Everybody's Liable.
Populism + insatiable appetite for taxes + war on drugs = another lawsuit?

Even though Because they produce life-saving and life-enhancing products, pharmaceutical companies are subject to theft in the imagination if not in fact. Consumers complain about the high prices of medications, as if their importance meant that they should come free of charge.

Of course, we do find a way to make them "free" -- turn to government to pay for it. That's one reason for the origin of the prescription drug program that, as structured, will further add to the woes of Medicare.

Since government funding of anything reduces increases the demand for the product (people buy more of anything if it is "free" or at a low cost--witness $2, 10 pound jars of pickles at Sam's Club), the bill due soars. As a result, politicians scramble to find ways to pay for the increased demand.

A parallel development is the so-called war on drugs, which puts the screws on one drug (say, pot), leading to people seeking out other substances. The drug of choice these days is meth, which is derived from commonly found products.

A variety of factors--the need for more money, policy making by lawsuit, the demonization of the drug industry, and the war on drugs, legal and illegal, not to mention political ambition from an Aspiring Governor--are coming together in plans for a lawsuit against drug companies announced by Minnesota's AG, Mike Hatch.

First it was tobacco. Then handguns. And now, pseudophed.

Hatch said he plans to sue giant international drugmakers such as Pfizer and Merck on grounds that they long have known that large quantities of their legal products have been diverted to illegal meth labs, spurring an epidemic of addiction, crime and shattered lives across America.

Hat tip to the Cake Eater Chronicles, which has more excerpts from the Minneapolis Star-Tribune article on the subject.

UPDATE: Thanks to reader JS for pointing out the misplaced word, since corrected. Fingers. Faster. Mind. Or something. (permalink)

Dull But Serious
Medicaid versus Medicare: do you know the difference?

Both are facing dismal fiscal futures. And while the federal government is involved in both, states have little to do with Medicare, and much to do with Medicaid. An article in today's Wall Street Journal (link for subscribers) lays out the scene:

With Medicaid costs now consuming about 17% of state general-fund budgets, and rising at more than twice the rate of inflation, state governments are scouring the health program for savings to protect their bottom lines.


To date, efforts to bring about cost control have consisted of cutting enrollment, and cutting payments to health care providers. The first route has some merit, as increasing enrollment through liberal entitlement guidelines can squeeze out the demand for private sector insurance, leading to an increased demand for government payments. The second route, cutting payments to providers, makes those on the dole rather unattractive customers--not exactly a way to promote public health.

The WSJ article mentions the goings-on in Missouri, which has made it more difficult for people to qualify for Medicaid. It used to be that a 3 person family had to have a household income of no more than $12,067 to qualify. Now the number is $3,504. Such moves have been, and will be, politically unsustainable. Even most ardent advocates of small government would be appalled at such a move. The problem with Medicaid goes far beyond households with $13,000 incomes getting benefits. The whole logic of third-party control, evidenced not only in Medicaid but in corporate America, needs to change.

Even if you've never taken a dime of Medicaid money in your life, the fiscal challenges of the program (or rather, programs: each state does it differently) will affect you. Your level of taxes and what other programs are funded are affected by Medicaid. In addition, changes in the operation of Medicaid can ripple throughout the economy. The ideas being floated in a few states to use vouchers could further accelerate a move towards consumer-directed health care. The net result will be good: why should you lose or change your insurance when you move to a new job?

The largest problem with Medicaid is the fact that is has become an accepted case of middle-class welfare for people who need long-term care.

"Changes aimed at low-income individuals may not deal with the biggest driver of Medicaid costs: long-term care for a relatively small number of elderly and disabled beneficiaries. About 4% of Medicaid recipients account for half the program's expenditures, according to the Kaiser Family Foundation."


With the enormous cohort known as the baby boom entering the years of retirement and increased needs for care, the problem is going to get worse before it gets better.

Labels: Health care, Medicaid

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Retirement and Health Care Plans: At a Tipping Point Towards Individual Control?
The era of Big Employer and Big Daddy is coming to an end--or perhaps just ramping up.

Unless you are living in a cardboard box, you probably have some combination of the following: homeowners insurance, renters insurance, and auto insurance. And you most likely bought them in the private market, on your own, and not through a government program or an employer. Having such insurance is either can, in addition to being good financial sense, be a requirement of a third party in the private sector (the company, if any, that holds the loan on your house or car.) Government gets involved when you wish to drive that car on public roads, when it requires auto insurance. But it does not tell you where to buy that insurance, or (beyond what is usually a minimal amount) how much to buy.

If you have children, minor children, you may be stashing away some money for their college education--again, probably not through your employer, though perhaps through a voluntarily entered-into government program known as a 529 plan.

What do auto insurance, homeowners insurance, and saving for college have in common? Planning for possible expenses incurred in the future, which is for the most part undertaken by the individual.

