Relevant and even prescient commentary on news, politics and the economy.

Comparative effectiveness standards

by reader ilsm

From the Sunday June 14 Economist View discussion over Tyler Cowen’s article on Medicare crushing the federal budget, as the DOD budget has for many years. Tyler states the devastating growth of cost is due to “the financial incentives for doctors and medical institutions to recommend more procedures, whether or not they are effective” rather than insurance companies or profits of drug companies.

Imagine if the “comparative effectiveness” measure were applied to the warfare state.
In fact, an attempt at this was made by Sen. Levin in this new session; however, the bill that was passed is hugely watered down.
Weapon System Acquisition Improvement Act of 2009 See the link to section 101.

There will be a director of Cost Analysis and Program Evaluation. Appropriately acronymed: CAPE under which the incumbents will be hidden from any effectiveness.
There will be an attempt at using life cycle costs. And effectiveness (like has been on the books as long as I remember but not done).
There will be, finally, more thought about engineering management.
The teeth were in affirming the existing Nunn McCurdy, or unit cost acquisition procedures. There are so many loopholes in that paragraph there is no chance the warfare state will be delivering any measure of “comparative effectiveness” or pass any form of opportunity cost merit.

The main loop holes is here:

Sec 206 “Critical Cost Growth” from the wikisource link addresses large growth
in unit price or procurement costs. Can be beaten by not buying logistics
support and or cutting requirements, by this point likely already done. Later
in the section there are 5 or 6 loopholes the Sec Def can use to get around
terminating for critical cost growth. And they are reviewed by congress’
committees who will accept any excuse not to terminate a cash cow.

So, GAO will continue to report on the 95 largest programs taking too long to finish, costing too much, and delivering nothing for the resources consumed.

A refuge of charlatans is “being serious” about complying with laws that have so many loopholes their con is hidden.
by reader ilsm
(lightly edited for readability)

Comments (0) | |

Here’s your Medicare Part D

by Divorced one like Bush

Time for some real numbers. This example is also an example for people to understand the need for fixing our system of paying for health care. Because, even in the senior years, the cost can bankrupt you.

My parents, 2008 adjusted gross income $43,291. $19,745 is capital gains from a one time sale of land. This land was taken by the state of RI via eminent domain law. See, Fidelity didn’t have enough land (300 acres via a low rent to the state in exchange for some jobs) if Dow Chemical was going to put a plant there. Dow never built. The land was worth around $400K on the open commercial market. They got $180K divided by 3. The land was in the family for centuries.

$15,502 in SS not taxed.

My step-father is in the nursing home. Mom is currently paying the bill because they own the house. It’s around $6500/m. He’s on a few meds. 9 to be exact.

The Plan: No deductible. $2700 in total drug costs (co-pay plus plan pay) covered before the “coverage gap”.

Total expense as of 4/30: $2804.20. Coverage Gap: $4350. Amount toward the Gap: $1098.06 Balance of TrOOP (true out of pocket): $3251.94.

After the “Coverage Gap” he enters Catastrophic Coverage. The cost is $2.40/generic, $6/brand name.

So, he’s in the nursing home. He might be able to get off of 1 maybe 2 of these if we can get him home. Still, the cost of his meds have been running $370/m. Now that he has entered the “Coverage Gap” the cost will be $700/m. That is 4.6 months of paying before the rest of the insurance kicks in sometime in September 2009.

$43,291 – $19,745 (cap gains) + 15,502 (SS) = $39,048 to live on.
$39,048 – 4350 (Coverage Gap) = 34,698.00 to live on.

Of course, some things have changed since the “crash”. $8149 of that $34, 698 was dividends. They cashed out this year. So, that leaves $26,549 to live on. We could have waited the crash out, but see, dad’s in a nursing home. Either the home takes it, or the economy takes it. Either way, it’s not there to generate money from money.

$26,549 – $5989 (property tax) – $3922 (utilities) – $3038 (Insurance) – $5230 (auto expenses) = $8370 to live on.
Last year there was $8328 in medical expenses EXCLUDING meds. I don’t expect that much this year, but there could be at least half that. Mom needs some stents for the renal arteries before her vascular system pops from the very high Bp.

