No Prices, No Progress
Single payer makes health care simple, advocates tell us. How cute and charming. And nonsensical--to try to operate without prices.

When I read that under a proposal that draws at least some interest from Minnesota’s Rep. Keith Ellison, "Physicians and other health care staff are reimbursed within 30 days of service ..." my first thought was "And what price do they get reimbursed at?"

Before I clicked through to the original article, I thought “Perhaps it’s some made up price.”

And so I continued reading “ … and that reimbursement would be mandated to be at current pay grade.”

Pay grade? Perhaps Mr. Segal, legislative aide to Rep. John Conyers (D-Mich.) is referring to the Diagnostic Rate Groups (DRGs) used by Medicare. Great. If there’s any government program that is more convoluted and complicated than the internal revenue code, it’s Medicare and its DRGs. Yeah, right. More price-setting by government.

What we have in single-payer systems … or at least any single-payer system that incorporates enough of the population to have market power … is an attempt to allocate resources without prices. When you don’t use prices, you end up—when government is the purchaser—using politics. And with that comes rationing, political favoritism, misplaced priorities (bridges to nowhere), and a host of other ills.

This isn’t to say that that American health care policy is great. It isn’t. Government has too much power. So do corporate HR departments, and “non-profit” hospitals that operate in a quasi-monopolistic environment.

Can the status quo endure for long? I don’t think so. We’re going to complete the government takeover of health care, in which case politics will decide who gets treated, how diseases are treated, and so forth. Or we’re going to make a greater use of prices, in which people actually ask for the price of a treatment, medical providers actually have real prices, and trusted third parties help people decide among options.

For further reading on the topic, I’d recommend three resources. One is The Cure: How Capitalism Can Save American Health Care and Who Killed Health Care? are two great books. Who Killed Health Care? sketches out how the medical industry will have to adapt to greater use of market forces to fulfill its potential. Another resource is the web site State House Call, which focuses on state-level efforts to bring either greater political control or greater freedom to health care.

(First posted at Look True North)

Labels: Health care

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Who Should Control Your Health Care? You or Politicians?

One of the hottest issues of the day is health care. The following commercial is encouraging to anyone who believes in sensible state policy. Why? It's a demonstration that people who understand that markets work are fighting against the lure of government-run health care.






Did I just say "lure of government-run health care?" When you consider the service provide by many government agencies, you have to wonder.

Granted, some private companies in the health care sector leave much to be desired. One reason: they're sheltered from competitive forces through government policies that encourage consolidation and favor everyone but individuals have control over individual lives.

The alternative to government-run health care isn't the status quo. It's the same thing that we use to rely on improvements in most areas of life: consumer control and sovereignty.

The video points out that in Canada, government rations the delivery of health care. Truth be told, there's always going to be rationing in health care--just as there is rationing in the delivery of cars, electronics, food, housing ... just about anything you can name.

In a free society, the price of a good or service serves a rationing function. "Yeah, I'd like that Mustang, but I think I'll stick with my 12-year old Civic." The fact that something is related to health doesn't mean that we should do away with the price mechanism, along with competition among service providers.

If you want to do something about the fact that health care is sometimes--not always--a matter of life and death, the answer is not to turn it completely over to the dictates of planners, but to offer monetary subsidies to the poorest of the poor. For example, we have government hand out food stamps--not force everyone to purchase food through a government-run grocery store.

Let prices work!

For more on the subject, see the National Center for Policy Analysis, Consumers for Health Care Choices, and State House Call.

Labels: Health care

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Moving Towards a Consumer-Driven World.
The era of "organization man" is over as far as employment goes. Its grip over health care is slowly loosening as well, and none to soon.

Here's an article from the vault. As appeared on January 8, 2007

Jury is still out on consumer-driven health care plans

John La Plante


Health care will be one of the leading topics of the new legislative session. Should the session end with Minnesota government taking more responsibility?

Before we enter that debate, I’d like to introduce you to John Goodman, one of the most influential men that you may have never heard of.

Goodman heads the National Center for Policy Analysis (http://www.ncpa.org), a Dallas-based organization that promotes private sector alternatives to government regulations and programs. Over the year, Goodman, who holds a doctorate in economics, has called for changing the way that we finance health care.

He’s had some success in getting federal and state lawmakers to listen. Thanks in part to his work, health savings accounts (HSAs) are taking hold. These tax-favored accounts are coupled with high-deductible insurance policies. Currently, 6 million people have an HSA or similar arrangement. The Washington Post recently called Goodman “the man behind the plans.”

So how does they work?

Goodman’s logic is simple, if not universally accepted. In a normal market, buyers demand increasing quality and decreasing costs. But health care is not a normal market. The person who incurs the expense is not the person who pays for it.

Government agencies pay for half of all healthcare spending. Insurance companies pay for most of the rest. To a substantial degree, employers, not individuals, arrange and pay for insurance.

In recent years, businesses have been dropping coverage. Those that retain it move some of the costs to employees. Even so, most people have little direct incentive to care about the cost of insurance or health care. The subsidies they receive are not obvious to them.

HSAs are part of consumer-driven care, a move to make the costs of insurance and health care are made more transparent to individuals. High-deductible plans force consumers to pay attention to costs. The HSAs, funded by employers and employees, grow over time, cushioning the burden of high deductibles. The HSA is used for routine expenses, while the policy becomes a backstop to catastrophic events.

Where Are We Now?
Have Goodman’s ideas given us lower insurance costs and by extension, increased insurance coverage? The Galen Institute (http://www.galen.org) says the results are positive. “Consumerism is working in the health sector,” writes Grace-Marie Turner, president of the organization.

More than half the individuals purchasing HSA-paired insurance plans were previously uninsured, she says. To counter charges that HSAs appeal only to the young or wealthy, she notes that 40 percent make less than $50,000 a year, and half are over 40 years old.

But not everyone is convinced, with many public policy organizations favoring traditional insurance or a single-payer system. Citizens for Tax Justice (http://www.democracyinaction.org), for example, call HSAs “regressive.” It says that even now people are not using all the balances in their accounts, suggesting that the HSA will become the next tax dodge.

Never mind that today’s employment-based system is already regressive. The value of corporate tax breaks for premium costs increases along with a person’s salary.

Further, having money in a health savings account should be encouraged, not discouraged. Consider, for one thing, that the national average cost of a one-year stay in a nursing home exceeds $70,000. If people can build up substantial reserves in an HSA, that money could play a role in meeting the long-term care crunch.

Citizens for Tax Justice also fears that HSAs "will, over time, encourage healthier and wealthier people to leave the traditional health insurance market, which will make health insurance even less affordable for those at-risk workers and families who really need it."

