Yesterday I linked to a Paul Krugman column titled “California Death Spiral,” in which Krugman explains succinctly how insurance markets collapse. In short, “If too many healthy people decide that they’d rather take their chances and remain uninsured, the risk pool deteriorates, forcing insurers to raise premiums. This, in turn, leads more healthy people to drop coverage, worsening the risk pool even further, and so on.” If you’ve been paying attention to the health insurance issue, this is fairly self-evident.
Now Michael F. Cannon, the Cato Institute’s director of health policy studies, responds by saying that Krugman doesn’t understand insurance markets.
Cannon’s argument — First, he says that Krugman is unfamiliar with the work of University of Pennsylvania economist Mark Pauly. According to Cannon, Pauly has shown that “health insurance markets are way ahead of politicians — and way ahead of economists — in solving the problems that bedevil health insurance markets.” As proof of Pauly’s genius, Cannon links to an abstract of an article Pauly wrote in 1995 about “Guaranteed Renewability in Insurance” and to a description of a book on risk pooling that Pauly co-authored and which was published by the American Enterprise Institute.
Yes, I’m … so not persuaded. But this is a common trick of rightie think-tank fellows. If they don’t have an actual argument, they pull the name of some Authority Figure out of their butts and claim he has an argument. We don’t know what that argument is, but we’re assured it exists.
From here, Cannon goes on to say a colossally stupid thing:
Healthy people dropping coverage would not lead to across-the-board premium increases in California, because California allows markets to set premiums. Only when the government imposes the kind of price controls that Krugman wants does an “adverse selection death spiral†follow.
This entire debate came about because Anthem Blue Cross and other insurers in California are imposing huge premium increases on their customers, and they are doing this in spite of the fact these companies are making substantial profits. As Cannon says, state regulators in California have very limited power to control rates, so insurers can pretty much charge whatever they feel like charging.
There’s your “free markets,” Mr. Cannon.
Note that Krugman did not argue that the premium increases are being caused by a “death spiral,” but that Anthem Blue Cross claims that’s why it’s raising its rates. So either there is such a death spiral in spite of the lack of regulation in California’s insurance markets, or Anthem is price gouging. Take your pick. Either way, the free market ain’t doing squat for the consumer.
You might remember that Cato is the same pool of geniuses who endorsed the idea of insurance insurance as the solution to the health insurance crisis. If you missed it, the plan is to give insurance companies a completely free hand to risk-rate premiums, so that as people get older and/or sicker their premiums would go up. And to keep you from being priced out of health insurance if you get sick, you’re supposed to take out a separate policy of “health status insurance†that will insure you against catastrophic increases in your health insurance. (No, I’m not making this up. Read Cato’s insurance insurance manifesto here.)
This brings me to the question asked in the title of this post — how stupid do you have to be to work for Cato? Because, based on his own arguments, I conclude that Michael F. Cannon is either (a) a complete idiot, or (b) paid to churn out verbiage that has the approximate look and feel of reasoned arguments to defend positions that are really matters of religious faith (i.e., “free markets” fix everything).
I’m leaning toward (b), because Cannon’s invocation of the economist Mark Pauly is a classic example of the “appeal to authority” logical fallacy. We have no way to know how Pauly concludes (assuming that he does) that health insurance markets are already at work solving the problems of the health insurance markets, and apparently have been doing so since 1995. And to pull this trick to discredit a Nobel Prize-winning economist takes cojones.
It’s also a signal to anyone with a brain that Cannon doesn’t have a real argument. But I’m sure he’s very persuasive to people who want to remain loyal to the Magical Free Market doctrine. This is Cannon’s real role — not to provide a real argument, because there isn’t one, but to provide something that looks and feels like an argument to give the True Believers something to hang on to.
Maha,
Libertarianism is a religion. It is not built on any facts about history or psychology, or practical economics. It’s really a defense of great inequality, or trying to put a shiny coat of philosophy on greed, ego, and fear.
We are what we do, not what we say we believe. People who lie are simply liars.
“How Stupid Do You Have to Be to Work for Cato?”
Well, in a logical country, “Insurance insurance” would be a dead giveaway.
