health care

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Republican Health Care Mess

The Republicans have announced that they are gearing up to deal with the post-Obamacare era when, and if, the Supreme Court rules that the mandate is unconstitutional.

Recall that the mandate is a part of the overall legislation that makes it mandatory to sign up for health care. This is the element of the law that most vexes the right wingers and libertarians. They see it as a massive intrusion of individual rights. After all, they argue, if someone wants to avoid paying for health care until they need it that’s their right. Apparently free loading is sacred to libertarians.

It is far from creation that the Supreme Court will strike down the mandate, but just in case the GOP has started to crank up its response.

Or not.

The problem is that there are parts of the law that are very popular. Yes, people actually like Obamacare when it is explained properly and it is stripped of the tarnish of evil that the libertarians like to mask it with. This is, of course why the libertarians detest the law so much – the voters will want to keep it.

Back to the GOP.

They are in a pickle. They’d like to get rid of the entire thing and throw health care onto the wide open market. But getting rid of those popular bits in an election year could cause a lot of trouble. The radicals and revolutionaries of the libertarian army are scared of democracy: they’r prefer it that voters aren’t given a chance to decide what the people want or get. At least not this year.

Worse for the GOP: if they don’t roll back the law it will start to stick. If Obama wins in November – a close call at the moment – their next opportunity will be after the 2016 election by which time this popular bits of the law will have become even more popular. So the window within which the libertarians can get rid of Obamacare is narrow.

The problem is that they don’t have any alternatives.

None.

Except for a motley rag-bag of old legislative initiatives like allowing small business to band together to share insurance policies. All of this bits and pieces are, by and large, part of the law. Don’t forget that Obamacare is modeled on Republican policies originating in the network of right wing think tanks during the anti-Clinton reform struggle. The biggest addition that Obama included in his legislation was the mandate which is designed to do what none of the GOP ideas do: reduce costs. It is the mandate that reduces policy costs because it adds to the insurable population a vast swathe of young healthy people. This is something that no other plan does, and is the only reliable way to cut costs.

Which is why the GOP is stuck.

They would love to keep the popular parts of the law so they don’t get attacked at the polls. But those parts are costly. Health care costs would rise, not fall. The entire goal of reining in costs would not be achieved.

Whoops.

So a day after proudly stepping up an announcing that they are right ready to fill the breach were the mandate struck down, the Republicans are facing away furiously. They’re reduced to using the infamous Paul Ryan and his obfuscating tactics to hide their lack of preparation.

Ryan evades responsibility with his usual pro-market magic reference. “We believe in patient-centered and market-based medicine.” As if that’s a novel plan.

Note to Paul Ryan: apart from Medicare we have a market based system. It’s expensive, ineffective, delivers bad care, produces rotten results, and leaves tens of millions of people uninsured. It sucks. Oh. And by the way. Market based health care can never, ever, work. There is no way for the essential elements of a market to come to bear in health care. People cannot change doctors easily, they don’t have sufficient information to make informed choices – do you know enough to argue with your doctor about the treatment being prescribed? and there’s that problem of free-loading.

No.

The Republicans have no plan,

As long as they try to deliver health care through market magic they will solve nothing and, eventually, drive voters into the arms of Obamacare.

And using Paul Ryan to lead the charge is just plain dumb. Because he is.

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Health Care Non-Economics

The current Supreme Court drama over health care reform is making all sorts of headlines. One thing that is missing is sufficient criticism of the horrible economics being served up by opponents or reform.

This is simple.

People whom advocate that we ought to allow market forces to govern the health care system obviously have no clue as to how a market works. This is surprising since they tend, by and large, to be ardent market force advocates.

So, at the risk of repeating myself:

Markets are supposed to produce magical results. The magic being that they allow those involved to interact such that the outcome is agreeable to all in the sense that no one can make a change in position without reducing someone else’s position. The mechanism that brings about this magic is that of price discovery. The too and fro between people in a market eventually will establish a price at which sufficient services are provided at a price to produce the agreeable outcome where everyone gets what they need given how much they can afford. That’s long winded, but hopefully you get the drift of it.

This entire process is often wrapped up in the sentimental phrase: “market forces”. As in: we ought to allow market forces to decide the outcome. Most people seem to think such an outcome is value neutral in that no coercion takes place, no government interference is involved, and therefore, the result is not arbitrary, but ‘natural’. It’s all just the result of a bunch of free folks settling things between themselves.

