Kevin Drum

ACA Once Again Working As Intended

| Tue Oct. 5, 2010 10:03 PM EDT

Stephen Spruiell writes:

Janet Adamy of the Wall Street Journal has become the administration’s worst nightmare — a writer for a major newspaper who calmly, straightforwardly, without spin or bias, reports on the unintended consequences of Obamacare as they unfold.

Oh for chrissake. Another "unintended consequence"? I guess I'd better click the link and see what it is this time. Turns out it's a story about 3M's retiree health plan:

While thousands of employers are tapping new funds from the law to keep retiree plans, 3M illustrates that others may not opt to retain such plans over the next few years

...."As you know, the recently enacted health care reform law has fundamentally changed the health care insurance market," the memo said. "Health care options in the marketplace have improved, and readily available individual insurance plans in the Medicare marketplace provide benefits more tailored to retirees' personal needs often at lower costs than what they pay for retiree medical coverage through 3M.

"In addition, health care reform has made it more difficult for employers like 3M to provide a plan that will remain competitive," the memo said.1 The White House says retiree-only plans are largely exempt from new health insurance regulations under the law.

Long story short, 3M is going to stop allowing retirees to buy into its corporate health plan starting in 2014. This is not because of any unintended consequence of ACA. It's because 3M wants to reduce its costs. Starting in 2014, thanks to ACA, high-quality private insurance will become available to everyone, so 3M has decided to give its retirees money to buy into a private plan of their choice instead of carrying them on its company plan. That's all there is to this.

Look: the whole point of ACA is to make high-quality private insurance available to everyone in the country at a reasonable price. And yes, when an alternative like this comes along, some companies will elect to take advantage of it. Others won't. It's a free choice, and it's part of a trend that was happening before ACA was even a gleam in Barack Obama's eyes. As NPR reported today:

Economist Paul Fronstin, who directs the nonpartisan Employee Benefit Research Institute, says 3M is probably the first big company to announce such changes. But he expects more companies will follow, because the new law limits how much premiums can vary based on age and other factors, such as pre-existing medical conditions.

"Employers are looking at that and saying, 'Why do I need to be offering this benefit anymore when my retirees can go out and get something that's actually better for them than what I'm offering," said Fronstin. "They can get something better than what I'm offering them and pay more, or they can buy something that's less comprehensive than what I've been offering and pay less."

Using this as some kind of black mark against ACA is crazy. It's tantamount to saying the government should never provide anything good, because if it does then someone might choose to take advantage of it. If that's the conservative view of government, include me out.

1This claim is almost certainly specious. I don't know of any provision of ACA that would have anything more than a minor effect on 3M's retiree plan.

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The Output Gap

| Tue Oct. 5, 2010 5:09 PM EDT

The financial crash of 2008 has produced lots of grim looking charts, and Neil Irwin has another one today. It shows our current output gap: the difference between where the economy is and where it would be if growth had been normal. At the far left you can see the positive output gap of the late 90s followed by a negative output gap during the ensuing recession. That's fairly normal.

What we have now isn't. The economy didn't overheat during the aughts. It was running at its usual historical rate. So the financial crash opened up a huge gap, and it's one we're not closing. If the economy grows at 6% a year — far higher than its current rate — unemployment wouldn't reach normal levels until 2012. If growth averages 3% a year, unemployment won't reach normal levels until 2020.

That's a long time to wait. If we want unemployment to come down any time soon, we need sustained economic growth of 4-5% per year for the next five years. Unfortunately, right now we're not doing anything to get us there. Neither Congress nor the Fed is willing to take any kind of serious action. So we're stuck. At the rate we're going now, we're staring at high unemployment rates for the better part of another decade.

Software Patent Insanity Continues Apace

| Tue Oct. 5, 2010 2:15 PM EDT

Software patents need to be done away with. Congress should just ban them. Now. Is there any other solution to this continuing insanity?

Bubble Candidates

| Tue Oct. 5, 2010 2:00 PM EDT

"Do politicians need the media anymore?" I asked a few months ago. Politico's Jonathan Martin reports that the answer is apparently not:

It’s mostly, but not entirely, a Republican phenomenon....As of Friday, Colorado Republican Senate hopeful Ken Buck had gone nine consecutive days without holding a public event....Tea party darlings Rand Paul of Kentucky and Christine O’Donnell of Delaware both surged to primary victories thanks, in part, to national media exposure, but after their own comments got them into trouble, they abruptly canceled post-primary Sunday show appearances and have largely avoided doing non-Fox national TV.

