I find it almost unbelievable that both the Democrat's bill and the Republican counter offer specify that private plans (and the government plan) should not be allowed to discriminate based on pre-existing conditions. I know several people who either have or have children with very expensive pre-existing conditions, so I feel for the fact that you can't get private insurance if you have cancer. But, I don't see how you can possibly end up with a decent health insurance system if you allow people to get into the program after they're already sick.
Imagine a system where you couldn't exempt "pre-existing conditions" from home owners insurance. You would be crazy to buy insurance before your house burned to the ground, because you would have to pay to rebuild the houses of the smart people who bought their coverage when their house was a smoldering ruin. I actually suspect, based on the breakdowns that I have seen, that a fair portion of the Democrat's 50 million uninsured are currently making the gamble that if they get to the point where they need insurance they can just depend on the fact that corporate policies and Medicare can't look at preexisting conditions and get it when they get sick.
Ultimately I would like to see health insurance work something like home owners insurance does now. You can select your coverage ahead of time and choose what is covered and if you suffer something that's covered then it will get paid for. If you choose not to insure against loss then you pay dearly. I'm not claiming that the government should let people die (though, as I note in my previous post, at some point they have to), but you should bear a great deal of the burden for your choices. That's how markets pressure people to make good decisions.
I understand that it's very, very difficult to get from where we are now to a system where you can get real catastrophic coverage without severely harming people who came down with a disease while depending on their current corporate policy, but nobody seems to want to even try.
Thursday, June 25, 2009
Wednesday, June 24, 2009
An analogy on health insurance
As a way to explain the current proposals (such as they are) to "reform" health insurance, I thought I might employ an analogy. I realize that, like all analogies, this is flawed, but I think it actually does a pretty good job of illustrating the current problems.
Lets imagine that your car insurance was run just like the current health insurance system. This would mean:
Their current idea is to take out the public plan, but establish a clearing house for private plans that still have to meet their mandates (and that still meet all the other conditions above, except not being tied to their employer).
Obama claims that this will save money because part of this is a plan to make consumers better informed about their choices in healthcare. If you took your car to the mechanic and he said that it has a seal that's slightly cracked. It's unlikely to cause a problem in the next 6 months so you could just get it checked again the next time you get an oil change, but he can change it now (at a cost of a couple hundred dollars) and you won't have to pay any more. Would the information that you don't really need to get it done now really make that much of a difference?
I'll note I'm leaving off one of the major drivers of cost in the health business, which is that people will pay anything for health. If something out there has a 2% chance of saving your baby's life and costs $10 million, it's worth it. Health care costs will grow uncontrollably because we will spend on it constrained only by what we can come up with. This means that the government can never solve every health problem. There are only a few possible approaches to expensive or new treatments:
(1) If you think this is an insane analogy, I know several states require that cancer patients be provided with wigs by insurance. I've known people in chemo and I know how much hair pieces can mean to them, but do we really need a law stating that an insurance policy must cover that?
(2) Imagine I have an idea for a new cancer drug which I think has a 10% chance of success, will cost $100 million to get through research and $5 per patient for production, and will affect 1 million people per year worldwide. If I get 7 years on my patent and spend 2 of those in approval testing with the FDA then I need to recoup $100 million in 5 years after approval. This would cost $25 per patient to recoup the costs if it's successful, but there's no way I persue it if my expected return is $25 per patient because there's a 90% chance I lose $100 million. To make the expected return equal the cost I would need to charge at least $185 per patient. If half of those patients are in country X and they normally only give double the production cost in their price fixing operation then I'll still want to sell to them if I succeed (since that's $5 per patient in profit, assuming the research is successful) but when I'm deciding if I can afford to start I need to assume I can sell to the other half of the patients at $365 to recoup the expected loss on research. In reality I don't think any of the current price fixing countries are setting prices based on production costs (with the possible exception of some African anti-virals, which don't account for substantial expected profits anyway) so it's not quite this bad, but this does illustrate why price fixes work, so long as somebody else is willing to pay for research.
