Author Archive
Hold a Hearing
With so much riding on the pending bailout, I would ask Congress to hold a hearing this weekend, with two people testifying: Ben Bernanke and Roger Cole. Cole is head of the Federal Reserve’s Division of Bank Supervision and Regulation, fondly known as “soup and reg.”
Here is how mortgage securities markets could affect good borrowers:
- The securities lose market value.
- The banks mark the value of their securities to market. This eats into their capital.
- The banks have to cut back lending to good borrowers in order to comply with capital requirements.
To help good borrowers, you have to intercept one of these three steps. The Paulson plan and all its variants are an attempt to intercept step 1. Getting rid of mark-to-market accounting is an attempt to intercept step 2. Easing up on capital requirements is an attempt to intercept step 3.
The Paulson plan is awful. For one thing, I don’t see how the Paulson plan can really kick in for several months, because it will take that long to figure out implementation. With capital forbearance, you could have new rules up and running within a week.
Getting rid of mark-to-market is not what I would want if I were a bank regulator. That’s why I would want Cole at the hearing. Ask him: if you had to choose between relaxing capital requirements and getting rid of mark-to-market, which would you choose? If he disagrees with me, then go with what he says. Incidentally, there is an op-ed in today’s Wall Street Journal that says we should keep mark-to-market accounting.
The question for Bernanke is this: if the Paulson plan is defeated, can he do enough with capital requirements and other tools to keep money flowing to good borrowers, particularly small business? If the answer is “yes,” then I think there is a credible alternative to the Paulson plan. Wall Street may not like it, but the public will be protected from a Great Depression scenario. If Bernanke says he doesn’t have the tools to free up bank lending, and if he thinks that things are going to really freeze up for good borrowers, then I guess we have to default to the Paulson plan.
[Cross-posted from EconLog]
Some Talking Points
For not doing a bailout:
- We don’t need to bail out Wall Street to protect Main Street. All we have to do is make sure that sound borrowers, especially small businesses, have access to credit. Banks can do the job, although regulators may have to reduce capital requirements.
- The mortgage securitization industry is brain-dead. If it does not revive on its own, we should not spend taxpayer money trying to resuscitate it. The industry right now is a focal point of rent-seeking, but it has little relevance to the economy as a whole.
- The stock market seems to want a bailout. While I hope for higher stock prices, I think that public policy needs to take into account more than just daily fluctuations in the Dow. In 1971, the market gave a huge thumbs-up to wage and price controls, which turned out to have damaging economic effects that persisted for years.
- There is no reason to rush. President Bush wants to ram this through without deliberation, because that is how he operates. The Democrats want to act without deliberation, because putting the financial sector under government control is what they want. The rest of us would be better off if the issue were carefully debated first.
[Cross-posted from EconLog]
Health Care Podcast
I am interviewed by Russ Roberts. The topic is health care economics, based on my book Crisis of Abundance.
The interview was slightly censored. In trying to explain how we ended up with third-party payments for health care, I suggested this analogy:
Suppose we were 20-year-old guys who hung out together, and one of our friends was down on his luck with women. He’s really depressed about it. We decide–not necessarily the brightest idea–to hire him a prostitute. We don’t want him to know she’s a prostitute, so we all chip in and pay her, tell her to meet our friend at a bar, and make him feel better about himself.
Next morning, we ask him how it went. He says, “Great. I really feel better about myself. In fact, I’m going to see her again tonight.”
As friends of the guy, we look at each other and realize that he will be devastated if he learns the truth. So we chip in again and pay the prostitute to make our friend feel better about himself. This keeps happening day after day, and eventually maintaining our friend’s illusion about his love life gets to be really expensive.
Similarly, free health care is an attractive illusion. It’s just gotten to be really expensive to maintain the illusion.
Even though that analogy was cut, I hope the podcast is interesting.
The Massachusetts Canary
Maggie Mahar reports on how things are going in Massachusetts, with its much-touted health reform:
Uninsured citizens earning more than 300% of the poverty level are expected to buy their own insurance. Here, the state hoped that 228,000 of its uninsured citizens would sign up. So far, just 15,000 have enrolled. Apparently, they’ve done the math and decided that it would be cheaper to pay the penalty. But their premiums are needed to keep the program going. If more in this group don’t sign up, it is not at all clear how the state will be able to continue subsidizing the poor.
