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Heath Care Reform– Looking at the Glass Half-Full

(Run 75441…h/t)

Maggie Mahar writes an essay that is now cross posted at Angry Bear with the author’s permission:

Health Beat, a Project of the Century Foundation;
November 4, 2009 Heath Care Reform– Looking at the Glass Half-Full

What Has Been Accomplished; What Still Must Be Done

These days, many progressives are expressing deep disappointment with the health reform legislation now moving through Congress. Some suggest that some legislators made deals with lobbyists and let them write the bills. Others complain that both the subsidies and the penalties are too low. Still others don’t like the fact that states can “opt out” of the public insurance option, and decide not to offer Medicare E. Finally, many ask:
Why can’t everyone sign on for the public plan in 2013? Why do we have to wait until 2013? Why cn’t they roll out universal coverage next year?”

Normally, I would be among the first to critique the bills. By temperament and training, I’m both a skeptic and a critic.
But in this case, I think it is important to recognize that we cannot expect this first piece of health reform legislation to be anything but wildly imperfect. In fact, I’m impressed by the progress Washington has made in just ten months. I’ve been watching the struggle for health care reform since the early 1970s, and compared to what has happened over the past 39 years, this is mind -boggling.

I also believe that those who favor overhauling our health care system should send a strong signal to legislators: we support you for having come this far. We realize that you have three years to strengthen, change and refine the plan before rolling it out in 2013.

What Has Been Accomplished

What is astounding is that this Congress has made as much progress as it has. We may have a new administration in the White House, but we do not have a brand-new group on the Hill. The majority of our legislators are moderates; many are conservatives. Nevertheless, a sufficient number have found the will to stand up and back changes that would make health care affordable for millions of poor, working-class and middle-class Americans.

For example, under the House bill,a family of three making $32,000 a year would pay just $1,360 in annual premiums for good, comprehensive coverage; under the Senate Finance Committee bill, the same family would be asked to lay out only $2,013. Today, without reform, if that family tried to buy insurance, it would find that the average plan costs $13,500. For this household, the current legislation makes all of the difference.

Too often, the press suggests that such a family would be expected to pay $10,000 out-of-pocket to cover co-pays and deductibles. That just isn’t true. Even if the entire family were in an auto accident and racked up $200,000 in medical bills, at their income level, the House bill caps out-of-pocket expenses at $2,000 a year. Under the Senate Finance bill, the family would have to pay $4,000. Moreover, under both bills, there are no co-pays for primary care. Even private insurers cannot put a $25 dollar barrier between a family and preventive care.

Moving up the income ladder, a median-income household earning roughly $55,000 would pay premiums of $4,300 to $6,500—depending on whether the Senate Finance bill or the more generous House bill sets the terms. Without legislation, they too would face a $13,500 price tag –and that is if they could get a group rate. If they are buying insurance on their own, coverage could easily cost $16,000.

For self-employed workers, early retirees, and those who work for (or own) a small business; the legislation offers major savings. They will be able to buy coverage on the Insurance Exchange, where they would suddenly become part of a group—which makes their premiums much lower. Whether rich or poor, this is great news for anyone who works for himself, retired early (voluntarily or involuntarily), or is part of a small firm.

Granted, the legislation now on the table still doesn’t make insurance affordable for many Americans at the upper-edges of the middle-class–-or the upper-middle-class. They don’t qualify for subsidies. But, as I discuss below, the legislation does point the way to lowering their premiums. Before reform becomes a reality in 2013, I am convinced that this will happen, in part because it must. We can no longer ignore the waste, inefficiency and pure fraud in our health care system. There is absolutely no reason why we should pay so much more for health care than any other nation in the developed world.

And at least the current legislation protects these more affluent households from medical bankruptcy. No matter how much a family earns, they cannot be asked to pay more than $10,000, out of pocket, in a given year. For households that have savings and property to protect, this means that they don’t have to worry about being wiped out by a medical disaster. Even if you and your family are in that car accident that leads to $200,000 in doctors’ and hospitals bills, you will owe only $10,000. In that situation, doctors and hospitals will let you pay off your bills over time, because they know you can. You won’t be forced into bankruptcy court. This represents an enormous step forward.

In addition, under reform, private insurers will not be able to put a cap on how much they will pay out to you and your family, over the course of a year, or over a lifetime. If tragedy strikes and a child needs six or seven years of cancer treatments, your insurance will not “run out.” For some families, this one provision will mean the difference between being able to care for their child and financial ruin (coupled with the suspicion that, if they had just had more coverage, they might have been able to save their child.)