Umm. No. It’s value laden throughout since the process starts with everyone’s budgets as a given. And some budgets, as we all know, are more stacked than others. Even if we accept this unequal starting point the magic doesn’t always work.

This is because the magic is only possible under very severe restrictions. In the case of health care the most salient such restriction involves the asymmetrical distribution of information.

What this means is that all the actors in a market – in the case of health care: doctors, insurance companies, and patients alike – have equal access to, and understanding of, all the information needed to make informed choices. The playing field must be level. If it is not – say when your doctor knows something about tuberculosis that you don’t – there is no way you, as an economic actor, can negotiate a proper or agreeable price. Actors also need to be able to secure competing bids for services – as you are rushed to the emergency room you would have to be able to seek different prices, doctors, treatments and so on – in order to allow the pressure of competition to eliminate undesirable side effects of cheating, rent seeking, and other anti-social behavior.

There is no way, at all, that a health care system can be run this way. It is a classic example of a circumstance where a market cannot work.

This is well known. It was the subject of a classic article by Kenneth Arrow – a Nobel prize winner – a long time ago.

Yet here we are having a discussion if none of this is known at all. And the most ignorant of the problem of market failure in health care are the very people who defend market forces.

On a broader note: the cost of health care is an issue for the economy regardless of whether the bills are paid by the government are not. Indeed in many ways the current discussion about Obamacare is a massive and unfortunate distraction from the main problem, which is to cut health care costs no matter who foots the bill. Dismantling Obamacare – which was a half-hearted reform at best – doesn’t address this key issue. It may satisfy the ideological right in our politics, but they will then be faced with a different and more embarrassing question: when the market manifestly fails, as it must, what will they do?

My guess is fudge.

They have no alternative.

Look folks: markets fail. There is no news in that. Further, any resource – like health care – that is not universally abundant has to be rationed somehow. Not everyone will get all they want. So the decision is about how we ration. Do we ration via prices in an open market? Or do we ration via some form of control over supply of service? Or in some other way? Which fairest? Which is cheapest?

In moments when they fail markets cannot be assured of delivering good results. This is already clear in our health care system which is expensive, inefficient, and produces very modest results.

It is time for a change. Even if you abhor Obamacare.

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The Economy Grows! So What?

The enormous sigh of relief we heard this morning when the GDP figures for the third quarter were released is absurd. I realize I am being a tad curmudgeonly here, but: so what?

For the record this is the first, or “advance”, estimate and will go through two revisions before becoming final. Even after that it could get revised as the government geeks sift through their piles of data. According to this release GDP grew at a 2.5% annual rate in the third quarter, up from the miserable 1.3% of the second and the appalling 0.4% of the first.

Hurray.

Unfortunately this figure is less than the numbers being tossed about last week by the experts who had all been taken in by the more upbeat nature of recent piecemeal reports. The consensus had settled at growth of around 3.0%, with individual forecasts ranging as high as 3.5%. I saw no reason to budge from my less optimistic predictions of between 2.0% and 2.5%. Thus my ongoing view of malaise seems vindicated.

That’s not good.

Here’s the breakdown of the numbers, as usual I express it as contributions to the overall 2.5%:

  • Personal Consumption contributed positively at +1.72%
  • Private Investment added +0.52%
  • Net trade [exports less imports] added +0.22%
  • Government spending was flat, adding 0.00%

Add those up and you get growth of 2.46% which the government press releases all round up to that 2.5% number.

As you can see, the big story is that consumption ran at a decent pace, although it is still considerably down from the pace we saw a year ago. It has bounced up from the second quarter’s terrible showing and is at least in the black, but it is not a strong figure by any stretch of the imagination. Digging beneath the surface we find two major contributors: health care spending, which produced 0.61% of the overall 1.72% I mentioned above; and spending on autos, which added 0.31%. So over half of the uptick came from just to parts of the economy. The rest was spread thinly across the rest of consumption, with no one area showing either notable strengths or weaknesses.

This is a decent but not great quarter. There is no need to get particularly excited about it. Except: at least we are not headed downwards into another recession, but I never thought we were. Indeed, in my opinion, all the talk of double dips over the past two or three months represented a complete misreading of the data. The economy is sluggish, not imploding. Demand is weak – as today’s figures confirm – but it is not trending down.

