Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

29 August 2009

An Open Letter to Seniors on Health-Insurance Reform

Dear Seniors,

Now I’m one of you (or us). I’m 64.

I can feel myself getting frailer year by year, and my memory isn’t what it used to be. It’s getting tougher for me to accept change, and I like my own life to be as stable as possible.

So I think I know how most of us feel when it comes to health care and health insurance. We don’t want to rock the boat that keeps us out of the River Styx.

But I wish we all could see, as I do, how the health insurers are playing us. They’re using tactics old as Caesar: divide and conquer. If they can make us think that some unknown enemy (young folk or “government”) is going to weaken our health care just when we need it most, they’ve won. Then they can keep things just the way they are, which are very profitable for them.

But in fact the reforms on the table will make things better for everyone, including us. The insurers don’t want us to think about that. Here are a few facts they don’t want us to consider:

1. Things aren’t so good for us right now. Most of us are over sixty. So a key statistic for us is life expectancy at age 60. That’s how much longer, on the average, a sixty-year-old can expect to live.

In that measure, the United States rates dead last among the world’s twenty-three richest industrial democracies.

Let me repeat that. If you’re sixty today, you have the shortest statistically predicted life span of anybody in the world’s twenty-three richest countries. Your predicted life span is shorter because you live in America.

So maybe us seniors’ natural tendency not to rock the boat isn’t such a good thing after all. For us, the boat is pretty leaky right now.

2. The uninsured can bring disease to our doors. Think about it. Who does our domestic chores? Who does our housekeeping and gardening? Who brings us those Meals on Wheels? If you live in a retirement or nursing home, who makes your bed, brings your medicine, and makes and serves your meals? Most likely, they are among the lowest-paid workers in our society and therefore part of the 47 million uninsured.

What happens when they get sick? What happens, for example, when they get swine flu? They don’t have insurance, so they don’t go to a doctor. They have no preventive care, so they won’t get vaccinated (unless their workplace requires and provides the shots). They don’t stay home when sick because they have no doctor to tell them to, and they’re afraid of losing their jobs. So they come to work—to our homes or beds—and bring the flu right to us.

It might not be swine flu. It might be ordinary flu or the common cold. It might be drug-resistant TB, or MRSA—those deadly multiple drug-resistant bugs that kill people abroad and in hospitals. The fact that these low-paid workers don’t have insurance makes it far more likely that they will bring disease and death right into our homes, unawares.

3. Insuring everyone will save us money. The insurance companies want us to worry that bringing everyone into the system will impair our own health care. Exactly the opposite is true. The whole idea of insurance is to spread the financial risk of bad events (like disease and injury) over a large pool of insured people. That lowers the costs for all the individuals in the pool, including us.

Those 47 million uninsured are about 15% of our population. So adding them and their premiums into the insurance pool should lower our costs considerably. The reduction should be even more than 15% because most of those folks are young and healthy. They generally don’t make as many claims as us seniors. (Getting the poorest covered may cost us some tax money to subsidize their premiums. The amount and timing of that subsidy are still up for negotiation. Getting everyone covered should not be.)

Most of us seniors have private insurance, Medicare, or both. But even if you have Medicare (which incidentally is government insurance), insuring the uninsured will save you money. Why? Because the uninsured wait until they are nearly dying before seeking help. Then they rush to emergency rooms, where their care costs much more. Someone has to pay for that care, and that someone is you and me. We pay for it in taxes, subsidies to hospitals that charge people with insurance more, long waits for emergency rooms in the best hospitals, and a public-health system that is stretched to the breaking point.

You may have heard the saying that “there’s no such thing as a free lunch.” There’s no such thing as a free health care, either. When 47 million people don’t have basic preventive and family care, the cost of their preventable illness and failure to get timely treatment falls on you and me.

4. Health-insurance reform will improve our quality of care. You may think you have the best health care now, but are you sure? Are you competent to second-guess your doctor? Do you have the training in medicine and biology? Do you know the terminology? Can you separate good medicine from quackery, on the Internet or otherwise?

Medicine today is horribly complex and growing more so daily. Our own personal genome—our DNA—has three billion genetic “letters.” That’s ten times as many people as there are in our entire country. (Just try to count that high!) Today, some of those letters may determine how best to treat us if we get cancer. Is the average Medicare practitioner up to speed on all of this?

That’s what we face when we step into our doctor’s office. No single doctor can know all of modern medicine—or even a small fraction of it. That’s why the most sophisticated doctors specialize narrowly.

So we depend on two “gatekeepers” for our care. The first is our doctor. If his or her knowledge or skill is weak or outdated, we lose. The second gatekeeper is our insurance company, usually a for-profit company with a financial incentive to deny claims. If what it pays for doesn’t include the latest medical advances, we lose. A lot of private insurers don’t cover the latest medical advances because they are slow to react and the new coverage would cost them money.

Health-insurance reform will bring together panels of our best specialists to keep medical knowledge and insurance payments accurate and up to date. They’ll determine what works best and what doesn’t. They’ll put their conclusions on the Internet for all to see. Then they’ll make sure that our system provides quality care to everyone.

Their purpose will be to make sure everyone gets good care and that it gets paid for. They won’t “pull the plug” on anyone. Their job will be to make sure our own care doesn’t depend on random events like a single doctor’s knowledge or a single private insurer’s outdated and self-serving exclusions.

5. What legacy do we want? We’ve already lived most of our lives, and mostly they’ve been pretty good. Do we want to be remembered as the generation that continued to deprive one-sixth of our population of a chance for decent health care and a decent life? Or do we want to be remembered as part of the generation that made Harry Truman’s promise from the 1940s come true?

The fact that health-insurance reform will actually reduce our own risk of disease and suffering, cut the cost of our care and improve its quality should make those easy questions to answer.

Any complex human system is only as strong as its weakest link. Our health-care system is no exception. Having 47 million uninsured people makes our public-health system pretty weak. Those millions don’t have access to a doctor when they’re really ill, let alone preventive care like vaccinations. This fall, they’ll bring swine flu right home to us.

So if you won’t work to get them health care just because they’re human beings who deserve a chance to live without disease, then do it because leaving them uninsured will put you at risk and raise your cost of care. Both points are true.

John Donne, whom we read way back in high school, said it best. “No man (or woman) is an island.”

Nowhere are those words more true than in health care. People without insurance and doctors are disease vectors. When they get sick, they’ll bring disease to us. Then the bell will toll for us.

Yours truly,


P.S. (for women only). This post’s primary point applies even more strongly to women with children than to seniors. Women put Barack Obama in the White House because they are more practical than men. Those who follow the news know that children are most at risk [search for “50 years” and read two paragraphs] of serious disease and death from swine flu. Once women understand that an uninsured day-care worker, teacher’s assistant, janitor or food-service worker might give their kids swine flu, and that the only things standing between their kids and a safer system are abstractions like “small government,” the “deficit” or “socialized medicine,” it will all be over but the shouting.

Source for life-expectancy-at-60 ranking: T.R. Reid, in “Health Care Conversations,” on Lehrer News Hour, Friday, Aug. 28. (Audio available here; transcript available on same site Monday, Aug. 31.)

T.R. Reid is a crack reporter from the Washington Post, the most ideologically neutral of our three national newspapers. (The New York Times leans left and the Wall Street Journal right.) He spent over a year studying health care around the world and wrote a book about it.


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27 August 2009

The End of an Era

I hate to upstage my lengthy post on industrial policy. But I can’t refrain from commenting on Ted Kennedy’s passing. It marks the end of an era. For people of my age (64), whom all three prominent Kennedys inspired, it is a sad, sad day.

Just over seven months ago, a very different era ended with Barack Obama’s ascension to the presidency. That was an era of racism, economic fairy tales, breast-beating jingoism, swindling the common man, and passing off shallow elitism as a counterfeit American value. It was a forty-year attempt to create a self-perpetuating ruling class of business elite—men and women far less intelligent and well educated than our Founders and infinitely less public spirited. These are the folks who would have ruled but gave us GM, Chrysler, Bear Stearns, AIG, Morgan Stanley (among many others) and economic meltdown. They are the ones who told us selfishness is good and will make us stronger.

