Thursday, October 22, 2009

Put your money where your mouth is

Here's a challenge for anyone who believes the President when he says that "I will not sign a plan that adds one dime to our deficits either now or in the future. Period."

I'm not usually a betting man. I'm on record pointing out what a ripoff the lottery is, not like that's news to anyone. Casinos have no appeal to me. But I do like a sure win. So I propose a friendly wager over Obama's promise that Obamacare will not add one dime to the deficit. If you have the courage to back up your blind faith, match my $500. We'll find someone mutually acceptable to hold the money, and the winner can designate the $1,000 plus interest to the charity of his choice. When I win, I'll select Samaritan's Purse to receive the money.

I've discussed what it means to not add to the deficit, so if you want to understand the thinking behind the metric, read my last few entries, particularly this one.

Here are the terms:

If Obama vetoes the health care reform bill citing the fact that it is not deficit-neutral as the reason, and does not sign any health care reform bill, I will concede the bet.

If Congress does not pass a health care reform bill in 2009 or 2010, the wager is off and each person gets their money back.

If Congress passes a health care reform bill and Obama signs it, we will compute the per-capita health care contribution to the deficit in 2009 dollars for 2009 and for each of the first 5 years that Obamacare is fully enacted. Most of the proposed bills require about two years to take affect, so the years we would consider would be 2012-2016.

Given these inputs:

MedicalCosts(year) = Total actual Federal expenditures for the specified year, for all health-care programs, including Medicare, CHIPS, VA medical program, Medicaid, HHS, Obamacare, etc.

MedicalTaxes(year) = Total actual Federal tax revenue for the specified year levied specifically for medical programs, including Medicare payroll taxes, and all taxes included in the Obamacare bill

CPI(year) = Consumer Price Index, a measure of inflation, from July 1 of the specified year

Population(year) = Total population of the United States for the given year, according to the Census Bureau

For each year we would compute

RealPerCapitaDeficit(year) = CPI(2009)*(MedicalCosts(year)-MedicalTaxes(year))/

If the real per capita deficit is higher in any of those five years than it was in 2009, I win. If not, you win.

The $1,000 with interest will be given in the winner's name to the charity of his choice.

I almost feel bad about taking advantage of fools, but they seem to want it so badly.

Friday, October 09, 2009

Already a mockery

Today's London Times declares that the awarding of the Nobel Peace Prize to BO makes a mockery of the Nobel Prize. They have a point. The cutoff for nominations for this year's awards was February 1, at which point BO had occupied the White House for less than two weeks. Thus it seems that the very act of campaigning, reading soaring oratory from a teleprompter, being successful enough at self promotion to get elected, surviving the horrific poetry readings at the inauguration, and unpacking his stuff in the White House was enough to merit the Nobel Peace Prize. In the few months since then, he has talked about closing Gitmo, sent more troops to Afghanistan, ignored Iraq, given wimpy speeches around the world apologizing for America, thrown our closest allies under the bus, overlooked threats from Iran and North Korea, hobnobbed with dictators, bowed to the Saudi prince, declared America to be one of the biggest Muslim nations, and capitulated to terrorists.

But on deeper inspection, awarding BO the Nobel Peace Prize despite his complete lack of tangible accomplishments was not responsible for making a mockery of the Nobel Prize. That was already accomplished years ago, when the same award was bestowed on Yassir Arafat, the hapless Jimmy Carter, Al Gore, Anwar Sadat, Mohamed ElBaradei, Gorbachev, and Henry Kissinger.

Alfred Nobel, a great man, established the Nobel Prize to honor “champions of peace” who genuinely contributed to peace in the world. He deplored the “absurd and futile efforts of windbags who are capable of thwarting the best of aims.” But Oslo's Nobel Committee, made up of five Norwegians nominated by Norway's left-wing Storting consistently bases their decisions on politics rather than rewarding real accomplishments of resolving conflict and promoting justice.

The Nobel Prize was a joke long before they added BO to the lineup alongside terrorists, dictators, and frauds. This is just another punchline.

Thursday, October 08, 2009

Something you can do

To a large extent, there is little that you can do to reduce your own tax burden without reducing your income even more. You can pay mortgage interest or contribute to a 401(k), IRA or charity to get a tax deduction, but each of those things take more out of your spendable income than they reduce this year's income tax. For itemized deductions to be worthwhile, you first have to exceed your standard deduction, so for most of us, it won't do much good. Unless you are in the top tax bracket, you have to spend four dollars or more on mortgage interest to save one dollar in taxes. While that is better than nothing, it's not good enough to justify spending more on your mortgage just to get the tax break. Tax-efficient investing using low-turnover mutual funds can make a difference by deferring realized gains, but again, for most people, income taxes, property taxes, and payroll taxes far exceed capital gains taxes. Some people buy expensive annuity products to gain the advantage of tax deferral, not realizing that the investment company's excessive fees eat up more than they would have paid in taxes.

But last week I cut my tax bill for the cost of a gallon of gas and twenty pages of printer paper. I did it by asking for a cut.

In the spring, our annual property-tax appraisal from Tarrant Appraisal District indicated an increase of 5.5% in our property value compared to 2008. Property values in our area have not been decimated as brutally as they have in other parts of the country, particularly on the coasts. But neither have they been increasing. A recent survey indicates that property values in Dallas/Fort Worth are down about 0.2% in the past year. Homeowners in Phoenix, Miami, Chicago, or anywhere in California would be envious of so small a drop, as they lost 20% or more of their homes value. But still there is nothing to justify a 5.5% increase in our appraisal.

On May 30 I filed an appeal with the Tarrant Appraisal District. More than three months passed without a notice of my hearing date, but in mid-September I received a letter indicating that I would present my case to the Tarrant Appraisal Review Board on October 2. Also included were some instructions regarding how to prepare for the hearing and what to bring.

A realitor friend sent me a Comparitive Market Analysis for my house, listing recent sales in our area and houses currently on the market. I got a similar analysis back in 2005, showing twenty o thirty houses which had sold in our area in the past year. The analysis for 2009 indicated that three houses had sold between January 1 and September 1 of 2009. Several more sold in 2008. But a dozen houses within 4 blocks of our house had been on the market for six months or more without finding a buyer. One house just four doors down our street from us has been on the market for eleven months, with the price dropping repeatedly. Now the asking price per square foot is 70% of the appraised value of our house.

On the day of the hearing, I drove over to the Tarrant Appraisal Review Board office with five copies of all of my information, wondering if my efforts were futile. With the current economic situation, tax revenues are dropping like a rock and local governments are strapped for cash. Could I really expect them to cut my taxes in this environment? The information I had received from the county indicated that the review board was made up of impartial citizens, not county employees, and that they would fairly evaluate the true market value of my property, but I was still slightly skeptical.

I signed in at the front desk and took a seat in the waiting room. I dropped the suggested 25 cents into a can for a cup of coffee, which was not bad for the price. Good Morning America was showing on a large screen, but I read a few more pages from Atlas Shrugged until my name was called. I once waited three hours in the Social Security Administration waiting room, so thirty minutes seemed quick. The receptionist led me back to Review Board Room #7. Inside were three men, each roughly 75 years old, and a middle-aged woman at a computer terminal. I had five minutes to present my information, the county representative had five minutes to support the appraised value, I could offer a rebuttal, and the three men would decide on a fair value.

I went through my data, showing that most houses in my area were selling for a lower price per square foot, and that even at those prices, houses were not selling well. I used three of my five minutes. The county representative showed the same list of recent house sales, but also included some houses from the neighboring Crowley School District. In my rebuttal I pointed out that property values in Crowley were higher than in Fort Worth.

The chairman of the review board asked me what result I was hoping for. I indicated that I would like our appraisal to remain where it was in the previous year.

The board went to work, scanning the market data, punching numbers into their calculators, averaging, adjusting for square footage and build date, and comparing their results back and forth. I had no idea if their results were favorable for me or not. Finally they agreed on an average of their three results.

When the chairman announced their decision, I was shocked. They did not give me the 5.5% cut in property taxes I asked for, but instead a 12% cut. I was certain that I had not heard him correctly, so I asked him to repeat the number. He did, and I heard correctly, although I'm still a bit incredulous. I don't exactly like what it says about our property value, but I'm not planning to sell any time soon, and this will make a significant difference when our taxes come due in December.

Joe Biden says that paying more taxes is patriotic but I say that paying more than you have to is worse than just dumb, it is immoral. From a stewardship standpoint, paying taxes you don't owe is worse than playing the lottery, where are least you have some slim chance of winning something back. I encourage you to keep an eye on your appraisal each year, and if it seems out of line, do something about it.

Wednesday, September 30, 2009

Not religion

This video is excellent right up to the last line, where it says, "Bringing religion back to school."

Our public schools have plenty of religion. What people need is not religion, but rather the acknowledgment of Jesus Christ as Savior and Lord, the only hope for mankind. Teaching this to kids is the parent's job, not the school's.

