31 January 2007

Kos on Colorado

New Gallup poll numbers were released on party identification. The left column shows the percentage of those surveyed who identify as Democrats or lean Democratic, the right column shows those who identify as Republicans or lean Republican. The middle shows those who don't lean towards either party. The blockquote below shows the eight most Republican leaning states in the Union. Colorado is the least strongly Democratic of the Democratic party leaning states.

Here is what kos has to say about the numbers:

CO 47 7 46
MS 44 7 49
SD 41 11 48
SC 44 6 50
TX 42 8 50
NE 37 9 55
ID 35 11 54
UT 33 6 62

Seeing Colorado so far down on the list, I'm even more impressed at the Democratic performance the past two cycles. There's a reason Colorado got a serious look at in Crashing the Gate -- it's exhibit A of how a unified progressive movement can dramatically transform a state. Compare it to far more Democratic states, and it's no contest. Colorado may very well sport the most organized, most effective movement in the country. I can't wait to celebrate the Democratic convention in Denver next year.

Take a pat on the back you guys. Also, these number explain quite boldly why Colorado Democrats sometimes have to make compromises that Democrats elsewhere do not. It is fine to make compromises in Colorado, but we shouldn't be making them in places like Connecticut.

Gangs in Colorado Prisons

The debate over the every growing corrections budget in Colorado, we have about 22,000 people in prison in the state and it is growing by 1,000 people a year or so indefinitely into the future. Recidivism, approaching 50%, is a key component of the problem.

Many of the issues involved in cutting it are familiar and came out at a legislative hearing at which Ari Zavaras, the Ritter administration's new head of the Department of Corrections, testified.

Funding for mental health, drug and alcohol and sex offender treatment was slashed during the Owen's administration, despite the fact that these programs are proven to reduce recidivism. Equally of concern was the lack of incentives to get skills training and classes. The parole system isn't effectively encouraging inmates to leave prison and get straight, and many are returning to prison for technical violations that cost the public a bundle.

The remarkable statistic provided by Zavaras (as reported in the Denver Daily News) was one about gangs that I'd not heard before. According to the DOC, there were 5,056 gang members in Colorado prisons in 2000 and there were 8,373 in 2006. Thus, the Department of Corrections believes that almost 40% of inmates in Colorado prisons are gang members.

While it isn't surprising to hear that there are gang members in Colorado prisons, these numbers are stunningly high, and moreover, suggest a different cause for recidivism and suggest different approaches to dealing with it, than have been suggested in the past. In the case of an isolated criminal, dealing with the individual issues that push that person to commit a crime is a sensible policy. In the case of a criminal gang, the solution has to isolate the offender from the gang or smash the gang itself.

This also suggests a different approach to law enforcement, against oriented towards the epic struggles between gangs and towards shutting the gangs themselves down.

I'm skeptical, because law enforcement often exaggerates the extent of gang activity, but this figure signals a need for much more attention to the issue.

30 January 2007

Denver Election Commission Scrapped

Denver voters have voted to replace the Denver Election Commission with a Clerk and Recorder position similar to, but not identical to, those in most Colorado counties by a 2-1 margin.

The post will be added to the May 2007 city election, with the new clerk and recorder taking office on July 16, 2007. If no candidate wins a majority of the vote in May, the top two candidates will face off in a run off election. The election process will be essentially identical to that for the Mayor and Auditor. It will not be an offically partisan position (unlike that in other counties) and unlike the position in other counties, it will not include supervision of the DMV, but will include municipal clerk, as well as county clerk responsibilities.

The proposal was motivated by a history over Election Commission screw ups, dating at least to 2004, followed by a truly disasterous election in November of 2006 in which tens of thousands of voters were disenfranchised by long lines caused by faulty software provided by Sequoia, an electronic voting machine supplier. The commission had arrogantly ignored numerous dire warnings that there would be problems. This ballot proposal followed, against the recommendation of the Blue Ribbon panels that looked into the problems and found that they had nothing to do with the structure of the commission.

As I wrote earlier on this blog, I believe that the decision that the voters have now made was a bad idea, but it is unlikely to have serious consequences in the near future. An elected clerk and recorder can run elections, even if it isn't the ideal way for this task to be done.

Colorado's Homeless

There are about 12,000 homeless people (the count was 11,890) in Colorado according to a survey taken last summer. A winter count is underway.