Moreover, in the very first year of reform, the public plan will offer less expensive, higher quality coverage to millions of Americans. Congressional Budget Office director Douglas Elmendorf disagrees. He has been spreading misinformation about the government plan. First he low-balls the number of Americans who will be eligible for the Insurance Exchange where they can choose between a public plan and private insurance. . He then asserts that only 20 percent of Exchange shoppers will choose the government plan while 80 percent will pick private insurance. Here Elmendorf pretends that he can read minds:

“Elmendorf goes on to argue that despite the fact that its administrative costs will be far lower, the public plan will cost more than comprehensive private insurance. This theory is based on the unfounded assumption that very few people will select the public plan , coupled with speculation that the public plan will make no effort to control costs and utilization. This makes no sense; as reform legislation makes clear, part of the purpose of the public plan is to offer higher quality care for less. (In part two of his post, I will examine Elmendorf’s guesstimates in detail.)”

For peculiar reasons that I don’t fully understand, progressives have been listening to Elmendorf’s numbers. They seem to forget his past: a student of the Dean of Conservative Economists. Elmendorf first made his mark in Washington by helping to quash the Clinton’s hopes for health care reform.
Finally, under the House and Senate reform bills, insurers will no longer be able to deny coverage, or charge a customer more, because of a pre-existing condition. If you have begun to take that idea for granted, keep in mind the Republican’s recent 11th hour proposal for reform “gives the insurance industry more leeway” as the Wall Street Journal put it yesterday (Media Matters for America blog points out the disappearance of WSJ story; “GOP Health Bill Gives Insurers More Leeway” from the paper’s website sometime last night.) Under the Republican proposal, insurers would be able to take pre-existing conditions into consideration.

House Speaker Nancy Pelosi’s “Fact Sheet” offers two examples illustrating just how easy it is for insurers to deny coverage today:

Peggy Robertson: A Colorado mother of two who was denied health coverage because she had a c-section in 2006. The insurance company told her if she got “sterilized” she would be eligible for coverage.

Christina Turner: After being sexually assaulted in Florida, Christina Turner followed her doctor’s orders and took a month’s worth of anti-AIDS medication as a precautionary measure. She never developed an HIV infection. Months later, when shopping for new health insurance coverage, Ms. Turner was repeatedly denied coverage because of the precautionary treatment she received after being raped.

In most states today, this could happen to anyone. I live in New York where we have community ratings and I don’t have to worry about pre-existing conditions. My employer provides excellent insurance, with no annual or lifetime caps, so the current reform legislation would probably have no immediate effect on my life. But, we all should recognize that the bills on the table would change the lives of millions of Americans, giving them the security that they don’t have today.

Progressives cannot let this opportunity slip through our fingers because we are so busy critiquing the legislation–and arguing with each other. Online WS Journal reports that Senate Majority Leader Harry Reid has begun to warn that the Senate may not be able to complete the legislation by the end of this year.

Given all of the criticism he has faced, Reid could be losing heart. After all, Conservatives continue to argue that legislators like Reid will be punished at the polls. Congressmen who have been pushing for reform need our encouragement. Progressives should continue to make it clear that the majority of Americans want reform– and a public option– even if the legislation is far from perfect.

2010 is an election year. Fearful of losing, some Congressmen will begin to back away from change making it critical that broad reform legislation is passed this year. Over the next three years, it can be amended as the critical details are fleshed out. Anyone who thought that Congress would be able to overhaul a $2.6 trillion dollar industry with just one bill was, I submit, terribly naïve.

What Remains To Be Done In the Next Three Years

There is so much to be done and this is one reason why reform cannot be implemented until 2013:
– Congress must figure out how to regulate the private insurance industry. This will require enormous cunning.
– Reformers will have to find a way to stiffen the penalties for those who choose not to buy insurance, without alienating young, healthy voters. This is a job for a charismatic president.
– Legislators must map out how the Insurance Exchange will work.
– They also will need to come up with a formula that will adjust for risk if one plan winds up with a larger share of poor and sick customers. (Some fear that this will happen to the Public Plan, so this, too, is a crucial detail.)
– Finally, and perhaps most importantly, Medicare needs time to begin eliminating waste in the system—saving billions of health care dollars while simultaneously lifting the quality of care. In fact, while all eyes are focused on the legislation, Medicare already has begun putting its own house in order.

