Category Archives: markets

Toward An Affordable Health Insurance Industry

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John Cochran, University of Chicago Booth School of Business Professor of Finance, among other positions, is on the right track, but he’s wide of the mark in some critical respects.

The unraveling of the Affordable Care Act presents a historic opportunity for change.  Its proponents call it “settled law,” but as Prohibition taught us, not even a constitutional amendment is settled law—if it is dysfunctional enough, and if Americans can see a clear alternative.

And

Only deregulation can unleash competition.  And only disruptive competition, where new businesses drive out old ones, will bring efficiency, lower costs, and innovation.

That’s plainly true, and he goes on to tout further—correctly IMNSHO—the advantages of a free market in the delivery of health insurance and the delivery of health care services.  However, he has some misconceptions in the extent to which those two industries should be allowed to go in a free market.

Health insurance should be…lifelong and guaranteed-renewable, meaning you have the right to continue with no unexpected increase in premiums if you get sick.

This isn’t insurance: it eliminates the concept of premiums being based on the risk being transferred.  Or, it is insurance, and the risk being transferred and the fee charged for accepting that transfer (the premium) will be elevated to account for the higher risk involved in that mandated longer-term risk acceptance as well as the changed risk factor represented by having gotten sick.  And sick again with the same thing.  And again.

Insurance should protect wealth against large, unforeseen, necessary expenses, rather than be a wildly inefficient payment plan for routine expenses.

This is blatantly normative and not at all related to the competition of free markets.  There will, indeed, be customers who want policies that cover “routine expenses;” it’s not Cochran’s—or government’s—place to proscribe these because they disagree that such policies have utility.

Rather than a mandate for employer-based groups, we should transition to fully individual-based health insurance.

Again, no.  This is another interference with a competitive free market.  It’s certainly true that the (tax-policy encouraged) “mandate” for employer-based groups is a distortion of the market.  However, rather than simply distorting the market in a different direction, let that market—the individuals who aggregate into that market—decide whether group plans are viable.

Aside from that, there is the matter of preexisting conditions.  The only risk that can be transferred here is the timing of the next flare up of the condition.  Forcing folks with these conditions onto the individual market will simply artificially elevate the premiums they’ll have to pay for the transfer of that risk.  Group plans would allow the risk acceptors, those insurance companies, to spread the timing across a risk pool larger than one, which would allow them to charge a lower premium—with a truly free, competitive market forcing them to compete for the business, and so exerting further downward pressure on the premiums charged.

Current group plans can convert to individual plans, at once or as people leave.  Since all members in a group convert, there is no adverse selection of sicker people.

This isn’t a free market—it’s a mandate to move away from a policy structure that many will want to retain, even if the coverages available within a particular group might change under free market imperative.  The free market also will handle the question of adverse selection just fine—that pricing matter.

Massive Overhauls

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Obamacare (and its microcosm, Cover Oregon) are textbook examples—case studies, even—of the utter failure of any attempt to execute a massive change of anything in one fell swoop.  The attempt is born of good intentions heavily informed with arrogance, with a good measure of impatience added: we don’t need to see how things are going, our plan is sound because our hearts are pure.

No.  Every change needs interim evaluation steps with which to determine whether the golden plan is, in fact, still on track and if not what changes are necessary—even to the point of changing course or canceling the program rather than mindlessly tweaking the present stage due to glitches.  The ubiquitousness of unintended consequences alone dictates that.

And the program doesn’t have to be done right now.  It just has to be done (always assuming we’re agreed on the program, an agreement notably absent with Obamacare, but that lack is for another time).

Now President Barack Obamacare wants to do another massive, all in one step, change of another enormous system: our collection of immigration laws.

President Obama and his top Democrats on Capitol Hill appear to have reset their sights on the Republican-controlled House passing comprehensive immigration reform, instead of a step-by-step process.

The president on Friday appeared to urge the House to back the comprehensive, bipartisan immigration bill the Senate passed this summer….

What was that bit about repeating a thing and expecting different results?

Another Judge Gets It Right

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Federal Judge Timothy DeGiusti has issued a preliminary injunction against Obamacare’s contraceptive mandate, thereby preventing the Feds, for the time being, from requiring organizations in the Western District of Oklahoma to make available insurance policies that cover the morning-after pill and similar contraceptives, and contraceptives in general.