Total medical, out of pocket expenses, 2008: $9484. Potential this year: $8,000 to12,000 approximately not including the nursing home costs. That is $26,680 to date. Even if he is home, there will be cost for home care help.

What does someone do who is not in their position? Of course, if the medical is as last year, they will be in the hole financially.

Tags: , , , Comments (0) | |

Trace the Bombing Route from Israel to Iran

Time for our military readers to step up.

Various basement bloggers belonging to the 101st Fighting Keyboardists continually tell us the next step is Israel bombing Iran. But can someone explain exactly how this would work in detail? I mean in actual detail including 1) Israeli strike capabilities, 2) Iranian air defense capabilities, 3a) how you get overflight rights or 3b) how you give a big FU to the Turks or Saudis if you don’t try to get those rights, and 4) the biggie, how do you establish and maintain aerial refueling capacity?

I can see fairly reasonable scenarios under which Israel could pull a fast one and get bombers on target in Iran, but I don’t see any that allow them to get back to Israel that don’t require full co-operation from the United States. Which co-operation would be legally the equivalent of a declaration of war.

A few months ago Israel reportedly did a practice run over much the same distances but instead of flying East flew West over the Med. Which didn’t require them getting overflight rights from anyone, still less having to take air defense capabilities into account. This map tells me a much different story. Someone, anyone lay out a serious case of how Israel physically pulls this off. Note that Turkey is part of NATO and has 210 F-16s and around 200 F-4s. It is not like they could just be brushed aside. American equipped and trained with all the money in the world for buying and upgrading equipment. Among other aircraft around 150 F-15s. Handicapped somewhat in that their original fleet was American supplied and so have suffered from parts embargoes. But in recent years have had plenty of opportunity to buy Russian planes and missiles. Nobody doubts the IAF are good, but do they really have the fire power to both bomb Iran AND protect whatever air-refueling capability they would need? Or do their planes really have the range to fly both ways while ignoring surface-to-air defences from territories they are crossing?

This isn’t a game of Battleship, or Stratego, or Risk. Real Commanders need to have real plans to get real planes on target across real terrain plus a plan to safely extract those planes. I don’t see any way of doing this without the full compliance of President Obama. Which raises two questions for any would be war monger.

One. How do you get Obama to greenlight this? or Two. What do you do if he says ‘No’? Given the realities revealed by this map. Because from all I see there is a lot more involved than Bibi just saying ‘Go’.

Tags: , , Comments (0) | |

Karl Rove on Health Insurance

by cactus

I’ve had a few posts on healthcare in the past, such as looking at how costs increased across various presidential administrations to my own run-ins with insurance companies. So I was kind of interested in this piece on healthcare on the WSJ by Karl Rove. Let me pick a few passages and comment…

The first is it’s unnecessary. Advocates say a government-run insurance program is needed to provide competition for private health insurance. But 1,300 companies sell health insurance plans. That’s competition enough.

Translation: Because competition is the best of all of scenarios, if we have competition enough, we can conclude that all is well with the current health insurance market. Kinda sounds like we don’t want any more insurance companies.

Second, a public option will undercut private insurers and pass the tab to taxpayers and health providers just as it does in existing government-run programs. For example, Medicare pays hospitals 71% and doctors 81% of what private insurers pay.

Who covers the rest? Government passes the bill for the outstanding balance to providers and families not covered by government programs.

But those who have neither Medicare nor private health insurance pay even more. Which means that a private insurance companies pass the bill for the outstanding balance to providers and families not covered by private insurance programs. And since Rove makes it clear that’s bad when the gubmint does it… its not entirely clear why its not bad when the private insurers do the same thing.

But be that as it may, even if everyone had private health insurance, and all private health insurance companies were equally efficient, by bargaining prices down they would be passing “the bill for the outstanding balance to providers.” Unless, of course, th power of the market is such that savings materialize out of thin air and nobody gets hurt.

Fixing prices at less than market rates will continue under any public option.

What prices qualify as less than market rates? As noted above, non-insured people pay more for healthcare. Does that mean insurance companies pay less than market rates? What about the private insurance company that squeezes healthcare providers the most – it pays less than all other health insurance companies. Is it paying below market rates? Well, here’s the thing – market rates are what prices agreed on by willing buyers and willing sellers. Nobody is forced to provide health care… except emergency rooms, and even they can simply shut down if they choose.