Lets imagine that your car insurance was run just like the current health insurance system. This would mean:
- There was a tax break for getting car insurance through your employer
- That insurance gave group rates assuming everyone at your company had the same driving history
- That insurance was not allowed to reject people because of prior driving records
- You lost that insurance if you left the company (or shortly after)
- Any insurance you purchased on your own not only took into account your driving records, but did not cover any defects in your cars that existed before purchase.
- The standard method for insurance is to pay for all repairs for a small copay
- There were government mandates that, for instance, if your car was dented then a full repainting must be paid for, and the coverage must include rebuilding the exhaust system of clunkers to modern emissions compliance (1).
- Those mandates include that oil changes, tires, and regular recommend maintenance must be covered, but allowed the insurance company to set a maximum liability payout of $10,000 in the case of an accident.
- Anyone can sue a mechanic for any reason and if they lose they pay only their own lawyer, but if they win the mechanic will likely be out many times what he makes in a year.
- There is a government program to fix the cars of old and poor people, which pays repair shops 85-90% of market rates, meaning the shops have to recoop that cost by charging you more.
- Other countries legally limit the price of newly developed systems, so when a new system for brake flushing or whatever comes along, they pay the cost of the actual hardware, we have to pay for all the development work.
Their current idea is to take out the public plan, but establish a clearing house for private plans that still have to meet their mandates (and that still meet all the other conditions above, except not being tied to their employer).
Obama claims that this will save money because part of this is a plan to make consumers better informed about their choices in healthcare. If you took your car to the mechanic and he said that it has a seal that's slightly cracked. It's unlikely to cause a problem in the next 6 months so you could just get it checked again the next time you get an oil change, but he can change it now (at a cost of a couple hundred dollars) and you won't have to pay any more. Would the information that you don't really need to get it done now really make that much of a difference?
I'll note I'm leaving off one of the major drivers of cost in the health business, which is that people will pay anything for health. If something out there has a 2% chance of saving your baby's life and costs $10 million, it's worth it. Health care costs will grow uncontrollably because we will spend on it constrained only by what we can come up with. This means that the government can never solve every health problem. There are only a few possible approaches to expensive or new treatments:
- Do nothing and let the market decide. This will mean that in the short term people will die where we have treatments available (but as we'll shortly see, that is always going to happen) but historically treatments have gotten cheaper so hopefully in the future the treatment will be available to those with less means.
- Set a maximum government payout and let the market decide. Same as above, but with more government involvement, which in this case means (interestingly) that we're more likely to get future treatments that are more expensive.
- Make rules for who lives and who dies. This is pretty much what most current purely government plans do. They might pay for an expensive treatment for someone who is 30, but not for the same condition in someone who is 70 because they don't have enough time left to be worth the expense. Several of them also cut down on costs by having waiting lists so that some people become untreatable while waiting, allowing them to only fund operations for those who can wait that long and still be treatable. This could either go with an option to buy treatment if you're outside the rules (like Britain, iirc) or eliminate private healthcare entirely (like Canada would be if they didn't have a private system to their South)
- Artificially set the price for treatment and offer it to everyone. This will work for most things now, but it will completely eviscerate future spending on development, so more people will die in the future because of cures we won't discover that would have been discovered if they were predicted to sell at a higher cost. This isn't as bad if somebody else is paying unlimited amounts for new developments since then the research cost for some things can be paid by somebody else and we can just pay for production costs(2)
(1) If you think this is an insane analogy, I know several states require that cancer patients be provided with wigs by insurance. I've known people in chemo and I know how much hair pieces can mean to them, but do we really need a law stating that an insurance policy must cover that?
