Why Obamacare failed - Chicago Tribune

Why Obamacare failed - Chicago Tribune

Come November, the grim trudge across the increasingly barren Obamacare landscape begins anew. Illinois consumers likely face staggering price hikes for individual insurance policies. Some types of plans could cost an average of 43 percent to 55 percent more. Ditto across the country: A first tranche of states approved 2017 rates with similarly cardiac-arrest-inducing premium increases.

Many Illinois consumers will find fewer choices because major carriers fled this market. UnitedHealthcare bolted. So did Aetna. Land of Lincoln Health collapsed mid-year, leaving policy holders to scramble for coverage that could cost them plenty. In many places across Illinois and the nation, people will find drastically fewer choices of plans than they did last year.

Those insurers fled because they didn't want to lose more money on a government-run market that is so far out of whack — a market they think likely will never be profitable for them. That isn't surprising, as we enumerate below.

But by diagnosing Obamacare, all of us can see the mistakes that any repair or replacement can avoid. So let's look at the failings and how they can drive solutions:

Obamacare failed because it flunked Economics 101 and Human Nature 101. It straitjacketed insurers into providing overly expensive, soup-to-nuts policies. It wasn't flexible enough so that people could buy as much coverage as they wanted and could afford — not what the government dictated. Many healthy people primarily want catastrophic coverage. Obamacare couldn't lure them in, couldn't persuade them to buy on the chance they'd get sick.

Obamacare failed because the penalties for going uncovered are too low when stacked against its skyrocketing premium costs. Next year, the penalty for staying uninsured is $695 per adult, or perhaps 2.5 percent of a family's taxable household income. That's far less than many Americans would pay for coverage. Financial incentive: Skip Obamacare.

Obamacare failed because insurance is based on risk pools — that is, the lucky subsidize the unlucky. The unlucky who have big health problems (and big medical bills) reap much greater benefits than those who remain healthy and out of the doctors' office. But Obamacare's rules hamstring insurers. They can't exclude people for pre-existing conditions, and can't charge older customers more than three times as much as the young. Those are good goals, but they skew the market in ways Obamacare didn't figure out how to offset. Result: Young and healthy consumers pay far more in premiums than their claims (probably) would justify in order to subsidize the unexpectedly large influx of older, sicker customers who require expensive care. Too many unlucky people, too few lucky people: That will collapse any insurance scheme.

Obamacare failed because it allowed Americans to sign up after they got sick and needed help paying all those medical bills. Insurance should be structured so that, although you don't know if you'll need it, you pay for it anyway, just in case; your alternative is financial doom. But if you can game the system and, for example, buy auto coverage after you crash into your garage, then you have no incentive to buy insurance beforehand.

Obamacare failed because it hasn't tamed U.S. medical costs. Health care is about supply and demand: People who get coverage use it, especially if the law mandates free preventive care. Iron law of economics: Nothing is free; someone pays. To pretend otherwise was folly. Those forces combined to spike the costs of care, and thus insurance costs.

Obamacare failed because too many carriers simply can't cover expenses, let alone turn a profit, in this rigidly controlled system. Take Blue Cross and Blue Shield of Illinois, the state's dominant Obamacare insurer. Last year, for every dollar the carrier collected, it spent $1.32 buying care and providing services for customers, according to BCBS President Maurice Smith. No wonder BCBS is proposing rate increases from 23 percent to 45 percent for its individual plans.

A question looms: Is Obamacare plunging in a so-called insurance death spiral? Is the market so unstable that plans are doomed to get more and more expensive, driving more Americans and more insurers out of the market until ... Obamacare thuds to the pavement?

We won't predict that, but neither do we see a mathematical alternative. What's clear is that the solutions to Obamacare are implicit in its failures. A repaired or replaced system has to be more flexible, letting insurers offer a wider range of plans so that consumers, not lawmakers or bureaucrats, dictate what's best for them. That system should protect those who carry continuous coverage, not coddle those who duck in and out of plans when their health needs change.

A new system also should scrap the job-killing Obamacare mandates that discourage companies from hiring and discourage workers from adding hours. Instead of gearing subsidies to incomes, let Americans not covered via an employer reap tax credits to help finance their insurance purchases on the open market. And tell us again: Why can't insurers sell policies across state lines? Imagine the pricing competition that would unleash.