If Galen’s numbers hold up, HSAs will reach across the economic spectrum. The criticism of HSAs dodges the question of whether today’s low-deductible, employer-selected and purchased insurance should be encouraged as the model, or if it is even sustainable in a global economy.

It has high costs, and not only in finances. It discourages employee mobility, which has economic and personal costs. It also ties a person’s most intimate concerns not only to an insurance company but also to the HR department.

There’s a lot that is right in American health care. There’s also a lot that’s amiss. The direction that health care takes from here depends in part on whether you think people can and should take more control over their lives, or whether that role should be given to corporate or public managers.

It’s human to want it all: excellent care, instant access and little cost. But those objectives must be balanced against each other. How will that be done? I’m casting my lot with Clive Crook, senior editor at The Atlantic. As he put it, consumer-driven health care may be "the least-bad option."

Labels: Health care, Legal-Ledger

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Long-Term Care: Who Needs It? Why Care?
Who needs long-term care? You might, if you live long enough. Current projections are that half of all people who reach 85 years old will require long-term care. Note that the "old old" (80+ years, if I recall correctly) are one of the fastest growing segments of the U.S. population.

If you're decades, even six or more decades from then, you'll have some interest in long-term care, if for no other reason that your tax dollars are going to pay for the LTC. The demand for taxpayer funding of LTC will only go up with time.

Stephen Moses, of the Center for Long-Term Care Reform, Inc., has assembled a resource list of speeches and reports on the topic.

Labels: Health care

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Let's make the costs of health care transparent.
Families USA, a group that advocates for government-run health care, has released a new study on the costs and medical problems of the uninsured.

The lead paragraph of a USA Today article on the subject is stark: "Hospitalized children who lack health insurance are twice as likely to die from their injuries as those with insurance, a new study reports." The implied suggestion is clear: expand government-paid health welfare programs.

Of course, there are alternatives to simply enrolling people in Medicaid, S-CHIP, or any number of government programs. One possibility? Premium supports so that people can buy insurance in the individual market--or what's left of the market, which has been devastated in some states by guaranteed issue, community rating, and excessive mandating of benefits.

At the end of last month, Robert Samuelson wrote a Washington Post op-ed that brings up a key part of any discussion of health care policy. "For decades, Americans have treated health care as if it exists in a separate economic and political world: When people need care, they should get it; costs should remain out of sight."

But due to soaring costs--increases that are driven in large measure because the costs are invisible, even for insurance--the availability of health insurance coverage continues to be a nagging concern.

Samuelson gives credit to President Bush for the effects of his latest proposal, which are to bring the costs of insurance into the open. "

By contrast, the plan of Governor Schwarzenegger (R-California) simply involves cost-shifting. "It's clever," Samuelson says, "but it perpetuates the illusion that health care is cheap."

(Cross-posted from StateHouseCall.org)

Labels: Health care

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Where There's a Healthcare Policy Sickness, There's a Solution. Or Two. Or Three.
One feature of being something of an expert is that you occasionally get unsolicited advice. Sort of like the company that is approached by someone with the newest mousetrap. In my case, it's health care policy.

I haven't written on the subject in a while, but I am listed in a few references, and of course there are some entries on this site on the subject. So last month I received a note for a mish-mash of a universal plan from someone I had never heard of. It looks like he has printed the same note on another blog that permits comments.

I don't have time to give it a review, so I'd say, "Get your own blog, sir." Same to the gentleman who sent me his 4 page proposal (single space, few paragraphs) to me via the USPS.

Labels: Health care

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Your and My Happy Days.
Do we still live in a world of Happy Days?

Public and corporate policy regarding retirement income and health insurance is based on the assumption that people would live in a nuclear family with one breadwinner and one bread baker. The single provider of income would, in turn, work at the same company throughout his working life.

As you know, that’s not exactly what the American society and economy look like today. Last week, the Bureau of Labor Statistics released the latest findings (PDF) of an ongoing project called the National Longitudinal Survey of Youth 1979. (Click here for one newspaper's summary of the findings.)

The study is a survey which tracks the same 10,000 or so Americans over time. The survey found that the average person in this group held 10.5 jobs between the ages of 18 and 40.While people tend to change jobs less frequently as they age, this group had on average two jobs during the age range of 36 to 40—one job every two years! (For what it’s worth, the survey focuses on employers, which means that an initial job, a lateral reassignment and a promotion all count as one job. This means that the survey may actually underestimate job hopping.)

Defined contribution plans, such as 401k(s), are more in tune with this new reality. The old version of Social Security, which worked best when Detroit’s Big 3 defined the world automotive industry, is obsolescent, and should be supplemented (for those who wish) with a 401(k) style plan that involves privately owned accounts.

In our health care approach, many people who lose their job lose their health insurance coverage. Whatever its merits in years past, it’s simply a stupid approach today. There are two alternative ways forward: government-run health care (socialized medicine) and individually-owned insurance.

Corporate policies can and do change, though the old approaches are still propped up by federal laws such as the tax code. Public policies, since they are driven by interest group politics, are slower to change. But as time marches on, we will find that they were designed for a world that, bit by bit, doesn’t exist anymore.

Labels: Health care

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LTC Insurance: A Modest Beginning.
Taxes, and tax credits, provide incentives. But how much incentive is enough?

If you read far into the literature on state finances, or health care, you'll find that the need for long-term care threatens to crowd out every other priority for government spending. Simply put, long-term care is expensive (running well over $50,000 a year for some services). The aging of the population means that more demand for long-term care (including but not limited to nursing homes) is going to rise, and the bulk of LTC spending is paid for by governments.

One way to avoid the budget disaster is for policy makers to do what they can to encourage the purchase of long-term care insurance. Various laws and policies (including a nursing home entitlement) mitigate against that. With premiums for such insurance amounting to thousands of dollars per year (perhaps per month--it's been a while since I have looked at the numbers) and a small industry of lawyers (who can help middle-class people eligible for Medicaid), it's little wonder that the LTC insurance market is stunted.

Offering a tax credit for long-term insurance could, in this light, be a useful means to shift some of the demand for LTC care payments out of the public sector.

Minnesota offers such a tax credit. But it's limited to $100 a year per individual.

That's not much of an incentive, is it?

Labels: Health care, Medicaid

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One of out two?
One out of two is a great batting average--but a horrible statistic if it describes the number of students who enter high school and graduate four years later.

