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

Unintended Consequences of "Market-Based" Health Reforms

The essence of “market-based” health care “reforms” is that patients are exposed to the prices of the services that they receive (or are offered) and choose not to consume those with low perceived net benefits. With high-deductible health plans favored by conservative reformers, this means paying out of pocket for routine services. [*] This is a centerpiece of health care reform a la McCain, in the mild camouflage of “innovative insurance” and “expand[ed] benefits of health savings accounts.” [**] These plans already have been growing rapidly with a push from Bush and congressional Republican policies.

So how are they working out? In the S’trib’, Chen May Yee finds that market magic does not always include putting enough dollars in those pockets:

Once a month, doctors and staff at Edina [Minnesota] Sports Health & Wellness stay late to talk business…. Then there’s the topic nobody likes: which patients to drop because they aren’t paying their bills.

The clinic has been terminating an average of 16 patients a month. Most have high-deductible health plans and haven’t paid their bills for more than nine months…

Break-up letters from doctors are just one unintended consequence in the roll-out of high-deductible plans, the fastest-growing segment of the medical insurance market as traditional plans become ever more unaffordable.

Yee reports that the breakups happen in relatively special cases (e.g. small clinics that can’t afford to provide much uncompensated care) and information on the extent of the phenomenon is anecdotal. However, larger organizations are seeing increases in uncompensated care provided to the theoretically-insured:

Last year, [Hennepin County Medical Center] gave away $86 million in uncompensated care — $4 million, or 4.7 percent, to insured patients. This year, HCMC expects $90 million in uncompensated care, with 8.4 percent, or $7.5 million, from insured patients…

Fairview Health Services, Regions Hospital and HealthEast Care System also are seeing more unpaid bills from insured patients. Like HCMC, they’re nonprofit, with policies not to turn patients away.

I might suggest that a system is only so market-based when it relies on the public or (publicly-subsidized) nonprofit sectors to cover its failures. And for an added bonus, the system is not necessarily cheaper to administer:

Medical billing offices are working harder than ever. What used to be paid by insurance in a couple of weeks is now being stretched out to two- to six-month payment plans for patients, said Randi Tapio, chief executive of Medical Billing Professionals in St. Cloud, a firm that works with independent physician offices.

“We’re sending statements every month, calling them,” Tapio said. “Our costs go up.”

If a patient is uninsured, a clinic can ask for payment upfront or devise an early payment plan. But with insured patients, health plans require that clinics wait until after the service and the health plan determines who owes what. By then, the patient is out the door.

But never fear, improved bill-collection technology is here!

Recently, [a] clinic began asking patients having costly procedures such as surgeries to swipe a credit card upfront. An estimated amount is authorized but not charged until the health plan sends a letter saying what the patient owes…

HealthEast clinics are looking into check-in kiosks, like those at airports, where patients insert a credit card and are asked if they want to pay their co-pay.

“The thing is to be more intentional about collecting,” said Keith Rahn, who oversees HealthEast clinic billing.

The U.S. Chamber of Commerce has been running ‘issue ads’ telling Minnesotans that Sen. Norm Coleman has been working to keep government out of health care decisions. The credit-card companies, not so much.

[*] Which is to say, the premise of the system is that its biggest problem is overconsumption of routine care. In this regard, it runs against the current of some traditional health plans which have been reducing out-of-pocket shares for some expenditures (e.g. related to chronic conditions like diabetes) because their members are perceived as not being good at picking and paying for the higher-return care.

[**] Amusingly, while Obama issues pages generally link to more detailed briefing documents [PDF], a “Learn More About the McCain Health Care Reform Plan” link takes visitors to this page with a few bullet points and an auto-playing video ad, which in turn links back to the issues page for “the facts.”

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Pandering to (Some) Economists: Trade in Ethanol

by Tom Bozzo

Another major energy proposal in the McCain economic plan is ending subsidies for corn ethanol and eliminating the tariff that effectively bars to importation of sugar cane ethanol. Greg Mankiw scored these on behalf of the economics profession as points for McCain over Obama in the NYT over the weekend. I agree that corn ethanol subsidies are best eliminated as soon as possible — though I note that Obama, while not going so far as McCain on subsidies, is pretty straight-talking about the limitations of corn ethanol especially considering that he represents the corn belt and not the desert.

