was passed, I was mostly focused on whether the mandate penalty would be enough to encourage people to buy insurance. Over time, as the exchanges evolved, the subsidies, and the open enrollment limitations, started to look a lot more important than the penalty.

[…]

An earnings call like today’s can also be a bargaining tactic. Health insurers are engaged in a sort of perpetual negotiation with regulators over how much they’ll be allowed to charge, what sort of help they’ll get from the government if they lose money, and a thousand other things. Signaling that you’re willing to pull out of the market if you don’t get a better deal is a great way to improve your bargaining position with legislators and regulatory agencies.

That said, strategic positioning is obviously far from the whole story, or even the majority of it. UnitedHealth really is losing money on these policies right now. It really is seeing something that looks dangerously like adverse selection. And frankly, there’s not that much the company can get out of regulators at this point, because the Congressional Republicans have cut off the flow of funds. So while Obamacare certainly isn’t dead, or certain to spiral to its death, it’s got some very worrying symptoms.

September 18, 2015

What is killing small US businesses? Compliance costs and regulatory overstretch

Filed under: Bureaucracy, Business, Government, USA — Tags: , , , , — Nicholas @ 04:00

Okay, perhaps the headline is a bit strong, but Warren Meyer explains why even “small” businesses need to be bigger than ever in order to be able to file all the appropriate government forms, rather than concentrating on serving their customers and growing their client base:

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….

September 16, 2015

The fate of pedestrians in Chinese traffic accidents

Filed under: China, Law — Tags: , , , — Nicholas @ 02:00

At Gods of the Copybook Headings, Richard Anderson comments on a story about Chinese drivers ensuring that pedestrians they hurt in traffic accidents don’t survive to sue them … because incentives matter:

Smelling a story that was too interesting to be true, I texted a friend who lives in China. He read the article and texted back that every word was correct. This behaviour was so common that it was a kind of dark joke. The phrase “drive to kill” was considered practical life advice for young and old alike. These are not members of some obscure and barbarous cult. China is one of the oldest and most accomplished of human civilizations.

The legal explanation for this — a moral explanation I suspect is impossible — is a combination of a weak insurance system and easily bribable courts. An injured pedestrian can become a lifetime financial liability for the driver. Murder convictions, even in cases with clear video evidence, are still unusual. Faced with a choice of becoming a bankrupt or a murderer the popular choice seems to be the latter.

Homo homini lupus est. Man is wolf to man.

Mainland China is, of course, a dictatorship. It seems likely that in a functioning liberal democracy, such as those of the West, very basic legal reforms would long ago have been implemented to remove these quite literally perverse incentives. The rulers of China have deigned it beneath their notice to make such minor improvements.

June 29, 2015

More on the “self-driving truck” issue

Filed under: Business, Economics, Railways, Technology, USA — Tags: , , , , — Nicholas @ 02:00

In the comments to this post, Tom Kelley provided a worthwhile digression on the topic that I felt deserved a wider audience, so with his permission, here’s Tom’s response:

Given that the trucking industry has been my sandbox for quite some time, I can safely extend Megan’s prognosis to also include the low long-term risk of job losses due to self-driving vehicles.

Frankly, I have to be wary of any “expert” who can’t even get the name of his source (the American Trucking Associations — yes, plural — not the American Trucker Association) transcribed correctly.

Apart from the myriad technical issues standing in the way of driverless trucks, the insurmountable barrier is anti-competitive trucking regulations passed on behalf of the government’s favorite white elephant, the rail industry. Invariably, these regulations are tarted up under some guise of safety (Let’s see, was it a truck or a train that blew the town of Lac-Mégantic off the map??? Hmm).

The bottom line is that any change that would have the slightest possibility of making trucking more productive is quickly met with massive dis-information campaigns, and even more massive lobbying from the rail industry. Even the most minor dimensional changes designed to reflect the current realities of truck freight transportation stand little if any chance of making it past regulators with a permanent disdain for free enterprise.