Hey, Dumbasses like Cannon: If regular insurance ain’t working, why do you think another layer of insurance will?
I can hardly wait until Cato provides us with their next solution – more tax cuts so that people can afford “insurance” on their “insurance insurance.”
It’s that third level of insurance that will insure us that free markets really work.
And please explain to me, Mr. Cannon, why insurance in countries who DO have price controls, actually is much better than ours.
Mr. Cannon. Mr. Cannon! Shouting “USA! USA!! USA!!!” really isn’t an answer. And, Mr. Cannon, how free market is the insurance you get at Cato?
I love when these people tell me that if we take all of the restraints off of markets, they will then work their “magic.”
Pulling a rabbit out of a hat, or out of your ass, isn’t magic. It’s a trick. One that gullible people believe. Free marketers, to me, are just spruced up 3 card monte dealers. If you’re fool enough to believe that unrestrained free market’s work, you’re fool enough to bet $20 that you know where the ace is.
3 card monte dealers and free marketers like Mr. Cannon know where the real ace is. It’s in their pocket, right next to the $20 they got off their last “mark.”
This is a bone that I have to pick with the media, more than with those who make a hobby out of demoning, in the past oil companies, and now health insurance companies. “Company X Made $2.3 Billion Profit” the headline reads, but they fail to mention that the amount represents 5.1% return on sales, or an even lower return on investment. These are huge companies, and the numbers are huge, but so are the costs involved. The profits as a percent of sales are much less dramatic and are not really all that “substantial.”
Health insurance companies are making an average of 6.6% on sales right now, after quite a few years of making in the neighborhood of 2%, and the news has been of their “sky-rocketing profits.” Information service companies make 30% on sales, hospitals make 50%, and Microsoft makes 80% on sales. Nobody demonizes any of them, with the possible exception of Microsoft, and that isn’t about their profit.
If 6% of your sales are profit to your stockholders and costs are increasing, you had better be raising your prices, or you are going to be losing money in a very, very short time. You simply cannot wait until you are losing money before you begin raising prices. Your stock value would plummet.
What happened to all of the demonization of the oil companies and demands that we reform their evil ways? What happened to calls for windfall profit taxes to reign in their huge profits? Well, it turned out that the high prices actually had causes other than the evil oil companies, and they were just the target that was easy to portray as the enemy. The same thing is happening now. Hospitals are making 50% profit, remember. The high cost of health care has many causes, and making the health insurance company the enemy is not going to solve the problem any more than making oil companies the enemy solved the energy crisis.
The profits as a percent of sales are much less dramatic and are not really all that “substantial.â€
My problems with your argument: One, insurance companies make most of their profits from investments, not sales. So “profits as a percentage of sales” is a misleading metric. Two, we’re not seeing how much marketing costs and other non-productive overhead eats into those profits. Third, this underscores the larger argument that the for-profit insurance market business model is a really, really stupid way to pay for the nation’s health care. And the third item is the most important one. It is true that there are many factors eating into health insurance costs, and because of those factors the for-profit health insurance business model is becoming less and less tenable and ought to be abandoned.
Perhaps Think Tanks are like lobbyists – they advance the viewpoints of whoever is offering the most money this week. Why let a little thing like facts get in the way of your next paycheck?
Cato Institute — wingnut welfare at its finest.
maha,
thanks for what you said to Bill H. I was going to write something about marketing costs for insurance companies, but you got it covered.
Bill H,
Where did you get that statistic about hospitals from? I’m sure that some private ones, no doubt, are. But in poor rural and urban areas, that’s just not so.
Here, I “Googled” this:
http://www.hospitalreviewmagazine.com/news-and-analysis/current-statistics-and-lists/benchmarks-for-hospital-profit-margin-and-cash-to-debt-ratio-by-facility-size.html
I don’t see any 50% number there. Maybe I’m missing something. Profit to debt is a pretty good indicator, no?
Or are you just another 3 card monte dealer?
Either show me, or find a different mark. I’m not guessing where you’ve hidden your ace. Show me the stat’s, Bill H. Show me.
