Category Archives: Economics

Debt Ceiling Silliness

Since we didn’t drive off the ‘fiscal cliff’ we are treated to another ridiculous gambit on the part of our elected officials – the ‘debt ceiling’. For those of you not in the know, the debt ceiling is a limit placed on public borrowing, by Congress. We, and by we, I mean they, reached their current limit on December 31, 2012. Since the government currently doesn’t have enough revenue to pay its designated expenditures, it has to borrow.

A Brief Foray into Macroeconomics

Each year the Federal government has a certain amount of revenue, in the form of taxes and fees, and a certain amount of expenditures, in form of salaries, purchases, and transfer payments (things like Medicare and Social Security). If the first number is bigger than the second, the governments is said to have a surplus. If, and this is more common, the second number is bigger, then the government has a deficit. The government borrows the money to make up the deficit. The total amount of deficits minus surpluses over time is called the debt, or the national debt.

Where did the concept of the debt ceiling come from? Before 1917, every time the Congress chose to spend more than it made, it would create a statute that authorized the borrowing. This became somewhat tedious as the numbers got bigger, along with the country, so instead it choose to authorize a certain spending limit (kind of like your credit card, if it was that super awesome American Express made out of Unobtanium or something). They then had to increase the debt limit every time we, and I still meant they, went passed that. It’s also worth noting that most other countries don’t have debt limits.

But see, here is the thing. The debt ceiling is usually reached AFTER a budget is passed. So, Congress says, “I want to spend 2 Trillion dollars”. Everyone agrees, President signs, world keeps turning. Then, at some point, they realize, “Oops, we only made 1.5 Trillion this year!”. So they go to borrow the rest. Unless they have told themselves “No more borrowing! Live within your means!” After, of course, they already allocated their spending. So then people use it as a tool to make some vacuous point about fiscal responsibility that no elected official (with rare exceptions) has ever thought applied to themselves. And then they threaten to, or actually, shut down the government, causing regular Joes and Joettes (but not themselves, as there are provisions that ensure that the Congress is still paid if the government shuts down) to miss paychecks, and have to take on more debt themselves, national parks to close, and generally make a mess of everyone else’s life while causing no trouble for themselves.

That isn’t to say that we shouldn’t have serious and difficult conversations about what the role of government is in society, what tax rates are appropriate, what incentives should people have in a capitalistic society, and what checks on the natural tendency to self-centeredness should be in place. But having it when the clock is ticking on whether the custodian at the Submarine Force Library and Museum gets to eat next week isn’t the right way to make a complicated decision.

 

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Taking a breather

Ok – I’m wiped out on the PPACA for a while. I’ve done my best to slog through – but I need a break.

In the meantime, there are a set of economic questions that various parties have suggested I write about. One of them came to the forefront today, as part of another conversation I was having on the Interwebz. The issue is the gold standard.

When I first thought about doing a post on the gold standard, which is the idea that our currency needs a commodity of intrinsic value, specifically gold, to ensure its worth, rather than simply being made to worth something because it says so (i.e. fiat money) I thought I would have lots of evidence and complicated points to make.

But I realize that it comes down to this. If you take out the world gold and insert any of the following words (or phrases):

silver

cocoa

coffee

tea

salt

giant stone wheels at the bottom of the sea

or pure-bred Husky puppies

and you are still ok with this as a mechanism for ensuring the stability of our currency, then sure, maybe we can go back to the gold standard. But if you think any one of those is a crazy idea – well – then I have bad news for you. So is the gold standard.

If anyone isn’t convinced, then maybe I will do a follow-up with all the complexities included. But really – a commodity is a commodity. You can’t think one is perfect and the rest are crap. The concept, and the associated problems for an economy of 16 trillion dollars, are the same.

Edited to add: 50 House points to the first person to point out which on that list above HASN’T been used before as money in an economy – at least to my knowledge.

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A little departure

I have posts on the details of the PPACA queued up, so don’t fret – we will get back to that. But I wanted to take a little departure to explore a topic that came up while reading Facebook in the car on the way to work this morning. Don’t worry – I carpool, so I wasn’t driving while reading. That would be a public health failure.

