Adam Smith and Obamacare

by Mario Rizzo

Based on my non-scientific sampling of the morning talk-programs on TV, the “progressives” have discovered the law of unintended consequences. There seems to be universal agreement that if Obamacare is altered to allow people to keep their current healthcare insurance, regardless of whether it covers all of the contingencies the law has so far mandated, the entire Obamacare framework will begin to unravel. As Steve Rattner (of the auto bailout “fame”) admitted on the MSNBC program “Morning Joe,” the law is a complex web of interrelated provisions. Once you pick at one, the law may unravel.

Let me take this opportunity to remind everyone of the famous passage from Adam Smith’s Theory of Moral Sentiments in which he sees so clearly the problem with statist redesign of social institutions.

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder (VI.II.42, Liberty Press edition).

There really is nothing more to add. So I will not (for now).

Morality as Word Magic

by Mario Rizzo

I am disturbed by the Obama administration’s revised rule regarding the provision of birth-control products and service under the new health insurance system they have created.  The original rule required all employers, particularly for our purposes institutions affiliated with the Catholic Church, to provide insurance that covers birth control without copayment , coinsurance or deductible.  The Church hierarchy and others protested that they should not have to provide insurance that reimburses or pays for activities they regard as immoral. So then after a politically troublesome firestorm, President Obama and Secretary of Health and Human Services Kathleen Sebelius announced a revised rule.

The revised rule requires all employers, particularly for our purposes institutions affiliated with the Catholic Church, to provide insurance that covers birth control without copayment, coinsurance or deductible. What a relief. Continue reading

Sliding Toward the Individual Health Insurance Mandate: An Absurdist Analysis

by Mario Rizzo

I am not an expert in US Constitutional law, but I am not totally uninformed either. And yet (or because of this) I was shocked to see the completely crazy “analysis” that appeared, as an opinion piece, in the Wednesday, November 16th issue of the New York Times. The author is the anti-trust and health law scholar Einer R. Elhauge of the Harvard Law School. I am somewhat relieved to find that he is not a constitutional law expert either.

Nevertheless, the article is notable for how casually it treats the legal issues. Continue reading

Politics of Healthcare Rationing

by Chidem Kurdas

The Obama administration’s remake of the US healthcare system stands on three legs. It makes the purchase of insurance compulsory. It doles out new entitlements via expanded Medicaid, subsidies and certain benefit mandates. And it promises to control the growth of medical costs. The title of the 2010 law, the Affordable Care Act, highlights the cost containment feature and Paul Krugman, for instance, has repeatedly cited a Congressional Budget Office prediction that the changes would reduce the federal budget deficit by keeping down costs.

Now we have more information as to how this supposed cost containment works. Continue reading

Word Games as a Mask for Compulsory Healthcare Equality

by Mario Rizzo  

The recent decision by the Food and Drug Administration (FDA) to revoke approval of the drug Avastin for late stage breast cancer is an action with considerable significance for the future of government financed or subsidized healthcare. The FDA pretends to do a risk-benefit analysis and comes to the conclusion that the benefits are not worth the risks.  But since we are dealing with likely terminal cases “risks” must be interpreted with a grain of salt. But, fundamentally, people should be able to strike their own risk-benefit tradeoff, especially in consultation with physicians and due attention to the specifics of their own case.  Continue reading

Obama as King Canute

by Mario Rizzo  

President Obama, always alert to the laws of economics, is complaining, in effect, that loading up private health insurance with even more mandates seems to be causing rises in premiums.  

As The New York Times reports: 

“President Obama, whose vilification of insurers helped push a landmark health care overhaul through Congress, plans to sternly warn industry executives at a White House meeting on Tuesday against imposing hefty rate increases in anticipation of tightening regulation under the new law, administration officials said Monday… Mr. Obama will appear in the East Room, where he will highlight new regulations to protect consumers from discriminatory insurance practices, end lifetime limits on coverage and ban unjustified revocations of coverage …Mr. Axelrod likened them to “essentially a patients’ bill of rights, the strongest in history.” Continue reading

Naked Truth on NYT Finance Column

By Chidem Kurdas

Media coverage compounds the confusion about financial problems. Take a recent piece by Floyd Norris, probably the best informed of the New York Times finance columnists. 

“Credit-default swaps are, in reality, insurance,” he writes in “Naked Truth on Default Swaps”.  The seller of a credit default swap pays the buyer of the contract if there is a default on the specified bond. Mr. Norris asks: shouldn’t CDS be subject to the principle that “you cannot buy insurance on my life, or on my house, unless you have an insurable interest”?