I hope I’m wrong about you. If I am, then I’ll apologize. God know it wouldn’t be the first time I was wrong.
maha will vouch for that! 🙂
The grocery business also operates on a thin profit margin as a per cent of sales, but the fact that everybody buys groceries every week means that just a little of the weekly take adds up over the year. The insurance people don’t do a damn thing but skim, so why should they not be happy with their profits? If I could get one penny per year from everybody in just one state, I’d have a good bit of change. Now think about getting a skim off everybody’s total health insurance payments.
The Cato guy? He’s just saying what he’s paid to say. That insurance on your insurance thing worked out so well in recent memory (Fortress Re, anyone?) that I wonder if I should also buy some insurance on my life insurance? And maybe, just to be on the safe side, I should buy some insurance on my homeowners insurance and some insurance on my auto insurance, too?
What truly puzzles me, though, is trying to understand what kind of world the average Joe people who fall for this line of thinking live in. Bitter, isolated, rejecting, hostile, blaming, selfish, self-righteous, deluded, hateful? Can they not see that they are just stepping up to the guillotine? The authoritarian follower mindset is deeply sick.
Profit is profit, and to look beyond that is distraction.
How stupid do you have to be to work for Cato? If it provides you a paycheck the answer is self evident.
The insurance insurance concept sounds like an episode of Seinfeld..I have no problem envisioning George Costanza priding himself on that novel idea while exploring business opportunities with Jerry.
I’d venture a ( C ) for “all of the above”.
It’s unscientific but I made a short foray into facebook to catch up with a few close friends from HS that I’d lost touch with and was unnerved at a significant number who’d become right-leaning…even tea-partiers. So I posted a poll so that the rightest of the right were pinged and requested to participate. The results were surprising with over 90% believing that government has a legitimate role in regulating corporations. Even stauch Republicans and several calling Obama a socialist sided against the corporations.
It all depends on how you frame the question. The question had been:
The only ones who thought the corporations should “police themselves” were a couple of nutty “free market libertarians” who recited talking points like mantras and were apparently cognitively-challenged.
The right does a much better job of reinforcing people’s assumptions on which their political identifications are made. They go at core beliefs from which opinions arise.
I worked with a guy who would’ve fit right in at Cato. They begin with a set of assumptions (“the free market is God”) about how the world works, and go from there. They start with the conclusion, and fit or discard the data accordingly, just like Rush Limbaugh or any other right wing idiot. Given this constraint, my coworker as well as his ideological pals at Cato probably genuinely thought insurance insurance was a brilliant idea. Cato, like Rush, like wingnuts everwhere, delight in twisting the data to support their pre-conceived notions of how reality works – they think this is the supreme intellectual achievement.
It’s not that these people are stupid – even the dolt I worked with was brilliant in his own way – it’s that these people are willfully blind. They choose to live in never-never land, and have crafted ways to deal with the real world – for example trot out some arcane study by an academic Authority Figure to shut off any criticism. This tactic works, on those who are intimidated by such stuff (think the typical “journalist” these days). At the end of the day, all that matters is that their side wins, that their privileges are maintained. They are intellectual cowards and have no concept of the truth, much less recognizing it, and fighting for it. Weenies, all of them.
BTW, I am one of those directly affected by the Anthem rate increase. They were set to raise my premium from around $330 per month to $390. They “helpfully” offered me a alternative policy with a higher deductable that I could slide into without going through underwriting again, and which costs slightly more than I’m paying today.
Anthem’s move raised the ire of my US Senator, Barbara Boxer, who got on the stick and contacted California Attorney General Jerry Brown to launch an investigation. I got a voicemail from Anthem a few days ago saying they’re going to hold the rate increase for a few months until the investigation blows over. It’ll be interesting to see how this plays out politically – Boxer is up for re-election (against the truly distasteful Carly “Failorina”), and Brown (in his 70s) will likely be the Democratic candidate for governer. Brown in particular has a lot of incentive to get tough with these greedheads, but if Krugman is right, Anthem does have a case if healthy people are indeed dropping their insurance in numbers sufficient enough to cause a death spiral.
