For some bizarre reason there is an obsession in the media about Obamacare needing young healthy people to sign up for the program to work (e.g. see Ezra Klein today). Actually, the program needs healthy people to sign up regardless of their age.
The logic is that healthy people who get little care are in effect subsidizing the care of the less healthy. This is every bit as much true for older healthy people as it is for younger ones. In fact, the subsidies are considerably larger in the case of older healthy people since people in the 55 to 64 age group will pay roughly three times as much for their insurance as people in the youngest age groups.
The likelihood of someone being in good health gets smaller as they age, but there are still millions of people in this older age group who will use very little health care over the course of a year. Their money will help support the program every bit as much as the money of younger people.
For some bizarre reason there is an obsession in the media about Obamacare needing young healthy people to sign up for the program to work (e.g. see Ezra Klein today). Actually, the program needs healthy people to sign up regardless of their age.
The logic is that healthy people who get little care are in effect subsidizing the care of the less healthy. This is every bit as much true for older healthy people as it is for younger ones. In fact, the subsidies are considerably larger in the case of older healthy people since people in the 55 to 64 age group will pay roughly three times as much for their insurance as people in the youngest age groups.
The likelihood of someone being in good health gets smaller as they age, but there are still millions of people in this older age group who will use very little health care over the course of a year. Their money will help support the program every bit as much as the money of younger people.
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The Washington Post continues to be very upset that the government is spending time going after Wall Street banks. Its editorial today complained again about the Justice Department’s lawsuit against JP Morgan.
Among other things, the piece complained that the homeowners who benefit from write-downs of mortgages ($4 billion of the $13 billion settlement) were not the victims of the bank’s misrepresentations of mortgages sold in mortgage backed securities. It also argued that these write-downs could hurt the investors who were the victims of this misrepresentation.
Both parts of this story are not accurate. The misrepresentations were part of the wave of bad financing that pushed up house prices. As a result, many homebuyers bought homes at bubble inflated prices, paying far more than fundamentals of the market would dictate. On the other side, write-downs will often be in the interest of investors, since banks are virtually guaranteed to lose money on homes that go through the foreclosure process, which will happen with many underwater homes.
The piece is also wrong in complaining that this sort of suit does nothing to prevent future bubbles. It does provide some sanction against banks that were breaking the law in issuing and reselling fraudulent mortgages in their exuberance over the bubble. The lesson for banks in the future should be to follow the law. Of course criminal sanctions, with bank executives facing prison time, would be far more effective in accomplishing this goal.
Also, if we want to prevent bubbles in the future, it would be desirable to have intelligent life at the Fed. It would be good to have a chair and governors who were prepared to use the Fed’s weight to counter the impact of a bubble, rather than cheer it on as Alan Greenspan did. This would mean documenting the fact that prices were out of line with fundamentals with Fed research and using its bully pulpit to publicize this research so that even the Washington Post editorial board would know about it.
The Fed could also use its substantial regulatory power to crack down on the abuses in the mortgage industry that were quite evident at the time (except to Alan Greenspan). And, it could convene meetings with other federal and state regulators to pressure them to similarly crack down on the abuses at the financial institutions under their jurisdiction.
The failure to pursue criminal actions against bank executives, and the continuing treatment of Alan Greenspan as a great authority on the economy, should raise concerns about the extent to which we are prepared to counter future bubbles.
The Washington Post continues to be very upset that the government is spending time going after Wall Street banks. Its editorial today complained again about the Justice Department’s lawsuit against JP Morgan.
Among other things, the piece complained that the homeowners who benefit from write-downs of mortgages ($4 billion of the $13 billion settlement) were not the victims of the bank’s misrepresentations of mortgages sold in mortgage backed securities. It also argued that these write-downs could hurt the investors who were the victims of this misrepresentation.
Both parts of this story are not accurate. The misrepresentations were part of the wave of bad financing that pushed up house prices. As a result, many homebuyers bought homes at bubble inflated prices, paying far more than fundamentals of the market would dictate. On the other side, write-downs will often be in the interest of investors, since banks are virtually guaranteed to lose money on homes that go through the foreclosure process, which will happen with many underwater homes.