One of the threads I was reading contained the comment that the best way to correct the problems in the health care system would be to get rid of Medicare/Medicaid and all private insurance, and go with strictly free market capitalism for health care. I’m sure that the commenter was not the only person in the country who thinks about this as a possibility. After all – it works (with caveats) for cheese and sweaters, why shouldn’t it work for health care? So – let’s explore that concept, and see what we conclude.

To start with, we have to figure out what people mean when they say the “free market” system. Do they mean a market that upholds the assumptions of Perfect Competition, a theoretical construct in economics used to define the most efficient market? Do they mean laissez-faire economics, where there are few, if any, government regulations, including those preventing Monopolies (which by the way, are the antithesis of Perfect Competition). Do they mean no government ownership of any resources of production? Or, more cynically, do they mean that the government just doesn’t do anything they don’t want it to? The question matters, because all understanding any system starts by clarifying the assumptions you have made about that system. This is especially true in economics, where we don’t do ANYTHING without an assumption of some kind.

Since finding out what this particular person meant, assuming he or she could clarify it precisely, is not possible, we will make an assumption based on what little information we do have – that the goal was to get rid of all private insurance and Medicare and Medicaid. First off – that in and of itself defies the free market. In any case where you have a product that has risk associated with it – such as whether or not your house will get hit by a hurricane, whether or not that drunk driver will hit your car, or whether or not you will develop a devastating health condition – the free market will create an insurance system to make a profit by spreading your individual risk out over large groups of people. But I’m pretty sure the person in question didn’t think about that. So, we will continue to consider a world where – by some magic that doesn’t include government regulations preventing the very thing that the free market would invent were we to get rid of current health care provision system (are you still with me?) – there is no Medicare, Medicaid, or private insurance.

So – you get sick, and what? You go to a doctor, and they charge you money. Ok, so what happens if you don’t have enough money? Well, under a truly free market system, if you can’t buy cheese, you don’t get cheese. No money, no sweater. Logically following then, if you can’t pay your doctor for their care, or the pharmacist for their drugs, then you stay sick. You might get better on your own. Or you might not. In the end, a free market system, with no insurance, would mean that if you got hit by a car, or you got a severe infection, or if you developed a disease like cancer, then unless you were a multi-millionaire, you would die. That’s it, end of story. Most people simply cannot save enough money to pay for health care if they have a disease that is much more complicated than say a minor cold, even if prices were to drop to a fraction of what they are now. Health care is a million times better than when it was possible to pay for services with a chicken and some canned goods. The procedures, the machinery, the devices, the drugs, everything. That’s, in part, why an insurance market for health care was developed in the first place. Because health, and health care, aren’t just cheese and sweaters, where the middle-income people just get lower quality versions of, and low-income people do without. If you get hit by a car, and you don’t have the money to pay, in a truly “free-market” world for this good, you die.

Now, even in our current world, before or after the PPACA, this is still a possibility. We haven’t the addressed the questions of whether it is ok with us as society that anyone dies from a lack of health care. There are questions of personal responsibility versus luck of the draw, etc. There are probably people out there that think it is just fine and dandy if people die if they can’t pay. We can think about those issues in later posts. But what I can say is that the idea that there is a free-market system, that doesn’t include private health care insurance, which would allow anyone except the super-wealthy to survive, is patently ridiculous.

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Sec 1001 – the final push

Since I’ve already determined that I will need to get through more than one section a night to get to the end of this law in a reasonable time, I’ll attempt to get through at least the end of Section 1001 tonight.

There are three remaining sub-sections. The first, while long, can be summed up rather succinctly. Entitled “Bringing Down the Cost of Health Care” it requires that health insurance plans submit details of their plan premiums (or revenues) versus losses (or claims).

