Asymmetrical Information

"To be sure, their health care costs are lower, in large part because they are administered by the government, which rations it more strictly than GE can."

Wouldn't someone who wanted national healthcare want it because it would give people more stuff?

The claim doesn't make sense. In other countries, GM's workers will receive the same government benefits that its competitors in that country will receive, and GM will pay the same taxes. If he means to say, as would make sense, that in America, GM has to pay health care, while competitors don't, that's true, and painfully so. New entrants to car manufacturing in America don't have huge pension obligations. Yes, that makes the workers worse off, but that just underscores a) why it was a stupid union demand, and b) why it's so important to de-couple investment, health care purchases, etc. from employment. Like I said in the other thread, what good is the pension/HC offer compared to cash? Your employer faces exponentially growing costs, while new entrants don't, yet you expect it to survive?

Drum's point about Google was even worse -- Google isn't committing to long term obligations, so even if they didn't "grow profitable forever", they wouldn't have these payments shackling them. But luckily those on his blog already disposed of that point.

Of course, this bypasses the fact that Toyota builds the majority of their cars in the US and thus is subject to the same retirement and healthcare issues as GM. Toyota has plants in Kentucky,
California, Texas, and Indiana among other places.

GM's issues come from a combination of Union demands and lack of good product.

MadAnthony: Maybe I'm just stupid today, but ... are we talking about the same retirement and health care "issues"? Toyota built its American facilities long after GM did and, even to the extent they did make pension promises, made their promises later and are thus much smaller, at most. How does Toyota "having plants" in America imply that they have the same legacy cost problems as GM?

Things go so well when the government runs the healthcare system, too:

Too successful: the hospitals forced to introduce minimum waiting times

From the article:

The Sunday Telegraph has learned of five further minimum-waiting-time directives. In May, Staffordshire Moorlands PCT, which funds services at two hospitals and is more than £5 million in the red, introduced a 19-week minimum wait for in-patients and 10 weeks for out-patients. A spokesman said: "These were the least worst cuts we could make." In March, Eastbourne Downs PCT, expected to overspend by £7 million this year, ordered a six-month minimum wait for non-urgent operations. Also in March, it was revealed that Medway PCT, with a deficit of £12.4 million, brought in a nine-week wait for out-patient appointments and 20 weeks for non-urgent operations.

and:

Doctors are also resigning. One gynæcologist said that he spent more time doing sudoku puzzles than treating patients because of the measures.

Free healthcare is an illusion. Someone is always paying.

Brian:

I can think offhand of at least two other reasons someone might want national healthcare:
1) lower cost for same stuff, rather than better stuff (or much lower cost for almost-as-good stuff)
2) Equality of outcome more important than maximizing potential individual outcomes

I don't particularly buy either of these arguments, but I've seen them made. And note that the extent of rationing is hotly debated, with many people claiming that (e.g.) France doesn't ration much, even if England (GB?) and Canada do.

Where does the idea come from that Japan and Germany have a "free lunch" health care program, is that the question? "Free lunch" is a persistent meme in liberal/left thinking because to admit that TANSTAAFL means that leftism (which has included liberalism for years) cannot ever work in the real world. So you might as well ask why Catholic websites never question papal infallibility...

Wouldn't someone who wanted national healthcare want it because it would give people more stuff?

The word "more" is in the wrong place. Should say, "... because it would give more people stuff"

"Free lunch" is a persistent meme in liberal/left thinking because to admit that TANSTAAFL means that leftism (which has included liberalism for years) cannot ever work in the real world.

Straw man

«Toyota builds the majority of their cars in the US and thus is subject to the same retirement and healthcare issues as GM.»

No they don't (at last yet). The average age of USA Toshiba workers is way lower, and anyhow the big problem is pensions, and all these new factories are not supporting many (or any) retirees yet. Besides the new Toshiba factories tend to be in states where unions are not that popular.

The big deal with GM's overheads is that they are big because:

* Many years ago GM's management decided it was a splendid idea to increase GM's management bonus by agreeing to a lot of deferred labor costs that would be a problem for the bonuses of the next generation of GM's management.

* Because health care is fragmented and dominated by producer interests, it is far more expensive than in other countries.

"But their pension fund deficits are often worse than ours."

Which probably doesn't matter because no way will those governments let their biggest companies fold. The real question is why, even when faced with the threat of corporate extinction, GM management still seems to be less competent than Japanese and German managers who have something close to lifetime guaranteed employment.

Wouldn't someone who wanted national healthcare want it because it would give people more stuff?

As a Canadian, I can safely say that the advantage of national healthcare is not "more stuff", but reasonable amount of stuff at a *much* lower cost.

I think of the Canadian system (using rationing) as giving us 90% of the health outcomes for about 50% of the price. There's simply no way that most nations on Earth (especially Canada) could afford the enormous sums that America spends on healthcare, and from a general society point of view, they are best spent elsewhere.

(And to forestall the inevitable argument, while I think that revealed preference is very useful, it is not the ultmate arbiter of what is best for society. If it were, securing now illegal drugs for many of its citizens would be among government's highest priorities :-))

And note that the extent of rationing is hotly debated, with many people claiming that (e.g.) France doesn't ration much, even if England (GB?) and Canada do.

That may be because the UK and Canada have the worst moral-hazard problem of any state-run healthcare systems, which in turn, overtaxes basic services and distorts the budget for all other services.

In may of the continental European countries, as best I understand it, the healthcare systems have copayment-based structures that do much to alleviate moral hazard and thereby allow overall services to be more balanced.

