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June 13, 2011

Comments

Leo has to believe, otherwise has a hard time justifying taking the $100K and shutting up.

Asimov had a character try to explain it in his short story, Take a Match. A spaceship was stuck and a passenger had an idea for how to get them unstuck - and is rewarded by being imprisoned for the rest of the trip so as not to embarrass the critical employee who had to implement it and took credit for the idea:

Mr. Viluekis had to evaluate your suggestion and decide, at once, whether it was practical. He had to make a number of careful adjustments to the system to allow chemical reactions without knocking out the possibility of future fusion. He had to determine the maximum safe rate of reaction; the amount of stored energy to save; the point at which ignition might safely be attempted; the kind and nature of the Jump. It all had to be done quickly and no one else but a Fusionist could have done it. In fact, not every Fusionist could have done it; Mr. Viluekis is exception even for a Fusionist. Do you see?
In all probability, the bank made money, not from the raw idea, but from it being implemented. "Leo" probably could not have done the implementation, however brilliant his idea was.

Or as Edison put it, "Genius is one per cent inspiration, ninety- nine per cent perspiration." The idea did not create the value, it made it possible for the value to be created. That, in my estimation would have been worth more than $10,000, but only if Leo could have found somebody willing to pay more. The value of anything is, after all, only what somebody is willing to pay for it.

C-level officers make more than us poor working schmucks because people perceive them as creating massive amounts of value. Are they right? I don't know. Some might be. Steve Jobs, for example, is worth every penny Apple pays him and probably a lot more. Albert "Chainsaw" Dunlop was almost certainly overpaid, as was Carly Fiorina. But they got paid because the people who controlled the companies that hired them perceived them as being worth what they offered to pay them.

The world isn't fair. Pro athletes are probably overpaid, as are the top pro actors, not just C-level officers. The list is pretty long.

otherwise has a hard time justifying taking the $100K

Leo got $10K.

But yeah, Leo's a believer. That's what I find puzzling, in context.

This was his *example* of compensation being justified by performance.

In all probability, the bank made money, not from the raw idea, but from it being implemented.

Precisely right.

"Leo" probably could not have done the implementation, however brilliant his idea was.

Neither could, nor did, the VP.

VP's role was give it the green light. Have the idea vetted, evaluate the possible ROI and/or other measures of value in light of everything else the bank could do with its resources, make the decision to pull the trigger or not.

That is the executive role. The VP fulfilled it.

Worth $2M in a context where the guy that originated the idea got $10K off the books, an no other actor involved got anything?

And not to put too fine a point on it, but this was a bank. The capital the return was made on wasn't the VP's money.

Pro athletes are probably overpaid, as are the top pro actors

Pro athletes, top pro actors, and rock stars put behinds in seats by the thousands and tens of thousands, if not millions in the aggregate, at tens or hundreds of dollars a pop.

It ain't curing cancer, but it does generate revenue.

What's especially interesting about these bonuses is that there's no evidence they actually work to motivate people. I harp on this every chance I get, but I think it puts these things in a whole new perspective.

It turns out that, in what little research and evidence we have on performance and bonuses, the relationship runs entirely the other way: bonuses are completely counterproductive. They make people perform worse, and the bigger the bonus, the worse they tend to perform.

It's more intuitive than it might seem at first blush: big bonuses probably make people want to perform better, but if the task you want people to get better at involves thinking, or concentration or creativity, then those are things you can't be better at just by wanting to. The bigger the bonus you offer, the more you justend up making people think about money rather than the task at hand, which distracts them and cripples their performance.

If you want people to do their best, you should give them a decent, if not generous salary (enough that they don't need to spend much time worrying about money or status), and then focus on giving them things like a sense of purpose about their work, and the autonomy to perform it their own way or to come up with new approaches.

In that light, the fact that execs on wall street earn millions of dollars (and the majority of their compensation) in the form of bonuses of various kinds is just plain weird (and more than a little scary).

See Dan Ariely discuss the effect here:
http://danariely.com/2011/06/05/upside-of-irrationality-chapter-1/

Or another nice animated talk on it here:
http://www.youtube.com/watch?v=u6XAPnuFjJc

The World Isn't Fair.

Or, if you prefer Python

City Gent: No? Well, I'm awfully sorry I don't understand. Can you just explain exactly what you want.

Mr. Ford: Well, I want you to give me a pound, and then I go away and give it to the orphans.

City Gent: Yes?

Mr. Ford: Well, that's it.

City Gent: No, no, no, I don't follow this at all, I mean, I don't want to seem stupid but it looks to me as though I'm a pound down on the whole deal.

Mr. Ford: Well, yes you are.

City Gent: I am! Well, what is my incentive to give you the pound?

Mr. Ford: Well the incentive is - to make the orphans happy.

City Gent: (genuinely puzzled) Happy?... You quite sure you've got this fight?

Mr. Ford: Yes, lots of people give me money.

City Gent: What, just like that?

Mr. Ford: Yes.

City Gent: Must be sick. I don't suppose you could give me a list of their names and addresses could you?

Mr. Ford: No, I just go up to them in the street and ask.

City Gent: Good lord! That's the most exciting new idea I've heard in years! It's so simple it's brilliant! Well, if that idea of yours isn't worth a pound I'd like to know what is. (he takes the tin from Ford)

Mr. Ford: Oh, thank you, sir.

City Gent: The only trouble is, you gave me the idea before I'd given you the pound. And that's not good business.

jack lecou, thanks for the (animated) link!


,i>But yeah, Leo's a believer. That's what I find puzzling, in context.

There's nothing necessarily rational about belief. I know lots of people like Leo (like him in terms of their faith). You can argue all day and get nowhere. How smart or otherwise great a person is seems to have nothing to do with it.

Look at Geithner and the Fed. Look at the European central bankers. Look at the GOP leadership convincing themselves that a US default is not a big deal. Their outlook is in no way rational - but they certainly do believe. What's appalling is not just the irrationality, but the implication that mindless belief is a *virtue*.

It had to do with aligning the rates the bank was offering to business borrowers with the annual economic cycle in a particular way. It was, apparently, a really good idea, and it ended up making the bank a lot of money.

It sounds like he made rates better reflect ability to pay over time, rather than the bank's desire to maximize returns for the next quarterly report. At least, that's what I'd like to think. But I have these crazy notions about non-predatory lending being better for everyone, banks included, in the long run. That and the nutty idea that credit should facilitate real-world creation of value rather than inflating assets and causing bubbles.

(Sorry. I've been reading things that have me annoyed at the FIRE sector today.)

'Worth $2M in a context where the guy that originated the idea got $10K off the books, an no other actor involved got anything?'

Probably not. We don't know the annual salary of the VP, but the bonus should have some relationship to that. The VP is the party to be rewarded for analysis and implementation of Leo's idea, since he, not Leo, was positioned with authority and apparently the ability to do that.

The VP certainly handled the relationship with Leo questionably. With an idea good enough to be turned into the kind of bonus the VP got, it seems the VP could have figured out how to include Leo openly in the process within the company and still have gotten a share of the bonus that reflected the VP's analysis and implementation management abilities while also yielding a more appropriate reward and recognition for Leo. His approach reflected greed for recognition or monetary reward, or both.