....Senate Majority Leader Harry Reid and his GOP challenger, tea party favorite Sharron Angle, do carefully controlled public events and are loath to face the kind of scrutiny that would come in a free-flowing press conference or debate setting....“Angle’s strategy seems to be: Let the [mainstream press] do what it wants — I have Fox, conservative radio, my ads and Karl Rove,” [Jon] Ralston said, alluding to the former Bush adviser’s independent group, American Crossroads.

....In Wisconsin, the campaign of GOP Senate hopeful Ron Johnson, a first-time candidate who has made some verbal miscues but who leads three-term Sen. Russ Feingold in the polls, has ignored requests from the Milwaukee Journal Sentinel to share his daily schedule.

I expect to see more of this, though I suppose it depends a lot on how these bubble candidates do. Meg Whitman followed this strategy during the Republican primary in California and it worked fine, but she's abandoned it during the general election because it obviously won't work against a well-known Democratic opponent in a blue state. But for conservative candidates especially, who can rely on specific conservative channels to get their message out (Fox, talk radio, deep-pocketed independent expenditure groups), this strategy may represent the future of campaigning.

Celebrating the Old Confederacy

| Tue Oct. 5, 2010 1:28 PM EDT

Jeffrey Goldberg asked Mississippi governor Haley Barbour recently whether he thought the Republican Party could ever attract the support of African-Americans as long as party officials like Barbour continued to celebrate the old Confederacy. Unsurprisingly, Barbour wasn't keen to reply:

The true, spin-free, answer, obviously, is that the Republican Party would rather not risk offending mythopoetic white Southerners by calling the Confederacy what it actually was — a vast gulag of slavery, murder and rape. As an electoral strategy, it's a fine one — an immoral one, but a practical one, something that has worked for the Republicans for more than 40 years (though the gains it has made in the South have been tempered by losses in the Northeast and elsewhere). But what I don't understand is why African-Americans, in the south as well as the north, don't simply rise up as a collective and say: No more. That's it. Stop the veneration of evil men.

Just imagine if this discussion was about the Holocaust. Do we really think the world would allow Germany to venerate the Nazis? Well, slavery was the Holocaust of the African-American experience, and yet, here we are, listening to respectable governors of large southern states rationalize the celebration of evil.

For what it's worth, I'd say Germany is the exception, not the rule, here. Most countries with sins in their past have mixed feelings about it, from French veneration of Napoleon to the longstanding Turkish insistence that no genocide of Armenians ever took place to the Japanese supernationalists who have long baited their politicians to visit Yasukuni Shrine every year. I suspect the almost unanimous German condemnation of the Hitler era is fairly unique in history, partly due to the sheer intensity of its evil and partly due to the fact that it was so short-lived. Unlike the other examples, it was never around long enough to become associated with an enduring cultural or nationalist tradition.

But guess what? Things can change even where enduring cultural and nationalist traditions are at work. Just a few months ago, Japanese prime minister Naoto Kan announced his decision not to visit the Yasukuni shrine on the anniversary of the end of World War II this year. Ditto for the rest of his cabinet. "As Class-A war criminals are enshrined there," he said, "an official visit by the prime minister or cabinet members is problematic. I have no plans to make a visit during my tenure." He seems to have survived this decision just fine. Maybe Haley Barbour should take note.

Interchange Fee Update

| Tue Oct. 5, 2010 12:08 PM EDT

Whenever you use a credit card, the merchant pays the credit card company an interchange fee. Usually it's around 1-2% of the purchase amount, but it varies with the card. It's also invisible, and credit card companies have long prohibited merchants from passing along the charge to consumers, something they can get away with thanks to their monopoly status. Yesterday, however, the Department of Justice reached a settlement with Visa and Mastercard that changes this:

Under the terms of the proposed settlement, merchants could offer consumers an immediate discount or rebate for using a particular type of payment, a particular credit card network (Visa versus American Express), or a low-cost card within that network (a Visa debit card rather than a Visa credit card).

That may give merchants an incentive to steer consumers toward paying with cash or with no-frills credit cards without rewards programs because the swipe fees for those options are lower. The settlement also allows merchants to post the cost of using different types of payments.

