Thursday, May 26, 2011

We Have to Kill Medicare in Order to Save It!

Paul Ryan released a video last week showing why he thinks it's essential that America kill Medicare adopt his budget. Now, I'm not going to point out how silly this video is, I'll leave that to other bloggers. I'd simply like to challenge Ryan's fundamental premise, that Medicare is going broke and the only way to save it is to make seniors pay for their own health care.

The main thrust of the video is Ryan's claim that consumers, given the opportunity, will hold down the price of healthcare. This is wrong, mainly because the healthcare system in America is a classic case of market failure. To illustrate this point, read this story about a woman going through hell just to find out that a lump in her breast was not cancer. The problem with the Ryan plan is that this woman would be expected to shop around for healthcare, maybe find a doctor doing biopsies half price, or offering a free cat scan with every surgery. The problem is that no one would turn down a doctors recommendation to get a procedure ASAP. The economic reason is Information Asymmetry. The doctor knows so much more than the patient that the patient is inclined to trust the doctor implicitly. If a doctor recommends an unnecessary procedure, how is the patient to know that said procedure is unnecessary? Any time there is Information Asymmetry markets tend to fail, and in the healthcare sector Information Asymmetry is incredible. Doctors spend years studying their field, far more than any patient could hope to do. This causes a huge increase in cost. Imagine if a used car salesman could tell you that if you don't get the rustproof undercoating your car might explode. This is the kind of power a doctor has, and it's a power which has distorted healthcare markets immensely.

Karl Smith, writing in the Washington Post, is correct to diagnose this as a supply side problem, but he's wrong in saying that it's a problem caused by regulations and licensing. Smith is a great economist, but here I think he places too much stock in the power of the market to price goods correctly. Basically, he misses one of the main problems of medicine; it's incredibly difficult to look inside someone without killing them. If a computer tech had to diagnose problems with a PC without cracking open the case the cost of owning a computer would skyrocket. In his post, Smith claims that if people could just point their iPhones at themselves and get a diagnosis healthcare would be a lot cheaper, and he's right! But his is a world of science fiction. It's a world we may inhabit someday, but it's certainly not the world of today. To look inside the human body, and find the microscopic organisms causing problems, is an incredibly difficult thing to do. Unnecessary tests are a huge part of healthcare inflation. An increase in the number of expensive MRI machines and CAT scan technologies is driving costs ever upward. The US is number one in availability of technology, but it hasn't seemed to increase our life expectancy faster than less well equipped countries.

To get back to the Ryan plan, it's important to realize that his plan doesn't actually control healthcare costs, it just controls how much the government spends on healthcare. He claims that this will make the consumer more powerful, and able to demand healthcare that's cost effective. Even ignoring the massive market failure involved in healthcare, look at the consumer in the video at 3:53. A single individual dwarfs healthcare providers. But is that very realistic? After all, can a single person really dictate terms to a hospital? Especially one run by a large corporation? The very idea is absurd. There is strength in numbers, which is how companies are able to get healthcare for their employees. It's how Medicare, which is nearly a monopsony, is able to save so much money compared to other insurance providers. Hospitals can't afford to ignore Medicare, so they have to listen when Medicare tells them that it will no longer pay for hospital caused infections it forces hospitals to find new ways to stop those infections from happening  in the first place. This is the best way to control costs, as other countries have shown, by having a large actor able to negotiate on equal footing with healthcare providers. As DougJ over at Balloon-Juice likes to say, Medicare is the only properly functioning part of a broken healthcare system.

The reason Paul Ryan wants to end Medicare isn't to make sure there are some protections later, or to balance the books. If balancing the books was all he was after he would be willing to consider tax increases, rather than taking a bunch of money away from Medicare to pay for massive tax cuts for the rich. This move is Republican doctrine pure and simple, something they've been trying to do for decades.  Of course it's a part of Republican doctrine that if you take the government out of the system the system will improve, but that's not the case with the healthcare market. If you take away the safety net you'll just end up with a lot of sick people. Or worse.

Road to Nowhere

Brad DeLong (via Paul Krugman) points out that for the past six quarters our economy has just been treading water. Considering the incredible plunge we had in 2008 treading water just isn't good enough. DeLong gives a few good options for closing the output gap, and all of them would probably work to varying degrees. If I were Emperor of America I would start putting people to work fixing roads and building new high speed rail. The fact that we aren't doing this is just baffling to me. Even if we weren't in the middle of a possible depression, fixing our infrastructure would be a good idea. Right now US borrowing costs are at record lows, and at the same time our rail system is hopelessly out of date (we're trying to play catch up to 1960's Japan) and our roads and bridges are literally falling apart. Since the Republicans who are blocking additional spending on infrastructure are so fond of trying to run government like a business, I'll use a business as an analogy. Ignoring our infrastructure right now would be like a factory with rusting machines refusing to borrow money at 2% interest because they refuse to go into debt. Even if you hate Keynesian economics refusing to borrow to strengthen the backbone of America is absurd.

