An Important Referendum in CA

Steve Chapman writes in the Chicago Tribune about the upcoming ballot initiative in California to legalize possession, growing and sale of small amounts of....marijuana!

Now I think there is the small problem of Federal laws against drugs like marijuana, but I am guessing the cooler heads in the Obama administration might decide that it would be better to let CA give it a shot.

What a noble experiment that would be. Question: what would happen to anyone in prison for possession or sale of amounts that would now be legal?

Lights Out!

A while back I got an email from my neighborhood association that had the bright idea to get rid of our street lights. The thinking behind this brainstorm was twofold, one being to combat global warming and the other being to save money.

I replied with what I thought was a pretty witty piece about taking us back into the Dark Ages. While I would support preserving the night sky for stargazing, I could not see any evidence for significant cost or carbon savings, certainly not enough to offset the disadvantages of dark streets. The idea seems to have died, as the neighborhood is still lit at night.

But I must have been wrong, as now the whole world is turning out the lights. I can't wait for someone to estimate the additional crime and accidents that will occur during that hour.

The Health Care Bill

It should not be all that surprising that we finally got a health care bill passed. Before the Scott Brown victory in Massachusetts, the House and Senate had already passed separate bills; all that remained was to combine the two. The House had the courage to pass the Senate bill with the hope that a reconciliation bill of some kind will remove the most egregious parts of the Senate bill.

The opposition of the populace, as measured by polls and other more informal means, ended up being set aside in favor of the hope that by November all will be forgotten, by a respectable belief on the part of some that the bill is really good for the country, and no doubt by a lot of armtwisting and dealmaking on the part of Pelosi, Reid and the President.

I do believe that the Anthem/Wellpoint increases in individual insurance rates in California, discussed by me in prior posts, played a not-insignificant role. Those increases pointed to the failure of the individual insurance market and defused some of the critics of the bill. The President and others hammered on those increases as evidence of what would happen if the bill did not pass -- and to extent they are correct; the individual markets are in a bit of a death spiral due to adverse selection and other issues.

I would really like to see a news reporter did into that Anthem decision to see if the Anthem folks understodd the gravity of their decisions at that time.

But this is now all water under the bridge.

On the positive side -- always an optimist -- the bill does some good. I have said for some time now that this country passed the point of not wanting to have all citizens have decent health insurance. This bill goes a long way to fixing that basic social safety net issue. Let's not deceive ourselves, however, there will still be a lot of uninsured people, just as there are a lot of folks who do not file their tax returns.

And there is no doubt, as I note above, that the individual and small group health insurance market was headed for disaster. That was making it extremely difficult for self-employed people and for small businesses (if you worked for an employer who did not offer insurance, you had to buy it on your own in a lemons market). That probably induced many people to work for large companies rather than striking out on their own. Removing that wedge between self-employment and working for large companies could be good for entrepreneurship and innovation. I have little doubt that access to health insurance was a large factor in many decisions as to what kind of career to pursue, at least at some point in one's life.

If the new exchanges function well, my hope is that the bill will be altered in the future to allow people in companies that offer plans to buy insurance from the exchanges as well. As the bill stands, that is not allowed (I am not sure why). If that would happen, then the link between place of employment and health insurance will indeed be broken. That in my mind is one of the better things that could happen. Sorry, but I just don't believe that an employer has the ability or incentives to offer me the best kind of insurance. I don't have Dartmouth offer me retirement investment services; they just give me a portion of my salary and let me invest it in my choice of independent, professional investment funds. Health insurance should be handled the same way.

It is too bad that the tax on plans was taken away because of union opposition (well, postponed until some time well in the future). To reduce demand to a more natural level, we need to remove the 25% - 40% subsidy given to purchasers of insurance through the exclusion of health benefits from taxation. I suspect that this tax will get moved up in time as the costs of the new bill become obvious. Get ready, but it actually is a good thing (maybe next they will remove the interest deduction for first and second homes as well?).

I have to look through the bill to see what provisions there are on the supply of doctors. I really worry what is going to happen with another 20 million or so people putting unlimited demands on an already-stretched health care system. This is not the time to be without a physician, for sure -- line one up now. And, I suspect that in the future, because there is going to be more nonprice rationing, WHERE you live will become almost as important as what company you work for, in regard to having access to medical care. I suspect that health care is going to become very similar to public schools, with location being very important and with a two tiered system emerging as well.