What many reformers don’t seem to understand is when the public plan begins to negotiate fees with providers in 2013, Medicare fees for some very expensive services will be significantly lower than they are today, while reimbursements to primary care doctors will be higher.

“Medicare already has announced plans to cut fees for CT scans and MRIs next year, and has proposed trimming fees to cardiologist by 6 percent . Meanwhile, it would hike fees for primary care physicians by 4 percent. Congress has just 60 days to respond to the changes in reimbursements to doctors or they will automatically take effect January 1. Over the next three years, we can expect more changes in the fee schedule. And private insurers will follow Medicare’s lead.”

As they have explained to the Medicare Payment Advisory Commission (MedPAC), they just want Medicare to provide political cover. In other words, in 2013 the public plan will be negotiating fees with providers in a very different, less expensive, and more rational context.
This is another reason why public plan premiums will be significantly lower than Congressional Budget Office (CBO) director Douglas Elmendorf suggests.

Over the next three years, Medicare will be realigning financial incentives to reward preventive care and management of chronic diseases, while reducing payments for overly aggressive tests and treatments that have no proven benefit– and penalizing hospitals that don’t pay enough attention to medical errors. In the process, Medicare will be conserving health care dollars while protecting patients from needless risks. As President Obama has promised, Medicare cuts can make healthcare safer and more affordable for everyone—including the upper-middle class. Because most private insurers will mime Medicare’s efforts to reduce overpayment, the cost of care will come down for everyone.

The Public Plan will incorporate Medicare’s reforms and it will have clout. Seven percent of Americans purchase their own insurance in the private sector market. Most of the seven percent are neither poor nor sick. If they were, they wouldn’t be able to buy insurance in the individual market.)( More than half of this group earn over $55,000. They will be able to go into the Exchange and sign up for the public plan. In addition, a large share of relatively young Americans (ages 25-34) are uninsured and relatively healthy. No one knows how many will choose the public plan; but since it will have much lower administrative costs than private sector plans, it will be less expensive and more attractive to younger Americans.

States will not opt out. It would be too difficult for politicians to try to explain to voters why they cannot have access to a government plan that will be able to offer comprehensive insurance for less.

In part 2 of this post, I will explain what Medicare is already doing to pave the way for a structural overhaul of our health care system, and why none of these cost-saving reforms need to be –or should be–spelled out in reform legislation.

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Why is this so difficult to understand?

Suppose I make my monthly budget, and assume I’m going to spend $600 for food.

At the end of the month, I discover that I only spent $520.

I expected to take $80 out of savings that I now do not have to. My bank account is now $80 higher than I expected it to be at the end of the month.

Is this difficult to understand? Apparently it is if you’re a financial journalist:

The White House, we are told, won’t be using about $200 billion of the $700 billion authorized under the Treasury’s Troubled Asset Relief Program, a lifeline for ailing banks. Instead it plans to use money never borrowed, never spent, that nonetheless increased the projected 2010 deficit, to narrow that projection of $1.4 trillion, according to a Congressional Budget Office estimate.

This un-borrowed, un-spent money qualifies as deficit reduction?

Yes. We expected a $1.4B deficit, it will only be $1.2B.

Next silly question.

For Asia’s emerging economies, Geithner’s high road entails strengthening “their social safety nets through sustainable health and retirement-benefit schemes, thus reducing the need for high precautionary saving that contributes to global imbalances.”

Uh, I think I’ll leave the rest of this to Bruce. Who knows better than to bother with resent Valuing only one future cash stream and pretending it’s the same as the current budget.

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Top down or bottom up models….useful thoughts


Hat tip to Economist’s View for the post from Top-down versus bottom-up macroeconomics, by Paul De Grauwe, Commentary, Vox EU for starting an interesting conversation on macro that I think is very relevant to the public story we tell ourselves about how our economy works. One key point is the nature of central planning in the private sector by private companies, especially those who drive how things are done. The public and media narrative tend to be quite skewed and limited, depending on the nature of special interest.

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Open Thread on Senate Health Care Bill

by Bruce Webb

I am still working out the new formatting and rather than hog all the page space here I’ll just put up some links to the bill, the CBO Score, plus some extended discussion with extracted Tables at my site.
$894 billion cost offset by taxes and fees for a Ten-Year $129 billion deficit reduction.
Coverage for 94% of all legal non-elderly residents, 98% for all legal residents (includes Medicare). Public option opt-out. Abortion not covered in the PO but at least one plan in the Exchange must offer coverage, and one must not.
Otherwise take it away. Updates in Comments.

