Richmond Fed Interview

The Richmond Fed published a long interview with me in their Econ Focus, shorter pdf (print) version here and longer web version here. Some of the questions:

• Does the 2010 Dodd-Frank regulatory reform act meaningfully address runs on shadow banking?
• So what do you think is the most promising way to meaningfully end “too big to fail”?
• Do you think there’s any reason to believe recessions following financial crises should necessarily be longer and more severe, as Carmen Reinhart and Kenneth Rogoff have famously suggested?
• Many people have asked whether the finance industry has gotten too big. How should we think about that?
• What are your thoughts on quantitative easing (QE) — the Fed’s massive purchases of Treasuries and other assets to push down long-term interest rates — both on its effectiveness and on the fear that it’s going to lead to hyperinflation?
• Both fiscal and monetary policies have been on extreme courses recently. What are your thoughts on how they might affect each other as they move back to normal levels?
• Switching gears to finance specifically, what do you think are some of the big unanswered questions for research?
• You wrote an op-ed on an “alternative maximum tax.” What’s the idea there?
• Can transfers really help the bottom half of the income distribution?
• Which economists have influenced you the most?

You’ll have to click to the interview for answers!

Thanks to Aaron Steelman, Lisa Kenney and especially  Renee Haltom, who helped a lot with the editing. I’m a lot less coherent in person!

Healthcare tidbits

Tidbits that came in following my WSJ oped last week

1. I heard from a lot of people in the burgeoning market for cash only transparent service. Maybe the internet will undercut the current non-competitive system! Some nice links:

http://selfpaypatient.com/ A blog devoted to self-pay patients and doctors.The first post is cool – why passing laws to force price transparency won’t work.

http://www.amazon.com/The-Self-Pay-Patient-Affordable-Healthcare-ebook/dp/B00HBUPLFG/ The e book. Haven’t read, looks interesting.

http://surgerycenterofoklahoma.tumblr.com/ Dr. Keith Smith, of Surgery Center of Oklahoma, who I wrote about last week, has a nice tumblr.

 www.regencyhealthnyc.com.  An interesting direct cash pay pricing surgical clinic

2. The “last embassy” blog points out a curious feature of Obamacare: you need a credit card or bank account – plus internet connection – to sign up. That’s a bit of a problem for poor uninsured people supposedly the beneficiaries of this system. I do sense a bit of a disconnect between the people who designed Obamacare, and the intended beneficiaries – who don’t have a computer, high speed broadband, strong internet skills, credit card and bank account, and who shop (like all of us) by word of mouth. (“They have no computers? Let them use their ipads” a modern Marie Antoinette might say)
http://thelastembassy.blogspot.com/2013/05/the-aca-and-unbankable-or-steve-miller_22.html

3. Cato’s Michael Cannon produced an extraordinary comprehensive listing of Adminstration executive orders on Obamacare. I salute Michael’s patience to slog through this. Get to the excellent last two paragraphs.
http://www.forbes.com/sites/michaelcannon/2013/12/27/as-predicted-obamacare-plunges-into-utter-chaos/

4. Media. I did a few interviews following the WSJ oped

Fox
http://video.foxbusiness.com/v/2976885479001/the-steps-to-fixing-obamacare/

CNBC’s Kudlow report
http://video.cnbc.com/gallery/?play=1&video=3000231610

Not very enlightening, really.

5. Hilarious tidbit. I know, it’s hard to clean up websites.

http://www.whitehouse.gov/realitycheck/3

What to do when Obamacare unravels

Wall Street Journal Oped December 26 2013.

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.

Source: David Gothard, Wall Street Journal

This fall’s website fiasco and policy cancellations are only the beginning. Next spring the individual mandate is likely to unravel when we see how sick the people are who signed up on exchanges, and if our government really is going to penalize voters for not buying health insurance. The employer mandate and “accountable care organizations” will take their turns in the news. There will be scandals. There will be fraud. This will go on for years.

Yet opponents should not sit back and revel in dysfunction. The Affordable Care Act was enacted in response to genuine problems. Without a clear alternative, we will simply patch more, subsidize more, and ignore frauds and scandals, as we do in Medicare and other programs.

There is an alternative. A much freer market in health care and health insurance can work, can deliver high quality, technically innovative care at much lower cost, and solve the pathologies of the pre-existing system.