So, we are off to a brave new world. At least Americans can now walk through Europe without being thought of as monsters who don't provide health insurance to their neediest of citizens. And there will be some interesting possibilities for innovation and efficiency in this new system.

Is This How History Will View Bush?

Interesting editorial by Richard Grenell in Al Jazeera on the current Iraqi elections.

On January 10, 2007, George W Bush, the then US president, defied critics and ignored popular opinion and political polls in the US by committing more than 20,000 additional American troops to the war in Iraq.

"The Surge," as it is commonly called, has since been credited with bringing the Iraqi people more security, less violence and greater freedoms. By July 2008, the surge was heralded as a success from Baghdad to Boston.

Grenell also has some choice quotes from Obama, Biden and H. Clinton on their view of The Surge.

There is no doubt that the war was costly and the planning and handling of the immediate post-war situation was pretty well botched. Also, the rhetoric for the war was unfortunately focused too much on WMD instead of the facts of S. Hussein's greater non-WMD threats to peace, security, and freedom.

Run the counterfactual for me, please. What if the US had not invaded Iraq back in 2003? Quick bottom line: would the Middle East and the rest of the world be more or less secure than we are now? Would the prospect for longterm peace, security and freedom in the Middle East be more or less than now?

Obama's Unrelenting Rhetoric Against Insurance Companies

Obama today steps up again to rail against insurance companies "arbitrarily and massively raising premiums."

This is so deceitful, and the President and his advisers know it. Larry Summers ought to be ashamed to have this kind of rhetoric being used for purely political purposes.

Insurance companies are not the reason for the rising cost of health insurance any more than the local grocery store is the reason for the high price of orange juice after a freeze in Florida.

Folks might want to explore the situation in Massachusetts, a state that passed a mandatory health insurance law a few years back. The Boston Globe reports today about health insurance price increases in that state that range from 8 to 32 percent (in the text, one individual reports an increase of 40%). The Globe even notes that

Even as businesses and individuals feel the pinch of surging health costs, three of the four largest state health insurers last week posted financial reports showing operating losses for 2009.

It appears that consumers in Massachusetts got a gift last year from their rapacious insurance companies -- health insurance at below cost prices. That, of course, cannot continue.

Even more scary about all this is that the spectre of price controls has risen. The Administration added language to their insurance proposal that would allow the Federal government to review price increases by insurance companies. Massachusetts is reviewing all increases that exceed 4.8%. Real price controls are not far behind.

I suggest that if Obama cannot get a straight answer from the insurance company CEOs he listen a bit more carefully, with an open mind. Or maybe he can start by reading the several page letter that Wellpoint put out after the Californica fiasco (linked to in one of my earlier posts on the topic).

Even better, I suggest that Obama and his advisers go talk to some health care providers -- docs and hospitals -- and ask them what their price increases are. I guarantee you that they will be closer to the source of health care price inflation at the hospital than at the insurance company office.

And Another Person in Favor of Consumer Health Responsibility

This article by Barbara Kiviat discusses the importance of knowing price when we buy things, including health services.

I am about to go on a rampage to get my local hospital and clinic to clearly post prices. As I know some folks on the Board of Trustees and other high places, it should be fun. I wonder how many of the Directors of the hospital know what things cost at the institution they are responsible for?

More on the Case for High Deductible Policies

Two fresh editorials out today, suggesting a wave (!) of positive sentiment for high deductible health insurance policies.

One from the governor of Indiana, describing the Indiana experiment with Health Savings Accounts in combination with high deductible, high copay policies: "Hoosiers and Health Savings Accounts."

The second is titled "The Case for High Deductible Health Insurance."

If the Obama administration is reading these things, I hope they take them seriously. Such policies will be one critical part of a health care system that delivers care efficiently.

Designing a High Deductible Plan

I am increasingly gratified to see more economists and politicians coming out in favor of high deductible health insurance. The positive effects of such plans would be both direct and indirect. I am actually more excited by some of the indirect, subtle effects that I think would happen as more people moved into high deductible plans, especially in regard to demanding more price information.