(2) Imagine I have an idea for a new cancer drug which I think has a 10% chance of success, will cost $100 million to get through research and $5 per patient for production, and will affect 1 million people per year worldwide. If I get 7 years on my patent and spend 2 of those in approval testing with the FDA then I need to recoup $100 million in 5 years after approval. This would cost $25 per patient to recoup the costs if it's successful, but there's no way I persue it if my expected return is $25 per patient because there's a 90% chance I lose $100 million. To make the expected return equal the cost I would need to charge at least $185 per patient. If half of those patients are in country X and they normally only give double the production cost in their price fixing operation then I'll still want to sell to them if I succeed (since that's $5 per patient in profit, assuming the research is successful) but when I'm deciding if I can afford to start I need to assume I can sell to the other half of the patients at $365 to recoup the expected loss on research. In reality I don't think any of the current price fixing countries are setting prices based on production costs (with the possible exception of some African anti-virals, which don't account for substantial expected profits anyway) so it's not quite this bad, but this does illustrate why price fixes work, so long as somebody else is willing to pay for research.
Wednesday, June 10, 2009
Those 150k jobs that were saved or created.
I'm sure everyone has seen the chart by this point comparing Obama's prediction with and without the stimulus to the actual unemployment data. What I find interesting is the comparison of the trend line with the stimulus to Obama's new model of what would have happened without the stimulus.
Using the May BLS numbers for jobless claims we get 13,973,000 unemployed with 9.4% unemployment. I don't remember how to get the payroll numbers out of BLS data, so let's presume that it's exactly 9.4% and there are 148,648,936 people considered. That means that under Obama's predictions in January we would now have around 8.3% unemployment without the stimulus or 7.8% with. We passed the stimulus and we're now at 9.4%. So how far is his original estimate of 7.8% from the actual data at 9.4%? Well 148,648,936*.078 = 11,594,617 or a difference of 2,378,383 jobs.
The claim now is that that 9.4% number is much better than it would have been because he has "created or saved" 150,000 jobs. For the sake of argument, lets assume that his predictions were 2.3 million jobs off and yet his estimate of jobs created or saved is deadly accurate. How much worse would it be if we hadn't passed a trillion dollars in spending? That would be 150/(148648+150) or — wait for it — .1%.
Great.
Using the May BLS numbers for jobless claims we get 13,973,000 unemployed with 9.4% unemployment. I don't remember how to get the payroll numbers out of BLS data, so let's presume that it's exactly 9.4% and there are 148,648,936 people considered. That means that under Obama's predictions in January we would now have around 8.3% unemployment without the stimulus or 7.8% with. We passed the stimulus and we're now at 9.4%. So how far is his original estimate of 7.8% from the actual data at 9.4%? Well 148,648,936*.078 = 11,594,617 or a difference of 2,378,383 jobs.
The claim now is that that 9.4% number is much better than it would have been because he has "created or saved" 150,000 jobs. For the sake of argument, lets assume that his predictions were 2.3 million jobs off and yet his estimate of jobs created or saved is deadly accurate. How much worse would it be if we hadn't passed a trillion dollars in spending? That would be 150/(148648+150) or — wait for it — .1%.
Great.
Wednesday, June 3, 2009
Illustrations on Health Care
There were two events this week that really show what a government healthcare system would look like.
The first is the crash of the French airliner in the Atlantic. The interesting thing to me about that crash is that I just learned that damages from airlines for crashes, even resulting in fatalities, is limited to around $200k by international treaty. This treaty was passed in the early 20th century in order to promote the growth of an international airline system. It seems to have do extremely well at that, but interestingly it also seems not to have limited pressure on airlines to fly safely. If you listen to people opposing limits on liability for doctors you would expect that similar limits on air carrier would cause us to have accidents all the time, but in fact it's much safer to fly than drive and I learned about these limits only because of a very, very rare fatal crash. Comair has the worst safety rating of any North American carrier, having lost 2 planes out of 5 million. I'll go ahead and state that I would be willing to go to a doctor with such an atrocious safety record.
