Kling on health care finance reform

Arnold Kling is thinking about health care finance again, and that’s a good thing. The entire article is well worth reviewing, as Mr. Kling does a particluarly good job of summarizing the defects in the America’s health care finance system:

* Many people lack health insurance. This includes Do-Nots as well as have-nots.
* Poor people, although covered by government programs, are not able to access health care providers in a timely fashion. They obtain too little preventive care and consequently make too much use of hospitalization. In order to improve on certain key health care indicators, such as infant mortality, the United States has to find a way to bring poor people under the umbrella of our health care system.
* The system of employer-provided health insurance distorts choices. It makes it costly for people to change jobs, especially to become “free agents.” It puts ordinary firms in the health insurance business, penalizing small firms, for which this is more of a burden. It injects ordinary corporations into the decision-making process of consumers with regard to choice of insurance and even (through “preferred-provider” systems) with regard to choice of doctor.
* Our system tends to subsidize “first-dollar” coverage rather than catastrophic coverage. Catastrophic coverage is like auto insurance that pays in the case of an accident. First-dollar coverage is like auto insurance that pays for gas and tolls. First-dollar coverage results in more paperwork and reduced incentives to control costs.
* People with break-the-bank illnesses, such as diabetes or cancer, cannot switch insurance companies.
* Consumers have little incentive to take responsibility for their health. Smoking and obesity make little or no difference to insurance premiums.
* Consumers have little incentive to take financial responsibility for health insurance. Instead of encouraging consumers to save to pay for the high cost of insurance when they are older, we tell them that they can count on Medicare.

Mr. Kling does not view increasing government’s role in health care finance as a viable option. Rather, he views government’s best role as that of a facilitator of consumer choice:

However, the solution is not to enlarge government’s role. What I would like to see is a role for government in health care that is streamlined, rationalized, and bounded. I call this approach “limited paternalism.”
My belief is that most consumers are capable of making the best decisions about health care most of the time. The buzzword for this is consumer-driven health care.

Mr. Kling’s consumer-driven health care finance system would have the following components:

* Direct provision of health care services to the poor. For example, government-subsidized clinics in poor neighborhoods with nominal charges (say, $10 per visit).
* Aim to switch from a system of employer-provided health insurance to consumer-purchased health insurance, by ending the tax deductibility of insurance for corporations and eliminating requirements that companies provide health insurance.
* Mandatory catastrophic health insurance for all families not eligible for Medicaid. Rather than expand Medicaid and other government programs upward to the middle class, as some Democrats propose, tighten eligibility for these programs and require co-payments for all but the poorest participants. Eventually, phase out Medicaid and replace it with health care vouchers.
* Phase Out Medicare, and instead mandate health care savings accounts (explained in this earlier post). This would change the medical portion of retirement security from a defined-benefit plan, which Congress will tend to pack with benefits that it cannot pay for, to a defined-contribution plan, which is much sounder financially and much fairer generationally.
* Institute government-provided “catastrophic reinsurance” for very high medical expenses. The Kerry campaign has proposed this for expenses of over $50,000 per year. The purpose of catastrophic re-insurance is to enable private insurance companies to compete for business without having to screen out high-cost individuals. Of all the mechanisms for spreading the cost of break-the-bank illnesses among the general public, catastrophic reinsurance would involve the government in the least number of individuals and the least number of medical decisions. While the rest of the Kerry health care plan tends to be the opposite of what I would like to see, this proposal strikes me as a good plank in any health care reform platform.

Read the entire piece as well as Mr. Kling’s follow up blog post on the article. I believe that the Bush Administration and the Republican-controlled Congress’ failure to address health care finance reform in a meaningful fashion is one of the big reasons undermining independent voters’ confidence in the Administration during this political season.

The politics of bashing

Professor Ribstein has been noting the increasingly polarized nature of political debate in America, best reflected by the tendency of many critics of President Bush to eschew fair criticism for ad hominem attacks.
Although Professor Ribstein is correct that Bush-bashing is prevalent, I’m not certain that this is all that unusual. American Presidential campaigns have often been ribald affairs in which strident supporters of one candidate have characterized the opposing candidate as evil, immoral, moronic, or worse.
For example, the campaigns immediately after George Washington‘s terms in office were no picnic, and later, Andrew Jackson‘s opponents used many of the same tactics that the Bush-bashers use now. Even Abe Lincoln endured a good deal of these types of attacks in the 1864 election, and more recently, Barry Goldwater in 1964 and Richard Nixon in 1972 were often characterized as the epitome of evil by their opponents. Particularly during the 1980 election, opponents of Ronald Reagan often portrayed him as an idiot mouthpiece controlled by others.
However, the WSJ’s ($) Alan Murray in his Political Capital column this week may point to the reason that the Bush-bashers are using this particular technique during this Presidential campaign:

