Health Care Follies

Senate Majority Harry Reid debuted his new rom-com-drama, "Health Care Follies", to mixed reviews.  Seators Reid and Mikulski chose to open with some light comedy titled "Set A Bureaucrat To Catch A Bureaucrat":

The Democrats’ first amendment, offered by Senator Barbara A. Mikulski of Maryland, would require insurers to cover more screenings and preventive care for women, with no co-payments.

...

The Senate majority leader, Harry Reid, Democrat of Nevada, hailed Ms. Mikulski’s proposal, saying: “The decision whether or when to get a mammogram should be left up to the patient and the doctor. That decision should not be made by some bureaucrat, a member of Congress or someone they’ve never met.”

Boo those faceless bureaucrats!  So how do Ried and Mikulski propose to empower patients and their doctors?

Under her proposal, a federal agency, the Health Resources and Services Administration, would develop “comprehensive guidelines” recommending preventive care and screenings for women, and insurers would have to cover the services, with no cost-sharing requirements.

A suggested name for the new agency - The Faceless Commission To Protect You From Faceless Commissions.

Meanwhile, John McCain relished his new role as a leader of the party of fiscal irresponsibility:

The first Republican proposal, offered by Senator John McCain of Arizona, would strip the bill of more than $450 billion of proposed savings in Medicare. The savings would curb the growth of Medicare payments to hospitals, nursing homes, health maintenance organizations and other providers of care.

...

Mr. McCain’s proposal would effectively cripple the bill, because Democrats are relying on savings in Medicare to help offset the cost of providing coverage to more than 30 million people who are now uninsured.

Democrats said that Republicans, including Mr. McCain in his 2008 presidential campaign and former Speaker Newt Gingrich, had themselves proposed cutbacks in Medicare.

Mr. Reid asserted that Mr. McCain was contradicting himself. “He better get his reasoning straightened out, because this is a huge, big belly-flop flip-flop,” Mr. Reid said.

Reid's talking 2008?  Well, he's so two thousand and late!  Do Democrats want to be on record as having voted in favor of $450 billion in Medicare cuts, or not?  Have fun explaining that in 2010!

Comments

[clarice]

And then will offer amnesty to the world and let everyone come here for absolutely free medical care of every sort..and then....

[Jack is Back!]

Why not, Clarice? We have the best health care in the world. My Belgian wife cannot believe how fast tests come back, diagnosis are made and prescriptions are filled. This is looking more and more like AGW, a hoax built on false information for the purpose of political and social control. It is going to fall flat on its face. At least I hope so and I am one who believes that those who live in hope die in doo-doo.

[Jane]

I'm actually impressed that McCain and others are working hard to tie the democrats up in knots.

[jimmyk]

So now health care "reform" has to include "no copayments"?! Free goodies for everyone, yeah!

[rse]

"a hoax built on false information for the purpose of political and social control"

JIB- that's such a good description of so much that's being pushed right now.

Spent much of the day explaining how the Common Core Standards in English and math being required to get a chance for that $4.35 billion Race to the Top funding will actually mean weak national standards imposed on states and local districts without recourse and despite knowledge and good sense.

With the mantra of "ensuring equity" now being pushed by the national PTA with Gates funding, we really are in a time where false info to gain control is the order of the day.

[DrJ]

So now health care "reform" has to include "no copayments"?

Goodbye HSAs...

[JM Hanes]

"The Faceless Commission To Protect You From Faceless Commissions."

TM: Have I told you lately that you're my favorite? You're my favorite!

[PaulL]

My Australian buddy tells me that some people from his land travel to Vietnam for medical care. A fried of his had a root canal and follow-up treatment there for AUS$60, saving about AUS$940 compared to what it would have been in Australia. I don't know what the travel expenses were.

[cathyf]

I'm coming more and more to believe that the whole bill is predicated on destroying the insurance-company business of riding herd on health care costs. The "no copayments" is just a little piece of obfuscation to hide the cost increase.

Right now we have a system which is bureaucratic for sure, but a series of private bureaucracies. It has particular incentives:

1) Insurance companies act as expert agents for patients. They police doctor/hospital bills for fraud, abuse, errors and simple reasonableness.