'Look at the GOP leadership convincing themselves that a US default is not a big deal'

Let's see. There is more than one path to default. It looks to me as if the GOP leadership is on one path (if the Democratic leadership holds their current position) and the Democratic leadership is on the other (like the PIGS) if they don't concede to long-term fiscal plans to correct our current direction.

The VP is the party to be rewarded for analysis and implementation of Leo's idea

Exclusively?

And, with whose money?

In all probability, the bank made money, not from the raw idea, but from it being implemented. "Leo" probably could not have done the implementation, however brilliant his idea was.

There's something to this. But IMO it doesn't justify the disproportion between the VP's bonus and the $10K. In fact, my reaction is to suspect that there was a lot of work to be done in the implementation, and a lot of people did a good job with that. I'll bet there were some extra hours put in, and some good ideas generated by all those implementers. So maybe they should have gotten some nice bonuses also.

One of my pet peeves is the assumption that the success of a business is due to the genius entrepreneur/visionary CEO at the top, and everyone else, oralmost, is just a grunt carrying out orders. In my experience this is just not so. And I have a fair amount of experience.

I think business success depends on having good, creative, motivated employees. That's what it takes to make things work, to turn out quality products, to become profitable. And those workers deserve a share of the payoff.

Now, my experience, mostly, is in technical areas, where workers are highly trained and have a lot of responsibility. It's not assembly line stuff. But even low-level employees make a difference. (Isn't that a Hayekian argument?)

I'd like to see some elaboration on this:

There is more than one path to default. It looks to me as if the GOP leadership is on one path (if the Democratic leadership holds their current position) and the Democratic leadership is on the other (like the PIGS) if they don't concede to long-term fiscal plans to correct our current direction.

if it's not too much of a departure from the topic of the post.

the Democratic leadership is on the other (like the PIGS) if they don't concede to long-term fiscal plans to correct our current direction.

What long-term fiscal plans? The GOP doesn't have any. All they want to do is cut Medicare and turn the mopney into tax cuts for the wealthiest people in the country. The notion that they have a sensible plan is laughable.

I don't see a path to default absent a voluntary decision to do so. Apparently, the all-knowing market doesn't fear a US default, considering that there is no shortage of buyers of US govt debt at very low interest rates. And I don't know what PIGS has to do with the US situation, considering that we're not subject to EU rules and have our own currency.

the Democratic leadership is on the other (like the PIGS) if they don't concede to long-term fiscal plans to correct our current direction.

What "current direction"?

If you mean the law as it's written, my understanding is that the deficit closes itself neatly over the short to medium term, as tax cuts expire and economic growth recovers.

So the only way there'd be a problem is if future Congresses passed laws somehow or other. Like more tax cuts, say.

But it's not at all clear how the current Congress has any control over that whatsoever, nevermind why chopping down social programs or letting our infrastructure rot* is supposed to be so urgent.

---
* While interest rates are practically nil and millions of construction workers are standing around idle, no less.

'One of my pet peeves is the assumption that the success of a business is due to the genius entrepreneur/visionary CEO at the top, and everyone else, oralmost, is just a grunt carrying out orders. In my experience this is just not so. And I have a fair amount of experience.

I think business success depends on having good, creative, motivated employees. That's what it takes to make things work, to turn out quality products, to become profitable. And those workers deserve a share of the payoff.'

I agree. I could have written your comment myself.

* While interest rates are practically nil and millions of construction workers are standing around idle, no less.

You sound like you're suggesting real people do real work in the real world to create real value to broadly benefit the real economy, jack. Where's the financial innovation in that? How unfancy and unclever...

'What "current direction"?

If you mean the law as it's written, my understanding is that the deficit closes itself neatly over the short to medium term, as tax cuts expire and economic growth recovers.

So the only way there'd be a problem is if future Congresses passed laws somehow or other. Like more tax cuts, say.'

I have not heard that the future fiscal factors for Medicare are sound such that the result is a funded , stable program. And I thought we already did the stimulus thing in order to jump start the 'shovel-ready' infrastructure projects, or was that a joke, since nothing ever actually happened? You think the current federal income tax law is OK? I doubt we can have a very productive interaction since I think it the ultimate disaster any American taxpayer could conceivably face. Of course, only half of us really must face all that unnecessary complexity.

The ULTIMATE Disaster: Current Federal Income Tax Law!!

Coming soon to a cineplex near you

was that a joke, since nothing ever actually happened?

Not for nothing, but a lot of stuff got done in my area. Highway paving, some bridge work, stuff like that. Folks have lots of different opinions about the Keynsean approach, I suppose, but shovels are being put into play.

I have not heard that the future fiscal factors for Medicare are sound

The issue with Medicare and Medicaid is pretty much a straight up cost issue. Medical care costs more, and the fact that government is the payer for those public programs is not the reason why.

If they go away, then it will be private insurer's turn to deal with the escalating costs of the problematic populations that the public programs serve, and their solution will be "we're not doing it". Because it's not economic to insure folks who are old, poor, or chronically ill for anything like a price they can personally afford.

It's a significant problem, and blaming it on public health insurance programs is not going to solve it, because they aren't the cause.

I doubt you'll get much of an argument about the over-complexity and general suckiness of the US tax code.

If you mean the law as it's written, my understanding is that the deficit closes itself neatly over the short to medium term, as tax cuts expire and economic growth recovers.

Your understanding is correct according to Brad Delong and Ezra Klein.

I have not heard that the future fiscal factors for Medicare are sound such that the result is a funded , stable program.

I think this should be unpacked a bit. Currently, medical costs are growing faster than the economy. This is true for Medicare and it is even more true for private insurance; private insurance medical costs are growing even faster. Moreover, this appears to be true in most peer nations, although the problem is much less severe outside of the US. In the absence of major reforms on the delivery side, this problem will likely continue. It will be bad for Medicare in the US, it will be even worse for private insurance in the US and it will be somewhat less bad in peer nations.

Fortunately, we have passed a bundle of delivery side cost control reforms in the Affordable Care Act. Prominent healthcare economists have said that the ACA contains pretty much every delivery side cost control idea we know about. No one knows if they'll be effective, but right now, these ideas are the best we've got.

Now, almost all of these ideas have been vociferously criticized by conservatives. Starting with the Independent Payment Advisory Board to the Patient-centered Outcomes Research Institute to having Medicare pay for doctors to talk about end-of-life issues with patients.

If the standard is 'is Medicare fiscally sound forever', then the answer is 'no'. But I think that's a dumb question; by that standard, private medical insurance in the US fails as well (even more so than Medicare) and the insurance systems in most peer nations look pretty awful as well.


And I thought we already did the stimulus thing in order to jump start the 'shovel-ready' infrastructure projects, or was that a joke, since nothing ever actually happened?

Where I lived there was tons of road construction and resurfacing work.

Note that the stimulus that passed Congress was a lot smaller than what administration and private economists believed was necessary. In one sense though, you're right: the net effect of the stimulus was close to nil because state and municipal governments were engaging in massive anti-stimulus at the same time.

You think the current federal income tax law is OK? I doubt we can have a very productive interaction since I think it the ultimate disaster any American taxpayer could conceivably face.