To an unprecedented degree, Americans already have decided how they are going to vote in November. Polls differ, but all suggest that between 43% and 45% of voters plan to vote for George W. Bush and won’t give any consideration to John Kerry, and an equal percentage plan to vote for Sen. Kerry, and won’t give any consideration to President Bush.
That leaves just 10% to 15% of voters who say they remain uncertain about how they will vote. And Republican pollster Bill McInturff says his research shows even most of the undecided voters are less malleable than the label indicates. “The polarization is exceptional,” says Democratic pollster Peter Hart. “Even the independents break down into pro-Bush and anti-Bush groups.” Kerry strategist Mark Mellman goes further: “All the evidence suggests we are fighting over less than 10% of the electorate, and probably less than 6%.” Says Mr. McInturff: “I’ve never seen anything like this in my 25-year career.”

Could it be that the Bush-bashers have concluded that their approach is the most effective means by which to persuade a majority of this 10% undecided group? Or is it simply a means by which to maintain the passion of the base of Bush opponents to ensure that base turns out on election day? Or both?
Update: Professor Ribstein notes the difference in the nature of the current Bush bashing with previous President bashing.

The winner of the CenterPoint Energy auction

A group of four of the largest private-equity funds teamed up to win the hotly-contested auction for Texas Genco Holdings Inc., a merchant generating company spun off from CenterPoint Energy Inc., in a deal valued at $3.65 billion. CenterPoint stands to realize $2.9 billion in cash when the deal is closed, likely in the first quarter of 2005. The deal is subject to regulatory approval.
The buyers include Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co. LLC and Texas Pacific Group, which have been separately shopping the depressed energy sector.
Among the losing bidders was a group of hedge funds advised by Lazard Freres & Co., which reflects the growing influence of such funds in captial markets. Hedge funds generally invest in stocks, bonds and other financial assets because it is easier to trade in and out of such investments. However, as hedge funds accumulate big pools of capital, they are starting to lend to companies and make longer-term investments in certain companies.
The CenterPoint auction has been widely watched in the power industry because it includes more than 14,000 megawatts of Texas generating plants, which will likely be the largest sale of power assets by a U.S. company this year. The sale comes amid a debate over whether CenterPoint can charge customers to recover so-called stranded costs in plant investments. Under regulatory rate rules, CenterPoint is currently arguing to state regulators that the generating plants it is selling are actually worth much less than what the winning bidders have agreed to pay. If it succeeds in its argument, then CenterPoint would be able to charge its Houston area utility customers higher rates.

Pettitte stops Stros skid

Andy Pettitte pitched a season-high eight innings as the Stros extended the D-Backs losing streak to 10 in a 5-2 victory on Wednesday night at the BOB in Phoenix.
Pettitte (6-3), who was 1-2 in his previous six starts, pitched in Phoenix for the first time since losing Games 2 and 6 of the 2001 World Series for the New York Yankees. He took a five-hit shutout into the eighth in this game before allowing Scott Hairston‘s double and Steve Finley‘s tater, which pulled the D-Backs to 3-2. Brad Lidge made things interesting by walking two in the ninth, but finally secured the save.
Carlos Beltran and Craig Biggio each hit a solo yak for Stros, who had 10 hits, but continued their season long trend of leaving 14 runners on base.
Roy O goes for the Stros tonight as they attempt to put a winning streak together at the expense of the hapless D-Backs. The Stros return to the Juice Box for a weekend series with the Brew Crew after their quick trip to Phoenix.