2) There are multiple insurance companies, all competing for business. The way that they compete is by providing value for the premium dollars. There is a balancing act -- they squeeze the providers to prevent them from ripping off the patients, but they can't squeeze them much further than that because providers will refuse to do business with unreasonable insurance companies, at which point their policyholders will depart to other companies where they get health care when they are sick for their premium dollars.

3) Because insurance premiums are set by competition, those insurance companies that succeed more in controlling costs get to keep the money saved, while those that are less successful lose right out of their bottom lines.

The main mechanism of the "reform" bill is to put most of the insurance companies out of business by setting loss ratios by law (the House bill sets them at 85%.) As soon as most insurance companies are gone, those few which manage to hold out until the end become monopolies which can then raise premiums and/or ration care. The "loss ratio" provisions have a simple arithmetic reality: the law requires inscos to take a smaller cut, so in order for insurance companies to bring in enough revenue in the future to survive, they must take that smaller cut out of providing less medical care for more money.

The "no copay" is about attempting to hide it when the healthcare costs go up. Take the mammogram as an example:

Current system:
-- Hospital wants to charge $397 for mammogram.
-- Insurance company says "dreamski onski" and says $162.50.
-- Insurance pays out $130 for mammogram, while patient pays $32.50
-- Patient also pays $200 in premiums that go to pay the $130 + $70 that the insurance company uses to run the business.

Total cost to patient: $232.50
Net overhead to insurance company for administration of one mammogram: $70
Revenue to hospital: $162.50
loss ratio: 65%

System post "reform"
-- Insurance company pays out the full $397 without squawking.
-- No co-pay.
-- Insurance company collects $467 in premiums to cover the $397 in claims and $70 overhead. They are allowed 15% in the "reform" regime, and $70 is 14.99% of $467.

Total cost to patient: $467
Net overhead to insurance company for administration of one mammogram: $70
Revenue to hospital: $397
loss ratio: 85.1%

There are other variations, which result in collecting smaller premiums, but then refuse the mammograms to more women...

But the bottom line is to demonize the insurance companies for exactly the service they provide which has the highest social value, that of policing healthcare providers and keeping costs down.

[Captain Hate]

“He better get his reasoning straightened out, because this is a huge, big belly-flop flip-flop,” Mr. Reid said.

Maybe dingy should get his metphors straightened out, although I'd rather read his comments than hear that breathless pinworm's hoarse utterances. Is McCain really going Maverick on this? As a conservative I've got scars on my back to indicate "no" but hope springs eternal.

[PD]

Heh. Bucky beat Duke.

[Gregory Koster]

Rse, I used to sing hosannahs to local control of schools. Then I see New York's efforts in this direction and wonder. "Developing tomorrow's leaders"----oh yes. Leading what?

Cathyf has the right of it. The damage this shapeless monster will do is horrifying. Worth noting that not even Thatcher could reverse socialized medicine in Britain. Nor Reagan in America. It will squash medical innovation, quite in character with The Once's Utopia of Mediocrity, a paradise for cannibals. Don't the fools in the Senate realize that squashing medical innovation will hit even their geriatric gold plating?

[Sara (Pal2Pal)]

Clarice: This probably belongs in another thread, but I wanted to make sure you saw it, in case you hadn't.

This is the way to rally the troops (Video)

We need more like this.

[clarice]

hanks, Sara. As you know I'm a big fan of his. I hadn't seen this though.

[Ann]

Heads Up Ladies!

Maybee, not only has Tapper drooling and responding to her tweets but The Magnificent Bastard has now succumbed to her.

I am always in awe of the JOM ladies. Go Maybee!!!

====================Kim come home!!

Hey, I was wondering if someone at JOM would like to compare Obama's speech last night to the Marines with his speech trying to get the Olympics for Chicago.

He seemed more up beat when trying to acquire the Olympics for Chicago.
"I urge you to choose Chicago"

[Publius, a.k.a. The Idaho Publius]

"Fix bayonets". I like that, Sara.

[Sara (Pal2Pal)]

West would have my vote, Clarice. How is he doing in the District, do you know?

[Sara (Pal2Pal)]

The News Leader reported:

Palin told an estimated crowd of 5,000 packed in Keeter Gymnasium at College of the Ozarks that despite her resignation, she is moving on “in the battle with new strategy.”