The second is Obama's takeover of GM. I think any reasonable observer would instantly come to the realization that his gutting the rights of top priority lien holders in favor of the UAW reflects the fact that the government takeover gives favor to parties favored by the government. We can also see this in the fact that he has already assured the Mayor of Detroit that GM's headquarters will remain there, regardless of the business sense of that. It also makes sense to question what now happens to non-government owned automakers. Can Ford fairly get fleet vehicles bought by the fed? Will the UAW negotiate terms to the independently held Ford the same as to their own automaker? If they don't and Ford takes them to court, can we expect the Federal Government to fairly hear the case that the UAW discriminated in favor of a company they jointly hold with the Federal Government? There were local utilities a decade or two ago that tried to get into the TVA's market, but were rebuffed because TVA drastically cut their prices long enough to hold them out. TVA lost money during this time, but they're a Federal agency so we were there to bail them out. Can we reasonably exclude GM from following the same pricing plan? When the government is setting safety, emissions, or fuel economy standards, would it make sense for them to look at what their line of cars already produces? How closely can we expect this to be tailored? Currently the standards are different for light trucks. How about a different standard for cars that have exactly the same weight and interior volume as the Chevy Obama?
This is the ultimate in vertical integration, and it should raise exactly the same red flags as a "government option" in healthcare.
The first is the crash of the French airliner in the Atlantic. The interesting thing to me about that crash is that I just learned that damages from airlines for crashes, even resulting in fatalities, is limited to around $200k by international treaty. This treaty was passed in the early 20th century in order to promote the growth of an international airline system. It seems to have do extremely well at that, but interestingly it also seems not to have limited pressure on airlines to fly safely. If you listen to people opposing limits on liability for doctors you would expect that similar limits on air carrier would cause us to have accidents all the time, but in fact it's much safer to fly than drive and I learned about these limits only because of a very, very rare fatal crash. Comair has the worst safety rating of any North American carrier, having lost 2 planes out of 5 million. I'll go ahead and state that I would be willing to go to a doctor with such an atrocious safety record.
The second is Obama's takeover of GM. I think any reasonable observer would instantly come to the realization that his gutting the rights of top priority lien holders in favor of the UAW reflects the fact that the government takeover gives favor to parties favored by the government. We can also see this in the fact that he has already assured the Mayor of Detroit that GM's headquarters will remain there, regardless of the business sense of that. It also makes sense to question what now happens to non-government owned automakers. Can Ford fairly get fleet vehicles bought by the fed? Will the UAW negotiate terms to the independently held Ford the same as to their own automaker? If they don't and Ford takes them to court, can we expect the Federal Government to fairly hear the case that the UAW discriminated in favor of a company they jointly hold with the Federal Government? There were local utilities a decade or two ago that tried to get into the TVA's market, but were rebuffed because TVA drastically cut their prices long enough to hold them out. TVA lost money during this time, but they're a Federal agency so we were there to bail them out. Can we reasonably exclude GM from following the same pricing plan? When the government is setting safety, emissions, or fuel economy standards, would it make sense for them to look at what their line of cars already produces? How closely can we expect this to be tailored? Currently the standards are different for light trucks. How about a different standard for cars that have exactly the same weight and interior volume as the Chevy Obama?
This is the ultimate in vertical integration, and it should raise exactly the same red flags as a "government option" in healthcare.
Monday, April 27, 2009
A new convention?
I just saw this article in Thursday's Wall Street Journal calling for a new Constitutional Convention (or at least a new Amendment). I think it's a fantastic idea. I would love to see the repeal of the 17th as well, but the sections he lays out go a long way to restoring limits on the Federal Government.
Thursday, April 16, 2009
Classical and Modern Liberalism
I have read with much interest a series of posts over at National Review's Corner starting with
this one about Alan Wolfe's column on liberalism. What I find interesting about them is that I had always presumed that honest modern liberals admitted, at least to themselves, that Wilson, Taylor, Dewey, and the rest of their progressive ideological ancestors made a fundamental break from Smith, Paine, Jefferson and the other fathers of Renaissance liberalism.