I knew a 35 year old guy who discovered that he had cancer and wouldn't live to see his kids' 5th birthdays. That seems like the ultimate disaster to me. Paying taxes the way I have for the last few years: really not the ultimate disaster. I mean, TurboTax will still work. Blowing a few hours a year to answer some questions and gather up some paperwork really doesn't seem comparable to hearing 'you have three months to live', but perhaps your priorities are different.

I have not heard that the future fiscal factors for Medicare the Department of Defense are sound such that the result is a funded , stable program.

Goose, gander...whatever..fixt.

"Starting with the Independent Payment Advisory Board"

Certainly it can work,but at what cost:

The PPACA repeatedly refers to any IPAB proposal as a “legislative proposal” and speaks of “the legislation introduced” by the IPAB. Each proposal automatically becomes law unless Congress passes — with a three-fifths supermajority required in the Senate — a measure cutting medical spending as much as the IPAB proposal would.

This is a travesty of constitutional lawmaking: An executive branch agency makes laws unless Congress enacts legislation to achieve the executive agency’s aim.

And it gets worse. Any resolution to abolish the IPAB must pass both houses of Congress. And no such resolution can be introduced before 2017 or after Feb. 1, 2017, and must be enacted by Aug. 15 of that year. And if passed, it cannot take effect until 2020. Defenders of all this audaciously call it a “fast track” process for considering termination of IPAB. It is, however, transparently designed to permanently entrench IPAB — never mind the principle that one Congress cannot by statute bind another Congress from altering that statute.

I am not entirely sure this qualifies as

"pretty much every delivery side cost control idea we know about."

It really qualifies as "we will give the purse strings to a bunch of "experts" who can reduce Medicare to zero at their whim and we won't have to be held accountable for anything they do".

And then we can argue over whether it will be paid for by goverrnment checks or vouchers.

This does not compute. I have worked at several banks, known pretty senior people at others, and a two mil bonus for a single idea for someone at a VP level is, well, unheard of outside investment banking.

So, I guess I am saying "largely" is carrying a lot of weight in this story.

I also think there is a lot of assuming going on about who else might or might not have gotten bonuses based on the implementation project, long hours etc.

Lastly, the VP surely had more tangible ways to reward Leo, both monetarily short term and longer term from a career perspective and was an a$$.

Certainly it can work,but at what cost

I'm sorry, but given George Will's long history of willful deception, and outright lies, I don't find him trustworthy. Can you find a critique written by someone credible? You can read a group of scientists explaining how Will took their data, completely distorted it, and claimed the opposite of what they actually found here and see here for a summary. Reporters at his own newspaper have written about how he's just plain wrong.

This is a travesty of constitutional lawmaking: An executive branch agency makes laws unless Congress enacts legislation to achieve the executive agency’s aim.

I guess I don't see the problem here. As far as I know, no court has declared this unconstitutional. In fact, none of the ACA's many opponents have even tried to litigate it. If it is such a constitutional travesty, how come no one is willing to say so in court? Why haven't any courts struck down this constitutional travesty?

Congress delegates many law making functions to executive bodies. It legislates broad mandates and lets the FCC or EPA or what have you specify the details. I don't see much difference here. If the IPAB does something horrible, Congress can easily negate its orders. Which means it still has all the power. Now, if you can't get 2/3 of Congress to agree that the IPAB is wrong, then maybe the IPAB is right and Congress is just in the thrall of special interests. Or are we to now assume that Congress, pure as driven snow, is never captured by special interests?

It really qualifies as "we will give the purse strings to a bunch of "experts" who can reduce Medicare to zero at their whim and we won't have to be held accountable for anything they do".

Do you know what the most expensive piece of equipment in any hospital is? It is the pen used by a doctor to order tests and treatment. We already have "experts" who dictate medical spending; we call them doctors. Right now, our doctors are free to order useless or unnecessary tests and treatments that financially benefit them. One factor that explains why some counties have much higher Medicare costs than others is the number of doctor owned labs and imaging-centers; shockingly, doctors are more likely to order unnecessary tests when they co-own the lab doing the test.

Look, the federal government pays for a lot of healthcare. In any other area, we'd all agree that spending billions of dollars to get nothing is stupid, but somehow, when it comes to medicine, the notion that the government shouldn't get fleeced by crooks is somehow controversial. It amazes me.

I have not heard that the future fiscal factors for Medicare are sound such that the result is a funded , stable program.

You'll note that this is the reason I used the words "short to medium term." Also, as others here have explained, this is not a government spending issue, but instead a general economy-wide problem with the growth of medical costs. Private actors have proven to be rather less able to cope with this than government programs, so shifting responsibility away from government really just makes things substantially worse. (Instead, available evidence suggests that greater socialization of care will probably be a good part of any successful solution.)

And I thought we already did the stimulus thing in order to jump start the 'shovel-ready' infrastructure projects, or was that a joke, since nothing ever actually happened?

This seems to be something of a non-sequitur. The point I made about economic recovery depends only on the fact (or hope) that regardless of what may have happened with the stimulus, that a slow recovery is nevertheless underway. Obviously it's not as rapid as we'd like - the unemployment rate is a particular sore point that continues to be ignored by elites - but there are signs of turnaround. State income tax receipts are up, for example.

In any case, as others have pointed out, contra you assertion, stimulus funds certainly were spent. Alas, they were probably inadequately ambitious in the first place, and then largely counteracted by the huge anti-stimulus of state government cuts.

You think the current federal income tax law is OK? I doubt we can have a very productive interaction since I think it the ultimate disaster any American taxpayer could conceivably face. Of course, only half of us really must face all that unnecessary complexity.

Another non-sequitur. The point is not about whether any of us find the current structure of the tax code ideal*, but only that, assuming some measure of economic recovery, and no (or only revenue-neutral) changes to that tax code, then spending will be adequately covered by revenue over the short to medium term. There is simply no inevitable "path to default", let alone one that must be dealt with immediately.

---
I would certainly make a great many changes, though daresay you and I might not agree on the changes, since I certainly don't think even current income tax is the worst disaster any American can face.

"the notion that the government shouldn't get fleeced by crooks is somehow controversial"

The notion that the doctors are bigger crooks than the government amazes most everyone else.

But, more seriously, do you really think that is the role of the IPAB? To monitor what doctors are ordering MRI's for? Because I think Medicare fraud already has an agency to monitor it.

And I note that you couldn't dispute a single point in the information quoted from Will, despite a few links related to climate change that were completely off topic. I would note that I have the same opinion of Ezra Klein ON the topic, but I preferred to stick to the subject.

There is simply no inevitable "path to default", let alone one that must be dealt with immediately.

I should add that this point is actually quite a bit stronger. Per the above, current law is not even a path to future deficits, never mind an inevitable path to actual default.

But even with substantial deficits and growing debt, it would take a very long time and a substantial worsening of other conditions to make things so unmanageable as to begin to threaten the possibility of default.

Or, you know, I guess some nihilists in Congress could decide to do it on a lark.

This does not compute.

Whatever. Leo's a pretty reliable guy, I'm inclined to give his story quite a bit of credence. YMMV.

Plus, after all, it was Louisiana. Insert smiley here.

Can't tell you how much of the $2M bonus was down to Leo's Bright Idea and how much to other brilliance on the part of the VP. Leo saw the numbers after the fact, the guy got $2M the year the Bright Idea went into play.

In any case, the odd thing, to me, was that he presented this as a story that more or less justified the VP's bonus.