On the McCain plans for promoting trade in cane ethanol — the Shorter Version of which is that he’s proposing to substitute dependence on foreign ethanol for dependence on foreign oil (*) — there are significant issues that go to the suitability of “free” markets for provision of biofuels. Whether or not expanding trade in ethanol is a good thing depends on other institutional arrangements that are not automatic consequences of reducing tariffs and other moves to freer trade. Since critical policy decisions are outside the reach of U.S. policymakers, economists should be concerned about making policy with the institutions we have, and not the institutions we’d like to assume we have.

There’s been a broad dawning that not all biofuels, and not all methods for producing all biofuels, equally satisfy all of the policy goals that they might purport to help satisfy. Those include substituting domestic resources for imported resources, reducing fossil fuel use, and reducing the carbon intensity of liquid fuel use. Land use issues are critical both for the global warming-related goals for biofuel use and for avoiding blowback from high food prices. (Recent research out of UW-Madison shows that redirecting marginal agricultural lands to cane ethanol in fact can be beneficial, but conversions from forests and other uses are not.) The problem is that lowering tariffs on cane ethanol doesn’t guarantee, and indeed in the absence of other interventions would probably work strongly against, desirable land use patterns.

Brazil produces a lot of ethanol by the standards of the ethanol industry, but not a lot relative to U.S. petroleum-based fuel imports. The former was 327,000 barrels/day in ’07, whereas the latter is 13-14 million b/d (unadjusted for the energy densities of the fuels). Growing enough cane to replace U.S. oil imports with ethanol would require on the order of half the arable land area of Brazil; major cane ethanol substitution would necessarily occur at scales where adverse land-use consequences can’t be assumed away. Note that the current food-price spike, largely blamed on biofuel mandates, happened with only a couple percent of arable land devoted to biofuel crops.

Economists certainly can imagine market-based remedies for the problem, such as Pigovian taxes on certain land-use changes, to name one that Mankiw ought to support in principle. But removing U.S. tariffs won’t make land-use regulation in countries suitable to cane growing appear by magic.

It wouldn’t hurt to add in liquid-fuel demand destruction on hitherto unprecedented scales for the U.S. Along those lines, apart from his willingness to commit 15% of one year’s “clean coal” research funds to the cause of battery technology, McCain isn’t explicitly committed to more than the pending tightening of fuel economy regulations. McCain’s long-standing hostility to rail and apparent indifference towards non-automobile transportation modes doesn’t make the job of reducing petroleum-based fuel consumption (and doing it in less painful ways to consumers than letting the price mechanism work its magic) any easier.

(*) Economists wouldn’t tend to be bothered by this, but it’s at odds with McCain’s energy independence rhetoric.

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Working In The Coal Mine

Here’s an oddity from the McCain economic plan — McCain found some jobs that have gone away and that does want to bring back:

The development of clean coal technology will revitalize coal mining and return jobs to some of America’s most economically disadvantaged areas.

U.S. coal production was 1.146 billion (short) tons in 2007, just short of the record 1.163 billion tons in 2006. There are three major features of coal production history: a long secular increase from the early sixties, a shift from underground to surface (a/k/a strip) mining as the dominant production mode, and great increases in productivity in both modes from the 1980s onward. In 1987, an hour of mining labor extracted 2.2 tons of coal in an underground mine, and 4.98 tons in a surface mine. By 2007, those figures had increased to 3.26 and 10.23 tons/hour, respectively.

So why is John McCain against labor productivity?

And why am I reminded of Dana Carvey’s Grumpy Old Man character? “In my day, we mined coal with our fingernails, got black lung, and that’s the way it was, and we LIKED IT!!”

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The myth of the argument is in the conflation

By: Divorced one like Bush

I am responding to a post put up at Crooks and Liars: The McCain campaign small business myth.