Or as her father, Chuck Heath, put it: “He said after my resignation speech, ‘Ah, she’s not retreating, she’s reloading.’ ” A self-described “hockey mom” of five, Palin is an avid hunter.

Palin was the keynote speaker tonight during a convocation that honored World War II veterans and others connected to the private college with “Great American” awards. Palin was the inaugural recipient of the award for her contributions to promoting patriotism, said College of the Ozarks President Jerry Davis.

Silver Dollar City co-owner Sharon “Sherry” Herschend, an alumna of the school, was among seven people who received a Great American Award from the college. The military veterans participated in a program where they visited battlefields with students to teach the young people about sacrifices their elders made, Davis said.

As part of Palin’s speaking contract, College of the Ozarks sought to ban reporters from covering the speech. But the News-Leader and other local media outlets obtained free tickets and sent reporters to cover the speech from the bleachers.

I'll bet no one fell asleep during her speech.

[Pofarmer]

But the News-Leader and other local media outlets obtained free tickets and sent reporters to cover the speech from the bleachers.

Typical.

No honor.

[Topsecretk9]

Not sure which thread everyone is on, but I wanted to thank everyone for all the ice birthday wishes. JOM makes my day!

[Topsecretk9]

nuts...NICE not ice. :-)

[Topsecretk9]

Oh and Happy, happy birthday Clarice and Mr. H&R too!

[http://www.limosbusesjets.com]

i'll be sure to bookmark your blog

[BR]

Happpppppppy Birthday,
Clarice, HnR and Topsecret9 !!! :) :) :)

Been away from JOM for a few days. What's the latest big news besides Phil Jones resigning and Obama saying to the troops the war's "outcome is uncertain"? Daddy, another hilarious update?

[Sara (Pal2Pal)]

BR: You didn't miss much. Bambi still has big ears, he is still an I-man, he is still an incompetent wuss of a C-i-C, and he still has 1144 days in office.

[sylvia]

Looks like there is a new survey with a majority of Americans favoring the public option. LUN. I think the reason for the different results in the surveys is the surveyers playing fast and loose with the phrasing of the questions, but this one seems straight forward. Not "do you favor the Senate heath bill" (whatever that is) but 'public option, yes or no'.

[sylvia]

" that of policing healthcare providers and keeping costs down."

Yes CathyF, the insurance companies have been soooo successful in keeping the US's health care costs so low. In fact, doctors and hospitals get paid the lowest in the industrialized world here! Bingo!

[Jack is Back!]

Re: Alan West & Sarah Palin - The Restoration Begins.

In fact, instead of Tea Party or Take Back Our Country and the other expressions of revolt, what we need is a Restoration movement.

My 6 year old and wife watched over my shoulder as they were sitting down for breakfast and were mesmerized by LC West and his stirring, passionate exhortation. Too bad The Once has no passion or enthusiasm for anything except himself and his own image. We have a leader without leadership.

[narciso]

That was an embarassingly ill informed poll, with a terrible sample, 2,999 households, does that include pets and children. They are not even clued in on the fact that the benefit cuts start right now, and the 'benefits' for another four years.

To judge from the links on the Newsleader, it seems a terrible paper. One of them features an editorial with the line "Palin molds caricature' with an appeal to fear.
Right, because she did say I'm the one 'who
stands between you and the pitchforks' Oh sorry, that's the one who's actuallly president.
About Valenzuela, he was an exile during the Pinochet era, who didn't seem too radical, according to the account that was part of one of my papers,it seems hewoldn't have minded if Allende has extended his term, and silenced the military

[BR]

Thanks, Sara! Yes, Daddy's wonderful beer exploits in another thread sound much more interesting than current politics.

I did have a wonderful laugh reading Delingpole's recent Climategate unravelling and especially a commenter's skit - creating the Hardon Emission Limits :)

(Truthorator at 11:09 am 12/2/09)

[BR]

Oee, yummy - another benefit of CO2 - we get more lobster! LUN

[peter]

General Motors' CEO forced out, with no replacement in sight. How's that hope and change working out for ya'?

[clarice]

Sara, I have no idea. It's a big early and I doubt there's been any polls.

[Janet]

Pretty soon they'll be competing with shortwave radio over there and probably be starting behind.

From Dan Riehl about CNN ratings...Anderson Cooper in particular. Ha!