If increased spending is off the table my second favorite alternative would be for Ben Bernanke to walk down streets throughout the country stuffing huge wodges of cash into mailboxes. Or maybe he could live up to his nickname, Helicopter Ben, and actually airlift palettes of money into town squares everywhere.

Right now America is on the road to nowhere (and it's crumbling fast), but no one in power wants to do anything about it. I guess it's because rich people don't like inflation and hate deficit spending (unless it's on tax cuts, natch) so the politicians aren't acting on anything but grand bargains. It's a real tragedy, especially since we have the power to stop it.

Tuesday, May 24, 2011

Thoughts on Rationing

Today I've been seeing some articles about how Republicans are planning to filibuster the confirmations of Obama's appointments to the Independent Payment Advisory Board, the Medicare board which will determine which treatments are most effective and which are unnecessary. This board is one of the "Death Panels" which Republicans lied about during the healthcare debate, and what most opponents of the ACA point to when claiming the law will ration healthcare.

This board is actually one of the most important aspects of the law, as this is the Democrats' first salvo in the war on healthcare costs. The Democrats think that there's a lot of waste in the medical system right now and the best way to trim the fat is to have a government agency perform detailed studies to determine which treatments work and which don't. This agency can then make recommendations to Medicare about which treatments to pay for. In this way spending can be kept down without affecting seniors' overall health. If not for the scary name (Death Panels) I doubt this provision of the bill would be particularly controversial to the public. In fact, I wouldn't be surprised to learn plenty of people think that Medicare already does this, or something like this. After all, it makes a lot of sense. Why should our tax dollars go to procedures which have no real benefits?

So why are Republicans attacking this board? Simple. If it works, it makes them look bad and it makes Democrats look good. Anything that makes Medicare work better is a problem for Republicans. Also, it's the part of the ACA that looks most like rationing, and that's the part of their argument that I find most ridiculous.

Republicans claim that by cutting Medicare or by trying to determine which procedures the system will or won't pay for is rationing. They say that people and their doctors should be able to decide which treatments are right for them. That the government has no business telling people what treatments they can or can't have. And they're right! The problem for them is that this board doesn't actually get between a person and their doctor. What this board is doing is determining where best to spend government money. If the board determines a treatment is useless there's nothing in the law saying a person can't spend their own private money on the treatment. If the board decided tomorrow that the only thing Medicare should pay for is visits to the doctor's office then that still wouldn't be rationing.

Rationing is when a government forces a person to consume less of something. In World War 2 people were issued coupons  which they needed to use to buy food. If they ran out of coupons it was illegal for them to buy more food. They had to make do with what they got, because much of the food was needed for the war effort.

The fact of the matter is that Republicans can't win this debate without resorting to emotionally charged words like "Rationing" and "Death Panels", so that's exactly what they do. They imply that some soulless bureaucrat will stand between you and your doctor, but nothing of the kind will happen here. The IPAB is a common sense solution to the problem of the rising cost of Medicare, and I think the reason the Republicans are opposing it so strenuously is because they're afraid it might work. After all, if we can control Medicare costs without reducing the effectiveness of the program then what excuse could Republicans use to destroy it?

Related: For more on why the Republican reasoning behind killing Medicare to control healthcare costs is absurd I'd recommend this excellent post by Jared Bernstein.

Thursday, May 19, 2011

Nancy Pelosi: Being the first female Speaker among her lesser accomplishments

 (picture from Nancy Pelosi's Flickr)

After reading a few articles this week about how Nancy Pelosi is taking Medicare off the table in budget negotiations I was reminded of how important she was as minority leader in 2005 when the Republicans tried to kill "privatize" Social Security. To set this point up I think it's important to point out that back in 2005 all the pundits claimed that electing Pelosi as minority leader was a huge mistake. She was obviously too liberal for middle America, and by electing her the Dems had consigned themselves to losing in the 2006 midterms. Obviously that didn't happen, but it's what happened between the 2004 election and the 2006 midterms that this post is about. In 2005, having won reelection Bush decided it was time to fulfill a major conservative dream: the privatization of Social Security. Bush's proposal was incredibly bad, as most proposals to fix the "Social Security crisis" seem to be (whether something can be called a crisis if literally doing nothing is a reasonable proposal is up for debate. See also: deficit crisis). Bush's proposal cut benefits in order to put the money in the hands of Wall Street where rich people would do that thing they do where the turn money into more money and everyone would be happy. The problem is that, right now, almost every dollar which goes into Social Security goes to a recipient and gets spent. That means that to give everyone their own account to invest, either benefits have to be cut or taxes have to be raised. Naturally, the Republicans decided to cut benefits.