What a load of crap. All you need to know is Toyota is building their latest plant in Canada becuase they don't have to pay healthcare.

leftism = free lunch is a straw man? ok

seriously though, the idea behind national health care is that somebody else pays. either your progeny, someone richer, or someone richer's progeny.

healthcare can be good, fast, or cheap, and you get to choose two. just like most every other engineering problems.

unfortunately, liberals don't admit that there are tradeoffs. Canada has 1 tier... except that it doesn't. Canada's health care is very slow and has a doctor shortage, because the government constrained the supply of doctors as a budget reduction measure.

you always pay for healthcare, whether out of pocket, through foregone salary, or through higher taxes.

it isn't fair, just as most things in life aren't fair or as they should be. it comes with the laws of thermodynamics. once we repeal them, we'll be able to satisfy liberal policy preferences, but until then they will be impossible and end up hurting people they intend to help, being the proverbial pavement of good intentions.

"Where does this idea come from that the Japanese and German corporations don't have to pay any costs to cover their employees' health and retirement? And why hasn't anyone bothered to check it?"

I've seen this fallacy plenty of times myself and always just assumed that *they assumed* those governments were picking up the tab. Doesn't every civilized country in the world have "government-supplied healthcare" -- and heck, pensions too -- except the US, that tooth-in-claw, capitalistic hellhole?

Why *anyone* assumes others should pay for their ailments and retirement just never fails to stun me. Maybe it made some twisted altruistic logic back in the days when breadwinners were getting whacked by consumption and TB, but they're nothing but feeding troughs now. And throwing in distortions like letting corporations deduct medical bennies before tax is just gas on the fire.

Skip the blog and go directly to the New Yorker piece behind it (http://www.newyorker.com/fact/content/articles/060828fa_fact).

The article makes clear what should be obvious by now -- company sponsored pensions are crazy!

Firms (i.e. your employer) making 50 year promises (i.e. your pension and retirement health care) and people accepting those promises (everyone with a pension) are acting in direct opposition to the forces of creative destruction. When a grocery store tries to issue a 50 year bond, people laugh. but when the constituency is big enough (hundreds of thousands of auto-workers), government is compelled to make the promise good.

Horizontal, portable, worker owned/administered plans (e.g. professional body plans) make so much more sense.

Hey,

All I was trying to say is that it is very poor understanding of liberalism to think that they believe phrases like "free healthcare" or "free whatever" actually mean they are getting something for nothing, a free lunch. It is true liberals do sometimes understate the costs of entitlements but nevertheless, they dont actually believe they are literally free. To argue that they do is a straw man. I could just as well make fun of supply siders and say they also believe in free lunch - "if only we cut taxes but dont decrease spending, our tax revenue will still go up".

Wanting good, fast health care is fine as long you can afford it. And it is becoming both increasingly unaffordable for tens of millions of Americans and a large percentage of our GDP. If you are young and healthy, it makes less and less sense to pay for insurance at all, leaving mostly high-cost patients in the system, pushing the costs even higher. Insurance companies, of course, do their best to spend a lot of money assessing risk in order to turn away ones with the highest until eventually the gov't picks up the tab when these people lose their jobs, get over ears in debt and become eligible for Medicaid. In short, the system is a mess that fails to insure millions, many of whom have jobs, while costing a fortune and making our businesses less competitive.

American health care costs will *never* be brought under control without some sort of outcome-based rationing. Note that I do not mean Kevorkianesque euthanasia, but merely some recognition that life has its limits, and that spending massive amounts of money to prolong a dying person's life a few weeks - when both the chances of survival and quality of life are both zero - serves no useful purpose.
Don't hold your breath waiting.

American health care costs will *never* be brought under control without some sort of outcome-based rationing.

And that, in a nutshell, is the raison d'etre of national healthcare. You cannot expect individuals to "let grandpa die". That's the sort of decision that is best made by outside forces over which the individual has no control. That way there is no guilt about a rational decision being made. After all, everything possible (within the system) was done to save the life.

(Truthfully though, it is useful to have the USA as an outlet for those who really are determined to spend large amounts of money on healthcare and would be horribly unhappy about the lack of opportunity to do so. It acts as a safety valve to allow the system to function properly for the rest of us.)

There is a free lunch... for Canadians who threaten to ignore patents if they aren't charged below market for drugs developed in the US.

Socialized medicine is not the answer. If you want affordable health care:

1: Abolish the FDA, let consumers decide.
2: Abolish prescriptions, let consumers decide.
3: Abolish licenses for all medical practitioners, let consumers decide.
4: Decouple health insurance from employment, let consumers buy their own insurance.

There, wasn't that easy?

1: Abolish the FDA, let consumers decide.
2: Abolish prescriptions, let consumers decide.
3: Abolish licenses for all medical practitioners, let consumers decide.

As if tort lawyers weren't rich enough already.

Hi -

As an American economist who's spent most of his working life outside of the US, I think I can shed some perspective here.

First of all, Jane is absolutely correct: the idea that German and Japanese companies don't pay health insurance costs is absurd. They, and the workers, most certainly do.

In Germany you have both public and private insurance. The public insurance companies are public corporations and are the insurer of last resort, i.e. they provide coverage for anyone who cannot pay for it themselves. The costs are based on income and are progressive, i.e. get higher the more you earn, with a cap of around $4000/year for premiums which is reached around $60k/year for a married couple. If there is only one breadwinner, then the family is covered; if there are two incomes, both are required to pay premiums.

The private is a one-way street: once you join, you may NOT change to the public unless you a) have been unemployed for a set period of time and b) leave the country (deregister as well) and return after no less than 2 years. Here there are all sorts of specialized plans, but the fundamental way this business works is that most insured person starts off at very low rates (low risks because they're young) which accelerate over time and may become astronomical (I know of one case of someone earning $300k who was paying close to $60k for his insurance after he had a heartattack at the age of 32), with little or no recourse due to prior conditions.

The premiums are split between employer and employee 50%/50%, with a cap on private insurance contributions set to the maximum that the public insurers can get.