Tuesday, September 29, 2009

The true cost of war

Without Bush, media loses interest in "the true cost of war" and coverage of caskets of dead servicemen.

They clamored for permission to show the caskets of men and women killed in Iraq and Afghanistan while Bush was President, saying that they wanted to convey "the true cost of war". Obama gave them permission, but hardly any reporters now show up. So was it really about "the true cost of war" or was it about bashing Bush?

More importantly, when will they recognize 9/11 as the true cost of ignoring an enemy who has declared war on America?

Europe moving right

From today's New York Times:

PARIS — A specter is haunting Europe — the specter of Socialism’s slow collapse.

As America moves towards European-style socialism, that very system is failing in Europe, where voters are electing more conservative governments and moving back towards capitalism:

Mr. Judt argues that European Socialists need a new message — how to reform capitalism, “recognizing the centrality of economic interest while displacing it from its throne as the only way of talking about politics.”

European Socialists need “to think a lot harder about what the state can and can’t do in the 21st century,” he said.

Not an easy syllabus. But without that kind of reform, Mr. Judt said, “I don’t think Socialism in Europe has a future; and given that it is a core constitutive part of the European democratic consensus, that’s bad news.”

Monday, September 28, 2009

Red-blue dialogue on health care -- final comments

You can read Colin's latest post here.

I believe that this discussion has gone as far as it can. Colin's idea of "progress" seems to be me conceding to his argument. However, I believe that I have made a far stronger case than he has, so I ought to be attacking him for not agreeing with me rather than vise versa. I'm not sure what Colin's goal was, but finding one complete approach to the issue that we can both agree on was never a possibility. It is clear that we have incompatible views of the proper role of government, so his proposals will always be overreaching in my view, and mine will always be inadequate in his.

We did find many things we agree on: subsidizing insurance for people who genuinely can't afford it, reducing waste and fraud, avoiding unnecessary malpractice and defensive medicine costs, the importance of competition, that insurance companies should be able to deny new coverage for reasonable grounds, regulating insurance companies to assure that they operate in a fair and transparent way, making sure that people can move from one insurance provider to another, and eliminating bad regulations such as the law preventing intra-state insurance purchase.

We disagree on mandating the purchase of insurance, the public option, and mandates on employers to provide insurance. That's a shorter list, but those are central elements in the proposed bills, and they are deal-killers as far as I'm concerned. If someone proposes a bill with the elements most people can agree with, and leave out these other things, I will support it with enthusiasm, regardless of who proposes it, just as I supported Bill Clinton in those cases where he did things right: NAFTA, Welfare reform, etc. But I will continue to oppose bills with a public option or mandates to purchase insurance, an idea Barack Obama opposed throughout the campaign, just as I opposed bad policies when George Bush promoted them, including Medicare Part D, immigration reform, invading Iraq, the economic stimulus package, the appointment of Harriet Meyer, TARP and bailouts of failed businesses, and most importantly his dismal failure to control spending.

You accuse me of exaggerations and quoting talking points, but then mischaracterize what I said. Regarding exaggerations, you keep holding onto the 46 million number even though Obama himself is now saying 30 million. And regarding talking points, for the third or forth time you repeat the line "Every developed nation in the world offers universal health care except the US." That talking point reminds me of preschooler playground logic: teacher, everyone else is doing it!

Here's a news flash: people do go to jail for not paying their taxes. There are currently tens of thousands of people in jail for that reason. My comment was not related to the Ensign note, as that note was released after I posted my comment. Our tax law is not optional, and it is backed up by force of law. If you don't believe me, refuse to pay your taxes and see what happens. Of course not everyone who doesn't pay their taxes goes to jail. If you are a left-wing tax cheat you might end up with a powerful position in the Obama administration, maybe even running the IRS.

I did not say that the reform is equivalent to Marxism. In fact, your tendency to misrepresent what I say has happened so often that I think it must be intentional. In the discussion of auto insurance, I spent five paragraphs demonstrating that states mandating auto insurance is different than a Federal mandate to buy health insurance, but you accused me of saying that the auto mandate was tyrannical, when that conclusion could only be reached if the two were the same. In this case, pointing out that Obamacare is not "modest", I said that if it was modest, it greatly raises the bar to qualify for ostentatious. Modest and ostentatious are antonyms, so relating Obamacare to modest and Marxism to ostentatious do not equate the two. It would be like you claiming that Donald Trump's $125 million Maison de l'Amitie is modest because there are a couple of oil sheiks who live in more expensive houses. If Trump's house is modest, what is left to be considered ostentatious? The Taj Mahal? Pointing out that there are worse ideas doesn't make Obamacare reasonable any more than pointing out someone who advocated nuking the entire middle east justifies invading Iraq.

Then you suggest that I am supporting mandatory purchase of insurance. I did not advocate "forcing people to get insurance when young and keeping it". That's the core difference between your view of government and mine. When I say that someone should do something, I mean that they should choose it freely, but you think it should be imposed by force by a Federal mandate. You support a nanny state imposing its vast wisdom upon the helpless, ignorant proles for their own good. I believe that if we have a minimal level of regulation to ensure fairness and transparency, so that people can choose to buy insurance knowing that they won't be dropped unfairly later on if they get sick and they can move from provider to provider and keep coverage if they move from one state to another, then they have the opportunity to obtain lasting coverage. If they don't do it, that is their decision and they will have to live with it. There is nothing heartless in that, as I didn't impose any decision on them.

Regarding my statement that "This bill is an authoritarian power grab bigger than any in American history" you are right. That was an exaggeration. The severity of the impact on those impacted by the cases you cite was much worse, outweighing the much larger scope of the current proposal, which will impact far more people, do much greater economic damage, and last for a longer time. I'm not much comforted that Obamacare is not the worst, but merely near the top of the shameful list of America's biggest authoritarian power grabs.

I used Fannie Mae and Freddie Mack as examples of other cases where government intervened in the market and caused a lot of damage. There was no bubble when those agencies were started, either. They were controlled by politicians like Chris Dodd, Franklin Raines, Jamie Gorelick, and Barney Frank. While there is plenty of blame to spread around in the case of the sub-prime mortgage meltdown, Fannie and Freddie were two of the biggest players in bringing it about. The central factor is not for-profit versus non-profit, but government controlled versus free market, private sector control. Private medical insurance operates at a 3% profit margin, meaning that if they were to break even, the price would drop by 3%. It was government pressure which led to the lowering of lending standards and changing the rules of aggregating risk which drove the bubble and undermined the market.

I was disappointed and angered to see that you returned to your empty rhetoric about my supposed lack of compassion. This is the cliché liberals flee to when they can't make an argument based on fact or reason, generally right before they start calling the conservative a "bigot". While we have engaged vigorously on ideas, I have tried to avoid personal attacks of this sort. I apologize for my comments lashing back in reaction to this. It was hasty and not thoughtfully considered. Although we disagree on several points, I hope we can keep things friendly and civil. My compassion is not measured by my support of more government programs, but by my personal involvement in other people's lives and my generosity to those around me, which is my business and not yours, so I'm not going to brag about it here. Plenty of people have spent a lot of energy running down America, capitalism, and our medical system, exploiting both real and imaginary victims for political gain, and I am not going to join that chorus either. I am not driven by a desire to "score political points" or deal political defeats to anyone. I could just as easily say that you are driven by self interest, seeking another source of power to wield over the masses, demagoging the issue in every election as Democrats already do with Social Security and Medicare to entrench your party in power. All that I do is based on a vision of America shared by those who left their homes to found this nation, by those who fought to establish liberty and protect it, and by those who still seek liberty today. Those time-proven principles espoused by the founding fathers and outlined in the Constitution made our nation great, and they are not to be trifled with, dismissed, compromised, or smeared as being fringe extremist militia ideas in an attempt to marginalize the speaker. I am none of those things, and your attempt to paint me as such shows your inability to compete on substance in the arena of ideas. The free market is the most compassionate system in the world, far superior to collectivist systems which impose equal poverty, as we have seen in China, North Korea, the USSR, and Cuba. America has surpassed countries which try to mix the two systems, as they do in Europe, because the cost of excessive government is a constant drag on economic growth and wealth creation, which is the key to improving the standard of living for everyone. My goal is for the good of America, which benefits me in the process, but not at the expense of anyone but rather by allowing everyone to benefit.

You, on the other hand, propose real and massive expenses and intrusions into people's lives with ephemeral promises of future benefits and savings. You have only the words read from a teleprompter assuring that this time it will be different from every other government failure. This time our promise of statist utopia will actually be realized. Every other big government entitlement has been a boondoggle, dragged down by waste, fraud, and corruption, but this time we'll get it right. This time we will be fiscally responsible, unlike our mad spending binge earlier this year, and we won't add one dime to the deficit. This time "hope" and "change" from our messiah will lead us to the promised land where no one dies because they can't afford medical care and no one goes broke because they get sick.

It seems that public opinion is moving my way, not yours, as 56% of the public oppose Obamacare and only 41% support it, according to a poll released today.