The bank made money! The VP should get some!

Lastly, the VP surely had more tangible ways to reward Leo

I think the idea was that the VP wanted the field clear to take credit for the concept.

Leo came out of it fine in the long run. Don't know what happened to the VP.

Of course, only half of us really must face all that unnecessary complexity.

On review, I don't actually understand this part. What half is excluded here? Foreigners reading this blog? Children? Spouses whose "other half" does the IRS paperwork? People who use accountants?

That's probably lots of people, but I'm not sure that's what you're talking about.

I feel like you might be intimating that people who don't make much money end up paying little or nothing in taxes, but then, even they usually still have to fill out the forms (which is the stupid part). I don't even want to accuse you of saying that people who earn 10 or 20k a year are somehow getting a free ride...

There are work contracts out there that explicitly state that any idea of the employee belongs to the employer without the former being entitled to any reward (the employer pays his/her salary after all). Withholding ideas from the employer can be treated as breach of contract. I do not know of course what is in Leo's contract.

There is more than one path to default. It looks to me as if the GOP leadership is on one path (if the Democratic leadership holds their current position) and the Democratic leadership is on the other (like the PIGS) if they don't concede to long-term fiscal plans to correct our current direction.

See my morose and boring comment above, or here: believing something despite its irrationality is, unfortunately, seen in lots of circles as 'strength'. If we just keep extending Disney's patents, then Tinker Bell and Jimminy Cricket will be proven correct: 'If you REALLY believe...'

Notice, btw, that GOB blames the Dems for the GOP's almost suicidal recklessness. Notice also that the legacy of debt the GOP is suddenly so urgently concerned about is the result of their own governance since the '80s. Never mind! Just BELIEVE.

The notion that the doctors are bigger crooks than the government amazes most everyone else.

Talk to people and you'll find plenty of crooked doctors. I've met some myself. The medical community has plenty of crooks, just like any other profession. Then again, I don't think you have any right to speak for 'everyone else'.

But, more seriously, do you really think that is the role of the IPAB? To monitor what doctors are ordering MRI's for? Because I think Medicare fraud already has an agency to monitor it.

Ordering extra labs and imaging when you have a financial stake in the lab or imaging center isn't necessarily fraud; that's the point. If you look at any one decision, you can probably construct some kind of justification for it.

And I note that you couldn't dispute a single point in the information quoted from Will,

But I did. Remember this:

I guess I don't see the problem here. As far as I know, no court has declared this unconstitutional. In fact, none of the ACA's many opponents have even tried to litigate it. If it is such a constitutional travesty, how come no one is willing to say so in court? Why haven't any courts struck down this constitutional travesty?

Congress delegates many law making functions to executive bodies. It legislates broad mandates and lets the FCC or EPA or what have you specify the details. I don't see much difference here. If the IPAB does something horrible, Congress can easily negate its orders. Which means it still has all the power. Now, if you can't get 2/3 of Congress to agree that the IPAB is wrong, then maybe the IPAB is right and Congress is just in the thrall of special interests. Or are we to now assume that Congress, pure as driven snow, is never captured by special interests?

despite a few links related to climate change that were completely off topic.

A demonstrated history of lying is off-topic? Really?

I would note that I have the same opinion of Ezra Klein ON the topic, but I preferred to stick to the subject.

Wait, you think Ezra Klein has a history of making things up? Can you give any links to support that contention? I mean, I gave you a link to a group of credible scientists who claimed that Will lied about their research...can you link to a group of a credible healthcare economists doing the same for Klein?

"A demonstrated history of lying is off-topic? Really?"

Yes, nothing here was not factually correct.

"Wait, you think Ezra Klein has a history of making things up"

No, my opinion of Ezra Klein as a partisan hack who makes the facts fit the progressive agenda is based on my own assessment, thus my opinion. However, it is based on what he says about the topic, not climate science.

"Ordering extra labs and imaging when you have a financial stake in the lab or imaging center isn't necessarily fraud; that's the point. If you look at any one decision, you can probably construct some kind of justification for it."

So what does the IPAB DO about it, except just create dollar based caps, which I don't see as good medicine. I'll trade you one MRI for a colonoscopy, a new market is born.

So what does the IPAB DO about it, except just create dollar based caps, which I don't see as good medicine.

Have you considered that there will be evidence, at some point in the future, of how well it will turn out to have worked?

And what's with this?

It really qualifies as "we will give the purse strings to a bunch of "experts" who can reduce Medicare to zero at their whim and we won't have to be held accountable for anything they do".

Are they not experts? If not, why not? And who won't be held accountable? Are we getting rid of elections and the legislative process? Is the political process finished forever? What does this mean?

Yes, nothing here was not factually correct.

CCDG's continued existence is a constitutional travesty. Unless the state executes him at once, a constitutional travesty is ongoing.

Look ma, no factually incorrect statements above! I mean, can you prove the statement above is factually incorrect?

No, my opinion of Ezra Klein as a partisan hack who makes the facts fit the progressive agenda is based on my own assessment, thus my opinion. However, it is based on what he says about the topic, not climate science.

If he's such a partisan hack, it sure is odd how leading conservative politicians and academics keep flocking to his office to be interviewed by him. Shouldn't someone tell Paul Ryan that Klein's a partisan hack? And given that he's been very vocal about criticizing various Democratic plans and politicians, doesn't that make him a really bad partisan hack?

I asked you if you had any cites showing that Klein had a history of lying, like I had for George Will; it seems the answer is 'no'. So I've shown that Will is a liar who can't be trusted and you've shown that...what, you think Klein is a hack who criticizes Democrats and who Republicans love to talk with? How odd.

So what does the IPAB DO about it, except just create dollar based caps, which I don't see as good medicine. I'll trade you one MRI for a colonoscopy, a new market is born.

Probably something along the lines that MedPAC recommended. Pushing Accountable Care Organizations that are responsible for cost control (i.e., employing free market incentives) is one way, and that doesn't look anything like dollar based caps.

"Probably something along the lines that MedPAC recommended. Pushing Accountable Care Organizations that are responsible for cost control (i.e., employing free market incentives) is one way, and that doesn't look anything like dollar based caps."

In other words, no idea but it sounds good.

"So I've shown that Will is a liar who can't be trusted and you've shown that...what, you think Klein is a hack who criticizes Democrats and who Republicans love to talk with? How odd."

No you haven't shown anything, and my opinion is my own, so I haven't even attempted to show anything. So it's not worth either of our time to have this circular and frivolous discussion.

"Are they not experts? If not, why not? And who won't be held accountable? Are we getting rid of elections and the legislative process? Is the political process finished forever? What does this mean?"

It means that the political process for reducing what Medicare will pay for is finished. IPAB recommends cuts, Congress has thirty days to pass an equal medical cost savings measure with a two-thirds majority in the Senate or the IPAB recommendation becomes law, IPAB is essentially untouchable without a repeal of PPACA.

So no Congressional action is politically feasible nor will be will be taken, IPAB recommendations will accumulate and Medicare will, in essence, be killed by a million tiny cuts.

"Experts" will depend on your medical care priorities. Extending life, doctors prerogative vs the common good, and dollars caps to force trade offs or detailed management of protocols and procedures.