Seldom do two so antithetical eras—the Kennedys’ and the one that Obama’s election gave the coup de grace—end so close to simultaneously. It is as if the poles of the universe collided and now are spent. Ted at least could take pride in outlasting his rivals’ prominence.

At their core the Kennedys were a paradox. They were one of the richest, most powerful families in the nation. Beginning with patriarch Joe, they strove relentlessly and obsessively for political power, with all the ruthlessness of recent immigrants. Had they not been so obsessed with political power and public service, they all could have led lives of leisure and dissipation. Ted almost did. But in the end Jack, Bob and Ted worked fanatically to put their immense wealth, education, and talent in service of American values and the common man. Jack and Bob died for their efforts.

Jack and Ted had big feet of clay. Both were womanizers. Jack reportedly “entertained” ladies (including a Mafia Don’s girlfriend) in the White House while his elegant wife Jacquie converted it into an international Camelot. Ted’s transgressions at Chappaquiddick are better known. I will never forget my own outrage when his ineffectual presidential campaign, which that incident terminated, destroyed Jimmy Carter’s chance for second term. (I consider Carter the most underrated president of my lifetime, but that’s another story.)

But the Kennedys were not just sinners. Jack Kennedy literally saved the world. In his short career as Attorney General, Bob put in place the task forces that (decades later) took down most of the American Mafia. Ted didn’t have any similar single triumph, but he worked for decades, tirelessly and effectively, to better the common person’s lot. He made us all more equal before the law.

In their personal lives, some of our greatest leaders also had feet of clay. Thomas Jefferson penned our stirring national credo: “all men are created equal.” Yet he owned slaves all of his life. The only ones he ever freed were his mistress, Sally Hemmings, and her children by him. He led a life of extreme self-indulgence, procuring every luxury available at the time. When he died, he left an estate so mired in debts that selling his slaves, land and immense library barely covered them. And as a skilled politician, he fought as hard as he could to keep the system of slavery that made his life of extreme self-indulgence possible.

We rightly remember Jefferson not for his self-indulgent lifestyle, but for those wonderful words. We fought our most terrible war to give them life. We have them to thank for a competent and highly promising president today. And some day—if we can bring them to full fruition—they will make us the strongest and happiest nation on Earth.

So in the end, Jefferson’s words mattered far more than his reprehensible life. What we do that lasts counts most.

Every biologist knows that genetic diversity is the secret to species’ survival. Equality is nothing more than that universal biological principle translated into politics. It is our chief national value, and the one that makes this nation work. Giving everyone equal opportunity—whatever their genetics, origin or station in life—is our primary unfinished business in constructing a more perfect union. Health-insurance reform is a small part of that effort.

Although born and living at the pinnacle of wealth and power, all three prominent Kennedys understood this. That’s why the passing of their era is so sad.

Not only did they understand our chief national value. They imbued it with unique passion and eloquence. Ted, in particular, knew there can be no equality without respect. And so he honored and respected his opponents and in turn earned their honor and respect. Virtually every sitting senator has named Ted as the most admired colleague, most long before he died.

All three prominent Kennedys had a passion for equality. But Ted, who lived the longest, matched it with unique maturity and grace. And as a result, he managed to make equality more real through legislation.

We are blessed with a president who has similar qualities. But who will take Ted’s place in that other branch? Who will stop the suicidal cycle of caricature, demonization and demagoguery that has made our Senate a mud-wrestling arena? Who will restore our dignity and grace?

We might not soon see Ted’s like again. That thought alone should provoke deep sadness and national introspection.

P.S. Here is President Obama’s eulogy for Ted Kennedy—one great man mourning another’s passing. While there are such people among us, there is hope.


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26 August 2009

U.S. Industrial Policy: “Cash for Clunkers” and Cap & Trade

Introduction: What “Industrial Policy” Is
What Industrial Policy Is Not
Cash for Clunkers
Cap & Trade

Introduction: What “Industrial Policy” Is.  Not for nothing did President Obama work as a professor for ten years. He knows how to teach us things we’ve had trouble understanding for decades.

The President’s latest feat is explaining the meaning and value of “industrial policy” without ever using the term. For that’s precisely what “Cash for Clunkers” is.

“Industrial policy” is the use of governmental power and influence in the service of specific (often neglected) goals that promote the general welfare, usually in the long term. Industrial policy works best—and is most needed—when markets fail to achieve (or sometimes even to address) important societal goals.

Securing energy independence, reducing pollution and global warming, containing suburban sprawl, providing efficient public transportation, conserving important natural resources (like oil) and, yes, providing universal health care and reducing health-care costs—all these are all goals that industrial policy can serve well.

As you may have noticed, private markets haven’t done these jobs, despite decades of paeans to their puissance.

Every other nation has some form of industrial policy. We did, too, during our most successful years, until Ronald Reagan gave us the notion that government is incompetent and private entrepreneurs always smarter. To prove that notion, Reagan and his sucessors virtually destroyed our public sphere, and much of our private sphere with it. But now that era is over.

What Industrial Policy Is Not.   To many conservatives, the term “industrial policy” conjures up the ghosts of socialism, even Communism. But government control of any industrial sector—let alone the entire economy—is obsolete. No serious policy maker proposes it anymore. If you haven’t noticed, Marx and Engels are long dead. They remain dead although conservatives delight in exhuming their corpses just to shoot them down again.

But industrial policy isn’t government control or anything like it. Saying industrial policy won’t work because Communism failed is a bit like cursing modern medicine because using leeches for bloodletting killed the patient. In the century-plus since Marx and Engels did their lamentable creative writing, economists and policymakers (even in Russia) have become much, much smarter. Comparing modern industrial policy with Communism is about like comparing modern open-heart surgery with leeches.

New economic theory disfavors mandates, even isolated, targeted ones. I have described economic mandates as like trying to fix a broken clock by forcing the hands to show the right time of day. The correct time will soon be incorrect, and the method totally ignores the delicate mechanism that needs fixing. To fix a clock—or an economy—you have to know something about the underlying mechanism and how it works.

That’s where industrial policy is today. Central control is out. Mandates are out. Specific, targeted incentives based on understanding markets are in. Incentives like that are what “Cash for Clunkers” provided and cap-and-trade will provide once adopted.

“Cash for Clunkers.”   “Cash for Clunkers” (C for C) is a particularly elegant example for three reasons. First, it’s so simple. Anyone can understand that giving consumers $3,500 to $4,500 to buy a new car is going to motivate purchases that might not otherwise happen. And anyone can understand there is no coercion involved. The extra money is a benefit to consumers; the sales it motivates are voluntary. C for C preserves free markets and free choice.

Second, C for C is elegant because it serves the general welfare in several ways simultaneously. It induces fearful consumers to open their wallets, thereby promoting consumer spending and advancing economic recovery. By inducing consumers to trade inefficient cars in for more efficient ones, it reduces our total demand for oil, decreases our purchases of foreign oil and helps curtail climate change. And by creating a spurt of new sales, it jolts the moribund auto industry into life. That, in turn, leads to increased production and employment in our hard-hit manufacturing sector.

C for C also helps fill the coffers of hard-pressed cities and states. For every car sale it motivates (which otherwise wouldn’t happen), a state or municipality gets a sales or use tax. Let’s say the average price of a C for C car is $15,000, and the average sales/use tax is 6%. Then each sale brings some state and/or its cities some $900. So far, the average C for C incentive is about $4,200. At that rate, $ 3 billion will bring 714,000 new sales, putting $642 million into the coffers of states and cities. As you can see by comparing the incentive with the car price, over three-quarters of that sum will be private money.

Economic growth, energy independence, climate remediation, industrial recovery, increased employment, and relief to states and cities—C for C serves the general welfare in six separate ways. It is a “six-fer.”