If Obamacare passes and does not add to the deficit, I invite you to say "I told you so." Until then, I've said what I need to say. I welcome your comments on any posts you see here.

Thursday, September 24, 2009

More Red/Blue dialogue on health care

Check out Colin's latest post here.

Colin, I agree with you that government can do both good and bad. Without government, we would have anarchy and chaos, with no national defense, no law enforcement, and no protection of our essential national interests and individual rights. There are some things that government does better than individuals could do for themselves, such as providing fire stations and roads. These are things that everyone benefits from. I agree entirely with your statement "I believe we must be eternally vigilant about monitoring 'government creep' -- the tendency of government to overreach and regulate things it has no business regulating." I agree in the abstract with your next statement: "But I also think there is a clear and compelling case for government intervention in very proscribed and constrained ways to achieve certain socially beneficial objectives." However, I don't know how a reasonable person can look at the proposed legislation and describe it as "modest" or "proscribed and constrained". If a program spending $1.6 trillion over ten years can now be described as modest, the word has surely been redefined when I was not paying attention. How is it "proscribed and constrained" to mandate that everyone get health insurance, fine those who don't get it, and throw those who don't pay the fine in jail? The good news is that once you're in jail, you get free health care! Surely there are more onerous ideas out there, but if Obamacare is modest, hardcore Marxism must be the dividing line for truly ostentatious. Not only will they fine people who don't buy enough insurance, they'll fine people who buy too much! Since when can Max Baucus decide how much insurance you should buy, and punish you if you buy too little or too much? When the government claims the power to determine who gets medical care and who doesn't, and by extension, in many cases, who lives and who dies, what greater control over your life could there be? This bill is an authoritarian power grab bigger than any in American history. James Madison said that, "If Congress can employ money indefinitely to the general welfare, the powers of Congress would subvert the very foundation, the very nature of the limited government established by the people of America." As you say, "The vigilance of American citizens will always be a powerful bulwark to the overreaching of government." That vigilance is driving the groundswell of opposition to Obamacare. It remains to be seen if Congress will remember that they work for us, not the other way around.

I think that you need to re-examine your history about the source of American exceptionalism. Europeans did not leave home and venture to the New World in droves to find a place with more government interference in their lives. They came looking for freedom and opportunity. America is the greatest country on earth not because of centralized control and collectivism, but because of individualism and liberty. Your suggestion that America's success if due to government management doesn't fit at all with the facts. Certainly we were able to coordinate better, be more productive and more innovative, operate more efficiently, and create more wealth than Europe, but that was due to capitalism, not because of government, and often in spite of it. Government does not produce wealth, it only moves it around. The larger the segment of our economy is government run, the smaller the segment which must produce all the goods and services that we consume or trade. Government now makes up about 40% of our economy, meaning that 100% of the people must live on what 60% produce. The fact that Europe is closer to a 50/50 ratio has a lot to do with why we have surpassed them, so moving more in their direction is certainly not a good idea.

Regarding your two added goals, I agree with number two. For a free market to work, consumers must be able to move from one provider to another. Finding ways to allow people who currently have insurance to switch to another provider is very important, and can be accomplished without government mandates. Number one, on the other hand, requires either a public option or a preexisting conditions mandate. I've made my case against both of those options. If we strengthen the rules so that insurance companies cannot drop coverage unfairly or deny coverage for non-material reasons, anyone can avoid the situation of being without coverage due to a preexisting condition by purchasing insurance when they are young and healthy and keeping it.

Although our goals are fairly similar, our approaches to reach those goals are day and night. Certainly my proposal is not "95% in sync with what is being discussed." I flatly reject a public option, mandates on individuals to buy medical insurance, mandates on employers to provide it, mandates on insurance companies to cover preexisting conditions, and fines for buying too little or too much insurance: all the centerpieces of the various bills proposed by Congress. A public option does not increase competition. It is anti-competitive. Government interference in the market is not competitive, it squashes competition and subverts market forces which stabilize and regulate the market. Look at government-chartered Fannie Mae and Freddie Mack, major players in destroying the mortgage market, with disastrous results. These semi-government, semi-private entities were created with the virtuous intentions of helping people who might not otherwise qualify for a mortgage to buy a house. Like the public option or "co-ops" they took on the risky cases that no one else would touch, hid the inherent risk, and undermined the entire market. You yourself make the case to prove that the public option could not possibly operate on a standalone basis as Obama claims, with premiums paying for the coverage of expenses: "so that's why some sort of public or co-op option makes sense, to cover the folks that are likely to require more funds to be cared for than they're going to put into the pool." How can that happen without the public option being subsidized? But Obama vehemently insists that claims that the public option will be subsidized are a myth. Is he saying that when the public option runs out of money, he will let it go bankrupt and will not bail it out? Of course not.

You are right that a partial implementation of medical savings accounts exists. It just needs to be made available to everyone, and extended to allow money to be carried over from year to year.

I think I was not clear enough about why I propose implementing insurance subsidies as advanceable, refundable tax credits. First, that does not mean that each individual would have to get the money from the government and then pass it on to the insurance company. That would be a mess, just as you say! The government would pay the insurance companies directly, and the individual would pay the difference. What it does mean is that people who receive a subsidy would be required to declare it on their tax return. Connecting an insurance subsidy to a tax return would help to reduce fraud by making it possible to verify that real, legally eligible people who are paying their taxes are getting the subsidy.

While I agree with the principle of helping those in genuine need to pay for basic insurance, I have an issue with the Baucus proposal, which would subsidize insurance for people making as much as $85,000. According to a 2005 Census Bureau report, 80% of the population makes less than that amount. This is a far cry from a last resort safety net. My comments about families and people in a local community taking care of one another were in the context of a social safety net, not fighter jets and so forth. It is not meant to suggest that there should not be a safety net at the Federal level, but that should be a last resort, only when the local safety net has failed. Washington has spent years convincing people that the Federal Government should be the primary safety net, and that because we pay taxes, our obligation to the needy is fulfilled. I personally reject that idea, and believe that politicians should stop their self-serving promotion of dependence on government as a natural and normal state for most of the people most of the time.

Monday, September 21, 2009

What does "deficit-neutral" mean

BO has repeatedly promised that his medical insurance bill will be "deficit-neutral."

"I will not sign a plan that adds one dime to our deficits either now or in the future. Period."

This in spite of the fact that he has already added $600 billion of deficit spending for health care to his budget, calling it a "down payment" suggesting that he intends to spend a lot more in the future. I fully expect that this promise will be quickly abandoned when the bill is passed and signed. When the costs start piling up he'll just say, "We tried, but we just couldn't keep it deficit neutral. We can't let people die in the streets, so we must meet our obligations to our citizens. The problem I inherited from Bush was much worse than we though." Does anyone really believe that Obamacare will not add one dime to the deficit? And what exactly does that mean? Here's how BO said he would implement it:

"And to prove that I'm serious, there will be a provision in this plan that requires us to come forward with more spending cuts if the savings we promised don't materialize."

I've been looking over everything I can find about the Max Baucus bill, and I don't find that provision in there. When Washington talks about "Spending cuts" they mean something different than what you might think. Those who remember the Federal School Lunch Program fiasco know that Democrats consider a proposal to increase spending on school lunches by six percent to be a horrific cut if someone else had proposed increasing spending by six and a half percent.

Obama's statement does not come close to being adequate to assure that his program is deficit neutral. One could argue that every dollar the government spends adds a dollar to the deficit, so long as there is a deficit. The deficit is one dollar more than it would have been if they had not spent that dollar. But being "deficit neutral" is a lower standard, meaning that new taxes levied to pay for that program cover the additional spending above what was previously being spent. So it is legitimate to use the $660 that Obama would cut from Medicare to offset additional spending for Obamacare. It is also legitimate to count the savings Obama promises from increased efficiency and reduced waste and fraud, if those savings actually materialize. But saying that "we will come forward with more spending cuts" is far too vague. It sounds as though proposing the cuts is enough, and Congress is free to not act on the proposals. He also doesn't specify what they would cut. Does it have to be a cut from medical care, or would cutting the military count?

When Obama says that he "will not sign a plan that adds one dime to our deficits", what is the baseline, and how is he determining if he is adding a dime? The 2009 deficit is going to be somewhere around $1.8 trillion, more than four times higher than ever before. Because the 2009 deficit is swollen by bailouts and one-time stimulus spending, future years deficits are expected to be less. Can Obama claim to have not added to the deficit if the 2011 deficit, with Obamacare in effect, is not more than $1.8 trillion? He could make that claim even if Obamacare increased the deficit by hundreds of billions of dollars over what it would have been without Obamacare.

Even worse, they could compare against a projected budget, and as long as the deficit stays below that amount, they could claim deficit neutrality. For instance, in 2012 they could say "We projected a deficit of $1.5 trillion for this year, and our deficit is only $1.45 trillion, so we kept our promise of not increasing the deficit." The problem is that the projection is arbitrary, and it would be easy to set it absurdly high so that they could spend huge amounts of money and still claim to be deficit neutral. This is not at all far fetched. It is how Congress routinely does business.