Here are my thoughts on how one would go about thinking about designing a high deductible plan for a self-insuring employer. There are lots of details that I won't get into, and most important, to make real progress I would need historical data on the distribution of health expenses in the employee base. But I think I can illustrate some of the key ideas.

The data that I would start with would be the percentage of employees with yearly expenses falling in different ranges, like this:

Health Care Expenses, % of Employees

0 - 2500, 10%

2500- 5000, 15%

5000 - 7500, 25%

7500 - 10000, 20%

10000 - 12500, 10%

Greater than 12500, 20%

If I had this data for an employer, I would start with it to get a feel for where a reasonable initial deductible might be. I want a deductible high enough so that I capture a reasonable number of employees with total expenses under that amount. At the same time, I don't want a deductible that is going to be unreasonably high. What's reasonable? Well, for the number of employees, I think we would want to catch something like 25%-50% of the base with total expenses under the deductible, at least. My thinking here is that the deductible is set to capture expenses for which true insurance makes sense, and if something is occurring more than 75% of the time, or even up to 50% of the time, it sounds too common to be reasonably covered by insurance. But on the other hand, I don't think a deductible that is too high is going to be acceptable to people who are used to "insurance" paying the bills.

Since I don't have that detailed of data at hand right now, let me proceed by assuming that what I do know is that 1/2 of the employees have total yearly expenses under $7500, and that the overall average expenses are $18,000 per year. For a family, that is a reasonable number. Given these two assumptions, we can infer that the other 1/2 of the people have expenses that are on average $32,250 per year (with some no doubt having very high expenses!)

With average expenses of $18,000 per year over all employees, we know that "fair" insurance would be priced at $18,000. (Apologies again to Sec. Sebelius for using such a blasphemous phrase as "fair insurance. What I mean by fair here is just that if the employer charged $18,000 for the insurance, with no deductible, it would come out, on average, just even.) I do recognize that the data we observe will be influenced by the deductible in place during the data collection period.

Now what would happen if we put a $7500 deductible in place? Well, everyone with expenses less than $7500 would pay all their health expenses themselves. That is 1/2 of the people. The other half would pay their deductible, and the employer would pick up the rest.

If expenses in the upper half of the distribution (greater than $7500) stayed the same -- I will return to this point -- then the employer's expected expenses look like this:

Employer's Expected Expense = .5(0) + .5($32,250 - $7500)
= $12,375

That would be the "fair" price of the insurance plan with a $7500 deductible. Note that the fair price of the plan with a deductible is not just the average expenses less the deductible -- that is, the fair price is not $18,000 less $7500 = $11,500.

So, there is our comparison: Insurance that covers everything for $18,000, or a $7500 deductible policy that would cost only $12,375.

Importantly, as a consumer, I could buy the cheaper policy and put the difference in prices, $18,000- $12,375 = $5625 into an account, which we might as well call a Medical Savings Account. On average, that amount of money will cover my out-of-pocket medical expenses (1/2 of the time my expenses will be less than $7500, or $3750 on average; and half of the time my expenses will be the deductible, $7500.) I am not dealing with taxes here, but if that MSA better be tax deductible if the cost of insurance is, or this will never work. Also, the MSA cannot be "use it or lose it."

That gives an idea of some of the thinking that would go into the design of high deductible plan. Next would come some more subtle, yet important, issues. One, what would happen to the expenses of those folks who used to have expenses greater than $7500. I would expect them to come down, for several reasons: One, the employees would simply not incur as many expenses, partly because they would decide to forego some expensive but optional services. Two, because they would be more careful about their health to begin with. Three, because they would put some pressure on health care providers to cut their prices. These effects would be the cost-control measures that we so desperately need, and they would allow for a DECREASE in the price of insurance as time went on. Can you imagine that??

Another subtle issue would be self-selection if we made two plans, the high deductible and the no deductible, both available. Then we would get folks taking the no deductible plan who expected to incur large expenses, and vice versa for the low deductible plan. That would allow the high deductible plan to be priced even lower, and would force a higher price on the no deductible plan. This is essentially what we see happening to individual insurance prices in the California market, and it should not be viewed as a bad thing.