Accountability is removed from Congress, moved to a faceless bureaucracy and by 2014 no will be asking any politician about Medicare, and no politician will bring it up.

Weighing in here:

I am not entirely sure this qualifies as

"pretty much every delivery side cost control idea we know about."

You'll observe that in the sentence you quoted, Turbulence was referring to ACA as a whole, not just IPAB. IPAB is one cost control idea (and a mechanism for generating and implementing new ones) but not necessarily the only one.

Not that the non-sequitur Will quote about IPAB's somewhat novel legislative status would have demonstrated otherwise anyway. (You and Will are perfectly free to hold the opinion that IPAB is some kind of constitutional travesty, but that's completely irrelevant to the question of whether it will be an effective constitutional travesty.)

It really qualifies as "we will give the purse strings to a bunch of "experts" who can reduce Medicare to zero at their whim and we won't have to be held accountable for anything they do".

Actually, it seems that IPAB is limited in some important respects*, and board members must be appointed, confirmed by the Senate, and serve a six year term. That's actually MORE accountable than some existing offices (like Fed Board Governor, or Supreme Court Justice).

Now, certainly there can be a fine line between "independence" and "not accountable" which we could discuss, but you're not actually making any kind of case as to why this is the latter. Just assertion.

But then, that would be pretty irrelevant. You're entitled to your legalistic objections to IPAB, but they still have nothing to do with, and certainly in no way rebut, Turbulence's original point: that ACA, and specifically IPAB, are strong measures designed to help contain Medicare costs in the long term (and thus the deficit).

So far all you've got there is argument from personal incredulity. Not so convincing.

---
* According to Wikipedia, the law says: "The proposal shall not include any recommendation to ration health care, raise revenues or Medicare beneficiary premiums under section 1818, 1818A, or 1839, increase Medicare beneficiary cost sharing (including deductibles, coinsurance, and co-payments), or otherwise restrict benefits or modify eligibility criteria."

So no Congressional action is politically feasible nor will be will be taken, IPAB recommendations will accumulate and Medicare will, in essence, be killed by a million tiny cuts.

This is a bizarre assertion. IPAB's mission is only to bring Medicare cost growth in line (and come up with recommendations for taming private cost growth as well). How do you know that IPAB won't make useful recommendations that will reduce costs and strengthen Medicare?

As Turbulence pointed out, there's really a lot of low hanging fruit in the medical cost growth arena. Things like structural changes in billing and payment to reduce perverse incentives, and greater emphasis on evidence based interventions (and more comparative evidence) could make a great deal of difference.

Note that a lot of these things are politically difficult - at least for legislative mechanisms less independent than IPAB - because they will probably end up resulting in not paying quite so much money to certain doctors, hospitals, or drug companies. But a healthy readjustment in the profitability of medical care will hardly constitute "[killing Medicare] by a million tiny cuts."

So no Congressional action is politically feasible nor will be will be taken, IPAB recommendations will accumulate and Medicare will, in essence, be killed by a million tiny cuts.

For that matter, why should allowing Congress to kill Medicare at one fell stroke be considered a superior alternative?

by 2014 no will be asking any politician about Medicare, and no politician will bring it up.

Surely this is a good thing, no? That is exactly what we would want to happen - it would imply that Medicare is healthy and the Board is doing it's job.

Otherwise, I think the politicians will indeed hear a thing or two from constituents, and further action can be taken.

Oh, no. They'll manage to secretly kill Medicare. No one will notice and no one will bring it up. Because...Obama! Or something.

All above are true observations based on my personal incredulity that we so passively allow Congress to take itself off the hook for managing the costs of what is arguably the most impactful part of our budget.

Although this:

"but not necessarily the only one."

Is not true as it is the only one beyond a pilot in the actual legislation.

And for hsh, I never once used the word, nor implied the word Obama, I hold Congress completely responsible for this abdication of their responsibility.

passively allow Congress to take itself off the hook for managing the costs of what is arguably the most impactful part of our budget.

Given that Congress "being on the hook" for solving problems seems scarcely an adequate guarantee that any attempt will be made by them to solve them, I for one am quite glad that in at least this one case, they have delegated responsibility to another party.

Is not true as it is the only one beyond a pilot in the actual legislation.

Pilots don't count? We're talking at least a 10 or 20 year window here. Plenty of time for pilots to prove themselves and have wider impact.

And for hsh, I never once used the word, nor implied the word Obama, I hold Congress completely responsible for this abdication of their responsibility.

Then that still doesn't who or how or what you think can manage to kill Medicare with nary a constituent making a peep.

"We're talking at least a 10 or 20 year window here. Plenty of time for pilots to prove themselves and have wider impact."

I'll be dead by the end of that window so, ok.

Ooh. Solipsism.

"Ooh. Solipsism."

No, just tired of arguing about the future benefits of things unknown as we flounder in the present with nothing done, while we pass the buck to an unbuilt bureaucracy that will be faceless and unaccountable for undefined actions that are accounted for as trillions of hard dollar savings in a CBO accounting document.

BS on BS.

"the notion that the government shouldn't get fleeced by crooks" -- (turbulence)

You joke! The government doesn't mind getting fleeced by crooks, they just prefer certain crooks over others. In the case of medical expenses, they prefer the insurance companies.

Being "Older", I, and my husband, have an assortment of doctors. Among them is one who has decided not to be bothered by insurance companies; she charges, currently, $40 for an office visit, because that's what she actually gets after the insurance company is through massaging the bill. Also, currently in my area there are billboards for an independent MRI lab which read something like this: "They charge $3000, we charge $450." My guess is that they have also decided to forgo the "privilege" of dealing with insurance companies.

This is the way to bring down medical costs. Always remembering of course that they will never be as low as they were in "the old days", because there is a lot more practical medical intervention available now, and we don't want to say "Oh, just treat me to the level of 1950 standards".

No, just tired of arguing about the future benefits of things unknown as we flounder in the present with nothing done, while we pass the buck to an unbuilt bureaucracy that will be faceless and unaccountable for undefined actions that are accounted for as trillions of hard dollar savings in a CBO accounting document.

So, what is it that you think should be done (right now?) and by whom, Marty?

You don't like legal aspects of the recently passed act. Okay.

But what sort of conspiracy do you think the CBO, the Obama administration and congress managed to pull off here, with the help of economists and health-care providers and insurance experts and ideas from previous congresses? Why do you assume this faceless bureaucracy will do such awful things? I don't think it will be perfect, but why do you seem to think it will be such a disaster?

If it's so bad, why do you say nothing's been done? Were you expecting it to be implemented and change everything for the better overnight?

And you still need to explaing how this is going to kill Medicare without anyone noticing or complaining or doing anything about it.

In the case of medical expenses, they prefer the insurance companies.

This idea that medical cost growth is primarily caused by insurance companies is a very popular notion. But I think it is wrong.

Look at Medicare: no insurance companies. But costs are growing, albeit slower than private insurance costs. And while insurance companies are really evil and fscked up in the individual insurance market, they've often been pretty good in the large group market where big employers play. In that market, costs are rising. Moreover, insurance company profits have not been growing at anywhere near the rate of medical cost growth and eyeballing the numbers, it seems clear that most of the recent increase in costs has not been captured by insurance companies.

