Kevin Drum

Medical Inflation Is Up, But It's Probably Just a Blip

| Tue Apr. 15, 2014 6:25 PM PDT

Sarah Kliff reports that health care spending ticked upward at the end of 2013:

A four-year slowdown in health spending growth could be coming to an end....Federal data suggests that health care spending is now growing just as quickly as it was prior to the recession.

....The Altarum Institute in Ann Arbor, Mich. tracks health spending growth by month. It saw an uptick in late 2013 that has continued into preliminary numbers for 2014. Separate data from the Bureau of Economic Analysis, which tracks the growth or consumer spending by quarter, shows something similar: health spending grew by 5.6 percent in the last quarter of 2013, the fastest growth recorded since 2004.

Inflation in the final quarter of 2013 ran a little over 1 percent, which means health care spending rose 4.5 percent faster than the overall inflation rate. That's a lot. But it's also only one quarter, and it's hardly unexpected. Take a look at the chart on the right, which shows how much per capita health care spending has increased over and above the inflation rate for the past 40 years. There are two key takeaways:

  • Medical inflation has been on a striking long-term downward path since the early 80s.
  • There's a ton of noise in the data, with every decline followed by a subsequent upward correction.

The HMO revolution of the 90s sent medical inflation plummeting. Then a correction. Then another big drop. And another upward correction. Then another drop. If that's followed by an upward correction for a few years, it would hardly be a surprise.

Nonetheless, the long-term trend is pretty clear, and it shows up no matter how you slice the data. For many years, medical inflation was running as much as 4-6 percent higher than overall inflation. Today that number is 1-2 percent, and the variability seems to be getting smaller. What's more, that 1-2 percent number matches the long-term trend during the entire postwar period (see chart below). There's good reason to think that it might be the natural rate of medical inflation, with the 80s and early 90s as an outlier. That's where I'd put my money, anyway.

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Donald Rumsfeld Will Never Overpay His Taxes

| Tue Apr. 15, 2014 2:52 PM PDT

Via Steve Benen, I see that Donald Rumsfeld sends the IRS a letter every year when he files his taxes. Here it is:

I have sent in our federal income tax and our gift tax returns for 2013. As in prior years, it is important for you to know that I have absolutely no idea whether our tax returns and our tax payments are accurate. I say that despite the fact that I am a college graduate and I try hard to make sure our tax returns are accurate.

The tax code is so complex and the forms are so complicated, that I know I cannot have any confidence that I know what is being requested and therefore I cannot and do not know, as I suspect a great many Americans cannot know, whether or not their tax returns are accurate. As in past years, I have spent more money that I wanted to....

Etc. Two things here:

  • As a longtime feeder at the public trough, Rumsfeld is surely aware that the IRS isn't responsible for the complexity of the tax code. Congress is. He needs to write an annual letter to his representative in Congress instead. As a resident of Washington DC, of course, he doesn't really have one, but that's a whole different story. However, I'm sure Rep. Eleanor Holmes Norton would be delighted to receive his letter anyway.
  • The big reason taxes are complicated is because people do complicated things with their money—often with the express aim of lowering their taxes. Nobody is forced to do this. If you want, you can just add up all your income and pay the statutory rate without worrying about deductions and loopholes and capital gains rates and so forth. That will make your taxes easy. But if you're the kind of person who has enough money to hire expensive accountants to manage your carefully tailored investments, then you have enough money to pay those accountants to do your taxes too.

In any case, none of this really matters. No matter how much Rumsfeld pays in taxes, it will never be enough to make up for the damage he's done to this country over his lifetime. He should stop whining. He owes us.

Google Ponders Using Its Search Algorithms to Encourage Encryption

| Tue Apr. 15, 2014 10:14 AM PDT

From the Wall Street Journal:

In a move that experts say could make it harder to spy on Web users, Google is considering giving a boost in its search-engine results to websites that use encryption, the engineer in charge of fighting spam in search results hinted at a recent conference.