We can’t have electronically actuated brakes on trucks because the regulators have no grasp of brakes or electronics, and somebody wants to replace the driver with electronics? Seriously? Of course these same folks seen to have no problem flying cross-country at 500 MPH in a commercial jetliner that is literally flown by wire.

And even if the government types were perfect actors in this little tale, then you have the American tort law system, run/regulated by, for, and about the trial lawyers. Even with professional truck drivers who can deftly avoid putting incompetent car drivers on their way to a Darwin award, hundreds of four-wheeler drivers still manage to commit suicide-by-truck every year, followed quickly by their otherwise destitute estates suing innocent trucking companies for millions.

Can’t you just hear the jury summation now: “The eeevvilll trucking company wanted to save a few pennies by outsourcing the driver’s job to a microchip! The must be punished! My client, a fourth cousin of the homeless man who jumped off a bridge in front of a truck MUST be awarded $10 million for the pain and suffering from losing a relative he never met. No justice, no peace!”

No insurance company in their right mind would insure a driverless truck for real-world operation.

There’s no question that the technology is available to make the concept work, I was on-board numerous autonomous vehicles of all sizes back in 1997.

It will take several major societal shifts before any serious degree of autonomy makes it into real world trucking operations.

June 26, 2015

The self-driving truck won’t displace many human truck drivers for years to come

Filed under: Business, Economics, Technology, USA — Tags: , , , , — Nicholas @ 02:00

I’m far from being a Luddite, but I find Megan McArdle‘s analysis of the low short-to-medium term risk of job losses due to self-driving vehicles to be pretty convincing:

… my objections are actually to the understanding of the trucking industry works and of self-driving vehicles. Fully automated trucks, with no drivers at all, are probably going to arrive later than Santens thinks, take longer to roll out than he projects, and displace fewer workers than he thinks they will. I’m not saying it will never happen. I’m just skeptical that this is going to be a major policy problem in the next two decades.

Why?

Start with what truckers do, and how many of them there are. Santens quotes the American Trucker Association to get 3.5 million. The Bureau of Labor Statistics puts that figure a bit lower, around 2.8 million. More importantly, only 1.6 million of those are long-haul truckers. The rest are “driver/sales” employees or “Light truck or delivery services drivers.” Those are short-haul services that will not quickly be replaced by automated cars, both because chaotic urban roads are harder for autonomous vehicles to handle and because part of the job is loading and unloading the truck (something that long haul drivers may also do).

Also: Why would we assume that the advent of driverless trucks would be bad for trucking support jobs? Those folks are doing stuff like maintenance or loading that still has to be done. Moreover, other jobs will be created, in designing and maintaining the new systems. Someone has to map all those roads.

But I think it will be a while before we get to a fully autonomous vehicle with no people in it. The “driverless truck” that Santens links is not actually driverless; it’s partially autonomous. If it foresees something it can’t deal with, such as heavy snow, it signals to the driver to take over; if the driver doesn’t respond, it slows to a stop. That’s an improvement in the lives of truck drivers, not a job killer.

June 22, 2015

An insurance scam that targets the most vulnerable

Filed under: Bureaucracy, Law, USA — Tags: , , , — Nicholas @ 02:00

At The Intercept, Juan Thompson talks about a burgeoning insurance scam that not only rips off the victims for their insurance premiums but then makes it worse through police action:

Martin was taken in by a widening scam in which crooks, posing as auto insurance agents, prey on working people struggling to find affordable policies. Under the scam, the perpetrator offers auto insurance for a low price — low because the scammer, posing as a broker, will buy an authentic policy using fraudulent means of payment, keeping the policy just long enough to collect a proof of insurance card.

