Kevin Drum

Healthcare Costs Going Up, Up, Up

| Thu May 27, 2010 11:50 AM EDT

The Los Angeles Times reports today on enormous rate hikes for small businesses in the health insurance market:

Five major insurers in California's small-business market are raising rates 12% to 23% for firms with fewer than 50 employees, according to a survey by The Times.

...."We don't have that money," said Ann Terranova, a San Francisco financial planner who is dropping Blue Shield for herself and two employees after learning that their annual premium would jump to more than $19,000 a year from $11,000. 

....California insurers defend their rate hikes as sound and fair, saying they struggle to balance affordable rates with the need to remain competitive and turn a modest profit. Blue Shield, for example, said hospital charges rose nearly 20% last year, while physician costs and pharmaceutical fees increased almost as much. Anthem Blue Cross also cited the cost of medical care in explaining its average rate hikes of 13% this year.

If conservatives want to avoid the specter of federally funded single-payer healthcare in the United States, this is what they need to come to terms with. Canada provides high quality healthcare for everyone — including small businesses and the elderly — for a cost per person of about $4,000 per year. Ditto for France and the Netherlands. Britain and Japan do it for about $3,000. Ann Terranova is being asked to pay more than $6,000 per person — and that's for three working-age employees.

One way or another we have to deal with this. This year's healthcare reform bill takes some small strides toward reining in costs, but they're not nearly enough. We need to do far more, and if the private market won't do it then eventually public opinion will force us to adopt a European-style system. If conservatives really understood this, they'd take the problem more seriously. But they don't seem to.

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Gulf Spill Apparently Stopped

| Thu May 27, 2010 11:07 AM EDT

It's nice to occasionally wake up to some good news:

Engineers have stopped the flow of oil and gas into the Gulf of Mexico from a gushing BP well, the federal government's top oil-spill commander, U.S. Coast Guard Adm. Thad Allen, said Thursday morning.

The "top kill" effort, launched Wednesday afternoon by industry and government engineers, had pumped enough drilling fluid to block oil and gas spewing from the well, Allen said. The pressure from the well was very low, he said, but persisting.

The well hasn't been cemented yet, and this whole thing could yet fail. But keep your fingers crossed.

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Why Did North Korea Do It? cont'd

| Wed May 26, 2010 7:11 PM EDT

Fred Kaplan, after noting that North Korea has engaged in a number of naval skirmishes with South Korea over the past decade, takes a crack at explaining why they upped the ante and torpedoed a South Korean vessel two months ago:

Some speculate that Kim Jong-il may have planned the March 2010 attack as a show of strength, both to the Seoul government and to his own military commanders. South Korean president Lee Myung-bak had already — for good reasons — abandoned his predecessors' "sunshine policy" of outreach toward the North. Kim is also believed to be caught up in succession concerns — he is thought to be ailing and wants his youngest son, Jong Un, to be installed as his successor (just as he succeeded his own father, Kim Il-Sung) — and he may have felt a need to toughen up his image after the humiliation of last November.

....Who knows how this latest gamble will play out. Some speculate that Kim made the move, hoping that it would frighten the South Korean people into voting out Seoul's current anti-détente government in next month's elections. However, some observers think that Kim has been spoiled by the excess indulgence of the previous two administrations — not realizing that the last few years of northern belligerence have strained the patience of many southerners.

Maybe. As Kaplan says, though, "You may notice the phrases believed to be, thought to be, and may have in the previous sentence." Nobody really has anything more than a guess at this point.

Sarah Palin's Neighbor

| Wed May 26, 2010 5:56 PM EDT

In case you missed it because you actually have a life, author Joe McGinniss, who's writing a book about Sarah Palin, has rented the house next door to her. Palin immediately posted a Facebook greeting that included this line: "Wonder what kind of material he’ll gather while overlooking Piper’s bedroom, my little garden, and the family’s swimming hole?" The none-too-subtle insinuation that McGinniss is some kind of pedophile is vintage Palin, and undeniably disgusting.

Still, I have to wonder: am I the only lefty around who finds McGinniss's action a little disturbing? McGinniss obviously isn't breaking any laws, public figures have very little expectation (legal or otherwise) of privacy, and digging deep for book material is what any good journalist should do. Still. It seems a little over the top. Am I being too squeamish, allowing my personal conviction that even politicians deserve a certain zone of privacy to override my better judgment? In the age of Oprah, am I just a dinosaur? Or is McGinniss in fact crossing a line here? Comments?