One more thought – on this whole flap with Anthem, and Krugman’s death spiral. I read somewhere that some wingnut on Fixed News was aghast at the timing of Anthem’s move – as it provides a lot of ammunition for HCR. The Cato Institute’s intellectual masturbations notwithstanding, the whole fiasco pretty clearly demonstrates that the free market is a bust when it comes to managing health care prices. And so, as the wingnut on Fox fears, it really could work to our advantage, just as momentum is building to resurrect a public option via reconciliation. Keep your fingers crossed, and be thankful for missteps by corporate giants.
Today, I want to sit and reminice about the good old days in politics.
Before CATO, FOX Rush, Glenn, and other bullhorns on the right.
Back to when they had William F. Buckley and Barry Goldwater (before Reagan) as their spokespeople.
And we had, who? RFK? Mc Govern? John Lennon? Jerry Brown? I don’t know. We had too many people with excellent viewpoints to choose one person. And “Uncle Walter” was probably the greatest moderator that there ever was. Sure, he seems solidly liberal now, but back then he was pretty square down the middle, which is why LBJ freaked-out when Cronkite spoke out against Vietnam. The center moved sooo far right that Ol’ Walt seems pretty left wing. He wasn’t. He did, though, become that as he grew older.
I remember having friends on both sides of the aisle. One, Ed, was a hard-core communist, as was his father. Another friend, John, joined the marines in the mid-late ’70’s, and was from the John Wayne school of politics, predating Reagan. A solid conservative. I had others in between those two viewpoints. One was Jamie, my best friend, one who started out fairly liberal, but went to the Merchant Marine Academy in NYC and became much, much more conservative.
I considered my friend Ed, a bit nuts. He would spout Marxist dialectic’s at the drop of a hat. We kind of let him blow, and then went on with our converstations and our lives.
I thought my friend John was pretty reasonable. As was Jamie. My other best friends were left of center with me being, next to Ed, the most liberal. But we all could talk about the country, Vietnam, the economy, Russia, etc. We may not have agreed, and we had some heated arguments, but we could talk.
We all agreed that the communist left and the Bircher right were f*%!%g nuts. Boy, were THEY extremist!
Now, flash forward 30 years.
Ed’s argument, is passe. As unremarkable and unmemorable as a kim-chee, onion, and blue-cheese fart in a tornado. In other words, more memorable, but for the winds of change…
But the Bircher’s have, though not in name, done what the communists always wish they had done – spread cells of conservative thought throughout the country. The Birchers are still nobodies, but their philosophy is being absorbed into the conservative and Republican viewpoints and positions through the Teabaggers, who have more in common with the Bircher’s and militia movements than anyone on the left ever had with Lenin, Stalin, Mao, Castro, Che, or any other “communist” icon boogeyman. That none of them was truly “Communist,” has no bearing on anything. They were perceived as Communist.
But there is little precious middle ground anymore. We can’t talk to one another anymore. I know I sound like David Broder, but I miss those days.
They demonize us. We demonize them (and I’m as guilty as ANYONE!).
Wingnuts!
Moonbats!
We can’t talk anymore. We just scream.
God I miss those conversations, the beer-induced revelations, and the pot exaggerations… Now, it seems like “we’re” all on acid, hallucinating, and so into “our” own heads, that “we” can’t understand what “anyone” else is saying. Nor do “we” care. “I’m” right.” “They’re” wrong.” Yes, “I “know “they’re” wrong. But how can “I” convince “them” that “I’m” right if “I” don’t listen to “them,” and “they” don’t listen to “me?”
How do we change any of this? I don’t know.
I just wanted to reminice about the fun times back when we could argue, and not worry about someone shooting someone else. None of us had a gun, of course, except the rifles that the kids who hunted had back at home. But, that’s another converstation for another time…
Sorry, maha, about using up so much of your real estate. I just needed to kind of put something down on electrons.
Have a great weekend everyone!
Talk to ya soon!
Here’s a fact for Bill H to explain. The profits of the oil companies went from less than 40 Bil in 2002 to over 120 Bil starting in 2005 and continuing through 2006 & 2007. I expect profits went down when the $4 price dropped back to $2+.
Source:http://www.americanprogress.org/issues/2008/02/high_oil.html
See how that source thing is done, Bill.
It’s hard to put a yardstick to what profits that huge mean, but they did a good job.