Yesterday’s first speaker, Robert Blendon, a professor of Health Policy in Harvard’s Department of Health Policy and Management, talked about what Massachusetts experience might mean for the national health care debate: “Massachusetts is the canary in the coal mine,” Blendon declared bluntly. “If it’s not breathing in 2009, people won’t go in that mine.”
See also this post, where Mahar writes,
But the underlying reason people in Massachusetts have become accustomed to such lavish care is not that they are naturally more demanding than people in other states. Rather, high consumption of care is driven by the fact that the state is a medical Mecca, crowded with academic medical centers, specialists and the equipment needed to perform any test the human mind is capable of inventing.
In December of 2005, in The Weekly Standard, I wrote
if I were going to pick a state in which to attempt an experimental health care financing reform, it would not be Massachusetts. Massachusetts, with its outstanding medical schools and world-class hospitals, is rich in the suppliers of premium medicine, and abundant supply has been shown to drive up usage.
Mahar and I are almost exactly in alignment on health care policy. We agree on the diagnosis–Americans make extravagant use of medical procedures with high costs and low benefits. Mahar and I only differ in our prescriptions. Go figure.
Go read both of Mahar’s posts. There is more worth reading than what I excerpted.
Overtreated
My review of Shannon Brownlee’s new book says,
The point is that getting the advantages of McMedicine may not be a matter of sheer collective will, as Brownlee would have it. Instead, it might require radical deregulation of medical licensure and practice regulations.
I like the fact that her book often inverts the usual story of villains and victims in health care. For example, lawyers and doctors who fight insurance companies for approval of a desperate cancer therapy turn out to be wrong.
Romney’s Selective Memory
In the Wall Street Journal ($), Mitt Romney seeks to distance himself from HillaryCare II:
The new plan is slated to cost $110 billion a year. And to pay for the new entitlement — a tax hike. That in turn will slow down the economy and make the cost of her system grow even higher. By contrast, both the reforms I led in Massachusetts and the federalist reform plan I recently proposed do not raise taxes or increase spending.
…I chose an individual mandate only after we had done our best to reform state insurance regulations — lowering premiums by as much as 50%.
Let’s be clear here: My plan in Massachusetts worked very differently than Sen. Clinton’s plan would. First, we worked to reduce the burdens of regulation. The legislature insisted on more coverage mandates and regulation than I would have liked, but even so, less regulation has resulted in much lower premiums.
Governor Romney believed at one point that he was going to do all these things–cover the uninsured, simplify regulations, lower costs, and avoid increased government spending. And that is what he remembers having done.
Reality is a bit different. Health insurance in Massachusetts is still highly regulated. If anything, regulations are stiffer. Some people who already had health insurance found that under the new law their health insurance policies do not meet the mandate!
Finally, the cost of the plan proved far higher than Romney projected. This makes the claim about no increase in spending or taxes untenable.
Romney remembers a plan that was in his dreams. What was actually feasible, enacted, and implemented is rather different.
As We Age
Atul Gawande writes,
Little of what the geriatricians had done was high-tech medicine: they didn’t do lung biopsies or back surgery or PET scans. Instead, they simplified medications. They saw that arthritis was controlled. They made sure toenails were trimmed and meals were square. They looked for worrisome signs of isolation and had a social worker check that the patient’s home was safe.
How do we reward this kind of work? Chad Boult, who was the lead investigator of the St. Paul study and a geriatrician at the University of Minnesota, can tell you. A few months after he published his study, demonstrating how much better people’s lives were with specialized geriatric care, the university closed the division of geriatrics.
“The university said that it simply could not sustain the financial losses,” Boult said from Baltimore, where he is now a professor at the Johns Hopkins Bloomberg School of Public Health. On average, in Boult’s study, the geriatric services cost the hospital $1,350 more per person than the savings they produced, and Medicare, the insurer for the elderly, does not cover that cost. It’s a strange double standard. No one insists that a twenty-five-thousand-dollar pacemaker or a coronary-artery stent save money for insurers. It just has to maybe do people some good.
En passant, he writes, “We cling to the notion of retirement at sixty-five—a reasonable notion when those over sixty-five were a tiny percentage of the population, but completely untenable as they approach twenty per cent.”
So it seems that Medicare is letting down the elderly when it comes to geriatric care. And Social Security is untenable. Who would have thought that government would make mistakes?