Colorado has a population of about 4.7 million people. So about 1 in 400 people in the state are homeless. The definition of homelessness used in the survey includes people with shelter, but not homes. It is not restricted to vagrants sleeping in parks or on the street.

More Ultracapacitor Based Vehicles

A week ago, I'd never heard of an ultracapacitor.

A few days ago, I hear that an upstart Texas company could revolutionize the electric vehicle market with them.

Now, the Mack Truck subsidiary of Volvo is building a hybrid diesel-electric commercial truck prototype that features them. The Mack hybrid demonstration adds a lot of credibility to the earlier story, whose critics focused on the technological hurdles associated with the practical applications of ultracapacitors.

The notion of a big hybrid commercial truck was a domino waiting to fall. There is no scale issue with hybrid diesel-electric technology. Locomotives on freight trains have been using them for years. But, the ultracacitor twist is notable.

Rich Dad, Poor Dad

My wife has started reading up on investing and all things financial and entrapreneurial. One of the starting points was one of the "Rich Dad, Poor Dad" books, which she'd read quite a bit of. I'd seen them prominently displayed at book stores. It was folksy and a bit unorthodox. I put a little entry on my "to check out" list to see if there was any merit to what he had to say. She then did a little internet looking into the topic.

I hadn't know was that Robert T. Kiyosaki’s book "Rich Dad, Poor Dad" is a fraud, as in almost everything described in the book as fact is really just made up and false, even best seller status apparently was achieved largely via a quasi-Ponzi scheme.

This is bad for two basic reasons. First, the books are on the non-fiction shelf. Second, the argument for following Kiyosaki's financial advice is basically ad hominem. To paraphrase: "I got rich this way, my friend's dad got rich this way, my own dad failed to get rich because he didn't do it, it works." An ad hominem attack is a legitimate way to question an ad hominem argument.

This isn't to say that there aren't any nuggests of wisdom in 18 books of financial cliches, but given that the book urges readers to leverage and similar high risk approaches to get rich quick, caution is in order when you know that the man who wrote it is a fraud.

Kiyosaki and Education

I don't give Kiyosaki quite as hard a rap for scorning conventional education as some writers do.

While education is valuable in fields where you rely on your ability to reason and draw upon a wealth of received wisdom (law, medicine, engineering, academia, theology), in much of business too much reasoning ability can be a bad thing.

First, it tempts you to do things yourself instead of delegating tasks to an expert. Good business people trust their professional advisors.

Second, outside some select fields, education is largely a sorting tool which isn't that important when you are in business for yourself. Many jobs that require a B.A. or other degree, don't actual involve using the skills you acquire in that education in any meaningful way. The fact that you got into a good college (which shows that you are smart), and that you had enough self-disicipline to graduate, are far more important.

Third, many business people get rich by doing something that logically should be stupid and never the less sticking with it and getting lucky -- education and reasoning ability breeds doubt in these schemes. FedEx was based on a business plan that the professors at Harvard's M.B.A. program frowned upon.

Indeed, even in the professions, big economic sucess is rarely simply a matter of being very smart and very good at what you do.

My father-in-law was a financially successful radiologist not exclusively or even primarily because he was far better than his peers at reading a chart. His financial success had a lot to do with some savy business decisions he made and with his artful management of his business colleagues.

While the straight and narrow path can lead to financial success in law, by getting you hired at a big firm and pushing you along the partner track, many lawyers secure financial success outside this track using very non-academic negotiating and marketing skills to bring and win major class action and personal injury cases.

Edison invented the light bulb thorough brute force trial and error.

Put another way, education and a good job and conventional wisdom are great, proven, reliable tools to becoming upper middle class, but aren't necessarily the best tools for becoming truly rich. Entrapenurial success (or success in the arts and entertainment world) is the main way to achieve great financial wealth, and this involves a set of qualities very different from those rewarded in the traditional good student path.

29 January 2007

Are Lawyers Worth It?

A while back I noted (and I will update this post with the reference if I find it), a Denver study comparing criminal law outcomes between defendants represented by public defenders and those represented by private attorneys.

In cases that went to trial they did equally well, but private attorneys fared better during plea negotiations. It isn't clear if this was due to the nature of the cases (with the marginal good cases seeking private counsel) or if this was due to better lawyering.