“Exxon’s $40.6 billion profit in 2007 is roughly equal to receiving “$30 for every person in China and $132 for every U.S. resident.†Another way of looking at it is that Exxon made $77,245 per minute in 2007….”
Excuse me while I get a hankie to cry for the poor picked-on oil companies.
I have read a lot of ‘demonizing’ of medical insurance companies – almost always for their practices – not their profits. They write and sell contracts to individual policy holders that they can and DO rescind if the person gets sick and the contract will cost the company money. The executives make obscene salaries and the company produces NOTHING – unlike Microsoft or ‘Information Service Compannes’ There’s no R & D – no innovation – Medical Insurance Companies don’t provide medical care at all – they just process the bill. SO yes, you have to wonder why – when they want to retain over 20% of premiums for overhead and profit. WTF for?
A question for Bill H – do you live under a bridge?
The sooner we get the insurance companies out of the health care business, the better.
Doug,
Bill H probably does live under a bridge. Most trolls do.
I wonder where Bill went to?
Bill, you there?
Paging Bill!
Bill H?
Paging Bill H!
You there, Bill?
Nope.
Gone…
Probably tore open a hemorrhoid pulling that crap out of his ass.
Ensuring competition through some form of government enforcement means the “invisible hand†is being touched and IT MUST NOT BE TOUCHED! Monopolies, trusts, and other market failures are to libertarians what black holes are to astrophysicists – a destructive but inevitable part of “natural law†which freedom lovers have no absolutely choice but to accept.
This message was brought to you by the Koch brothers.
Bill H,
I’m sorry that I called you a troll.
I had a glass of wine. Then I thought about what I wrote earlier, and realized I was being an asshole.
It’s just that the line Doug fed me about you living “under a bridge” was too easy to pass up. It’s not Dougs fault. It was mine. If you read this site, you know I often try for a good joke. Sometimes, it’s a cheap one, like that one. Though I do try to be funny, I may sometimes come off as shrill, I imagine.
I don’t agree with your points, but calling you a troll was out of bounds. Sorry…
Perhaps Cannon should read the article “Guaranteed Profitability in Small Textile Recovery” by U. P. Nome, which I think first appeared in 1998. It seems the sort of thing he’d find fascinating.
I’m sure that after he is up on that research he’ll agree: as long as Californians still have an unrestricted supply of underpants, there is no way they’ll undergo extraordinary insurance price increases.
They demonize us. We demonize them (and I’m as guilty as ANYONE!). Wingnuts! Moonbats! We can’t talk anymore. We just scream.
Seconded, including the mea culpa.
But, tragically, the Right at present has a vested interest in this country’s failure, so that the GOP, to a person, votes against a health-care reform bill that incorporates all their revisions. There has to be some meeting-halfway, instead of this Republican strategy of dragging-down-to-our-national-doom. There are few hardcore Lefties around anymore; but our national dialogue is awash in hardcore Rightie (Randbot) thinking, as exemplified by Mr. Cannon’s nonsense. I wish to heaven that the GOP had one or two fearless Red Cats (the opposite of Blue Dogs), who’d speak up on health-care reform the way Chuck Hagel used to speak up about the Iraq War. But the insurance lobby pays the bills, I guess, for dogs and cats alike.
cu – I too was alive during those years when the country wasn’t so polarized, so I remember pretty much what you’re talking about. None of my cohort was all that political in those days; if anything politics was determined by generation – people middle aged and older surely remember the well known 1960s term “generation gap” – which described rather liberal young people versus their conservative elders. There were exceptions to this – some of my best friends to this day are some really cool liberal elders – but in general, politics/worldview was determined generationally.
I tend to liken our time now to the period before the Civil War. Intense polarization, to the point where it’s hard/impossible to have a discussion. Half-assed compromises (like Dred Scott) which please nobody but keep both sides from killing each other – this is what HCR is shaping up to be (unless the Dems finally wise up and just ram it through via reconciliation). The problems continue to build in this country, but because we’re so far apart in worldviews, they continue to go unresolved. It’s like a couple that has stopped speaking to each other.