Politicians are really good at playing shell games with our money, and Washington math is nothing like real math. Pinning them down on exactly what they mean is important if we want any kind of fiscal accountability.

It is possible, in a few phrases, to lay out a clear criteria which would make it possible to objectively determine if Obamacare is actually accomplishing its stated goal of reducing the deficit: Medical Reform meets it's goal of being deficit neutral if total real per capita Federal spending on medical care, minus tax revenue collected for medical care, does not exceed 2009 levels.

But in all of Obama's "fleshing out the details" he never makes a specific statement which we can actually pin him down on later, when spending spins out of control. Obama is willing to play fast and loose with the definition of a "tax", even when former top Clinton advisor George Stephanopoulos and the AP both say "it is a tax," in order to claim that he is keeping his promise to not raise taxes on the middle class. What makes you think that he won't quibble over the meaning of his promise to "not sign a plan that adds one dime to our deficits, either now or in the future?"

Friday, September 18, 2009

Uninsured in America

Thursday, September 17, 2009

Red/Blue health dialog, part n

Colin's latest entry is here. Be sure to read it.

This discussion has been very worthwhile, and I've improved my understanding of the rationale behind the proposed bills. With a brand new bill now emerging, quite different from the previous ones, there will be a whole new set of issues. I think that we have pretty much exhausted the points we were discussing, so I'm not going to keep following them point by point. Instead I want to lay out an alternative approach based on my principles of free markets and capitalism.

Before I get there, I want to say that Colin has convinced me that some of my statements about tyranny were too strong. I do believe that the actions our government takes can affect where it falls on the spectrum between liberty and tyranny. I stand by my original statement that the argument of using one case of government exceeding its authority to justify a bigger excess will eventually lead to tyranny. Our government has incrementally exceeded the limits described in the Constitution, and Obamacare would be another step in that direction. But on the continuum between liberty and tyranny we are still much closer to the side of freedom, and most countries are less free than we are. However, the argument that most countries are less free and still maintain a comfortable living standard does not convince me that we ought to move in their direction of more government. Michael Moore can say what he wants about capitalism, but until he gives back the millions of dollars he has made in the capitalist system it is not ringing true. Capitalism remains the best system for creating wealth and distributing it fairly (which is not the same as distributing it equally).

Defining goals is a good place to start the process of laying out an alternative to Obamacare. My goals are very different than those stated by the President or by Colin. Here is what I would be trying to achieve:

1. Medical insurance should be affordable to those who want to purchase it.
2. Insurance companies should provide good service, clearly communicate their policies and coverages, follow through on what they promise, and treat their customers fairly. Those who don't should go out of business.
3. Consumers should have many options for medical coverage and be free to pick the one which best meets their needs.
4. Insurance companies which commit fraud or breech of contract should face severe consequences.
5. There should not be a tax penalty for those who buy individual insurance rather than get it from their employer.
6. There should be a safety net for Americans who genuinely can't afford insurance, to help them pay for private insurance. For most people who are able to work, it should be short-term.
7. People who can afford insurance and choose not to buy it should not be entitled to free treatment.

The central key to the first three items is competition. I don't mean phony competition with a government "public option" or the repackaged "co-op" which doesn't play by the same rules as everyone else. The way to increase competition is to remove barriers which are currently preventing competition. Other types of insurance which are not bogged down by the regulatory maze which already exists for medical insurance offer a far greater array of options to consumers. For instance, the life insurance market provides countless varieties of coverage, making it likely that you will find one which best suits your needs. Competition in the life insurance market has driven costs way down. I was surprised how little I had to pay for a term life insurance policy, and a broker was able to show me rates, terms, and credit ratings for dozens of different companies side by side. There is no reason consumers shouldn't have that kind of choice when buying medical insurance.

One way that we have already discussed is to open the market nationwide for purchasing insurance. Current law prevents people from purchasing insurance across state lines. As a result, many states are dominated by one or two insurance companies. You shouldn't find it ironic that this law was passed to help insurance companies. The law protects big insurance companies from significant competition from small companies. The big established companies can afford to operate branches in many states, but small startup companies can only compete with them in one state. The best way to "keep insurance companies honest" is to break down barriers to competition so that consumers can give their business to companies which treat their customers well. Opening the market to allow insurance policies to be issued across state lines would also allow people to keep their current policy when they move from one state to another, in many cases.

Transparency is important in establishing fair competition. Insurance companies should be required to clearly define their costs, policies, and coverages in a way which makes it easy to compare one policy to another in an "apples to apples" way. Such requirements were recently placed on mutual funds, and it made reading a mutual fund's prospectus and annual report much more understandable.

Many of the anecdotal horror stories used to sell reform would be resolved with real competition. Insurance companies who use technicalities to treat their customers unfairly would quickly develop a negative reputation and lose market share or be forced out of business. When everyone is informed and has multiple options, treating your customers well is good business. I would like to know more about the cases that Obama cites in his speeches. He mentions "one woman in Texas" whose policy was dropped because she had acne. I hope that there is more to the story. Why not put the insurance company executive on the hot seat and ask him to explain what happened? Let the media examine the facts of the case. If any laws were broken, deal with that in the legal system, and if the company acted legally but unfairly let the public know.

Competition can also be reintroduced into the actual purchase of medical services to drive down the costs of the care itself. Today the consumer is largely insulated from the price of the services they receive. When I go to my doctor, I pay a co-pay, usually $10 or $20, and never even see the bill for the rest of the cost. There are various ways that this could be accomplished. One is for insurance companies to return to covering a percentage of the cost for smaller, routine treatments. An 80/20 or 90/10 coverage provides an incentive for the consumer to control the cost. Large expenses such as major surgeries wouldn't apply, because 10% of the cost of open heart surgery is still more than most people can afford. I like this approach better than the use of price caps, which seems to be the most common method today. Price caps are somewhat arbitrary and can't account for the uniqueness of each situation, and price caps don't provide any market pressure below the cap. I am open to other ideas for how to reintroduce market forces to control costs.

Today there is an inequity between the tax treatment of people who get insurance through their employer and those who buy it individually. When an employer pays part of the cost of medical insurance, it is paid using pre-tax dollars. The cost of the insurance does not count as income to the employee, and thus is not subjected to income tax. When an individual buys insurance, they pay with after-tax dollars. Take two people, each with total compensation from their employer of $50,000. The first is paid $44,000 and receives a medical insurance policy which costs his employer $6,000. The second is paid $50,000 and buys a $6,000 policy. The first pays income taxes on $44,000, and the second pays income tax on the full $50,000. I propose that it would be fair to allow the second person to deduct the cost of his insurance from his income when he figures his income tax. Then both people would pay income tax on the same $44,000. Medical savings accounts which allow tax deductible deposits and can be carried over year to year, allowing people to use untaxed dollars to pay for insurance premiums, co-pays, prescription drugs, and other out of pocket medical expenses would be a good way to implement this.

There is one area where increased regulation is necessary. Insurance companies should not be allowed to deny coverage to a policy holder or cancel policies for non-material reasons. A non-material pre-existing condition is not a valid reason to reject an application for a new policy, but a material pre-existing condition is a valid reason. A non-material error in an insurance application is not reason to cancel a policy, but material fraud is a valid reason. There need to be standards on what is material and what is not, and some sort of independent arbitration system to resolve disputes between customers and insurance companies. This small measure should stop many of the anecdotal cases used by Democrats to justify massive expansions of government power.

Tort reform is essential to any effort to control cost. Reforms must be made in a way which allows legitimate cases of negligence or malpractice to proceed but stop frivolous law suits. I don't support a common Republican proposal of capping damage awards. To understand the danger of that approach, look at the case of the Ford Pinto. After hundreds of people died due to the propensity of that car's gas tank to explode in a rear collision, it was revealed that the company discovered the defect when production of the car had just started. Actuaries estimated the number of people who would be killed and compared the cost of paying out settlements in those cases with the cost of fixing the problem. They concluded that it was cheaper to pay the settlements. Capping damage awards makes it easier to reach that conclusion. Juries need the latitude to slap companies who do that with damages severe enough to make sure that it is not cheaper to let people die than to fix the problem.

There are better options. One is to establish "safe harbors" for doctors who use nationally recognized and adopted best practices, protocols and standards of care. Following those procedures would be a defense in a malpractice lawsuit. This would limit the cost of "defensive medicine" to a well-defined set of precautions.

There should be minimal standards for physicians who serve as expert witnesses, to prevent unqualified opportunists from making a career out of testifying against doctors in frivolous suits.

The best idea I have heard is to give courts a third option in their verdict for malpractice cases. In addition to the option of finding for the plantiff or for the defense, the court should be able to rule that a case was frivolous, in which case the attorney who filed the case is responsible for paying the legal bills of the defense. This would put a quick stop to the practice of a few unscrupulous attorneys who file hundreds of law suits every year, most will little merit, hoping to get a big settlement on one or two. These lawsuits cost a huge amount of money to defend against, and that cost is passed on to the consumer in higher medical bills.