Finally, for all that it does, C for C is incredibly cheap. Even with the new tranche of $2 billion, its total projected cost so far is $ 3 billion. That’s not even pocket change today. Here’s how that cost compares to the cost of other government initiatives:

ProgramRelative Size of Investment in C for C
Proposed Health Care Fix0.3 percent
War in Iraq (so far)0.4 percent
TARP0.4 percent
Cost of Keeping GM and Chrysler Alive (so far)4.0 percent

Perspective requires noting that C for C is a small program as government programs go. It is not going to solve any of our major problems all by itself. But it does so much, so well, for so little. And it is so self-evidently effective that it has not only engendered little political opposition; it has met with almost universal approval.

That’s how industrial policy ought to be.

Cap & Trade.   Unfortunately, not all industrial policy is so simple to understand. Cap and trade addresses a much more difficult problem than short-term economic stimulus. How can we get polluters to pay for the enormous costs they impose on the rest of us through local and regional air pollution (which ultimately poisons even fish) and climate change?

Those costs are real and growing exponentially. Polluters are treating the air we breathe and our planet’s atmosphere as their personal dumping ground. They pay nothing for the privilege.

Every homeowner who pays for trash removal or the privilege of using a country dump should know that isn’t right. Yet somehow the public hasn’t connected the dots.

Government can’t pay for the massive pollution because the costs are huge. Paying them with taxes would bankrupt us. Anyway, paying with taxes is a bad idea because it would create no incentive for polluters to clean up their acts.

Polluters can’t bear the huge costs of cleanup alone because present market mechanisms don’t include those costs. If we suddenly charge them for dumping into our atmosphere, they will simply raise their prices, and we will have to pay more for coal-based electricity and certain manufactured goods. If we try to prevent them from passing the costs on (for example, through price controls), the polluters will incur massive losses and eventually go bankrupt or require bailouts of their own.

So we have only two choices. We can continue to let polluters use our air and atmosphere as their personal dumping grounds, free of charge. That way we’ll pass on the costs (including respiratory disease, tainted sushi, violent storms, and coastal and island erosion) to our children and grandchildren. Talk about generational theft!

Or we can find a mechanism to let all of us (through taxes or higher prices) pay to reduce pollution and serve the general welfare. We can pay through taxes or higher prices, but someone has to pay. There is no such thing as a free lunch.

Cap and trade provides the best solution that economic thinkers have yet devised. For the first time ever, it puts a market price on pollution. It makes polluters pay to dump their effluent in our air, just as homeowners pay to have their trash hauled away or to use the county dump.

But cap and trade does more, much more. By allowing polluters to trade the dumping rights they buy, it gives everyone incentives to pollute less. Anyone who can figure out a way to do what they do while polluting less can sell their unused dumping rights to more grievous polluters. Major polluters like electric utilities can. But so can everyone in industry—even farmers. All have incentives to cut greenhouse-gas pollution and make money (or save money) by doing so. You can’t get much more sophisticated in understanding markets than that.

I know, I know. The current cap-and-trade bill has far too many exceptions for coal-burning firms—the greatest polluters. But the political power of these polluters (mostly from small states), derives from the Great Compromise that formed our Union. There’s not much we can do about it now but call a new constitutional convention and get the small states to give up their political power voluntarily. Good luck with that!

So on the theory that half a loaf is better than none, we have to accept the monstrosity that Congress has wrought. Over time, the relative effectiveness of cap and trade over alternatives (including taxation and regulation) will become apparent. And as the new market mechanisms begin to put a price on dumping in our air, the economic cost of dumping will become apparent with time. No longer will the public or polluters consider pollution a “right” or costless act.

Our Teacher in Chief has to explain all this, in words that any citizen can understand. Fortunately, he’s extremely good at it.

But there’s one thing about cap and trade that needs much more explaining. In the short term, prices for some things will rise, as polluters begin to pay for dumping in our air that we used to allow for free. The polluters have no choice but to pass the new costs on in their pricing. That’s how markets work.

But that’s only half the story. The whole purpose of cap and trade is to motivate change. It’s not to keep the status quo, whether in pollution or anything else.

Cap and trade will change the status quo in five ways. First, the direct costs it imposes on heavy polluters will motivate their investment in equipment and technology to reduce pollution and hence their costs. Second, light and incidental polluters (like farms whose animals fart methane) can make money by reducing their pollution (for example, by changes in animal diet or husbandry) and selling pollution rights to others. Third, if prices for electricity and other things do rise, consumers will have an incentive to use less. For example, they might turn off lights and heat in unused rooms or buy equipment to do so automatically. Fourth, industrial users will have the same sorts of incentives, which market forces generally cause to act more rapidly on them. Finally, manufacturers will have incentives (and market opportunities) to make equipment that generates electricity more cheaply, avoids pollution in doing so, and allows both residential and industrial users to conserve it without reducing its benefits.

No one can predict how cap and trade’s powerful incentives will change our world. At the turn of the twentieth century, horse shit and the flies it attracted were major annoyances and health hazards in big cities. If someone had proposed capping and trading the “right” to pollute our streets with horse shit, surely someone from the Wall Street Journal’s editorial board would have prophesied higher prices for horse rides and consequent economic collapse. But today horses are virtually gone from our city streets, used only (and rarely) for parades, by mounted police and for tourist photo ops.

The switch from horses to cars occurred without the incentive of a cap and trade program. How much faster will a similar switch from coal occur under powerful incentives to reduce its use? No serious economist can estimate the effect of higher prices without considering the huge changes that cap and trade’s economic incentives are designed to produce. Those changes are not quantifiable, so they can’t and don’t appear in any estimate of short-term cost increases. But how good is an estimate that doesn’t even consider the consequences of a program’s very purpose and modus operandi?

Cap and trade’s incentives certainly will motivate the development of whole new industries. Similar incentives have already produced a massive shift from incandescent to compact fluorescent light bulbs, which are four times more efficient. Including the cost of atmospheric dumping in making electricity from coal will also vastly increase incentives for exploiting wind and solar power, which (unlike coal) have near-zero marginal cost and produce no pollution.

So just like C for C, cap and trade will foster industrial development, new employment, and economic growth. And just as with C for C, the sales of the new energy-producing or energy-saving machines whose development cap and trade will motivate will fill states’ and cities’ coffers with sales and use tax from private sources, without federal subsidies.

Like C for C, cap and trade will even foster energy independence. It will reduce the use of coal—our most abundant fossil fuel—because it is also the most polluting fuel. But by pricing coal power closer to its true cost (including all that atmospheric dumping), it will boost the relative use of wind and solar power, which do not pollute and have near-zero marginal cost.

So cap and trade, like C for C, is a “six-fer” industrial policy. It’s just too bad that its benefits are not as easy to see.

The real marvel is that so-called “conservatives” fail to see them. They’ve spent the last forty years writing odes to the power of the markets. Yet when it comes to cap and trade, all they see is the short-term costs, not the medium-term and long-term changes that cap and trade’s market incentives will produce. This selective blindness to the power of markets requires the talents of our Teacher in Chief.


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19 August 2009

Health-Insurance Quid Pro Quo

If any health-insurance reform occurs in our lifetime, a grand bargain will produce it. On one side will sit insurance and drug companies and small minds from small states, who believe their minuscule populations can fend for themselves and want the rest of us to do the same. On the other side will sit the American people (except for the town-hall screamers who believe Medicare is a private company). So far the President has tried to stand in the middle, but he’s going to have to choose sides soon.

As candidate, President Obama promised to broadcast the negotiations on C-SPAN. That’s one of a very short list of promises he has clearly broken.

But no matter. In a brilliantly simple column, Bob Herbert of the New York Times has laid out the current quid pro quo for us. The insurance companies get millions of new customers, who will be forced to buy insurance or pay a fine. Most of them will be young and healthy and therefore unlikely to make many claims. The drug companies get a guarantee against government using the collective bargaining power of its millions of Medicare and Medicaid patients to drive down prescription drug prices. As Herbert cogently points out, these two points alone are worth billions in secure profits.