That would mean that you should not be able to buy a default swap on a bond unless you own the bond. But this is a false deduction, because in practice even life insurance does not work on the insurable interest principle. Continue reading

Goldman Sachs Hate Week

by Chidem Kurdas

George Orwell’s classic novel, Nineteen Eighty-Four, describes a political ceremony called the Two Minute Hate, featuring Public Enemy Number One, a reprobate named Goldstein. People attend official rituals to work up a frenzy of hatred against Goldstein and love for their protector, Big Brother, or B-B.

To quote Orwell, at the climax of the Two Minute Hate, “the entire group of people broke into a deep, slow, rhythmical chant of “B-B! … B-B! …B-B!” – over and over again…” This daily rite is supplemented with elaborately prepared Hate Weeks.

In the past week there has been a similar fury in the media against Goldman Sachs, with herds of pundits all expressing their horror of the derivatives deal that is at the center of the Securities and Exchange Commission’s fraud case against the investment bank. This campaign starts with chants of “Social Benefit! Social Benefit! Social Benefit!” and climaxes with “Regulation! Regulation! Regulation!” Thus a mythical regulator stands in for B-B.

To pick one example out of many, George Soros writes that “Whether or not Goldman is guilty, the transaction in question clearly had no social benefit.” Mr. Soros is wise to hedge his bet about Goldman’s guilt—the SEC complaint contains holes the size of the real estate bubble. But was the mortgage-based collateralized debt obligation really devoid of social value? Continue reading

How ObamaCare Might Be Repealed

by Mario Rizzo  

As long as Obama is president, it is unlikely that the recently-passed healthcare law will be explicitly repealed. However, it is quite possible that if certain constituent parts of the law begin to fail a radical transformation could take place.  

The longer-term Achilles’ heel of the law is the health insurance mandate. Following closely in terms of vulnerability, but a more short-run concern,  is the projected Medicare savings.  

Each of these can and will likely be picked apart.   Continue reading

The Moral Paralysis of Obamacare

by Mario Rizzo  

The perceptive Alexis de Tocqueville argued that Americans are not as keen on “free speech” as it may first seem. Before an idea or proposal is passed into law they will argue, use invectives, claim that proponents or opponents are bad people, and so forth. But after a law has been passed and the dust settles much becomes unquestionable.   Continue reading

The Dilemma of Obamacare

by Mario Rizzo  

The very factors responsible for the passage of Obamacare may make it impossible to fund it adequately. There are certain myths about medical care that make it difficult to contain costs. The central myth, in not very exaggerated form, is that any care less than the best for anyone is the result of a contrived scarcity. If insurance companies were not so greedy for profit people could have the best care they deserve.   Continue reading

Out of Death Spiral, Into the Fire

by Chidem Kurdas

A big rate hike by an insurance company in California’s market for individually purchased health insurance provided a rationale for the new Obama care proposal. As Paul Krugman explains, the key issue is adverse selection: people who retain coverage tend to be those with high medical expenses.

Those with low expenses tend to drop out in hard times. That increases costs, causing premiums to rise, so even more  people drop out—an insurance death spiral.

The solution proposed in the administration bill – as in previous Congressional bills – is to make insurance mandatory.  With healthy people in the pool to share the costs, presumably premiums can be kept down. But even passionate proponents of compulsory insurance don’t really believe this,  so the President  proposes a new federal agency, the Health Insurance Rate Authority, to control price increases.

At this week’s NYU Market Institutions and Economic Processes colloquium, Gene Callahan made a comment that’s the best descriptor I’ve heard for the health insurance situation, though he was speaking of another topic: “However bad our current situation may seem, there is always some reform available that could make it even worse.”

Gene’s adage should be emblazoned on the walls of the room where the President’s health summit will take place this Thursday. Continue reading

Blair House Summit: Focus on Tax Cut

by Chidem Kurdas

Political theater as it is, President’s Obama’s call for a health reform summit to be held on February 25th at Blair House presents an opportunity to publicly air the need for one critical ingredient.

Health insurance exchanges would give consumers information about and a choice among health insurance policies—if they work, a very big if.  Democrats want to require states to set up exchanges, while many  Republicans would encourage them without making it compulsory.

Insurance marketplaces face an uphill battle of adverse selection. People who expect to have expensive health problems buy policies, while the young and healthy don’t—high costs and a small customer base guarantee that the insurance will be very expensive, a problem further exacerbated by government mandates that the policy cover every medical service under the sun. All this just about dooms the exchanges. Continue reading

Fundamental Healthcare Deceptions

by Mario Rizzo  

There are two fundamental deceptions in the Senate healthcare bill. They are so elementary that they are often ignored in favor of more technical problems. They are: 

1. The various provisions do not take full effect until 2015 or so. Thus the ten year cost totals as estimated by the Congressional Budget Office are misleading, but deliberately so, on the part of the bill’s authors. Only one-percent of the costs are incurred in the first four years. Thus, a $849 billion bill becomes a $1.8 trillion bill when the trick is adjusted for.  