I just think this is how history ebbs and flows – there are periods when a country pulls together (the Depression and WW2 as examples), and periods of time when people pull apart and are at each others’ throats. A crisis finally forces everyone to action.
I hope I live long enough to see us move past this deadlock, and I especially hope it’s resolved in a way that is equitable and minimizes pain and bloodshed. This hope is tempered against the reality that the VRWC has been preparing for decades for this moment; they aren’t about to let a “socialist” FDR-type onto the stage, sadly. They won’t repeat the same mistake again; seeding the mass consciousness with right wing propaganda for decades is their method for insuring against this.
C u n d gulag – I enjoyed your lengthy comments. A few things stand out – Pearls, if you will. For bipartisan discussions to be effective, they must be accompanied with significant quantities of beer. Somebody send a memo to the POTUS. He has til Thursday to buy a keg.
Second – what’s changed from then to now (aside from the beer) – when we were younger we were discussing problems starting with the problem – and working from the characteristics of the problem to the solution. This frequently took the conservative down a somewhat different path than a liberal, bit not so far that a bridge could not be built. Now the conservative starts with the solution (always lower taxes, smaller government, and deregulation) and tries to fit the problem into the solution. This confounds and infuriates me – since in the final analysis – the conservative answer (using health care as an example) still leaves millions uninsured, doesn’t address the abuses of insurance companies and doesn’t bend the cost curve. And these were the principal characteristics of the problem.
As you observed, the ‘free market’ catechism of the birchers has become gospel. Probably it’s our fault & failure as liberals to guard against the way texts have been slanted over a period of decades. The first clue should have been when ‘capitlism’ was made synonomous with ‘democracy’ as those concepts have nothing in common. There’s a trained bias against government and an equally irrational bias toward business. The fact is the citizen has to be wary of both and be trained to recognize the abuses that government and business have been guilty of. Maha has pointed out how conservatives have targeted school boards in TX to bias the slant of public school texts.
I’m not sorry for calling Bill H a troll. He’s a mindless troll I suspect, repeating the talking points he’s been fed, but he deserves as much ridicule as those ideas when he defends the obscene profits of the oil companies and ignores the business practices in the name of profit, that lead to suffering and even death on the part of clients who paid their premiums in good faith to insurance companies – only to be cheated when they were most vulnerable.
Bill H is defending ideas that are obviously false or contemptable – if you perform even the most casual check of the facts. Bill H won’t perform that duty because he’s working from the predetermined answer – stuffing the problem into that bag where it won’t fit. Conservatives have to ‘get real’ about the problem definition. Once they get to that point, I bet we can bridge to the solution.
I’m not an economist and I don’t play one on TeeVee, but still, it seems to me that for free markets to work, they have to be … oh, I don’t know, free, maybe? As in, I have choice in what toaster I want to buy, and if this particular toaster doesn’t meet my cost/quality standards, I can not buy one, or I can buy a different one. And the toaster maker is free to use that information to improve his product or price point. Everyone on both sides of the transaction has the same bargaining power as everyone else on that side of the transaction. Things sort themselves out.
Is health care a free market? I don’t think so. If I am old, or sick, or in some risk group, my bargaining power is way different than someone without those disadvantages. My current provider holds me captive, in that I probably can’t get other coverage due to preexisting conditions. The system is stacked against me on both sides of the transaction. Nothing free about that market, imho.
One might expect CATO to know this.
Doug,
“Now the conservative starts with the solution (always lower taxes, smaller government, and deregulation) and tries to fit the problem into the solution.”
So right! (Uhm, CORRECT!!!) I never thought of it that way.
Dave S,
Oh, they know, alright. But they’re doing what Doug described. With incentive$.
Doug you are spot on with the problem with conservative’s today:
A Planner’s bible, the comprehensive planning process:
1) Identify Problem
2) Create Preliminary Goals
3) Inventory/Data Collection
4) Analysis, typically with creating a series of maps
5) Identify alternative solutions (from the extreme solution to doing nothing)
6) Select a best alternative and implement policy
7) Evaluate policy/revisit first step as needed
You are spot on. When the right talks about any problem they jump right to step 6 (and forget about step 7…).
Gosh what a great discussion you all had yesterday. Glad I can strengthen the point in my small way.