The piece is also wrong in complaining that this sort of suit does nothing to prevent future bubbles. It does provide some sanction against banks that were breaking the law in issuing and reselling fraudulent mortgages in their exuberance over the bubble. The lesson for banks in the future should be to follow the law. Of course criminal sanctions, with bank executives facing prison time, would be far more effective in accomplishing this goal.
Also, if we want to prevent bubbles in the future, it would be desirable to have intelligent life at the Fed. It would be good to have a chair and governors who were prepared to use the Fed’s weight to counter the impact of a bubble, rather than cheer it on as Alan Greenspan did. This would mean documenting the fact that prices were out of line with fundamentals with Fed research and using its bully pulpit to publicize this research so that even the Washington Post editorial board would know about it.
The Fed could also use its substantial regulatory power to crack down on the abuses in the mortgage industry that were quite evident at the time (except to Alan Greenspan). And, it could convene meetings with other federal and state regulators to pressure them to similarly crack down on the abuses at the financial institutions under their jurisdiction.
The failure to pursue criminal actions against bank executives, and the continuing treatment of Alan Greenspan as a great authority on the economy, should raise concerns about the extent to which we are prepared to counter future bubbles.
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Robert Samuelson thinks that he has news for Obamacare supporters. He tells readers:
“Obamacare supposedly makes insurance more affordable. Not really. Health costs are simply shifted. To subsidize insurance for some means raising taxes for others, cutting other programs or accepting larger deficits. Only reducing costs or increasing efficiency can make health care more affordable.”
Apparently Samuelson didn’t realize that “affordable” is in reference to the person buying the insurance. The idea of Obamacare is to make insurance more affordable for the people who need it most. That would be people with pre-existing conditions who could not otherwise buy insurance in the individual market or would have to pay an exorbitant price for it if they did.
By requiring that insurers charge everyone in an age group the same rate regardless of their health, the law will make insurance far more affordable for people with serious health conditions. This obviously does raise the cost for people who are healthy, and for taxpayers insofar as there are subsidies. Most Obamacare supporters knew this.
Samuelson is right that the law does relatively little to control costs. Unfortunately public debate on health care is dominated by protectionists who do their best to shield doctors, drug companies, and other providers from international and domestic competition. This is the reason that people in the United States pay more than twice as much per person as people in other wealthy countries for our health care. Unfortunately neither Samuelson nor anyone else at the Post seems very interested in opening up these markets.
Robert Samuelson thinks that he has news for Obamacare supporters. He tells readers:
“Obamacare supposedly makes insurance more affordable. Not really. Health costs are simply shifted. To subsidize insurance for some means raising taxes for others, cutting other programs or accepting larger deficits. Only reducing costs or increasing efficiency can make health care more affordable.”
Apparently Samuelson didn’t realize that “affordable” is in reference to the person buying the insurance. The idea of Obamacare is to make insurance more affordable for the people who need it most. That would be people with pre-existing conditions who could not otherwise buy insurance in the individual market or would have to pay an exorbitant price for it if they did.
By requiring that insurers charge everyone in an age group the same rate regardless of their health, the law will make insurance far more affordable for people with serious health conditions. This obviously does raise the cost for people who are healthy, and for taxpayers insofar as there are subsidies. Most Obamacare supporters knew this.
Samuelson is right that the law does relatively little to control costs. Unfortunately public debate on health care is dominated by protectionists who do their best to shield doctors, drug companies, and other providers from international and domestic competition. This is the reason that people in the United States pay more than twice as much per person as people in other wealthy countries for our health care. Unfortunately neither Samuelson nor anyone else at the Post seems very interested in opening up these markets.
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A New York Times piece profiling Senator Ted Cruz’s wife, Heidi Nelson Cruz, allowed an erroneous comment from the Senator’s staff go uncorrected. The piece noted that Senator Cruz is on his wife’s health care plan which it reported as costing $20,000 a year. It then presented a statement from a spokesperson for Mr. Cruz:
“The senator is on his wife’s plan, which comes at no cost to the taxpayer and reflects a personal decision about what works best for their family.”
The cost of health insurance is tax deductible. Assuming the Cruz’s are in the highest tax bracket, the tax deduction for Senator Cruz’s health care plan would be more than $8,000 a year. This is far larger than the subsidy that most people would receive in the exchanges.