Now, I think insurance companies are terrible and in many cases add no value. I'd be happy to see them disappear. But they're not the primary driver for medical cost growth. They're just not.


No, just tired of arguing about the future benefits of things unknown as we flounder in the present with nothing done,

Er, the ACA passed. It is law. That counts as getting something done. Around the country, exchanges are being established, care quality and cost control groups are being assembled, research is being conducted. Most of this stuff will not make the news because, well, a white woman somewhere has gone missing and CNN has to focus on that, but still, things are happening.

while we pass the buck to an unbuilt bureaucracy that will be faceless and unaccountable for undefined actions that are accounted for as trillions of hard dollar savings in a CBO accounting document.

Given that IPAB's members have to be approved by the Senate, they don't seem very faceless. And the whole idea of Accountable Care Organizations that you scoffed at is hardly undefined; there's been lots of research and discussion on the topic.

This:

But they're not the primary driver for medical cost growth. They're just not.

and this:

Always remembering of course that they will never be as low as they were in "the old days", because there is a lot more practical medical intervention available now, and we don't want to say "Oh, just treat me to the level of 1950 standards".

seem to dovetail.

And I think it was a point Tony P. made before, probably more than once, that spending on medical care represents income to some number of people. Certainly, we should get our money's worth, but, if we do, spending a greater proportion of our aggregate wealth on living longer and healthier lives doesn't seem terribly misguided to me. Or should we be buying more TVs?

'Or should we be buying more TVs?'

I speculate that large numbers of young, single, and healthy working Americans have (do) make exactly this individual choice (buying a large screen, high-definition TV, nice for viewing sports events, for example), as well as other similar decisions related to daily living (housing, autos, eating and drinking, other electronic devices, etc), all while neglecting to have health insurance. But I'm not sure they pay the consequences when this approach backfires. Does anyone know if individuals like this pay the medical bills when they have unexpected medical events? If they don't, are they pursued for debt collection like any American who defaults on legitimate debt? I just don't know but I always hear that providers charge higher fees than might otherwise be expected to make up for the cost of treating the uninsured.

Well, yeah, we should get our money's worth, but right now we almost certainly aren't. So I think talking about how, in theory, spending on health care is very worthwhile is premature. (Kind of like how spending some money on entertainment is, in principle, quite a reasonable thing to do, but would be a weird thing to talk about while forking over millions of dollars to install a used stadium jumbotron in your living room.)

Also, even if we WERE getting our money's worth, in the long run it's mathematically impossible for health care spending to continue to grow forever at several times the rate of GDP. It would probably be better if we brought it under control some time before it slams into the upper limit of 100%...

'It would probably be better if we brought it under control some time before it slams into the upper limit of 100%...'

It won't because it can't. Where does care for one's personal health (and those for whom one is responsible) fall in the hierarchy of personal needs. I personally consider it to be high (up there with food and shelter) but obviously we have large numbers of Americans who do not view it as ranking this high, at least it is not reflected in their behavior. Many forego health insurance and taking care of their own health by avoiding unhealthy behaviors.

I just don't know but I always hear that providers charge higher fees than might otherwise be expected to make up for the cost of treating the uninsured.

Sounds like something should be done about that. Maybe some kind of health insurance mandate would be helpful.

...all while neglecting to have health insurance. But I'm not sure they pay the consequences when this approach backfires.

I presume from the tone that you think there should be severe consequences (bankruptcy, maybe getting denied care or coverage...).

Since I'm here, and the thread already looks jacked, I'm going to use this opportunity to say that I don't understand this kind of reasoning at all.

ITEM: It's a fact of human nature that people * make bad decisions**.

ITEM: "Consequences" are, to a certain mindset, very satisfying, but by definition are not actually effective at preventing bad decisions from occurring. This is especially so if the consequences in question are both low probability and years or decades distant.

CONCLUSION: People who show a lot of interest in "consequences" are not particularly interested in actually solving the root problems or making people's lives better. Not quite as much as they are interested in feeling morally superior, anyway.

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* ALL of us do it - though if we're born middle/upper class, or otherwise luck out, things like buying a big screen tv might not be a big deal. Even things like drug habits or various criminal acts are not a big deal if you're the "right" kind of person.

** Interestingly, it's both a vicious and virtuous cycle. Apparently, having to make a lot of stressful decisions (like, say, because you are very poor and every decision you make, all day, has huge personal consequences) can actually exhaust a human being's capacity to make good decisions, or think very clearly at all. On the other hand, if you happen to be doing relatively well (or start out that way!), and generally have only a few small and not hugely consequential things to worry about, making good decisions is easy. (Kind of takes the fun out of moral superiority, doesn't it?)

I don't buy that analogy. We spend more on health care, in part, because there is more of it as the field advances, and the alternative to not buying it is, at some point, being sick or dead.

It's certainly cheaper to provide preventive and primary care than to treat people with advanced conditions after the fact, and I'm all for that. I'm also all for people eating right, staying in shape and having fun in moderation.

But I don't think it's ever premature to keep things in perspective, which is all I was trying to do.

And GDP is not fixed, so even if the precentage of it that goes to health care grows, what's left in absolute terms can still be greater than what it used to be, particularly if GDP is, in part, growing as the result of more and better health care. I'm not particularly worried about it becoming 100% of GDP, but I agree we should get the ineffective and parasitic portions of health-care spending under control ASAP.

I speculate that large numbers of young, single, and healthy working Americans have (do) make exactly this individual choice (buying a large screen, high-definition TV, nice for viewing sports events, for example),

I suspect this happens less than you might think. Cheap insurance in my state is running about $3000/year for a young healthy person. A 36inch TV (you probably don't want much bigger if you're in a small rented apartment) costs less than $400. An Ipod costs maybe $200. You can buy lots of electronic gadgets and still pay a lot less than you would for even crummy insurance. Granted, insurance in my state is more expensive than most, but the individual market is also much better here.

But I'm not sure they pay the consequences when this approach backfires.

One issue is that while insurance is available to you if you're working full time for a big corporation, it is much harder to even get insurance if you're working for tiny startups or stringing together a couple of part time jobs. Lots of companies try very hard not to offer people full time employment since doing so would require them to offer healthcare benefits. And if you can't get insurance through full time employment with a big company, you're stuck with the individual insurance market, which in most states is broken and nightmarish and incredibly expensive, even for young healthy people.

In the current system, free riders are a problem, but perhaps less so than one might think. If you're young and healthy you can cruise along without insurance, but if you get cancer or suffer some horrible accident, you're stuck. While you might get free care in emergency rooms for a while, you can't get insurance after that, because you'll now have pre-existing conditions.

The ACA deals with this by eliminating bans on pre-existing conditions and mandating that everyone pay for insurance or pay a fine. Conservatives have strenuously objected to this attempt to deal with the free rider problem, even though it was originally a conservative idea.

Does anyone know if individuals like this pay the medical bills when they have unexpected medical events?

It depends. If you give your real name on admission, then you will pay something, probably as much as they think they can extract from you. If you don't, then you'll pay...nothing I guess.

If you give your name, will you pay the "correct" amount? I don't know. Hospitals and doctors generally don't have fixed prices for services. If you call and ask, they'll generally refuse to tell you. So they charge different amounts to different payers, based on how much they can extract.

If they don't, are they pursued for debt collection like any American who defaults on legitimate debt?