The private sector investment numbers would have been much stronger were it not for the ongoing unwinding of inventories. Fixed investment added 1.6%, but inventories chipped -1.08% off this figure. As you all know, inventory swings can distort the overall investment figures, and this quarter is no exception. A key question we need to ask, as always, is what motivated the inventory swing? Was business de-stocking shelves because it anticipates less sales this winter? Or was the reduction involuntary because businesses misjudged the slight surge in consumption? Or was it weather related? This conundrum always plagues the proper interpretation of the data. If the de-stocking is accompanied by a strong uptick in sales then we could spin it in a positive light. If not, then the more likely interpretation, and my current preference, is that business is still cautious and is thus keeping inventories at a minimium. It will be interesting to watch this aspect of the report as it goes through revision over the next two months.

There isn’t much of a story behind the trade figures. Both exports and imports grew, with exports comfortably outpacing imports. One slight oddity to report is that imports of services grew at exactly the same rate as exports of services. This is unusual. Under normal circumstances the US is a net exporter of services which thus make a steady contribution to GDP and the growth of exports is usually higher than that of imports. So the third quarter was something of a quirk. That is, of course, in terms of rate of change. In absolute numbers exports of services still dwarfs imports by about a 5:3 ratio.

Lastly, government spending was neither positive nor negative. I have mentioned many times that the impact of the 2009 stimulus has worn off, and the third quarter is a good example of this. Federal spending has grown about $10 billion in inflation adjusted terms over the past six months, but non-defense spending has contracted by $10.3 billion over that same period. Yes, government spending, other than defense is shrinking – contrary to what you might hear in our political dialog. That $10.3 billion contraction was offset, obviously, by a surge in defense spending of $20.3 billion. Furthermore, and to add to my constant drumbeat, spending at the state and local level continues to decline as states trim their budgets. This is a hidden aspect of the total story of government spending, and is why I have advocated federal aid to the states. In the past six months the contraction of local spending cut about $15.2 billion out of the economy, following a contraction of $27.2 billion in 2010. So austerity at the state level has eroded, very significantly, the effectiveness of federal stimulus. Which is yet one more reason why I thought the original stimulus was way too small and ill-conceived. But that’s an old story.

So, what does this all mean?

Bear in mind that these numbers will be heavily revised, so we should be careful in our interpretation. Still, I think we can conclude that the economy is growing, not contracting; it is not robust by any means; growth is well dispersed throughout all sectors, but nowhere is it a source of strength. Thus the picture is one of malaise. I cannot see a reason to move towards predicting stronger growth any time soon. All the basic building blocks are in place for more of the same. yes, we may see a quarter of higher growth, but I don’t think it will signify a break out to a sustainably higher level. We need household debt reduction to work its way through, wages to increase, and unemployment to fall before we can argue for a return to “normal” growth of 3.0%+.

We are firmly stuck in no man’s land. None of these important factors will be resolved quickly as long as we potter along with mediocre growth. And yet unless they are resolved we can only expect mediocre growth. The case for stimulus is clear. But it isn’t being heard. Hence my view of more, and possibly intractable, stagnation.

So, don’t get carried away by the third quarter. It was nice. Nicer than a decline for sure. But not that nice. It doesn’t solve anything.

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Republican Strategy

As I have mentioned before: what are they thinking?

The Republicans have taken a dramatic stand on deficit reduction. Indeed they have made it their entire reason for being since they retook the House last November. Their hardline supporters are fired up and believe that this is their opportunity to hack away at the social programs they hate so much. This intent was the motivation behind their defunding of the government back in 2001 and 2003. Their goal back then was to set the stage for a fiscal crisis that they could use as cover or diversion for the real aim of dismantling those programs.

So it isn’t a surprise when we read the now famous Ryan plan to cut the deficit, and its central theme of getting rid of Medicare via the backdoor method of instituting a voucher system.

But perhaps it should be a surprise.

By being so blatant about their plan the Republicans have come out from behind their usual obfuscation. Normally, for seventy odd years, they have ranted about the evils of social programs and then done nothing to eradicate them. This hypocrisy was based on the knowledge that the voters love those programs and want to defend them at all costs. So GOP strategy was to attack big government in order to protect and enhance their right wing credibility, but then to go along with whatever funding was needed to keep those programs healthy and alive in order to get elected.

This two faced paradoxical approach served them well for decades, but began to change after Reagan. Since then the virulent drum beat from their ever more extreme supporters has been to drop the pretense and go on the attack. Hence the defunding efforts of the Bush era.

There is one problem with this more open and aggressive attitude.

No one likes it.

