Saturday, September 12, 2009

What's in a name?

This blog is a disorganized compendium of semi-logical musings on politics, science, philosophy and the general self-indulgence of blogging by an entirely unqualified pundit wanna-be.

My blog title is probably a bit obscure - a lame mathematical joke. Boolean algebra and logic rely on the idea that certain classes of problems can be solved or effectively analyzed by using only 0 and 1. The answer is true or false, black or white. In contrast, a continuum recognizes the gradations between absolutes - the shades of gray or the infinite sets of real and imaginary numbers between 0 and 1.

We live in a continuum of opinions, but individuals often act as though everything is Boolean relative to themselves - you are either with me or you are against me. You are for the worker or for business. You are socialist or you are capitalist. We perceive ourselves as absolutes of white and black but are moving through a sea of gray. Through eyes seeing everything on our side is right and everything on the other is wrong, we come to believe our perception is reality. The other is a liar, the other wants destruction of our country, the other cares only for profits.

Truth is in complexity and chaos. The only things not moving, adapting and evolving are dead.

Can we have a policy discussion?

I've read the house health care plan.  Similar to any law, some of it is a bit like reading Leviticus, so I won't say that I understand it all.  Based on what I do understand, from the published plan and the president's health care speech, below are the planks of "ObamaCare" if it were enacted as the president proposes.  I've used blue italics for what I consider facts to try to separate facts from my opinion and interpretation

1.  Everyone will have to buy insurance except for those on Medicare/Medicaid.

2.  Those who can't afford insurance policies will be partially subsidized by a voucher funded by tax dollars from a number of proposed sources. Vouchers are used to help pay for insurance from any company at their standard published rates.  Everyone on the voucher program will have to contribute something (no free health care except Medicare/Medicaid).  The government will set standards as to what is the minimum acceptable plan so that tax dollars are not spent for companies that do not provide adequate coverage.

3.  Insurance companies will have to insure anyone who comes up with the money to buy their standard policies at their published rates.  Thus, no pre-existing condition exclusions and no dropping people when the become sick.  Also no raising rates on individuals or small businesses just because the person or an employee becomes seriously ill.  This means that insurance contracts will be multi-year commitments that cannot be dropped or modified to adjust the insurance company's bottom line.  If insurance companies cannot drop anyone and if everyone has to buy insurance, then the unfairness of covering pre-existing conditions should disappear after an adjustment period.

4.  Small businesses and individuals can create "Cooperatives" to negotiate group rates with insurance companies in the same way that big corporations do.  In effect these are bargaining unions that multiply clout in the same way that a worker's union does.

5.  A public plan will be set up to run similar to the U.S. Postal Service.  The plan will not be subsidized (note that USPS is not subsidized - there is a lot of misinformation on this point).  The public plan will set its rates based on what it takes to pay claims and cover administrative costs.  The only subsidies will be the same that the private insurance companies are getting - through the subsidized vouchers that lower-income individuals can use to  help pay for insurance directly from a private company, through a cooperative, or from the public plan. Note that "lower income" implies someone making more than the poor who are covered by medicaid, but less than someone who can afford to spend $5K to $10K per year on a private policy. It seems to me that if the market works correctly, at the start the public plan will be cheaper than the private plans, which will force insurers to become more efficient and cut their administrative expenses.  Eventually, the public plan will be squeezed down because government programs are generally not as efficient as private companies in a competitive environment.  However, the public plan may still be able to fight back (much as the US Postal Service challenged by FedEx and UPS) to maintain some market share.  The dynamic competition between public and private should be a boon to health insurance consumers.

6.  A federal health insurance commissioner would be established to oversee regulations.  As I understand it the key issues will be
   a)  Setting the percentage of premiums that insurance companies must pay out in benefits (controlling the Medical Loss Ratio).
   b)  Setting the minimum policy coverage that will be necessary for a company to be eligible for the federal insurance voucher program.
   c)  Setting policies for creation of the Cooperatives
   d)  Overseeing development of the public plan bureaucracy.

7.  There are additional efforts proposed to reform Medicare and cut waste, fraud and abuse.  However I have not spent enough time looking at these to say that I understand them.  I welcome comments from anyone with information on these.

Back to commentary:  I'm trying as best I can to not spin things, but since I support the plan I probably have put things in their best light rather than worst.  I would really like to hear from people who have rational arguments as to why some of these are bad policies or where I have any facts wrong.   Let's have a reasoned and logical discussion.  I'm not going to change your ideology and you're not going to change mine.  But we can discuss the implications of the above policies on how the health insurance system will work or not work. I don't believe in one party rule.  Democratic republics work best when people of reasoned views can discuss and explain their viewpoints and reach a compromise.

As an example of what we might discuss, one of my major concerns is the idea of the health commissioner controlling the Medical Loss Ratio.  On the one hand, it is very satisfying to my developing progressive ideology to tell the insurance companies that they must revert to the old system of making money by investing premiums so that they are gaining the time-value of money between collection and payout (the historic approach to all insurance).  On the other hand, my well-entrenched liberal ideology (which is different than progressive ideology) says that a direct setting of the Medical Loss Ratio seems a bit like the wage and price controls implemented by Nixon, which were a disaster (note that wage and price controls are, strictly speaking, a form of either fascist or communist policy - two very different ideologies, one from the left the other from the right, the wind up in the same totalitarian place).