Now there are, of course, big companies that have additional plans, since, insurance-wise, these are usually high desirable groups to insure (high education, low risks), and there are the various exemptions.

The key is having a large enough pool to cover the catastrophic costs: this is where the German system is already deeply in trouble. The reserves of the system back in the 1970s were about 13 months' worth of outlays; this has dropped now to less than 2 months, which means there is a very thin margin to cover any sort of catastrophes that would require large-scale hospitalizations. This development has led to the cutting of benefits, such as the elimination of both dental and optical coverage in the public system (small exceptions remain).

Basically because of the way the system is set up, health care is available to all, but it is rationed (limits to what can be prescribed, limits to care (i.e. no 85 year-old is going to be getting a set of new hips anytime soon), and there are lots of doctors who won't handle public insurance patients) and is on very shaky finances.

Don't know about Japan, haven't worked there...yet.

The problem for the major US companies who have the health insurance/pension burden is indeed promises made years ago to the union membership that requires these companies to maintain very large capital reserves to finance these promises.

German and Japanese companies didn't kowtow to their unions: they bought them instead, with life-long employment "guarantees" and bribes to the right union people (German unionists are often on the board of directors). The unions in Germany are also significantly more politicized than unions in the US (hard to believe, but it is true!), making them vested in a smoothly functioning system, while in the US, corruption and greed of individual union leaders is, I think, a larger factor in the blackmailing of US companies.

John

John,

In this sentence:

The private is a one-way street: once you join, you may NOT change to the public unless you a) have been unemployed for a set period of time and b) leave the country (deregister as well) and return after no less than 2 years.

Is it a AND b? I thought it was a OR b.

It's also interesting to note that the US public spending on healthcare, per capita, is greater than that in many, if not most, European countries. See here and here.

It always seems to me a bit unfair that the US basically subsidizes other countries' drug costs. There's got to be some way to put a stop to that without socializing drugs here and killing the industry.

It always seems to me a bit unfair that the US basically subsidizes other countries' drug costs. There's got to be some way to put a stop to that without socializing drugs here and killing the industry.

Well one such way would be to simply import drugs from other countries. Of course drug companies will then set one standard price for their drugs globally, putting them out of reach of millions of people. But it would be fair.

1: Abolish the FDA, let consumers decide. 2: Abolish prescriptions, let consumers decide. 3: Abolish licenses for all medical practitioners, let consumers decide. As if tort lawyers weren't rich enough already.

Agreed, having the FDA set minimum levels of safety for pharmaceuticals through labeling requirements and clinical testing, requiring prescriptions for certain medications to ensure that patients are informed of potential side effects, and requiring a minimum level of competency for those who hold themselves out to the layperson as medical practioners has brought numerous benefits (including having a safer drug supply) to our health care system. While there is certainly room for improvement and refinement, suggesting the way to save money is by abolishing these reforms is like the story of the bank that decided to save money by eliminating any person who wasn’t generating revenue and began by firing their security guards.

It's also interesting to note that the US public spending on healthcare, per capita, is greater than that in many, if not most, European countries. See here and here.

Which begs the question every time someone repeats this little factoid, so what?

All of this would seem a lot simpler if we would eschew feel good near promise of immortality implied by the term "health care." Let's call it what it is: medicine. Which always fails in the end, just as everyone's health will. Keeping this in mind should remind us that we're discussing gifts to ourselves, preferably at others' expense, not rights.

Tom ,Peter: What's wrong with having lots of health-care spending, if it's not the State spending the money (and not a ridiculous union-forced company plan driving an employer bankrupt)?

If individuals want to buy expensive insurance to pay for their large amounts of health-care to not let grandpa just die (which is easier to suggest to people that they do, of course, when one is not grandpa), what's the problem?

(And answer along the lines of "it's worse for society than them spending the money on something else" - as was implied by one of those posts or another - will only earn a reply of "society can go stuff itself", though perhaps more delicately phrased.

Suffice it to say, the assumption that whatever might suit someone's idea of what is socially optimal is thus a duty to all people is not universally shared.

I suspect that, in detail, and at the test, it's not even common. And that ignores all the issues about who gets to decide what "society's" interest is, or make the valuations about what's actually more important, etc. That's a tar-pit I think political analysis is best off simply avoiding completely, but that's doubtless the Old Whig/Libertarian in me.)

Tom ,Peter: What's wrong with having lots of health-care spending, if it's not the State spending the money (and not a ridiculous union-forced company plan driving an employer bankrupt)?
If individuals want to buy expensive insurance to pay for their large amounts of health-care to not let grandpa just die (which is easier to suggest to people that they do, of course, when one is not grandpa), what's the problem?

Prolonging the lives of dying people uses up medical resources that could be put to more productive uses - like actually curing people. Or preventative medicine, which seems to be a quaint notion we've basically forgotten about these days. And let's not forget the fact that keeping dying people alive usually does THEM a major disservice.

Person:
"b) why it's so important to de-couple investment, health care purchases, etc. from employment."

That's probably the key to everything. If only I knew I way to do it.

Fedrik Nyman,

I suspect the numbers for the US are skewed by the fact that the public portion of the US is overweighted towards the coverage of the elderly, whereas those of other countries are universal in nature.

Peter,

I agree that we need a more rational outcome-based method of allocating medical resources, but I wonder what is the best way of doing this is. Having the state deny the heroic measures may be the best way, but I wonder how well Americans would adapt to such a process. Indeed, since most elderly care is already being funded by the Federal Government in the US, why are we giving hip replacements to 85 year olds?

My grandmother recently passed away (she was in her early 80s), and had been bedridden for the last 3 years. She spent at least two extended stays in the hospital the last 6 months with pneumonia and other illnesses, and I figure the cost of her medical care the last year, with absolutely no chance of ever having much quality of life, probably ran well over $100,000. There was even talk late last year of getting her knees replaced. Clearly there is no such rationing you described now. I am not sure why universal government provision would change that here.