We can deny the current system's failings, or we can parlay our evolving knowledge into something much better.

Put another way: The next president and Congress either reckon with Obamacare's failures or ... wait for the thud.

Welfare Reform & Child Poverty: Did the 1996 Law Help Poor Children? | National Review

Welfare Reform & Child Poverty: Did the 1996 Law Help Poor Children? | National Review

If you think your opponent is arguing for miracles, it is likely that you are misinterpreting their claims.

Too many liberals are far too confident that the reforms they advocate would have been better than PRWORA and would be better than continuing current policy, because they tend to not seriously consider unintended consequences. Reforms that make receipt of welfare relatively more attractive will tend to draw more families onto the rolls and thereby run the risk of preventing them from benefiting from the advantages of employment. Or it will discourage planned and responsible childbearing by reducing its costs.

Relatedly, many critics of reform are too dismissive of paternalistic anti-poverty policy. “Don’t people know what’s best for themselves?” ask liberals and libertarians who assume that if work pays, people will naturally work. There is much to be said for this view, undoubtedly, but even if most people know what’s best for them most of the time, some do not at least some of the time.

Furthermore, policy shouldn’t necessarily strive to give people what they think is best for themselves in a world where wants are potentially unlimited and someone else is paying. Some people value leisure more than work at the margin, and in that case we have to ask whether working taxpayers are obliged to support the leisure of those who could work but do what’s best for themselves by not working. The same may be said of people whose childbearing decisions are what’s best for them; none of us is entitled to do what’s best for ourselves and expect others to bear the costs. These particular ways of evaluating the success of welfare reforms are, in a sense, moral rather than economic. But conservatives hold these normative views, in part, out of the belief that work and responsible childbearing may benefit children economically even if they do not make parents happier in the short run. For that matter, they may make society better off economically in the long run by promoting economic growth.

In the end, the conservative resistance to weakening the tough provisions in the 1996 law stems from the belief that — regardless of whether there might have been a better way — welfare reform improved the lives of the poor when compared with the old system. We get very nervous about departing from a model that a lot of evidence suggests was better than the status quo.

What's So Hard to Understand? - No Profits Means No Medicines

What's So Hard to Understand? - No Profits Means No Medicines

via Hit & Run by Ronald Bailey on 11/16/11

Yesterday, the biotech company Geron announced that it was halting its stem cell research and stopping its Phase 1 trial in which stem cells were used to treat broken spinal cords. It was a business decision based on the company's evaluation of the commercial prospects of the treatment. One comment particularly struck me in the Washington Post's reporting on the company's announcement:

"I'm disgusted. It makes me sick," said Daniel Heumann, who is on the board of the Christopher and Dana Reeve Foundation. "To get people's hopes up and then do this for financial reasons is despicable. They're treating us like lab rats."

WTF! First, Geron's announcement is a disappointment to be sure, but just how does Mr. Heumann expect a company to continue to operate if it runs out of money? Does he think a bankrupt company will be able to provide treatments? And, of course, the participants in the Phase 1 treatment trial are treated like lab rats because that's what they are. In Phase 1 trials:

Researchers test a new drug or treatment in a small group of people for the first time to evaluate its safety, determine a safe dosage range, and identify side effects.

There's nothing about benefit to the patient in a Phase 1 trial. If a patient happens to benefit, then that's just great. Whatever one might say about government funding of biomedical research, the plain fact is that the National Institutes of Health has never brought a treatment to market. Profit-making companies do that.
Disclosure: I am a long time small investor in Geron stocks and I certainly will not be retiring soon (if ever) off any capital gains from it. 

Friedman's Four Ways

Friedman's Four Ways

via The American Spectator and The Spectacle Blog by Ron Ross on 10/5/11

Sometimes the explanation for vexing problems is clear as can be after you see it. A perfect example is an observation made by the late Milton Friedman in a 2004 interview with Fox News:

There are four ways to spend money. You can spend your own money on yourself. When you do that, why you really watch out for what you're doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well then, I'm not so careful about the content of the present, but I'm very careful about the cost. Then, I can spend somebody else's money on myself. And if I spend somebody else's money on myself, then I'm going to have a good lunch! Finally, I can spend somebody else's money on somebody else. And if I spend somebody else's money on somebody else, I'm not concerned about how much it costs, and I'm not concerned about what I get. And that's government. And that's close to 40 percent of our national income.