It presents that the myth is found in the number of small businesses in existance and what percentage of them earns $250,000 or more. I love C and L, but this is just totally missing the ship (notice I did not say boat).

The lie to the McCain position on Obama’s tax plan is not in the number of small business in existence or in the number of small business making over $250,000/yr.

The lie to the McCain position is in the conflating of business income with personal income. An S corp or a solo proprietorship business or any other similar configuration that is paying income tax on $250,000 is paying income tax on that money not because the business made that income and is keeping it because the business had plans for it. No, no, nooooooooo. It is the owner of the income generator that made that income and they made it as personal income. It is the amount of money remaining AFTER the business did it’s complete business thing for the year. It is the money remaining AFTER the business spent on expanding jobs, or buying more equipment, or marketing, or adding new facilities, or expanding to China, or hedging its energy costs or PAYING IT’s BUSINESS RELATED TAXES. It is the money that the owner of the income generator walked out the door with at the end of the year and then proceeded to use on their personal needs like: food, housing, transportation, oil futures, corn futures, GE, Haliburton stocks, boats, collectable cars, art, entertainment, lawn care, maid services, tuitions, security systems, etc.

In fact, anyone who has started a business has experienced that moment when their accountant calls them up and says: “You owe income taxes.” The rest of the conversation goes something like this: But, but, but, but, but…how can I owe taxes when I have no money left? “Well” responds your accountant, “did you buy food?”. Why yes I did, but I have nothing left. “Then the money you bought food with is the income your business paid you and now you owe Uncle Sam”. At that moment your stomach is getting ready to pay Uncle Sam as your legs are giving out. Later on, when you are humming along and you are taking $250,000 out of your S corp because you had no more expenses the true nature of you spirituality shows through. Either you think your taxes are too high, or you understand the benefits of paying taxes but think that spending more than the rest of the world combined on military is crazy.

Why the pundit’s on the Obama side have not pointed this conflation out, I do not know. Do they not believe in education? But, focusing on the number of businesses when the issue is personal income only allows the presentation on taxation and income to continue in the same vein as it has been continuing since Reagan. It is a continuation of the same argument that has allowed us to accept that Walmart cheap is the same as more money in your pay check; or that the increased cost of your benefits are the same as more money in your paycheck; or that the rising share of income going to pay all your taxes owed is the results of some waste and greed and civil service unions and teacher unions and not the results of less income earned from your labor; or taking a pension fund away is OK because it was not money earned but money gifted.

Yes, I’m an S corp, I was a sole proprietorship and the other business is an S corp.

If we don’t stop watching the shells we will never win the game of find the pea.

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Reaction to the McCain Economic "Plan" — Energy Issues

by Tom Bozzo

I was working on a much more detailed post when The Onion, Priceless National Treasure it is, gave a portion of the subject the treatment it arguably deserves.

Somewhat more seriously, though, the McCain briefing document is heavy with what would be long-term solutions to an array of more-or-less urgent short-term problems.