Why *anyone* assumes others should pay for their ailments and retirement just never fails to stun me.

I don't know about retirement, but as far as health care goes: people assume someone else should pay for health care because health care is so mind-bogglingly expensive in the worst case. (And, in the minds of most people, even relatively routine medical expenses are prohibitively high, even if not bankruptcy inducing.)

I don't know about you, but my financial position is such that there would be a nonzero chance of some medical catastrophe completely wiping me out financially if I didn't have insurance.

If a medical catastrophe befell you, and you had the two following choices, which would you choose?

a) being wiped out financially followed by an inability to get more care because you got no money

b) Getting someone else to pay for the whole thing

I would choose b), and I suspect you would too, moral qualms notwithstanding.

And, in fact, b) is what most people (including me) have chosen, because that's one way of looking at health care insurance, at least in regard to medical catastrophes.

You were including health care insurance under the heading of "people assuming others should pay for their ailments", weren't you?

With such a large percentage of U.S. healthcare dollars going for "the last illness", I'm interested in knowing just how Germany, for instance, deals with a dying Granpa. My mother, in the last year of her life, was rushed from the Nursing Home to Intensive Care everytime she had a cold, because it would always progress to congestive heart failure. The Nursing Home said I could sue them if they hadn't always called an ambulance. The hospital and doctor said I could sue them if they didn't take every possible measure to combat the congestive heart failure.
Does Germany just not allow such suits, do they simply tell you "there's nothing we can do?", do they secretly "put down" a person who has no reasonable chance of recovery?

I wrote:
"Free lunch" is a persistent meme in liberal/left thinking because to admit that TANSTAAFL means that leftism (which has included liberalism for years) cannot ever work in the real world.

MS repled:
Straw man

I recall well a speech made by Hubert H. Humphrey in the years leading up to the Great Society legislation, in the course of which some old grouch loudly asked him "Where's the money gonna come from to PAY for all these programs?". To which question HHH replied, "The banks are FULL of money!".

Yeah, that was true, they were full of money; the savings of widows, the accounts of businesses, the reserve accounts of families...none of it belonged to the government. That was part of my introduction to liberal "thought", and merely one of the many, many, many examples of liberal "free lunch" notions.

Straw man? No. Just the opposite.

Question for Jane:

OK, so corporations in Japan and Germany have to pay for their employee health benefits. But do corporations in Japan and Germany have to pay for their RETIREE health care benefits?

To the extent that GM/Ford have to pay for their retiree benefits and Toyota et al don't, there may indeed be a disparity.

Of course, since we already have here in the US a government-run medical system for retirees - it's called Medicare - it would be quite easy to get GM/Ford retirees out of the private insurance that costs those companies so much and onto the left-wing-utopia of a government-run plan... simply pass a law that says that all GM/Ford retirees have to give up their company-sponsored plan and go on Medicare. You think the GM/Ford retirees will go for it?

The problem with health care is that prices are totally diconected from costs. there can be little doubt that medicare's actual costs are between 1.1 and 1.4 trillion dollars. The primary purpose of private health insurance is to subsidize medicare, then to subsize medicaid and then to pay for private health care.

Look at the price structure. The same doctor and the same hospital treat three patients with the same injury, say a broken leg. Patient one is uninsured or is insured through car insurance or workers comp. He or his insurance pay retail or about $15,000. The second patient is insured through private health insurance through his employer. He gets his E.O.B which shows the cost of 15,000 and then the insurance discount of 60%+, WA LA his "cost" was 7 - 8,000. The third patient was covered by medicare his bills will show that the hospital accepted about $3,000 for the same treatment.

let's also look at usage. I visit people in hospitals more frequently now that I am older and I almost always walk around the floor of my local rural hospital. I have never seen it where the occupancy was not in excess of 90% people over 75. Which of course means that 90% of the costs are attributed to medicare.

Our system was designed this way in the 1960's in order to transfer costs so that Congress could justify the cost of medicare as when we were an industrial economy and most people worked for wages and had insurance. As we joined the world economy and industry had to compete globally, government has insisted that industry still has to subsidise every one else in the country even though they now employ less than 10% of workforce.
If we are ever going to keep private insurance or globally competitive industry then the off budget subsidies to every government health program have to be ended.

J.S. missed one example of the broken leg: the illegal alien who is treated as required by Federal mandate, who will pay essentially nothing for medical care. This hidden subsidy of Mexico and other countries may have been trivial 25 years ago, but now is so significant that from California to Texas hospitals are either closing, or shutting their emergency rooms, in order to control that one particular cost. I wager that it ain't just the border states anymore, either, that are finding this a cost burden.

I don't see anyone in the Democrat party or the Libertarian party, and damned few in the Republican party, stepping up to address this classic example of the "free rider" problem.

SamChevre -

My bad, OR, not AND.

A.S. -

Some major German companies have their own pension plan, but it is in addition to the government pension plan. It is NOT required by law, since everyone has to pay into social security (except government workers) and most people here still believe that they will actually get money (the system is already broke and is kept alive by gasoline taxes). So, fundamentally, the answer is no, German companies usually don't carry pensions.

To the extent that they do, German accounting laws were lenient, allowing lots of creative bookkeeping off the official books. This is changing with the adoption of international bookkeeping regulations, but it's still a problem.

John

"Prolonging the lives of dying people uses up medical resources that could be put to more productive uses - like actually curing people."

In a market system, having people pay for life support doesn't "use up" medical resources... it causes an increase in the production of life support machines and an increase in people studying nursing and whatnot.

In our system, of course, other people's money is going to pay for it without their consent, and supply is not allowed to grow to meet demand.

"Or preventative medicine, which seems to be a quaint notion we've basically forgotten about these days."