Right now we have a sort of safety net, but it is very expensive and not very effective. There is a patchwork of government programs to cover people who can't afford insurance, and there is the Federal law which requires that hospitals treat anyone who comes regardless of their ability to pay. As Obama correctly points out, this is an expensive hidden tax which we are already paying. America is a compassionate nation, and we don't let people die in the streets for lack of medical attention. But I think that we can make the safety net more cost effective. Subsidizing basic private insurance based on genuine need is better than using ERs as a distribution system for indigent care. This should be implemented as advanceable and refundable tax credits to low-income individuals for the purpose of buying private medical insurance.

Coverage of pre-existing conditions has been a hot issue. Insurance cannot exist if people can go without coverage while they are well and then if they get sick, buy insurance at the same price as everyone else. Mandating that insurance companies offer coverage at the same price regardless of material pre-existing conditions would kill the insurance industry. But there are ways to allow someone with existing insurance coverage to move to a different company in spite of a pre-existing condition. An insurance policy covering a person with a chronic, expensive condition represents a liability to an insurance company. The present value of that liability can be computed using the same kind of actuarial formulas used to price insurance. If a group of insurance companies were to negotiate a set of formulas based on all the relevant factors, they could agree to accept customers from the other companies in that group in return for a payment from the current insurer of the present value of the liability as computed by those formulas. As an example, if I am currently insured by company A, and I have a heart condition which will cost $100,000 to treat, I could switch to company B, provided that both A and B are members of such a group. Company A would pay company B to take me. In most cases, thousands of people would be moving each direction, so it would be a wash, more or less. Being a member of such a group would be a major selling point for insurance companies, because it would mean that your coverage would be much more portable. I understand that such an arrangement is not possible with the current regulations, but with the proper changes to the regulations, it would be possible.

Obama says that he will pay for his proposed reform by reducing waste, fraud, and inefficiencies in the current system. I'm all for eliminating those expenses which don't contribute to the goal of providing quality medical care. Saying that we are going to use that money for something else is not reasonable, because as long as we are running a deficit, it is money we don't actually have. So we should work hard to eliminate waste, fraud, and inefficiencies as a means to reduce government spending and bring down the deficit.

There are many people and think tanks from across the ideological spectrum with all sorts of ideas for how the medical system could be improved. Allowing states to experiment with different ideas and find out which ones are the most promising has been very successful in other areas, such as welfare reform. It could work here too.

As a general rule, decisions made closer to the affected people are better than centralized control. If I am being taxed for the school up the street, I can see if I'm getting my money's worth, but if my taxes are going to the Department of Education in Washington to be doled out across the country, there is very little connection between what I pay and what I get back. All I know for sure is that we get back less than we paid because there is always overhead in a huge bureaucracy. The same applies to medical care. The best way to help people is to look out for your family, you neighbors, your co-workers, your friends, and your church members. I see these people every day, and I know when they are in genuine need. When I help them, I can see if the help is effective. Local assistance is the next best thing, with voluntary giving to charity being preferred to government assistance. Charities are accountable to their contributors, which helps to keep their overhead low, so that most of their budget goes for the purpose it was given. Welfare spends $1.11 in overhead for every dollar it pays in benefits. Bureaucrats doing paperwork and adminstrative expenses eat up more than half of the Welfare budget. Many private charities have less than 5% overhead. Central control is the least effective level to offer assistance. The faceless bureaucracy is inefficient and impersonal, not well-suited to reach out to people with compassion to meet their individual needs. The lack of accountability reduces people to lists of figures in a database, which opens the way for fraud and abuse. But over time, people have accepted Washington as the primary provider of assistance to people in need. Society no longer feels obligated to help their neighbors or give to the local charity organizations because they pay their taxes to the government, which has programs to help people. The Federal Government happily supports the tendancy to look to Washington for help, whether it be for relief after local disasters, help with financial needs, medical care, and even fixing school classrooms, which we now learn is the President's job. When your only tool is a hammer, every problem starts looking like a nail. We need to get away from the notion that the Federal Government is the best place to solve every problem and start returning responsibility to individuals, communities, local charities, churches, local government, and state government.

Obama talked about his grandmother worrying about getting coverage for her medical needs, and struggling to fill out the forms. At the time, Obama was professor of constitutional law at University of Chicago Law School, associate attorney with Davis, Miner, Barnhill & Galland, and published author of his first memoir "Dreams from my father" for which he reportedly had received a six-figure advance from Simon & Schuster. Obama, instead of waiting for government to take care of his grandmother, could have told her "I have good eyesight, arthritis-free fingers, and thanks largely to your generosity, a law degree from Harvard. Let me help you fill out those forms. And don't worry; if your insurance doesn't pay for it, I've got you covered." Delegating your responsibility for your family and community to Washington -- now THAT's coldhearted.

Wednesday, September 16, 2009

Mandates and more mandates

I've discussed the onerous mandates Obamacare would impose on insurance companies and individuals, but there is another mandate which it would impose on employers. Companies with a payroll larger than $250,000 would be required to either pay most of the cost of medical insurance for their full-time employees or pay a payroll tax of between two and eight percent. The minimum contribution is 72.5% of the premiums for individuals or 65% for an entire family.

Before you get all excited that they are going to stick it to the man, stop and think about the unintended consequences of this mandate.

Most larger companies already provide medical insurance for their full-time employees. The market demands it to attract the kind of people they need to run a successful business. The companies which will be hit by this are the small to midsize companies. Most any company with more than ten employees will hit the $250,000 threshold. According to the Census Bureau, there are about 1.15 million companies with more than ten employees and less than 100, and those companies employ 29 million people. Another 16.8 million people work for mid-sized companies with more than 100 employees but less than 500. A million companies with between 5 and 9 employees currently employ 6.8 million people. Some of those companies would be affected by the mandate and some would be under the threshold. Together these companies employ about 40% of America's workforce.

According to the recent employment reports, 9.7% of the workforce is currently unemployed, and 16.8 are unemployed or underemployed. There are 14.9 million people looking for Joe Biden's favorite little three-letter word: jobs.

Now imagine that you are running a small business with between 10 and 100 employees. Many companies like yours have gone out of business in the past year, and although business has been slow, you've cut back on expenses and managed to stay afloat. You'd like to start to expand again and hire some more people. That's not only good for you and your business, it's got to happen if America is going to get out of this slump and bring employment rates back up. But now you hear that the government is going to require that you provide medical insurance for your employees. That is going to eat up the small amount of spare money you had, and even that won't be enough. Hiring more people is no longer an option. Most likely you will need to lay off more people to pay for this new mandate. Some small companies will simply close shop. They are already right on the edge, and this will push them firmly into insolvency. Others will transition their employees from full time to part time to avoid the mandate. Any chance of reducing the unemployment rate will go out the window.

It is easy to cheer for the evil corporations getting what's coming to them, but that won't be quite so sweet when instead of free health care you don't have a job anymore. When that happens, try eating your hope and change.

Tuesday, September 15, 2009

Metrics for success

Should some version of healthcare reform be signed into law, I'd like to have a well-defined set of metrics to measure how successful it is at achieving its stated goals and objectives.

Clearly, a central objective is to increase the number of people with medical insurance. Democrats have bandied about the number 46 million as the current number uninsured, a number taken from a census bureau report. However, that number includes about 11 million illegal immigrants, who we are assured will not be covered. It also includes 15 million who were temporarily between coverages. The actual number of American citizens who are uninsured in the long term is around 20 million. Reducing that number significantly ought to be one metric. I would propose as a target that within ten years of Obamacare being enacted, the number of uninsured people be reduced to 5 million.

The percentage of America's GDP which is spent on health care is cited as a reason to reform our medical system. Obama has repeated that America spends 16% of GDP on health care, while Canada spends 10% of GDP and covers everyone. France spends 11% of GDP on health care. I propose 12% as a target.

Obama assures us that Obamacare will be deficit neutral, and that the public option will not be subsidized by the government. Measuring the deficit impact of a program is difficult. It is easy to falsely claim that costs have been offset by spending cuts if cuts are defined loosely. Stating that a program plans to increase spending by 10% and then only increasing it by 8% is not a 2% cut which can be used to offset Obamacare spending increases. Neither is the end of a short-term spending program a cut. For instance, the fact that we spent $800 billion on bailouts and stimulus this year and will only spend $300 billion next year does not equate to a $500 billion cut which can be used to offset Obamacare. Also, moving spending from one program to another is not a cut from the one. I propose this metric: for Obamacare to meet its goal of being deficit neutral, total entitlement spending must not grow faster than inflation times population growth. In addition, the public option (if included in the bill) must be self-supporting and not subsidized.