A counterpoint to this is a recent study on attorney effectiveness in tax court, which compared settlement and trial outcomes in pro se cases to those in lawyered cases.

Interestingly, the study found that the presence of an attorney for the taxpayer significantly improved the taxpayer’s financial outcome in tried cases, an effect that increased with the experience of the attorney. No such effect existed in settled cases. Although the latter result initially is surprising, it highlights the paramount importance of procedural expertise in formal trial proceedings, as opposed to negotiations with the opposing party. The study also found that the presence of an attorney for the taxpayer did not affect time elapsed to trial or settlement. Thus, the study found that taxpayers’ attorneys, who generally are paid by the hour, neither prolonged disputes nor expedited their resolution but did significantly improve the financial outcomes of the cases they tried.

Thus, in tax, lawyers help at trial, but not in the civil equivalent of a plea bargain. This may indicate that having no lawyer at all, as opposed to a different kind of lawyer does matter at trial, and that the I.R.S. is considerably better at enforcing low level uniformity and discipline on its trial lawyers than most district attorneys' offices.

Wikipedia Rules!

If making law is a key part of ruling, Wikipedia is in charge.

More than 100 judicial rulings have relied on Wikipedia, beginning in 2004, including 13 from circuit courts of appeal, one step below the Supreme Court. (The Supreme Court thus far has never cited Wikipedia.)

While 100 decisions out of thousands of decisions made every year may not be many citations, only a select few learned legal treatises have been cited as often as Wikipedia in a two year period. Only a couple of blogs have been cited more often (many of which appear in the sidebar). It undoubtedly outranks the law reviews of many law schools for frequency of citation. There are many actual appellate decisions that have never been cited in a published opinion (probably close to half), and the better part of the nation's statutes have never been cited to by any court.

While the linked article worries that this might corrupt the judiciary, unless a party actually introduced a Wikipedia article into the record as evidence at trial, it should only consider these matters in the course of taking "judicial notice" which is governed by Rule of Evidence 201 (Colorado and the Federal Rule numbers are the same). The basic standard is that:

A judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.

The fact that Wikipedia is about as reliable as the Encyclopedia Britannica, is more up to date, and covers more topics makes it often desirable on this score. Judicial opinions have long referenced news articles for a like purpose. In principal, such a reference in either case, however, should be preceded by an opportunity to be heard "as to the propreity of taking judiical notice and the tenor of the matter noticed.", and request may be made on that score by a party after the fact (presumably in a motion for reconsideration).

Kyle's Story

A stranger came to Denver
Where he mistook his way.
He asked the fuzz for guidance
"Get lost" was all they'd say.

He was there already,
He informed a tramp,
Who walked the stranger to journey's end
With kindness, from his camp.

More kindness than the shopkeep or the cop this tramp did show
So pass the tramp a dollar
As you're passing to and fro
To pay this kindness forward and
To show to all that you know.

-- Kyle's true story took place in January, 2007. He reported that Denver Police were far less courteous than those in Toledo or Detroit.

26 January 2007

A Better Battery?

Producing energy without oil is easy. Storing it in a way a vehicle can use is hard. Batteries are poor alternative to gasoline when it comes to energy density. An electric car has a range on the order of 100 miles with conventional batteries and is slow to recharge.

A Texas company claims it can deliver a better battery in 2008.

The company boldly claims that its system, a kind of battery-ultracapacitor hybrid based on barium-titanate powders, will dramatically outperform the best lithium-ion batteries on the market in terms of energy density, price, charge time, and safety. Pound for pound, it will also pack 10 times the punch of lead-acid batteries at half the cost and without the need for toxic materials or chemicals, according to the company.

For example, the company's system claims a specific energy of about 280 watt hours per kilogram, compared with around 120 watt hours per kilogram for lithium-ion and 32 watt hours per kilogram for lead-acid gel batteries. . . .

The trick is to modify the composition of the barium-titanate powders to allow for a thousandfold increase in ultracapacitor voltage--in the range of 1,200 to 3,500 volts, and possibly much higher.

EEStor claims that, using an automated production line and existing power electronics, it will initially build a 15-kilowatt-hour energy-storage system for a small electric car weighing less than 100 pounds, and with a 200-mile driving range. The vehicle, the company says, will be able to recharge in less than 10 minutes.