Because you'll be getting that bypass with other people's money, not your own. If health insurance were sold on the open market like other sorts of insurance, you'd pay a high price in monthly premiums for skipping your yearly checkups and eating too many cheeseburgers and fries.

"And let's not forget the fact that keeping dying people alive usually does THEM a major disservice."

Says who? Their children watching their inheritance go bye-bye?

Given lots of painkillers, high-speed Internet, good books, and cable TV, I'd say that being kept alive on life support would be wonderful compared to the alternative.

Person commented above that new entrants ot auto mfg. don't have large pension obligations, which is an advantage; true enough.

I don't know about the auto companies, but some older companies - such as IBM, which has been around about as long as GM - have shifted from an internal pension structure to increasing the employer's contribution to the employee's 401k. This has the effect of eliminating all future pension obligations after a certain date, and a steadily declining obligation to retirees, a tremendous benefit to the balance sheet, and the future health of a company.

It also gives the employee full control and portability over their retirement, which not at all a bad thing. Such an arrangement has the additional benefit of forcing management into maintaining a satisfactory working environment because loss of pension is no longer an impediment to changing jobs.

isn't anyone going to mention the just plain bad judgement of GM and other American car makers? They keep making cars people don't really want to buy. Rank and file do not make those decisions.

I hate to point out the obvious, but when government picks up the cost of benefits, like health care, it allows companies to profitably sell products below their cost. That's how the Soviet Union went bankrupt. It gold plates dysfunctional economic practices.

However, if you think that having the government pick up health care gives an industry a competitive advantage, wouldn't it give them even more competitive advantage if the government picked up all their benefits including salary? After all, if the companies had no costs, they could do anything and sell their goods and services at a profit, right? How do you think that would turn out?

Answer: It would bleed the economy dry until it collapsed.

Tantor

GM's heathcare/retirement costs would be manageable if they didn't have the stupid 30 year retirement.

In essence an employee can "retire" at age 50 and GM's stuck paying the pension and health benefits (including the spouse) for another 25 to 40 years.

The same holds with many public employee plans. Here in the New York area we have union teachers retiring at age 55 or so and getting pensions of $50,000 to $65,000 plus full heatlh coverage for themselves, their spouses and children. The difference between Gm and the public sector is that the public sector has no competiton and can extort payment via taxes.

If people were not allowed to collect on pensions until age 65, the cost saving woudl be astounding.

Hey deme38: they may be inferior cars, but at least they're more expensive :)

http://www.newyorker.com/fact/content/articles/060828fa_fact

Kevin gets this idea from Malcolm Gladwell, who says, in his article "The Risk Pool" in the latest edition of The New Yorker, "in most countries the government, or large groups of companies, provides pensions and health insurance. The United States, by contrast, has over the past fifty years followed the lead of Charlie Wilson and the bosses of Toledo and made individual companies responsible for the care of their retirees."

Apparently this notion is not just a liberal mantra, but a corporate one: Gladwell quotes Wilbur Ross, owner of Bethlehem Steel, as saying: "'Every country against which we compete has universal health care,' he said. 'That means we probably face a fifteen-per-cent cost disadvantage versus foreigners for no other reason than historical accident.'"

Everyone's a liberal when it comes to getting the government to pay for it.

David Joslin

deme38:isn't anyone going to mention the just plain bad judgement of GM and other American car makers? They keep making cars people don't really want to buy. Rank and file do not make those decisions.

WHAT???? You mean the low level grunt manual laborers aren't the REAL source of all wealth? Say it isn't so!

On a more serious note (well, the above sarcastic remark doesn't sound sarcastic to many people), the answer is yes and no. Yes, you could point to bad designs here there and everywhere, but be realistic. Can the best set of managers and engineers in the world really hope to compete *forever* against competitors while their (pension/health care) costs are exponentially increasing, without adding product value, and their competitors' aren't? Could *Google* accomplish that? And you accept Google is well-managed and innovative, right?

And to Homer: very true, and you remind me of something I've wondered for a while. If I had been a manager in the 50's, would this have "worked" (in the sense of furthering my material self-interest):

-Offer workers a pension if they work until 50, equal to their final salary, but no benefits if they leave (for whatever reason) before then. Whenever someone threatens to leave, I make no counter offer, but just remind them of their pension. Then I fire everyone the day before their 50th birthday.

Would that "pension plan" have gotten people to flock to me?

Caring for an aging parent who is a Ford retiree, I have had a front row seat on the attempts at benefit cost cutting and have watched a small portion of the parental next egg in Ford stock lose 3/4's of its value in 5 years.

Here's the deal. Its all a matter of market share, and it is related to arguments about how economic growth is the answer to Social Security. If you grow, you have more cash flow to pay benefits out to the retirees; you are also hiring young workers whose retirement and higher health care costs are far down the road. You contract, you have less money to carry your retirees, and you have an aging worker population.

Ford and GM are getting clobbered in market share as they gave up the car market to the Japanese and now the profitable trucks and SUV's are unsold on account of high gas prices.

J.S.: The problem with health care is that prices are totally diconected from costs.

The disconnect between cost and consumption is also a problem. Imagine what would happen to say food costs if groceries were acquired under an insurance style framework instead of paying for them directly.

I just had to purchase a health insurance plan for my company and I can tell you what little I know.

- first, catastrophic illness is not the expensive part of a plan. In fact, if you only wanted to cover it, it would be pretty cheap.

- Plans cost more because many states have mandated forms of coverage. So in NY and NJ your therapy is covered, your chiropractic therapy is covered, your accupunturist, physical therapy, etc. etc. are all covered. And in this area, coverages are very good and few people pay more than a nominal co-pay ($20-$40). So if you could go to therapy for $20 a week, or for free, wouldn't you? (That is rhetorical. I have had friends tell me I was a fool for not going if I was covered. I just didn't feel I needed it.)