We are told that Obamacare will not reduce the quality of medical care in America. There is not one good metric for quality of medical care, so we have to track several metrics: infant mortality rate, life expectancy, and survival rates for various diseases all should do no worse than to continue on their current trend. "Quality-adjusted years of life" is a metric used by some countries. I don't fully understand how it works, but it sounds promising.

Obama campaigned on bringing transparency and accountability back to the political process. One way to accomplish that would be to build meaningful metrics into health care reform so that we will know if it delivers on the many promises made in the effort to sell the plan to the public.

Monday, September 14, 2009


The beautiful nation of Rowhousia has a meteorite problem. Random and unpredictable meteors fall on the nation, destroying one out of every one thousand homes every year. All the citizens of Rowhousia live in identical houses, each costing one hundred thousand dollars. Because the houses are the same size, each house is equally likely to be hit by a meteor, and the strikes are devastating, requiring that the house be completely replaced at full cost.

Insurance companies have sprung up to protect people from the risk of meteor strikes. The actuaries at these insurance companies have the job of computing the cost of the insurance based on the risk and the cost of a meteor strike. It's not a bad gig if you can get it. The equation for the expected payout is simply the probability of a strike times the cost of a strike. In this case 1/1000 * $100,000 = $100. Add a small margin of error, the administrative and overhead costs, and a profit margin, and you get the price of a meteor policy. Companies charge around $120 per year of coverage. Most Rowhousians consider this to be a prudent purchase, and buy a policy. Some decide to take the risk and go uninsured.

One particular company insures a million Rowhousians. In the typical year they collect $120 million in premiums. One thousand of the houses they protect are destroyed during the year, and the company pays out $100 million to repair those houses. That leaves $20 million, some of which goes to pay their employees salaries, the rent for their office building, postage for their statements, and to cover other expenses. Whatever is left is profit for the investors who provided the capital to create the company.

The citizens of Rowhousia fall into four categories:

Some bought insurance and didn't need to collect on it. They were fortunate that their house was not hit this year. They are out $120, but that's a small price to pay for the security of being protected. They are aware that most of their premiums went to replace the houses of other less fortunate Rowhousians, and they are also aware that next year they might be the one who needs the coverage. They have no problem with the situation because they voluntarily decided to participate in the system, having considered the options and decided that it was in their best interest.

Others are very glad that they bought insurance, because it paid for the replacement of their house when it was destroyed by a meteor strike. They would have preferred to not deal with all the trouble of replacing their house, but they are much better off than they would have been without the insurance.

A third group decided to play the odds and got by with it this year. They didn't buy insurance, and their house was not destroyed. They are a little bit ahead of those in the first group, because they still have their $120, but they are living on the edge. Some of them are wealthy enough that replacing their house would not be a problem. Those people may be making a reasonable decision, because the odds of never being hit by a meteor are in their favor, and the overhead costs of insurance make it a losing prospect in the long term. Others don't have enough money to replace their house, and didn't buy insurance because they have other needs they see as more pressing. They are in serious danger because if their house is destroyed they won't have the means to obtain shelter.

A forth group didn't buy insurance and lost their house. These people are the big losers, particularly those who are living paycheck to paycheck. One year the unfortunate members of this forth group decide that they want to buy meteor insurance retroactively, so that the insurance companies will have to pay for the damage which has already been done to their houses. They take their $120 and go to the insurance company, expecting to trade their $120 check and insurance policy application for a $100,000 settlement check. The insurance company representative explains to them that you must buy a policy on an intact house before the house is destroyed. They won't insure a house with a pre-existing meteor strike.

The irate Rowhousians form a grassroots political organization, petitioning the government of Rowhousia to address this grievous injustice. They march, chant, and carry signs demanding "Meteor Insurance Now!" Soon a leader emerged to champion this group. He had never actually had a productive job before, but he could speak in such soothing tones that all who heard him were lulled into a trance, obeying his every utterance. He was known only as Obummah.

Under the leadership of Obummah, the government of Rowhousia passed a new law requiring that meteorite insurance companies sell insurance to anyone, even those with a pre-existing meteor strike. Joy and harmony filled the land.

Uninsured Rowhousians whose house had been demolished hurried to purchase their insurance and claim their settlement. Meanwhile, Rowhousians who had purchased insurance year after year without ever needing to make a claim began to wonder how this was fair. Why should they buy insurance before their house is struck, knowing that in all likelihood they won't need to collect on it? Isn't it much smarter to save your money and only buy insurance if you actually need it?

When it came time to renew their insurance, nobody did. The only people buying insurance were those whose house was already reduced to a pile of smoldering debris. The actuaries recomputed the price for insurance using the same formula: expected payout equals the probability of a strike times the cost of a strike. Only now the probability is not one in one thousand. Every house they insure needs to be replaced. The cost of insurance is 1/1 * $100,000, or $100,000. Add to that the administrative costs, overhead, and profit margin and insurance isn't a good deal, even for those with a pre-existing condition.

Medical insurance is far more complicated than this simple example, but the same principles apply. When you buy medical insurance, you are paying the insurance company to assume the risk that you will need expensive treatment. The calculations that actuaries use to price medical insurance are vastly complicated, taking into account many different risk factors unique to each policy holder. Ultimately it comes down to a summation of the expected costs of a long list of covered conditions. The formula for expected cost is the same as it was in Rowhousia: the probability of a condition occurring times the cost of treating it. The cost of treating a certain form of cancer may be very high, but if only one in ten thousand policy holders get that kind of cancer, the cost is spread broadly and the insurance remains affordable. But if a new customer applies for coverage and already has that kind of cancer, the company is not being asked to assume a risk of one in ten thousand. They are being asked to fund what is certain to be a hugely expensive treatment. The proper pricing for that insurance is more than the cost of the treatment.

For insurance to work, if must be purchased when it still represents a risk, not a certainty. That is why requiring insurance companies to cover pre-existing conditions can't work. It undermines the principles of sharing risk which permit insurance to protect their policyholders.

Sunday, September 13, 2009

Automobile insurance

In Obama's speech on Wednesday, he once again used the example of automobile insurance to make the case that it is within the scope of the Federal Government's authority to mandate that everyone carry medical insurance. I pointed out earlier that the cases are not at all analogous, and since then I have heard a lot of confusion on the topic, so I'm going to try to lay out my case more systematically.

First of all, notice that there is NO Federal mandate for drivers to carry automobile insurance. The fact that some states require drivers to be insured says nothing about the Federal government's authority in this matter. The 10th Amendment of the Constitution clearly grants rights to the states which are not granted to the Federal government. To be analogous to automobile insurance, the Federal government should let states decide if they will mandate medical insurance or keep it optional, just as they do now.

Secondly, no state requires that everyone carry automobile insurance. Children don't need to carry it, and neither does an adult who does not drive. Carrying automobile insurance is a requirement to perform a particular activity, not a mandate applying to everyone, simply because you exist.

Third, the purpose of mandatory automobile insurance is not to protect the holder of the insurance, but to protect everyone else on the road. Those states which do require insurance do not require that you carry collision coverage. The only requirement is to carry liability coverage which protects anyone else on the road who might experience bodily injury or property damage as a result of an accident you cause. Without that insurance, and without the means to pay for that damage, you might cause an accident which costs someone else tens of thousands of dollars, and not be able to pay for that damage. The insurance you must buy protects the other driver, not you. In every state, you can choose to not carry insurance to protect yourself. It is completely acceptable to self insure against damage to your own car. If you do that, you are accepting the risk that you might wreck your car, and if you do, repairing it or replacing it will be at your own expense. Medical insurance is analogous to collision coverage, not liability coverage, because it does not protect someone else against damage you might cause. It protects only you. To complete the analogy, those people who have the means to buy medical insurance but choose to self-insure must recognize that if they need medical attention, they will have to pay for it out of pocket, and they can't expect for society to pay the bill for them.

Finally, many states do not require drivers to carry insurance. They allow other options, including self-insurance. The State of Texas Transportation Codes contain the following options:


Sec. 601.051. REQUIREMENT OF FINANCIAL RESPONSIBILITY. A person may not operate a motor vehicle in this state unless financial responsibility is established for that vehicle through:

(1) a motor vehicle liability insurance policy that complies with Subchapter D;

(2) a surety bond filed under Section 601.121;

(3) a deposit under Section 601.122;

(4) a deposit under Section 601.123; or

(5) self-insurance under Section 601.124.

Self-insurance is an option. So using automobile insurance to make the case that self-insurance should not be allowed is a flawed argument.

This is a common argument, which comes up almost any time statists attempt another expansion of the power of the Federal Government. The argument is essentially that the government is already exceeding its authority, so why not exceed it some more? Even if the analogy held in this case, that's not a sound argument. It is one which leads to tyranny.

Saturday, September 12, 2009

Hidden tax

On Wednesday did you hear Obama admit something he has denied all year? "And it's why those of us with health insurance are also paying a hidden and growing tax for those without it – about $1000 per year that pays for somebody else's emergency room and charitable care."

He has a valid point here. When someone who does not have medical insurance goes to the ER for "free" treatment, the cost is simply passed along to those who do pay for treatment. The hidden tax is the inflated price we pay for insurance or for medical attention.