Thanks to Samuel Adenbaum for calling this one to my attention.
A New York Times piece profiling Senator Ted Cruz’s wife, Heidi Nelson Cruz, allowed an erroneous comment from the Senator’s staff go uncorrected. The piece noted that Senator Cruz is on his wife’s health care plan which it reported as costing $20,000 a year. It then presented a statement from a spokesperson for Mr. Cruz:
“The senator is on his wife’s plan, which comes at no cost to the taxpayer and reflects a personal decision about what works best for their family.”
The cost of health insurance is tax deductible. Assuming the Cruz’s are in the highest tax bracket, the tax deduction for Senator Cruz’s health care plan would be more than $8,000 a year. This is far larger than the subsidy that most people would receive in the exchanges.
Thanks to Samuel Adenbaum for calling this one to my attention.
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Much recent housing data suggest that the jump in mortgage interest rates following Ben Bernanke’s taper talk in June had the effect of curbing demand in the market. This slowing is generally viewed as unfortunate in reporting on the economy, as in this Post piece. In fact, house prices were growing at an unsustainable rate, with the nationwide rate of growth in double digits and many markets seeing annual increases of 20-30 percent.
If this pace of growth had continued for much longer, it would have pushed prices back into bubble territory. This means that homebuyers would likely take substantial losses when they sell their homes and many people making plans for retirement would discover that they had considerably less equity than they expected.
It is difficult to see how anyone can view this as an acceptable way to boost the economy. Bubbles inevitably burst and if a new bubble were to develop in the housing market, its eventual collapse would bring back the same sort of pain that we are experiencing as a result of the collapse of the last bubble.
Much recent housing data suggest that the jump in mortgage interest rates following Ben Bernanke’s taper talk in June had the effect of curbing demand in the market. This slowing is generally viewed as unfortunate in reporting on the economy, as in this Post piece. In fact, house prices were growing at an unsustainable rate, with the nationwide rate of growth in double digits and many markets seeing annual increases of 20-30 percent.
If this pace of growth had continued for much longer, it would have pushed prices back into bubble territory. This means that homebuyers would likely take substantial losses when they sell their homes and many people making plans for retirement would discover that they had considerably less equity than they expected.
It is difficult to see how anyone can view this as an acceptable way to boost the economy. Bubbles inevitably burst and if a new bubble were to develop in the housing market, its eventual collapse would bring back the same sort of pain that we are experiencing as a result of the collapse of the last bubble.
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Trade policy is perhaps the most Orwellian area of U.S. politics today. Most formal trade barriers in the form of tariffs or quotas have been eliminated. What usually occupies the time of trade negotiators now is the crafting of regulatory rules dealing with health and safety issues, the environment, and other areas having little direct relationship to trade. Since the parties at the table generally reflect corporate interests, the strategy is to use “trade” agreements to put in place rules that may not be politically possible at the national or sub-national level due to the opposition of consumer, environmental, or labor groups.
In some cases “free trade” talks turn reality on its head, for example negotiating stronger patent and copyright protections. The former is especially the case with drug companies who have been major actors in the trade agreements pushed by the United States for the last quarter century.
The industry’s push for greater protection for its patents or other forms of intellectual property claims, such as data exclusivity, are quite explicitly intended to push up drug prices. The rationale is that higher drug prices will support more research. The extent to which is true, or whether patents are the best way to finance research, is debatable, but the fact that drug companies want government protections to allow them to raise their prices is not.
That is why it is strange that the NYT felt the need to put the word “protectionism” in quotation marks in an article on how people in the United States are increasingly buying drugs from other countries where they are available at much lower prices. The quotation marks were added in the context of presenting the views of a retiree who was saying that he had saved thousands of dollars over the last decade by buying drugs from other countries.
“Dr. Stephen Barrett, a retired psychiatrist and health care advocate in North Carolina, said he has saved thousands of dollars buying medicines from overseas in the past decade. ‘It may be technically illegal, but I don’t think anyone would ever get prosecuted,’ he said, adding that such laws reflected ‘protectionism’ for drug makers.”
It is difficult to see any legitimate reason for including quotation marks around protectionism. The restrictions on importation are clearly a form of protectionism. That is not an arguable point.
