Saturday, September 26, 2009

Health Care - Some Substance

The trouble with commercial insurance companies is that they are not in the business of reducing risk. They are in the business of lending money. The risk thing is just their way of collecting deposits and determining which depositors to repay. As a general principle, however, they want to insure the largest possible risk, as that creates the largest amount of deposits and, therefore, the largest amount of profits.

Insurance companies compete for premiums on price, but that does not give them an incentive to reduce the risks for which those premiums are collected. An insurer cannot own an insured’s best practices. If your insurance company teaches you how to reduce your risk, you can still shop elsewhere and offer your new, improved risk profile as an inducement to the new carrier to lower its rates. So what’s in it for the commercial carrier to reduce your risk?

Captive insurers provide a different dynamic. They can have lowering their premiums as an objective, as they do not seek to make money for their stockholders on money they get from their insureds (the two groups being identical). So captives are a source of risk-reduction innovation. Nevertheless, mutual insurance companies, which are really very large captives, are not thriving. Mutuals tend to have difficulty raising capital, don’t get the focus from their owners that true captives get, and end up being bureaucracies that exist to provide claims-handling jobs to their employees.

Still, there ought to be a way to tweak the health insurance company’s business model so that it seeks to reduce losses. One way to do that, I suggest, is for the insurance companies to ally themselves, through investment or otherwise, with providers of medical technology. In other words, just as a car company offers financing, medical technology companies should offer health insurance, with enhanced benefits to users of their products. But since no one company offers enough cost-saving technologies to support an entire insurance company’s worth of enhancements, the medical technology industry needs an insurance company that advances a wide array of devices and technologies and makes its money if those technologies actually work to reduce costs.

Imagine, then, a health insurance company that offered reduced co-pays and deductibles for treatments with (or, in some cases, relapses or sequellae after using) a given treatment. Just as patients shop for “in network” docs and hospitals, they would seek out practitioners who use “in network” technology. Because the insurer would receive money from its arrangement with the vendors, it would not seek to maximize the risk it insures. That would give it the ability to pressure competitors into adopting similar subsidies, which would in turn encourage the use of the company’s technologies, making more money for the company even as it loses market share on insurance.

To put it another way, just because insurers have always been bankers, it’s not at all clear why bankers are the only ones who can be insurers. If bankers can use insurance to attract deposits, why can’t manufacturers use it to attract customers? If your product will save lives and reduce costs, why not agree to sell insurance against those costs at a price that reflects the savings you think you can generate? All the manufacturer needs is someone to provide the insurance function, and that someone ought to be a free-standing operation that can make each manufacturer’s product more appealing by offering incentives for the use of many manufacturers’ products.

Indeed, the insurer should offer subsidies for the use of competing products, so that each manufacturer prospers only if it makes the best version of the thing it makes, with that call being made by medical professionals, not by the insurer. Of course, the manufacturers will have to pay to be granted favorable treatment under the insurance policy, a preference analogous to in-network and out-of-network coverage of providers. But competition among in-network technologies should be encouraged.

Anyway, the idea of an insurance company that makes its money from the enhanced sales of “in-network” technologies could facilitate the adoption of good technologies, lower the cost of insurance, and improve the health of insureds. Just a thought…

Thursday, September 17, 2009

The Economy – what’s next?

So I have this high-altitude narrative working. According to me, too much money found itself chasing too few goods, only the goods weren’t real goods, they were investment assets, and safe ones at that. The surge in demand for good paper came about because (i) our baby boomers increased their savings rate as their age went up and their risk tolerance went down, and (ii) our trading partners found nothing on our shelves that interested them.

Too much money chasing too few of anything causes the average price of that thing to rise. Most often, the increase in price is achieved through an increase in the actual selling price of the item. But other mechanisms can achieve the same result. Most notably, the product can be adulterated or counterfeited. In that case, the price can stay relatively stable as new “supply” appears to meet the new demand. And so it was with American mortgage debt. When we ran out of borrowers with real credit buying homes with real value, we started pretending that the homes were worth more than they were, and that the borrowers’ credit - which never really mattered in itself but did signal to the attentive that there would be no bigger fools available to buy the homes should the need arise – was better than it was. That way, the nominal yields stayed high (i.e., the nominal price of the instruments stayed low), and everybody was happy. Until the music stopped.