Other Economists Supporting Reasonable Health Care Proposals

Two editorials by some very smart people that are very similar to my proposals for health care changes -- a focus on incentives for individuals, and changes in the tax treatment of health care.

First, one by Cliff Asness: "Don't Ask" is No Way to Run Health Care" The basic message here is that we are "insuring" way too much -- small health care expenses instead of focusing on catastrophic expenses. Large events are what insurance was created for. I like to ask people if they have insurance for new tires on their car every couple years?

Second good editorial is by three economists, John Cogan, Glenn Hubbard and Daniel Kessler, "A Better Way to Reform Health Care." These guys also stress the need to make individuals bear the true cost of their health care. High deductible policies and elimination of tax deductions for health spending would effect that.

Nice to see a little press on these very common sense changes to our messed up system.

Price Increases on Individual Health Plans: Deductible Leveraging

I was intrigued by the mention of "deductible leveraging" in Wellpoint's response to criticisms of their on-average 25% premium increases for individual customers in the California market.

How important an effect might this leveraging idea be? Well, pretty significant. The basic idea is that as underlying expenses increase, the company bears a larger portion of the total expense, so long as the deductible remains fixed. This increase in cost is going to be reflected in premiums. Here's the simple math.

Let x, a random variable, be an individual's actual health care expenses for a year. Let the deductible be D and we will call the premium P. All these will be annual amounts.

Then the expected value of the individual's insurance expenses are E(x) and the insurance company's portion of that would be:

I = insurance company's costs = E(x) - D

since the individual pays the deductible first. I am ignoring any coinsurance.

With fair insurance (I wonder if Sec. Sebelius can imagine such a concept!) the premium would be set at:

P = I = E(x) - D

Now let's just see what happens to P when we experience inflation at the rate of "i" in underlying insurance expenses.

Expenses will become (1+i)x, and therefore the insurance company's costs become (1+i)E(x) - D. This means that the premium increases to

P' = (1+i)E(x) - D

Then the percentage increase in the premium is

P'/P = {(1+i)E(x) - D}/{E(x) - D}

= {E(x)-D}/{E(x)-D} + {iE(x)/(E(x)-D)}

= 1 + i{E(x)/(E(x)-D)}

Note that the term multiplying the inflation rate is greater than 1, since the denominator is smaller than the numerator. There is the basic leveraging effect.

Let's use some numbers to see how it might work out. Suppose underlying inflation in health costs to be 10%, and let's take a policy with a $2500 deductible with a premium of $3600 per year. This implies, from the above equation, that total expected costs must be $6100.

Using that last equation up above, it follows that the rate of increase in the premium will not be 10% but instead 16.9%. Using the kind of rhetoric that Sec. Sebelius (fast becoming my least favorite person in Washington), the premium increases 1.69 times faster than the underlying rate of inflation.

As will be obvious from the last equation, this leveraging effect is greater for higher deductible policies.

Note that while the individual feels a 16.9% increase in their premium, their total expected cost still only increases by the rate of inflation, that is, 10%. This is a trivial point, but one that not a single reporter or story has made.

There are many problems in the individual health insurance market that need fixing and that can be fixed. I just wish that Obama, and the Republicans too, would hold true to their pledges to stop the rhetoric and focus on the real issues. Blaming the insurance companies and their "excess profits" as dear Sec. Sebelius has been doing, is shameful.

High Deductible Health Plans: Difficulties With

Like at many other institutions, I expect to see significant increases in my health insurance costs purchased through my employer in 2011. I have often advocated for high deductible plans -- catastrophic coverage, essentially -- as a good direction to go in health insurance. Such plans would potentially:

-- Make consumers internalize the true cost of health care and make efficient decisions concerning purchases
-- Create conditions for more price transparency. I expect that more consumers would start asking their providers what procedures will cost.
-- Make consumers realize that much of the problem with health care cost is not with the insurance companies but with high prices from providers.

Unfortunately the path to high deductible plans that would lead to such effects is not easy. There are a lot of behavioral and institutional issues that need to be corrected, and at least one major tax issue. Let me elaborate a bit by using Dartmouth's prices for insurance as an example.