The company announced this week that this year it plans to begin shipping such a product to Toronto-based ZENN Motor, a maker of low-speed electric vehicles that has an exclusive license to use the EESU for small- and medium-size electric vehicles.

By some estimates, it would only require $9 worth of electricity for an EESU-powered vehicle to travel 500 miles, versus $60 worth of gasoline for a combustion-engine car.

If true, this is big. This is big enough to eliminate internal combustion engine vehicles in a decade or two. Whether this is for real remains to be seen.

Hat Tip to Defense Tech.

This I Believe

I believe that progress is possible.

We are better off than the generations that came before us, and we have the ability and the obligation to our descendants to improve upon the world that we have received.

It is within our power to create a world where everyone has access to quality health care, nutritious food, secure shelter and adequate clothing.

It is possible to create a world where getting a job isn’t a crime.

We can minimize war and terrorism without resorting to atrocities ourselves. I don’t know if peace is possible, but I know that we can make the world more peaceful than it is now.

It is possible to achieve a reasonable degree of law and order without putting more African-American men in prison than in college, and without letting petty drug dealers rot in prison for a decade or more.

It is possible to maintain a technologically sophisticated civilized society without rendering out planet uninhabitable or relying on abundant supplies of petroleum.

It is possible to better prepare our youths for adulthood.

I believe that progress can be achieved by committed, thoughtful people.

They do not need to be geniuses, although our society has many geniuses.

They do not need to be charismatic figures, although our society has many superstars.

They do not need to be fabulously wealthy, although our society is awash with the superrich.

They do not need God’s favor, although many in our society seek it.

I believe that the public is capable of supporting progress.

Most people can agree on most outcomes that show we have a better society.

Most people fear change that they do not understand. Few people really understand why our society works, fewer still understand what is necessary to make our society better. A majority of people will never understand these things. Real understanding can only be achieved through diligent, honest inquiry. Not all people are thoughtful or committed. Most are not. No one lives long enough to understand everything.

The essence of what makes a change in society good can be explained, not rigorously, but heuristically and by example. People who experience a way of organizing our society that works will support it. People who experience something know whether or not it is working.

The path from the present to a better world is not always straightforward. But, if thoughtful, committed people are consistent in guiding the public towards it, the public can change its views of what is right and wrong about our society, and can back positive change.

25 January 2007

Castle Pines North v Castle Pines Village

Castle Pines North is an upper middle class subdivision in Denver exurb Douglas County. Castle Pines Village is an adjacent, smaller subdivision where the houses cost twice as much. Both want to incorporate. Both want to get sales tax revenue from Castle Pines Parkway, sixty businesses in a commercial strip adjacent to Castle Pines North and a mile or two from Castle Pines Village.

The Municipal Finance System That Drives The Conflict

This fight is mostly about tax revenue.

The businesses are key to municipal viability, because in Colorado most local government revenue comes from sales taxes, from business property taxes and from other taxes on businesses.

Under a misguided 1982 constitutional amendment proposed by the man who is now Denver's city auditor, the Gallagher Amendment, businesses, whose property values make up only 25% of the total, pay 55% of all property taxes. In addition, unlike most states, businesses pay property taxes not only on their real estate, but also on their business personal property like cooking equipment in restaurants and machines in factories.

Businesses also pay sales taxes which are a larger share of municipal and county government revenue than in most states. In contrast, in most states sales taxes are collected solely or primarily at the state level. Many Colorado cities, like Grand Junction, collect so little revenue from municipal property taxes and so much from municipal sales taxes, that they could abolish municipal property taxes entirely with only a minor fiscal impact.

Businesses also pay "occupational taxes," a head tax on people who work in a municipality, which are assessed by many municipal governments.

Residents of municipalities usually pay only property taxes on their homes (based upon about 9% of actual value) and user's fees (like fees for trash collection). Seniors and totally disabled veterans, when state revenues permit, received additional property tax exemptions (although these are financed by the state and don't hurt local government revenues).

Businesses pay far more in taxes than they demand from governments in services, while residential development generally pays far less in taxes than is necessary to support municipal services.

As a result, incorporating or annexing bedroom communities to a municipality is rarely economically viable in Colorado, and existing municipalities have a strong economic incentive to discourage new residential development within their boundaries, while grasping ruthlessly for new business development, especially highly sought after sales tax generating retail business developments.