Trade policy is perhaps the most Orwellian area of U.S. politics today. Most formal trade barriers in the form of tariffs or quotas have been eliminated. What usually occupies the time of trade negotiators now is the crafting of regulatory rules dealing with health and safety issues, the environment, and other areas having little direct relationship to trade. Since the parties at the table generally reflect corporate interests, the strategy is to use “trade” agreements to put in place rules that may not be politically possible at the national or sub-national level due to the opposition of consumer, environmental, or labor groups.
In some cases “free trade” talks turn reality on its head, for example negotiating stronger patent and copyright protections. The former is especially the case with drug companies who have been major actors in the trade agreements pushed by the United States for the last quarter century.
The industry’s push for greater protection for its patents or other forms of intellectual property claims, such as data exclusivity, are quite explicitly intended to push up drug prices. The rationale is that higher drug prices will support more research. The extent to which is true, or whether patents are the best way to finance research, is debatable, but the fact that drug companies want government protections to allow them to raise their prices is not.
That is why it is strange that the NYT felt the need to put the word “protectionism” in quotation marks in an article on how people in the United States are increasingly buying drugs from other countries where they are available at much lower prices. The quotation marks were added in the context of presenting the views of a retiree who was saying that he had saved thousands of dollars over the last decade by buying drugs from other countries.
“Dr. Stephen Barrett, a retired psychiatrist and health care advocate in North Carolina, said he has saved thousands of dollars buying medicines from overseas in the past decade. ‘It may be technically illegal, but I don’t think anyone would ever get prosecuted,’ he said, adding that such laws reflected ‘protectionism’ for drug makers.”
It is difficult to see any legitimate reason for including quotation marks around protectionism. The restrictions on importation are clearly a form of protectionism. That is not an arguable point.
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The coverage of the legal battles surrounding how Detroit’s pensions would be treated in bankruptcy have generally treated the guarantee of public employee pensions in the Michigan state constitution as somewhat of a joke that needs to be cast aside given Detroit’s dire circumstances. The basis for the humor is less than obvious.
When the state of Michigan put a guarantee into its constitution it was presumably sending a message to both its public sector workers and its potential creditors. The pensions would have a prior claim on state and local government assets before other creditors. Workers put in their time with this understanding and presumably creditors made loans to Detroit’s city government with the same understanding.
The question now is often posed as to whether this priority can carry over into federal bankruptcy court, which does not award pensions complete priority over other creditors. (In other words, bondholders do not have to allow pensions to be paid in full before they can get partial collection.) The argument presented in the media is that federal law trumps state law or a state constitution, therefore the bankruptcy judge is free to cut pensions to partially payoff other creditors.
However, there is a prior issue. If public employee pensions cannot be guaranteed protection in federal bankruptcy court, can the city of Detroit declare bankruptcy? The city is a creation of the state. (This is especially true at present with Detroit being run by a city manager appointed by the governor.) Certainly the state of Michigan can’t embark on a course of action that would lead it to violate its own constitution, so how can a city within the state?
There are entities that do not have the option of filing for bankruptcy in federal court, like state governments. It is possible that Detroit may also not have this option if it could result in a violation of the state’s constitution.
Okay, that’s enough playing at lawyer for the day. It just doesn’t seem like the issue of protecting pensions is so obviously crazy and informed investors should have known about this clause in the Michigan constitution when they decided to lend the city money.
The coverage of the legal battles surrounding how Detroit’s pensions would be treated in bankruptcy have generally treated the guarantee of public employee pensions in the Michigan state constitution as somewhat of a joke that needs to be cast aside given Detroit’s dire circumstances. The basis for the humor is less than obvious.
When the state of Michigan put a guarantee into its constitution it was presumably sending a message to both its public sector workers and its potential creditors. The pensions would have a prior claim on state and local government assets before other creditors. Workers put in their time with this understanding and presumably creditors made loans to Detroit’s city government with the same understanding.
The question now is often posed as to whether this priority can carry over into federal bankruptcy court, which does not award pensions complete priority over other creditors. (In other words, bondholders do not have to allow pensions to be paid in full before they can get partial collection.) The argument presented in the media is that federal law trumps state law or a state constitution, therefore the bankruptcy judge is free to cut pensions to partially payoff other creditors.
