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.

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 16^th 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.

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.

Healthcare as Social Planning

by Mario Rizzo

Although I am an advocate of voluntary birth control, I am not happy about (1) the equation of this choice with healthcare – even preventative healthcare (as if pregnancy were a disease); and (2) the government mandating that health insurers must cover these expenses, without even a copayment.

Medicare Reform, RIP?

by Mario Rizzo

The Financial Times  reports today that the Republicans may be backing away from the (Paul) Ryan proposal  eventually to replace traditional Medicare with subsidies for the purchase of  private insurance. The Financial Times  says, “This would shift exposure to rising health costs away from the  government and on to seniors…” Of course, this is literally true if there is  never an increase in the dollar amount of the subsidy, an unlikely event in  view of the regular increases in Social Security benefits.

Putting aside, for the moment, the details of the Ryan plan,  what many voters refuse to understand is the unpleasant choice they inevitably face. Either cost-control by the consumers or  cost-control (aka rationing) by the State.  The issue is stark.

Why Are Medical Offices in the IT Paleolithic?

by Gene Callahan

As a social theorist, I find it always interesting, and a useful exercise, to try to arrive at a good explanation for some social anomaly. But sometimes I find myself at a loss, and here is such an instance: Why, oh why, when we go to a medical office, do we write the exact same info on three of four different pieces of paper? Why are we even writing on paper? I mean, if there is one thing that computers have unambiguously improved, isn’t it the storage of routine information like this? Why can tiny St. Francis College, where I teach, in about one minute set me up so that I am receiving

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. 

Voters’ Best Interest

by Chidem Kurdas

Ronald Dworkin, a well-known legal scholar, describes last month’s election results as depressing and puzzling. In a commentary in the New York Review of Books, he asks, “Why do so many Americans insist on voting against their own best interests?” 

Two Visions Fuel Political Attacks

by Chidem Kurdas

Apparently left-liberal pundits are convinced that people oppose government expansion either out of stupidity or cupidity—not, say, out of a sincere belief in freedom. The oft-repeated story is that ignorant and misguided masses are being led by greedy business interests. Paul Krugman’s recent column is one of  many examples in the genre where billionaires intent on ravaging the country provide the bucks while clueless Tea Partiers provide grass roots brawn.

The best insight regarding this type of criticism comes from Thomas Sowell, whose analysis of two distinct visions of human nature puts current attacks into long-term perspective. Jerry O’Driscoll referred to this work in his comment on anti-intellectualism, a charge often levied by the same left-liberal critics.

In A Conflict of Visions: Ideological Origins of Political Struggles (published 1987, new edition 2007), Professor Sowell contrasted two fundamental views that go back several centuries.

Paying for Participation in Placebo-Controlled Clinical Trials?

by Mario Rizzo  

A couple of weeks ago I received a letter from the Harvard Medical School inviting me, among many others, to participate in a placebo-controlled trial of the efficacy of omega-3 (fish oil) supplements and high dose Vitamin D in preventing disease. The trial would last for five years.  

I thought about it for a few minutes. But it seemed very risky. Why?  

Lobbyist Job Creation Act

By Chidem Kurdas

Happy Fourth of July! Don’t want to rain on anyone’s parade, but  the state of the Republic requires serious thought. Our government has managed to create endless opportunities, but not for ordinary people—only for political operators and influence peddlers, with the Obama Administration pushing some 4,500 pages of medical and financial regulation just in its first 18 months.

What is more, those reams of regulation are an epitome of vagueness, of “unfathomable murk” in the fine phrase Daniel Henninger used in the WSJ to describe the problem.  In the murk and the wide-open discretion given to public bureaucrats lie gems for lobbyists. The White House and Congressional Democrats – even as they chided business lobbies – maximized the bills’ scope and vagueness, laying the groundwork for massive growth in the crony system that intermingles government with private interests.

What we see is something James Madison predicted.  

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.”

Threats to Individual Autonomy: ObamaCare, Salt and Sugar

by Mario Rizzo  

I love-hate the word “progressive.” Its political uses derive from the so-called Progressive Era and the less-than-socialist reforms that were enacted during that early twentieth-century period.  