The Merits: Castle Pines North Deserves To Win

Castle Pines North is mostly incorporating because they don't want tax revenue from shops adjacent to them to be swiped by people in a subdivision that isn't even contiguous with the commercial strip.

Notably, there is already a Castle Pines Metropolitan District in existence which carries out most of the functions of a municipality, in Castle Pines Village, and a similar metro district in Castle Pines North, but each lacks a police force of its own. These are financed by property taxes and user's fees, but not sales taxes. The Castle Pines Parkway businesses are in the Castle Pines North Meto District, and are not in the Castle Pines Metro District that serves Castle Pines Village.

Castle Pines North offered to extend their proposed incorporation to include Castle Pines Village. The villagers flatly refused, perhaps because they can't stand the riff raff who live in mere $500,000 homes next door, or perhaps because they don't want an official state designation as a city (implausible -- you can still emphasize the village moniker if you like with a City of Castle Pines Village), or perhaps because they don't want to share tax revenues that they don't deserve with their neighbors (most likely).

Often it is hard to tell who is right and wrong in competing claims to incorporate or annex territory. There is little precedent to guide cases like these. But, here, Castle Pines North is clearly on the higher ground, figuratively, if not literally. This should be an easy case.

Castle Pines Parkway is a natural fit for the proposed boundaries of the municipality of Castle Pines North, which was also first to the court house with its incorporation petition. Including Castle Pines Parkway in Castle Pines Village is little more than a craven tax grab.

But for the recent tendency of developers to favor master homeowner's associations and special districts over municipalities, each of these subdivisions would have been designed from day one as incorporated municipalities. It isn't clear what motive Castle Pines Village had for changing this status quo, other than to swipe tax revenue from their neighbors. The other other plausible reason is that it felt that the Douglas County Sheriff was doing a poor job of providing police protection to the subdivision, which given the low crime rate in the area, seems implausible.

But, this is a case where the whiny rich in Castle Pines Village really need to learn to get along with their upper middle class neighbors in Castle Pines North, and share the tax revenue of Castle Pines Parkway by forming a single municipality (might I propose the municipal name "Castle Pines"?) for both, as Castle Pines North has graciously offered to, rather than continuing their petulant tax grab. If they can't live with that, they should learn to endure the status quo. A judge will decide the issue if the neighboring communities can't, and I'm not sure how a judge would come out, even though from a layman's prespective, the equities are clear.

24 January 2007

The Gold Plated Health Insurance Myth

One of the things that the President railed against was the tax benefits provided to those with "gold plated" health insurance. The claim is questionable. Health insurance is rarely expensive mostly because it has fewer excluded services. Other causes are behind most high premium health insurance plans.

About 80% of people with health insurance pay under the $15,000 limit for tax breaks he suggests for family insurance, and under the $7,500 limit for tax breaks he suggests for individual insurance. By definition, he calls those non-gold plated policies.

So, who has the more expensive policies that make up the other 20%?

1. Small businesses. A health insurance policy with the national average cost for family coverage of about $11,500 a year, covering what a Fortune 500 company or the federal government or a state government can get for that price, costs roughly $16,500 a year to secure for a small business group, and thus would be considered "gold plated" by the administration.

2. Old people in small businesses. Most states still permit premiums to be based on the age of the insured, at least, in small business group plans. If you are 55+ you pay far more for the same health insurance product than you do if you are under 25.

3. Self-insured plans that cover pregnancy. It is possible to buy a non-group health insurance plan separate from an employer plan. These plans are far less regulated than employer provided health insurance which is mandated to provide many coverages. Indeed, for a young adult this can save you heaps of money. The single biggest factor in the cost of a non-group health insurance plan is whether you elect to cover pregnancy or not. For an individual or family that includes a woman of child bearing years, roughly half of the cost of the policy is for maternity coverage. If you elect maternity coverage, the plan is as expensive or more so than a small business plan, if you opt out, and can't afford maternity health care as an uninsured person, you impose a burden on the health care system and may end up giving birth in a taxi or getting brought to an emergency room if there is a problem.

4. People in high cost areas. Many insurance companies charge different rates based upon where you live. There are two kinds of high cost areas, those where the cost of living is high, like San Francisco, and rural areas outside metropolitan areas, where there are few providers. Most expensive are high cost rural areas like ski resort communities, which have many rich residents, but also many low income workers who are maids, food service workers, and resort functionaries. Few HMOs and preferred provider plans include rural areas within their coverage areas at all, so it may be necessary to get a far more expensive traditional indemnity plan with no formal cost controls other than your share of a deductible.