  • Oil drilling: The near-term features of the McCain program for the oil market amount to Really Tough Talk (“John McCain believes we should send a strong message to world markets”). There’s nothing in the plan to address near-term supply tightness — and they’re so slick with that Intarwebby thing that the campaign web site still proposes to stop filling the SPR. The big issue, though, is the expectation that guys like T. Boone Pickens are right and the current amount of global supply (85-90 million barrels/day) is about all we can expect to see, versus well over 100 million b/d in recent official forecasts. Undoing that effect requires adding Saudi Arabia-like quantities to the market more-or-less permanently, not the couple million barrels/day that off-limits U.S. sources will produce at their peak in a couple of decades. I wouldn’t expect a big price response. Should McCain manage to win and enact his plan (or Republican pro-drillers manage to peel off Democrats who think we need to Do Something!1!!), don’t go putting down a deposit on that Escalade.
  • Transportation: Apart from the silly battery prize, the big proposal is a tax credit for zero-emissions cars. There are worse ideas, but a big shift to electric cars would require R&D and other investments in the electricity grid, distributed power technologies, and the like which could use considerable funding (see money to be thrown at coal, below). As for other transportation modes, there are no other transportation modes as far as the published McCain program is concerned. So in McCain world, the path out of transportation-caused oil dependency is from power plants to your future car’s battery pack.
  • Electricity: The McCain plans, as we’ve previously seen, promote nuclear and “clean coal.” The 45 new reactors would probably be needed just to maintain nuclear’s share of the generation portfolio, given the age of the fleet. As it happens, the nuclear industry is more aggressive than McCain, with applications for 15 reactors somewhere in the NRC permitting pipeline, and 19 more applications expected between now and 2010. Getting nuclear economics to work would be greatly facilitated by the McCain cap-and-trade plan, whose absence in the briefing document is a huge omission, whatever we’re to make of it. The “clean coal” program is in disarray and would need substantial funding to get back on track, but with theoretically more efficient approaches to carbon capture just taking their initial steps out of the laboratory, it’s not obvious that McCain can do much to get the technology to market very far ahead of the 2020s time frame assumed by the Electric Power Research Institute, not exactly a tree-hugger’s hangout by throwing his $2 billion/year at the problem. Meanwhile, there are no specific plans to fund any other needed electricity-system R&D. Making the renewables tax credit permanent is a genuinely useful feature of the McCain program, if not exactly a radical proposal, and otherwise staying out of the way of renewables development is not bad for a Republican.
  • Energy Efficiency: McCain is pro-CAFE and pro-energy-efficient building, but doesn’t stake a position on whether current and forthcoming standards are adequate or how they might be improved. Should oil prices drop substantially, we’d need some substance here to support McCain’s anti-oil-dependency rhetoric, as the ’90s experience shows.

So what do we have? Long-term commitments to do Things Republicans Like (drill for oil, burn coal) surrounded with a lot of hand-waving and redirection as to how those will solve current problems.

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The Last Word on The 300

From me, at least, goes to Hilzoy and the off-my-reading-list-for-politics Obsidian Wings:

while I’d ordinarily assume that economists signing on to “John McCain’s plan” were signing on to the actual document he had released, the fact that those 300 names were released within hours made me wonder whether all of them had had a chance to read the document itself.

The answer, of course, was “No.”

Read the whole thing.

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From the Way-Back Machine: Heavy Hitters for McCain-onomics

by Tom Bozzo

Time to pile on regarding the 300 economists for the McCain economic plan. I thought it was pretty funny that Douglas Holtz-Eakin signed on — ‘look, boss, I approve of my own plan!’ — and the presences of the likes of Phil Gramm, Kevin Hassett, and John R. Lott Jr. should be viewed as each constituting minus a large number of good economists, so the net number of signatories is close to zero.

The opportunity for confusion, as even Felix Salmon exhibits some, is the presence of undeniably prominent economists on the list. To help in evaluating the significance of there presence, here’s a prediction from quasi-Nobel laureate Gary Becker (signer of the McCain statement), current CEA chair Edward Lazear, and John Bates Clark medalist Kevin Murphy of the Chicago GSB (Lazear and Murphy did not sign):

The evidence is clear: Cutting taxes will have beneficial effects. Tax cuts will keep government spending in check and will provide the incentives necessary to produce a highly skilled, productive work force that enables high economic growth and rising standards of living.

That was from “The Double Benefits of Tax Cuts,” published on the W$J op-ed page on October 7, 2003. Goes to show that the line between being a real economist and a “policy entrepreneur” is a fine one. For some indications of how that has worked out, see e.g. here, here, here, and here from the AB archives.

Meanwhile, leave it to the Rude Pundit to get right to the fundamental contradiction of the list (a very extended, and actually non-rude, excerpt is required):

So John McCain proposes a gas tax holiday and economists almost universally say it’s a stupid idea. In June, McCain, being a reasonable man, chooses to mock the economists: “If you want to call it a gimmick, fine. You know the economists? They’re the same ones that didn’t predict this housing crisis we’re now in.”…

Now McCain has put forth a great and mighty economic plan. Did it yesterday, less than a month after dissing the poindexters. And his campaign has released a letter from, well, who else? Economists who support it. Oodles of them. Guess they know a lot about economics, eh?