So now what? The boomers aren’t getting any younger, and their appetite for paper has only increased as they try to recoup what they lost in blue-chip stocks, mortgage-backed securities, and other “prudent” investments. We’re still importing oil and toys, and we haven’t achieved any new comparative advantages to support a boom in exports. So. too much money will again be (or is still is?) chasing too few good pieces of paper. But the fraud option is no longer viable. How does that play out?

The stubbornly low yield on Treasury paper, and the bull market in stocks, both in the face of a stagnant economy and a soaring Federal deficit, are the first natural consequences. The prices of these instruments have gone up because the investments are, for the most part, what they claim to be. And people have to put their money somewhere.

On that score, the Americans have little choice. We will pretty much buy American, although a lot of people certainly are loading up on Asian stocks. My two largest holdings – largest because they have done so well and not because I invested heavily in them - are a Chinese travel agency and an Australian mining equipment maker. But still, our major averages are up nicely since March, and the need for Americans to rebuild their savings seems to be driving that.

What, then, will the Chinese and OPEC countries do with their dollars? Remember the wag’s description of the Soviet economy? “We pretend to work, and they pretend to pay us.” Although we can no longer pretend that a dollar will buy anything, our trading partners can pretend otherwise, converting export dollars into local currency for use by the local economy to stay employed and to continue to grow. It doesn’t really matter that the yuan or rial is backed by dollars and the dollars are backed by nothing. If our currency can be backed by nothing, why can’t theirs? (Actually, all currency is backed by the issuing country's ability to offer things for sale - manufactured goods for China, oil for OPEC.)

The only thing our trading partners cannot do is refuse to export to us, until, that is, they don’t need us as an export market. And that’s the game we need to follow now. The risk we run is that the US will outlive its usefulness as an export market. We may experience a functional embargo, a “shortage” induced by everyone else turning to serve the Chinese market because, in the case of Chinese sellers, the domestic growth is a good thing, and, in the case of OPEC, the Chinese have something to sell in exchange for the oil they import. Why should the world’s leading exporters continue to deal with us if they can deal with China? Wouldn’t you rather export to a country that has stuff to sell than to one that doesn’t? Wouldn’t you rather sell to your neighbors for your own currency than to foreigners who have nothing to sell you for theirs?

Eventually, the growth of demand in Asia and elsewhere could bring about a renaissance of manufacturing here, as cheap foreign goods are no longer available. But, just as we need a floor on the price of oil to promote alternative energy, we need a floor on the price (or ceiling on the quantity) of foreign goods to promote investment in production here. That may sound like a trade barrier, but it won’t be one if the barred products aren’t coming anyway. But still, the counterintuitive nature of trade restrictions, and the reluctance of capitalists to rely on them, may augur a period of significant shortages here until we get the political will to stimulate our own production.

This will be a slow process, taking shape as the domestic Chinese (and Indian and Brazilian) economies continue to grow, fed, ironically, by the myth that US dollars represent wealth. That’s because, at the end of the day, those dollars are just an excuse for deciding who among the Chinese, Brazilians, and Indians deserves to be wealthy. Exports to America become a way of keeping score in the game of “Who Makes the Best Stuff.” Because our consumers are good judges of stuff, the stuff we buy the most of is the best stuff (in terms of marketability, not necessarily quality), and that’s the stuff that should be made available to the domestic markets - and the producers thereof made rich for their efforts. We have, for the nonce, a comparative advantage in consumerism – an ability, unique in all the world, to advertise, distribute, test, and validate the products brought to us. That’s a useful thing, and we will benefit from acting as judges of foreign stuff until our trading partners’ own consumers are able to to the job for themselves. Until, again, the music stops.

Wednesday, September 16, 2009

The Presidential Race

Irwin says Joe Wilson wouldn’t have said what he did to a white President.  Pres. Carter echoed that belief, if not in so many words, last night on NBC.  Let’s suppose it’s true.  Then what?  Do we really want a President who cannot be criticized as aggressively as W. was by, say, Al Franken?  Is there any doubt that the angry and obnoxious things said about the last administration would have been attributed to bigotry had the President been in an historically oppressed class?