[narciso]

No, people actually want to listen to shortwave, (LOL), BTW, the Comcast/GE
deal really does sound a little like
the CCA/UBS takeover in Network, although
it still doesn't make any sense to me

[bunky]

Comcast is such a sucker for this deal. Immelt must be breathing a huge sigh of relief.

[matt]

sara..that video was amazing. They call Obama an orator, LTC West is an orator.

[fdcol63]

"... a hoax built on false information for the purpose of political and social control ..."

Bingo!

[pagar]

"Quality of healthcare will be better 12 months from now: 11.6 percent strongly agree.

This has to be a joke. The only way that healthcare gets better is if Congress not only does not pass the current healthcare fraud bill, but assures America it will not attempt to pass one next year.

We need to get to the point that a VOTE for any Democrat backed bill/nominee is going to be seen as a HUGE barrier for reelection of any politician-no matter which party they belong to.

[Janet]

While the WaPo is busy ignoring the AGW fraud, the firing of Gerald Walpin story is also being ignored. LUN

The Walpin story even has a local interest angle because Michelle Rhee is engaged to Kevin Johnson.

At some point (now?) they cease to be a NEWSpaper, and are merely an advertising agency for the Democrats.

[Old Lurker]

1) That point was passed years ago, Janet.

2) They do far more than advertise, they Lobby, using the scummiest of tools used by folks in that business.

[jimmyk]

But the bottom line is to demonize the insurance companies

Good analysis, Cathyf. Could you please forward it to Doug Elmendorf?

In addition to what you say, the "no copay" will add to the total cost by encouraging more people to get the procedure. One might say that $32.50 won't make much difference, but the whole reason for copays is to make sure that the consumer feels some of the cost.

There's also the fact that these decisions are being driven by politics more than medical cost-benefit. They already are in terms of research dollars, but this just extends the reach of politics into the realm of consumer decisionmaking.

[pagar]

Janet, IMO, we need to label the leftist
advertising for what it is. Spreading Democrat
propaganda: no attempt is being made to provide the truth. In fact, it appears everything they say is deliberately untrue.

[sbw]

No copay? How about this scenario

An employee takes the day off. Sorry, need a doctor's note. Comes in with a doctor's note. On Medicaid. No copay. Doctor gets paid for writing a note. Patient gets a day off and does not lose job. Medicaid expenses rise.

Honey, this ain't about health care. This is about playing the system.

[cathyf]

In addition to what you say, the "no copay" will add to the total cost by encouraging more people to get the procedure. One might say that $32.50 won't make much difference, but the whole reason for copays is to make sure that the consumer feels some of the cost.

It's actually a bit more complicated than that. Most mammograms are already no copay, for a host of fascinating (at least to me, YMMV :-) reasons.

1) Most important, the rate at which women covered by a health plan get mammograms at the recommended intervals is used as a proxy to measure the quality of the insurance company's product, so they are willing to spend big bucks encouraging them.

2) The classic explanation is that mammogram followed by (cheap) treatment of early stage breast cancer is way cheaper than late-stage breast cancer treatment when the cancer isn't caught by the mammogram that isn't done. This is, of course, not that simple, because the question is how many mammograms do you do for each BC you catch, what are the relative costs of the treatments, and how much do the mammograms cost.

3) The "how much do the mammograms cost" is a topic of its own, since there are considerable economies of scale involved -- the more women that get mammograms, the cheaper each mammogram is.

But, anyway, the mammogram is probably not the best example because there are plausible arguments for why a competitive free market would result in copay-free mammograms. I chose it because it's a procedure that all us middle-aged women are familiar with...

The war on the co-pay is all about trying to break the alliance between health insurance companies and patients. It's right there on your EOB form in black and white -- the doctor/hospital/whatever wanted to charge $1000 for the procedure(s), the insurance company wrassled em down to $600, so now I'm only paying $120 copay instead of $200. Sure, when the EOB comes and they are paying 100% you still see the amount that the insurance company bullied out of the provider, but as a spectator sport, rather than as a participant as when you are saving 20 cents for every dollar that the insurance company saves. If the costs are hidden in the premiums, then it is much harder to see, and also people see the money as going to the insurer rather than the providers. (Because, yes, a significant fraction of our fellow Americans believes in free lunches...)