The executive, Matt Cutts, is well known in the search world as the liaison between Google’s search team and website designers who track every tweak to its search algorithms....Google uses its search algorithm to encourage and discourage practices among web developers. Sites known to have malicious software are penalized in rankings as are those that load very slowly, for instance. In total, the company has over 200 “signals” that help it determine search rankings, most of which it doesn’t discuss publicly.

I don't want to make too big a deal out of this, but I'm a little nervous about the power Google is demonstrating here. Google has a two-thirds share of the search market, which makes it an effective monopoly in this space, and they're none too transparent about just how they exploit this dominance. Encrypting web sites is probably a good thing to encourage, but it's hardly necessary for every site. Nor is it clear just what Google would decide counts as proper encryption. Do some encryption standards and suppliers stand or fall based on whether Google's algorithm recognizes them?

I haven't given this a ton of thought, so just take this as a bit of noodling. To the extent that Google's algorithms are genuinely aimed at producing the most useful results for people, it's hard to fault them. When they start to go beyond that, though, things get a little gray. What comes next after this? It's worth some thought.

Fox News Is About to Get a New Pet Rock

| Tue Apr. 15, 2014 9:32 AM PDT

Oh man, a whole new set of conspiracy theories is about to take flight:

The Census Bureau, the authoritative source of health insurance data for more than three decades, is changing its annual survey so thoroughly that it will be difficult to measure the effects of President Obama’s health care law in the next report, due this fall, census officials said.

....An internal Census Bureau document said that the new questionnaire included a “total revision to health insurance questions” and, in a test last year, produced lower estimates of the uninsured. Thus, officials said, it will be difficult to say how much of any change is attributable to the Affordable Care Act and how much to the use of a new survey instrument.

“We are expecting much lower numbers just because of the questions and how they are asked,” said Brett J. O’Hara, chief of the health statistics branch at the Census Bureau. With the new questions, “it is likely that the Census Bureau will decide that there is a break in series for the health insurance estimates,” says another agency document describing the changes. This “break in trend” will complicate efforts to trace the impact of the Affordable Care Act, it said.

I admit that this sure seems like a bad time to suddenly decide we need a new methodology for counting the uninsured, even if it has been in the works for a while. But it doesn't matter if it's almost certainly bureaucratic inertia at work here, not political skullduggery. The Fox News set is going to have a field day with this. The feds are unskewing their own numbers! Probably on direct orders from the White House! I expect Darrell Issa to commence hearings next week.

Yeesh. Can't we just delay these changes for a year or two? Even if the old numbers were inaccurate, it would still be nice to keep a stable baseline for comparison through 2015 or so.

Is the Crisis in Ukraine About to Wind Down?

| Tue Apr. 15, 2014 9:03 AM PDT

I've been watching the unfolding events in Ukraine with the usual rising mix of apprehension and horror, but I haven't blogged about it much since I don't have anything to add in the way of insight or analysis. So instead I'll turn the mike over to Fred Kaplan, who does:

Contrary to appearances, the crisis in Ukraine might be on the verge of resolution. The potentially crucial move came today when interim President Oleksandr Turchynov said that he would be open to changing the country’s political system from a republic, with power centered in the capital Kiev, to a federation with considerable autonomy for the regional districts.

That has been one of Russian President Vladimir Putin’s key demands....If Putin can win this demand—and the political, economic, and cultural inroads it would provide—an invasion would be not just be unnecessary, it’d be loony. War is politics by other means, and a revamping of Ukraine’s power structure would accomplish Putin’s political aims by less costly means.

....Sending [NATO] fighter aircraft to Poland and the Baltic states, mobilizing warships to the Black Sea, ratcheting up sanctions with threats of more to come—all this sends a signal that the West won’t stand by. In fact, Putin has done more to rivet the NATO nations’ attention, and perhaps get them to boost their defense budgets, than anything in the past decade.