The racket is a growing problem in New York City and South Florida, according to an insurance industry group, but seems most prevalent in Michigan, where premiums are inflated by a state mandate that drivers purchase insurance plans that have unlimited lifetime medical benefits, among other features. Victims in Michigan are thrown even deeper into crisis when police, as is common there, accuse victims of being in on the scam and seize their vehicles and other assets under civil forfeiture laws.

The scam and seizures show how crooks and cops can end up working in concert to further imperil those already on the economic brink. Indeed, in this case, low-income residents are pinched at every turn. They start off with especially high insurance premiums, consumer advocates argue, because insurance companies sometimes charge people in low-income communities more for auto insurance in a practice some have labeled modern redlining.

Bogus agents exploit the need for cheaper policies by selling insurance that’s too good to be true, leaving victims financially exposed, for example, in the case of an accident. As if all that weren’t enough, the police then turn on the victims of the fraud, who are far easier to track down than the original perpetrators.

“You have a blend of crooked agents selling innocent, squeezed drivers bogus policies and insurance cards, and high insurance premiums,” said James Quiggle of the Coalition Against Insurance Fraud, a group that receives funding from insurance companies.

February 22, 2015

Obamacare’s externalities

Filed under: Economics, Health, USA — Tags: , , , — Nicholas @ 03:00

Megan McArdle on just what externalities are and why we pay attention to them:

For those who might not know the term, “externality” is economist-speak, and it means about what it sounds like: an effect that your action has on others. An externality can be positive or negative, and obviously, we as a society would like to have as many as possible of the former and as few as possible of the latter. In other words, “Your right to swing your fist stops at the end of my nose.”

I’m a libertarian, and libertarians love talking about externalities. They give us a (relatively) clear way to define what are and are not legitimate scopes of public action. Whatever you’re doing in the privacy of your own bedroom with another consenting adult is really none of my business, even if I think you oughtn’t to be doing it. On the other hand, if you’re breeding rats and cockroaches in there, and they’re coming through the shared wall of our respective row houses, then I have the right to get the law involved.

Framing things as “externalities” is therefore a good way to get a libertarian, or someone who leans that way, on your side. And such frames have come up over and over in the debate over Obamacare, which has been variously justified by the cost to the state of emergency room care; the cost to society of free-riding young folks who don’t buy insurance until they get sick; the public health cost of people who don’t go to the doctor and get really, expensively sick; an unhealthy workforce that is less productive; and the cost to friends and relatives who have to chip in to cover uninsured medical expenses.

I didn’t find any of those arguments particularly convincing. The third can just be dispensed with on the grounds of accuracy: In general, preventive medicine does not save money. Oh, it may save money in the particular case of someone whose diabetes or cancer went long undiagnosed. The problem is, you can’t just look at the cost of sick folks who would have been a lot cheaper to treat if their conditions had been caught earlier. You also have to include the cost of all the healthy people you had to screen in order to catch that one case of disease. And with limited exceptions, the cost of screening the healthy generally outweighs the cost of treating the chronically ill. Now, you can certainly argue for preventive care on other grounds — for example, that it makes people healthier (though even then you have to add the cost of unnecessary medical procedures, such as biopsies following a false positive on a blood test, which is why we do not, say, give annual mammograms to every American woman). But it’s not generally a money saver, so this particular externality doesn’t exist.

The rest of the arguments have some weight, but in the end, I don’t think they’re weighty enough. Let me explain.

January 10, 2015

The four kinds of healthcare spending

Filed under: Bureaucracy, Business, Economics, Government, Health, USA — Tags: , , , — Nicholas @ 03:00

Megan McArdle explains why healthcare costs more than you think it should:

Milton Friedman famously divided spending into four kinds, which P.J. O’Rourke once summarized as follows:

  1. You spend your money on yourself. You’re motivated to get the thing you want most at the best price. This is the way middle-aged men haggle with Porsche dealers.
  2. You spend your money on other people. You still want a bargain, but you’re less interested in pleasing the recipient of your largesse. This is why children get underwear at Christmas.
  3. You spend other people’s money on yourself. You get what you want but price no longer matters. The second wives who ride around with the middle-aged men in the Porsches do this kind of spending at Neiman Marcus.
  4. You spend other people’s money on other people. And in this case, who gives a [damn]?