2. The elimination of an insurance company’s ability to deny coverage on the basis of existing conditions is an effort to provide a benefit to individuals while hiding the “tax” on the rest. Clearly, insurance rates must rise for most individuals if insurers cannot price according to evident risk. If this were an honest bill there would be an explicit tax to subsidize the premiums of high risk individuals. Costless beneficence is a mockery of the idea of “helping people.” (I do not address the issues of legislative or private alternatives.)  

Why should any honest and intelligent person be happy with this? Democracy becomes a delusion when government lies. Of course, this is the usual modus operandi.

Protecting Ourselves From Our Masters

by Mario Rizzo

I have previously blogged about healthcare “reform.” (One example is here.) Both the House and Senate bill attacked the tax-advantaged flexible spending account for healthcare expenses. Now there seems to be a move to reinstate it with a maximum of only $2,500.

I understand why the first instinct of economists is to oppose to such accounts. They enable people to put aside money from their salaries before taxes and use it to pay for deductibles, copayments and uncovered medical or dental expenses (for which most people’s insurance is terrible).

Flex Spending Accounts tend to lead to overutilization of healthcare because it changes the terms of the tradeoff between medical and other expenditures. A dollar spent on healthcare costs a person, say, $0.60 (The other $0.40 would have gone to Federal, NY State and City income taxes). A dollar spent on clothing costs him or her a dollar.

However, look at the world in which we live. Continue reading

Healthcare Constructivism: A View From My Window

by Mario Rizzo 

I have taken a quick look at some of the provisions of the recently-passed House healthcare bill. What I want to do here is determine how it will affect me and others in a similar situation. I do not think my own situation is exceptional. I urge others to determine how it will affect them.   Continue reading

Will Obamacare Be Deficit-Neutral? Part 2

by Mario Rizzo

To much fanfare the House Democrats just revealed their healthcare plan. Three items from the CNN report caught my eye:

“The nearly 2,000 page bill — a combination of three different versions passed by House committees…”

A priori, I say this will be a nightmare to read and a mess to interpret.

“Pelosi’s office said the bill would cut the federal deficit by roughly $30 billion over the next decade. The measure is financed through a combination of a tax surcharge on wealthy Americans and spending constraints in Medicare and Medicaid.”

That is $30 billion over TEN years.  When have Congressional estimates of savings not been seriously wrong in the direction of greater spending?

“Medicare expenditures would be cut by 1.3 percent annually.”

Politically impossible under the current mindset.

I am astonished by the patently obvious nonsense that is being peddled by this Congress.  Let them admit that what they propose will cost a ton and add to the deficits. Then, at least, we could see if there are any counter-balancing benefits.

UPDATE: A few hours ago the House Democrats said the bill would cost $871 billion over ten years.  However they “misspoke.”  Oops. It has now been revealed that it will cost $1.05 trillion over ten years. (But now it will save about $100 billion over ten years.)  Stay tuned.

Delusions of Healthcare Policy

by Mario Rizzo  

The Wall Street Journal reports, mirable dictu, the latest Senate healthcare plan passes the Congressional Budget Office’s test for not adding to the deficit. In fact, the plan will trim the deficit by $81 billion over ten years. That is an average of $8.1 billion per year in a projected deficit that is so high I can’t remember what it is. This is your classic rounding error. Let that pass.   

What is the basic financing mechanism?   Continue reading

Howard Dean Endorses War Communism

by Gene Callahan

I heard Howard Dean on the radio yesterday morning (CBS AM, for those who care to look for a transcript — I tried but could not locate one) talking about why health co-ops won’t work. “You see,” he said (and I quote from memory — see no transcript note above), “our private health care system is inefficient — not because private enterprise is inherently inefficient, but because the insurance companies are owned by investors, so they need to take some of the premiums and pay out a return on investment. Private insurance only pays about 80 cents on the dollar to actual medical care, while Medicare pays about 97.”

Dean is apparently not aware that most “private enterprises” are owned by investors. The argument he gave is, in fact, a straight up Marxist argument for the inefficiency of capitalism. (Yes, “socialism” and “communism” get tossed around too freely in this debate, but in this case I’m merely being factual.)

So why isn’t Dean in favor of nationalizing the entire economy? Couldn’t we get bread, and computers, and automobiles more efficiently if we just cut out those useless profits? (Oh, forget that last item — I forgot that we are nationalizing the auto industry.)