It would be nearly impossible to exaggerate how many of our current economic problems are explained by Friedman's four ways of spending money. Think of the four ways in the order they're presented as S1, S2, S3, and S4. As Friedman explains, the effectiveness of how money is spent declines inexorably as you move from S1 to S4.
The important demarcation line in ways money can be spent is between S2 and S3. In other words, the issue that matters most is your money versus someone else's money. If you're spending your own money on someone else, your spouse or children, for example, you still take the expenditure seriously. You still pay a price if you don't look for bargains.
A new Gallup survey finds that "Americans believe, on average, that the federal government wastes 51 cents of every tax dollar, similar to a year ago, but up significantly from 46 cents a decade ago and from an average 43 cents three decades ago." This is a good example of "the wisdom of crowds." The trend shows that the crowd is wising up regarding the implications of gargantuan government.
The survey respondents are correct in their assessment of how government spends money, and you need go no further than Friedman's distinctions of how to spend money in understanding the source of the problem.
My guess would be that many of the respondents would think the government doesn't necessarily need to waste half the public's money. The problem, however, is it's the nature of the beast. Because of the realities Friedman refers to, the government will never be able to spend money as effectively as the private sector.
The problems associated with how the government spends money are not the result of who's running the government. The problems are systemic. Unless government is seriously downsized, waste and inefficiency will remain problems no matter which party is in power.
The source of the problem can be further clarified by keeping in mind the observations of another economist, Steven Landsburg: "Most of economics can be summarized in four words: People respond to incentives." (That's the first sentence in his excellent book, The Armchair Economist.)
The incentives for spending money wisely and efficiently are simply too weak when it's not your own money. It's no skin off your nose if the benefits of the expenditure are a small fraction of the costs. When it's your own funds being used, you will not only restrict your expenditures to things having more benefits than costs, you will choose the ones you think will have the highest ratio of benefits to costs.
When it's your own money you're spending, it costs you something when you spend it foolishly. That's not to say that we never spend our own money foolishly, but it comes out of our own hides when we do. When we spend our own money foolishly, we're left with less money to spend well. It's a self-policing structure. Of course, your incentives are even stronger when you worked hard for the money in question.
When a politician or bureaucrat spends taxpayer money it's treated essentially a freebie. It's only natural that taxpayer money gets treated like monopoly money. Politicians and bureaucrats have virtually no incentive to care about the value of an expenditure or its cost. This is a profound disadvantage of public spending that will never, ever go away.
Contrary to the straw-man accusations of some liberals, conservatives do not advocate zero government expenditures. Conservatives definitely are not anarchists. Nevertheless, the inherent and inescapable inferiority of spending someone else's money on someone else is a strong argument for minimizing the size of government. The public's opinion that the amount of government waste has been increasing parallels the exponential growth of government.
The Solyndra fiasco is another recent confirmation of Friedman's observations. Despite alarm bells going off, the Obama administration pushed the doomed endeavor forward. Why not? It wasn't their money, after all. Because it has now becoming so notorious, it appears the administration may pay a political price. Nevertheless, half a billion dollars of taxpayer money has gone down a rat hole. Unfortunately, Solyndra is the rule, not the exception. Absurdly generous public employee pension plans are another predictable result of spending someone else's money.
Friedman said that the fourth spending alternative is how we spend forty percent of GDP. He was, I think, referring only to budgetary expenditures. Forty percent is a lot. Unfortunately, it understates the full extent of the problem.
The vast regulatory apparatus of the government is basically a system of spending someone else's money on someone else. It is estimated that government regulations currently cost the economy $1.7 trillion a year. For example, requiring a private business owner to spend hundreds of thousands of dollars to comply with the American with Disabilities Act is a clear case of spending someone else's money on someone else. Requiring a private business to spend a million dollars doing an "environmental impact report" is a clear example of spending someone else's money on someone else. Spending a million dollars or more on an EIR, in fact, is an example of spending someone else's money for no one and for nothing. Minimum wage laws likewise are a case of spending someone else's money on someone else.
The billions of hours Americans spend each year preparing their tax returns is a case of spending someone else's time on someone else. Time is money, as they say, and most people I know complain a lot more about a scarcity of time than they do of money.
When you spend your own money (or time) on yourself, or for your loved ones, the process is essentially self-regulating. The incentives are automatically aligned with waste minimization. When such incentives are not present, elaborate and complex systems of rules and artificial punishments must be put in their place. There can never be enough rules and regulations to match the effectiveness and elegance of the self-regulating market.