…[T]he Rude Pundit chose one of the names at relatively random. University of Chicago’s Gary Becker, who does a blog on, you know, economics… [B]ack in December 2007, Becker says, “The vast majority of economists, including me, were surprised by the extent of the subprime mortgage crisis.”

So, to conclude: for John McCain, economists who didn’t predict the mortgage crisis don’t know what they’re talking about when it comes to a gas tax holiday, but when it comes to his entire economic plan, they’re a-ok. What fun.

Does that qualify as straight talk?

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One in 300, or the Only one in Government?

UPDATE: Brad DeLong lists some of the Usual Suspects who are Not in the Line-up.

John McCain’s 300 economists who support his Jobs for America Plan (via Tyler Cowen, non-sociopath, who provides an appropriate context for the list) includes one person, an Ike Brannon, whose affiliation is listed as “Department of the Treasury” and who, per this site, is “Senior Advisor to the [Tax Policy] Assistant Secretary,” one Eric Solomon.

My initial suspicion was that this might be a violation of the Hatch Act. But that appears not to be necessarily true:

These federal and D.C. employees may-

* express opinions about candidates and issues
* contribute money to political organizations
* attend political fundraising functions
* attend and be active at political rallies and meetings
* join and be an active member of a political party or club
* sign nominating petitions
* campaign for or against candidates in partisan elections
* make campaign speeches for candidates in partisan elections
* distribute campaign literature in partisan elections
* hold office in political clubs or parties

So as long as Mr. Brannon didn’t sign the petition while “on duty [or] in a government office [or] using a government vehicle,” it appears he is clearly permitted to sign the petition.

Now, generally, these petitions are circulated through personal connections. So presumably someone knows Mr. Brannon and forwarded it to him at his personal e-mail address. And one would assume that Mr. Brannon, if he were enthusiastic about the petition, would forward it—in a manner not to violate the Hatch Act—to others, including co-workers.

And presumably those others would know that, so long as the contact was of a personal nature, they, too, could sign on to “support of John McCain’s Jobs for America economic plan.”

The silence from the rest of the Treasury Department is deafening.

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Mr. McCain vs. Mr. Burns: Who’s Greener?

by Tom Bozzo

John McCain gave a speech today intended to brush up his credentials on energy issues, and called for 45 new nuclear reactors to be built by 2030 (and possibly 55 more thereafter) and $2 billion per year in spending on “clean coal” programs.

[sound of crickets chirping]

There are 104 operational civilian nuclear power reactors in the U.S. now. In 2030, the median age of those reactors will be 52 — the youngest will be 34. Figuring the working life of a reactor at 40-50 years, the bold McCain nuclear program might just about replace the nuclear generating capacity that will reach the end of its useful life. That assumes, of course, that the new capacity could be installed at costs more like $2,000/kW (recent experience outside the U.S) than a pessimistic $5-6,000/kW; at the latter figure, wind would already be cheaper and could replace nuclear-generated electrons for the existing pumped-storage hydropower.

The main virtue of the clean coal initiative, meanwhile, seems to be that it would create fewer CO2 emissions from the combustion of cash than McCain’s Iraq war policies.

McCain Economic Clown Show Update: Elisabeth Bumiller’s version of the story (which manages to omit mention of the coal part of the story) opens:

Senator John McCain said Wednesday that he wanted 45 new nuclear reactors built in the United States by 2030, a course he called “as difficult as it is necessary.”

She also finds Douglas Holtz-Eakin making sure we all know the value of “difficult” is “not too difficult” and seemingly having difficulty with gross versus net additions to the nuclear fleet:

Douglas Holtz-Eakin, Mr. McCain’s chief domestic policy adviser, said Mr. McCain had arrived at the goal of 45 as consistent with his desire to expand nuclear power, “but not so large as to be infeasible given permitting and construction times.”