Michael Cannon Dons a Bullseye
He might as well say “shoot me” when he writes,
focus on the incentives facing the 250 million Americans who have health insurance, not on the estimated 47 million who don’t.
He’s right, but the terms of the debate are not going to change. So he is just setting himself up as a target for scorn. More here.
New Health Care Reading
David Hogberg has joined the blogosphere with Health Hog. One of his first posts links to a debate between David Gratzer and Jonathan Cohn. Gratzer’s opening salvo mentions a book by Robert J. Ohsfeldt and John E. Schneider, which is among three books reviewed here. Gratzer writes,
Robert L. Ohsfeldt and John E. Schneider factor out intentional and unintentional injuries from life expectancy statistics, concluding that this non-injury group of Americans outlive similar groups in other countries.
I’ve often wondered what would happen if you did this sort of calculation. I can’t say that I am entirely shocked that if you adjust longevity data for things like murders or car accidents, the U.S. comes out ahead.
Dueling Book Titles on Health Care
Shannon Brownlee writes in the New York Times,
Sure, aggressive treatment is reducing mortality and improving the quality of life for some patients. Sometimes it even cures. But for many others, the cancer machine offers only marginal benefits at best, and providers push screening and aggressive treatment in part because they have nothing else to give, but also because it’s profitable. How much of the money we spend on unnecessary or futile cancer treatment might be put to better use searching for real advances?
Her forthcoming book is titled, Overtreated: Why Too Much Medicine Is Making Americans Sicker and Poorer. Meanwhile, Jonathan Cohn writes
Every day, millions of hard-working people struggle to find affordable medical treatment for themselves and their families – unable to pay for prescription drugs and regular check-ups, let alone for hospital visits. Some of these people end up losing money. Others end up losing something more valuable: Their health or even their lives.
His book title is Sick: The Untold Story of America’s Health Care Crisis–and the People Who Pay the Price.
Europeans probably will love Cohn’s book, which apparently will reinforce their impression that Americans fall down dead in the streets every day because we don’t have enough socialized medicine. Brownlee’s book also apparently will take an anti-capitalist slant, blaming evil doctors and hospitals for overtreating patients.
The moral of the story is that whether you are being overtreated or undertreated, it’s the fault of the evil capitalist system. Still, if Cohn and/or Brownlee want to campaign on a platform of “Your health care stinks. It’s time to replace your health insurance and your doctor with a government programm,” I think they may run into opposition.
Eight Seconds on Health Care
At Cato’s Health policy summit this weekend, Susan Chamberlin kept challenging us to come up with an 8-second sound bite on health care. I had nothing better to do on the plane ride home than to work on the puzzle. Here is what I would propose:
The prescription for better health care is more freedom to innovate, not remote-control surgery from Washington.
I was struck by the fact that some states have sensible policies in some areas. In fact, I can imagine other soundbites along the following lines:
Health insurance costs less in [pick a state, say Kansas or Oklahoma] than in Massachusetts, thanks to fewer dysfunctional regulations.
People who have diabetes or other expensive chronic conditions do not have to worry about health insurance if they live in [pick a state], thanks to the state’s high-risk pool.
Consumers today can find information to help them select the best health insurance plan, the best doctor, and the best treatment alternative, thanks to services available on the Internet.
If you want to see even faster progress on solving problems with our health care system, try more deregulation to encourage more innovation. Try encouraging more competition, not a government monopoly. We need responsible consumers making informed choices, not bureaucratic diktats.
Health Insurance Do-Nots
Kate Bundorf and Mark Pauly examine the issue of the affordability of health insurance.
health insurance is unaffordable for 10.5 percent of adults aged 25-64. For the whole sample, using the poverty line as a benchmark, 71 percent of the currently uninsured population could afford health insurance coverage. Increasing the definition of affordability to family income exceeding three times the poverty threshold, the proportion of “uninsured afforders” declines to 28 percent.
Bundorf and Pauly also present a number of estimates defining affordability thresholds according to the proportion of individuals with similar characteristics who purchase insurance. Using a definition of health insurance as affordable if the majority of people in similar circumstances purchase coverage, the authors find that health coverage was affordable to between 59 and 66 percent of the [un]insured, depending on the characteristics used to define individuals as similar. Using the threshold that 80 percent of similar households purchase insurance, they find that around 25 percent of the uninsured could afford coverage based on peer comparisons.
This is empirical support for the phenomenon that I once described as health insurance do-nots.
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