What do we, the people, get in return? The bills aren’t fully written yet, but as far as Herbert reveals and I can tell from news reports, we get two things. First, we get a ban on pre-existing-condition exclusions. Now one will ever again be refused coverage because of something that happened before the policy began. Second, we get a removal of caps on claims. We also get some experiments with preventive care, better quality control, and non-fee-for-service medicine. These experiments may improve care and lower costs in the long run, but they will take decades to do so.

These points are good and helpful. But there’s also a downside for us the people. Lots of (mostly poor) young and healthy folk, and lots who think they can’t afford insurance, are going to have to buy it or pay a fine. That’s called a “mandate.”

I am on record on this blog (see 1, 2, and 3) as opposing mandates. The President also opposed them as a candidate. Economists like Paul Krugman who have studied the issue more than I (and are probably smarter) say mandates are the only way to get everyone covered.

But mandates are political poison. They are a regressive tax on the poor and lower-middle class. If you want to read a touching and well-written description of how mandates can hurt struggling consumers, read comment number 49, by one “Leah,” to Herbert’s piece.

Mandates are also a red flag to right wingers. The only valid point I have ever heard right wingers make about health-insurance reform concerns mandates. They are government coercion, and they do decrease personal liberty. There’s no getting around those facts.

So that’s the grand bargain as it appears so far. Is it worth it? Is the average Joe and Mary getting a good deal?

I think not. I think the President and the Democrats (who after all, control Congress) are leaving money on the table, lots of it. If they were business people or lawyers negotiating for clients, they soon wouldn’t have any clients left.

Here, in rough order of importance, are what more we the people might ask for:

1. The “public option.” I know, I know. It’s not going to happen. But I put it first both to recognize its importance and to suggest how many of the following we the people ought to get in its stead. (For those who don’t know, the “public option” would have been a single government-run insurance plan, like Medicare, to compete with the thousands offered by private industry. Government-run health care, i.e., “socialized medicine,” was never on the table, as Paul Krugman explained beautifully in a recent Times column.)

2. Real competition. In another post, I analyze why so-called “competition” in health insurance is a joke. Basically, there are three reasons: (1) state regulation, (2) group (usually employer) bonding, and (3) the snowflake-like uniqueness and complexity of health insurance policies, which makes realistic comparison shopping impossible.

But you don’t need economic theory to understand why there’s no competition in health insurance. You can just look at results. We just had to bail out GM and Chrysler because they lost badly to competitors from Japan, Korea and Europe. We once had home electronics made by American companies named Zenith, Motorola and RCA. Now they’re all gone. Look around your home; you won’t find their names on a single device, unless (maybe) you’re visiting grandma. At the height of the PC boom, we had over two dozen computer makers. Now there are only Dell, H-P and (way down the list) Apple, with a Taiwanese company (Acer) rapidly gaining the lead in netbooks.

That’s competition. In competition, some firms win and others lose. In today’s flat world the winners and losers can be anywhere on the planet. Have you ever heard of a health insurer going out of business or losing to a competitor? Have you ever even heard of one losing substantial market share? Does any foreign firm dare enter our multiple mini-monopoly markets, knowing that lobbying is half the job? All our local health-insurance firms are fat and happy in their little niche monopolies formed by state regulation, employer bonding and consumer confusion.

Genuine conservative thinkers like David Frum are right about one thing [search for “national market”]: real competition would work wonders in cost control and give consumers some relief. But in order to get it we would have to completely restructure our national insurance market. We would have to have national regulation, an open invitation to foreign insurers, and some federally prescribed minimum and model policies that would let consumers comparison shop.

Don’t hold your breath. But if you like to call conservatives’ bluff, competition is what to ask for. It would do a lot of good, and we’re a long way from having it.

3. Immediate portability. Although 15% of us don’t have insurance, 85% do. Most of those 85% are pretty happy with what they’ve got, whether or not that feeling is justified. Probably the single easiest thing Congress could do to make those 85% dance with joy is to let them all keep the policies they have now until Medicare kicks in.

I’m not talking about keeping premiums fixed. That would bankrupt the insurance industry. I am talking about keeping people in the same insurance group after they separate from the organization that brought them into that group. For example, “immediate portability” would mean that you keep your employer-provided health insurance when you separate from your employer, for whatever reason. You would have to pay the same group rate that you pay now, as adjusted in the future. (That is, you couldn’t escape the increases in premiums that non-separated employees pay.) But you wouldn’t have to pay higher individual rates that insurers now gouge you with under COBRA. And as long as you could afford it, you could keep the same policy until age 65.

This simple plan would have three positive effects. First, it would assuage the single greatest health-insurance anxiety after claim denial: losing your health insurance with your job. Second, it would provide a natural transition to a non-employer based health-insurance system. (Conservatives should love it because the government wouldn’t be involved.) Third, it would expand insurance pools gradually, with employee attrition, giving insurance companies time to adjust their rates and their businesses. (Their terms, at least at the most basic level, would be fixed by minimum models prescribed the federal health-insurance regulators.)

4. National model policies. Comparison-shopping can’t exist unless there are things to compare. Right now, health-insurance policies are like snowflakes: no two are alike. The government could set up independent best practices panels of medical and health experts, leavened by an economist or two, to prescribe model insurance policies.

This program could have two variants. In the first, the model policies would be simply that: voluntary, non-mandatory models. Presumably some private businesses would offer them because the prestige and trust generated by the federal approval would attract customers. If more than one did, viola! Competition would arise.

In a second variant the model policies would be part of a new nationwide regime of federal health-insurance regulation, which would eliminate the industry’s state-by-state balkanization. The “models” would be mandatory in the sense that every private insurer would have to offer at least their basic coverage. Insurers could compete on price, responsiveness to claims, and ease of administration, or by offering non-mandatory extras at separately-stated prices.

5. National co-ops. Non-profit co-ops are the alternative to the public option now under discussion. Herbert dismisses them as “like sending peewee footballers up against the Super Bowl champs.” I partly agree, which is why they’re number 5.

But non-profit co-ops could do some good if they were national in scope and part of a new national regulatory regime for health insurance. If confined to separate states, they would be like the tiny co-op groceries that still exist in various university towns: they would provide a valuable service to their members but a negligible improvement in the general scheme of things.

As the ordering of this list suggests, I don’t think co-ops alone sweeten the deal for us the people enough to make it fair. A hard bargainer could get more: at least immediate portability, and perhaps a significant start on competition through federal regulation and model policies as well.

But if this doesn’t happen, don’t blame the President. That’s where I part company with Herbert. President Obama is a brilliant man. He often gets his way with a deftness and smoothness that I never expected until it happened. Examples are his winning the primaries with his soft approach to Hillary’s wrath, and his getting the auto makers to buy into radically increased efficiency standards. If there’s a way to get things done without making waves, “No Drama Obama” will find it.

But as brilliant a man and a politician as he is, the President is no Messiah or magician. Congress, not he, writes the law, including any for health-insurance reform. When his aides tell him credibly the votes aren’t there, there’s not much he can do. He can threaten a veto, but Republicans would just say “Bring it on!” They’d love to deride him as an over-promiser and a failure.

If health-insurance “reform” turns out to be a dud, the real culprits will be our Constitution and our Senate’s seniority system. As a recent brilliant piece in the Washington Post explained, they give senators elected by three percent of us the power to make health-insurance policy for the rest. We have no choice but to live with these twenty-first century consequences of our Founders’ eighteenth-century compromise. So does our president.

I keep hoping he’ll perform a miracle, as he’s often done so far. But if the small minds from the small states are intent on giving away the store to insurance and drug companies, there’s little that he or anyone else can do.

The only thing I can think of to bring them to heel is to boycott products from their miserable little states. But since most of them produce only coal and farm products (if anything that the rest of us buy), even that’s pretty hard to do. Maybe we could all refuse to travel as tourists to Maine, Montana, New Mexico and Wyoming for a decade or so. But Iowa and North Dakota? Who goes there except on business or to visit relatives? If anyone can think of an effective way to demonstrate our collective displeasure with these states’ senators’ small minds and coziness with special interests, please let us all know.