The group Clergy for Educational Options reminds us why a state's poor record (in this case, South Carolina) matters:

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For Immediate Release

June 29, 2006

GRADUATION RATE HANDICAPS STATE PROGRESS
The NBA Finals just concluded and for those of you who care, the Miami Heat beat the Dallas Mavericks in six games. I’m a major fan of the NBA, but didn’t follow the season like I have in years past. But I did watch the finals. And as much as I think I know about basketball, I was somewhat amazed that one of the most dominant players of our time, Shaquille O’Neal, was not in during the final stretches of most games. Shaq, being such a dominant force on the court, would often cause me to forget that Shaq’s free throw percentage was 47% during the regular season and only 37% during the playoffs, knowing this, it’s easy to understand why their coach made that decision – Shaq would have been a handicap to their winning the title.
While I’ve heard numerous excuses as to why Shaq cannot make free throws. However, the fact remains that he cannot get the job done from the free throw line. Consequently, the coach made needed changes to help ensure they accomplished their goal of winning the title.

Unfortunately, the same cannot be said for the “coach” of South Carolina’s education system. Despite another dire report that shows South Carolina graduating only 52.5% of its students, Coach Tenenbaum and her “assistants” refuse to make needed changes to a system that clearly is not producing as it should. Instead, they continue to make excuses, saying it’s not fair to compare states because we have different graduation requirements.

What they refuse to acknowledge is that comparisons are not what matter most – it’s production. In this case, having a system that is producing only one graduate for every two that enter high school is the problem – not the comparison with other states. It’s time for the education establishment to wake up and realize that their excuse making only exacerbates the real problems associated with our low- graduation rate.

Regardless of where we rank nationally, the simple fact is that only 52.5% of our children are graduating. That is a horrendous statistic that cannot be discounted or excused simply because we make our high school students take a 10th grade level exit exam or require that they pass with 24 credits rather than the 20 many other states mandate.

Education and elected officials across South Carolina are doing a disservice to the state by not implementing real reform that will help increase graduation rates.

South Carolina needs to decide how we can better prepare more of our students for college and life beyond high school. That’s the only way South Carolina will better its economy and the quality of life of its citizens. The cost of not graduating more students has a tremendously adverse affect on our state. According to the Education Week report:

FYI: Subcommittee members voted 4-1 to adjourn debate on this bill - which was a procedural move to kill the legislation for this year. Rep. Lewis Vaughn voted against the adjournment motion while Reps. Adam Taylor, Lanny Littlejohn, Jim Battle and Herb Kirsh voted against children, parents and their colleagues by supporting the motion.


Over a lifetime, an 18-year-old who does not complete high school earns about $260,000 less than an individual with a high school diploma, and contributes about $60,000 less in federal and state income taxes. The combined income and tax losses aggregated over one cohort of 18-year-olds who do not complete high school is about $192 billion, or 1.6 percent of the gross domestic product. (Cecilia Elena Rouse, economist, Princeton University)
Individuals with a high school diploma live longer, have better indicators of general health, and are less likely to use publicly financed health-insurance programs than high school dropouts. If the 600,000 18-year-olds who failed to graduate in 2004 had advanced one grade, it would save about $2.3 billion in publicly financed medical care, aggregated over a lifetime. (Peter Muennig, Mailman School of Public Health, Columbia University)
Adults who lack a high school diploma are at greater risk of being on public assistance. If all dropouts receiving assistance had a high school diploma instead, the result would be a total cost savings for federal welfare spending, food stamps, and public housing of $7.9 billion to $10.8 billion a year. (Jane Waldfogel et al., Columbia University School of Social Work)
High school dropouts are far more likely to commit crimes and be incarcerated than those with more education. A 1% increase in the high school completion rate of men ages 20 to 60 would save the United States as much as $1.4 billion a year in reduced costs from crime incurred by victims and society at large. (Enrico Moretti, economist, University of California, Berkeley)

Additionally, the United States Census Bureau estimates that on average, workers with a high school degree earn 30% more than those who drop out of high school and that a worker with a bachelor’s degree earns 72% more than one with only a high school degree. And, according to the National Center for Policy Analysis, college graduate can expect to earn on average $2.1 million in his lifetime, nearly twice as much as a worker with only a high-school diploma.

With only 1 in 2 students graduating in South Carolina, the resulting costs associated with these statistics are staggering. We are clearly doing the state great harm by not implementing programs that can help graduate more students.

School choice is a proven method for accomplishing that goal. It is time to acknowledge that the public school system is not the answer for every child. We must offer children educational alternatives so that their individual needs can be met, leading to a better chance of graduation and a more prosperous life.

Labels: Health care, School choice

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Health Care and Lasik
The theory that giving more weight to individuals in the management of health care spending is a good idea has some support in the history of laser surgery.

In its March 10 editorial, the Wall Street Journal notes what has happened to the price of LASIK, a surgery that helps many people eliminate the need for corrective eyeglasses.

"In early 1999, shortly after LASIK was approved by the FDA, the average price for the procedure was about $2,100 per eye. By the end of last year, it had fallen about 20 percent to $1,687."

The editorial notes that today's "wavefront-guided" LASIK is an advancement over the technology of 1999, which means that the drop in price-for-value is even greater than 20 percent.

By contrast, the Journal notes, per-person spending on health increased from $4,400 to almost $6,300 during the same time.

Unfortunately, the editorial does not specify what percentage of LASIK surgery is paid for out of pocket or through similar arrangements such as HSAs or HRAs. To the extent that traditional insurance covers LASIK, the argument that markets work to contain costs is weaker.

Then again, one company with a national presence has sent me a trifold brochure for LASIK, which promises $0 down and 0 percent interest for 18 months. They also tout "competitive pricing, promotional LASIK financing, as well as the recognition of your HSAs and FSAs."

Labels: Health care

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The Collapse of GM.
The creative destruction of General Motors continues, with news of a dramatic buyout offer to be extended to workers at GM and Delphi.

As you might expect, both the Detroit News and Detroit Free Press are running multiple articles on the recent developments.

What follows is a recap of the stories, with some commentary mixed in. There's not as much commentary as I would like, but here's the quick story: this has been a long-time coming. An oligopoly of employers (GM, Ford, Chrysler) and a monopoly of workers (the UAW) have, over the years, created a business climate that extracted superior returns (wages 69 percent higher than for the average for manufacturing jobs) that could not be sustained. A tax system that favors employer-paid health insurance and defined-benefit pension plans, along with environmental regulations (CAFE) pumped up industry costs. An inflexible labor policy delivered through a union contract lead to the absurdity of the "jobs bank," paying people to not work--and delaying the inevitable contraction of the labor force. Meanwhile, the rise of automotive manufacturing in Japan, Korea, and even Mexico have made the "good old days" of the 1950s unsustainable.