I see an obvious example to this in Hillary's campaign statement that the word "liberal" "originally meant you were for freedom... that you were willing to stand against big power and on behalf of the individual." Now clearly Hillary intended to imply that she was for freedom and against big power, but it's equally clear that modern progressives are for no such thing. The root of progressivism, which both Clinton and Obama embrace wholeheartedly, is that nearly all problems can be solved if you give the government enough power and have the right (naturaly Clinton and Obama respectively) people at the helm. It necessarily follows from giving the government the power to solve all problems that it also has the power to circumscribe all individual rights.
You cannot think that "liberal" classically meant "for freedom and individual liberty" and simultaneously think that modern liberalism is the same as classical liberalism.
Wolfe, unfortunately, does not explain what he thinks classical liberalism meant, but he does make it abundantly clear that he does not accept a break between it and the modern version. The members of The Corner, however, speculate on how one can naturally flow from the other end culminating in these two posts. I find this fascinating. It had never before occurred to me that Toryism (or, if you want "classical conservatism") was primarily concerned with the maintenance of the divine right of kings and thus both modern conservatism and modern liberalism flow out of the rejection of it. It does, however, once again underline to me that the difference between the two world views is best expressed in the difference between Locke and Rousseau (both Enlightenment thinkers) and their treatments of Hobbes's state of nature.
this one about Alan Wolfe's column on liberalism. What I find interesting about them is that I had always presumed that honest modern liberals admitted, at least to themselves, that Wilson, Taylor, Dewey, and the rest of their progressive ideological ancestors made a fundamental break from Smith, Paine, Jefferson and the other fathers of Renaissance liberalism.
I see an obvious example to this in Hillary's campaign statement that the word "liberal" "originally meant you were for freedom... that you were willing to stand against big power and on behalf of the individual." Now clearly Hillary intended to imply that she was for freedom and against big power, but it's equally clear that modern progressives are for no such thing. The root of progressivism, which both Clinton and Obama embrace wholeheartedly, is that nearly all problems can be solved if you give the government enough power and have the right (naturaly Clinton and Obama respectively) people at the helm. It necessarily follows from giving the government the power to solve all problems that it also has the power to circumscribe all individual rights.
You cannot think that "liberal" classically meant "for freedom and individual liberty" and simultaneously think that modern liberalism is the same as classical liberalism.
Wolfe, unfortunately, does not explain what he thinks classical liberalism meant, but he does make it abundantly clear that he does not accept a break between it and the modern version. The members of The Corner, however, speculate on how one can naturally flow from the other end culminating in these two posts. I find this fascinating. It had never before occurred to me that Toryism (or, if you want "classical conservatism") was primarily concerned with the maintenance of the divine right of kings and thus both modern conservatism and modern liberalism flow out of the rejection of it. It does, however, once again underline to me that the difference between the two world views is best expressed in the difference between Locke and Rousseau (both Enlightenment thinkers) and their treatments of Hobbes's state of nature.
Wednesday, April 1, 2009
A President for this generation
I expect to complain a lot about Obama the next few years, but I really do think he's the perfect embodiment of the current generation.
Relativist: Much has been made of Obama's constant breaking of promises and changes in positions as flip flopping, but I don't think that is the case. To be a flip flop we would have to accept the existence of at least objective and probably absolute truth. I don't have survey data, but I would bet that a large chunk of society these days thinks truth is relative. If truth is relative then Obama hasn't had any problems with not being truthful. When he said he would take federal matching funds in the campaign that was true, the fact that he later didn't was only because circumstances had changed.
Democrat: I mean this in the sense in which Aristotle coined the term to demean it. Throughout classical history democracy was decried as a form of government whereby the many can enslave the few through numerical superiority. This country was not founded as a democracy precisely because the founders had read the classical philosophers and understood the perils of democracy. Until the 17th amendment the only body in this country that was directly elected by the majority was the House, and they couldn't pass anything without going through the Senate, which would naturally oppose intrusion into the power of the states. Until sometime around FDR's administration it was understood that the Constitution outlined the powers available to the Federal government and that an attempt to do something not outlined in the Constitution was illegal. For a number of reasons we have come far from that. I constantly heard on the news through the last decade that we needed to establish a democracy in Iraq like that in the United States and I would suspect that most citizens don't know that the amendments to the Constitution are not what limits the power of the government. Against that backdrop we have the government deciding to run private businesses for the good of the people. That's a very democratic thing to do. Most of America aren't AIG executives, so they would have no problem with not paying AIG executives (which is essentially what Washington was proposing. In my understanding many of the people who got the bonuses were working for $1 per year with the understanding they would get a bonus after they unraveled the division).