Epilogue: Where is Lyndon Johnson When We Need Him?

After all the horror and division of the Vietnam era, I never thought I’d be nostalgic for Lyndon Johnson. But despite his abysmal performance in foreign policy, he might be the only political figure of my lifetime who could get real health insurance reform through our Senate today.

Lyndon Johnson made a miracle in domestic politics. He got the Senate to pass the civil-rights laws that ultimately helped put Barack Obama in the White House.

People who didn’t live through that era (or aren’t history buffs) have no idea what a miracle that was. Jim Crow laws were still in force throughout the South. Nearly all Southern Democrats had built their political careers on a vile brand of open and easy racism that even Rush Limbaugh wouldn’t endorse today. Many had gotten their start in politics by being members of the Ku Klux Klan or its fellow travelers. Yet in the end they voted for equal rights for African-Americans in voting, housing, employment and accommodations.

They were a tough, tough bunch to convince. How did Johnson do it?

Some no doubt had their personal epiphanies and saw the nation’s future. But most needed arm-twisting.

Johnson was a big, gregarious, intimidating, gruff, and vulgar man. He knew how to twist arms and loved doing so. As former Senate Majority leader with decades in the Senate, he had something on everyone. He had done important favors for almost every senator, and he knew everyone’s secrets. He used to brag that he had every senator’s “pecker in mah pocket.” (There were no women in the Senate in those days, certainly not from the South.)

So Johnson twisted arms (and other appendages) with enthusiasm and a vengeance. He helped change the nation.

But he did so at a price. As he himself predicted, he gave the South and control of the nation’s politics to the Republican Party for two generations. Racists and know-nothings, who had once been a presence in both parties, gravitated to the Republican Party, where they slowly took control. Both parties lost their centers and became more ideological.

One price of Johnson’s miracle is the polarization of today. But there’s much more to it than that. There are reasons why no Senate majority leader since Johnson—and certainly no president—has been anything like him.

For one thing, the Senate has changed. It’s much more bureaucratic and rule oriented. In Johnson’s day, it was still an old boys’ club, for better and for worse. Senators from different parties drank, ate and partied together. When important issues came up, they wheeled and dealed in smoke-filled rooms. Now they posture and grandstand for the TV cameras, and they do so separately.

Worst of all, the Republican Party has changed beyond recognition. It now may be the most rigid and doctrinaire political party in American history—our closest analogue to the Soviet and Chinese Communists in their heyday. If a proposal doesn’t lower taxes, shrink government, and give the private sector more power, it doesn’t get their support. Period. Anything, no matter how silly, that embarrasses Democrats and makes them fail earns their admiration. Orrin Hatch (R., Utah), one of the Senate’s most senior and powerful Republicans, won’t even repudiate Sarah Palin’s “death panel” lie.

Today most Republicans admire Rush Limbaugh. Thinking, moderate Republicans of Johnson’s day, like Nelson Rockefeller, would have spat on him. But their breed has vanished from our political jungle.

The sad fact of our political life is that it takes both parties to accomplish anything significant. Not all of them, but just enough to compromise and move forward. Our Senate has become so ossified on the Republican side that it can’t do anything but respond to the most horrendous crises, like last year’s financial meltdown.

A big reason is ideology. We are still in the grip of the bumper-sticker ideology that brought us low. If you want evidence, read yesterday’s opinion piece in the Wall Street Journal by one Arthur C. Brooks. It’s unvarnished neoconservative cant. Its path to Nirvana is the same as always: lower taxes, less government, more power to private business. Not a genuflection does it make to the marvelous achievements of government over the last seventy years. Not a mention of Alan Greenspan’s humble admission that he had been wrong about the beneficence and self-corrective power of unfettered markets. It’s as if the last decade never happened and Friedrich von Hayek were still alive.

For better or for worse, our Founders designed our system to protect minority rights and power. Today our minority folk are in a rut. They’re so deep in it that even Lyndon Johnson couldn’t be Lyndon Johnson today. Whether they can extricate themselves before we become a third-world power is anyone’s guess.

Recent experiments on rats show that creatures under stress do the same things over and over, whether or not those things do any good. Maybe our Republicans are like that. They’ve trashed the country at home and abroad. They are now desperately trying to justify their misrule by arguing that more of the same policies that got us in this ditch will get us out. Maybe they’re under too much stress and need a rest.


1. The only other broken promise of real consequence was his reversal on federal campaign financing during the general election. I supported that reversal, for reasons laid out in another post.

2. A recent study by Consumer Reports [subscription required] has the self-explanatory title, “Why 4 in 10 Americans can’t depend on their health insurance.”


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16 August 2009

Health-Insurance Basics

1. What is insurance?
2. How to cripple insurance
3. Deciding coverage
4. Competition
5. Portability
6. Conclusion
Addendum: Best Practices Panels

Unlike our Constitution, our present system of health insurance was not the product of intelligent design. It just grew. To say it “evolved” gives it too much credit. It’s like the Spanish villages in Goya’s paintings, whose buildings seems to have grown organically, in no particular order or arrangement, at odd angles to each other.

What would our health-insurance system look like if we could design it intelligently from scratch, knowing what we know now?

The ideal is never attainable in real life. But exploring the ideal gives us insight into how best to change what we’ve got. It lets us see basic principles that any rational system of health insurance must meet.

1. What is insurance? Let’s start with the most basic point. Modern medicine is marvelously effective and horrendously expensive. The average American family cannot easily afford a short stay in a hospital, let alone a major operation like a coronary bypass, kidney or liver transplant, or lifelong treatment for a chronic condition like diabetes or HIV infection.

We could let the rich live and the poor and middle-class suffer and die. But doing so would upset our egalitarian values. So what do we do? We have insurance.

Insurance is a very simple concept. It lowers risk for individuals, i.e., the cost of unforeseeable bad events, by sharing the risk among a large population. In the case of health care, the bad events are disease and injury.

Fortunately, most of our population is healthy most of the time. So the idea of insurance is to have everyone pay a premium and so spread the risk and cost of disease and injury around. As long as the incidence of sickness and injury among the entire population is low, the insurance will cover everyone and premiums will be affordable. Everyone will have access to the best care that modern medicine can provide.

2. How to cripple insurance. The idea of insurance is so simple even a child can understand it. The larger the “pool” of insured people, the more effectively it shares risks and lowers premiums. (Larger pools also lower administrative costs through economies of scale, but that’s a smaller effect.)

Unfortunately, children did not design our present system. It grew under the not-so-benign influence of self-seeking adults, including private insurers and state governments. The result is a system that cripples the very idea of insurance, i.e., risk-sharing in a large pool.

The first way our present system cripples the very idea of insurance is a product of so-called “insurers” themselves. Nearly all exclude “pre-existing conditions.” Think of it. The idea of insurance is to spread risk among the largest pool of insured people possible. So what do insurers do? To lower their costs of claims they exclude people who already have experienced bad events. They do so on the plausible theory that recurrence is more likely than disaster striking out of the blue.

Policies with these clauses may call themselves “insurance,” but they are not. They don’t share risk; they refuse to cover it. The same is true of all the more specific exclusions in modern insurance, from pre-natal to psychiatric care.

Reporter Karen Tumulty wrote a wonderful story about this practice’s reductio ad absurdum. Her brother bought a series of consecutive six-month policies of so-called “insurance,” each of which excluded pre-existing conditions. When he made a claim under one of them, the insurance company went over all his old medical records with a fine-tooth comb. It found evidence of a precursor to his illness under a previous six-month policy, since expired, and so rejected his claim, calling it a “pre-existing condition” under the current policy.

That’s not insurance. It’s sophisticated swindling.

The same is true, to a lesser extent, of all the specific exclusions in modern policies. Those exclusions occupy the vast bulk of the pages and pages of dense verbiage in modern health-insurance policies. But how many people actually read them? And how many of those actually weigh the exclusions’ probable consequences against the prices of alternative policies?