Create destructions, friends. The old regime is being destroyed, the new one is not yet created.


First, the Detroit News.

In Remaking GM: Plan is a bold step to solving Delphi puzzle, Daniel Howes offers praise for the company:

This poster child of automotive ineptitude, if the conventional wisdom is any guide, is doing anything but marking time.

What has the company done right lately? Redo its lineup; sold stakes in foreign companies (presumably to get cash and refocus corporate energy); cut white collar staffing; closed superfluous plants; got the UAW to agree to historic (though modest) concessions on health care, and now, offer a sweeping buyout plan.

Not bad for a bureaucracy derided as congenitally incompetent, unable to change or grasp how quickly the world is moving away from it. These look as much like the actions of a distressed company selling everything that isn't nailed down as they do a stressed company doing what it should have done long ago to fix the business.

He warns that the most dramatic change has yet to occur: a drastic reduction in wages at Delphi, GM's former in-house supplier.

The next [deal] will be bigger, tougher and more wrenching for all sides because they won't be giving away money to go away. They'll be taking money away to stay and do the same work for fewer dollars per hour in a post-bankruptcy Delphi. Big difference.

Automaker's downsizing aims to ensure survival points us to the numbers:

by offering a wide range of retirement and buyout options to its 113,000 hourly workers, GM can now move in earnest toward its goal of cutting 30,000 manufacturing jobs and shutting six assembly plants by 2008.

The plan, which could cost up to $4.6 billion, is a way to reduce costs at GM directly, and indirectly. Directly, by reducing headcount. Indirectly, by freeing up slots that could go to workers at Delphi. GM spun Delphi off a few years ago, but still has some financial obligations as a result.

Delphi showdown threatens gives the backstory alluded to above: it's not just headcount at GM that is the problem, it's the financial situation of its parts supplier. Delphi is in bankruptcy, and wants to cut costs dramatically:

The Troy-based supplier, which filed for bankruptcy in October, contends that the $27-per-hour wages inherited in its 1999 spin-off from GM have put the company at a competitive disadvantage with other U.S. suppliers, where wages are $13-$14 an hour.

Sending some of those jobs back to GM--a possibility in the various agreements to date--would save the company some dough. The GM buyout offer is extended to 13,000 Delphi workers, and 5,000 Delphi workers could "float back" to GM.

Oh yes, be sure to catch the line worker who is holding out for a buyout package of $300,000.

Buyout a mixed deal for UAW looks at the financial and political fallout to the union from industry shrinkage. Active membership is at 600,000, down from a peak of 1.6 million. To borrow an old phrase, what's good for GM is good for the UAW, and union leaders have come to recognize that.

Praise, caution greet deal is a "what do the workers" think piece. It points out that a large buyout could help some laid-off workers regain their status as active workers--though given the huge oversupply of labor, that is a questionable statement.

This article points out that some workers who would retire soon anyway--within 3 years--are going to get a nice bonus:

The chance for workers, on average, to be paid $2,900 a month to stay home and do what they want until they reach the 30-year mark will be attractive to many.

About the offers on the table gives the details:
[The] Special Attrition Program offers $35,000 to anyone who retires with at least 30 years of service.

...

Mutually Satisfactory Retirement : This is for employees at least 50 years old with 10 years or more of credited service.

...
Pre-retirement: A sliding payment scale allows workers with 27, 28 or 29 years of service to retire now and receive a monthly salary (between $2,800 and $2,900) until hitting the 30-year mark, then retiring.

Workers who agree to give up any claim to health care benefits will receive cash payouts. Their pension rights will be unchanged.

10 or more years of service: $140,000
less than 10 years: $70,000

For some workers, this could be a very good deal.


To take the deal or not to take the deal: That is the question is a decent rundown of the choices that workers must face. The offer is very good for those close to retirement. But,

If you can't afford to quit working, you need to decide how much of a risk you're running by staying on the GM/Delphi payroll. If too few of your union brethren and sistren take the incentives to leave, your job could be cut and you'd end up in the jobs bank.

Oh yes, the infamous jobs bank. At least that is due for negotiation when the contract expires next year. Think it will be extended?

The article also points out that some people may have to move to less expensive digs to make the offer work for them. For some, that will be an acceptable choice. Others may take their chances.


Editorial: GM buyouts reduce costs, but more reforms needed says

Give the company credit for offering a generous program to convince workers to leave. ... The United Auto Workers should be grateful for this good-faith gesture by the world's largest automaker. GM and Delphi could have insisted on harsher measures.

The editorial points out that the long-term success of the company depends on adjusting to changes in customer tastes, and changes in the union contract--including, first of all, the jobs bank.


Meanwhile, here's the line up at the Detroit Free Press.

For GM, this is merely a first step, by Tom Walsh, runs with a "take your medicine" approach:

Expensive? Incredibly so. Billions of dollars so far, and the weary GM number crunchers are still counting.

Mind-boggling? Absolutely. Paying an army of healthy workers up to $140,000 apiece to just go away?

Yes, it's expensive, mind-boggling and absolutely necessary if GM, Delphi, the UAW and the rest of Michigan's traditional auto industry are to survive and be relevant.

Susan Tompor, a financial columnist for the paper, says that Choice could be risky:

"The loss of benefits, such as life insurance or health care in retirement, can be huge. Many workers may underestimate how much they're giving up."

True, GM wouldn't offer the deal they didn't think it was a way to save money. Then again, the alternative may be bankruptcy and the voiding of labor contracts. Either way, workers are taking a gamble: will the buy-out sums be good enough to tide them over to another job? Or should they hope that their own jobs will hold out long enough until retirement?

Oh yeah, don't forget that you're going to have to pay taxes on that lump sum--perhaps $40,000. She runs through some of the basics such as return on investment and asking questions about future expenses.

The people with the easiest decision to make may be those near retirement (take the money and run) and younger folks (take the money and retool). It's those with 15-20 years of service who face the most uncertainties. Will the job be there 10 years from now? How difficult will it be to find another job? (Forget getting a job that pays as much).

Worker Reactions: Offers look good takes us through a range of thoughts.

Willie Jenkins, 51, is ready to retire with 30 years of service. He says "This is fantastic. I can't wait to get out!"

Speaking of younger workers who aren't sure what to do, he says "" ... if I were them, I'd take it. Because we just don't know if this place will be here next week, or next year."

No, they certainly don't.

Another worker says "At 55, I'm not ready to retire." Perhaps not--especially with a huge tax bill waiting. Another says "It's hard to give up what you've been doing for a lifetime."

Meet "creative destruction," friends.