5. People with pre-existing conditions. Many states prohibit insurance companies from denying coverage to people with certain health conditions. But, there is still a large group of people who are "uninsurable". This doesn't really mean that they can't get health insurance at all. Most states have an entity like Cover Colorado that provides health insurance at a high cost to otherwise uninsurable people on a subsidized basis (150% of the "standard rate"). For example, a 60 year old male smoker in Pitkin County (home to Aspen) who is uninsureable and makes $51,000 a year, can get health insurance for himself in Colorado with ordinary benfits and a $1,000 deductible for in-network expenses, but it will cost him $14,212 a year, far in excess of the $7,500 limit for individual under the President's plan.

6. Smokers Health insurance prices can typically be based on where someone is a smoker, as well as age and location. An insurable 60 year old male smoker in Pitkin County, will still pay about $9,475 a year for a typical plan with a $1,000 deductible. By the President's definition, the plan would be "gold plated", even though it is really merely expensive, not a high benefit plan. While we want smokers to pay their share of the costs associated with their habit, adding a health insurance deduction tax limitation to cigarette taxes and higher health insurance rates is counterproductive. It simply encourages smokers to defer care which makes it more expensive in the long run and in turn likely increases the share of health care costs for smokers paid by the public.

7. Union plans. Many labor unions, whose workers are frequently middle class manufacturing or office workers in large organizations, have traded cash income for health insurance plans with low deductibles. These plans are more predictable and easier to deal with for the consumer (who frequently has no meaningful ability to control provider costs through comparison shopping anyway), helps many union members who would be short on cash to pay big deductibles, and has tax benefits, because few families with half decent health insurance make use of the medical expense itemized tax deduction which provides no benefits for co-pays and deductibles under 7.5% of gross income. But, these are not fat cats with "gold plated plans" that a covering private rooms in hospitals and cosmetic surgery.

The Myth of the Gold Plated Plans of the Rich

The average American's understanding of a gold plated plan, is that a gold plated plan covers services that would be excluded from plans available to middle class Americans, like elective cosmetic surgery, private rooms in hospitals, premium birthing centers, mental health treatment in the form of luxury vacations and experimental treatments. Those plans are rare indeed and are probably not enough of a drain on the public purse through tax dollars lost to be worth regulating. If the truly rich lose tax favored treatment in the area of health insurance plans, it will simply be diverted to some other form of tax favored fringe benefit like fatter stock options or a bigger expense account.

The notion that there is a large overlap between people with high health insurance premiums and people who have stock options, corporate jets, second homes, fat bonuses, and a free concierge service at the office simply isn't true. Indeed, federal non-discrimation requirements in health plans make it hard to set up gold plated plans for these kinds of employees.

The reality is that the healthy rich, who (1) can afford to pay large deductibles if they must without sweating it, (2) have the time and sophistication to intelligently research low cost health care providers, and (3) will get preventative care without any financial incentives to do so, are the only people for whom high deductible plans are really appropriate.

The Low Deductible v. High Deductible Choice

The main way, all other things being equal, to reduce your health insurance premium, which is the only choice most employers have when selecting plans, is to choose plans with larger co-pays and big deductibles. In other words, to force employees to pay for health insurance with after tax dollars, instead of pre-tax insurance dollars (or to enroll in a supplemental health reimbursement or savings account plan of some type of mitigate this cost).

The reason that the President and economists like the late Milton Friedman have pushed these high deductible plans is that they believe that individual patients would control health insurance costs for particular services better than big health insurance companies devoted to nothing else do. The problem, as acknowledged by such liberal bleeding hearts as former Colorado Governor Owens, a Republican, and Republican candidate for Governor in Colorado Bob Beauprez, is that the health care market isn't transparent enough for consumers to make meaningful cost comparisons of the type necessary for this to work.

In the real world, a choice between a low deductible and a high deductible plan has nothing to do with cost control. It is a simple gamble. The high deductible plan consumer is betting that you won't get sick. The low deductible plan consumer is betting that you will get sick. Low deductible plans are more appropriate for low asset consumers, despite being more expensive, because they don't have cash reserves big enough to handle the downside risk that they lose the gamble. High deductible plans are more appropriate for high asset consumers, despite being less expensive, because high asset consumers can afford to take the downside risk.