My choices in health insurance are three-fold: a "high" deductible indemnity plan, a "zero" deductible PPO (preferred provider organization) plan, and a "zero" deductible POS (point of service) plan. I put quotes around the deductible amounts since they are fuzzy -- depending on what kind of provider you use, the deductible might or might not apply.

But let's try to keep it easy and focus on the two plans I paid attention to. The indemnity plan has a $3000 per year family deductible, while the PPO plan has a $750 family deductible so long as I stay in the network of preferred providers, which I normally would do. The PPO deductible only applies to some things, like hospital stays, outpatient services, physician services. Routine exams and things like xrays are either covered in full or for a nominal amount ($15).

The high deductible indemnity plan would cost $19,800 per year while the low deductible PPO costs $18,635. Thanks to misguided tax policy, all of this is paid for with pre-tax dollars.

Already you can see how tough this choice is going to be. This is not like comparing what kind of beer to buy, for sure. Not even like auto or home insurance.

But let's try to cut to the chase. If I buy the high deductible plan, I save $1165 per year. For that, I risk paying an additional $2250 or even $3000 in my own health costs. If I can put money into a health savings account, then I can keep the comparison in pretax dollars, but the problem with our health savings account is that if I don't use all the money in a year, I lose it. So I have to estimate what I will spend, and put only that much in. If I underestimate, then I will end up paying the deductible with post-tax dollars, which really hurts.

So if I expect my health care costs to be less than $1165 for the year, I would be better off with the high deductible plan -- the savings in plan price exceeds what I will pay out of pocket for costs. (I am assuming here that the effective deductible on the PPO plan is zero, as most of my expenses are in the zero deductible category.) More than $1165, and I should take the low deductible plan. And in doing these calculations, I should anticipate that my pattern of health care consumption should be different depending on what plan I have (since in one plan I pay for each service and in the other plan I do not).

This is a tough call. The biggest problem for me is that there is simply not much to be gained one way or the other. The dollar amounts are just not that large. And then there are other differences that our dear benefits providers have thrown in to make the choice even more complicated: the plans differ in mental health services, eye care, drug coverage, and even reimbursement for health care membership.

Faced with the choice, most people, I believe, opt for the PPO plan. Yes, it costs a bit more, but it is easy to understand. I think the College probably feels this is good, that most people opt for the PPO, as it discriminates against out-of-network providers. So employees use the low-cost preferred providers.

The problem of course is that now I have a zero deductible on all kinds of services and a low deductible on a lot of other things. So many consumers get into a situation where the marginal price of health care for them is zero. That causes consumption of services to be too high, and creates a situation where consumers don't know what things cost. Not even doctors and hospitals know what things cost, because nobody has an incentive to ask. And, consumers, when they see increases each year in their health care plans, blame the only entity for which they see a meaningful price that they pay -- in this case, Anthem. (Interesting, the payment for a doctor visit under the PPO plan is $15, probably leading many consumers to think that doctor's can't be charging too much!)

In my opinion, the design and pricing of these plans is very poor. If they are designed to get folks into a PPO so they select in-network providers, that can be accomplished another way. What they plans are not doing is getting people to take high deductible plans and have proper incentives.

Could better plans be designed? Of course. In my next post, I will work out some more details. However, the key elements are going to be: First, there has to be a really high deductible plan, something in the $5,000 range. Otherwise there just won't be enough potential savings to play around with. Second, with such a high deductible, the medical reimbursement account will have to have a corresponding high limit, and, CRITICALLY, the "use it or lose it" aspect will have to disappear. If you put $5,000 into an account for medical costs, and use only $1,000, then next year you should be able to roll that entire amount forward. Essentially we should be able to self-insure our medical expenses with pretax dollars over time.

Next post will take some imaginary data and play around with a couple plans that could get a larger portion of employees into a high-deductible plan.

More on the Health Insurance Price Hikes in CA

Both the facts and the reporting of the facts interest me in this story about Anthem/Wellpoint's price increases for individual health insurance in California.

After some searching I found the five-page response letter from Wellpoint -- why don't virtually any of the stories reporting on the increases link to Wellpoint's response, which is available here?