It is a law-of-the-commons type of issue. When you disconnect someone from the cost of the services they use, they will use more of them. That is a fundamental truth of all human behaviour. So somehow you have to make it cost the USER in order to limit its use. Does that mean poorer people will use less? absolutely. Unfortunately I don't see a way around this.

ALL materials, services and commoditites are rationed in a society. If you try to mess with the supply and demand curve you start to get some very odd results (laws of unintended consequences).

1. Assembly line workers at GM retire early in part because their work is literally disabling, and many of them have what the rest of us would consider crippling injuries when they quit.

2. Variation in health-care costs incurred across individuals (holding ability to pay constant) is largely a matter of genetic endowment, and only to a relatively minor extent due to to variation in lifestyles. So insofar as we individualize rather than socialize health costs we are punishing people slighlty for improper choice of diet, and mainly for improper choice of ancestors.

3. As Sen argued back in the 80's in his comparative study of Kerala and Harlem, the US could achieve superior public health outcomes at much lower cost by cutting government funded care for the elderly, heart patients, cancer patients (and AIDS patients?) 90%, and putting 10% of the savings into preventive care and treatment of generally curable illnesses and injuries. And the argument against doing this is?

Shalom:3. As Sen argued back in the 80's in his comparative study of Kerala and Harlem, the US could achieve superior public health outcomes at much lower cost by cutting government funded care for the elderly, heart patients, cancer patients (and AIDS patients?) 90%, and putting 10% of the savings into preventive care and treatment of generally curable illnesses and injuries. And the argument against doing this is?

Because it's a Sen study.

The only reason people listen to Sen is because he has a Nobel Prize, and the only reason he has a Nobel Prize is because there was pressure to give it to an Indian and the only reason they chose that Indian was because his work was the least shoddy.

Here is a list of Sen's "insights":

-Democracies don't have famines [insert enough caveats to dispose of any inconvenient case].

-The gold standard causes famines, because workers can't delay when they eat.

-Public choice theory is flawed because I don't want to believe people are self-interested.

-People don't accept Pareto-optimal transfers, so liberty is a bad idea.

That doesn't make his conclusion wrong, just that someone else, of different ideological slant, should audit his study first.

...with many people claiming that (e.g.) France doesn't ration much, even if England (GB?) and Canada do.

Unlike Canada and the UK, France doesn't restrict private delivery of healthcare services.

By definition, government-funded health care is "rationed" in that only so much money is available to fund it. But the problem seems to stem mainly from government-provided health care, not government-funded health care. When private services are allowed, more money is spent on health care because some patients spend their own money to get better or faster service. That allows the same amount of government funding to buy better service for those who rely only on the government funding.

If France rations less than Canada and the UK, that would be why.

You cannot expect individuals to "let grandpa die". That's the sort of decision that is best made by outside forces over which the individual has no control. That way there is no guilt about a rational decision being made. After all, everything possible (within the system) was done to save the life.

Please tell me this post was tonge-in-cheek. I hate to think there are people out there who have so little regard for human dignity, and who are so accepting of banal evil.

«I don't know about the auto companies, but some older companies - such as IBM, which has been around about as long as GM - have shifted from an internal pension structure to increasing the employer's contribution to the employee's 401k. This has the effect of eliminating all future pension obligations after a certain date, and a steadily declining obligation to retirees, a tremendous benefit to the balance sheet, and the future health of a company.»

That is the usual theory, and it is completely wrong. As in totally wrong. A defined benefit and defined contribution system have exactly the same cost if they deliver the same level of benefits. The only difference is somewhat higher volatility for defined contribution.

The switch in the type of system has not been done because define contribution as such costs the company less than defined benefit, but to hide a very large reduction in the pension promised.

Most defined benefit systems cost the company about 15% of compensation, and most defined contribution systems cost abou 5%, because the benefit is less than one third. Cutting defined benefit pensions to one third of their previous levels would have have been cheaper and safer than switching to defined contribution, but the latter has the overriding advantage that it hides a very large cut in the end benefit.

«Here there are all sorts of specialized plans, but the fundamental way this business works is that most insured person starts off at very low rates (low risks because they're young) which accelerate over time and may become astronomical (I know of one case of someone earning $300k who was paying close to $60k for his insurance after he had a heartattack at the age of 32), with little or no recourse due to prior conditions.»

This is because private health insurance is basically a scam, because it does not offer insurance, but what are in effect loan facilities:

http://WWW.DanielGross.net/archives/2006/07/30-week/index.html#a000995

«Insurers' resolve to price every account at a profitable level»

In other words the industry is no longer selling health insurance, but health mortgages, which is a very different
thing, as this example illustrates rather vividly:

«His 30-employee company makes packaging prototypes for advertising. [ ... ] His medical costs were roughly half of the premiums he paid between 2002 and 2004, according to his insurance data. But last year, after an employee was severely injured in a highway accident, WellPoint's Blue Cross Blue Shield of Georgia boosted premiums by 30%. It had asked for a 41% increase but came down after Mr. Perkinson agreed to make employees pay even more of their bills out of pocket. [ ... ] The WellPoint unit says it had to increase AdProp's premiums so much to cover the big claims it incurred after the employee's accident.»

The last paragraph makes it damn clear that the so-called insurer is not running a book or pooling risk (insurance), just selling collective deferred payment plans (mortgages).

What health ''insurers'' call ''premiums'' are actually facility fees before a payout, and they are actually loan repayments after a payout; what health ''insurers'' sell is not insurance, it is a very expensive credit line.

This scam is a very good argument for mandatory, national, government run real insurance schemes for health, as they also avoid the self-selection problem.

That is the usual theory, and it is completely wrong. As in totally wrong. A defined benefit and defined contribution system have exactly the same cost if they deliver the same level of benefits. The only difference is somewhat higher volatility for defined contribution.