We should pause for just a moment to recognize that this terminology implies something specific. When you go to the doctor, your insurance company doesn’t think this is a good idea that could potentially save your life – they see it as a loss to their company – the same kind of loss that the grocery store entails when they have to throw away expired milk. Insurance companies would like nothing better than for you to pay premiums every day of your life and never, ever go to the doctor. Unlike car insurance, or fire insurance, where there is a strong chance that you can go your entire life without needing the payout, people are going to go to the doctor. But, we shan’t dwell too much on the fact that insurance is a stupid way to provide a product that everyone is going to need as some point. The best insurance companies can do is try to have more healthy people than sick (at least that they pay for).

Ok, so back to the Act. The insurance plans submit a report with the claims, the costs for improving health care quality, and non-health related costs (often referred to as administrative costs). Then, if the plan spends less than 85% (for large market plans, 80% for small market) of the premiums on health care claims, or quality improvement, they have to give money back to the people who paid the premiums. This started in 2011. In 2014, this payment is based on a three-year average of the ratio.

The second part for tonight requires that plans have an effective appeals process for denied claims, that complies with these regulations , which give some basic timeframes for appeals.

The last part (oh the progress!) says it is called “Patient Protections.” These protections state that you can pick any participating primary care provider that you want. Additionally, that emergency services, if offered, are covered without pre-authorization (because not everyone remembers to call the insurance company on the way to the hospital when they are dying), and covered at the same rate, regardless of whether the doctor or the emergency room is ‘in-network’ or not. The Act defines emergency medical conditions in terms of what is reasonable to a layperson, rather than an insurance administrator, and an emergency service to be an exam and stabilization. It allows you to choose to pick a pediatrician for the primary care provider of children. Finally, the protections ensure that you do not need a referral to see a gynecologist or obstetrician. If you see an OB/GYN, then the care he or she authorizes is as if the primary care physician had done so. It apparently doesn’t require that the plans offer these cover ages, just discusses what happens if they do.

So, we have come to the end of Section 1001. Hopefully the Supreme Court Justices can hold off on their decision until I’ve finished the whole thing, and then they can just read this blog instead of the Act itself. 😉

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From my cold, dead, but presumably healthy (except the dead part), hands

The next part of Section 1001 (yes, we are still in section 1001) discusses ensuring quality of care. Quality of care is an important issue, or should be, to most people who are in the health care industry. The United States spends the most money per capita on health care of any country on the planet. We spend almost $2500 more per person than Norway, although as a percentage of GDP, Norway has us beat  However, the WHO ranks our health system as 37th,  our preventable deaths as  14th, and our life expectancy is 24th  (lower than Malta! – who has even ever heard of Malta?).

So, we spend more money than anyone – why don’t we have the best health? The PPACA supports addressing this question, and this next part of Sec 1001 begins to do so. The Act calls for a coalition of insurance providers, quality experts and other stakeholders to develop reporting requirements to improve health outcomes.  The whole reporting requirement comes into play in 2 years after the signing of the act – so now. The specific outcomes the Act wants to address include care coordination, case management, and chronic disease management. This section also addresses the concept of medical homes.

The Medical Home concept was introduced many decades ago, initially to improve the care of children who had multiple specialists dealing with their medical care. In the medical home model of today, also called the patient centered medical home (PCMH), the patient has a team of caretakers, starting with a personal physician. This physician should be part of a team that deals with care coordination, and integrates this care across the whole spectrum. The PCMH is intended to reduce cost while improving health. While there are many more details I could go into, the fact that this methodology was specifically addressed implies, but does not require, that the PPACA would prefer that health care providers implement these practices.

However, the PCMH is a vast change in the way that medicine has been practiced for many years. Currently, doctors are paid by seeing patients and doing things to them. Visits get one level of reimbursement, procedures another. The insurance company doesn’t pay a doctor to have a nurse call you to make sure that you are taking your pills (an example of one implementation of a PCMH intervention). The doctor has to pay the nurse out of their own income. So, for many single practice doctors, or doctors with high levels of Medicare and Medicaid patients (which pay less), implementing this would be very difficult. We’ll discuss the evolving payment structure of health care in later posts.