The U.S. health-care market is dysfunctional. Obscure prices and $500 Band-Aids are legendary. The reason is simple: Health care and health insurance are strongly protected from competition. There are explicit barriers to entry, for example the laws in many states that require a “certificate of need” before one can build a new hospital. Regulatory compliance costs, approvals, nonprofit status, restrictions on foreign doctors and nurses, limits on medical residencies, and many more barriers keep prices up and competitors out. Hospitals whose main clients are uncompetitive insurers and the government cannot innovate and provide efficient cash service.

We need to permit the Southwest Airlines, Wal-Mart, Amazon.com and Apples of the world to bring to health care the same dramatic improvements in price, quality, variety, technology and efficiency that they brought to air travel, retail and electronics. We’ll know we are there when prices are on hospital websites, cash customers get discounts, and new hospitals and insurers swamp your inbox with attractive offers and great service.

The Affordable Care Act bets instead that more regulation, price controls, effectiveness panels, and “accountable care” organizations will force efficiency, innovation, quality and service from the top down. Has this ever worked? Did we get smartphones by government pressure on the 1960s AT&T phone monopoly? Did effectiveness panels force United Airlines and American Airlines to cut costs, and push TWA and Pan Am out of business? Did the post office invent FedEx, UPS and email? How about public schools or the last 20 or more health-care “cost control” ideas?

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

Health insurance should be individual, portable across jobs, states and providers; lifelong and guaranteed-renewable, meaning you have the right to continue with no unexpected increase in premiums if you get sick. Insurance should protect wealth against large, unforeseen, necessary expenses, rather than be a wildly inefficient payment plan for routine expenses.

People want to buy this insurance, and companies want to sell it. It would be far cheaper, and would solve the pre-existing conditions problem. We do not have such health insurance only because it was regulated out of existence. Businesses cannot establish or contribute to portable individual policies, or employees would have to pay taxes. So businesses only offer group plans. Knowing they will abandon individual insurance when they get a job, and without cross-state portability, there is little reason for young people to invest in lifelong, portable health insurance. Mandated coverage, pressure against full risk rating, and a dysfunctional cash market did the rest.

Rather than a mandate for employer-based groups, we should transition to fully individual-based health insurance. Allow national individual insurance offered and sold to anyone, anywhere, without the tangled mess of state mandates and regulations. Allow employers to contribute to individual insurance at least on an even basis with group plans. 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.

ObamaCare defenders say we must suffer the dysfunction and patch the law, because there is no alternative. They are wrong. On Nov. 2, for example, New York Times NYT columnist Nicholas Kristof wrote movingly about his friend who lost employer-based insurance and died of colon cancer. Mr. Kristof concluded, “This is why we need Obamacare.” No, this is why we need individual, portable, guaranteed-renewable, inexpensive, catastrophic-coverage insurance.

On Nov. 15, MIT’s Jonathan Gruber, an ObamaCare architect, argued on Realclearpolitics that “we currently have a highly discriminatory system where if you’re sick, if you’ve been sick or you’re going to get sick, you cannot get health insurance.” We do. He concluded that the Affordable Care Act is “the only way to end that discriminatory system.” It is not.

On Dec. 3, President Obama himself said that “the only alternative that Obamacare’s critics have, is, well, let’s just go back to the status quo.” Not so.

What about the homeless guy who has a heart attack? Yes, there must be private and government-provided charity care for the very poor. What if people don’t get enough checkups? Send them vouchers. To solve these problems we do not need a federal takeover of health care and insurance for you, me, and every American.

No other country has a free health market, you may object. The rest of the world is closer to single payer, and spends less.

Sure. We can have a single government-run airline too. We can ban FedEx and UPS, and have a single-payer post office. We can have government-run telephones and TV. Thirty years ago every other country had all of these, and worthies said that markets couldn’t work for travel, package delivery, the “natural monopoly” of telephones and TV. Until we tried it. That the rest of the world spends less just shows how dysfunctional our current system is, not how a free market would work.

While economically straightforward, liberalization is always politically hard. Innovation and cost reduction require new businesses to displace familiar, well-connected incumbents. Protected businesses spawn “good jobs” for protected workers, dues for their unions, easy lives for their managers, political support for their regulators and politicians, and cushy jobs for health-policy wonks. Protection from competition allows private insurance to cross-subsidize Medicare, Medicaid, and emergency rooms.

But it can happen. The first step is, the American public must understand that there is an alternative. Stand up and demand it.

Comments

Thanks as usual to my superb editor at the WSJ, Howard Dickman.