A wise young man said to me last summer that all Presidential candidates should be WASP males.  Not because WASP men make the best Presidents, but because they make the best targets when they are not the best Presidents (or candidates).  Look at all the ink spilled on the race or sex of Senators Clinton and Obama and Gov. Palin.  Not a dime’s worth of it had anything to do with health care or Iraq or Afghanistan.  It was all a lot of self-congratulatory feel-goodism: “Look how cool we are letting these ‘others’ take a shot.”  Three cheers for US. 

Of course, there’s some irony in the claim that BHO would not be receiving the abuse he is receiving if he were not black.  After all, he wouldn’t be President if he weren’t black.  He might have got there some day, after he had actually shown some skill as a legislator or character in crisis, but in 2008, he had no such credentials.  The nomination was Hillary’s to lose, and she lost it, but her inevitability strategy would have worked just fine, I think, if she could have counted on her due share of the black vote.  And only a black man could have snatched that from her.  (After that, all BHO needed to get elected was to not be a Republican.)

So the election was distorted, first by Hillary’s sex, then by BHO’s race.  And as the twig is bent, so grows the tree.  The political hurly-burly, the part of our process that ain’t beanbag, must now be fought with kid gloves lest someone be accused of bad thinking.  What do we think of these pics?  Over the line?  No? So can we put BHO in them?  Nope.  New rules apply. 

Liberals make a big mistake, I think, by demanding special consideration for their man.  It’s hot in the kitchen, and if the American people get the sense that we have to turn down the heat for a black President lest we be accused of turning it up on him, we will be reluctant to go down this road again, especially since we have already assuaged our collective consciences for all that slavery by sacrificing Hillary to the gods of political correctness.  (Irony there, too: so much of feminist politics is a coat-tail play on the mistreatment of African slaves; it’s time we were reminded of the relative magnitude of the atrocities to be rectified, and BHO’s victory over HRC did that very well.)

Monday, September 14, 2009

Joe Wilson’s War - continued

This post responds to Irwin’s last comment. It turns out that comments are limited to 4096 characters.


Irwin -

You say my dislike of BHO is showing. Am I obliged to like the President? Or are you saying that once I decide that I don't like him, I am somehow disqualified from commenting on the things about him that I don't like? Who are we to expect to criticize the President if not the people who don't like him? His acolytes? I am not saying "trust me, the President is lying"; I am saying "LOOK - Here are the President's lies." I don’t see whether the status of those statements as lies turns on my like or dislike of the man making them.

Your reference to Jefferson is ironically apt. You have read Founding Brothers. Ask John Adams if Thomas Jefferson was a liar. But otherwise, the analogy doesn't hold. The Declaration of Independence was not intended to mislead anyone regarding the issue of equality. BHO's pronouncements are intended to mislead real Americans about things they really care about. That's lying.

Your reference to finding "lies" in the Gettysburg Address suggests that my standard has something to with naked accuracy. I'm not complaining that BHO's statements are inaccurate like Jefferson's claim about all men being created equal. BHO's statements are all accurate. But they are nevertheless intended to mislead. Bill Clinton said that he did not "have sex" with that woman. That was accurate, too, but it was hardly true. That's why I call BHO's statements on Healthcare Clintonesque.

I doubt that I used the word "liar" to describe the President. I said he is lying and that he lies to advance his political agenda. But I am not uncomfortable with political lies, and if you'll notice, I have not really condemned BHO for telling his. I have simply said that he is behaving like other politicians: that he does not represent a "new" politics, that when he speaks, he should be taken no more seriously than his less articulate predecessor. And that we can learn something about the possible effects of his proposed legislation by looking at the things he chooses to lie about.

This may sound like parsing, but I draw a very sharp distinction between "he is lying" (or even "he lies") and "he's a liar." Liars lie to pretty much anyone whenever it suits them. But everyone lies sometimes ("No, you don't look fat in that dress, dear"), and politicians lie because politics is the art of the possible, and sometimes lying is the only way to get things done. It’s no big deal ethically, but it’s a datum not to be ignored.

The sensitivity you feel about the term "liar" is well-founded. But if you search this page for the word, you will find it only in your comments (until right now). I do think Bill Clinton is a liar. But not BHO. He's only a politician whose lies happen to follow Clinton's model. Which leads me to say that my first paragraph was offered arguendo. In fact, I don't dislike BHO. I just don't think he's as special as you and he say he is.