Since I've been married, my health insurance has come from my husband's various employers, which were (are) all entities which self-insure. In every case, the employer hires an insurance company to act as the employer's agent in managing the plan and policing the charges. I looked into MSAs and high-deductible plans about 7-8 years ago, and that was going to be a similar arrangement -- I would pay for the procedures directly from my MSA rather than indirectly from insurance premiums, but the amount of money that each procedure cost was still going to be set by the insurance company contracting a rate according to negotiations between the insurance company and the providers.

[Jane]

Isn't it about time for a coup?

WE have Obamacare, and Climategate, and gatecrashinggate, and ACORN and NEAgate and Gladneygate, and so much more. It seems like it is just about time to rise up.

[fdcol63]

"It seems like it is just about time to rise up."

2010 is our next chance, in a peaceful election.

But when peaceful protests and elections don't work, there's only one resourse. And it ain't pretty.

[fdcol63]

Recourse ... of course. LOL

[Dave (in MA)]

Jane, I like Instapundit's idea of using "-quiddick" instead of "-gate" for left-wing scandals.

[Jane]

Oh I like that too Dave. Consider it done!

[Porchlight]

Dave,

I like the idea of assigning a different suffix to lefty scandals, but I can't go along with -quiddick because I don't like the idea of equating the death of Mary Jo Kopechne with something comparatively minor like the WH gatecrashers. Chappaquiddick should stand alone, imho.

[glasater]

Watching the senate committee questioning Bernanke--

Why cannot the D's be quite a bit more like Evan Bayh?

[Laura]

I just wanted to add to the discussion by posting links to videos that discuss health care reform, finance and policy. For those of you looking for more information about these topics, these videos offer some great audio/visual content.

http://www.icyou.com/topics/politics-policy/healthcare-reform

http://www.icyou.com/topics/politics-policy/healthcare-politics

http://www.icyou.com/topics/politics-policy/healthcare-policy

We update daily...so check back for more info!

Thanks,
Laura

[Old Lurker]

Cathy you make (as always) some very good points.

1. The rationality of investing in preventative screening is very different for an individual than it is for a group. Sure, I'd always pay for my wife and daughters to have the test because the cost-benefit calculation is a no-brainer to ME (the utility of not losing any of them vastly exceeds the utility of the cash involved). From a large group point of view, the decision flips the other way since to the group, the utility of the occasional death is zip, and the collective costs huge. No single payer system however well intentioned can long avoid that simple fact.

2. Of course their idea is to complete the transistion from "insurance" to government provided service. Eliminating co-pay cements that.

3. You are also right about HSA's. I use that approach but without the formality of making it fit the tax regs. At first I thought having my family inform the provider upfront that we would be paying cash would elicit a sigh of relief and a better deal for the immediate cash with no paperwork. Did not happen since the providers were simply not geared for that sort of customer. So now we force all the bills through our BCBS $20,000 deductible policy, knowing the meat grinder will eventually send the bill to us for 100% of the cost, but in the doing, the cost of the procedure gets reduced from the first billed amount down to the pre-negotiated schedule they have with BCBS. So that works for me and buys me a month or two before writing the check, but BCBS and the provider are wasting a lot of time and time value of money.

[glasater]

So now we force all the bills through our BCBS $20,000 deductible policy, knowing the meat grinder will eventually send the bill to us for 100% of the cost

That's exactly what we do with my policy OL but it is also a 'cost' to everyone--provider, insurer and the ultimate payer--us.
At one point some time ago I tried to negotiate the price down with the offer of paying cash pre/post but you're right--the system is not set up for that sort of thing.
Perhaps when all the good medical care is in Mexico--we'll be traveling down there for treatment......and it could be already coming to pass.

[glasater]

I should say that all the doctor's office offered at the time was a 5% discount for paying cash or writing a check.

[cathyf]

OL the "waste" is that the provider doesn't just charge you the BCBS negotiated rate without going through the BCBS system. What I have argued all along is that some significant amount of your premiums -- whether your deductible is $500 or $20,000 -- goes to pay the "insurance" company to act as your agent in negotiating with the providers. Even if they charged you the BCBS price without sending it through the BCBS system, you would still be gaining the substantial benefit of the capital investment that BCBS has made in creating the contracts.