This is the Oped version of my essay, After the ACA; go there for more details. In case I have to hit you over the head with the point, we need to focus on the supply of health care as well as health insurance. For guaranteed renewable insurance and solving preexisting conditions read “Health Status Insurance” etc. here.

The comments on Hope for Healthcare and some followup correspondence paint an intriguing picture. Take a look at goodrx.com, www.oration.com and also at the health technology review in last Saturday’s WSJ, “5 high tech fixes.” The internet undermined un-competitive behavior and non-transparent prices in cars, electronics, life insurance, and many other fields. Maybe, just maybe, it can undermine the hospital-insurer-government complex too. I ran out of space to write about that, but there is hope.

I was thinking a little bit about the exchanges and the latest latest deadline chaos, and the following occurred to me: They are restructuring an entire market, basically substituting website exchanges for insurance brokers and company marketing. They are redefining an entire product space–individual health insurance. And then announcing that an entire country has to sign up in about a month.

Think how any other new product or marketplace is introduced, especially a complex one like health insurance. There is a whole spread of word of mouth, magazine and internet reviews, company marketing efforts, friends and relatives pass on what they learned, which plans are good, which are bad, which networks have good doctors in your area, and so on.  They ignored this entire new-product process. And then wonder that it’s not working so great.

Well I guess it’s appropriate for the season. Augustus Obama decreed that each must be registered with healthcare.gov. So Joseph and Mary, lacking a computer, went to a public library to register. But she was with child, and the website crashed while Joseph was entering their income history, so there among the books a child was born…

Hope for healthcare?

“Can this Man Save Health care?” is another nice article about Dr. Keith Smith, founder of the Surgery Center of Oklahoma (SCO) in Oklahoma City. (Previous blog post here.)  He is trying the audacious, running a low-price hospital with prices posted on the web – the Southwest Airlines of hospitals that I’ve been hoping for.

Smith knew that putting his prices online had been a great idea when Canadians began flying down to the SCO for treatment…

In addition to targeting the uninsured and Canadians, Smith has also had success in appealing to people with high deductibles…

Smith’s transparent pricing has already had a significant impact on the healthcare market in Oklahoma City. Smith says, “What we’ve done by putting these prices online is created a price war, and it’s really going on in Oklahoma City.” With the SCO as an option for residents, the big nonprofit hospitals in the city are having difficulty continuing to charge their inflated rates. “The big hospitals,” Smith says, “have been thrust into a market economy whether they like it or not.” Consumers finally have the option to shop around for the best medical care. 

The effects have been felt throughout the region. The Oklahoma Heart Hospital and the nearby McBride Orthopedic Hospital have both followed the SCO’s lead in publishing their prices in an effort to attract consumers. Worried that they were losing heart patients to the Oklahoma Heart Hospital, Galichia Heart Hospital in nearby Wichita has also published its rates, creating the first semblance of the price war Smith has been trying to start.

He believes that his model can cut into the profits of big healthcare: “The big hospital’s nightmare has arrived.”  

This is an interesting observation. The established hospitals, working with the established insurers were not competing with each other. It took an upstart with a new business model to provoke competition. It is ever thus, but this is not the model our regulators use when they think of competition.

Another interesting observation. The existing insurers were not at all anxious to save money through him. He had to go around them to cash customers, Canadians, and directly to companies.

Smith has also had success in appealing to people with high deductibles and to mid-sized companies in Oklahoma and North Texas.

He has directly courted companies that feel that they are overpaying for their HMOs…

Smith admits that his strategy hasn’t won him any friends in the healthcare establishment or, as he refers to it, the healthcare cartel: “I don’t get invited to any big hospital garden parties.” In fact, he claims that “giant hospital chains and insurance companies were lined up arm-in-arm” to prevent the SCO from succeeding. Following its opening, business suffered for several years because it was locked out of insurance plans that would rather pay the higher in-network amounts at the bigger hospitals across town. The SCO only became profitable when it went over insurers’ heads and pursued corporate clients directly. “The big hospitals and insurance companies hurt us for a while,” Smith says, “but we stayed with it; now they’re sucking wind. 

Sometimes people say I am foaming at the mouth too much when I refer to our current system as crony-capitalist, captured-regulator and so on, and getting worse. Perhaps I’m not exaggerating after all.

There is a ray of hope. The large deductibles  on many exchange policies leave people some incentive to shop. Not as much as you’d think – there still is the in network and out of network business, and once you hit the deductible the sky is the limit. But some. Can a mass of patients who care about money stimulate a competitive supply market?