No one. Well not quite no one. Presumably the extremists in Congress are on board, but no one else is.

So: what are they thinking?

Why would they adopt such a hard right wing stance now, when the President is weak and their stock is running high?

The problem with their strategy comes into sharp relief when we consider voter opinion. Since the Ryan plan was announced polls have shwon voters want to keep Medicare. The vast majority want it left well alone. The margins in favor of leaving Medicare untouched are huge. It isn’t even close. As we would expect self described Democratic supporters are overwhelmingly against cuts. Over 90% of Democratic voters oppose anything remotely like a reduction in Medicare. 75% of independent voters also oppose change.

Republican voters?

Here’s the problem for Ryan and company. Over 70% of Republican voters want Medicare left alone too. Indeed they are even more adamant about there being no cuts at all: not even a tweak.

In the recent annuls of American politics never has there been so solid a bloc of voters, left, middle, and right supporting the same program. Attacking it has, thus, all the makings of a suicide mission.

I realize that in the hubbub of a live election these support levels may shift. Especially when the Republicans use the recent health care reform as a smoke screen to confuse the electorate. But those levels of support are unlikely to melt away entirely. And even Obama, not known for his challenging or robust nature, cannot mistake the opportunity to rally his troops. He has been handed a great big beautiful pre-election bonus with which to beat the Republicans and to paint them as so extreme that they are untrustworthy custodians of America’s core and most beloved program.

So: what are they thinking?

I imagine they are so enthralled with their own rhetoric, and so self-absorbed by their long struggle to oppose Medicare, that they are blind to the wishes of the public. They hear one side of the public’s complaint: federal government seems very big. They ignore the other: people like it that way. Voters want the security of Medicare. They don’t want to pay for it. This dichotomy is the result of the incessant Republican chant against taxes and their delivery over recent decades of tax cuts that apparently have done little damage. Voters became accustomed to getting something for nothing.

Now that demographics and the crisis have exposed the folly and irresponsibility of the Republican bait and switch, we all being forced to choose between raising revenues to pay for things we like – in this case Medicare – or giving those things up. We seem to want to keep the good stuff.

The Republicans have nailed their colors to the wrong mast. They misjudged the character of the country. When pressed, voters are willing to forgo that extra tax cut, or even to endure a tax increase to keep their most coveted program alive.

One more fact from recent polls: even a majority of Republican voters support raising taxes on upper income earners if that means keeping Medicare. This is Obama policy. It is what the Republicans in Congress are attacking.

Maybe the Republicans in Congress are just deaf. In any case never have they been more out of step, not just with people as a whole, but with their own supporters. As of now the only people who are on board with the GOP deficit cutting plan are the Tea Party extremists.

Oh. wait. That’s not true either. Over 70% of self-identified Tea Party supporters want to keep Medicare afloat.

So: what are the Republicans thinking?

Their plan must be so subtle that no one outside their leadership seems to know.

I certainly don’t.

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Republicans Abolish Medicare

Well nearly anyway.

The only purpose of the vote in the House today was to pass the much hyped Ryan plan to “save” Medicare. For save read abolish. The vote was along purely party lines as we would expect. Or almost: four GOP members bravely voted against, two abstained. So now the Republicans are on record as wanting to dismantle one of our most popular programs.

The question then is: why?

The Ryan plan, like all his plans, depends on fanciful accounting, deceit, sleight of hand, and all the accoutrement of Merlin’s bag of tricks. It boils down to a very simple equation: by shifting the responsibility of payment to the elderly themselves it rids the government budget of the burden of health care, and thus magically eliminates much of the long term deficit. The elderly would be forced to find private health care insurance that they pay for by cashing in the vouchers they receive from the government. Hey presto. Privatized health care and no deficit. That no cost is squeezed from the economy, or that the economic burden is not changed at all doesn’t matter. The only goal is to rid government of any role in health care. That the big problem of escalating costs remains unresolved doesn’t enter the equation. We will leave that solution to the elderly themselves. Who, in true Ayn Rand fashion, will be left to fend for themselves. No other nation on earth actually proposes abandoning its elderly like this. Then again no other nation on earth is so pathologically incapable of embracing community spirited solutions to its problems.