Timeline of GM, Delphi's travails offers what you'd expect: when Delphi was spun off from GM, when X number of jobs were eliminated, and so forth.

March 2001: 11,500 jobs.
October 2003: 8,500 jobs.
November 2005: 30,000 jobs.

June 2005: "There is no reason at the present time why Delphi has to seriously consider a bankruptcy." -- Delphi CEO Steve Miller.

October 2005: Delphi files for bankruptcy protection.

Questions and Answers offers a rehash of the details. It points out that the "jobs bank" will still go on. It has to; it's in the contract. If you think about it, buy-outs are also a way of paying people to not work. But they are more rational: they are a recognition that the company can no longer support such a large workforce.

Labels: American automakers, Health care, Pensions

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Power to the People? Another Third Party for Health Care.
Consumer-directed health care, meet HR outsourcing.

Many employers have long since outsourced mundane tasks such as running employee cafeterias, if they ever had one. They are also taking steps away from the role of health care supervisor. That's a good thing: "if my wife is an alcoholic and my daughter wants an abortion, my employer is the last person I would want to know."

So we're seeing the development of consumer-driven health care, in which employers are more likely to give employees a chunk of money and say "there you go, find your own way through the health care market." (Of course this is grossly simplified, but let's keep things short.)

The health care market, of course, is horribly complicated and unlike almost every market out there. An article in Fortune magazine clues us into A New Guide to the Medical Maze. Companies such as Health Advocate, Care Counsel, and Patient Care, which as a Milwaukee Journal-Sentinel profile mentions, "is hired by companies to serve as a patient advocate for employees on health insurance issues." They charge employers up to $4 a month per employee--peanuts, compared with the costs of premiums. The upside to employers? HR staff can distance themselves from employee-insurer disputes.

Good first step. Since these companies are often hired by employers, the financial incentives still favor the employer. Still, the development of companies such as Health Advocate, Care Counsel, and Patient Care is a good move away from the HMO model, with all of its conflicts-of-interest.

While these companies can be compatible with employer-paid and selected health insurance plans, the health care advocacy companies could be useful in a system of consumer-driven health care, which requires greater patient involvement. The advocacy companies can serve as a Consumers Report, a law firm, or both, for consumers.

Labels: Health care

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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.

---
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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Would You Like Health Insurance With That?
Another innovation propelled by the World of Wal-Mart: health insurance at the store.

From today's Wall Street Journal:

Sam's Club, the membership-warehouse division of Wal-Mart Stores Inc., plans to unveil a new health-insurance offering for its customers on Jan. 4, making such a service available in all of its U.S. stores for the first time.

Sam's Club, with nearly 600 U.S. stores, will allow small-business owners with Sam's Club memberships to purchase health-insurance plans for their employees through Salt Lake City-based insurance broker Extend Benefits Group LLC. The coverage is available elsewhere, but Extend Benefits will charge Sam's Club members lower administrative fees: $150 to establish an account instead of $500; and $4 a month for administration rather than $5.

The Journal notes that membership fees make up a substantial portion of Sam's net income, and that this insurance program may help justify higher membership fees. Good for them, perhaps: we need more alternatives for securing insurance. Corporate employment and government programs must not be the only options.

Labels: Health care

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A Dent in Middle-Class Entitlements.
For a look at how government programs can be a moral hazard and crowd out private initiative, look no further than nursing home financing.

Medicaid is perhaps best known as the program for "welfare families," single or divorced mothers of small children. But the single largest category nationally (and in most if not all states) in dollar terms is the adult population that needs long-term care, or colloquially, nursing homes.

Not everyone will need such care in their lifetime. This suggests that it's an unpredictable event (much like the possibility of a man dying at, say, 52), so you'd think there might be a good market for insurance policies.

Not quite. There is a long-term care insurance industry, but it market penetration is rather small--under 10 percent, I believe. (There are lots of numbers I could dig out from the hard drive for this essay, but hey, Christmas is less than a week away and there's a lot of work to do before the end of the year.)

Why is long-term care insurance to infrequently used? One reason is the stumbling of the insurance industry; companies have made some mistakes along the way, leading to some bankruptcies and rather unpopular premium increases.

But a more fundamental reason for the paucity of long term care insurance coverage is the moral hazard: why pay for insurance for an event that government will pay for? That's what takes us back to Medicaid, which funds the majority (again, if you want statistics, look 'em up--perhaps in the archives of this blog) of LTC.

Government funds the majority of long-term care? Isn't Medicaid just a program for the poor? Well, yes and no. There are ways to become poor, such as shifting assets to one's children, and thus qualifying for Medicaid. It's easy to rationalize this move by saying "Hey, I've worked hard all my life, paid my taxes, and I deserve this." And of course, when everyone else is doing it, the rare individual who pays for his own care has little impact on the public fisc.

State government politicians, meanwhile, like to get the feds (that is, people who vote in other states) to pick up as much of the tab as possible. So the last couple of decades have seen a cat and mouse game between federal and state officials, as one rule change in DC is met with new accounting gimmicks in the states.

Today, the Wall Street Journal (link for subscribers) says that the Washington branch of the political family is thinking of changing the rules again.

Now Congress wants to make it harder for some people who do have assets to get Medicaid to pay their nursing-home bills. The changes, already approved by the House and now before the Senate, would:

- Force people who transfer assets to wait awhile before Medicaid will cover their nursing-home care.

- Bar a person with equity in a home of more than $500,000 from Medicaid coverage. States can raise the limit to $750,000. Currently, in most cases, a person can own a home of any value and still have their nursing-home bills covered.

- Require states to look for inappropriate asset transfers during the five years before a Medicaid application, instead of the current three years.

- Classify certain annuities as assets that trigger the waiting period; annuities sometimes are used to turn large assets into small, Medicaid-friendly payouts.


All good measures, with this goal: "The changes could force the elderly and their caretakers to manage their funds more cautiously, perhaps by encouraging people with means to buy long-term-care insurance or to use the equity in their homes to pay nursing-home bills."

There's no easy way out of the LTC mess. Though technology can help (in-home monitors and the like), good long-term care is by nature labor intensive, which means expensive. Thanks to advances in science and medicine, as well as rising incomes, people are living longer. That's all good.

Demographic and lifestyle patterns have been changing for decades, changes that signal an increasing reliance on paid help. Women, historically the providers of LTC to family members, are overwhelmingly in the paid workforce, often unable to do much to help. Children from a family scatter across the country, making it hard for family members to pitch in together to help mom and pop. So the use of paid help, whether inside a nursing home or out, funded by insurance or by taxpayers, has increased, and will continue to increase, especially given that the "old old" (over 80 years) group is the fastest growing part of the U.S. population.