Right now, my liberal side is winning and I think that the direct intervention of the government through competition in the public plan would be more effective than prescriptive control.  That is, the public plan will operate with a very high Medical Loss Ratio (Medicare is 96%, compared to 84% for Wellpoint and 82% for Aetna).  If the competition from the public plan is effective the private companies will be forced to become more efficient, which will naturally drive up their Medical Loss Ratio.  I like this idea rather than mandating a specific Medical Loss Ratio.  In the long run, whenever we place regulatory mandates on an industry we find that lobbying power will eventually relax the mandates and make them irrelevant.  However, if we lose the public plan I don't see how we get sufficient competition to ensure a dynamic market, so mandating the Medical Loss Ratio may be a necessary evil.  UPDATE:  Dec 19, 2009.  It looks like the public plan is not going to be part of the senate bill, so I've given the MLR more thought. My conclusions aren't pretty:

If you're interested in this discussion, you should be able to state whether you think the present system is working or broken.  If you think that its broken and the ObamaCare policies won't work, then what are your policy prescriptions?  Is the status quo sustainable?

My views aren't set in stone, but I can't learn and adjust unless and until someone more conservative than myself can challenge me and provide some clear and reasoned ideas. As yet, I have not heard a single conservative politician, think tank or individual provide any reasoned analysis or discussion of the above points.

Wednesday, September 9, 2009

In my dreams

Here's what I'd like to hear from our president tonight.

My fellow Americans, we are in the beginning stages of a strangling economic crisis driven by the rising costs of health insurance. As has been noted by the GOP, small businesses are the job creators and economic powerhouse driven by American ingenuity and our penchant for risk taking.  But the cost of health insurance is making it harder for enterprising people to justify leaving the security of a large corporation to branch out on their own or join a start-up venture.  The high costs of health insurance and its linkage to corporate employment will, in the long run, strangle our economic growth by reducing the mobility of our workforce and entrepreneurs.  Americans have always risen to a challenge, but we are better at answering acute challenges, such as the collapse of Collateralized Debt Obligations developed by unregulated bankers, than we are at addressing the creeping, yet serious distortion of our economy that is driven by health insurance costs.

We cannot afford to wait until the problem is acute.  We must take action to make sure that our entrepreneurs start businesses and our workers change  jobs to use their talents efficiently in the world marketplace.  We cannot afford the stagnation that comes with people working where they are not their most productive.  We need to address this now, not later.  The longer we wait, the more entrenched will become the attitude that health benefits are more important than the job itself.

It is unfortunate that the debate has devolved into shouting matches over death panels, death books and nationalization.  I take responsibility for having set the process off on the wrong foot - from the very start we should have been clearly talking about health "insurance" reform, rather than health "care" reform.  We don't need the government or  insurance companies getting between patients and doctors. We aren't talking about changing the health care that American's receive, nationalizing it, or subsidizing it for all Americans.  What we are talking about is changing how health insurance is paid for and who profits from it and how to make sure everyone has access. What we need is a level playing field and true competition in the insurance market.

At the moment, the market is dominated by a few large players who have little or no incentive to compete with each other in providing real health insurance.  Most of their efforts are spent in finding new and better ways to deny benefits.  We know that we cannot regulate efficiency.  The government cannot force insurance companies to be more efficient or reduce costs.  We know that the best way to develop market efficiency is by competition.  Only when corporations are threatened by real competition will they invest in and develop new ideas that will bring efficiency and cost reductions to the marketplace. The beauty of competition is that it releases creative energies that sit lethargic when money can be made by operating the same old system in the same old way.  We believe that for-profit health insurance corporations are presently so inefficient that a government-run health insurance program will be able to undercut their price structure.  This will make the insurance companies get competitive or get out of the business.  We know these companies can be more efficient than a government-run program, but only if the are forced to compete.

Make no mistake - if we do not have a public health insurance option, we will not have real competition and we will not see any significant reduction in health insurance rates.  If we are going to keep entrepreneurial start-up businesses going and workers moving to productive new companies, then we must have real health insurance reform.

To remove the appearance of conflicts of interest, I call on all Senators and Members of Congress to sign a pledge to not take any money from health insurance companies for the next two election cycles. Now let's get down to work.

Saturday, September 5, 2009

A not so happy fairy tale, part I.

Once upon a time, a land far across the sea was plagued by pirates (and we don't mean last month in Somalia).  The rich men who were losing vessels and cargo were losing money, while those whose ships made it back made lots of money.  As they whinged around the fireplace at Lloyd's coffee house, an enterprising soul offered up a fresh idea.  He would arrange a consortium by which everyone would pay into a common pot out of which those who lost vessels would be compensated.  And thus, the almost modern idea of insurance was born.