But Obama and the other Western leaders also know they’re not going to go to war over Ukraine. Putin knows this, too. At the same time, if he’s at all rational (and this is the worrying thing—it’s not clear that he is), Putin would calculate that escalation is not a winning strategy for him. He could invade the eastern slices of Ukraine, especially around Donetsk, but he couldn’t go much further. The move would rile the rest of Ukraine to take shelter under the EU’s (and maybe NATO’s) wing, and it would rouse the Western nations to rearm to an extent unseen in 20 years (and to a level that the Russian economy could not match).

I keep thinking that even from a nationalistic Russian point of view, the cost of invading and holding eastern Ukraine is simply too large. The game isn't worth the candle. And yet....who knows? Rationality is sometimes in short supply. I'd still bet against a Russian invasion, especially if Putin can get much of what he wants without it, but it would be a pretty iffy bet.

In any case, I wonder how long this "federation" will last? If Putin is smart, he can bide his time and just wait. A federated Ukraine could organically turn into eastern and western Ukraine with a bit of patience and without firing a shot. In the end, that would probably suit Russia's interests better than outright annexation.

Cliven Bundy Exposes the Cravenness of the Modern Right

| Tue Apr. 15, 2014 8:12 AM PDT

Like a lot of people, Ed Kilgore is distressed at the outpouring of support on the right for Nevada rancher Cliven Bundy:

Call it "individualism" or "libertarianism" or whatever you want, but those who declare themselves a Republic of One and raise their own flags are in a very literal sense being unpatriotic.

That's why I'm alarmed by the support in many conservative precincts for the Nevada scofflaws who have been exploiting public lands for private purposes and refuse to pay for the privilege because they choose not to "recognize" the authority of the United States. Totally aside from the double standards involved in expecting kid-glove treatment of one set of lawbreakers as opposed to poorer and perhaps darker criminal suspects, fans of the Bundys are encouraging those who claim a right to wage armed revolutionary war towards their obligations as Americans. It makes me really crazy when such people are described as "superpatriots." Nothing could be more contrary to the truth.

The details of the Bundy case have gotten a lot of attention at conservative sites, but the details really don't matter. Bundy has a baroque claim that the United States has no legal right to grazing land in Nevada; for over a decade, every court has summarily disagreed. It's federal land whether Bundy likes it or not, and Bundy has refused for years to pay standard grazing fees—so a couple of weeks ago the feds finally decided to enforce the latest court order allowing them to confiscate Bundy's cattle if he didn't leave. The rest is just fluff, a bunch of paranoid conspiracy theorizing that led to last week's armed standoff between federal agents and the vigilante army created by movement conservatives.

The fact that so many on the right are valorizing Bundy—or, at minimum, tiptoeing around his obvious nutbaggery—is a testament to the enduring power of Waco and Ruby Ridge among conservatives. The rest of us may barely remember them, but they're totemic events on the right, fueling Glenn-Beckian fantasies of black helicopters and jackbooted federal thugs for more than two decades now. Mainstream conservatives have pandered to this stuff for years because it was convenient, and that's brought them to where they are today: too scared to stand up to the vigilantes they created and speak the simple truth. They complain endlessly about President Obama's "lawlessness," but this is lawlessness. It's appalling that so many of them aren't merely afraid to plainly say so, but actively seem to be egging it on.

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Blood Moon!

| Tue Apr. 15, 2014 12:35 AM PDT

It turns out that timing is everything with the blood moon. We had a thin little haze of clouds passing across the sky here in Irvine, so I couldn't get a very sharp image, but at 11:24 pm, the moon was still disappointingly moon-colored. By 12:03 am, however, it was satisfyingly florid. Enjoy.

Big Government Run Amok Decides to Back Down

| Mon Apr. 14, 2014 3:46 PM PDT

The Washington Post gets results!

The Social Security Administration announced Monday that it will immediately cease efforts to collect on taxpayers’ debts to the government that are more than 10 years old.