The Act also wants reporting on how to reduce hospital readmission (coming back for the same problem within a short period of time), patient safety and reduction of medical errors, and implementing wellness programs. That’s a lot to ask for doctors that are often struggling with making rent, paying malpractice insurance, and what was that – oh right, treating patients.

The wellness programs are where the 2nd Amendment comes into the situation. It is specifically designated as “Protection of Second Amendment Gun Rights”. No wellness program may ask for, or maintain, information about the lawful ownership of firearms or ammunition in the home of any patient. You also can’t increase insurance rates on a person who lawfully owns a gun. So even though 2,811 people, including 114 children died in 2009 from firearms, doctors can’t ask about it.  The confusion about this Act becomes clear here, because I know of at least one person who blames the PPACA for a new requirement to ask their patients about guns. Ah, Americans.

I estimate three, maybe four, more days on this section. Woo-hoo!

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Section 1001 – continued!

I did mention section 1001 was a doozy – right?

The next part Section 1001 discusses the prohibition of discrimination in favor of highly compensated individuals. In order to understand this portion of the PPACA, we have to delve into the Internal Revenue Code of 1986. I hope that we are not like the dwarves of, sorry – this should be Mines of Moria, Helm’s Deep, and dig too deep. (My Lord of the Rings knowledge is slacking – must watch all three movies in a row!)

The Internal Revenue Code of 1986 is the name Congress gave to the Internal Revenue Code of 1954 when they updated it in, you guessed it, 1986. (The Federal Government is renowned across the world for its inventive naming system.) It is also referred to as Title 26 of United States Code. Because one name isn’t confusing enough. The PPACA refers to section 105(h)(2) of the aforementioned IRC of 1986 in describing what requirements group health plans under the new system have with regards to highly compensated individuals.

So one implication of this is whether or not the awesome health care provided to the highest paid officers of a business, among others, counts as income for purposes of taxation. It does not, assuming that the business does not discriminate solely in favor of providing health care to the fancy pants employees, and leave the regular joes and joettes alone in the dark, crying out for their Lipitor. Health care plans are not allowed to give great care to the people in charge, and not include everyone else. In any case, the CEO must declare the excess reimbursement for the personal doctor that flies with her on the jet, and pay the Tax Man. (These prohibitions have always applied to self-funded insurance plans, but this part adapts and applies them to group health insurance plans as well).

The next section on ensuring Quality of Care has some nifty stuff about the 2nd Amendment in it, so we’ll save that for tomorrow. (Who knew that guns were so healthy!)

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Section 1001

Yes, Section 1001 is the first section. Hey – don’t blame me, I didn’t number this crazy thing.

The first four sections of the PPACA are grouped under the title “Immediate Improvements in Health Care Coverage for All Americans”. The first of these sections, section 1001, does several things. In part, it amends a previous document, the Public Health Service Act. This Act, enacted in 1944 with subsequent revisions, essentially created the Department of Health and Human Services. DHHS includes many federal agencies, with the most recognizable being the FDA, the CDC, the NIH, and the biggy, CMS. For those of you unfamiliar with acronym bingo, the first makes sure your meat contains a minimum of rat parts, the second tries to keep Contagion from becoming reality, the third trains scientists, and the last is Medicare and Medicaid.

Rather than changing existing text, the first part of section 1001, of the PPACA adds protections for the consumer of health care. Lifetime limits are removed completely. Annual limits are subject to certain requirements. It does allow annual limits on items that are not considered “essential health benefits”. These, benefits (defined in part 1302(b) of the PPACA, which is about 45 pages later than where we are) include ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance abuse treatment, prescription drugs, rehabilitation, lab services, preventative care, chronic disease management, and pediatric care, including dental and vision. I’m not therefore, sure exactly what isn’t essential care – maybe things that are covered under certain plans, like IVF, or elective surgeries, can still have limits. But that’s a heck of a lot of things that are now unlimited.