Peter Hitchens on Murder (among other things)

Why it's so hard to compare apples with apples on the subject.

Which brings me alongside Mr Hadley's responses to my most recent posting. But before I board his vessel with cutlass aloft, a few reactions are necessary to comments on my Sunday column. Mr Brant asserts that murder has not substantially increased since the abolition of the death penalty. Several points here: Can he please cite his sources? Is he referring to homicide as a whole? If he is using 'murder' as his definition, is he aware that the definition of 'murder' alters according to the legal punishment of that crime? For instance, when we still had a death penalty, but after it was weakened by the Homicide Act of 1957 many killers attempted to avoid the noose by pleading 'diminished responsibility' and so being sentenced for manslaughter. After this weakening, convictions for murder rose slightly, but not spectacularly (from 32 in 1956 to 51 in 1961) . But convictions for 'manslaughter due to diminished responsibility', most of which would probably have been prosecuted and sentenced as murder before 1957, climbed from 11 to 41 between 1957 and 1964. Add them to the murder figures, and you get quite a significant jump.

Once the death penalty ceased to operate at all, this process continued. The distinction moved elsewhere. Rather than trying to avoid being hanged, the accused's lawyers sought to avoid a 'life' sentence. And the prosecution, mindful of prison overcrowding and the high cost of jury trials,has joined in (the affronted relatives of victims sometimes write to me about the resulting injustice). What has tended to happen in subsequent years is that many more cases which would once have been charged and prosecuted as murder were reduced (for speed and cheapness) to charges of manslaughter. So, many cases whose actual nature would have had them classified as murder in, say, 1955, will have been recorded as manslaughter in post 1965 Britain. It is very difficult, given the fluid boundary between the two, to establish numbers.

Then, as the 1948 Royal Commission on the subject rightly pointed out, one must always be careful with direct before and after comparisons. Generally, countries which abolish the death penalty have suspended it or restricted it for a long period before the moment of abolition. (Most of the American states which claim to have the death penalty for political purposes never actually execute anyone, which also tends to confuse the matter, and those which do only execute after immense delays, by which time the murderer has often forgotten what he did, and so that many sentenced murderers actually die of natural causes on Death Row, making 'comparisons' between 'death penalty' and 'non-death-penalty' states virtually meaningless).

In Britain's case, the 1957 Homicide Act, which prevented the execution of gang members who had participated in a homicidal crime, and enshrined the 'diminished responsibility' defence, effectively eviscerated the death penalty although it wasn't formally abolished for another seven years. Britain never executed many murderers in modern times (the highest tally in the post-war period was 18 in 1951) but by the time abolition came, the annual total of hangings rarely rose above two. A serious comparison of pre and post abolition should therefore track the whole period between 1945 and now, and examine in detail many of the homicides nowadays classified as 'manslaughter'.

It should also, as I have rather often pointed out, recognise that trauma surgery has hugely improved since 1964, and that many homicidal assaults, which would undoubtedly have resulted in death 45 years ago, now do not do so. This is not because of the criminals being gentler, or lacking the intent (or callous heedlessness of the consequences of their savagery) which lead to death. A clue as to how many such 'hidden murders' now take place is offered by the growth in attempted murder cases, which rose between 1976 and 1996 from 155 to 634. In the same period instances of 'wounding to endanger life' rose from 5,885 to 10,445. All these figures, and a careful examination of this superficially persuasive but in fact worthless part of the abolitionist case, are to be found in the chapter 'Cruel and Unusual' of my reviled book 'A Brief History of Crime'. Any decent library will find it for you. The issue is also addressed in another chapter 'Out of the Barrel of a Gun', which shows that two post-war suspensions of the death penalty (one in 1948 and the other in 1955-57) caused by Parliamentary debates on abolition, correlate with two substantial but temporary increases in the incidence of armed and violent crime (the form of crime which death penalty supporters argue is deterred by capital punishment). In both cases the figures fell again after the suspension ended, only to increase, and carry on increasing evermore, after final abolition.