The big question on my mind, is, will our government allow this ray of hope to emerge?  As Smith found out, there are powerful forces in the local hospitals and large insurers that want to stop him. Now they have a powerful friend in the ACA.

Will the employer mandate allow companies to go around big insurers in this way? Or will they be forced to participate in cross-subsidies through the established insurers? Will these side deals be deemed “ACA-Compliant” employer-provided insurance? Will ACA-approved high-deductible plans be allowed to use him? Will he be allowed to give cash customers a discount? He so undermines the whole structure I can’t see how they can let it happen.

Smith hopes, however, that he and a handful of other transparent fee-for-service providers will be the vanguard of a free-market movement that runs parallel to the ACA.

That would be wonderful. A free-market system could emerge alongside the ACA, and then people like me will not have to prove that there is indeed a promised land on the other side of the waters, the promised land will appear on its own.

If the ACA will allow it. Competition undermines cross-subsidies, and competition undercuts powerful lobbies to a very powerful regulator.

Chris Demuth on Obamacare

Source: Weekly Standard

I found a nice Obamacare essay by Chris Demuth, “The Silence of the Liberals: Obamacare is Inimical to Their Values Too,” in the Weekly Standard.

The point: Liberals ought to join in the project of constructing a market-based alternative to Obamacare.  We do, in fact, have the same goals, and the question is simple cause-and-effect of what policies will actually produce those goals.

A few highlights with comments (but read the whole thing). We start with a quick reminder of the unfolding train wreck:

Obamacare will never achieve its promise of affordable health care for all paid for with improved efficiencies in health insurance and medical care. …the program improves “access” mainly by herding millions of people and firms into insurance they do not want or need. A great many will simply refuse, having little to fear for the time being, with the result that government expenditures will be far higher than projected. It is equally clear that the variety and quality of medical care will be seriously restricted for all concerned.

“Liberals” may not care about expenditures, but surely ought to worry on the last point.

The charge “you have no alternative” is false:

…many prominent Republicans and conservatives​…[and libertarians]…​have come forward with specific proposals for expanding affordable health care more than Obamacare does, while eliminating its many harmful and unworkable features. 

This is an important point. The alternatives will advance “liberal” values, and give people of modest means better care at lower cost than Obamacare. They “go further and aim higher.”  This is not the usual narrative of “people need” government help vs. stingy budget hawks. This is about a better way to achieve the same goals– and more.

What are we talking about? In a nutshell,

Tax and regulatory reforms, and targeted public subsidies, would provide portable and renewable insurance, including for those who have developed costly health conditions; would legalize (rather than banish) low-cost insurance for essential medical services..and would encourage direct purchase of routine medical goods and services where insurance has nothing to offer but paperwork

The hitch: this takes political courage.

Are Americans prepared to part with the illusion that everything related to “health” should be available free or far below cost…? Will they distinguish between higher-priced insurance for medical services they don’t need and insurance that leaves them to pay directly for services they do need but are quotidian and noncontingent? Do they understand that competition and innovation are as valuable in health care as in smartphones and coffee shops?

My emphasis, as this is the point I’ve been stressing most lately. Want cost control? Let the Southwest airlines and Walmart of health insurance enter and compete.

… The conservative reformers are betting that the public, now that it is paying attention, will answer in the affirmative. They may be right, but they need help.

The help we need is from “serious liberals,”

Serious liberals are those for whom the primary purpose of politics is to protect personal liberty and advance social equality.

I didn’t realize I was also a liberal!

Now, the two most important and novel reflections on Obamacare.  (Maybe this should come first!)

Obamacare’s two central features are as inimical to liberal values as to conservative values. The first is monopoly and the suppression of diversity and competition. The second is extreme concentration of power, exercised continuously in monitoring and directing the activities of millions of citizens.

Expanding on the first theme, which is on my mind but not common in health care discussions,

Obamacare … establishes a profusion of regulatory controls over prices, entry, and services in insurance and medical care, policies whose systematic anticonsumer perversities have been documented by generations of economists of all political persuasions…That some states operating their own Obamacare insurance “marketplaces” are already moving to ban the private sale of individual and small-business insurance is one example of the program’s tendency toward explicit monopoly.