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Today is International Toilet Day

And, if I were a better person, you would be reading my interview with David Kurla, CEO of IkoToilet/Ecotact in this space.

But I’m not, so go to his website, especially the links for school, urban, and slum toilet provisions, and then see this John Sauer piece at the Huffington Post, and check out the information at Sauer’s organization, Water Advocates.

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Template woes

My apologies for the inconvenience of changing the template. Even feed links were changed about in the transfer. Since the posts are intact, my first priority is fixing comments with js kit (and blogger comments for new).


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The Mythology of the Future Job Market


Martin Ford continues his thoughts on:

The Mythology of the Future Job Market

Angry Bear recently picked up an article by Michael Lind at Salon on the jobs of tomorrow. The story notes that advancing job automation technology is going to be the primary force that will shape the future job market. That’s something that I have also been talking about here.

Lind’s article then goes on to do a pretty good job of fleshing out the conventional wisdom on where jobs are going to come from in the future:

The most numerous and stable jobs of tomorrow will be those that cannot be offshored, because they must be performed on U.S. soil, and also cannot be automated, either because they require a high degree of creativity or because they rely on the human touch in face-to-face interactions. The latter are sometimes called “proximity services” and they include the fastest-growing occupations, healthcare and education.

So we are led to expect that, over time, the bulk of the workforce is going to migrate into jobs that require creativity or innovation, or jobs that depend on uniquely human traits or talents. Furthermore, these new jobs are going to require that any innovation, creativity or personal attention occur pretty much while actually holding onto your customer’s hand—so that the job can’t be offshored. Is that really a likely scenario?

The first thing to note is that the two sectors singled out as being promising—healthcare and education—are by no means exempt from automation. Specific healthcare tasks are likely to be automated, while decision making and patient monitoring may migrate increasingly into expert systems.

Automation is clearly going to be a major factor in specialized, vocational-type education and training. Today in California, you can get your real estate license completely online. You won’t encounter an actual human being until you run into a proctor at the licensing exam. A similar thing has happened with the traffic school programs that drivers have to complete after getting a ticket. If training can be offered online, it will be. I see no reason why something similar won’t eventually occur in college education, especially since new graduates have been seeing a lower financial return on their investment. It seems likely that if the credential is worth less, many people will gravitate toward less expensive, automated online learning.

The biggest problem with the conventional wisdom is the number of jobs we are talking about. In the U.S. we have a workforce of around 140 million workers. The majority of these jobs are basically routine and repetitive in nature. At a minimum, tens of millions of jobs will be subject to automation, self-service technologies or offshoring. The automation process will never stop advancing: computer hardware and, perhaps most importantly, software will continue to relentlessly improve. Therefore, simply upgrading worker skills is not going to be a long-term solution; automation will eventually (and perhaps rapidly) catch up. If you are willing to look far enough into the future, the number of impacted jobs is potentially staggering.

Can we really expect that such an enormous number of these supposedly safe creative/“proximity service” jobs are going to materialize? And even if they do appear, can we reasonably anticipate that millions of workers who are now employed as cashiers, accounting clerks, materials movers—or even as college-educated “Dilberts”—are going to be able to successfully transition into those jobs?

Historically, the job market has always looked like a pyramid in terms of worker skills and capabilities. At the top, a relatively small number of highly skilled professionals and entrepreneurs have been responsible for most creativity and innovation. The vast majority of the workforce has always been engaged in work that is fundamentally routine and repetitive. As various sectors have mechanized or automated, workers have transitioned from routine jobs in one sector to routine jobs in another. In many cases, skills have been upgraded, but the work has nonetheless remained routine in nature. So, historically, there has been a reasonable match between the types of work required by the economy and the capabilities of the available workforce.

Now, as it becomes clear that automation is going to ultimately consume the entire base of the job skills pyramid, the conventional wisdom is that we are going to somehow cram everyone into the very top. And even if we somehow manage to do that, the jobs will be highly susceptible to offshoring, so we also have to require that the jobs be somehow anchored locally. I think this is somewhat analogous to having the agricultural sector mechanize and then expecting that everyone will get a job driving a tractor. The numbers don’t work. The problem with the conventional wisdom is that it underestimates the long-term impact of automation, and it expects too much in the way of occupational acrobatics from the average worker.