Now think about the two fiscal timebombs that threaten the economy: retirement savings and health care.

Here we have the heavy involvement of government and private sector third parties. Call the first the Big Daddy approach, and the other the Big Employer approach.

In retirement planning, each worker must surrender one dollar out of 7 to a government-designed, managed, and run program that will run out of money within a decade or so. In health care, Medicare (old people) and Medicaid (poor and perhaps not so old people) threaten federal and state budgets.

One theme common to these programs, and problems: individual citizens have no say in what goes on. Your social security "account" is not your property, and its "tax Peter to cut a check to Paul's grandmother" model robs citizens of thousands of dollars that would come from true investment accounts. In health care, why should anyone in a government program be a smart consumer of health care? It isn't there money, after all. And without having control over the power of the purse, they often get poor quality. (Ask your doctor: would he prefer to be a Medicaid patient?)

But it isn't only government that separates people from responsibility, power, and potential rewards of individual planning for the future. World War II-era compensation policy works the same way. If government is

Because government can't "go broke" in the same way that corporations can and do, the unsustainable nature of the Bigs will cause changes in Big Employer long before it brings changes in Big Daddy.

Companies have already started dumping traditional pension plans ("defined benefit") in which the risk and rewards of planning for retirement rest with the employer. In "defined contribution" plans, such as 401(k)s, people choose how much of their compensation goes into retirement funding, and how that money will be invested--far different from defined benefit.

More recently, but still in its early stage, is a move towards consumer-directed health care. In the purest form of consumer-directed care (not in place in many places if at all), companies give the cash value of insurance to employees and say "Good luck, boys. Go find your own insurance." There are several obstacles in that path, including the federal tax code and government regulations of insurance plans.

All this comes to mind as I watch the changes afflicting this country's Big Employers from the World War II. "Organization Man" has long since left the psyche of the American worker, and his compensation policy--someone else plans for retirement and health care as well--is changing as well.

Thanks to the problem of moral hazard, employers are dumping pension obligations on you and me, federal taxpayers, in the form of the Pension Benefit Guarantee Corporation, through the bankruptcy code. And corporate health care plans, in which employees have little stake, are being scaled back.

Simply put, government and corporate policy have for a long time fostered a corporate cost structure (and government cost structure) that cannot be sustained any longer.

Steel companies got out of this structure through the bankruptcy court. Airlines are going through it now. Many people speculate that the "Big 3" (now Big 2) auto makers will go next. (Contracts between the UAW and GM, Ford, and Chrysler have long been the exemplar of Big Employer benefits.)

The Wall Street Journal has a fine article on the subject today (link for subscribers).

Excerpts:
A larger number of companies are closing pension plans to new hires or to younger workers, including Motorola Inc., Lockheed Martin Corp., Hewlett-Packard Co., Aon Corp. and NCR Corp. Many have, at the same time, expanded defined-contribution retirement plans, such as 401(k) plans. In such plans, employees themselves contribute to retirement investment pools -- often supplemented by employer contributions -- and elect how to invest these savings. Employees, not employers, bear the risk of inflation, sour markets or outliving their savings. Total assets in private-sector defined-contribution plans first exceeded those of defined-benefit plans in 1997.

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When they were very profitable, companies with stable, often unionized, work forces promised pensions. When markets turned, it became clear that some hadn't set aside enough money to fulfill those promises.


Detroit got away with this practice for years because of the near-lock that an oligopolistic industry had on the U.S. market. But the manufacture of automobiles is no something that the U.S. has an overwhelming advantage in, and consumers enjoy having the choices and quality available elsewhere.

The adjustments will be brutal.

Meanwhile, GM Chairman Rick Wagoner hints at an endorsement of socialized medicine, suggesting that Toyota and such have an advantage because they don't have to pay for health insurance. But this is self-serving verbiage. It's not just the Big 2 that compete against companies based in countries where the taxpayers as a whole assume the burden of health care for their employees. But the Big 2 were part of a small portion of U.S. companies that pursued an unsustainable labor policy for decades on end. (The Journal article makes no mention of this point, and gives great credence to Wagoner's remarks.)

Meanwhile, the U.S. Congress is set to make things worse when it comes to retirement, by increasing the moral hazard:

"Congress currently is contemplating contentious legislation to force some companies, particularly financially weak ones, to put more money aside for defined-benefit pensions and to pay more to support the PBGC."

Labels: Health care, Medicaid, Pensions

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If it Saves One Life ...
How many times has that question be used to justify another law or regulation, usually resulting in unintended consequences?

I thought of that upon reading the sad story of a golfer who died recently. Not because of lightning, or even being hit by an errant tee shot. Nope, a Georgia man died of head injuries after he fell out of a golf cart that his son was driving. Will we soon hear someone call for seat belts on golf carts?

No word on whether alcohol was involved, but given that the accident occurred near the first hole, that's unlikely.

Labels: Golf

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