The letter gives some information, but it is not perfect. Brian Sassi, CEO of the Wellpoint Consumer Business Unit makes some good points. He notes that the 39% increase reported is one of the largest increases, not the average. He points out that many increases are related to insured consumers getting older and moving into higher priced tiers. He makes an interesting argument, which is that if insurance has a fixed deductible, and health care costs increase, then there is a phenomenon that he calls "deductible leveraging." This is true; with a fixed deductible and an x% increase in underlying health care costs, the premium will have to increase by more than x% to maintain fair insurance. Why deductibles are not indexed is an interesting question.

He also argues that adverse selection is working powerfully in the individual market. This is probably true.

He argues that many individuals can and do move into lower cost policies (with higher deductible) both before and after price increases. He cited one fact, that a 40 year old woman in LA can obtain a $1500 deductible policy for as low as $156 a month.

What he doesn't do, unfortunately, is give us data on the actual age-constant policy premium increases. Why beat around the bush so badly? Come on, 'fess up and spit it out for crying out loud!

So, a big question here is: Why would Anthem institute rather large price increases in the individual market at a time when such an announcement is sure to cause a huge ruckus?

Theories, with my probabilities:

1. A lower level manager made the moves without thinking about the effect and without alerting upper management. Now the company is in defensive mode. (10%)

2. Upper management made the decision on the basis of sound business analysis, understood the implications, and decided that business trumps politics and they would just deal with the outrage. (35%)

3. Upper management made the decision on the basis of sound business analysis, understood the implications, and decided that it would actually be good to stimulate some debate, since much of the increase follows from the bad state of current policy. (50%)

4. The price changes were not entirely based on sound business analysis, but upper management decided to announce them purposely to stimulate debate. (5%)

Note that the letter from Wellpoint does devote a fair amount to current policy problems, and why the proposals in Congress will not solve these problems:

Unfortunately, the proposed personal coverage requirements in the health care reform legislation passed by both houses of Congress failed all three requirements by (1) exempting tens of millions of Americans from the requirement, (2) using the tax filing process as the only checkpoint which misses tens of millions of Americans who do not file taxes, and (3) including penalties that are a small fraction of the cost of coverage. Under this framework, it is only logical that many individuals— primarily those who are healthy—would have not been captured by the mandate or would have made the logical choice to pay the penalty unless services were needed.

And Now for Some GOOD Republican Ideas

George Will, in a column titled Charting a Simple Road to Government Solvency lays out the proposals of Paul Ryan, Congressman from Wisconsin (with help, it seems, from Republican representatives Devin Nunes of CA and Jeb Hensarling of TX). The full proposals are available here.

First, on health care: refundable tax credits for purchasing portable coverage in any state, with the link to employment clearly severed. Quoting from Ryan's proposal:

Yet health coverage is currently linked to employment by the individual income tax exclusion for employer-sponsored health care. This tax treatment effectively discriminates against workers and families who do not have employer-sponsored health insurance. Compounding the problem, the number of employers providing health insurance has dropped 69 percent since 2000; and this alarming trend is continuing.

Equalizing the tax treatment of health care and coverage will give workers and families much more freedom to acquire a plan that best suits their needs. Making health insurance portable means an individual no longer will live in fear of losing his or her health care along with a job. As the marketplace begins to respond to this new patient-centered control, the resulting increase in competition will improve the quality of services and provide more options to meet the diverse needs of Americans, while lowering costs.

In addition, Medical Savings Accounts would be strengthened. Medicare would be grandfathered in for older people but younger people would enter a new program that would give them vouchers to buy insurance.

These are significant changes. Intellectually exciting, with the potential to really change the system as we know it (which makes any scoring by the CBO virtually meaningless, as they cannot take account of behavioral changes.)

But Ryan doesn't stop at health care -- he has changes for the tax code and Social Security as well.

As for taxes, he opts for simplicity and incentives: a broad base (no deductions other than the health care credit) and two rates, 10% up to $100,000 and 25% beyond that. Beautiful. (It also solves a problem that a colleague was really harping on the other day to me: that the majority of Americans now pay NO income taxes. What kind of "skin in the game" is that?)