The settlement, however, does not allow merchants to levy a surcharge on credit and debit payments beyond the cost of the transaction, as some merchants had sought.

This is progress, though it's not my preferred solution, which is to make these fees entirely public and allow merchants to pass them along to customers directly if they want to. As I wrote a couple of months ago:

If they don't, that's pretty good evidence that card networks are charging a fair price for the service merchants get from them (increased sales, less handling of cash, etc.). And there's no harm done. But if they do tack on the charge, it's pretty good evidence the networks aren't charging a fair, market-clearing price. I say: let's find out.

Maybe we'll get there someday. In the meantime, at least this settlement should allow us to gather more data about exactly who ends up paying these fees and whether or not they're mostly monopoly rents hoovered up by the credit card networks. Stay tuned.

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The National Security State

| Tue Oct. 5, 2010 11:42 AM EDT

Presidential Directive Number 12 requires that the federal government enact "secure and reliable forms of identification" for all employees. Sounds reasonable. However, George Bush's implementation of Presidential Directive Number 12 effectively means, as I wrote a few years ago in a post about NASA, that "if you want to work for NASA in any capacity, you're now required to sign away your privacy rights in advance. Ditto for just about any other government agency that decides to implement this directive. It's just another lovely little policy being 'institutionalized' for George Bush's successor."

Well, Bush's successor is now in office, Presidential Directive Number 12 has indeed been institutionalized, and it applies to everyone, not just those who handle classified information. Today, Dennis Byrnes, the chief engineer for flight mechanics at the Jet Propulsion Laboratory, is at the Supreme Court listening to his lawyer argue against the government's position that it can mount essentially any investigation whatsoever against anyone who does any work whatsoever for the federal government. That includes Byrnes, whose job is 100% civilian and unclassified in nature:

In 2007, I and all other JPL employees were told that we would be required to submit detailed personal data and sign a release form allowing investigators to look at all aspects of our personal lives. Anyone who refused would lose their access to JPL; in essence, they would be fired. I, and many of my colleagues, found this appalling and quite unacceptable.

....Neither I nor any of the plaintiffs have anything to hide. I care nothing for my personal privacy. I care for the terrible damage being done to the guarantees of our Constitution. I care for the loss of trust most of us once had in our government. I care that the longstanding trust and collegiality between engineers and scientists at JPL and their management is being destroyed and replaced by a poisoned atmosphere of mistrust by employees and heavy-handed paternalism by management. I care that all across the country, many talented technical people will leave government service or choose not to apply in the first place because of this unwarranted assault on their constitutional freedoms. I fear that carried to its natural end, this process, with its false promise of national security at the expense of freedom, will forever damage our country.

This is all part of the creeping normalization of the national security state. Not just airports, but metal detectors in every government building. Police officers who demand that you stop taking pictures of public places. Security cameras everywhere. Drug stores that make you sign a form to buy cold medicine. And in this case, a requirement that you sign away your privacy rights completely even if nothing you do is sensitive or classified or even remotely related to national security.

We're never going back to 1950. I get that. But as this stuff becomes ever more ubiquitous, we start to forget there was ever a time when we didn't live our lives under constant surveillance and constant suspicion. We'll regret that if we don't take a deep breath sometime very soon.

The Third Party Chimera

| Tue Oct. 5, 2010 10:42 AM EDT

Megan McArdle reacts to Thomas Friedman's cri de coeur for a third party to save us from the craven mendacity of our current party duopoly:

It's not that I'm against third parties, mind you. It's just that when I look at multiparty states elsewhere, I can't say that they look noticeably more honest than our two-party system. A third party might be an improvement over the ones we've got. But I doubt it would get into office by telling us the truth: that solving our problems is going to mean hefty tax increases or unpleasant spending cuts, or both. American voters seem to like being lied to.

That's pretty much my usual reaction to this idea. Lots of other countries have multiparty democracies, and they don't seem noticeably more willing to make tough choices than ours. Besides, contrary to the usual Friedmanesque conventional wisdom, a successful third party in America would probably be socially conservative and economically liberal, which I don't think is what Friedman has in mind.