....“I have directed an immediate halt to further referrals under the Treasury Offset Program to recover debts owed to the agency that are 10 years old and older pending a thorough review of our responsibility and discretion under the current law,” Social Security’s acting commissioner, Carolyn Colvin, said in a statement.

So there you have it. If your mother—maybe, possibly—got overpaid 40 years ago when you were a five-year-old child, the Social Security Administration will no longer seize your tax refund check in order to recover her alleged debt. Progress!

Anyway, Eric Posner says the government's legal position here was untenable all along. That's good to know.

Today Brings Good News/Bad News on Obamacare

| Mon Apr. 14, 2014 11:02 AM PDT

The CBO released a small bit of good news/bad news about Obamacare today. The good news: they now estimate that the 10-year cost of the program will be $104 billion less than they previously thought—which, in turn, was less than they had projected in 2010. This is primarily because exchange premiums have come in lower than CBO originally estimated, which means that federal subsidies will be lower.

The bad news: the lower cost of premiums is primarily because the quality of the plans coming from insurers is lower than CBO originally estimated: "The plans being offered through exchanges in 2014 appear to have, in general, lower payment rates for providers, narrower networks of providers, and tighter management of their subscribers’ use of health care than employment-based plans do. Those features allow insurers that offer plans through the exchanges to charge lower premiums (although they also make plans somewhat less attractive to potential enrollees)."

CBO didn't update its projection of Obamacare revenues, but if those don't change, it means that Obamacare will reduce the deficit even more than we thought.

But here's an interesting thing: CBO continues to project that Obamacare will lead to no short-term change in employer-based insurance. But the latest Rand poll suggests that employer insurance has increased by about 7 million since Obamacare enrollment started up last year. If that number turns out to be real, I wonder how that will affect CBO's budget estimates? It all depends on how this feeds into their models, but it seems like it would be a positive thing one way or the other.

How to Lose Money and Come Out OK Anyway

| Mon Apr. 14, 2014 8:37 AM PDT

TIAA-CREF is buying Nuveen Investments for $6.25 billion from Madison Dearborn, a private equity shop that bought Nuveen in 2007. Nuveen has performed poorly since then, but insiders say that the TIAA-CREF deal ensures that the Madison Dearborn will at least break even on its investment. Felix Salmon is gobsmacked after running through the numbers:

So here’s my back-of-the-envelope math: you buy a company for $2.7 billion in cash, plus debt which you refinance a few times. While you’re running the company, it loses a total of $2.4 billion. And then you sell the company for $1.75 billion in cash. Total going out the door: $5.1 billion. Total coming in, at exit: $1.75 billion. Net loss: some $3.35 billion, give or take.

All of which raises some big questions about the WSJ’s claim that Madison Dearborn “will have at least broken even on its Nuveen investment”. If that claim is even close to being true, then at the very least we can’t take Nuveen’s public filings at face value at all....This is worth remembering, when private-equity types (think Mitt Romney) claim that their interests are aligned with the interests of the companies they buy. That certainly doesn’t seem to have been the case here. Nuveen is being sold with about $1.5 billion more debt than it started with, and with cumulative losses under Madison Dearborn’s ownership of some $2.4 billion. That’s not a great legacy for TIAA-CREF to inherit. If Madison Dearborn really is breaking even on this deal, that only goes to show the enormous disconnect between the economics of private equity companies — the wealthy rentiers of society — versus the economics of the real-world companies they buy and sell.

Of course, one possibility is that Madison Dearborn is just putting a brave face on things and reporters are taking it at face value. More likely, though, there are tax games of some kind that allowed Madison Dearborn to strip a ton of value out of Nuveen over the past seven years. I suppose they're also benefiting from low interest rates, which means that Nuveen's refinanced debt is less onerous now than it was in 2007.

In any case Salmon's point is well taken. If you can break even after running a company as disastrously as Madison Dearborn has, there's something pretty badly rotten about the entire world of high finance. But then, you knew that already, didn't you?