Thursday, July 16, 2009

Legalized Pot

A perfect storm is brewing. California is in dire straits fiscally and is on the precipice of default. Pot would raise major revenues, and if California legalizes pot the rest of the country will eventually.

Wednesday, July 15, 2009

More Stupid Administrative Efficiency Arguments

"The administrative costs of the main Social Security program are 0.6 percent of expenditures. The disability insurance program clocks in a bit higher: 2.3 percent. It's all pretty lean."

I am not a senior and thus my only exposure to social security is the FICA tax pulled from my paycheck. But typically you hear that the Social Security Administration does a good job at what they do, cutting checks to people. However, in obliquely making this point Mr. Klein unwittingly points to a flaw in the measurement of administrative efficiency. The Social Security Administration cuts checks for both Social Security (Old Age Insurance) and Disability Insurance. Thus they have the same fixed costs. Then what accounts for the difference in the administrative efficiency? There are more people claiming social security than disability insurance. It's quite simple. Imagine that the typical cost of writing checks to a claimant works out to an annualized expense of $500 per claimant. The $500 is your administrative cost. Now you divide the administrative costs by the benefit check cut. The marginal cost of adding a zero to the that benefit check is essentially zero. So if the benefit were $1 million annually the percentage dedicated towards administrative costs would be 0.0005%. If the annual benefit were $1,000 the administrative costs constitute 5%. Efficiency in this manner is effectively being equated to the generosity of the benefits disbursed. This is measurement error.

The Health Care Bill

The health care bill that the House has put forward is a disappointment. In the immediate future it will expand coverage but will do nothing to contain costs. The employer based system is kept intact and to some degree reinforced (by maintaining the employer tax exclusion and not allowing those with employer sponsored health care to purchase a different plan through a national exchange). The one aspect that I find promising is that the MedPac appears to be getting beefed up. But the health care bill is built on the status quo as opposed to an attempt to move towards a more rational and efficient system.

Wednesday, July 08, 2009

Wal Mart Health Care

It would be interesting if Wal Mart were to extend health care to all of its employees. It could basically drop a minute clinic in the store alongside the pharmacy and basically function as a self contained HMO.

Employer Mandate=Assanine

Johnathon Cohn breathlessly reports that Wal Mart has broken with its business brethren by endorsing the inclusion of an Employer Mandate. I understand why Cohn finds this to be good news, it portends easier passage of Health Care reform. I, however, think an Employer Mandate is idiotic. It just further cements the status quo. We need to move away from an employer based system. The downfalls associated with an employer based health care system are many but here goes a list:

1. Reduces labor market flexibility by inducing job lock and creating greater impediments to starting a business
2. Assuming the tax exclusion remains in place, which is sort of the whole point if you were to have an employer mandate, the employer mandate is regressive as the tax exclusion primarily benefits higher income folks.
3. Making the same assumption as in point two, the tax exclusion incentivizes medical expenditures without regard to outcome thus exacerbating medical cost growth...
4. Which will cause stagnant wages or declining for the majority of workers as we saw in this last decade.
5. Employer incentives aren't very well aligned with those of the employee, this is devastating with regards to the management of chronic diseases.
Hooray for Employer Based Health Care!

That Wal Mart has endorsed the employer mandate is a bit surprising but not shocking. Google "bootleggers and baptists" to see why their endorsement shouldn't be so shocking.

I have found the whole health care debate to be underwhelming. There has been much handwringing about the inclusion of a public plan and potential cost savings to be reaped from said public plan's purported administrative cost savings (one time savings at that). So much of the debate has really centered around how to expand on the status quo instead of transitioning to a sustainable system.