Just in general, "how does this work in other countries?" is an underasked question. It's not a panacea, since every country has different demographics, different history, different cultural institutions, and different political traditions, and it's not that the answers are always clear — they usually aren't — but international comparisons do provide some useful guidance. Parliamentary vs. presidential, private healthcare vs. national, socialism vs. capitalism — you can infer some useful information about all these things if you're willing to look beyond our borders and take other countries seriously, neither downplaying differences nor using them as excuses to ignore anything you don't like. You can also get a pretty good idea of what doesn't matter, and my quick read is that having more than two parties doesn't generally improve things.

Will Financial Reform Work?

| Tue Oct. 5, 2010 12:36 AM EDT

Will financial reform help create a safer banking system? Last week I said that a key sign would be falling profits, since safer banks ought to be less profitable banks. Unfortunately, banks seem pretty bullish about profits, a sign they don't really think all the new regulations will change their business practices much.

Today, the Wall Street Journal begs to differ:

Investor presentations by top bank executives in London last week, combined with increasingly dour projections for the third quarter that ended Thursday, are crystallizing the challenges banks face. "The business models on the Street are going through dramatic changes," says Clayton Rose, professor of management practice at Harvard Business School, based on the most drastic shifts in the "political, regulatory, and economic environment since the 1930s in the financial industry."

....Return on average equity for the major investment banks, a key barometer of profitability, could be halved from the 20% range a few years ago, according to SNL Financial. And costs are rising, leading to expected waves of industry job cuts.

Morgan Stanley and Goldman, the two major firms that derive most of their earnings power from Wall Street businesses, are expected to earn about $12.1 billion in profits this year — 23% less than in 2006, their peak earnings year, according to Thomson Reuters. Their revenues are still largely dependent on trading, with about 60% of 2009 and estimated 2010 revenues coming from trading, according to Sanford Bernstein.

It's too early to know for sure how this is going to turn out, so for now consider this just another data point. On the one hand, a big part of this anticipated profit crunch is due to lower volumes of stock trading, something that wasn't really affected by the financial reform bill. So that doesn't mean much. On the other hand, the Journal story suggests that higher capital requirements, curbs on prop trading, and derivatives rules are also a big part. If that's the case, maybe the new rules will really have some bite. Stay tuned.

Republican Mouths vs. Insurance Industry Money

| Tue Oct. 5, 2010 12:21 AM EDT

Noam Levey has a wonderfully revealing piece in the LA Times today about the health insurance industry's hopes and dreams for a Republican Congress next year. The insurers, it turns out, like the new healthcare reform rules that force everyone to get health insurance, but they aren't so keen on all those other pesky regulations:

The insurance industry, attracted by the prospect of millions of new customers as a result of the coverage mandate, initially backed President Obama's campaign to overhaul the healthcare system. And insurers scored a key victory when Democrats abandoned plans to create a government insurance plan, or "public option." But insurers are increasingly balking at the myriad new directives in the healthcare law.

Among other things, the law prohibits insurance companies from denying coverage to sick children and canceling policies when customers get sick. The law bars insurers from placing lifetime caps on how much they will pay when their customers get ill. Many consumers will also get new rights to appeal denied claims and win new access to preventive care without being asked for copays.

"The health reform law did not deliver the uninsured in the way that insurers wanted," said veteran healthcare analyst Sheryl Skolnick, senior vice president at CRT Capital Group.

That final quote is priceless. "The health reform law did not deliver the uninsured in the way that insurers wanted." Apparently they wanted the uninsured trussed up and delivered to their doorsteps wallet first, but without any actual obligation on their part to provide decent service in return. And they know just how to get their wish: "The industry would love to have a Republican Congress," says Wendell Potter, a former Cigna insurance executive. "They were very, very successful during the years of Republican domination in Washington."

But this is creating a wee problem for everyone. You see, Republicans are loudly proclaiming right now that they want to eliminate the part of the law that forces everyone to buy insurance. But that's exactly the part of the law that insurance companies like. In fact, they want to see it strengthened. At the same time, they want to get rid of the popular parts of the law that keep insurance companies from figuring out ways to screw patients. But those are the provisions that Republicans say they'll keep if we turn over Congress to them.

And yet, the insurance companies are massively funding Republicans this cycle anyway. Why would that be? It's almost as if they're sure that Republicans are just blowing campaign smoke and will support their agenda once they're safely in office. They're so sure, in fact, that they're willing to put their money where their mouths are to the tune of millions of dollars.

So which do you believe? Republican mouths or insurance industry money? Decisions, decisions.....