Most health-care spending in the U.S. falls into category three. In theory, the people who are funding our expenses — the proverbial middle-aged men in Porsches, except that they’re actually insurance executives and government bureaucrats — have every incentive to step in, cut up the charge cards, and substitute a gift-wrapped box of Hanes briefs with the comfort-soft waistband. In practice, legislators frequently intervene to stop them from exercising much cost-control. The managed care revolution of the 1990s died when patients complained to their representatives, and the representatives ran down to their offices to pass laws making it very hard to deny coverage for anything anyone wanted. Medicare cost-controls, such as the famed Sustainable Growth Rate, fell prey to similar maneuvers. The only system that exhibits sustained cost control is Medicaid, because poor people don’t vote, or exit the system for better insurance.

The result is a system where everyone complains that we spend much too much on health care — and the very same people get indignant if anyone suggests that they, personally, should maybe spend a little bit less. Everyone wants to go to heaven — but nobody wants to die.

Unfortunately, this is what cost-control actually looks like, which is to say, like people not being able to spend as much on health care. Oh, to be sure, we could achieve this end differently — instead of asking patients to pay a modest share of their own costs (the article suggests that this amount is less than 10 percent, in the case of Harvard professors) — we could simply set a schedule of covered treatment, and deny patients access to off-schedule treatments, or even better, not even tell them that those treatments exist. But people don’t like that solution either, which is why medical dramas are filled with rants about insurers who won’t cover procedures, and the law books are filled with regulations that sharply curtail the ability of insurers to ration care. And the third option, refusing to pay top-dollar for care, would be a bit tricky for Harvard to implement, given that they run exactly the sort of high-cost research facilities that help drive health-care costs skyward. Nor do I really think that the angry professors would be mollified by being given a cheap insurance package that wouldn’t let them go see the top-flight specialists their elite status now entitles them to access.

Instead, they persist in our mass delusion: that there is some magic pot of money in the health-care system, which can be painlessly tapped to provide universal coverage without dislocating any of the generous arrangements that insured people currently enjoy. Just as there are no leprechauns, there is no free money at the end of the rainbow; there are patients demanding services, and health-care workers making comfortable livings, who have built their financial lives around the expectation that those incomes will continue. Until we shed this delusion, you can expect a lot of ranting and raving about the hard truths of the real world.

November 23, 2014

Working and middle class pushback against Obamacare

Filed under: Health, USA — Tags: , , — Nicholas @ 11:20

At Mother Jones, Kevin Drum looks at some of the reasons Obamacare is not being embraced by the working and middle classes the way many expected:

Obamacare winners and losersHere’s an interesting chart that follows up on a post I wrote a few days ago about Democrats and the white working class. Basically, I made the point that Democrats have recently done a lot for the poor but very little for the working and middle classes, and this is one of the reasons that the white working class is increasingly alienated from the Democratic Party.

I got various kinds of pushback on this, but one particular train of criticism suggested that I was overestimating just how targeted Democratic programs were. Sure, they help the poor, but they also help the working class a fair amount, and sometimes even the lower reaches of the middle class. However, while there’s some truth to this for certain programs (unemployment insurance, SSI disability), the numbers I’ve seen in the past don’t really back this up for most social welfare programs.

Obamacare seems like an exception, since its subsidies quite clearly reach upward to families in the working and middle classes. Today, however, Bill Gardner points me to a Brookings paper from a few months ago that suggests just the opposite. The authors calculate net gains and losses from Obamacare, and conclude that nearly all its benefits flow to the poor. If I interpolate their chart a bit, winners are those with household incomes below $25,000 or so, and losers are those with incomes above $25,000.

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