You say "only the most tortured interpretations of what is (in fact) in the House bill would find concern in whether or not illegal aliens could 'sneak' into the health care system." But then you say "I trust that you are not suggesting that it would be wise and cost efficient to set up an elaborate verification system for people who come into use hospital or MD services to make sure that they are illegal. That is simply not a workable solution." So, why are we to eschew an elaborate verification system? Because the House bill "covers the issue," or because the verification system would be unworkable?

Why do you doubt that people would lie to get health insurance? As I have said, I don't care if they get it; I just don't want the President to pretend that they won't get it just because the law says they can't. The law says they can't be here, and yet here they are. Why would a legal provision denying them health insurance be any more effective than the ones denying them entry?

With regard to the public option:

1. Did you try pasting the link into your browser? It isn't a real link. You can't click on it. You have to copy it to the browser's address window. But here it is as a link (I hope).

2. I don't see the inconsistency in my position. The public option is still up for debate, and its form will be relevant to its implications. More important, its implications will probably be too hard for me to fathom even when I know what the law is. I have no idea how the actual carrots and sticks will play out - the system is too complex. But if you tell me that a bill denies a thing to illegal aliens, but does not require that those who seek that thing prove they are not illegal aliens, I'm pretty comfortable with the expectation that illegal aliens will get that thing. One question is hard, the other is easy. I can't answer the hard one. I can answer the easy one. What's the problem?

3. I don't know or care whether the public option issue is "dead." I care about whether the President is lying about it. That's the subject of my posts - the President's credibility. If he were lying about the price of tea in China, in which I have no interest at all, I would still find it noteworthy that he was doing so.

4. I have not said that the pending bills will "force" anyone to do anything. I have said that whether the language "forces" anyone to do anything is irrelevant, because only the effects of the law matter. Thus, for the President to say that the law will not "force" anyone to change their plans, as if that meant that they would not, in fact, end up with changed plans - which is, after all, what they care about - is disingenuous. That's why taunts about finding language that will do X or Y are misdirected. It is precisely the irrelevance of the President's accurate claims that I find telling about his political methods.

5. Of course, BHO knows the difference between overhead and profit, but he saw fit to cite profit as part of the "overhead" that a public option will obviate. If he knows profit isn't overhead, and he lists profit as part of the overhead that makes private insurance bad, what word are we to use for his doing so? "Spin"? "Puffery"? "Sizzle?" I think "lie" is the word we'd be looking for. Don't you?

How can I engage in debate about "Obama's Health Plan." First, he has not spelled it out, so how can I debate it? Second, it provides universal coverage, will not reduce anyone's benefits, and won't raise the deficit. Except for the higher taxes I will pay, which I'd be OK with if he can put a unicorn in every stable, what's not to like? It's a great plan.

I'm dead serious when I say that I don't know what effect the plan actually adopted will have. It's too hard. Like the guys in Plato's cave, I can only look at the shadows on the wall. In this case, those shadows take the form of the President's rhetoric, and I know enough about political rhetoric to know that he is promising things that don't matter. He says I won't be "forced" to change my plan and that illegal aliens "won't" be covered, which means to me that I may find my plan changed as a result of the law, and illegal aliens may very well get coverage by deceitful means (making the deficit claim unreliable). That's precisely why I have been posting about the rhetoric. The substance is too complex for us mere mortals to get. But the lies are pretty easy to spot.

As for your inference that Joe Wilson would not have said what he said to a white man, what would agreeing to that claim change? Would BHO's statements be rendered no longer misleading? Would the public option become more or less a dead issue? Would more or fewer illegals lie to get coverage? Your post started with an ad hominem argument (that my alleged dislike for BHO somehow taints the facts or deductions I have offered), and it ends with one (that alleged racial bias in Joe Wilson's effrontery makes his claim less true). But ad hominem arguments are just a form of genetic fallacy; they have no persuasive force on the merits of the issue. Why would I comment on an irrelevance in discussing a post that protests irrelevance?

Saturday, September 12, 2009

Joe Wilson’s War

Rep. Joe Wilson (R-SC) shouted “You lie” at the President during the latter’s speech to the Congress on Wednesday night. (The President had just said that his healthcare plan would not cover illegal aliens.) Of course, Wilson was right – I’d be hard-pressed to deny that the President lies, having taken that very position on this blog more than once, and I think he was lying in this particular case – but Wilson was also surely out of line to say so then and there.