Agency is a really really big deal, and the failure of agency in the mortgage banking industry is pretty much the most important cause of the financial collapse. Our current health "insurance" system, cranky as it is ("meat grinder" is a pretty good term) is a pretty successful system of agency, where health "insurers" hire out their medical expertise to their customers (the patients), and have pretty much the right incentives to get their customers the best health care value for their money.

There is a tremendous amount of intellectual property in the health care system -- everything from the knowledge of how to read a mammogram to the notion of what is the correct relationship between the price of a doctor's office appointment vs. the price of open heart surgery. All of that intellectual property has been produced because American consumers are able and willing to pay for it. The rest of the world has been free riders to that American investment. The basic effect of ObamaCare is to attempt to turn the US into free riders, too. But, of course, no such thing as a completely free lunch -- not everybody can be a free rider.

[cathyf]

...but it is also a 'cost' to everyone--provider, insurer and the ultimate payer--us.

I would argue that the pervasiveness of the arrangement should be taken as evidence that shoving all of the bills through the "meat grinder" is the most efficient way of doing it.

Look, once the computer programs are written and tested, they are virtually free to run. Whenever you try to do something special then people have to worry about you gaming the system and actually examine closely what you are doing. Instead of just shoving your claim through the same system that they already spent millions of dollars developing.

[Old Lurker]

Good points, Cathy. What Glasater and I were offering the provider was an opportunity to "free ride" the agency action you describe. They had already negotiated the BCBS cost for some procedure down to $X, so had they just offered Glasater and me that price, they would have received $X on the spot and not had to fill out the forms and wait for the cash.

[boris]

Agency is a really really big deal, and the failure of agency in the mortgage banking industry is pretty much the most important cause of the financial collapse.

That's an interesting POV. What factors reduced protection built into mortgage banking agency?

There seems to be a strong anti health insurance sentiment based on a (flase?) morality against companies making a profit from people's pain and suffereing.

[jimmyk]

Most mammograms are already no copay, for a host of fascinating (at least to me, YMMV :-) reasons.

I just wish I had more confidence that this was based on science rather than politics. I'm not sure if you were here a couple of weeks ago in the wake of the brouhaha over mammograms. I don't want to reopen that, but I'm just asserting that in this, as in AGW, I don't think the "science is settled," but that won't affect public policy marching forward.

[Old Lurker]

Boris, all manner of agency relationships failed.

Mortgage brokers failed to serve either the lenders or the buyers by pushing loans unwise for the borrower and lender both.

Banks failed to protect shareholder capital by making/buying loans for more than they were worth, properly adjusted for risk.

Fannie and Freddie failed to serve either their own shareholders, or the buyers of their bonds, or the government which underwrote their credit.

Wall Street failed all of it's agency duties by oiling the system in return for the fees involved.

Lawyers failed most of their clients, depending on which side they were on at the time.

The Govt failed to serve taxpayers by pushing all of the above for political reasons.

ALL of these are agency relationships that failed.

[cathyf]

Right -- and what I am suggesting is that it may simply be that the cheapest way to look up the BCBS price is simply to shove it through the system.

I'm a computer programmer trained as a mathematician. The words "reduces to the previous problem" are magic words indeed! It is very frequently true that some rube-goldberg monstrosity mashing already existing pieces together in some ugly way is easier that starting from scratch and writing some elegant and efficient system that does exactly what you need.

But, anyway, my main point still remains: the "meat grinder" is nasty and ugly and bureaucratic, but it is clearly a valuable thing, because our citizenry freely chooses to spend billions of dollars hiring these insurance company agents to negotiate with health care providers. And it is this exact relationship -- between patients and their agents the "insurance" companies -- that the "reform" plan is trying to outlaw.

[boris]

Were those caused more by bubble think (easy money) or inventive social morality?

[glasater]

Cathyf--really appreciate your thoughtful comments. I'm collecting quite a folder of cathyf's in text docs I keep track of.

I understand that insurance companies are much more efficient then the government would ever be. I keep the LUN as a reminder to me of how medicare is certainly not the promised land.
Don't know if you saw awhile back my little story on how I became very sick in Las Vegas a month and a half ago--went to a walkin clinic there and paid cash for treatment. The price I paid was less than half when it would have been running the bill through insurance.
Perhaps there were local reasons for handling payment in this fashion--I don't know. But on the statement I paid it was clearly defined--what the price would be through insurance and what the cash price was.
Thank you for writing about this insurance issue. I greatly appreciate your thoughts.