This part also removes rescission – or the ability of a health insurer to drop you because you are too expensive. The actual rates of rescission are hard to identify. Insurance companies have no incentive, and no compulsion, to publish these rates. As of the passage of PPACA, however, they can only drop you for fraud. They can try really, really hard to find ‘fraud’, but it does mean that there is some burden of proof standard that has to be followed.

Preventative care is the next section. It eliminates cost-sharing (co-pays or deductibles) for several items. Those services recommended, and rated ‘A’ or ‘B’ by the Preventative Task Force. This list is not very long – I’ve included a link here: Task Force Recommendations ; immunizations recommended by the CDC, all preventative care for children recommended by the Health Resources and Services Administration; preventative care for women recommended by the same agency, and not included in those from the Preventative Task Force.  Plans are not prohibited from adding additional services.

Does preventative care save money? Evidence is mixed, with much of it depending on how much health care the people saved through preventative care will consume in the future, and whether or not that care will be more expensive or less.  And preventative care unequivocally saves lives.

Coverage is extended until children turn 26 – without the restrictions of being in school. Given the state of the jobless recovery, this isn’t a bad thing for most people. Presumably this will end up being cost-effective, since those insuranceless 24 year olds will no longer just hoof it to the ER when they get the sniffles.

Then there are a whole list of standards about how information about benefits will be given to the public, including how many pages (no more than 4), what type font (no less than 12), what language (culturally and linguistically appropriate), and content (definitions, exceptions, cost-sharing, examples, minimum essential coverage criteria, contact information). This may be an example of excessive government regulation, but there are sections of the original Public Service Act that dictate what level of radiation you have to use on X-rays, so this is not new for the government.

I originally thought I would try to do one section per day, but this is quite the dense document, so I’m going to take more days per section, as needed, and boy, does 1001 need it.

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Health Care in America – a brief tutorial

Let’s start with some background. Why did we even need health care reform? What was driving the passage of this legislation? What does health care in American look like?

Health care in the U.S. is a patchwork of different institutions, at different times in a person’s life. Children are usually covered under their parent’s health insurance, if their parents have it, or a child-only policy. As with all health insurance the benefits of these policies can vary widely. Before PPACA, many of these policies would have both annual and lifetime caps.

If a child’s parents cannot afford health care insurance, either through work, if it is offered, or individually, states have lower-income health insurance plans that are available for small premiums, typically called CHIP or SCHIP plans. These plans are intended to cover those families that are not eligible for Medicaid.

When a child is from a family that meets the low-income and other qualifications for Medicaid, then they are eligible for this program, which is jointly funded by the federal government and the states.

Even with all of these programs, 11% of the nation’s children were uninsured in 2010.

In 2010, most insurance plans allowed children to stay on their parent’s insurance until they were 19, or 23 if they were enrolled in college. After that, you were responsible for your own health insurance. Most adults who have health insurance have it through their employer. There were no laws requiring employers to offer health insurance. The prevalence of employer-based health insurance arose during WWII, when wages were restricted. As any economist would tell you, this lead to non-wage offerings in order to entice workers. One of these was the employer paying for some or all of a health insurance policy. This was supported by the tax-deductibility, for the employer only, mind you, of this cost.

If your employer doesn’t choose to offer health insurance you have to either get it independently, which is usually more expensive due to the concept of adverse selection (the fact that people who need insurance are more likely to want to buy it) or go without. In 2010, 16% of the adult population did just that, and had no health insurance.

If you make it to 65, then you are eligible for the social insurance program known as Medicare. This federally run program guarantees medical care for all citizens over the age of 65. As of 2010, this program accounted for 3.6% of GDP. This was about 75% of what US defense spending was in 2010. It was also more than the GDP of all but 19 of the countries in the world. Because this is an age-based system, no person over 65 is technically without health insurance, although they don’t have to use it if they don’t want to.

What does it matter if people are uninsured? When people aren’t insured, they don’t go to the doctor regularly. This can lead to illnesses that are more expensive to treat, resulting in higher bills overall, when they do finally go to the emergency room, where they are required to be treated. It can lead to higher public health costs, as they are sick and continue to work rather than treating illness. It also forces them to spend money on health care that they could be spending on new cars and sweaters, which can lead to lower employment. Plus there’s the human suffering. But that’s harder to put a number on (but we can try!)