More darkly, the second theme, also only beginning to get press:

But the most harrowing aspect of Obamacare is that it vests political executives and government administrators with sweeping discretionary power, free of conventional checks and balances. It gives federal officials the authority to set insurance prices without any of the economic and legal standards that govern regulation of public utilities…

Collaterally, Obamacare is introducing a new form of government​—​improvisational government, characterized by continuous ad hoc revisions of statutory law by executive decree. This is a reversion to a primitive form that long antedates our Constitution and rule-of-law traditions. Transported to the modern world, it leaves the private sector in a state of constant uncertainty and subjection.

And that’s only the beginning of the dangers of rule by executive decree with no checks and balances or legal recourse. (What large insurer will dare to stand up to the latest White House pronouncement?)

“Serious liberals,” libertarians and conservatives, can come together to fix this.

Serious liberals… should dare to join a coalition of reconstruction with the serious conservatives who have already dared to lay their cards on the table. There would be many significant disagreements to be hashed out… But the prospect of letting Obamacare run its course gives both sides a great deal to gain from compromise

Indeed.

Learning the wrong lesson while waiting on hold

Health care policy debates seem to have become a war of anecdotes. Margaret Talbot of the New Yorker posted one titled “My canceled policy and my values” which is circulating the blogoshphere

… like many of the twelve million or so Americans who buy their own insurance, we received a letter from CareFirst in late October saying that our policy would be cancelled, because it didn’t conform to Affordable Care Act requirements. …I stopped procrastinating and got on the phone with CareFirst… First lesson learned: healthcare.gov is not the only balky system around.

I was on hold for forty-two minutes, mostly listening to an especially melancholy rendition of the “Moonlight” Sonata, before the agent who answered told me that she couldn’t help me with questions about individual policies, and, “with that being said,” CareFirst had been having “technical difficulties” all day. I waited another twenty minutes for a member-services representative who didn’t know why the company had increased my premium—maybe it was my age (fifty-two) or where I lived (Washington, D.C.)—or what about my policy didn’t meet the A.C.A. requirements. She transferred me to a third person (wait time fifteen minutes, listening material a jauntier, marimba-inflected Muzak), who told me that my premiums had most likely gone up thirty per cent owing to “the rising costs of health care” and then transferred me, without warning, to the D.C. Health Link, my state A.C.A. exchange. Second lesson learned: part of what is confusing and distressing about this process is that health-insurance companies don’t seem equipped, or maybe willing, to explain the implications of the new law to consumers. (Why raise a premium on a policy they must have known wouldn’t survive Obamacare?)

This reminds me of the hilarious “What if air travel worked like health care?” video that was circulating a few years ago.

Now how do you react to this atrocious level of service? What do you make of this experience vs., say Amazon.com, famous for short wait times and excellent service?

An economist makes the inference, “any company who treats me like this does not care about my business, and is not facing competition from upstart innovators. They must be massively regulated, licensed and protected from competition.”

New Yorker writers conclude

 The Affordable Care Act has not necessarily, at least not yet, made the workings of insurance companies any more transparent or accountable than they ever were.

i.e. that more regulation and protection from competition is going to bring 3 minute wait times, and cheerful informed staff. You know, the way the Affordable Shopping Act made the workings of internet retailers more transparent and accountable.

Her story is particularly poingnant.

I’ve had high blood pressure since I was in my thirties. I take ten milligrams of a generic beta blocker every morning, which has successfully kept my hypertension controlled. By doing so, I hope to prevent or postpone some of the possible consequences of hypertension—strokes, heart attacks—which are both debilitating and costly. That’s good preventive thinking for me, and good social policy, but it also means that I have a preëxisting condition

She is a classic case of someone who did everything right – she bought individual, non tax deductible, insurance, when young and healthy, so she would not lose coverage if she got older or sick. And Obamacare just destroyed that investment. Rather than outrage, however, she feels comforted that this theft may help those not so prescient:

So yes, I’ll subsidize someone else’s prenatal coverage, in a more effective way than I’ve been doing by default under the current system, in which too many pregnant women show up in emergency rooms without having had such care, creating problems for themselves and their babies, and all sorts of costs for taxpayers. And I’ll remember to be relieved that my own access to health care is guaranteed. But they had better work out the problems with the A.C.A.; if they don’t, and it doesn’t fulfill its promise of insuring the uninsured, I’m really going to feel like a chump.

When you get that feeling, you will have company. But don’t feel bad. Many a good free-marketer, in their youth, made similar mistakes. We all have values about helping people, and eventually we learn the hard lessons of cause and effect, and what actually works to that end.