Third, government-run health insurance would crater the private insurance market, forcing most Americans onto the government plan. The Lewin Group estimates 70% of people with private insurance — 120 million Americans — will quickly lose what they now get from private companies and be forced onto the government-run rolls as businesses decide it is more cost-effective for them to drop coverage.

Why? If private insurance companies are more efficient, why would this happen? On the other hand, if private insurance companies are less efficient, who needs them?

And BTW, allow me to restate one of these sentences…

The Lewin Group A division of United Healthcare Group estimates 70% of people with private insurance — 120 million Americans — will quickly lose what they now get from private companies and be forced onto the government-run rolls as businesses decide it is more cost-effective for them to drop coverage.

Somehow that sentence reads a bit less convincing now, doesn’t it?

Fourth, the public option is far too expensive. The cost of Medicare — the purest form of a government-run “public choice” for seniors — will start exceeding its payroll-tax “trust fund” in 2017.

This just adds to the earlier question – if the gov’t run option is far too expensive, how would it manage to crater the far more efficient private insurance companies? By passing “the bill for the outstanding balance to providers?” But we’ve already seen that the private insurance companies do that too.

Medicare and Medicaid cost much more than estimated when they were adopted.

Yeah, and that was 1965. Even Walmart’s costs are much bigger than they anticipated in 1965.

One reason is there’s no competition for these government-run insurance programs.

So now we’ve come full circle – there’s no competition for government-run insurance programs because government-run insurance would crater private insurance programs. And because there’s no competition, costs are higher. Shorter Karl Rove: costs are higher because they’re lower. And costs are lower because they’re higher.

Fifth, the public option puts government firmly in the middle of the relationship between patients and their doctors. If you think insurance companies are bad, imagine what happens when government is the insurance carrier, with little or no competition and no concern you’ll change to another company.

Let’s see… a few months ago, my wife spent a few hours on the phone trying to explain to our insurance carrier that they had been defrauded by a medical provider who charged them for services which were never provided to me… including being billed for the time of a doctor I never saw. The insurance company happily paid anyway – why should they care if they’re being blatantly defrauded when they can just pass on the cost to their customers? But I can top that – about fifteen years ago, my insurance company paid for almost all the costs I incurred while delivering a child. My co-pay was small – its been a long time so I don’t remember how much, but maybe it amounted to a couple hundred bucks. That a) I hadn’t been in a hospital within months of the supposed delivery date, b) I don’t have any kids, and c) I’m a guy apparently apparently wasn’t enough to throw a monkey wrench in the proceedings. I got news for Karl Rove – if your choices when it comes to keeping down costs are preventing fraud by doctors or refusing to approve procedures your customers want, if you go with the latter you really don’t have any concern those customers will change to another company. None.

Health care desperately needs far-reaching reforms that put patients and their doctors in charge, bring the benefits of competition and market forces to bear, and ensure access to affordable and portable health care for every American. Republicans have plans to achieve this, and they must make their case for reform in every available forum.

Hence, those proposals enacted while GW was in office and Republicans controlled the Congress.

He ends with this:

Defeating the public option should be a top priority for the GOP this year. Otherwise, our nation will be changed in damaging ways almost impossible to reverse.

Snark fails.
by cactus

Comments (0) | |

Context for trade deficit


This chart from Calculated Risk shows the surplus and deficit as a per centage of GDP since 1960.

Howard Rich mentioned in his post that the deficit was a function of “the leak in demand of the American economy.”

Juan reminds us that China is not a passive player to our ‘demand’ pull’.

Juan points out that (lifted from comments):

Here’s a bit of context from the Chinese side:

“( Chinese bank lending increased to more than 5 trillion yuan between January and April, nearly three times the credit level reported during the same period last year. …

… A National Statistics Bureau survey of 22 regions found industrial profits totaled only 323 billion yuan during the first quarter, down 32 percent from a year earlier. That means annual profits for all industries will amount to only about 1.6 trillion yuan this year.