[cathyf]

In the case of the mortgage system, it is important to understand the fundamental tradeoff of diversification vs. knowledge of creditworthiness.

If you've ever watched It's a Wonderful Life you will see that George Bailey was a great banker in that he knew all of the people that the B&L was lending money to, and so he was able to judge who were the deadbeats and who were good investments.

But the principle which is directly at war with this starts with the rule about the 3 most important things in real estate -- location, location, location. A George Bailey style bank is tremendously vulnerable to local disruptions of the economic system. A natural disaster wipes out huge amounts of property. A big local employer closes up shop. When everyone in a location has the same creditor, then a shock that causes more than a few of those borrowers to go bust causes the creditor to go bust, which causes all of the other borrowers to go bust in a vicious cycle.

So there is a HUGE value to having geographical diversification in a mortgage-backed investment portfolio. In a free market, free transactions create value, and the product of geographically diverse mortgage backed securities created tremendous value.

What we saw in the case of the agency relationships (which OL listed) is that virtually all of the value created by the geographic diversification of the mortgages was captured by the crooked and not-so-crooked agents who made the construction of the portfolios possible.

The lesson to be learned is that agents act in the interests of their customers not because they are honest/moral/etc., but because the market is structured in such a way that it is in their own interest to act in their customers' interests. When I say that the purpose of the "reform" bill is to destroy health insurers, it's not about destroying the health insurance companies ("if you like your health plan, you can keep it.") It's about destroying the incentives which give your health plan a financial interest in keeping your health care costs down.

[Old Lurker]

Both, Boris.

And the social morality eroded on many levels, facilitating the game of musical chairs.

But for that erosion, the easy money part would not have happened.

[Ignatz]

--The Govt failed to serve taxpayers by pushing all of the above for political reasons.

ALL of these are agency relationships that failed.--

How does an agency relationship survive when the servant views itself as the client?

The insufferable Sting had it right, if in a different context:
I will turn your face to alabaster,
When you find your servant is your master.

[boris]

"virtually all of the value created by the geographic diversification of the mortgages was captured by the crooked and not-so-crooked agents who made the construction of the portfolios possible"

So they arose without any sort of mechanism (like co-pay) to link incentives to safe practice or client interest?

[cathyf]

Yep. The problem was the mortgage brokers (whether one guy in an office, or a gigantic bank) got their money up front and there was no penalty to them if the loan went into default.

The problem with imagining any sort of "copay" system is that it would leave the broker with the exposure to location risk. (You are a mortgage broker in a below-sea-level neighborhood in New Orleans, and you did a superlative job in evaluating the creditworthiness of the homeowners that you got mortgages for. And then the whole neighborhood is under water, and all of the collateral for every loan with it. Alternatively, you are a crooked liar in the Washington, DC area, and most of the crooked liars that you helped get loans for saw their incomes rise so that they really could afford their mortgages, and any that defaulted the bank was able to sell the property at a profit.) The key here is location -- you cannot get link the advantage of the personal knowledge that the agent has without also linking it to the locational risks that are totally outside the agent's control.

Of course mortgage-backed securities are a kind of option (or more precisely, have options embedded in them) and insurance (the risk-pooling part of insurance, not the negotiating agency stuff we have been talking about) is also a kind of option. This means that there are lots of really interesting parallels between mortgage-backed securities and private health-care-management insurance companies.

What I am seeing here is that we have two very parallel systems here. In one system, an important function is inherently (and perhaps intractably) broken. In the other system, that function more or less works (there is still plenty of fraud, waste, abuse and error at the margin, but it is basically at the margins.) What I see is that the "reform" plan is set up to destroy that very functionality which prevents our current system of insurance/managed care from collapsing like our financial system did.

[clarice]

Taranto (BOTw)reports our friend Kristoff is playing fast and lose with the facts---again:
"On Tuesday and again yesterday we wrote about John Brodniak, the subject of Nicholas Kristof's Sunday column in the New York Times. Brodniak has a painful and potentially life-threatening growth in his brain. According to Kristof, Brodniak has been unable to get treated, even though he is eligible for Medicaid.