Yet another problem is that even if all these creative jobs materialize, the result would likely be far from optimal. Jobs that rely heavily on creativity, talent or unique personality traits (think authors, actors, musicians, commission sales people) very often have a power law income distribution. In other words, a few people do phenomenally well, while nearly everyone else struggles to survive. Even if vast numbers of workers could successfully migrate into these more creative areas (and I doubt that), it would probably do very little to slow down our drive toward ever-increasing income inequality.

The bottom line is that, at some point, we are all going to have to wake up to reality. It will be a long, arduous trek across the wasteland of denial, but someday all of us will have to start thinking the unthinkable and saying the unsayable: The jobs of the future…are not going to be there. Jobs are disappearing, and we will have to somehow adapt to that. In the long run, the solution will likely have to involve some type of job sharing, and it will also have to incorporate income supplementation for most people. It’s almost impossible to imagine how that will happen in a world that includes Fox News, but I think it will nonetheless have to happen. Perhaps the chances of it happening will improve when conservatives and business owners begin to recognize that workers and consumers are basically the same people and that the vast majority of consumer spending is supported by wage income.

The good news, though, is that you can ignore all this because it’s wrong. Many economists will tell you so. Ask any well-regarded economist such as Krugman, DeLong, Mankiw or Thoma. None of them are really worried about this, or if they are, they’re certainly not talking about it. They may nibble at the edges of this issue. Yes, we might have some structural unemployment for a few years while the economy adjusts and new jobs are created, but, no, jobs aren’t going to disappear. The economy always creates jobs; it gravitates toward full employment.

Why? Because it always has. Economists have studied it and analyzed reams of data from the past. They’ve built mathematical models, and the models say there will be jobs. It’s a rule. Hundreds of years ago there were lots of jobs for guys who shoveled coal into steam engines. Now those jobs are gone, and we all have jobs that people back then could never have imagined. It will be the same this time around. So don’t worry. And leave a cookie out on Christmas Eve. Santa might be hungry.
Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future and has a blog at

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Industrial Production

By Spencer

Industrial production only increased 0.1% in October, from a previosly estimated 98.5 to 98.6.
But I suspect this number was biased downward and will be revised higher.

As the chart shows, this changes the impression the previous reports had given that this was a normal to strong recovery in industrial output to one that it is a weak recovery.

A primary reason industrial production appears so weak is that October auto and light truck output fell to 6.83 million vehicles as compared to 7.15 million in September and a cyclical low of 4.05 million in June. However, as the production of all items excluding autos and high technology was unchanged in October the weakness appears to be widespread.

However, I am suspicious that this report overstates the weakness and will be revised up as other information is included and revised data is reported.

Much of the initial estimates of monthly industrial production data is based on electricity consumption data. However, the national average temperature days for October 2009 were extremely low at only 50.8 degrees Fahrenheit. In a quick check of my data base this is the second lowest October reading on record going back to 1921. The lowest was 49.4 degrees in 1925 and the only one I saw below 50 — the highest was 60.0 in 1963. The norm is around 55 degrees so the October temperature days was some 10% below normal. This strongly implies that the electricity usage would have been significantly below normal in October and consequently the industrial production data estimates are undoubtedly biased downward.

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Part of the Problem Becomes Part of the Solution

Moody’s had always assumed banks and their securities were “Too Big to Fail.” Not any more:

Moody’s Investors Service will no longer assume that holders of the securities will benefit from government support to shore up troubled lenders, after the global financial crisis proved this wasn’t the case, Moody’s said in an e-mailed statement today.

“In some cases government bank interventions throughout the crisis have not benefited, and have even hurt, the holders of those instruments,” Barbara Havlicek, a senior vice- president at Moody’s, said in the statement. “It is clear that hybrids are highly susceptible to losses due to their unique equity-like features.”

Since ratings are essentially answering the question “Should I expect to receive full payment on this security?” the previous proclivity to rate paper AAA based on the idea that the U.S. Government would make investors whole in the case of a crisis* contributed to rating inflation.

This change is a welcome first step.

*This is essentially the same scenario as all the lendings that caused the S&L crisis: “we think the land has oil in it” so it’s worth $X. So the banks lent X. And the land very often didn’t have oil in it. So $X had been given for a dust pile in West Texas around which the also oilless land was selling, if at all, for Y, X>>Y. Oops.

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