Unmentionables

Not items of clothing, but items of knowledge – items which everyone knows, but of which none dare speak openly.

Why does common knowledge remain unacknowledged within an organization? SFGate has tapped into an unreported vein of lore about the San Francisco zoo.

[The enclosure was known not tiger-proof, for quite a while.]

Dan Oestreich describes the phenomenon of "undiscussable" problems within organizations. Their existence is known with the same certainty as anything else. What distinguishes these problems from others is that they deal with subjects that are impossible to schedule on an agenda. By tacit agreement their discussion is "verboten".

...

Organizations and even whole societies are full of undiscussable subjects. They even go out of their way to create these "open secrets". When Mark Steyn is threatened by the Canadian Human Rights establishment for expressing his views on radical Islam it eventually has the result of creating another verboten subject.

Not just the Canadian Human Rights people, but a whole spectrum of organizations throughout the world, create taboos which eventually stifle the internal cognitive processes within them. And those taboos are so entrenched it often requires a crisis -- an impending bankruptcy, a corporate takeover, or a revolution -- to overturn them. Management consultants are paid large amounts of money to initiate "communications processes" through which the unacknowledged problems of a failing organization can once again re-enter the realm of "actionable knowledge".

The San Francisco zoo story provides an example of something all too common within organizations: the emergence of the open secret. If Carey Baldwin is to be believed, the keepers of the SF Zoo have known for nearly sixty years that the tigers kept within their enclosures only out of their own free will. The wall and moat were shams to preserve the illusion that the big cats were enclosed. In reality, the public's safety was dependent on the behavior of the "good kitties". Given their only recently marred record, the tigers have really exceeded our low expectations of their behavior.

In contrast, human institutions can be less intelligent than we give them credit for. They can ignore critical information simply because the word is out that the subject is not to be discussed. They can take data and bury it; discover knowledge and extinguish it. Because they have internal interests which take priority over their official ones. Even the death of a 17 year old zoo visitor won't change things. The only thing anyone can be sure of is that all parties concerned will hire lawyers who, by track record, are far more dangerous than tigers.

And I suspect "unmentionables" are almost always in the realm where ignorance can be dangerous, if not fatal.

Security by Clouseau – ChoicePoint

Bruce Schneier throws in his two thousand quatloos worth on the ChoicePoint fiasco. Among other things:

The upshot of this is that ChoicePoint doesn't bear the costs of identity theft, so ChoicePoint doesn't take those costs into account when figuring out how much money to spend on data security. In economic terms, it's an "externality." The point of regulation is to make externalities internal. SB 1386 did that to some extent, since ChoicePoint now must figure the cost of public humiliation when they decide how much money to spend on security. But the actual cost of ChoicePoint's security failure is much, much greater. Until ChoicePoint feels those costs – whether through regulation or liability – it has no economic incentive to reduce them. Capitalism works, not through corporate charity, but through the free market. I see no other way of solving the problem.

One of the reasons I don't agree with the agorist wing of the Libertarian party (the wing that would turn absolutely everything over to the Greek marketplace) is that mechanisms that internalize externalities need to be enforced. In most cases, the marketplace will work, once a consensus has been established, but if it breaks down, the government can at least serve as a court of last resort.

Private courts, private arbitration services, private negotiation services, "justice management organizations", and other free market devices are fine, but they work better when the law requires parties in a dispute to use one of these, and if none of them can agree on one, fall back on the government default.

And the beauty of that sort of system is that the government institution need not be perfect, or even very good. If it is, great. If not, then it can be used as a threat, in the event the parties in a dispute refuse to agree on a third party to settle their differences.

...this immoral principle

Wretchard (Belmont Club) in discussing how deterrence works, and doesn't work, says,

What the GWOT did was deter the states which may have considered supplying al Qaeda-like organizations with the material for building nuclear weapons with the threat of collective responsibility. Deterrence has always, from its inception, been based on this immoral principle and it isn't necessary to approve to recognize it was the case.

Although the principle of collective responsibility can rankle, I'm now wondering just how moral or immoral it is. It certainly seems to be popular.