The ideal solution might be the development of a strong, vigorous, widely-bought-into market for long-term care insurance. But getting there requires dealing with a knot of problems across several policy issues, including regular health insurance and the federal tax code.

By contrast, reforming k-12 education to promote achievement, cost containment, and consumer choice looks easy.

Labels: Health care, Medicaid

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A New Resource for Health Care Policy Improvements.
Reform in health insurance policy and thinking is slowly coming, helped by a new organization.

Insurance by its nature means relying on a third party to pay some of your bills. But within the current policy framework, many other parties are involved: government regulators, politicians currying favor with patient groups and medical professionals, and HR departments who are looking for a way to save a buck or two on insurance costs.

Little if any of this is good for the individual consumer. Consumers for Health Care Choices
is one group pointing the way to a more sound approach in health care.

The group is off to a promising start with several issue papers.

Labels: Health care

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Vote for Me! I Expanded Welfare!
Does a pro-welfare stance win re-election campaigns? Some governors seem to think so. At least that's the argument that Merrill Matthews makes in an USA Today op-ed.

Matthews gives examples of a Democratic, Independent, and Republican governor who tout their expansion of Medicaid, the government-financed health care system.

"Ironically, for the past decade," he notes, "most governors have been trying to get people off the welfare rolls and into productive private-sector jobs. So why isn't the goal to get people off the Medicaid rolls and into private-sector insurance?"

Both welfare and Medicaid involve taxing some people go give to others. Yet Medicaid has avoided the stigma that propelled welfare into reform. (Welfare reform's effects have been oversold, but that's a story for another day).

As Matthews points out, welfare reform imposed a work requirement, as well as proceeded with a philosophy that people would make a transition to the private sector (in this case, work). But with Medicaid, there is not (yet) an expectation that people will transfer back to the private sector.

Of course, some people--the frail elderly who make up the bulk of Medicaid's expenses--cannot resume work. But there is still room within what we might some day call Medicaid reform, for private sector features. One way would be to convert money spent on Medicaid enrollees into cash payments that would then be used to purchase insurance in the private market, perhaps combined with a health savings account.

The welfare component would still be there--we are still talking about taxing some and giving to others, after all. But there are advantages--Matthews simply lacked the space to talk about them--of making the program more voucher-like.

Labels: Health care, Medicaid

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Bribe Me to Be Stupid?
Health insurance, pensions, and Social Security all three major problems in public policy today. And all three carry a common thread, according to two short letters in today's Wall Street Journal.

According to the first writer, defined benefit plans are inherently unstable:

Arthur Levitt Jr. calls for "accuracy, transparency and accountability" in pension accounting and reform of "the regulatory incentives and accounting rules that encourage employers to make, and employees to accept, promises that can't be kept" ("Pensions Unplugged," editorial page, Nov. 10).

"Promises that can't be kept" are inherent in defined-benefit plans, which call for payments in the never-never, not the here and now. Instead of trying to fix defined-benefit plans, we should encourage defined-contribution plans, where contributions are made in the here and now. There is no "promise that can't be kept." There is no promise at all. The employer has no pension assets or liabilities. The employee does not look to his employer for his pension. He looks to a company in the business of administering money, not making cars or running an airline. Ideally, the account is portable, meaning the employee owns it, and the plan may give the employee broad-brush authority to allocate assets.

Universities provide portable, defined-contribution pensions through TIAA-CREF. Yet professors, many with seven-figure accounts, tend to favor a political party that opposes the same arrangement for Social Security. That opposition would presumably extend to pensions for auto and airline workers. The university elite may not consider free choice and the assumption of responsibility appropriate for those less gifted. Worse, portable defined-benefit pensions might turn workers into capitalists. How shocking.

S. Paul Posner
New York

And the second reminds us of the values of diversification--something that is actually discouraged by current tax laws.

Mr. Levitt outlines serious problems in both private and public employee pension plans, but his proposals are palliatives that miss the main point.

Any Wall Street Journal reader knows the need to diversify asset holdings, yet almost all of us rely on a single provider, our employer, for our wages, health care and pensions. (Even if employees directly contribute much of the funding, the employer usually is or selects the manager.) Why do we do that? Because our tax structure -- in which employers deduct benefit costs when paid and employees receive benefits tax free or tax delayed until retirement -- bribes us to be stupid.

No amount of regulation, especially by a federal government whose Social Security and Medicare benefit promises are far more unfunded than almost anything in the private or state and local government sectors, can be a true fix. The true solution is tax reform that removes the stupidity bribe and encourages people to provide for their own retirement and health care, either individually or in groups not connected with their employer.

Roger Nils Folsom
Professor Emeritus of Economics
San Jose State University
San Jose, Calif.

The common thread? Employer-based provision of a person's health and welfare.

Labels: Health care, Pensions

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Is There Hope for Michigan and Detroit?
Detroit, and to some extent, Michigan, has been in trouble for quite a while. Is it going to have to get worse before it gets better?

Though the auto industry is not as important to the state and metro region as it used to be, it's still a player. But the prospect for long-term success is challenging, at best.

Auto manufacturing is a mature industry; cars can be made in a lot of different countries, many times at a lower cost than in the U.S.

Costs for retirement and health benefits (and health benefits for retirees) are a significant burden on companies in the industry. If you want to look at the problems caused by third-party payment of health insurance costs, look no further.

The recent bankruptcy of auto supplier Delphi (a company spun off a few years ago by GM, in an attempt to get out from under some of the heavy legacy costs) suggests that current and former workers may have some "downshifting" to do in expectations for pay and benefits.

Who or what is responsible for the mess? There are a lot of possibilities, most of which can be lumped under "stupid management" and "overly generous union contracts." Don't forget federal tax and regulatory policy, which encouraged the third-party payer system for health insurance and the defined benefit approach for retirement planning. Add in environmental and safety regulations that drive up the price of vehicles, encouraging people to delay purchases. Subtract the benefit of those regulations, which raise the barrier to entry from other countries. (Companies in India can make autos, but they won't pass U.S. legal requirements.)

How lawmakers and the public respond to these problems will affect the state and region for years to come. The Democratic governor has dabbled in economic development fads such as "Cool Cities," and her Republican predecessor spent the latter part of his 12-year tenure plumping for government-directed economic development projects. Neither approach is promising.

Unions, of course, are important in the political system of the state, and not just unions in the auto industry. Include the MEA (the teachers union) and other government employee unions, and you've got a lot of people who have an incentive to lobby for traditional policies that may have worked for a while, but cannot last in an increasingly competitive economy. But the pressure for continued dependence and expansion of the regulatory, welfare, government-influenced economy is likely to continue if not increase.