Yes, doctors and hospitals are happy to turn over unpaid debts to collection agencies who will in turn hound you mercilessly until you pay.

But I don't think it's ever premature to keep things in perspective, which is all I was trying to do.

Well, for reasonable people, sure. I just worry that this is an argument that I see get thrown out more or less as an excuse to do nothing - because who can object to spending money on health!

I guess this springs from my feeling that the portion of health care spending that is unnecessary, parasitic, or actively harmful is actually likely to be very high. It's quite premature - and possibly dangerously self-fulfilling - to be making assumptions about how much our great grandchildren will be budgeting for health care.

(Nor should we be encouraged to think that technology growth in health care necessarily just leads to higher and higher costs. That's not what should be encouraged, and it's not even true all the time today - many newer treatments are both more effective and cheaper thank old ones, but we don't always see it benefit from it if the old ones are more profitable...)

(Alternatively, maybe the NEW one is more profitable - and less or equally effective - in which case no one ever sees the old one anymore. These two effects certainly constitute a kind of technology cost ratchet, but it's not an intrinsic or sensible one.)

maybe the NEW one is more profitable - and less or equally effective - in which case no one ever sees the old one anymore

This is very much a live issue. See here for some coverage of the ALLHAT study: it was a massive study comparing 4 different drugs. The oldest cheapest drug was significantly more effective and had fewer side effects. Years later, it is still not being used as much as newer more expensive less effective drugs.

That post also explains that when pharmaceutical companies remove a chiral isomer from a drug, they get to call the result a totally new drug and get patent protection. So brand name Nexium is exactly the same as generic Prilosec minus one isomer. That's just shocking. I knew the patent system was broken, but this is ridiculous.

'One issue is that while insurance is available to you if you're working full time for a big corporation, it is much harder to even get insurance if you're working for tiny startups or stringing together a couple of part time jobs.'

Employers selecting insurance sources and paying premiums for employees seriously distorts the market for health insurance (and maybe the ultimate cost of medical services). How is this personal need any different from food, housing, education, auto insurance, homeowners insurance, etc?

Employers selecting insurance sources and paying premiums for employees seriously distorts the market for health insurance (and maybe the ultimate cost of medical services). How is this personal need any different from food, housing, education, auto insurance, homeowners insurance, etc?

Well, first off, it's obviously already distorted, so whatever we might think about hypothetical Planet X, where there is no employer insurance, our actual world still sucks really bad for individuals without employer coverage.

But there are issues even on Planet X.

At the very least, X's health insurance market would surely have to be heavily regulated: Information problems are rife even in relatively simple insurance markets like auto insurance (I don't have an easy cite, but basically, there's a lot of variation in policies, and consumers have no way to really find out what they need or what they have - so they don't). We more or less muddle through in those markets, but it's not clear that those failures would really be acceptable in health insurance markets.

There are other problems too. Like making sure insurers can't cherry pick, by offering cheap plans with bundled gym memberships and no cardiac coverage, say, and hyper-expensive plans that you need if you actually get sick. Relatedly, there's obviously the moral hazard issue. You either need to require that people buy coverage, require that insurance companies can't deny anyone coverage (or charge individualized rates), have an expensive government program to cover the sick and uninsured, or just let people die regularly from otherwise preventable causes because that's the "consequences".

So, basically, you'd probably want to set up some kind of "exchange" where people could buy into standardized classes of plans at group rates. You'd want to have a "mandate" to strongly encourage everyone to get coverage, but also not allow insurance companies to deny coverage based on illness. You see where this is going. (And yes, there are some slightly different policy choices and variations you could make, but as long you're actually solving all the problems, all the alternate solutions are going to have very much the same elements.)

Of course, even then there are still some problems. You haven't really gotten a handle on out of control cost growth, and the available evidence tells us that scattered private insurers really aren't going to be able to address that very effectively on their own (they've tried and failed).

Looking around the world, more extensively centralized, socialized and generally government run systems have had better success. (Monopsony is a powerful thing.) At the very least, what you'll want to do is launch a bunch of research and pilot programs. Have the government look into billing reform (e.g., end the perverse incentives involved in "pay for procedure" as much as possible), patent reform (and perhaps more directly fund searches for for treatments of maybe-not-so-profitable conditions or diseases), encourage more comparative effectiveness research, encourage doctors to actually learn and make use of the research and best practices that are available, etc.

Did I miss anything?

It occurs to me that I didn't really address the "food, housing, education" portion of the question:

The first two should be really obvious.

Unlike insurance, they're more immediate. If you don't work out food and shelter, then, respectively, your stomach alerts you to its displeasure very quickly or you sleep out in the cold without a shower. On top of that, the need for and cost of food and housing are quite predictable and (usually) manageable. It's easy to know how much to set aside and there's immediate incentive to do so.

Even so, realistically, many people do fall down on this for various reasons (losing a job, making a bad budget decision that month, mental illness, etc).

Education is slightly different. Like food and housing, it is at least a predictable need with a predictable benefit stream and cost level. And you mostly know what you're getting. But, it does probably suffer from many of the delayed consequences problems like health insurance. That's one of the reasons we don't let children decide they don't want to go to school. It's not as easily solvable for adults; I think we largely get by on there being lots of social expectation and indoctrination on young adults to try to go to college and do well - but there's a problem when that doesn't work, or when there are particular groups that don't face the same expectations.

Employers selecting insurance sources and paying premiums for employees seriously distorts the market for health insurance (and maybe the ultimate cost of medical services).

It does? Can you explain how?

I think what you might be missing is that the large group health insurance market is completely different from the individual insurance market. Insurance companies are generally not willing to offer plans in the individual market that are anything like what they offer big companies in the group market. I'm not talking about a 10% premium to cover the administrative overhead of dealing with individuals rather than a corporation, I'm talking about completely different products. And I don't see how that's the fault of big companies. They're not doing anything wrong here.

Beyond that, I think the idea that everyone should have health insurance is in tension with the notion that 'employers selecting insurance sources...[drives up] the ultimate cost of medical services'. I mean, if everyone needs to get insurance anyway, than what exactly is it about purchasing it through your employer that drives up the cost? Most employers offer employees a choice of plans after all....

How is this personal need any different from food, housing, education, auto insurance, homeowners insurance, etc?

Different things are different. What is your point exactly?

I think it's about personal responsibility.

Looking around the world, more extensively centralized, socialized and generally government run systems have had better success.

And that's why Cuba is such a great place to live.

Turb- I mean, if everyone needs to get insurance anyway, than what exactly is it about purchasing it through your employer that drives up the cost? Most employers offer employees a choice of plans after all....

Big companies and groups often negotiate service fees that are below market cost, raising the costs of those services for everyone else. It's the exact same effect that a lot of Nordquistians complain about with medicare/medicaid fees.

Italics begone!
Big companies and groups often negotiate service fees that are below market cost

What? I've never read anything like this regarding healthcare in the US. Do you have a cite?

I mean, prices in the large group insurance market are rising very quickly too. And I believe that market is profitable for insurers.

Big companies and groups often negotiate service fees that are below market cost, raising the costs of those services for everyone else. It's the exact same effect that a lot of Nordquistians complain about with medicare/medicaid fees.