At this point many Democrats in the house were ready to negotiate, and wanted to come up with their own proposal to fix Social Security. Fortunately, Nancy Pelosi came up with an alternative brilliant in its simplicity: nothing. When asked when the Democrats would be putting out their alternative she would respond with never. Naturally this shocked many people, but the plan worked. Pelosi was able to attack the Republican plan relentlessly. Her strategy turned a common Frank Lutz Approved Republican term into political poison. One libertarian website actually rewrote several of its articles to remove any reference to privatizing.

Today it seems that Pelosi is poised to repeat this success. With the Republican majority in the house anxious to put Medicare on the chopping block Pelosi is standing firm. As well she should. If there's any program in America more popular than Social Security it's Medicare. Right now, the Democrats are poised to pick up a seat in NY-26 all because the Republican nominee supported Paul Ryan's plan to end Medicare. Pelosi is poised to attack, and I'm sure all the pundits will claim she's moving her party too far to the left, or that we have to kill Medicare in order to save it. But I'll bet that by 2013 Pelosi will be Speaker again if the Republicans keep on attacking Medicare, and she will have had a huge hand in saving two of the most important strands of the American safety net.

On the Free Market

I'm generally a fan of the Free Market. To put it simply, I think that there is no better mechanism for allocating scarce resources. This is why I'm in favor of market based options to control carbon (a carbon tax or cap and trade) over command and control regulation. Ultimately consumers would be able to decide whether transportation or power generation via fossil fuels would be more valuable to them without government interference. At the same time I'm in favor of reducing or eliminating zoning regulations in most areas. That way people can decide what use of space, whether it's apartments or single family homes, works best for them.

But then, why am I so against privatization of things like schools or prisons? The simple answer is I'm against those things because they don't work. But if those things don't work why should a carbon tax? This is actually something I puzzled over. It seemed self evident that the magic of the market would work on things like reducing carbon, but not on reducing recidivism rates.

Finally, Matt Yglesias pointed out the answer. For those of you who didn't follow the link, he says that there's no "private sector fairy dust". The reason a carbon tax would work is that firms which provided undesirable uses of carbon (i.e. transportation via Hummers) would go out of business. When you privatize schools or prisons there's no guarantee that the firms which operate these facilities will go out of business if they're bad at it. These firms have an incentive to teach or imprison the most people they can as cheap as they can. Further, lobbying can be an effective way to increase your bottom line without increasing the quality of the product. This results in worse prisons or schools which cost more money. There's nothing magical about the free market, no "pixie dust".

Putting a private firm in charge of something rather than the government won't suddenly make it more efficient, and that's something a lot of policy makers, sadly don't realize. They think privatizing will make everything better, perhaps since schools will suddenly be run by Galtian Supermen. But that's just not the way the world works.


I wasn't sure what to do for my first post. An introduction? An explanation of what I hope this blog will be? Since I'm not entirely sure what I want this blog to be I figured I'd just write a post about something that's on my mind, and is slightly related to the title of this blog.

Paul Ryan is currently attempting to defend his indefensible budget plan. He recently held a speech not too far from where I live trying to reboot his plan (and I thought the new Spider-man movie was a quick turnaround on a reboot). Basically, as Jon Chait pointed out, Paul Ryan has gone full voodoo. I guess he thinks he isn't getting enough support from the crazy wing of his party? He's mocking people who think that maybe we could increase revenues to close this deficit hole. Since this includes the majority of Americans I'm not sure what he's thinking here. I think he's probably lashing out at those who have criticized his plan by going full Randain on us.

As a part of his reboot he's trotting out some class warfare rhetoric, claiming Obama and the democrats are waging "class warfare" against the rich. Obviously, any assault on the rich is an affront to America and all she stands for, but the problem I have with this rhetoric is if Paul Ryan wants people to stop waging class warfare maybe he and his buddies should stop attacking the poor and middle class! The budget Ryan is trying to defend is a major salvo against those of us who don't own vacation property in the Hamptons. It ends Medicare and basically throws seniors to the wolves, at the same time it gives a massive tax cut to the wealthy. This is an old argument by now, and I won't rehash it here, suffice to point out that while Ryan is complaining that the wealthy are too hard done by in this country, we have the same level of inequality as Uganda:

For Paul Ryan to be upset that the Democrats are waging class warfare would be like Japan being upset with FDR for his harsh rhetoric on December 7, 1941.