The theory is that every consumer reads and understands every exclusion in every available policy, and then compares them all (and their prices!) with accuracy and precision. Then—with prefect knowledge and memory of all those details in her mind—she selects the policy whose combination of coverage and price is best for her. According to this theory, the average consumer acts like a bionic hybrid: a lawyer (to read and understand the prose), a doctor (to understand medical terms and foresee the likelihood of various conditions), an economist (to foresee financial implications) and a digital computer (to get all these details right and compare them accurately and precisely).

Of course this is nonsense. The vast majority of people don’t even read any policy in detail. Those that do read only one: the one they already have purchased, after they’ve purchased it. Then they throw it in a file and don’t look at it until disaster strikes.

The result, from consumers’ perspective, is not insurance. It’s a crap shoot. When disaster strikes, they search for their policies in their files and read the dense prose to see what is covered and to what extent. If the prose is unclear, they hire lawyers to fight the insurance company, putting resources that could be spent on health care in advocates’ pockets.

This system narrows the insurance pool. It decreases money applied to share health risks and spends it on lawyers and administrators. It produces uncertainty, anguish and anxiety, and it vastly increases the administrative expense of insuring health. From the consumer’s viewpoint, it looks like a shell game; when the chips are down nothing is quite what it seemed when the policy arrived. Any relationship between this system and the fundamental risk-sharing idea behind insurance is purely coincidental.

3. Deciding coverage. “But wait,” you cry. “Health insurance can’t cover everything!” What about hypochondriacs who go to their doctors twice a week, for every little ache and pain? What about cosmetic surgery? Should we spread the cost of mammoth mammaries, penile implants, and making vain people look years younger? What about pregnancy, which (in most cases) is a voluntary condition? What about experimental treatments that ultimately prove useless or counterproductive? What about milquetoast doctors who’ll do or prescribe anything (at others’ expense) just to appease their pushy patients? What about incompetent doctors and quacks?

And there’s the rub. Someone has to decide what risks to cover and share. There is no escaping that reality. The relevant questions are: (1) who makes the decisions; (2) whether the decisions are medically sound; and (3) whether the decisions get relayed to the public in a way that fosters informed and rational choices?

Right now, we have the worst of all possible worlds. Obscure private bureaucrats, deep in the bowels of private health insurers, make the decisions. They do so at two levels: (1) when they write exclusions into policies and (2) when they interpret the exclusions they wrote to deny claims. No one knows these private bureaucrats’ names, and no one (except their profit-seeking bosses) holds them accountable. They may have no medical or economic training at all.

Within the scope of coverage and exclusions set by these private bureaucrats, everyone makes the decisions. Every doctor has a say, often influenced (if not compelled) by insistent, anxious, and ill-informed patients. Every patient can “game the system” by going to a hospital, a doctor or a city with a reputation for offering expensive and perhaps unnecessary care. (Just think of how many years it has taken—and is still taking—to get doctors to stop prescribing antibiotics for viruses—against which they do no good—in order to retard bacterial drug resistance, and you get some idea of the problem.) And people who have or seek insurance have no idea of what they are getting, unless they resemble the bionic hybrids described above.

So our “system” is not a system at all. No one is in charge. The medical choices that we all pay for (through premiums and risk sharing) are haphazard, if not random. And few, if any, consumers are made aware of what’s covered and what’s not. No wonder health care is one of the worst—if not the single worst—sources of national anxiety and runaway cost!

The sad truth of health insurance is that someone must be in charge. Someone must play gatekeeper.

Oil sheikhs and other rich folk will always have access to whatever care they think they need, whether or not it has any sound medical basis, and no matter how much it costs. We do—and should always!—allow private insurers to charge whatever they wish for policies that support “oil-sheikh” care. But if we are to get serious about the basics of insurance—risk sharing in a wide pool with reasonable cost control—we need someone to decide what treatments are medically effective, which are best practices, and which experimental techniques are sufficiently promising to try in a broad population (and to charge the rest of us for).

We also need someone to make and maintain standard definitions. Right now, no one can compare policies because they all define terms differently. Is reconstructive surgery after an auto accident “cosmetic” and therefore excluded? Is counseling for diabetes or alcohol or drug addiction “psychiatric care”? Is jaw surgery after an accident or disease “medical care” or “dental care”? Having standard definitions for these and other common categories of coverage and exclusion would allow consumers, for the first time ever, to compare policies and premiums without becoming bionic hybrids.

Who should make these decisions on minimum coverage, which any insurer can exceed but none can deny? Who should define permissible exclusions and categories of coverage? Who should develop and maintain lists of standard and best practices as medicine advances and technology evolves?

Bureaucrats should not apply, whether private or governmental. Nor should lawyers, accountants or health-care executives. Nor should anyone with a profit motive in expanding or denying claims. What we need is a body of independent medical and scientific experts analogous to the Federal Reserve.

We trust people like Ben Bernancke and his fellow federal bankers to govern (and recently to save!) our entire economy. Not only that: we also give them extraordinary independence from the political process, so that their training and expertise can shine through the dust of political struggle.

We should create a panel of similar medical, health and scientific experts to make decisions about standard coverage, exclusions, and categorical definitions in health care. And we should take similarly extraordinary precautions to insure their independence from politics and special-interest pressure. [For more detail on these points, click here.]

4. Competition. For-profit health insurers love to praise “competition.” But the system we have today suppresses competition to the point of complete annihilation. It does so in three ways.

The first and most important is state regulation. Like all insurance, health insurance is subject to regulation by the several states, not the federal government. As a result, most states have monopolies or duopolies (two dominant firms) in health-care insurance.

As any economist will tell you, monopoly (or duopoly) is not competition. As compared to competition it offers higher prices, lower output, less efficient administration, and slower innovation. Health insurers love to say that federal-government insurance would bring on Soviet-style efficiency. But we already have Soviet-style efficiency, not just in one jurisdiction, but in close to fifty.

The second impediment to competition is the very “product variety” that private insurers love to tout. Like snowflakes, no two health-insurance policies are alike. Busy consumers can’t comparison shop because they have no hope of comparing policies and premiums quickly and easily. Present policies’ uniqueness and complexity elude comparison, except by our hypothetical lawyer-doctor-economist-digital computer cyborg.

Finally, the present system all but precludes vigorous competition among insurers because different insurers have different pools. Their pools are balkanized not only by state lines (and consequent state regulations) and differing coverage and exclusions. Under the present system of employer-based insurance, their pools are also balkanized by employer. Employees of big companies can choose only among insurers that their own big company selects, and competition among those insurers is limited at best.

Most large employers select plans that are not directly competitive, in order to give their employees “consumer choice.” For example, they may offer an HMO like Kaiser-Permanente, a limited-provider-network plan, and a (more expensive) choose-your-own-doctor plan. Some of them may also offer a stripped-down plan covering only basic preventative and catastrophic care. These different plans do not compete in the same market, so “competition” in health insurance offered by major employers is nonexistent.

Could an ideal system create real competition among private insurers? You bet it could! First, by pre-empting state regulation of health insurance, it would create a uniform national system of minimum coverage and maximum exclusion. That system could allow insurers to offer more, but not less, than the minimum. It could also require every insurer to price minimum coverage separately, for ease of comparison. Second, an ideal system would create nationally uniform definitions of categories, such as “psychological care,” “dental care,” “cosmetic care,” and “natal-prenatal care,” so that comparison-shopping consumers could compare prices without having to worry about the details of coverage (except for optional “extras”). Third, an ideal system would allow all insurers to sell policies across state lines, subject to uniform federal regulation for minimum coverage and defined terms.

Health insurers, of course, don’t want any of this. It would make them compete for real and work harder. They’d much rather tout the benefits of competition in the abstract without having to suffer any in practice.

5. Portability. The biggest political problem in “selling” health-insurance reform is numbers. Some 47 million of us don’t have health insurance, but that’s only fifteen percent. The other 85% of us have health insurance and are deathly afraid of losing it. So politicians have to convince the vast majority that reform won’t rock the boat by making health insurance scarcer or more expensive, or by producing other unintended consequences. That’s a hard sell.

The trick is to “sweeten the deal” for the already insured by giving them something they want badly. That something is portability.