The Rust Belt may rust some more--as has happened in upper New York State. I fear it's going to get worse before it gets better. Old ways of thinking die hard.

Labels: American automakers, Cool cities fad, Health care, Pensions

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Will Medicaid Embrace Consumer Savings Accounts?
Market-oriented policy geeks call for Medicaid to use health savings accounts. The program would move in that direction under legislation introduced in Congress.

Writing in a newsletter of the Consumer Power Report of the group Consumers for Health Care Choices, David Hogberg explains the Medicaid Health Opportunity Account Act of 2005.

The bill lets states set up "health opportunity accounts," much like Health Savings Accounts. The federal government would match state contributions to the accounts, up to $2,500 per adult and $1,000 per child. States could use these accounts for targeted populations, so it's unlikely that they would be applied to everyone in Medicaid.

Money in the accounts would be used only for health care expenses. But as an incentive to move beyond poverty, if the person who holds the HOA earns too much money to qualify for Medicaid, the funds can be used to purchase a health insurance, college classes, or job training.

Unfortunately, the bill also contains several measures that, as Hogberg puts it, "insulate health insurance providers from competition."

Labels: Health care, Medicaid

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Quote of the Day.
"This doesn't lower costs; it just shifts the cost from government onto people. That doesn't solve anything." -- Sen. Chris Steineger, D-Kansas City.

Steineger was referring to promoting the private purchase of long-term care insurance and clamping down on Medicaid scheming, whereby wealthy individuals artificially impoverish themselves in order to get taxpayers to pick up the tab for their nursing home stays.

It "doesn't solve anything," ignores at least two simple questions: Is socialized medicine the best path as long as it applies to nursing home care, especially if it means that people of modest incomes subsidize those better off? And if you're an advocate of taxpayer-funded health care for the poor, why would you endorse rules and an ethic that winks and nods at efforts to game the system out of money that could be going to the truly poor?

Labels: Health care, Medicaid

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Pound the Treadmill, Get a Discount.
The discounts-for-healthy-living model is finally moving to the public sector.

Life and health insurance companies typically give discounted premiums for non-smokers. Some health insurance companies provide discounts or subsidies for people who regularly hit the gym.

The public sector is picking up on this model. There's a proposal floating for Michigan's Medicaid program. Follow state requirements to quite smoking, keep doctor's appointments or lose weight, and enjoy reduced copay requirements (which are minimal to begin with) or expanded benefits.

Predictably, some folks play the class card. A spokesman for the "Michigan League for Human Services," writes the Detroit News, "said the plan is unfair because unhealthy behavior is a societal problem and this approach singles out the poor."

But people in the optional population of Medicaid--where the proposal would be applied--are already "singled out" by virtue of their relying on government funds. As the legislative author of the proposal points out, people on Medicaid smoke more and are in general more overweight than the general population. The plan, then, is a way to control cost increases, conceivably allowing for more people to enroll. At the least, the plan offers the idea of incentives to a population that has so far received services with nothing at stake.

Labels: Health care, Medicaid

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Consumers of Health Care, Unite.
One of the leading lights of public policy when it comes to health care reform has a new organization.

Greg Scandlen, former analyst at various organizations, has struck out on his own with Consumers for Health Care Choices.

The 501(c)4 organization describes itself as a "not-for-profit grass roots organization that represents the views of the health care consumer to policy makers and industry leadership." It advocates defined-contribution benefits, health savings accounts, and basic (minimal mandate) insurance.

Labels: Health care

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Federal Legislation to Promote Health Insurance Affordability.
Three reform bills being floated in Congress are steps in the direction of making health insurance affordable and equitable. Three analysts for the Heritage Foundation call the proposals A Good Start.

A first proposal will "enable small businesses to band together through trade associations to purchase coverage for their employees" through Association Health Plans. It is a small step towards reducing the disadvantage faced by employees of small businesses, compared with people who work for large corporations. One weakness of the bill: it merely extends the employment-based system of insurance, which has its own problems.

A second proposal would effectively create a national market for health insurance. People could shop around in a large market for the policy that fits their needs. It also promises larger pools of insured individuals. Here's how it would work: each company selling insurance would be subject to state regulation (as is the case now), but it could sell policies across state lines. Like the legislation dealing with Association Health Plans, this bill would help close the gap between large company and small company employees. It would also promote competition and consumer choice: if you don’t like the policies issued in your own state, you can find one issued elsewhere. (Some basic regulations would still be applied by the state in which you live, even to policies sold from out-of-state.)

The third proposal sends more federal money to states so that they can create high-risk insurance pools for people who currently have a hard time finding an underwriter. This is fine as far as it goes, though it also risks creating incentives for states to shift their costs to the federal government and not making their own reforms or paying their own bills.

Finally, Edmund F. Haislmaier, Robert E. Moffit, Ph.D., and Nina Owcharenko, authors of the report, call for ending the discrepancy between employer-paid insurance and individual-paid insurance through extending insurance-based tax breaks to individuals. The current approach, which gives you a tax break only when you buy a policy through your employers, favors employees of large companies over employees of small companies, the occasionally employed, and everyone else.

Favoring the employment-based approach to insurance locks too many people into their current jobs (think of people who stick with a job only because of the insurance coverage it offers). Locking people into one employer’s coverage raises privacy concerns, introduces a third party (the HR department) into personal decisions, limits personal choice (what does your employer offer?), and promotes a mismatch between people and jobs. Further, the tax breaks are regressive, meaning that their benefits actually increase as personal income goes up.

For a few folks, the siren song of involuntary, politically-driven insurance--socialized medicine--is still alluring. But the problems in health care are not too little government, but too little competition. The proposals outlined in this report point in the right direction.

Labels: Health care

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The Fee, Not Tax Follies.
Numerous other bloggers have commented on the missteps of Governor Tim Pawlenty (R-Minnesota). (A spot-on essay, plus a link to many other commentator, can be found here.)

There are two things to say about this in the context of public policy:
1. Taxes are taxes are taxes. As I argued in a piece for the Mackinac Center for Public Policy, tax increases, even cigarette taxes, destroy jobs--jobs that might be used to, well, pay more in taxes. (The Mackinac Center has an updated critique of Michigan's "tax patch," emphasizing the danger to public safety from cigarette smuggling, made profitable by pumping up the cigarette tax.

2. By insisting on calling the tax a fee, Pawlenty breeds cynicism. In the eyes of some observers, increased cynicism may be a good thing for advocates of effective but limited government: if people think that all politicians are flim-flammers, it makes it more unlikely that the public will be willing to accept new government-directed responses to public issues (think HillaryCare, for example).