This doesn't sound right to me either, not that I am very knowledgeable. Outside of big companies and groups, and Medicare and Medicaid, for all practical purposes, who else is there?

From the CBO: Roughly 8 percent of people purchase coverage from private individual health insurers.

I am self-employed and I have an individual Anthem/Blue Cross policy (with a high deductible, a risk I am taking more or less with my eyes open and some savings to back it up). I would be curious to know whether the rates I pay (covered by Blue Cross, but paid by me because of the deductible) are higher than the rates that people in Blue Cross's group plans pay. I doubt it, but I could be wrong (and I don't know how, and don't have time, to try to find out). They are certainly "discounted" from the actual rates on the bills, but what relationship those #'s have to "market costs" or to the discounted rates paid by people in big group plans, I have no idea.

So for nous: do you think the uninsured make up the difference? That doesn't sound right.

And what is "market cost" in this context? Is someone taking an outright loss on some billings, and making it up elsewhere? And again, if so, where?

Is everyone talking about the same thing here? Is it a matter of premiums for insurance or fees paid for health care (or both)?

I could see where insurance companies would charge different per-insured premiums for large groups versus individuals, but I don't think they would negotiate different payments for the same services for group members versus individually insureds (not that I know, mind you).

Is everyone talking about the same thing here? Is it a matter of premiums for insurance or fees paid for health care (or both)?

I was thinking both, hsh, but I probably didn’t explain what I was thinking very clearly. I can’t try to clarify right now but I’ll try to come back to it later today.

Briefly, either way it doesn't seem like there are enough individual policy-holders (8%) to make up the difference (individual policies aren't that expensive) for insurance companies charging “below market costs” (whatever that means) to large corporations that buy group policies. And it doesn't seem like the uninsured (of all people!) form a pool of wealth likely to be able to balance out the difference of medical providers charging “below market costs” to people with insurance or M/M.

But a lot of what I was objecting to depends on what nous meant by “market costs.”

Hmm. I tend to think the market IS probably somewhat distorted by the dominance of employer plans, though I'm hard pressed to say exactly how.

The below market costs story doesn't sound right though.

I would tend to say (and all without evidence, mind you) that the issue is mostly that, as only 8% of the market, individual policies tend to be somewhat "niche" services (doubly so because that market is probably segmented further - the employed but uninsured, the self-employed, the miscellaneous). That market segment may be given somewhat short shrift by the big players, while also attracting some smaller more opportunistic/predatory firms.

There are also issues with what risk pools individual policies get put into (not sure how this works out, but surely a big corporate pool would be nicer).

On the employer side, I'm also skeptical about the nature of a "market" where decisions for millions are ultimately made by a small number of HR departments. (Yes, you sometimes get a choice of plans or systems, but usually no more than 2 or 3 - aa lot of big decisions, and negotiations, have already been made by HR on the basis of unknown factors. I always suspected half the time on the basis of the glossiness of the brochures.)

There's probably some other factors in there too. Health care costs obviously interact a lot with wages, for example. (Which could have unexpected effects - like, I wonder if the prevailing wage for freelancers might not be depressed somewhat thanks to inappropriate comparisons with take home pay in other parts of whatever industry.)

Now, I don't know how this comports with the more conservative view of things. I think there it's mostly an objection to the tax exemption involved, which supposedly encourages companies to get "diamond studded" plans or whatever, while if individuals thrown into the wilds of the market they would all be superhumanly thrifty and efficient...

Once a year every corporation hires a broker company which collects bids based on the number of employees, their locations, the claims history, average age, a few other factors and they present these bids to the HR department of the corporation. Typically they have tiered rates for single, married and families, then some buy up plans. The Corporation then negotiates, usually most vigorously with the current choices because they are easier for the company and the employees to get the least rate increase based on those factors.

There are a few other things that come into play. sometimes an insurer is trying to get out of a particular plan structure, or geography, so they will over price that one and offer the one they want to go to really cheap for a year.

It always involves spreadsheets of the ins and outs of who covers what, and for how much. The negotiations often center around how much for copays and coinsurance maximums versus premiums, and it used to include lifetime versus no lifetime caps.

But it's not a mysterious process,and it isn't glossy brochures, it starts 3-5 months before your Open Enrollment shows up.

But it's not a mysterious process,and it isn't glossy brochures, it starts 3-5 months before your Open Enrollment shows up.

I was mostly being facetious. But still - there is a lot more to an insurance plan than just the price. Spreadsheets or not, HR departments (or their consultants/brokers) are making a lot of decisions about what kinds of coverage are important, and at what cost*.

Don't get me wrong, I think HR departments and expert consultants are actually much better situated to understand those tradeoffs than individual consumers or employees. But it does mean employee choices are quite pre-limited, as it were. And it's not exactly what I would call a really transparent process.

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* I would also note that it does not seem impossible for more inappropriate factors to come into these kind of decisions sometimes. Like maybe one executive impresses another executive with a tour of his yacht or whatever.

Well Jack, I have been involved intimately in the process in companies ranging from 25M up to 1B, and have never had anyone above VP of HR involved in the process outside the budget discussions.

I have been universally impressed by the care with which the benefits/HR people at these companies agonize over the trade-offs in types of coverage to try to provide as many options as possible, and yes there are limitations.

Overall you are right, the HR Benefits professionals are better and more knowledgeable consumers of insurance by far and, while occasionally incompetent like anything else, are dedicated to the employees they represent.

JanieM:

'I am self-employed and I have an individual Anthem/Blue Cross policy (with a high deductible, a risk I am taking more or less with my eyes open and some savings to back it up)'

Just curious. Did you shop for your coverage costs versus benefits to fit your particular needs or select Anthem because it was first on the list?

GOB, to quote a friend of mine who works in the field:

"In Maine the individual [i.e. an individual policy-buyer] pays much higher premiums because the law and rules have driven every carrier out of the individual market except Anthem."

So, no. There is nothing to shop around for. The only major decision I had to make was how high to push my deductible.

At one time I did briefly consider Maine's state-run Dirigo Health, but they didn't have a plan with the high deductible that I wanted, plus my impression is that Dirigo has always been on shaky ground politically, whereas BC/BS we will always have with us (for better and for worse).

With HealthChoice (the name of my plan) I do have some freedoms that not all kinds of plans would have given me. I didn't have to go through a gatekeeper to pick up the phone and make the appointment with an orthopedic surgeon that led to my knee surgery a few years ago. That doctor's office of course had to get stuff approved along the way, but I at least didn't have to go through my primary physician to see him. With a high deductible, those extra $100 office visits come out of my pocket, so I'm glad I don't have to make them.

I would rather see the US join the rest of the developed world and have a sane system of medical care and coverage, but that's not what you asked. ;)

... or select Anthem because it was first on the list?

The shorter answer: there was/is no list.

What list would that be, anyhow?

Even if there was one, I would never buy something that was going to cost me thousands of dollars a year without doing some research.

Well Jack, I have been involved intimately in the process in companies ranging from 25M up to 1B, and have never had anyone above VP of HR involved in the process outside the budget discussions.

You wouldn't necessarily see it though, would you?

But I hear you. And I wasn't trying to impugn the dedication or hard work of HR staff. Mostly just making the point that the process you describe, like a lot of corporate activity, is really a centralized decision, not a market or a democratic one.

Well, yes Jack, I would have.

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