Kristof's argument, that this makes the case for ObamaCare, is illogical. But blogress Michelle Malkin says that her reporting shows that Kristof's story isn't even true. Malkin spoke with a spokesman for the Oregon Health Sciences University in Portland, who "confirmed for me two things":

1) OHSU is a safety-net hospital not far from where Brodniak lives. The hospital accepts all Medicaid patients and would not turn Brodniak away. . . .
2) Brodniak is a patient at OHSU--and has been a patient there for the past three weeks.
In other words, at the time Kristof's article was published this past Sunday, Brodniak was already being treated and cared for by some of the best neurologists in the country!
Kristof responds in an update to this blog post:

Several readers are asking about a Michelle Malkin account claiming that John was already receiving treatment at OHSU. John had one appointment there. He says he was told to give up, that they could not help him, and he was despairing when he told me about it; their version is different, that he was under "observation." In any case, he says that after the column appeared, he suddenly got a series of phone calls from OHSU saying that they wanted to see him and could address his needs after all. In any case, it now appears that he will get treated, and other doctors are also offering him assistance.
We read this as a confirmation of Malkin's reporting, inasmuch as Kristof concedes that the hospital's story is at variance with Brodniak's story as told by Kristof. But Kristof's update is exceedingly vague on the details, so that we don't know the points of dispute with any specificity.

It should be noted that because of the protection afforded to patients by confidentiality laws, Brodniak ultimately controls the information about his case. Malkin reports that he was unwilling to authorize full disclosure:

The spokesman told me that the Brodniaks were willing to confirm "reluctantly" for me that he has been a patient there for nearly a month, but they refuse to talk to me directly. The spokesman also told me that OHSU will not make its doctors available for further comment on the matter.
Kristof's readers have been raising money to pay for the Brodniaks to get him treated. But Brodniak is covered. He doesn't have to pay a dime.
If Brodniak is raising money off Kristof's column while Kristof is using Brodniak to make a political point, it is possible that their interests have diverged and that Kristof's story is less than clear because Brodniak has become less than fully cooperative. In any case, this story does not seem solid enough to justify spending trillions of taxpayer dollars, so we would appreciate if the Senate would forget about ObamaCare and find something else to do, or even knock off early for Christmas
"

[Charlie (Colorado)]

But, anyway, my main point still remains: the "meat grinder" is nasty and ugly and bureaucratic, but it is clearly a valuable thing, because our citizenry freely chooses to spend billions of dollars hiring these insurance company agents to negotiate with health care providers.

Cathy, I agree with the thrust of the argument, but ask the next question: why is it that having the insurance companies pay the docs is worth it?

The answer, I believe, is that insurance companies are paying the docs with pre-tax dollars. The payments to the insurers come off the insured's bottom line (remember that the real insured is the employer, not the employee -- the contract is with the employer.) The money to the docs is an expense to the insurer and so comes off the bottom line.

If the employer paid the same money to the employee, the employee would pay income tax on the money coming in, and on many items pay sales tax as it goes out. The effect is that paying it through the employer and an insurance company is a 30+ percent discount to the person actually paying it.

[cathyf]

I pay all of my medical expenses through pre-tax dollars whether it goes through the insurance company or not. I fax my EOBs (if insurance paid part and I had a copay) and receipts (if it didn't go through insurance) to my employer, and then they subtract it from my pre-tax income, generate a payroll, and then add the expenses back in to generate my check. And I don't have insurance through my employer, but through my husband's. (I could get insurance through my employer, but my husband has tenure, so I don't want to take the risk of going through my employer.)

There are serveral different services that we are buying here, and ALL of them get paid for with pre-tax income:

1) Insurance premiums through my husband's employer, which are split between:
a) The employer's self-insurance fund, and
b) The claims administration company. (Actually, there are two different claims administrators.)

2) Deductibles and copays which get paid through my pre-tax income

3) Cash, not insured, expenses, also paid through my pre-tax income.

You don't need an insurance company to pay for health expenses out of pre-tax income. Just the right sort of employer!

(I'm a consultant and my employer is a "portable employer of record." I like them very much, and if anyone wants a referral, I'd be happy to give one!)