However, there is a prior issue. If public employee pensions cannot be guaranteed protection in federal bankruptcy court, can the city of Detroit declare bankruptcy? The city is a creation of the state. (This is especially true at present with Detroit being run by a city manager appointed by the governor.) Certainly the state of Michigan can’t embark on a course of action that would lead it to violate its own constitution, so how can a city within the state?
There are entities that do not have the option of filing for bankruptcy in federal court, like state governments. It is possible that Detroit may also not have this option if it could result in a violation of the state’s constitution.
Okay, that’s enough playing at lawyer for the day. It just doesn’t seem like the issue of protecting pensions is so obviously crazy and informed investors should have known about this clause in the Michigan constitution when they decided to lend the city money.
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Both the Post and the NYT have front page articles on the problems in the computer system that allows people to sign up for health care insurance through the federal exchange. It is worth noting that 14 states, including large ones like New York and California, have state run exchanges which have worked relatively well. The fact that people in other states are having difficulty signing up for insurance is the result of the decision of political leaders in those states not to establish their own exchanges. In other words, the problems are due to the fact that state leaders opted not to take responsibility themselves for setting up a well working system.
Both the Post and the NYT have front page articles on the problems in the computer system that allows people to sign up for health care insurance through the federal exchange. It is worth noting that 14 states, including large ones like New York and California, have state run exchanges which have worked relatively well. The fact that people in other states are having difficulty signing up for insurance is the result of the decision of political leaders in those states not to establish their own exchanges. In other words, the problems are due to the fact that state leaders opted not to take responsibility themselves for setting up a well working system.
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That’s what David Cameron claimed according to the New York Times. Of course he didn’t describe the gains as 0.08 percent of GDP, he referred to the gains as 1.3 billion pounds, which probably sounds like a bigger deal to most people. People in the UK will also have to wait to see this dividend, since trade deals are typically phased in over a number of years. The full effect may not be seen for ten years or more.
That’s what David Cameron claimed according to the New York Times. Of course he didn’t describe the gains as 0.08 percent of GDP, he referred to the gains as 1.3 billion pounds, which probably sounds like a bigger deal to most people. People in the UK will also have to wait to see this dividend, since trade deals are typically phased in over a number of years. The full effect may not be seen for ten years or more.
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That was the implication of a claim by Bob Laszewski, a health policy analyst, interviewed on Morning Edition. Laszewski told listeners that the problems with the mechanics of the exchanges could be a problem for insurers:
“They’re very worried about only sick people showing up for coverage, because only sick people are willing to go through the gauntlet.”
If it turns out that the exchanges in the states run by the federal government produce such a serious skewing of applicants that it becomes unprofitable for insurers, then it’s possible that these states would end up without insurance provided through the exchanges. This would be an interesting outcome since it would mean that the states that refused to set up their own exchanges will have succeeded in denying their residents of the benefits of the Affordable Care Act. On the other hand, states like California, New York, and Kentucky, which did set up their own exchanges, seem to be signing up people with few problems, so presumably the insurance markets in these states will work as expected.
As a practical matter, it really doesn’t matter if the people who sign up in the first few weeks are skewed toward the sicker segment of the population. It will only matter if this continues to be the case through 2014.
That was the implication of a claim by Bob Laszewski, a health policy analyst, interviewed on Morning Edition. Laszewski told listeners that the problems with the mechanics of the exchanges could be a problem for insurers:
“They’re very worried about only sick people showing up for coverage, because only sick people are willing to go through the gauntlet.”
If it turns out that the exchanges in the states run by the federal government produce such a serious skewing of applicants that it becomes unprofitable for insurers, then it’s possible that these states would end up without insurance provided through the exchanges. This would be an interesting outcome since it would mean that the states that refused to set up their own exchanges will have succeeded in denying their residents of the benefits of the Affordable Care Act. On the other hand, states like California, New York, and Kentucky, which did set up their own exchanges, seem to be signing up people with few problems, so presumably the insurance markets in these states will work as expected.
As a practical matter, it really doesn’t matter if the people who sign up in the first few weeks are skewed toward the sicker segment of the population. It will only matter if this continues to be the case through 2014.
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