Healthcare Reform Won't Hurt State Budgets

| Wed May 26, 2010 3:44 PM EDT

This should be old news, but since a lot of people still don't get this it's nice to see it getting front page treatment from the Washington Post:

The federal government will bear virtually the entire cost of expanding Medicaid under the new health-care law, according to a comprehensive new study by the Kaiser Family Foundation that directly rebuts the loud protests of governors warning about its impact on their strapped state budgets....Governors of many of those states have predicted fiscal calamity for their budgets, and some have cited the Medicaid expansion in the suits they have filed against the new law, saying it violates their states' rights.

But the Kaiser study released Wednesday predicts that the increase in state spending will be relatively small when weighed against the broad expansion of health coverage for their residents and the huge influx of federal dollars to cover most of the cost.

Even the small increase in Medicaid costs may be canceled out by the savings states will enjoy from no longer having to subsidize the uncompensated care of uninsured people who will be on Medicaid, study co-author John Holahan said. "It's absurd," Holahan, an Urban Institute researcher, said of the states' doom and gloom predictions. "They come out ahead. It's just crazy."

Bottom line: the federal government is paying more than 95% of the cost of the Medicaid expansion that's included in the healthcare reform bill. In some states the federal share is even higher. Total state spending on Medicaid will go up only 1.4%, a grand total of about $4 billion per year to cover more than 11 million people. What's more, it might be even better than that: as Holahan says, states might find that in the end they come out in the black on overall healthcare costs since their spending on care for the uninsured will go down. Keep this in mind the next time your state's governor starts wailing about healthcare reform and how it's going to bankrupt your state. It won't. The full report is here.

Why Did North Korea Do It?

| Wed May 26, 2010 1:09 PM EDT

I haven't been posting about the North Korean situation, but I've been following it with considerable interest ever since the start. And the biggest question all along has been: Why? Even by North Korean standards, torpedoing a South Korean ship is nuts. What on earth were they thinking? In the Financial Times today, Christian Oliver runs down the theories:

  1. Revenge
  2. To smooth the succession
  3. An internal power struggle
  4. A reversion to hardline ideology
  5. Breakdown of command in North Korea
  6. To distract from economic woes at home
  7. Bitterness about G20 meeting in Seoul

I have to say that I find all of these unsatisfactory, and I haven't read anything better anywhere else. It's just weird as hell. Even granted that North Korea acts like a mental case much of the time, this doesn't make sense. There's simply nothing good that can conceivably come out of this incident from their point of view.

So: my guess is that it was an accident. Or perhaps some combination of #3 and #5, a rogue commander who fired the shot because of some kind of chaos in the chain of command. Then, once the deed was done, we got all the usual North Korean bluster and delusion that we've come to know and loathe over the past few decades.

And then there's another obvious question: just how long is China willing to put up with all this? Sharon LaFraniere had a pretty good rundown of the Chinese dilemma a few days ago in the New York Times, and their unwillingness to put serious pressure on North Korea mostly seems to come down to a combination of inertia and a fear of massive refugee flows across the border if North Korea collapses. This, again, is something I've never quite bought: refugee flows can be managed with international help, and in any case they wouldn't be any kind of existential threat to China. Propping up North Korea hardly seems to be in China's self-interest any longer, and if that's the case I'll bet they eventually overcome their inertia and decide that the refugee problem can be managed after all. The only question is just how long "eventually" is.

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Wall Street's Temper Tantrum

| Wed May 26, 2010 12:29 PM EDT

John Heileman’s recent New York piece on financial reform tells us, among other things, that "it’s hard to find anyone on Wall Street who doesn’t speak of Obama as if he were an unholy hybrid of Bernie Sanders and Eldridge Cleaver." It's always fun to link to someone else's rant, so here's James Kwak's response:

Wall Street CEOs like to think they are the adults, the big men in the room, the ones who know how the world works. Well, you know what? They screwed up their own banks, the financial system, and the economy like a bunch of two-year-olds. Every single major bank would have failed in late 2008 without massive government intervention — because of wounds that were entirely self-inflicted. (Citigroup: holding onto hundreds of billions of dollars of its own toxic waste. Bank of America: paying $50 billion for an investment bank that would have failed within three days. Morgan Stanley and Goldman Sachs: levering up without a stable source of funding. Etc.) The financial crisis should have put to rest for a generation the idea that the big boys on Wall Street know what they’re doing and the politicians in Washington are a bunch of amateurs. Yet somehow the bankers came out of it with the same unshakable belief in their own perfection that they had in 2005. The only plausible explanation is some kind of powerful personality disorder.