And Social Security, like Medicare, gets grandfathered in for older people but younger people get the option of Personal Retirement Accounts for up to 1/3 of their Social Security taxes.

Nobody can say that the Republicans do not have any ideas. This set of ideas is radical, but based on sound economics and conservative principles (as in, individual responsibility and small government). They could ensure that the US economy would be the most dynamic wealth-producing economy in the world for decades to come.

In fact, these ideas are enough to make me want to join Mr. Ryan and his colleagues.

Gingrich and Goodman's Semi-Lame Ideas

The Republicans have some pressure now to show that they are skilled at more than just blocking the Democrats. They need to come up with some ideas of their own. In two posts, I give two examples: First, a set of ideas for health care reform that don't really excite me, from Newt Gingrich and John Goodman, as they wrote in an editorial in the WSJ.

Gingrich and Goodman start out with a couple OK ideas. Give consumers the choice of either a tax credit or a deduction for health insurance, and have it be a fixed dollar amount regardless of how much insurance one purchases. Make insurance portable they say. (But they don't say clearly if they mean to sever the link of tax credits/deductions to employment. Just saying that "Employers should be encouraged to provide employees with insurance that travels with them from job to job..." Why not take the big step and make the tax credit/deduction separate from employment?)

After the first couple points that could have some effect if they were made a little more powerful, the two Republicans end up with a list of rather minor and vague points: "Allow doctors and patients to control costs." "Don't cut Medicare." "Inform consumers."

I almost fell asleep reading it. Zero intellectual excitement.

On to a better version in the next post.

Individual Health Insurance Prices/Adverse Selection Spiral?

Many are reporting on Anthem of California's large price increases in the individual health insurance market -- see here for instance.

Be careful, of course, because all we really know is that

Anthem Blue Cross has unveiled rate increases of up to 39 percent for its 800,000 individual policyholders in California.

And of course there are the stories of individuals reporting their own personal increases.

What we don't know from the stories is what the average increase for the entire pool is.

However, some of the explanations are reasonable -- that some insured people are dropping out of the pool, leaving only the most costly remaining. As prices go up, this will of course only get worse: those who think they are healthy will take their chances, and drop out. This is the adverse selection death spiral.

I am, however, skeptical -- as usual. Skeptical that the anecdotes don't represent the average. And, if indeed the average is going up anything close to 39%, skeptical on why Anthem would be stimulating the debate on health care in such an aggravated fashion.

I will be keeping my eyes open for more information on this important development.

Yale University Announces: We'll Eat our Seed Corn

In a letter to the faculty and staff of Yale, President Richard Levin announced that he was seeking $150 million of savings in order to balance their budget. Among other cost reductions, he said that the number of new students admitted into the Graduate School will be reduced by 10-15%.

No detail was given on what schools would see the reductions, but this is depressing. In my world at least, great PhDs are in extremely short supply, and we should be increasing the numbers.

Levin attempts to temper the news by saying that the number of graduate students will be no lower than a decade ago.

So...a decade of no growth in Yale graduate students. Did the population of the world not grow in the last decade? Did the world's demands for doctorates stay level?

This cut in graduate school admissions needs to be put into the context of flat undergraduate admissions at the nation's top colleges, especially the Ivy League. When these schools were flush with cash, instead of admitting more students, they gave away more financial aid to the existing students and put up nice new buildings. The choke point at the top of the pyramid just got tighter and tighter: a larger US population, more global applicants, yet the same number of students being let through the doors of opportunity.

Trying to Understand the Pre-existing Conditions Issue

One of the bigger talking points for health care reform was the idea that greedy insurance companies turn away people with pre-existing conditions.

The confusion over these kind of claims is amazing. As I dig into issues like this even a little bit, I get more and more worried that we were being sold a pig in a poke and/or that many legislators and advocates did not really understand what our current health care system really is like. If they don't understand the true nature of what we have, how can we trust them to design something new?

(I have already pointed out in this blog two other major areas of confusion, one being that most folks who get insurance through their employer are actually part of a self-insurance program; and the other being the large extent of miscounting in the percent-of-GDP calculations for health care.)