Fine. It may be the case that cynicism will deter the development of new programs. But the cause of effective-but-limited government cannot proceed unless some significant reforms are made. Three looming problems are health care (health care costs, and Medicare in particular, is the 800 pound gorilla that will squash everyone), education (where we must deal with an unacceptably lousy system in k-12) and retirement planning (Social Security's going to implode).

Implementing meaningful and liberty-enhancing changes to respond to these policy challenges will require straight-shooting politicians whose word can be trusted. Why? Each of the policy areas I've mentioned require significant departures -- departures that many people will find scary -- from the status quo. Shop on your own for insurance? Subject k-12 schools to the competitive marketplace? Do away with the "secure" benefits of the Social Security system as we know it? In each case, known but fatally flawed models must be replaced by approaches that promise superior performance, and (this is where politicians come in) uncertainty.

So what does reforming health care, improving K-12 education, and re-doing our approach to retirement planning have to do with one broken (excuse me, allegedly broken pledge) have to do with Governor Pawlenty? Plenty. While the Minnesota executive doesn't have much to do with the solution to any of these problems, his example, if followed by others in office, will harm prospects of reform.

Pawlenty drew a line in the sand: no new taxes. After two years of standing firm, he blinked. He could have made an honest appeal to voters: "I've changed my mind," perhaps, "and here's why." Or maybe "My hand was forced by the opposition," might have worked for some people. Whatever.

But when politicians respond to critics with "this isn't a tax" and "I don't care what you call it, I call it a solution" can only encourage the kind of cynicism that will doom necessary reforms.

Labels: Health care

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Small Business Owners for Government-Oriented Solutions
A long-standing error of Marxist thought, that lives on today, is that economic interests drive views on politics and policy. This is even seen in the one group that is widely thought to be anti-government, small business.

The National Federation of Independent Businesses can be counted on to oppose higher minimum wages, laws that require employee-paid health insurance, or otherwise increase the role of governments at all levels.

On the other hand, the American Small Business Alliance takes a different approach. It favors, for example, "reasonable health, safety and environmental standards" and "balanced solutions on other issues such as taxes and regulatory reform."

Well, that sounds fine. But as this profile notes, the ASBA supports the Family Leave Act, increases in the minimum wage, shills for government loans to business (something not exactly pushed by the NFIB.)

Now I haven't done a thorough reading of ASBA's history or positions--their web site is sparse--but its criticism of NFIB as "a tool" for "the right wing of the Republican Party" (Fortune, June 2005) suggests that even among small business owners, economic interests alone are not entirely reliable predictors of preferences.

Labels: Health care

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Health: A New Blog for Insurance Policy.
One great thing about blog publishing: it's an easy way for people to offer information and analysis on the most specialized of topics, including individual health insurance. While most people rely on group coverage, individual decision-making in insurance won't be so esoteric for much longer.

Increasingly, families and individuals will make their own decisions on health care, and health insurance, and rely less on the choice of employers. We've seen that move towards consumer freedom and responsibility in retirement planning, with the move from defined benefit pension plans to defined contribution 401(k)s and IRAs.

Coming up: consumer-directed health care, in people take a more active role in selecting health insurance policies and making treatment plans. One avenue for that direction is the advent of health savings accounts (HSAs). The Individual Health Insurance blog is fairly new, and so far focuses on providing links to news reports dealing with the rollout of HSAs.

Labels: Health care

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Pope John Paul II on Economic Freedom.
While John Paul II may go down in history as the pope who helped end communism, his scholarship was significant as well. In particular, his seminal work on economics, the encyclical Centesimus Annus, is worth looking at.

Here are some excerpts of that teaching, which is about anthropology and theology as much as it is economics. The arabic numbers reflect the paragraph numbers of the original.

It is best to think of this as a compilation of discrete thoughts, since as a whole it may not flow very well. In addition, the text has been strongly edited, taking the first few words of one sentence and then skipping to the end of a sentence four sentences away, skipping three in between. Some sentences that appear to be a single sentence may have been two or three in the original. Still, the excerpting was done with a desire to not distort the meaning of the original.

The watchword of the blogosphere applies--"read the whole thing." But since the whole thing is rouhgly 50 pages (12 point font), few people will actually do that. In this case, excerpts are better than nothing.

4. Toward the end of the last century the labor became a commodity to be freely bought and sold on the market, its price determined by the law of supply and demand without taking into account the bare minimum required for the support of the individual and his family.

The prevailing political theory of the time sought to promote total economic freedom by appropriate laws or, conversely, by a deliberate lack of any intervention.

5. The pope and the church with him were confronted, as was the civil community, by a society which was torn by a conflict … between capital and labor.

As in the days of Pope Leo XIII … ideologies are being increasingly discredited. Now, as then, we need to repeat that there can be no genuine solution of the "social question" apart from the Gospel …

7. … Pope Leo XIII's encyclical also affirms … is the "natural human right" to form … trade unions: … because the right of association is a natural right of the human being.

… The encyclical affirms … the right to legitimate rest, and the right of children and women [21] to be treated differently with regard to the type and duration of the work.

8. The pope immediately adds … the right to a "just wage," which cannot be left to the "free consent of the parties … A workman's wages should be sufficient to enable him to support himself, his wife and his children.

9. Pope Leo … affirms the need for Sunday rest so that people may turn their thoughts to heavenly things and to the worship which they owe to almighty God.

One may ask whether existing laws and the practice of industrialized societies effectively ensure in our own day the exercise of this basic right to Sunday rest.

10…. Rerum Novarum" criticizes … socialism and liberalism. … … . The richer class has many ways of shielding itself and stands less in need of help from the state whereas the mass of the poor have no resources of their own to fall back on and must chiefly depend on the assistance of the state. It is for this reason that wage earners, since they mostly belong to the latter class, should be specially cared for and protected by the government." [33]

What we nowadays call the principle of solidarity … is … one of the fundamental principles of the Christian view of social and political organization.

11. … Pope Leo's encyclical on the "condition of the workers" is … on the poor and on the terrible conditions to which the new and often violent process of industrialization had reduced great multitudes of people. Today in many parts of the world similar processes of economic, social and political transformation are creating the same evils.

This should not however lead us to think that Pope Leo expected the state to solve every social problem. … inasmuch as the individual, the family and society are prior to the state and inasmuch as the state exists in order to protect their rights and not stifle them. [37]

Beyond the rights which man acquires by his own work, there exist rights which … flow from his essential dignity as person.

CHAPTER 2
Toward the "New Things" of Today

12. Socialism is … a solutio