Today, of course, few people who use the term think about its historical origins. They think it is simply a word that means “advanced,” “better,” – well, “progressive.”  

For a long time in the nineteenth-century, “progress” meant the gradual liberation of human beings from the control of the state. For some thinkers, like Herbert Spencer, it was tied to a particular view of evolution. For others, like Benjamin Constant, it was based on certain historical changes that involved increasing complexity of life spurred on the process of “globalization.” Increasing division of labor, specialization and trade were critical in this view. Others, like Sir Henry Maine, emphasized the legal changes: from status (serf/nobility) to contract – each of us now decides how to relate to others in commerce.  

Constant reminded us that the “liberty of the ancients” was a collective liberty. The citizens of Athens could do whatever they liked. The “liberty of the moderns” is an individual liberty. The individual is sovereign. It is a liberty against the state.  

Now this progress has become reversed.

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.  

Our Inconvenient Constitution

by Mario Rizzo 

The question of questions for the politician should ever be — “what type of social structure am I tending to produce?” But this is a question he never entertains. (Herbert Spencer, “The Coming Slavery.”)

It is hard for an abstraction to win against a poor mother with a kid who is uninsured. But this kind of phenomenon has been the story for a long time.  

Human beings are prone to ignore the long-run, hard to measure, and more abstract consequences of their actions, especially in the public sphere. Each decision is taken is response to some concrete problem or need. “It is all about people; it is all about jobs; it is all about health,” we are told. Sometimes it is about the goals of special, concentrated interests. Other times people think of themselves as voting for the concrete interests of worthy individuals or groups.

Of course, there is usually a net social loss of wealth or efficiency. But that is not the main loss. The real loss is the weakening of the institutional and legal framework that can protect us from a serious diminution of liberty.  

Gigantism in Lawmaking

by Chidem Kurdas

Here’s another aspect of Obamacare. Last week we witnessed a demonstration of how politicians benefit from a massive law. President Obama signed the vast bill – 2409 pages – with great fun fare.  A video of the signing was all over the web.   The media was full of gushing reports.  Mr. Obama was explicitly praised for refusing to take small steps.

Had it been a more modest measure, it would not have generated all this hoopla and its signing would likely not have been applauded as a historic landmark. For politicians, a colossal piece of legislation has the built-in advantage of providing dramatic theatrics. But that’s not all. Giant laws have other benefits as well for the powers-that-be in Washington.

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.  

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.  

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.

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 25^th 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.

The Rule of Law Kneels Before the Welfare State

by Mario Rizzo

The rule of law always suffers before the political exigencies of welfare state legislation. This is because, contrary to its name, the welfare state has little to do with the general welfare. It is essentially a vehicle by which some groups benefit at the expense of others. 

The latest is the sweetheart deal struck with labor unions and government workers to exempt them until 2018 from the 40% taxation of so-called Cadillac healthcare plans.

To The Adults On Christmas Day: No Santa Claus

by Mario Rizzo

As the healthcare bill moves quickly toward approval, we might contemplate the words of Ludwig von Mises:

From day to day it becomes more obvious that large-scale additions to the amount of public expenditure cannot be financed by “soaking the rich,” but that the burden must be carried by the masses. The traditional tax policy of the age of interventionism, its glorified devices of progressive taxation and lavish spending have been carried to a point at which their absurdity can no longer be concealed. The notorious principle that, whereas private expenditures depend on the size of income available, public revenues must be regulated according to expenditures, refutes itself. Henceforth, governments will have to realize that one dollar cannot be spent twice, and that the various items of government expenditure are in conflict with one another. Every penny of additional government spending will have to be collected from precisely those people who hitherto have been intent upon shifting the main burden to other groups. Those anxious to get subsidies will themselves have to foot the bill. (…)

An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole system of interventionism collapses when this fountain is drained off: The Santa Claus principle liquidates itself. (Human Action, Chapter XXXVI, p.858, emphasis added.)

As pleasant as it is to believe in Santa Claus, consider — as it is the Christmas season:

When I was a child, I spoke as a child, I understood as a child, I thought as a child: but when I became a man, I put away childish things. (1 Corinthians 13:11)

We now await all of the consequences unanticpated by the “boundedly rational” social engineers.

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.