There is no guarantee that the vouchers would pay for all the care the elderly are now receiving. Indeed, all the analysis so far tells us that the amount of coverage would drop quickly. This has to be the case if the idea is to lower government costs: the vouchers have to end up being a lesser cost than the current system. So the elderly will end up paying for that extra care from their own pockets. What a shock. Plus there are early signs that most insurance companies would not offer policies anyway. The elderly are exactly the sort of high cost population that private insurers typically avoid like the plague. Being old is a pre-existing condition. The kind that makes insurance companies run for the hills. Thus the Ryan plan is likely to throw a ton of our old folks into the arms of either charity, destitution and illness, or family. How quaintly rugged of the GOP. How uncaring. How, well, Republican.

Nothing could be more anti-social or extreme. Nothing could conform more closely to the nasty world of Ayn Rand. The entire plan is mean spirited and reckless in its disregard for either the health or the wealth of the old people of America. And it leaves the big problem: health care cost unresolved. Sleight of hand meets anti-social deviancy.

Then again, like all Ryan plans, it is difficult to tell exactly what the plan will do since details are sparse and examples non-existent. So I may be over-reacting.

Maybe.

But when faced with what appears to be a freakishly stupid and bizarre attack on one of the country’s most diligent voting blocs it is hard to tell what the goal was. Clearly the GOP is so self-regarding and obsessed with its anti-social agenda that it cannot understand just how unpopular this plan would be were it ever explained to the public. In one recent poll only 3% of voters thought Medicare needed to be abolished. A large majority wanted to leave it as is, despite the cost. Oddly, it was Republican supporters who were most critical of cost cutting in health care. So how the GOP gets from these kinds of polling results to making abolition a major plank of its election campaign I don’t know. Stubbornness?

Obviously the abolition of Medicare has been a long desired goal of the right wing. They abhor government to an extraordinary degree. Irrationally so, since there is plenty of evidence from all around the world that the most cost effective health are systems all involve some form of government control, if only to exploit the negotiating advantage it has with drug companies.

To compound matters, the GOP tips its pro-corporate hand when its plan includes specific language preventing the government from using that negotiating power. The only explanation for such a ban is that the Republicans feel more strongly about pharmaceutical company profits than they do about the provision of health care. No news there I suppose.

So here we are. The great war over eliminating our safety net is underway. The steady movement of the GOP to the extreme far right has produced this struggle. As recently as Nixon the Republican mainstream defended the safety net – albeit reluctantly – rather than despising it. The Reagan revolution ended that and hurled the GOP out into its current hardline world where it willfully ignores the social ramifications of its ideological hatred for the people of America.

Average families matter not one whit to these crackpots. There is nothing bold nor clever about being so despicable and mean spirited. Ryan is a lightweight who never provides any back up to his ideas yet manages to get praise from the knee jerk press trying to locate a balance in any and every discussion.

Of course today’s vote changes nothing since there are nowhere near enough votes for the Ryan plan to get past the Senate and then withstand Obama’s inevitable veto.

Which gets us back to the beginning. Why? Why would they vote this plan through? It hands the Democrats an enormous election platform boost.

The only explanation is, as I mentioned, that the GOP is so severed from reality, and so assured of its extreme ideology, that it doesn’t see the dangers of being both blatantly and obsessively anti-social.

I have long argued that the country needs to have a clear and well defined debate about its social structure. For way too long the Republicans have said one thing – that they hate the safety net – and done another. Don’t forget it was Bush 2 who added enormous amounts of coverage and cost to Medicare just a few years ago. They have never actually had the courage to run in an election on a platform of its abolition. So, perhaps, I am all wet. I am not giving Ryan credit. He is steering us towards just such a debate. He is bold. He does think big. He is a big bold psychopath.

He wants to abolish Medicare. The voters don’t. In an election I wonder who wins? We do, I hope.

Addendum:

Oh. I forgot to make clear that this vote was on the entire bold, new, and exciting Ryan plan to slash government spending and get unemployment down to the unheard of level of 2.8%. Magic indeed. So I must also have forgotten to point out that the attack on the elderly and their beloved Medicare is necessitated by the much greater need – in Republican eyes – to lower tax rates on the wealthy. The plan is designed to allocate wealth from sick old people to hale and hearty rich people. The plan doesn’t even try to hide this awesome demonstration of raw red meat Ayn Rand inspired inversion of seventy years of policy objective.

Which raises an interesting issue: the cumulative value of the spending cuts in the Ryan plan are almost exactly the same as these tax cuts. So it is neutral with respect to the deficit. How it goes on from there and “slashes” that deficit is shrouded in mystery.

But a bold mystery. And bold is all that counts in Ryan-land.

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