Making foreign policy decisions based on imperfect intelligence

Stephen Sestanovich is a senior fellow at the Council on Foreign Relations and a professor of international diplomacy at Columbia University. From 1997 to 2001 he was United States ambassador at large for the former Soviet Union.
In this intelligent NY Times Op-ed, Professor Sestanovich points out that key foreign policy decisions are often the product of imperfect intelligence and government officials’ reaction to it. Sensitive intelligence is often too weak to guide important decisions, and if the information fits what the governmental officials already believe — or what they want to do — it often gets too little scrutiny. He then relates a humorous story:

Most anyone who’s worked in government has a story – probably re-told often these days, given the Iraq debate – about facing a big decision on the basis of information that then turned out to be wrong. My favorite is from August 1998 when, with Bill Clinton just three days away from a trip to Moscow, the Central Intelligence Agency reported that President Boris Yeltsin of Russia was dead.
In 1998 the news that Mr. Yeltsin had died was, of course, no more surprising than the news, in 2003, that Iraq had weapons of mass destruction. It matched what we knew of his health and habits, and the secretive handling of his earlier illnesses. Nor was anyone puzzled by the lack of an announcement. Russia’s financial crash 10 days earlier had set off a political crisis, and we assumed a fierce Kremlin succession struggle was raging behind the scenes.
In the agonizing conference calls that ensued, all government agencies played their usual parts. The C.I.A. stood by its sources but was uncomfortable making any recommendation. National Security Council officials, knowing Mr. Clinton wasn’t eager for the trip, wanted to pull the plug immediately. The State Department (in this case, me) insisted we’d look pretty ridiculous canceling the meeting because Mr. Yeltsin was dead – only to discover that he wasn’t.
Eventually we decided that the Russians had to let the deputy secretary of state, Strobe Talbott, who was in Moscow for pre-summit meetings, see Mr. Yeltsin within 24 hours or the trip was off. Nothing else would convince us: no phone call, no television appearance, no doctor’s testimony. The next day Mr. Yeltsin, hale and hearty, greeted Mr. Talbott in his office, and two days later Bill Clinton got on the plane to Moscow.

When the trip was over, I phoned the C.I.A. analyst who had relayed the false report. He was apologetic – sort of. “You have to understand,” he said. “We missed the Indian and Pakistani nuclear tests last spring. We’re under a lot of pressure not to miss anything else.”

So, what do governmental officials do with such imperfect information?:

When policymakers have imperfect information about a serious problem (which is almost always), what should they do? The answer, then as now, is to shift the burden of proof to the other guy. If we had been denied that meeting with Mr. Yeltsin, it would hardly have proved that he was dead. But we would have canceled the trip all the same. Russian uncooperativeness – not our poor intelligence – would have left us no choice.

And how does that relate to the current debate over the Bush Administration’s decision to go to war in Iraq on the basis of imperfect intelligence?:

Going to war and canceling a trip are vastly different matters, but what the Bush administration did with Saddam Hussein in the run-up to war followed the same rule: it challenged him to prove that American intelligence was wrong, so that the responsibility for war was his, not ours.
Clearly, President Bush and his advisers did not expect Saddam Hussein to cooperate in this test, and might still have wanted war if he had. But even if the administration had handled other aspects of the issue differently, it would still have been necessary to subject Iraq to a test. In our debate about the war, we need to acknowledge that the administration set the right test for Saddam Hussein – and that he did not pass it.
When America demanded that Iraq follow the example of countries like Ukraine and South Africa, which sought international help in dismantling their weapons of mass destruction, it set the bar extremely high, but not unreasonably so. The right test had to reflect Saddam Hussein’s long record of acquiring, using and concealing such weapons. Just as important, it had to yield a clear enough result to satisfy doubters on both sides, either breaking the momentum for war or showing that it was justified.

But, some protest, does not this approach treat Saddam Hussein as guilty until proven innocent?:

They’re right. But the Bush administration did not invent this logic. When Saddam Hussein forced out United Nations inspectors in 1998, President Clinton responded with days of bombings – not because he knew what weapons Iraq had, but because Iraq’s actions kept us from finding out.

A decision on war is almost never based simply on what we know, or think we know. Intelligence is always disputed. Instead, we respond to what the other guy does. This is how we went to war in Iraq. The next time we face such a choice, whether our intelligence has improved or not, we’ll almost surely decide in the very same way.

The Bush Administration deserves much criticism on a variety of issues. However, its decision to go to war with Iraq — and its overall prosecution of tha war — are not issues that deserve the criticism that some politicos are heaping upon the Administration during this political season.
Hat tip to Bill Hesson for the link to this fine op-ed.

J.P. Morgan ups ante in Enron litigation

In announcing its second quarter results today, J.P. Morgan Chase & Co. announced that it has increased its total litigation reserve to $4.7 billion before taxes. The reserve covers Morgan’s contingent liability in the ongoing Enron civil litigation and other securities cases, including the company’s dispute with WorldCom investors.
Excluding the litigation reserve charge, J.P. Morgan Chief Executive William B. Harrison Jr. described the second-quarter results as “comparable to the prior year.” That’s a bit like saying that, except for the elephant in the middle of the room, the rest of the room remains quite neat and tidy.