Actually, your theory is wrong.

If the investments yield more than promised:

If I "promise" myself e.g. an 8% ROR, while my funds return 9%, I get 9%.

If my company promises it'll get an 8% ROR to fund its pension, but gets a 9% ROR, I get paid as if it got an 8% ROR, and it reduces its fund contribution rate.

If the investments yield less than promised:

If I "promise" myself an 8% ROR, while my funds return 7%, I get a 7% ROR.

If my company promises it'll get an 8% ROR to fund the pension, but gets 7%, the difference must come from its current revenues, potentially pushing it to bankruptcy, in which they turn me over to PBGC, and I get a small fraction of that.

Oh, and Blissex, I forgot to mention the skewed incentives attaching to DB's but not DC's. The employer is forced to take into account your age and life expectancy when deciding to hire you, effectively forcing them to discriminate by age. But then, you probably weren't serious with your point anyway.

I worked for a large Japanese company in Japan and had about $300 per month in health insurance fees deducted from my paycheck. Based on the budget materials for my department for myself and my staff, I believe the company was throwing in about the same.

I also paid for the national pension system, but the amount slips my mind at the moment.

When I quit the company, I found that the city's health insurance program (which you have to join if you don't have a company program), would have been a bit more expensive, about $500 per month. I stayed on my company's program, which you are allowed to do for a couple of years after leaving.

I continued to pay national pension contributions, but I had to do so directly to the government. The amount is determined by your previous year's income, not your current income.

«[ ... ] the skewed incentives attaching to DB's but not DC's. The employer is forced to take into account your age and life expectancy when deciding to hire you, effectively forcing them to discriminate by age.»

I guess this comment is the fruit of not understanding what «if they deliver the same level of benefits».

«If the investments yield more than promised: [ ... ] If the investments yield less than promised: [ ... ]»

And this bit is the result of not paying attention to «The only difference is somewhat higher volatility for defined contribution.»

Both a group defined benefit and an individual defined contribution plan must invest in the same assets over the same period of time to deliver the same level of benefit.

Then for the company there is more short term variation with defined contribution because the instantaneous value of the group fund changes, even if the actuarial value of the fund does not. Because over several decades expected returns are fairly stable.

If companies were aiming to deliver say a $30,000/y pension at 65 for the same worker under both regimes they would have to contribute the same, except that in the defined benefit case the contributions would vary up or down depending on the downs and ups of the stockmarket. Or not vary if the fund was invested in bonds.

But if companies aimed for a $30,000/y pension on defined benefit, they now aim for $10,000/y on defined contribution, and that's the big difference. But then lots of newer employees either don't have leverage for a better deal or don't understand long term actuarial value, while companies do have actuaries.

Note also that companies, or rather their executives, actually benefit from the higher volatility of defined contribution plans, because when stocks do well, they can reduce contributions and this increases reported profits, triggering higher bonuses and stock option gains. And when the stock market goes down, well, odds are everybody is doing badly already.

«take into account your age and life expectancy when deciding to hire you,»

Not on account of defined benefit pensions: because the benefit is usually defined by length of service and salary, which correlate with contributions, not age.

It used to be often a simple formula like 2% of average salary in the last 5 years per each year of service. Since the benefit is proportional to length of service and salary, not age, there is no disincentive to hire older workers.

I guess this comment is the fruit of not understanding what «if they deliver the same level of benefits».

No, it's the result of me ignoring vacuous statements and comparing based on things it's humanly possible for me to know. Yes, if I can see into the future and know exactly what I'm actually going to get out of it, there "no difference". However, in the real world, there are differences. You cannot compare based on "benefits that will turn out to be paid". You can only compare based on "promised benefits, and possible RORs."

And this bit is the result of not paying attention to «The only difference is somewhat higher volatility for defined contribution.»

And this bit is the result of ignoring my statement that a DC has the market volatility, while the DB can vary between zero and the promised benefit.

But if companies aimed for a $30,000/y pension on defined benefit, they now aim for $10,000/y on defined contribution,

And that the company doesn't "aim for" any final pension on DC.

But then lots of newer employees either don't have leverage for a better deal

If they don't have the leverage for the employer to pay $X toward a DB plan, they don't have the leverage for the employer to pay $X toward a DC plan.

or don't understand long term actuarial value, while companies do have actuaries.

The actuaries that accurately predicted how much GM et. al would need, in order not to be in dire straits due to their pensions?

Note also that companies, or rather their executives, actually benefit from the higher volatility of defined contribution plans, because when stocks do well, they can reduce contributions and this increases reported profits, triggering higher bonuses and stock option gains.

Er, except that they don't reduce contributions to DC's based on how well the market is doing.

Not on account of defined benefit pensions: because the benefit is usually defined by length of service and salary, which correlate with contributions, not age. It used to be often a simple formula like 2% of average salary in the last 5 years per each year of service. Since the benefit is proportional to length of service and salary, not age, there is no disincentive to hire older workers.

Actually, the DB plans are designed to pay out starting at a certain age. If I work from 25 to 35, and collect at 65, that requires less contributions than if I had worked from 55 to 65. So the employer knows I'm going to cost a lot more in contributions as a 55 year old applicant.

Avner, above mentioned "unintended consequences."

That is exactly why we have these retirement/benefits problems. During WWII companies were restricted by the federal government in pay rate for workers so they added a benefit structure that was external to pay rate and, hence, unregulated by the feds, to attract and keep workers.

Presto, we now have a mandate for employers to provide such benefits.

I'm not saying such benefits are bad, but they serve to disconnect dollars from reality at the final transaction interface.