Outstanding loans currently stand at 35 trillion yuan. Assuming companies have kept a moderate debt ratio averaging less than 50 percent, their capital investments now exceed 35 trillion yuan. And profits of 1.6 trillion yuan versus 35 trillion in capital investment means an annual return rate of only 4.57 percent, below the weighted loan interest rate of 4.76 percent we saw in March. In this sense, companies seem to be in a rather weak position to finance debt with earnings. …”

Such a profit collapse and not too effective policies would, I think, increase pressure to export, i.e. it is not simply a demand-pull situation, not simply demand ‘leakage’ from the U.S.

Adding to the ‘push’ side:

Quote: “China has increased tax rebates for exporters for the seventh time since August 2008, as part of the effort to support exporters hit by the collapse in overseas demand. Food companies, electronic and digital media product makers, as well as the ceramics and plastics industries will benefit from the policy, according to the statement. The new rebates are effective from June 1. The Ministry of Finance boosted the tax rebate for exporters in labor-intensive industries in a move designed to minimize job losses, the ministry said in a statement posted on its website on June 8. Export volumes dropped nearly 20 percent year-on-year in the first quarter.”

The Chinese political economy is not at all so robust as many still believe — economist Lu Lei, author of the first article, even mentions the possibility of ‘negative growth’.

Comments (0) | |

Open thread June 13, 2009


I will put up two open threads for a little while to see what happens since I am averse to censoring. The first is Open thread with GW, the other Open thread w/out GW. The latter could be about economics of some kind. This is the one without, since we put up the other yesterday.

Comments (0) | |

Trade deficits resume upward climb


Re-posted with permission from the author.

Trade deficits resume upward climb
Howard Richman

The US trade statistics for April were just reported yesterday. The US trade deficits, overall, went up for the second month in a row, despite a continuing decline in both imports and exports.

The largest component of our trade deficits continues to be our trade deficit with China. As shown in the graph below, that trade deficit in goods (the April stats for China don’t include services) also climbed for the second month in a row: reports that economists are now predicting growing trade deficits as President Obama’s recovery plan causes imports to start to grow while US exports continue to shrink. Here is how Bloomberg put it:

Imports may be first to rebound later this year as the U.S. economy begins to expand, while exports languish until a recovery takes hold among trading partners from Japan to Germany, widening the deficit further….

The size of our trade deficit is the size of the leak of demand from the American economy. The Obama administration is trying to pump up the American economy with its recovery plan, but the faster they pump, the faster the trade deficits grow. The administration is trying to blow up a tire without patching its leak. The result is predictable.

Comments (0) | |

Unclear on the Concept

Robert Waldmann

Will Wilkinson* demonstrates his absolute inability to understand the concept of “opportunity cost” and complete lack of common sense after the jump.

* update: spelling Kirrected.

Cash for Clunkers
by Will Wilkinson on June 10, 2009

OK. Let me get this straight. I can get $4500 toward a new car as long as my old car gets terrible gas mileage. Well, I’ve got a 1996 Civic, which gets 30-something MPG. But it’s worth less than $4500. So I guess I should sell it for what it’s worth ($2-3000) maybe, buy a total piece of shit for as cheap as possible, and then exchange that for $4500 off a new car? I’d be several grand ahead. Of course, most of the models of new car I’ve got my eye on get worse mileage than a 1996 Civic. So if this plan induced me to buy a new car when I wasn’t going to, which it might, and I get the kind of car I think want, taxpayers will have paid me $4500 to drive a nicer but less fuel efficient car than I’ve got. Thanks democracy!

Or maybe I should just buy a clunker, get the trade-in, then instantly sell the brand new car for $2000 off sticker and pocket the rest. Anyway, better move quick. Lemons go fast when everybody’s thirsty for lemonade.

Wilkinson’s argument is that if a clunker is suddenly worth $4000 dollars more then he can make a killing by buying a clunker for its current price. There is no explanation for why someone would sell a clunker which is worth, among other things, a $4000 discount on a new car for less than $4,000.

In Wilkinson’s economic model, something which makes a good valuable give him, Will Wilkonson a profit opportunity, a windfall, even if he doesn’t own the good. The price he can get for the good goes up. The price he has to pay for the good doesn’t go up, because that’s the way the market works.

There are lots of people buying new cars, there is a finite supply of clunkers. Owners of clunkers aren’t going to sell one to Will Willconson for much less than $4,000 out of the goodness of their hearts.

I am rarely shocked by incapacity to understand economic theory or lack of common sense, but this time I am shocked.

Comments (0) | |