We've all been subject to collective responsibility. In the widest scale, whole ethnic groups have been the target of this kind of judgment. The notion that the white man is responsible for all the ills of the world is merely the latest incarnation. On the smallest scale, teachers and playground monitors who punish both participants in a fight, saying "I don't care who started it" are assigning collective responsibility.

On one hand, collective responsibility may be considered a "cop-out". It's used by people who can't be bothered to assess responsibility and properly assign blame. Instead, they take the lazy way out. In such a case, arguably it is an immoral policy.

On the other hand, what if the time and effort required to correctly assess responsibility and properly assign blame is so great that justice would not be perceived as being done. Making an entire school run laps during gym class to punish one or two unknown miscreants is heavy-handed, but perhaps less so than grilling kids until you finally isolate the culprits. You punish the whole class, and count on peers to "pay it forward" until the punishment reaches those who were responsible.

In a perfect world, it would be possible to isolate those who are responsible for any evil act and administer prompt and targeted punishment. This would be the perfectly moral approach.

In an imperfect world, we will be imperfectly moral. The trade-off here is, are we imperfectly moral in assigning collective responsibility, or are we imperfectly immoral in administering no punishment at all, and letting those wo do evil get away with it altogether?

It's a hard question to answer, and no one answer will serve for all cases.

For most of the Cold War, opposing nations held each other's civilian populations hostage.

And nuclear war never broke out, even when one of the opposing nations was in full collapse. The morality of holding all those people hostage has to be balanced, in a real world, against the morality of all those people not being turned to radioactive dust. It's a trade-off.

Car Alarms

Incentives work. Here are some observations and suggestions.

a silent alarm, of the sort sold by LoJack Corp. This one consists of a hidden radio transmitter that is activated (via radio signal) by the police department when you report that your car has disappeared. The transmitter sends out a homing signal that can be picked up by a squad car outfitted with a receiver. LoJack says that its transmitters have yielded 75,000 recoveries of stolen vehicles and that perhaps 1 in 5 cases results in an arrest. The deterrent effect reaches beyond LoJack-equipped cars: Thieves don't know which cars are protected.

Here we have a classic externality. Paying for LoJack installed on a car benefits the owner of the car, but it also benefits other car owners. One incentive is, thieves have to consider a higher likely cost of stealing cars, and change their behavior accordingly. They either go into another line of work, or spend extra time letting a car "cool off" – park it someplace and watch it to see if the police respond. During that time, of course, it's not in a chop shop, and can, in principle, be found even if it's not alarmed.

Insurance companies can calculate incentives, too.

In their Why Not column on page 88, professors Ian Ayres and Barry Nalebuff lament the fact that most insurance companies give only grudging discounts on theft insurance to LoJack buyers. But you shouldn't blame the insurers, who are acting rationally. Much of LoJack's benefit goes to society in the form of crime prevention, not to the owners or insurers of the few cars that have the device.

I don't know if anyone's calculated the relative benefit. Is it 50/50? 70/30 in favor of the owner? Against? If you know the numbers, you can calculate a fair discount.

But William Baldwin has another idea: a government subsidy, of all things!

Costs for the few, benefits for the many. This situation cries out for a government subsidy. But let's be smart about this. Don't pay for each LoJack installed-pay $10,000 for each thief caught. Instead of demanding the BMW back right away, the owner will wait patiently while the police stake it out.

And I suppose if $1000 is given to the police department as a "10% finder's fee", the police will decide car theft is important enough to devote the resources involved in a stake-out to. Of course, we don't want the payment to the police department so high that it encourages the police to find some way to game the system. (How would they do that? I can't think of a way offhand, but then no one's offering me $1000 to come up with one.)

Where do we get the money? From a tax on the other kind of car alarm. For false alarms at 3 a.m., $100 a minute would be about right.

Of course, whenever a tax is proposed, the question of enforcement comes up. I can tell when there's a car alarm going off, but I can't always tell who owns the alarm.

Some cities have installed networks of microphones to detect gunsfire. By comparing intensities across several mikes and triangulating, police can pin down the location of a gunshot to within a few feet. Car alarms may not be as loud, but they last longer, giving such detectors at least the same amount of effective signal.

Here, by the way, is an example of how technology installed for one purpose can wind up being used for another one. Proposed new applications have to be carefully vetted. For example, a system that can listen for car alarms might be sensitive enough to listen in on conversations.

Always trade-offs to consider...