So a friend and I were wondering why Dartmouth College had dropped its pre-existing conditions clauses several years ago. I remember having to deal with such issues when hiring faculty, but we no longer have such clauses for new employees. The most likely explanation (I wish I could say enlightenment on the College's part but I don't think I can) was a new Federal law: HIPAA, or Health Insurance Portability and Accountability Act of 1996. I recommend this site to get an overview. Here is a brief description:

HIPAA is a federal law that:

Limits the ability of a new employer plan to exclude coverage for preexisting conditions;

Provides additional opportunities to enroll in a group health plan if you lose other coverage or experience certain life events;

Prohibits discrimination against employees and their dependent family members based on any health factors they may have, including prior medical conditions, previous claims experience, and genetic information;

and

Guarantees that certain individuals will have access to, and can renew, individual health insurance policies.

Now this law does not solve perfectly a key issue involving health insurance, that being the ability of individuals who have not had group-based health insurance to continue with individual insurance (at reasonable prices). But, I note that it did solve many problems that could have affected the vast majority of people with health insurance, that being the difficulty in even switching jobs if you have health issues. (I think that many people still think that they can be denied coverage by a new employer for pre-existing conditions. Probably many of those folks support health care reform on the basis of that faulty assumption!) I also think that HIPAA points the way to MODEST reforms that could be made to the individual insurance market that would help alleviate the issues that remain in that market (even short of the policy change that would really help that market, that being severing of the tie between one's employer and one's health insurance).

Lake Skating

For anyone interested in a real new winter adventure, I highly recommend lake skating. Check out these pictures of Goose Pond in NH yesterday. The entire lake, all 550 acres, was like a hockey rink. Snap a pair of nordic skates onto your cross country ski boots, buck the North wind up to the head of the lake (avoiding frostbite), then turn around and scream down to the other end.

I was a little afraid yesterday to go across the wide part of the lake to get to the other side, but today I am going to do it. As they say, it's not a sport if you can't get killed doing it.

Getting Intimate with the iPad?

It was well below zero yesterday morning, and the fire in my woodstove had burned down to only glowing coals. The temperature was probably about 45 degrees in the house. So, with a cup of coffee in one hand and my iPhone in the other, I stayed in bed and cruised the web and got all the Saturday morning news. All my favorite sites...Fox, Drudge, RealClear Politics, Roger Pielke Sr. ...

The interesting thing is that I had my laptop with me as well, and could have been using that. I would get a bigger image, but I would not really be as comfortable. With the iPhone, I could move around at will, and of course the image orientation followed me.

Two eureka thoughts. The first one was, hey, wouldn't a slightly larger version of the iPhone make this picture even sweeter? Yes indeed it would. A nice light device, with a large screen, and one that would allow me to multitask easily from a website to maybe a book that I had been reading? Thank you Steve Jobs -- I can see an iPad on my wishlist.

Second, I had jumped around to myriad news sites, including the WSJ, BBC News, Washington Post, Washington TImes -- :), New York Times, but I had not paid anyone a single dime for all that good reading. Sure, a few advertisements were somewhere in my screen occasionally, but on an iPhone one hardly notices them.

I am still waiting for Steve Jobs to figure out some way to package news content with the iPad, and charge me a monthly fee for it. Yes, that will be painful, but I am willing to do it. How much? Let's see...if you gave me the Economist, WSJ, New York Times, Shooting Illustrated, Washington Post and maybe one or two others...I already pay a hundred dollars per year each for the first two...how about $50 per month?

A Bad New Beginning

Obama has conceded that goals for a health care reform package need to be revisited in light of the Massachusetts Surprise.

But he gets off to a very bad start with this line:

We know that we need insurance reform, that the health insurance companies are taking advantage of people.

How about stopping the blame game and the populist rhetoric for a better beginning? If we want to eliminate the pre-existing conditions clause, how about we start by honestly recognizing the basic and real problem faced by self insuring employers and insurance companies of individuals who stay uninsured but as soon as they get seriously sick opt into the insurance pool? Pre-existing conditions clauses prevent that.

I suggest a small commission of smart, unbiased, action-oriented individuals who would come up with a nice clean set of changes to our health care system that would meet a small number of clear objectives. And then have Congress vote up or down with no option for bribes and payoffs.