GuideStone Financial Resources, an entity of the Southern Baptist Convention that handles health benefits for the Convention, brought the suit on behalf of nearly 200 ministries that use GFR to provide benefits for their employees.

It’s important to note that this is a preliminary injunction, and it can be overruled at any time.  However, it is intended to last throughout the suit itself: GFR, et al., have the right, says the Judge, to pursue their case, and it’s necessary to protect them from the harm caused by enforcement until the matter is settled.  After all, GFR, et al., have an excellent chance of winning the suit.

And they should win.  No government has any business dictating the religious tenets of our citizenry, nor does any government have any legitimate authority with which to overrule those tenets—especially for the petty convenience of that government.

DeGiusti’s ruling can be read here.

The Fed Tapers

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…and the stock market shoots up.  QE was supposed to be propping up the market, driving it even; heretofore, whenever the Fed mumbled that it was maybe thinking about beginning to taper sometime in the vague future, the market tanked.  What’s up with the hard increase?  John Malkin at AEI suggested three reasons for that.

These reasons center on the fact that the Fed is continuing its monetary easing through other channels (the Fed Funds rate and a lowered unemployment rate threshold); the now fact of tapering reduces uncertainty about the Fed’s actions; and the fact that the Fed actually has been buying $94 billion in bonds monthly this year (not the advertised $85 billion), and no one noticed the drop—the $19 billion reduction was perceived as the advertised $10 billion, so the taper size seems to be no big deal.

To those, I’d like to add a fourth reason, and a warning.  The reason is this: the fact that the Fed actually has begun easing is taken as its advertised criteria for doing so having been met and will continue to be met in the nearby future.  This perceived confidence in the economy’s recovery by the Fed is viewed favorably by the market.

The warning is this.  Malkin opened his article by tacitly pooh-poohing a QE-induced market bubble.  Comparing market performance with actual economic performance, it seems clear to me that a bubble was generated.  Comparing the current market to the current underlying economy, it seems equally clear that the bubble is merely extending in that perception-based optimism.

In the end, the economy will catch up with the market.  Or the market will fall back to the economy.  Heads up.

Foolishly Lawless

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Are there other ways of being lawless that matter?  Of course there are, but that’s for a different post.  The foolishness of this example of the Obama administration’s lawlessness is the subject here.

HHS Secretary Kathleen Sebelius has announced (sotto voce, via a letter to selected Senators) the latest rewrite non-legislatively effected change to the Obamacare law.

She…would allow people who got cancellations and could not find affordable new coverage to qualify for a “hardship exemption” in order to avoid a penalty next year for not having insurance.

Further…those individuals will be able to purchase bare-bones plans [catastrophic coverage plans] that until now were available only for people under 30.

…expected it to impact fewer than 500,000 people.

Senator Marco Rubio (R, FL) remarked,

Holding a fire sale of cheap insurance is not a responsible fix for a broken program.  This is a slap in the face to the thousands of Americans who have already purchased expensive insurance through the ObamaCare exchanges.

There are more than 5 million Americans in this sinking canceled insurance plan boat, though, not a half million.  And what about those folks who have already re-signed into suboptimal (but more expensive to make up for it) Obamacare plans about whom Rubio worries?  The open enrollment period doesn’t end until next March: how many of those folks will cancel their shiny, new, more expensive Obamacare plans and pick, instead, the Sebelius Plan—to the detriment of the Obamacare law cost structure?

Moreover, the “hardship exemption” under which Sebelius is offering her Plan says this about eligible hardships [emphasis added]:

…experienced financial or domestic circumstances, including an unexpected natural or human-caused event, such that he or she had a significant, unexpected increase in essential expenses that prevented him or her from obtaining coverage under a qualified health plan.

Is Sebelius really saying that Obamacare is a Man-Caused Disaster?

Finally, all this Individual Mandate…folderol…is coming after Obama and his Senate cronies shut down the government rather than delay the Individual Mandate.

Just how idiotic can one grown, adult President and one grown, adult Cabinet Secretary be in one lifetime?