Gail Collins writes this morning that “just to make sure nobody else ever goes off the rails like this again, the Senate Finance Committee is changing its version of the health care bill from one that does not provide benefits to illegal immigrants to one that absolutely, positively, for sure does not provide benefits to illegal immigrants.” I think that Ms. Collins, funny as ever, has sacrificed truth to accuracy. What really happened is that the Senate Finance Committee is changing its version of the health care bill from one that says it does not provide benefits to illegal immigrants to one that actually does not provide benefits to illegal immigrants.

This little distinction sadly captures the essence of the President’s method. His plan, recall, will not “force” anyone to change their health plans – it will merely result in their having no practical choice but to do so. Likewise, to say that the bill prohibits illegal aliens from getting free healthcare is like saying that our immigration laws prohibit them from being here in the first place. As, of course, they do.

On the merits of the issue, I don’t care. Indeed, I actually prefer illegal aliens’ being covered to my having to prove that I am a citizen. I mean, if healthcare is a universal human right, if we provide it to convicted felons, why on earth should we not provide it to anyone who can figure out how to get to the doctor? If the only effect of the bill is to make illegal aliens the only ones who still use the ER as a primary care center, what’s the point of the exclusion? And if I think that way, can we believe BHO does not think similarly? Which means he’s lying about what the bill does not because he thinks it lacks a flaw that it has, but because that flaw is entirely consistent with his program.

And, as Forest Gump might say, that’s all I have to say about that.

Friday, September 11, 2009

Obama on Healthcare II - More of the same

First, if you are among the hundreds of millions of Americans who already have health insurance through your job, Medicare, Medicaid, or the VA, nothing in this plan will require you or your employer to change the coverage or the doctor you have. Let me repeat this: nothing in our plan requires you to change what you have.

Now, I don’t know how much BHO’s plan will look like Hillary Clinton’s plan, but his speeches are certainly channeling Bill Clinton’s style of dissimulation. No, the President’s plan won't force anyone to lose anything; it will simply make it impossible for a business to remain competitive and continue to provide the plan it is is providing. No coercion there, nosiree.

But by avoiding some of the overhead that gets eaten up at private companies by profits and excessive administrative costs and executive salaries, it could provide a good deal for consumers and would also keep pressure on private insurers to keep their policies affordable and treat their customers better

Are you paying attention? “overhead that gets eaten up at private companies by profits … and executive salaries.” So we are going to have a level playing field after all. The private companies can compete successfully simply by paying their senior executives on the Civil Service scale and paying their shareholders, well, nothing.

Let’s leave aside the fact that the President is lying about the equal playing field. Obviously, an insurer that does not have to pay for its capital or compete for managers – it’s not clear why the public option companies won’t have to pay a lot for competent management, but I guess it’ll be a good place to get your ticket punched on the way to a big salary at a for-real insurance company, if there are any left when the smoke clears – such an insurer can do what it does more cheaply than can a company that actually has to raise capital in the private market and recruit real executives who know something about running an insurance company.

No, let’s leave the nonsense about competition aside. Let’s ignore Mr. Obama’s specious analogy to co-existing public and private educational systems. Let’s focus on the President’s claim that profits are somehow the problem – that the private sector could deliver better health insurance to more people if private companies weren’t saddled with the need to make money. How can the President of the United States of America denounce profits per se – not “windfall profits,” or “gouging” or “profiteering,” but the very essence of free enterprise itself as something Congress should pass a bill to obviate?

When conservatives claim that the President is a leftist – not a liberal, but a leftist – they sound shrill. But what are we to call a man who thinks profit is overhead, or that executive talent grows on trees? These are precisely the things that socialists and communists believe. They believe not only that the profit motive is corrupt – it certainly can be corrupting -but that ipso facto an economy can operate without it, and it is government’s job to see to it that it does.

The President’s speech was downright Orwellian. Not only does his plan do what he says it won’t do – compel businesses (by the gravity of competition rather than the force of law) to drop their private plans in favor of a one-size fits all public plan – but it reveals his complete and frightening alienation from the entrepreneurial model that drives our economy and, by extension, the economies of all of the less entrepreneurial states (read, Canada and Europe) that live off our innovation and hide behind the military shield our wealth supports.