It really is pretty mind boggling. I mean, obviously I get the fact that no one likes government interference in their business, no one likes being regulated, no one likes to make less money, and everybody has a million excuses for their own mistakes. But considering the epic FUBAR the bankers laid at our feet and the Obama administration's obvious efforts to protect them from the worst of the populist backlash by keeping the financial reform bill toned down — well considering that, and considering the fact that even bankers ought to occasionally take the long view and understand that better rules might be in their enlightened self interest, you'd think they could restrain themselves a bit. But no. I guess there's a reason that their nickname is Big Swinging Dicks.

Quote of the Day: Bipartisanship

| Wed May 26, 2010 12:09 PM EDT

From Sen. Lamar Alexander, commenting on the fact that no progress was made during a "good and frank" meeting yesterday between President Obama and congressional Republicans:

We simply have a large difference of opinion, which [will] not likely ... be settled until November.

Well, I'd say he's half right.

Federal Spending and Private Investment

| Wed May 26, 2010 11:35 AM EDT

Tyler Cowen points today to some interesting new research on government spending. Three researchers at Harvard took a look at what happened to federal earmarks when a state's senator or congressman took over chairmanship of a key appropriations committee. Answer: the state's earmarks went up a bunch (by 50% for senators and 20% for House members). No surprise there. So what happens to economic activity after this bounty starts pouring in? From the paper:

Seniority shocks result in economically and statistically significant declines in firm capital expenditures. Across all measures of seniority, the declines are large and highly significant....The coefficient implies a 1.2% drop in scaled capital expenditures []. Since firms have average capital expenditures of 8 percent of assets, Senate chairmanship causes a roughly 15 percent reduction in the representative firm’s capex.

Italics mine. So when federal spending goes up in a random way (committee chairmanships are generally unrelated to broader economic activity), capital expenditures by private industry goes down. A lot. Researcher Joshua Coval takes a crack at explaining why:

Some of the dollars directly supplant private-sector activity — they literally undertake projects the private sector was planning to do on its own. The Tennessee Valley Authority of 1933 is perhaps the most famous example of this. Other dollars appear to indirectly crowd out private firms by hiring away employees and the like. For instance, our effects are strongest when unemployment is low and capacity utilization is high. But we suspect that a third and potentially quite strong effect is the uncertainty that is created by government involvement.

Italics mine again. These are interesting results. But they need some followup. Even if you believe that government spending crowds out private spending in a serious way, the effect here is enormous. How can you possibly get an 8% drop in private sector capital expenditures from the relatively trivial increase in federal spending that comes from earmarks? There has to be something more to this story.

On the other hand, it makes perfect sense that whatever effect there is, is more pronounced when unemployment is low. That's exactly when you'd expect government spending to crowd out private sector spending. However, it probably doesn't tell us much about current stimulus spending, which is taking place in an environment of zero-bound monetary policy and extremely high unemployment. We haven't had an environment like that since the Great Depression, which means that empirical evidence one way or the other on this kind of federal spending is just very hard to come by. I'd certainly be surprised if the 2009 stimulus bill provoked any significant private sector crowding out.

What Went Wrong in the Gulf?

| Wed May 26, 2010 1:47 AM EDT

So what caused the Deepwater Horizon oil rig to fail? Here's the latest:

BP previously told investigators that a "negative pressure" test, which checks for leaks in the well, was inconclusive at best and "not satisfactory" at worst. But in the meeting Tuesday, BP went further, saying the results were an "indicator of a very large abnormality" but that workers — unnamed in the memo — decided by 7:55 p.m. that the test was successful after all. That may have been a "fundamental mistake," BP's investigator said in the meeting, according to the memo.

Next up is a "top kill," in which mud is injected into the well in order to plug the broken pipe. According to one expert, "There's always a trade-off between making it better and making it worse. This probably has the least amount of risk of making it worse." Why does that not make me feel especially comforted?