Practical, maybe, but if it’s “necessary” then Mavericky Boldness — really, the one thing McCain has to sell to non-Republicans at least in the eyes of the Village — might dictate policies that recognize that 22 years is a long time to remove existing constraints. Those 52 oldest reactors in the current fleet, after all, came on line in less than 10 years from the late ’60s to the late ’70s. I’m sure Axelrod and Plouffe will be happy to know that the underlying message is “America: almost as good as in the 1970s.”

Also, in the comments Lord and K Harris make excellent points regarding the true underlying socialism practiced by theoretically pro-market Republicans like McCain and George W. Bush. Here’s David Cay Johnston with something to keep in mind, from Free Lunch:

The dominant group [in Washington] is thick with politicians like [California Rep. Bill] Thomas. In public they speak of free enterprise and the virtues of competition. Behind closed doors, however, they work to create a paradise of corporate socialism for the few…

These are the Washington corporatists, whose hearts bleed for every company and industry complaining that the rules, and often the market, are unfair.

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Annals of Personal Fiscal Responsibility

by Tom Bozzo

The McCains, poor little rich debtors:

Mr. McCain and his wife had at least $225,000 in credit card debt and… Mr. Obama and his wife had put more than $200,000 into college funds for their daughters.

The bulk of the McCains’ obligations stemmed from a pair of American Express credit cards that are held in Cindy McCain’s name. According to the disclosure reports, which present information on debts in a range rather than providing a precise figure, Mrs. McCain owed $100,000 to $250,000 on each card.

Another charge card, held by what was described as a “dependent child,” had also accumulated debts of $15,000 to $50,000. In addition, a credit card held jointly by the couple was carrying $10,000 to $15,000 in debt, the filing indicated, at a stiff 25.99 percent interest rate.

Via BoingBoing, where Cory Doctorow points to Jon Taplin making the point that it might just pay the McCains to pay off those balances. (See also Coberly from last week.)

My own thoughts are pulled in two directions (angle of incidence indeterminate).

For one, a family member’s experience trying to divorce a full-service brokerage revealed that the business model there depends on having clients who are too rich to be bothered by having a few percent of their wealth siphoned off annually. (Since some commenters don’t get the connection, remember McCain’s economic platform contends it would be bad for the economy if we increased the marginal rate of taxation on income the rich can evidently afford to waste. Not to mention that there have already been efforts to frame the race as between Straight-Talking Man of the People John McCain and U. Chicago Elitist Barack H. Obama.) Discussion point: Should we prefer having private firms soak the rich for profit over having the government soak the rich for public purposes?

For another, the report that the McCain’s are paying a penalty interest rate gives me some faith in soulless corporations. This goes to another family member’s experience billing Delaware’s Old Money for children’s clothes in the relatively distant past (meaning before credit-card lending surpassed chemical manufacturing as the state’s dominant industry). Those families graciously accepted the bills; it was just considered unseemly to expect them actually to pay the bills on any particular schedule. Presumably, we’d need to know more about the McCains’ pattern of delinquency to know whether 25.99% APR nevertheless reflects VIP treatment.

Update 6/17/08: Reader Jefff points to this Huffington Post article that points out that the interest rates on the main AmEx debts are 0%. The disclosure lists the maximum amount owed over the reporting period, so the logical conclusion is that Cindy McCain sometimes runs up Very Large Charges in the course of a month and pays them off. The Chase card with the 25.99% interest rate is a small head-scratcher; a couple grand in needlessly incurred interest may be chump change to the McCains, but tells me how much Cindy cares about the poor little people of the world, and any food bank anywhere would be glad to see the money. Her main debts appear to be associated with the Hensley & Co. Citation Excel.

While the details of the disclosure are complex (get it here), it is clear enough that the McCains or their financial advisors basically haven’t heard of low-cost mutual funds. (See thought #1, above.) In particular, while the children are loaded, they’re also making an elective contribution to the overhead at JPMC.

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