Even today, the vast majority of health insurance is employer-provided. If people lose their jobs, retire or quit, they lose their health insurance. A federal law called COBRA allows coverage to continue at (usually higher) individual rates for a limited period of time, up to three years. But the thought of paying more for health insurance or even losing it (even if later) causes enormous anxiety among workers. It also impairs employee mobility, as people stay in jobs they hate to avoid the greater evil of losing access to health care.

COBRA’s conditions make no sense. An employee who is a qualified member of an employer’s insurance group today does not change his identity, medical condition or health status simply because he is fired, laid off, retires or quits tomorrow. He is the same person and should be treated as a member of the same insurable group, at the same group rates.

And why not until retirement? An insurer that covers an employer’s workers generally agrees to cover them all until retirement. It doesn’t impose conditions on, or generally even investigate, the employees’ career paths or success or failure inside the company. Why should it do so outside?

Congress could amend COBRA to allow all employees to keep their employer-provided health coverage after termination until Medicare, at the same group rates and terms that apply to persons still employed. Those rates and terms might change with time, as do employer-provided plans nearly every year. But there is no excuse for charging separated employees more on an individual basis or for refusing to cover them at all; they are the same people (and in the same risk pool) that they were before separation.

Full portability of this sort would assuage much of the angst of current insurance holders and provide much-needed political impetus for further reforms. But it would also do much more. As former employees moved around among companies and self-employment or small business, portability would create a larger pools of insureds—always desirable in insurance! Eventually, it would establish the economic and psychological conditions for a national, private health-insurance system independent of employment. Instead of writing 1,000 pages of transition rules, Congress could let natural attrition do the job.

6. Conclusion. Twenty months ago, at the beginning of the long presidential primary campaign, I wrote the following:

“Any [health-insurance reform] will take some tinkering to get right. The really important goals are five things . . . . First and foremost, we have to get all the people who want insurance and can’t find or afford it insured. Second, we must make sure that everyone’s insurance is ‘portable’ and employer-independent. Third, we need to get rid of ‘pre-existing condition’ exclusions so that everyone can buy insurance, whatever their current medical condition (this will, of course, require some adjustment in cost). Fourth, we have to put in place uniform national rules preventing private insurers from gaming the system through misleading sales practices or ‘cherry-picking’ customers from limited insurance pools. Finally, we must make sure that all medical insurance covers all medically indicated care (within the dollar limits of the policies), so that doctors, not insurers, regain control of the practice of medicine.”

As the analysis above reveals, these points are still the logical centerpieces of health-insurance reform. Not only will they make the terms “insurance” and “competition” apt again (if they ever were). They will also help sell reform to people who already have insurance.

Along with abolishing state balkanization and establishing independent panels of experts to fix minimum coverage and define terms, these simple reforms could begin rationalizing our health-insurance system. As private insurers adjusted to the larger pools (including ex-employees), mandatory minimum coverage, and standard definitions, a truly competitive private market would emerge, national in scope, to replace the balkanized Soviet-style state-by-state monopolies that exist today. The transition would be largely natural and driven by market forces.

Today, state monopolies (or duopolies) and haphazard coverage make comparison shopping and competition a joke. They also leave 40% of insureds with inadequate coverage. And of course there are those 47 million of us with no coverage at all.

I support a public insurance option because it is the quickest way to teach the public what real insurance looks like, and how much it differs from the sophisticated swindling that masquerades for insurance (and “competition”) today. But we are in the thrall of small minds from small states. It is unclear whether even a president as politically skilled as our own can beat the special interests and make the public and their representatives understand that a public option need not feed on government subsidy or bankrupt the private insurance industry.

Whether or not the public option succeeds and keeps private insurers honest, any reform bill must force insurers to offer real insurance and engage in real competition. To that end, any reform should follow five simple principles, to wit:
    1. No exclusions for pre-existing conditions

    2. Immediate portability for all existing insurance

    3. No cherry-picking (groups must be defined by conditions unrelated to age, gender, race, ethnicity, medical condition, and previous treatment)

    4. Minimum standard coverages defined by federal law or regulation, with standard definitions for minimum and additional coverage for comparison shopping.

    5. A independent panel of distinguished experts to advise on and prescribe standards and definitions, review and report standard and best practices, and pick experimental treatments (if any) worthy of inclusion in standard coverage
Even Congress should be able to make these points in 100 or fewer pages. (A non-lawyer could do it in five.)

Points 4 and 5 may be politically difficult. But they are essential to any serious effort to rationalize health care, control costs, and foster real, not illusory, competition among private insurers.

With these reforms in place, the stage would be set for transition to a fully competitive private market independent of employment. One of the standard coverages could be a bare-bones policy of minimum care, whose low prices would attract the uninsured. Then, if Congress balks at the price of subsidizing the uninsured, we could deal with subsidies later, as economic conditions improved and private insurers, having survived real competition for the first time, became more confident.


1. Karen Tumulty, “So You Think You’re Insured? (Think Again.),” Time Magazine, March 16, 2009, page 26.

2. See recent on-line study in Consumer Reports (subscription required).

Best Practices Panels

The foregoing essay introduces the concept of “best practices” panels. These are panels of distinguished doctors and scientists—leaders in their professions—who review the evidence and decide what constitutes best practices in various fields of medicine.

The first thing that readers should know about these panels is that they already exist. Every field of medicine—indeed every disease—has them. Their function is to review the medical, epidemiological and statistical literature (both national and global) and write reports summarizing best practices for a specific disease or condition. Because medical knowledge and practice advance so rapidly, these panels revise their reports every few years.

The reports are not simplistic prescriptions for a single treatment in all cases. Although they try to be brief and avoid unnecessary medical jargon, they also try to be comprehensive. They discuss all currently accepted and experimental treatments and exhaustively review (insofar as then known) their relative risks, benefits and expected outcomes, including side effects. They recommend which treatments are best for the general population, and which are best for patients with known risk factors, such as pregnancy, allergies, heart disease, old age, etc.

Every hospital and health insurer has access to these reports. So do most competent doctors. I know because I saw one on my doctor’s desk years ago, when I was considering treatment for benign prostatic hypertrophy (BPH). I asked him to lend me a copy, and he readily agreed. (Letting me read the whole report was a much more efficient and accurate way of informing me than answering my interminable questions orally in his office.) The report was book-sized, about 150 pages. It gave me all the information that I needed to make informed decisions about my treatment.

The second thing to know about “best practices” panels is that they don’t make decisions about individual patients. They don’t decide whether to “pull the plug on grandma” or anyone else. They do decide, based on their expertise and volumes of hard evidence, what works and doesn’t work generally under various conditions. And they exhaustively list the risks and benefits of various courses of treatment so that readers (mostly doctors and insurers) can make well-informed decisions on patient care.

What the essay above proposes is that these panels, which already exist, be formalized and take on three additional duties. First, they would condense their best-practices reports into standard coverage and exclusionary clauses for health insurance. Second, they would define insurance terms for optional or “extra” coverage. These tasks would, for the first time, standardize basic insurance coverage and make possible real comparison shopping by consumers of health insurance, including employers. Third, economists added to the current panels would take the cost of alternative treatment options into account, without compromising quality of care.

Here are two example of how this process might work. Medical science has proved that so-called “statin” drugs have great value in reducing the risk of coronary artery and heart disease. There are a number of different statin drugs, but the patent on Zocor (simvastatin) has now expired, so its generic form is the cheapest. A best practices panel of cardiologists therefore might decide to make generic simvastatin the standard treatment (i.e., first resort) for patients needing cholesterol-lowering medication. But for patients who cannot tolerate that form of statin (due to allergies or for other reasons), the standard clauses would allow doctors to prescribe alternatives at higher cost.