Stros lose again

The Stros might as well be in “Groundhog Day.” The story goes like this:
Stros take lead.
Stros blow lead.
Stros lose.
Munro pitched well and deserved to win. However, Weathers and Harville stunk in relief and gave up a 4-1 lead. Bags and Ensberg had solo yaks and a couple of hits each, but the rest of the Stros hitters beyond Berkman remain tepid. Even Beltran is being affected, as his OBP fell to a pathetic .318. Bad hitting is contagious.
Andy Pettitte opens the Diamondback series on Wednesday in Phoenix. At least the Stros will be playing someone their speed in the D-Backs (31-63). The Stros are now only a game out of last place in the NL Central.

Continental posts quarterly loss

Houston-based Continental Airlines annonced that it posted a net loss of $17 million for the second quarter, citing weak domestic fare prices, high fuel costs and expenses associated with retiring aircraft.
Continental, which is the No. 5 U.S. carrier, reported net income for the year-earlier period of $79 million, or $1.10 a share, which was primarily due to war-related government subsidies. The latest quarter’s loss included a charge of $19 million for the retirement of leased MD-80 jets. Excluding that charge, Continental would have eked out a profit of $2 million during the quarter. Continental’s total revenue improved 13%, to $2.51 billion from $2.22 billion a year earlier, as passenger revenue improved 15.1% to $2.3 billion. The company’s consolidated load factor increased to 77.6% from 75.9%.
Continental has generally competed well against the rising tide of low-cost carriers as the company’s chapter 22 (i.e., two prior chapter 11 cases) case tends to focus management on lean operations. Nevetheless, management reported that the company will have to cut costs beyond its original projection of $900 million annually to offset lower than expected ticket prices and high fuel costs.
A day earlier, Delta Air Lines reported a higher-than-expected loss of $1.96 billion for the second quarter, with weak fares undercutting a surge in passengers that pushed traffic to its highest level since the summer of 2000. Delta is the prime prospect to be the next American carrier to land in chapter 11.

Lay PR campaign continues

According to this Houston Chronicle article, Ken Lay‘s criminal defense attorney, Mike Ramsey, is apparenly not happy that Enron Task Force lawyers had sent letters to U.S. District Judge Sim Lake in late May and mid-June indicating that they were going to indict Mr. Lay in the pending criminal case against former Enron CEO Jeffrey Skilling and former Enron chief accountant Richard Causey.
Mr. Ramsey is not happy because the Task Force lawyers, at the same time they were sending these letters to Judge Lake, were advising Mr. Ramsey that they had not decided whether they were going to indict Mr. Lay. Mr. Ramsey says that he would never have met with the prosecutors to attempt to persuade them not to indict Mr. Lay if he had known that they had already decided to indict Mr. Lay.
Mr. Ramsey presumably gave this information to the Chronicle with a straight face.

Dodgers edge Stros

Dan Miceli gave up the back-to-back homers in the eighth inning to allow the Dodgers to edge the Stros 7-6 in a wild game on Monday night at the Juice Box. The win was the Dodgers’ seventh straight win, 13th out of their last 14, and dropped new Stros manager Phil Garner‘s record to 1-3 since taking over from Jimy Williams during the All-Star break.
After the Stros took an early lead, the Dodgers scored four runs in the sixth inning, with three unearned because of two Stros errors, including another adventure in left field by Bidg, who is proving just how underrated Berkman was as a leftfielder. Ensberg cranked a dramatic three-run yak in the sixth to give Stros a 6-5 lead, leading to Miceli’s gopher balls in the eighth that put it away for the Dodgers.
Starter Brandon Duckworth had an amazing performance, somehow allowing only one run in 4 2/3rd’s while allowing six hits, one K, and four walks (hint: the Stros turned three DP’s behind him). After Duckworth’s latest tightrope performance, GM Gerry Hunsicker must have taken great pleasure in Carlos Hernandez‘s 7 inning, 10 K, no-hit performance on Wednesday night at AAA New Orleans.
Pete Munro takes the hill in game two of the Dodger series on Tuesday night at the Juice Box. Any bets on whether Hernandez takes the next non-Oswalt-Clemens-Pettitte start in the rotation?