Example: In my medical plan, a fairly large HMO structure for which my employer picks up the whole tab, my co-pay is $15 for a doctor office visit. A certain MD I visited a couple of times has a fee schedule of $55 for an office visit, so my $15 is a bargain. To participate in the HMO - by being listed as an "approved provider" which generates more customers- he discounts his billings to the HMO, so the HMO pays $24 for that office visit. An uninsured walk-in will pay $55; from me he captures $39 (less, actually, after the expense of billing and accounting expenses related to processing the HMO paperwork, waiting for payment, auditing the HMO payments, etc.). Being charitable, let's say that expense is $3 per patient transaction.

Since every visit to every provider costs me only $15 I have no incentive to shop around for the best deal. Were I offered the real cost - $36 - for a visit I would have a basis for comparison to evaluate his charges and service level against other providers.

Not being privy to his books, I can't tell if HMO patients are "fillers" or a financial foundation for his business. In manufacturing, companies will often negotiate at-cost, or, sometimes, below-cost, deals for certain products as a means of keeping the production line running - fillers; this serves to maintain economies of scale in production and preserve the employee skill base when otherwise production lines would be shut down.

While I strongly suspect that, in this case, the MD has extremely few full-fare walk-ins, it could be that reimbursements from other medical insurers are more profitable than my HMO, and we are just fillers used to keep the office humming along while generating operating expense coverage and some level of profit for his office (I would be surprised if the MD had a very accurate figure for average patient transaction cost, so I'm sure there's a fudge factor included to make sure things stay on the green side of the ledger).

That said, I also strongly suspect that no patient visit funded in whole or in part by insurance pays the full-fare $55, meaning that his real transaction price is somewhat less than $55.

So, the unintended consequence here is price distortion, which is also hidden from the consumer. Ditto for the cost of HMO coverage. Since I can't see the revenue and cost streams for my HMO, I can't tell how they offset my expenses for a couple of checkup visits per year against a plan member with an expensive chronic condition.

That offset, BTW, may not be a completely bad thing; if my employer pays, say, $2,000/yr per employee, those of us who consume $200/yr offset the few employees who consume $10,000/yr. Pushing more of the real cost, however much it gets lowered by real world business and accounting practices, might drive coverage costs for those few employees to a figure much closer to what they actually cost the HMO.

At which point the employer would have an incentive to discard the higher cost employee, or at least evaluate the potential total productivity benefit vs the total cost of employing the $10K consumer. And, since such decisions are now made by the green eyeshade types light-years from where the money is actually made, the $10K/yr consumer would never make it past the application submission desk in HR.

BP Beckley,

Sorry for the late reply. You raise some interesting points about my post that I'd like to clarify.

I should have been clearer about the general issue of insurance; I certainly consider that type of arrangement to cover paying for my own ailments and an industry making a profit by calculating risk in this regard is, of course, perfectly legitimate.

But if I understand the rest of your post, it boils down to "if I don't have the money I expect someone else to pay." If that someone else is an insurance company and is contractually obligated to do so, I see no problem as that's been agreed to in advance by both parties. But since you focus on the *amount* of money involved -- financial "wipeouts" and such -- I don't expect you were referring to simple payouts. You really do *expect* someone else to pick up the tab for the sole reason that you can't?

My original statement was based on a moral issue: Others have no claim on my income for this purpose and I have no claim on theirs. I consider this ironclad and depends not one whit on the amount of money involved. If I were uninsured and an illness wiped me out I would curse *myself* for not buying insurance. I wouldn't demand that others pay my bills for the simple reason that I'm under no obligation to pay theirs.

I found your attempt to personalize this intriguing, but sorry, I would *never* try to "get someone else to pay for the whole thing." That financial value has to come from somewhere, and if an insurance company doesn't provide it, it's up to me.

The personal financial wipeout:
1. Congratulations, you lived.
2. Apparently, you value life, because you chose treatments/medicine/hospitalization you couldn't personally afford. And you didn't have a DNR on file to automate the opposite decision.
3. Visit with the providers to negotiate your bills after the fact, and if your bills are huge and you're low income, you can have them reduced or eliminated according to charity programs.
4. If that fails, and you have to pay, set up a payment plan.
5. Or refi your home, pay your bills, and start over on paying for your home. Spend your equity.
6. Or use some of your retirement savings to pay the bills. There are exemptions to penalties on IRAs used for catastrophic medical expenses and disability.
7. Use the HSA you've built up. (I like these! Why can't everyone build up a big medical spending savings account? Why do Section 125 plans have to expire each year? That is totally stupid. I should be able to save and invest for a lifetime to afford Cadillac care when I'm old and sick and dying and desperate. Better to spend my own money than everyone else's.)
8. Tell your heartrending story and put out donation collection boxes at gas stations. I see those all the time.
9. If you still don't want to pay, declare bankruptcy.

I have had cancer twice and have had a long period of underemployment and COBRA payments between professional jobs. Yes, it's scary, especially when facing the prospect of metastasis and waiting on tests. But you decide, is this worth it? Do I want to pursue this no matter what the cost? Is my life worth it? I've stared down these decisions, so you have a mental fart ideafest and I am talking about my life.

Insurance companies are starting to say that certain procedures/medicines are not covered, and they put the decision back to the patient...whether you want to purchase that or not. Then no stranger has to decide that Grandpa must die. You can choose for yourself.

It isn't banal and evil to decide that comatose, failing ninety-year Grandpa has had a good run, and the family does not want to impoverish itself needlessly to give him a few more weeks of unconscious suffering. Are you really going to tell his grandchildren kiss your college education goodbye, we're saving grandpa!!!

(As mentioned above, many facilities view elder patients as cash cows. Medicare is the bread and butter and they arrange needless services to milk the government. I've seen it happen with my dad.)

People from all over the world come to the USA to pay for private, excellent care that they couldn't get from their socialized medicine plans. Hillarycare would have thrown those docs and patients in jail. Private care outside the system would have been illegal. That's just wrong.

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