It quickly became clear that while the ships were out at sea, there was a lot of money just sitting around, and the insurer could make some money by investing it in other markets.  The idea is pretty simple - you take in $1000 in insurance premiums, out of which you pay yourself $30 or $40 to cover your bar tab, and plan on using the rest to pay off on losses - you know there will be losses because there be pirates out there.  However, until the losses come in you get to invest the premiums.  A shrewd investor might may 10% or 15% on the premiums, pocketing another $100 to $150 by the time the ships came back (or didn't) and he had to pay off on losses.

Of course, sometime investors lose money.  When that happened, the unlucky investor/insurer found himself destitute.  The insurer had to pledge all his assets in surety for the premiums.  After all, who in their right mind would hand a big stack of money to someone if you knew very well that they could spend the money on gambling and horses then declare bankruptcy.

This system worked well for several hundred years.  The thought of losing everything and ending up in debtors prison kept the Lloyd's insurers conservative and honest (or relatively so).  Then, an evil witch invented the limited liability corporation.

To be continued...

Inflation in health care and education

Two industries have a 30-year record of high inflation: education and health care.  I'm in one and pay for the other.  Most people just pay for both and are frustrated by the contrast with television, computers, cars, and almost everything else that gets cheaper and/or better.  My first solo airline flight was from Seattle to New York in 1980.  The flight cost $800 (in 1980 dollars!) booked way in advance; I could jump on a flight tomorrow for less than $500.

The common problems for education and health care are 1) an inability to achieve any significant gains by automation and 2) a growing, perhaps metastasizing, organizational structure deemed necessary to serve more people.

In the past 30 years, there hasn't been much of a change in how many patients a doctor can see during a day.  Likewise, at the university level we can sometimes shoehorn 300 or 400 people into a few large lectures, but most real learning, from K-12 and beyond is done in smaller classrooms. As a result, for both doctors and teachers the ratio of boots-on-the-ground workers to consumers served has not significantly changed.

As enrollments have expanded to meet our larger population we aren't developing new school districts or new universities.  Instead, we add schools to existing districts add new campuses to existing universities.  The result is larger school bureaucracies where the support staff are increasingly the tail wagging the dog.

I have less experience with the health care system, but from the outside it appears that the  complicated billing procedures of insurance companies and medicare are continually pushing up the numbers and quality of support staff required.

Given the above, it's not surprising that education and health care costs are continually outpacing inflation.  Unfortunately, there isn't a clear solution.  There isn't much hope of addressing the worker/consumer ratio without degrading education or health care.  Thus, we are left with trying to address issues of the bureaucratic structures of both industries.

Anyone got a fix?

Friday, September 4, 2009

Why I'm lobbying against health insurance reform

I really don't want to lobby against health insurance reform.  But I have to - even though I'd like to see a public health insurance option pass.

Like most middle-class Americans I own stock in a number of health insurance companies through mutual funds in my retirement plan.  These companies are using the shareholders money (my money) to lobby against my interests.  It's perhaps a straw man, but I suspect the facile response of  academic free-marketers is that I shouldn't invest in companies that do things I don't like.  Unfortunately, that would mean dropping entirely out of the capitalist system.  One simply cannot work a normal job and expect to save for retirement without investing in mutual funds through 401(k) programs (which often don't allow individual stock choices).  As a result, I'm invested in a rather large and diverse number of companies, over which I have little control.

My interests as a shareholder are in the survival of a dynamic capitalist system and profit from diverse holdings within it. With the exception of a few companies that have large individual shareholders, most stock is held by people who are not solely interested in the well-being of only a single company.  Those interested in a single company can afford to have the "damn the world, I'll get mine" attitude that leads to the apocryphal invisible hand of Adam Smith.

If you're only interested in a single insurance company then it makes sense to lobby congress, contribute to political campaigns, and generally wield whatever influence you can to make sure that your company and your industry are advantaged in any legislation.  The same argument applies if you are in the upper levels of corporate management.  When your income, bonuses and stock options are tied to a single company that company is paramount.

However, there is an unwarranted leap when the corporate officers claim they are fulfilling their fiduciary duties to shareholders by influencing legislation for preferential treatment.  Because the shareholders are not monolithically invested in the company, it is not in their interest to see the markets distorted - such distortion artificially inhibits other industries and companies that the shareholders are also invested in.  Through political influence gained by spending other people's money, the titans of industry are able to retain and expand their positions.  In this way, they are no different than politicians, except that I don't get to vote them out of office.

The root cause is how easy it is to spend other people's money.

The solution is as simple as it is  unattainable.  We need laws (or perhaps a constitutional amendment) that makes it clear that only bonafide homo sapiens - and not corporations - have a right to petition congress (i.e. lobby) and contribute to political campaigns.  Imagine, with one simple law the corporate (and union, and non-profit) executives could no longer spend other people's money to advance their narrow interests.  If the CEO of a company believes that lobbying for or against a bill is in his interest, then he should put up his own money, not the shareholders. Likewise if unions believe that a particular issue is worth lobbying, they should get their union members to contribute but should not be able to simply direct the union dues.

Simple, workable, and it will never happen.

hello world

Its late and I can't sleep.  Lately I've been dumping way too much onto Facebook posts - mostly ranting about health insurance reform.  Thought I might start a blog so that I can prevent some of my friends from becoming ex.