So there you have it, the basic motivation for why health care needed reforming, in 600 words or less.

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Getting to Know the Patient Protection and Affordable Care Act

The Supreme Court is about to start hearing oral arguments to determine the fate of part, or all, of the 2010 health care reform law known as the Patient Protection and Affordable Care Act (PPACA) and perhaps more popularly, as Obamacare.

I suspect that very few people have read the entire document. It is, after all, roughly 1000 pages long and written in policyese. The table of contents takes up 32 pages. Additionally, most of document amends other policies written previously, that will have to be addressed and explained. Therefore, on this the two year anniversary of the signing of the bill, I begin to go through the document, part by part, in order to explain what each section means. True understanding will require a great deal of background information, relating economic theory, and presumptions about the implementation of the various parts of the law. My credentials to do this? A doctorate in Economics and a master’s in Public Health. My motivation? A desire to understand it myself, and to share that understanding with you, my dear readers. My reward? Self-satisfaction and gloating at the next conference I attend.

Join me then, on this journey into the mysteries of health care, insurance, and government.

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The Breadstick Index

Over the years, Olive Garden has become one of my more reliable mainstays for Italian food. I’m sure that there are a million little Italian joints that serve better pasta in a homier atmosphere, but I’d probably have to go through a lot of bad alfredo to find them, and in Seattle, the Olive Garden is right by the mall and better for you than the Saltcake, I mean Cheesecake, Factory. And you can only eat so much Panda in a day, so we go there quite frequently when we are shopping.

At the Olive Garden, for those of you who do not partake, they bring the table breadsticks and salad when everyone orders an entrée. In the past, the number of breadsticks has far outstripped both the number of people at the table and the FDA guidelines for breadsticks per week. A party of two might receive six or even seven breadsticks. Many of these ended up in the trash, or possibly being consumed by a hungry waiter as they hustled through the night to provide the “Tour of Italy” to people who may have never left the state.

But one day, in late 2008, tragedy struck. There started to be only three or four breadsticks in the basket, hidden by the napkin so you couldn’t complain before your waitress had zoomed off. And then, sometime in 2009, a basket appeared on our table with only two breadsticks. That’s right, one breadstick per person. We wondered aloud – had we finally reached the nadir of our economic stagnation, or would the economy never recover, and we would be forced into the fading glitter of a lost empire, as France or England had gone before us? From then on, we never bothered listening to the financial reports.

We just went to Olive Garden and checked the breadstick count. It hovered between two and three for months. The waitstaff wouldn’t suggest more breadsticks, you had to specially ask. We worried for the future of our children and American supremacy. We feared that the stimulus was too small, that the bank bailout too expensive, that none of the economic policies intended to keep the Great Recession from being The Great Depression: Now With Bears! (see note below) were working. Then, then it happened. We went to the Olive Garden and there were five, yes FIVE, breadsticks on the table for our party of two. Rejoice for our time of lamentation was over.

I suspect that Olive Garden corporate did NOT hand down an edict that the breadsticks should be cut but it is an easy place to eliminate waste on a restaurant by restaurant basis. Perhaps the policy should always have been to offer one person and then refill. It would certainly have had the side benefit of helping to reduce the diabetes rate in the country. But this is America and ostentatious consumption has been a display of our prosperity for many a decade. So the breadsticks remained plentiful in the years that Americans used their home equity to buy jet skis and their credit cards to buy gold.

On our last trip to the Olive Garden there were six breadsticks. I don’t know if the Breadstick Index is a leading or lagging indicator of the economy but I’m hopeful that this means we are on the road to recovery.

(Note: The sequel to Kinectimals, an Xbo360 game where you raise a pet large cat on a strange island with floating dragonfly as your guide is not called Kinectimals 2, as you would expect, but is Kinectimals: Now With Bears!)

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