So when is Obama going to admit that Cap and Trade is also a hidden tax on anyone who drives a car, uses electricity, or buys a product which consumes energy to produce or transport?

Friday, September 11, 2009

Red/Blue dialogue on health care, part 4

Check out Colin's latest response here. I'm finding the interchange to be helpful. It's impossible to rehash the past discussion, so I'll respond point by point to the numbered items in Colin's response. It will be helpful to look at his post to get the context.

1. There is a lot we can do about health care, but the specific proposals of Obamacare are like outlawing a hurricane because to work they would have to violate the laws of economics. Extending coverage to 46 million additional people would increase demand. Supply and demand dictates that prices must go up, but Obama's promises of keeping the program budget-neutral depends on prices going down.

Much of the existing problem with the price of health care comes from government involvement. Federal law prohibits people from buying insurance across state lines, meaning that in many states, one insurance company dominates the market, creating a monopoly-like condition. In a familiar pattern, government creates a problem by interfering with free markets, blames the problem on capitalism and too little government intervention, and prescribes more government as the solution.

2. I found it amusing that the "change of heart" of the former insurance company executive was precipitated by Michael Moore's propaganda film which practically oozes with admiration for Castro and Cuba's communist government. It would be more convincing if his conversion had been based on a work of non-fiction.

3. Free market forces are the best way to get insurance companies to treat their customers fairly. If there are many companies competing for your business, if one of them is unfair, word will get out quickly and people will take their business elsewhere. Creating a government monopoly will not solve this problem, because when they start rationing care, where can you go?

4. Towards the end of my first post I proposed a number of free market approaches aimed at reducing cost, increasing competition, and addressing frivolous malpractice lawsuits. That's not inaction, but it's not government mandates imposed under threat of prison either. I also support subsidizing insurance for those who genuinely can not afford it. We pay for their care one way or another, and I think that providing basic insurance is better than just waiting until they show up at the emergency room.

5. The WHO ranking is based on factors which favor socialized medicine, such as "Fairness in financial contribution". A country which is uniformly horrible will be ranked higher than one which is unequally superior. Using life expectancy as a metric does not isolate health care, because it is influenced by many other factors. Comparing survival rates for specific diseases is a better indication of how well the medical system performs at treating those conditions, and America excels in this metric.

6. Demand will increase, but government will be controlling the supply and forcing the price down artificially to keep the program within their budget constraints. If you believe Obama's pledge to keep Obamacare deficit neutral, you must conclude that he will dramatically reduce expenditures per capita, so the profit potential will be greatly reduced. That is the factor which will squelch innovation.

7. Again, auto insurance is not required. Most states allow drivers to self insure. To do so, you must demonstrate the means to pay for the damage you may inflict to someone else. It is not acceptable to self insure and then not pay for those damages, which would be equivalent of not having medical insurance and then expecting free treatment. So people who can afford insurance but choose not to purchase it should not expect us to foot the bill. But using auto insurance as an arguement against allowing people to self insure is a non sequitur.

8. Obama and Pelosi have both said that the public option is intended as an incremental step towards a single-payer system.

9. It is true that the Constitution does not spell out every item that the government can be involved in, but it does set forth principles of freedom and ordered liberty, and it defines the government's role in the framework of the civil society. Limited government is a central principle in the Constitution, and the government is to curtail the liberty of the people only to the extent that one person's liberty infringes on another's rights. In 1864 Abraham Lincoln wrote "We all declare for liberty; but in using the same word we do not all mean the same thing. With some the word liberty may mean for each man to do as he pleases with himself, and the product of his labor; while with others, the same word may mean for some men to do as they please with other men and the product of other men's labor. Here are two, not only different, but incompatible things, called by the same name--liberty. And it follows that each of the things is, by the respective parties, called by two different and incompatible names--liberty and tyranny." When Congress dictates how we should live our lives and what we must do with what we earn, that is tyranny. The fact that they do it with the best of intentions and warm hearts, forcing upon us what they in their infinite wisdom know is best for us doesn't make it any less so. To be clear, this is not to say that Barack Obama is a tyrant, in particular. The move towards tyranny has been a gradual one, beginning with FDR and the New Deal. Johnson brought about a second major move away from liberty. Clinton attempted such a major shift, but was largely unsuccessful, being thwarted by millions of citizens like myself who stood up and opposed it. Obama is attempting to bring about a third. The line we have discussed which marks the accepted limit of government has been pushed very far from where it was intended to be, and Obama's latest expansion of Federal power represents another large shift in that line.

10. I don't think that the restriction against selling insurance across state lines is going away, although I'm not sure. If it's in the bill, I'd like to know about it. I think that what Obama was saying is that the public option will be added to the current options, not that you can buy private insurance from anywhere in the nation. His statement about malpractice reform was entirely unspecific, and there is nothing in the current bills about it, so until we get something specific, we'll have to wait and see.

11. Obama has a rhetorical talent for using language that sounds moderate or conservative to lure his listeners into complacency, but he is still pushing for hard left policies. It is really easy to think that he is agreeing with you, but in the end the result is always more government, less liberty, more taxes, more spending, more government mandates, more redistribution, more centralized control, more collectivism. He talks about competition and choice, but what you get is government monopoly and mandates. He talks about market forces, but imposes centralized controls. He talks about self-reliance but makes policies which create dependence on government. He talks about the perils of too little government, when our government is the nation's largest creditor, borrower, lender, employer, consumer, tractor, grantor, property owner, tenant, insurer, health-care provider, and pension guarantor. He promises that Obamacare will be deficit neutral. The spending increases are real and immediate, but the matching cuts are unspecified and unenforceable. I've seen too many cases when politicians promise future spending cuts which never happen. We're still waiting for the spending cuts Congress promised to Bush Sr. in exchange for a tax hike. The taxes went up, but the spending cuts never happened. Why not put the spending cuts in the bill along with the spending increases? I'm watching what he does, and it doesn't match his words.

Running the numbers

A major argument presented by Democrats in support of Obamacare, along with extending coverage to uninsured people and preventing unfair treatment from insurance companies has been that we need to reduce the rate of growth of medical costs. Obama cited the statistic that medical expenditures are growing at 6% annually, about 50% more than inflation. The National Health Statistics Group at the Centers for Medicare and Medicaid Services reported in March that expenditures in the United States on health care surpassed $2.2 trillion in 2007, more than three times the $714 billion spent in 1990, and over eight times the $253 billion spent in 1980. With annual population growth over that period running at 1.3% that does represent a 6% growth in per-capita medical costs.

Why would medical costs rise faster than the cost of other things, like bread or cars or clothing? There are several reasons.

One is that the demographics of the nation have changed. The percentage of the population over the age of 65, who account for a large portion of medical expenses, has increased from 9.8% in 1980 to 12.7% today. That number continues to increase as the baby boomers reach retirement.

A more fundamental reason is that the medical services you buy today are not the same as the ones you bought in 1980. The advances in diagnostics, treatments, medications, and surgical procedures are staggering, and those advances are expensive. Bread, on the other hand, has not changed much. Thus it is not an apples-to-apples comparison. In circa 1980 health care was available today, it would certainly cost much less than modern health care, but there is not much call for outdated medical care.

Notice that these two factors are interconnected. As medical care improves, longevity increases and the number of elderly people consuming large amounts of medical services increases.

The cost of malpractice insurance and defensive medicine is another driver of medical cost inflation.

A key argument in Obama's speech on Wednesday was that Obamacare would save money in the long run by reducing the growth rate of medical expenses. Because government currently pays nearly half of the nation's medical costs, controlling those costs is essential to controlling the Federal budget. He said "If we do nothing to slow these skyrocketing costs, we will eventually be spending more on Medicare and Medicaid than every other government program combined. Put simply, our health care problem is our deficit problem. Nothing else even comes close." This is completely true.

Where he gets fuzzy is when he addresses this problem by increasing the portion of medical costs paid by the government in the hope that those very real costs will be offset by nebulous future savings which may or may not materialize.

“And if we are able to slow the growth of health care costs by just one-tenth of 1 percent each year -- one-tenth of 1 percent -- it will actually reduce the deficit by $4 trillion over the long term.”

I wanted to see if this was a reasonable claim, so I ran the numbers.

In 2009, the population of the United States is 307 million and the per-capita cost for medical care is roughly $7996. The total cost for medical care is $2.455 trillion, of which government pays $1.1 trillion.

According to Pelosi's estimates, which are exceedingly rosy, Obamacare would increase the portion of total medical costs paid by government from 45% to 50%. Any time the government has a big pot of money to give away, you can count on there being more takers than projected, so I expect a much larger increase, but we'll just go with her number.

Over time the objective is to see the lower growth rate make up for the immediate cost of the increase in the government-paid portion of medical costs. The only problem is that it doesn't. In the first year, the government spends $122 billion more than it would have spent, and the additional cost increases every year until 2106. Instead of reducing the deficit by $4 trillion, Obamacare increases the deficit by $23 trillion in 2009 dollars. Much more in nominal dollars.