High Self-Esteem: The Washington Post had a story a while ago about how the US leads the world in self-assessment in math, but trails in actual knowledge. Similarly everything we have seen from Obama indicates he has no experience with running anything. He has never run even a small corporation (unless you count his work with Ayers on the education challenge thing that utterly failed to promote education, but we're not supposed to talk about that). He has essentially taken over AIG, but created a mess over bonuses paid out to their executives, which were legal under the contract he had with them. But against this underwhelming backdrop he now proposes that the only reason the world's largest automobile maker has not been able to turn a profit is that the management the stockholders chose were not as good at running a car company as he will be. You might claim that that's not what he really means, but it has to be. He says his team will work with them over the next 60 days to come up with a better business plan. What explanation could there be for his team succeeding in 60 days where GM has failed for a decade other than his outstanding leadership? I'll go ahead and note that it may well be that Obama is a well of undiscovered talent and GM just got the best CEO in all the world, but we have no evidence of past performance on which to base that assertion.
Relativist: Much has been made of Obama's constant breaking of promises and changes in positions as flip flopping, but I don't think that is the case. To be a flip flop we would have to accept the existence of at least objective and probably absolute truth. I don't have survey data, but I would bet that a large chunk of society these days thinks truth is relative. If truth is relative then Obama hasn't had any problems with not being truthful. When he said he would take federal matching funds in the campaign that was true, the fact that he later didn't was only because circumstances had changed.
Democrat: I mean this in the sense in which Aristotle coined the term to demean it. Throughout classical history democracy was decried as a form of government whereby the many can enslave the few through numerical superiority. This country was not founded as a democracy precisely because the founders had read the classical philosophers and understood the perils of democracy. Until the 17th amendment the only body in this country that was directly elected by the majority was the House, and they couldn't pass anything without going through the Senate, which would naturally oppose intrusion into the power of the states. Until sometime around FDR's administration it was understood that the Constitution outlined the powers available to the Federal government and that an attempt to do something not outlined in the Constitution was illegal. For a number of reasons we have come far from that. I constantly heard on the news through the last decade that we needed to establish a democracy in Iraq like that in the United States and I would suspect that most citizens don't know that the amendments to the Constitution are not what limits the power of the government. Against that backdrop we have the government deciding to run private businesses for the good of the people. That's a very democratic thing to do. Most of America aren't AIG executives, so they would have no problem with not paying AIG executives (which is essentially what Washington was proposing. In my understanding many of the people who got the bonuses were working for $1 per year with the understanding they would get a bonus after they unraveled the division).
High Self-Esteem: The Washington Post had a story a while ago about how the US leads the world in self-assessment in math, but trails in actual knowledge. Similarly everything we have seen from Obama indicates he has no experience with running anything. He has never run even a small corporation (unless you count his work with Ayers on the education challenge thing that utterly failed to promote education, but we're not supposed to talk about that). He has essentially taken over AIG, but created a mess over bonuses paid out to their executives, which were legal under the contract he had with them. But against this underwhelming backdrop he now proposes that the only reason the world's largest automobile maker has not been able to turn a profit is that the management the stockholders chose were not as good at running a car company as he will be. You might claim that that's not what he really means, but it has to be. He says his team will work with them over the next 60 days to come up with a better business plan. What explanation could there be for his team succeeding in 60 days where GM has failed for a decade other than his outstanding leadership? I'll go ahead and note that it may well be that Obama is a well of undiscovered talent and GM just got the best CEO in all the world, but we have no evidence of past performance on which to base that assertion.
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