A second example relates to the burgeoning field of “personalized medicine.” Medical science has discovered that cancer patients with certain genetic variations respond to targeted “miracle drugs” that exploit the peculiarities of their genes, while patients lacking those genetic variations don’t. By successfully targeting cancer cells alone, the miracle drugs make patients suffer far less than general chemotherapy, which kills off a whole range of cells in order to get cancerous ones. A best practices panel might decide that all patients should be tested for genetic amenability to the limited-scope miracle drugs before undergoing general chemotherapy, in order to avoid the greater expense and suffering of general chemotherapy when more targeted treatment might work.

Decisions like these are just common-sense applications of public-health criteria with an eye on cost. But they are hardly simple decisions. They require detailed, expert knowledge of the precise state of medical knowledge as it advances. They also require the ability, based on long experience with medicine and public health, to weigh and balance risks and benefits of alternative treatments. Finally, they require complete independence from special interests, including drug and medical-device firms that want to sell more product and patients (and their doctors) who believe that more expensive is always better and want the “best.”

It bears emphasis that standard insurance clauses written by these panels would work both ways. They would entitle every insured patient to best-practices treatment, regardless of previous medical condition and age. In so doing, they would eliminate the randomness and haphazard quality of insurance coverage today, which gives some patients best-practices treatment automatically, others an exhausting process of legal appeals, and still others the privilege of suffering and dying while coverage is denied or offered too late. Under standard clauses written by internationally respected best practices panels, every insured patient would have equal access to appropriate care.

At the same time, best practices panels would control costs by restricting access to secondary and more expensive treatments to those whose medical condition warrants it. If a patient, for example, wants Lipitor rather than simvastatin (generic Zocor) for no particular reason—or because he thinks more expensive is always better—that patient should have to pay the extra cost himself. While making sure that all insured patients get medically indicated treatment, the panels would insist that patients who want more than medically indicated treatment don’t force the rest of us (through insurance premiums) to pay for it.

These best practices panels already exist. They are doing a fantastic job of digesting and summarizing the vast bulk of leading-edge medical research for the busy practitioner. What legislation would do is formalize them, give them national visibility and stature, pay them better, and protect them assiduously from political pressure and other improper influence (like our Federal Reserve). The law would then have them write nationally applicable standard clauses and exclusions that, for the first time, would allow real competition in health insurance.

At the same time, the panels would keep standard insurance abreast of medical advances as they occur, just as they do for best practices today. They would insist that no insured patient be denied appropriate care, no matter how advanced, but that no patient be allowed more expensive care than medically indicated at the expense of the rest of us.

Members of these panels would not be government “bureaucrats.” They would be distinguished national leaders of their fields of medicine, just as they are now. Or they would be distinguished health economists, recommended by private economic and academic societies. All would be confirmed by the Senate, just like Supreme Court judges and the Chairman of our Federal Reserve Bank. Governing law would impose these requirements and would provide for removal of panel members for malfeasance, crime, or conflict of interest.

Someone has to decide what best medical practices are. The question is whether we want nameless private bureaucrats making those decisions haphazardly—and differently—in every private insurance company, out of the public eye and with an obvious profit motive. Or would we prefer a process, which we have in limited form now, that involves the best medical minds in the nation and that is open, transparent, and public? That choice should be an easy one to make.


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12 August 2009

Nervous Nellies

You want to know what’s causing our late-summer malaise? We’re a bunch of nervous nellies.

If you read the Wall Street Journal, you might have seen a bit of good news lately. China’s exports rose 5.2% last month, and it expects GDP growth of 8 to 9 % for the next two quarters. Auto dealers, gorging on Cash for Clunkers, are pressuring auto makers to increase production and employment. The EPA is about to certify GM’s Chevy Volt at 230 MPG, and Applied Materials expects a recovery in semiconductor equipment (a traditional leading indicator) next quarter. Electric rates are down sharply, due to the first-ever sustained decrease in demand, proving that conservation and efficiency have made a successful transition from ridicule to accepted policy. Brazil’s auto sector is thriving and plans to increase production and employment.

All this sounds much like the foreign-led recovery that a resilient global economy makes possible and that I predicted four months ago.

So where’s the bad news? Some idiot investment advisor says that bank stocks are overvalued, and the Dow falls 97 points. Go figure.

Banks stocks are schizophrenic and will be for some time. One day bankers insist on their autonomy and try desperately to pay back their bailout money. The next their CEOs are nibbling their nails and fretting publicly about their huge stashes of toxic assets. If you like day trading, you can “ride the waves.” But don’t expect sustained movement anytime soon.

No one (including the banks) has any idea what big banks’ toxic assets are worth. Treasury Secretary Geithner likes it that way. If people knew, they might make runs on the banks. But no one knows anything.

Complete opacity has been Geithner’s tacit policy from the time he took the oath. That policy will keep the banking system from collapsing until the global economy recovers enough to justify higher toxic valuations. Then, all of a sudden, there will be transparency and a “market” in derivatives, and all the twisted toxic positions will unwind. That policy does have a certain logic.

Then there’s the mob. Maureen Down frets that Obama’s health plan is in peril because inarticulate know-nothings are angry. These are the same people who opposed Obama from the beginning, almost entirely because of his race. They are our lunatic fringe—no more worthy of serious attention than the village idiot or the bar fights that occur in some neighborhoods in every major city virtually every Saturday night (especially the hot ones). Why reporters—let alone pundits—pay apparently serious attention to these silly-season performers is beyond comprehension.

The nut cases make a lot of noise. That’s their right. After all, this is America! But to confuse their noise with serious policy or national trends is a grave error in understanding reality.

Smarter, better educated people by far elected Obama. States accounting for 72% of GDP preferred him, and states accounting for 36% of GDP preferred him by margins of more than 20%. (The people who preferred McCain by a similar margin collectively account for 5% of GDP. They are undoubtedly the same ones now making all the noise.)

Productive people of all kinds supported Obama with time and money because they were tired of lies and grossly incompetent government. So did most experts.

These folks are hardly nervous nellies. They are the “silent majority” today. Unlike our scatterbrained media and the near-violent nut cases, they are used to solving problems the American way: with brains, resolve, patience and perseverence. They are still securely in Obama’s corner.

Why? Because they recognize his competence and strategic vision. Because he has made a solid down payment or nearly delivered on his most important campaign promises and his priorities on taking office. Because they know that Rome wasn’t built in a day and that the President has an extraordinary record of achievement after only seven months in office.

This productive, silent majority is waiting patiently, with high resolve, to see how the President’s plans and strategies (most of which have been brilliant) unfold. It’s not making much noise because it’s more than satisfied with him, his team, and his competence.

There are some real potential roadblocks. There are members of Congress who oppose changes the nation needs because they are too stupid to see the benefit, because they think their constituents are, because they have the habit of pandering to local interests heedless of the general welfare, or because they see opposition and failure—regardless of impact on the nation—as the best way to increase their personal power. They include people like John Boehner (R., Ohio), Mitch McConnell (R., Ky.), Jeff Sessions (R., Ala.), and John Ensign (R., Nev.). Except for Boehner, they come from small states, which our Great Compromise left with unjustified and disproportionate power.

Now Chuck Grassley, so avuncular and reasonable-sounding, has joined their group. Although his home state of Iowa is not known for its coal mines, he has pushed for huge loopholes in cap and trade favoring the coal industry. Then he opposed the bill as a whole, presumably because the loopholes weren’t big enough. Next he adds insult to injury by voting to keep nonsensical tariffs on cane-derived ethanol, which is four times more energy efficient than the corn-derived junk his state’s farmers produce.

The mobs at town-hall meetings may not understand the damage these folks are doing to our nation, but the folks who voted for Obama do. Many of them are Baby Boomers just entering retirement, with plenty of time and money to exact a political price for that damage. Grassley in particular would do well to remember that his home state of Iowa gave Obama his start in the presidential campaign. The good people of Iowa—let alone the highly educated experts who are Obama’s core constituency— won’t forget betrayal easily.

Like a rattlesnake on the ground, the nay-sayers and obstructionists are making lots of noise. But like that same rattlesnake, they have more to fear from the Homo sapiens walking overhead than vice versa. The story is not yet told, and the polls are vacillating, but if you want to keep your money, I wouldn’t bet on the mob.


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