If we have to wait nearly one hundred years for the benefit to outweigh the cost, that's not much of a payback.

If we assume that Obamacare will slow the growth of medical costs by twice as much as Obama suggests, the savings would outweigh the cost in 2065, but it would take another 28 years to recoup the cost from the first 55 years.

In any case, there is no reason to believe that Obamacare will result in any fundamental reduction in the long-term growth rate of medical costs. Obama claims that they will achieve some savings by improving efficiency and eliminating waste, but in the unlikely event that those are actually realized, they are one-time savings, not permanent reductions in the rate of growth which will compound year after year.

One can still argue that the benefits of extending coverage to more people is worth the cost, but Obama's attempt to tie Obamacare to the financial crisis by suggesting that his plan will reduce the deficit is just more misdirection. Obamacare is not fiscally responsible. It is just more runaway government spending.

Thursday, September 10, 2009

CNN joins Obama spin team

Democrats have been trumpeting the results of a CNN poll, suggesting that Obama's speech to a joint session of Congress last night increased public support for Obamacare from 53% to 67%.

They neglect to mention that 45% of those polled were registered as Democrats, and only 18% were registered as Republicans. The results are not surprising given the non-representative sample.

At my house support for Obamacare remained at zero percent.

You lie

Now that Obama's speech is over, it's the proper time to yell out "You lie" as we point out the distortions, deceptions, and misrepresentations in his latest in a long series of speeches on health care.

Obama repeated his assertion that his plan will allow you to keep your existing insurance and doctor, but threw in a subtle twist: "If you are among the hundreds of millions of Americans who already have health insurance through your job, or Medicare, or Medicaid, or the V.A., 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." In earlier speeches he said "If you like your health care plan, you'll be able to keep your health care plan, period." While his new statement is technically correct, it is very misleading. The Congressional Budget Office said that by 2016, Obamacare would lead to employers dropping coverage for roughly 3 million people. So while "nothing in the plan will require" you to change coverage, losing coverage will be a direct result of Obamacare for millions of Americans.

As I pointed out earlier, his statement that illegal immigrants will not receive benefits is untrue. But another fib is that tax money will not go to fund abortions. He skirts around that one by saying that tax money goes to fund insurance, and insurance pays for the abortions, but the fact that the money passes through a middleman doesn't change the fact that your money will be used to pay for babies being chopped up and flushed down a garbage disposal. Instead of these obvious lies, why can't the President just be honest here, and say "We are going to ask you to pay for some things you may not agree with, including medical care for illegal immigrants and abortions" and then explain why he considers that to be necessary?

Obama also repeated his pledge that "I will not sign a plan that adds one dime to our deficits either now or in the future. Period." For anyone who believes this, I've got some oceanfront property in Phoenix to sell you. Historically, big medical entitlement programs cost at least five times more than projected. This one will be no different.

Obama also reiterated his soundly debunked claim that he will make Obamacare deficit-neutral partially by using preventive care to reduce costs.

"And insurance companies will be required to cover, with no extra charge, routine checkups and preventive care, like mammograms and colonoscopies. Because there's no reason we shouldn't be catching diseases like breast cancer and colon cancer before they get worse. That makes sense. It saves money, and it saves lives." It makes sense and saves lives, but it does not save money. Two out of three is not bad. In an August report, The Congressional Budget Office found that: "The evidence suggests that for most preventive services, expanded utilization leads to higher, not lower, medical spending overall." Preventive care is a good policy, but we can't count on it to reduce costs to pay for his entitlement spending.

Obama resorts to his classic strawman tactic of misrepresenting the opposition's position: "On the right, there are those who argue that we should end employer-based systems and leave individuals to buy health insurance on their own." There may be some person somewhere who supports that idea, but it is not anywhere close to a mainstream conservative position. Later in the speech he brushed aside the claim that, "We plan to set up panels of bureaucrats with the power to kill off senior citizens." There has been some overstated rhetoric on this topic, but behind that rhetoric is a genuine concern that Obamacare will result in rationing of care, and that the dramatic cuts in Medicare will result in seniors being disproportionately denied care. Obama confirmed this concern when he suggested that an elderly lady who needed a pacemaker would instead be given a pain pill under Obamacare. His reinstitution of "The Death Book" in VA hospitals further reinforces the concern that budget pressures will cause the government to look for ways to save money by encouraging old people to die quickly and inexpensively. Obama refuses to address the real issue and instead simply marginalizes the critics. Towards the end of the speech he said "I won't stand by while the special interests use the same old tactics to keep things exactly the way they are." No one wants to keep things exactly the way they are. This failure to acknowledge the true objections of the majority of Americans reinforces the perception that Obama and the Democrats responded to the outpouring of opposition to Obamacare by willfully placing their fingers in their ears and yelling "La la la la la! I can't hear you!"

In his discussion of the "Insurance Exchange", Obama said that "As one big group, these customers will have greater leverage to bargain with the insurance companies for better prices and quality coverage. This is how large companies and government employees get affordable insurance. It's how everyone in this Congress gets affordable insurance. And it's time to give every American the same opportunity that we give ourselves." This is a deceptive attempt to deal with the objection that Congress exempted itself from Obamacare by giving the impression that Obama is extending to the unwashed masses the same coverage that Congress currently enjoys. Don't be fooled -- Obamacare won't be anything like Congresscritter Care. Your Senator will not be stuck in the same waiting list with you, waiting for rationed care.

And the old worn-out automobile insurance analogy, which has been refuted so many times that you have to conclude that Obama is intentionally distorting the facts: "That's why under my plan, individuals will be required to carry basic health insurance -- just as most states require you to carry auto insurance." Most states don't require you to carry auto insurance. In nearly every state you can opt to self insure, meaning that you are responsible to pay for any damage you cause. Therefore, using auto insurance as a precedent to argue for mandates against self insuring is nonsensical.

Obama's discussion of the public option included a major shift in how it was presented, attempting to minimize the scope and importance of that portion of the legislation. He claimed that less than five percent of Americans would sign up for the public option, and that no one would be forced to choose it. This is not true of any of the bills currently in Congress. Although there are now so many bills that you can't possibly keep them all straight, the primary House and Senate bills both require that large employers offer the public option or face heavy penalties, and they require doctors to enroll uninsured patients in the public option before treating them.

Obama also denies that the public option would be subsidized by tax money: "I've insisted that, like any private insurance company, the public insurance option would have to be self-sufficient and rely on the premiums its collects." This is far from the truth in any bill we have seen. The public option will be subsidized to the tune of hundreds of billions of dollars.

Obama repeats the claim that the public option will save money through increased efficiency and reduction of waste: "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." Who has ever heard of a government entitlement program which was not bogged down by excessive administration, waste, fraud, and bureaucracy? In its heyday, Welfare spent $1.11 in administrative overhead for every $1 they paid out in benefits. The bureaucrats got more taxpayer money than the Welfare recipients. Obamacare will not be run more efficiently than private companies which face constant pressure to reduce costs.

Another mindboggling assertion: "I will make sure that no government bureaucrat or insurance company bureaucrat gets between you and the care that you need."

Enough said.

He made the following promise: "I will not sign it if it adds one dime to the deficit now or in the future. Period. And to prove that I'm serious, there will be a provision in this plan that requires us to come forward with more spending cuts if the savings we promise don't materialize." This kind of provision has been included in other bills, and Congress routinely ignores them. A promise of unspecified future spending cuts isn't worth the paper it is printed on.

In trying to reassure seniors that Medicare cuts would not impact their coverage, Obama said, "That is why not a dollar of the Medicare trust fund will be used to pay for this plan. The only thing this plan would eliminate is the hundreds of billions of dollars in waste and fraud, as well as unwarranted subsidies in Medicare that go to insurance companies." The first claim is cleverly phrased to deceive without being technically untrue. There is very little money in the Medicare trust fund, which operates on a pay-as-you-go basis. However, Medicare money would be diverted from the budget to pay for Obamacare. And if we can save hundreds of billions of dollars in waste and fraud, why have we not already done so?

Obama mentioned medical malpractice reform, but carefully avoided committing to anything specific: "I'm proposing that we move forward on a range of ideas about how to put patient safety first and let doctors focus on practicing medicine." If anyone has a clue about what that means, let me know. Defensive medicine is only half of the equation in reducing unnecessary malpractice costs. Tort reform is the other half, and he carefully avoided mentioning that in the presence of all his trial lawyer friends.

Obama repeatedly accuses his opponents of demagoguery, distortion, and fearmongering, but wraps up his message by saying, "Everyone in this room knows what will happen if we do nothing. Our deficit will grow. More families will go bankrupt. More businesses will close. More Americans will lose their coverage when they are sick and need it the most. And more will die as a result." Talk about demagoguery, distortion, and fearmongering.

Obama said that "If you misrepresent what's in this plan, we will call you out." Perhaps he should start with himself.