Because of the lower premium costs, many people who really don't have the emergency funds necessary to afford high deductibles, buy high deductible plans. But, the main kind of cost control that takes place in those situations is that people refrain from getting non-catastrophic health care when they need it, not people bargaining for or comparison shopping for lower costs from providers. Thus, this is ultimately a bad approach to encourage as a matter of public policy.

Is The President's Plan Really Progressive?

The President basically sold his health insurance plan as a form of class warfare, a way for the middle class uninsured to get health insurance at the expensive of the fat cats with gold plated health insurance plans.

It is true that truly low income workers don't have health insurance plans with fat premiums. But, those workers also rarely pay much in taxes anyway, so they benefit least from a tax break. It is also true that middle income people in high cost situations often opt for high deductible plans and pray that they don't get sick, so that they can have something.

But, health insurance is not an economic arena where what you get is closely related to what you pay for it. The biggest driver of health insurance premium cost is whose buying the policy. As is often the case, this favors big business.

It probably costs less to buy generous health insurance for the senior executives at the Gates Rubber's headquarters in the South Platte Valley near Denver's Millenium Bridge, than it would cost to buy far less generous health insurance for the baristas at the Ink! coffee shop across the street.

Even if the tax policy Bush proposes is marginally progressive, this doesn't make up for a health insurance market and health care system that is starkly regressive. The uninsured pay more when the seek health care, and those who pay more for health insurance are rarely the truly privileged.

23 January 2007

Senate Tax Bill A Bad Start

The Small Business and Work Opportunity Act of 2007 was recently approved by the Senate Finance Committee on a voice vote in an effort to provide a sweetener for business to accompany the minimum wage increase recently passed by the House.


It is a bill which enacts a number of changes in the tax law that do little or nothing to help impacted businesses, don't have a solid justification in tax policy, and in one case seriously impairs the constitutional rights of U.S. taxpayers. It is a poor example of Democratic party efforts to make Congress more ethical. This is to a great extent a business pork shifting bill.

The bill includes about $800 million over five years in S corporation and accounting method related tax breaks that don't help mimimum wage impacted businesses which are give aways rather than sound tax policy changes. Another $5.5 billion over five years of tax breaks have a mixed impact on minimum wage impacted businesses and are less than exemplary from a tax policy perspective. Only one tax break, costing $1.79 billion over five years, squarely addresses the needs of minimum wage impacted employers and employees, as does one no cost rule change.

The bill closes $5 billion over five years of abusive international taxation loopholes, and it closes about $1 billion over five years of domestic taxation loopholes, in an reasonable decent manner, but it also includes a very problematic provision that allows the I.R.S. to seize money for alleged unpaid employment taxes without providing taxpayers with due process protections until after the property has been seized, potentially having catastrophic effects on an innocent taxpayer in order to raise $156 million in revenues over five years.


Proposed tax breaks and their five year costs

1. Allows businesses to expense up to $112,000 of capital assets with a phase out starting at $450,000 of income in 2010, currently this expired at the end of 2009. Cost $4.86 billion. Impact on minimum wage impacted businesses: Moderate -- this does help small businesses, but encourages them to substitute machines for labor when it doesn't make economic sense absent taxes to do so. Tax policy impact: Mixed -- while de minimus Section 179 expensing can avoid costly depreciation accounting, the large amount of assets impacted give the size of the businesses that qualify go far beyond this justification and encourage irrational investments in capital assets especially if the business is a mature one and not a start up.

2. Reduces depreciation period for certain restaurant buildings and leasehold improvements from 39 years to 15 years for property put into service through March of 2008. Cost $724 million. Impact on minimum wage impacted businesses: Mixed -- creates unfair competition for existing impacted businesses, but encourages creation of new minimum wage jobs. Tax policy impact: Mixed -- There is a principled argument that restaurant improvements do not have a useful life of 39 years due to the nature of the industry, but short term incentives are bad tax policy.

3. Permanently allows partnerships with C corporation partners to use the cash method of accounting where they have gross receipts for the past three years of under $10 million indexed for inflation. Current law has a $5 million not indexed for inflation. Cost $547 million. Impact on minimum wage impacted businesses: Negligible. Tax policy impact: Negative.

4. Expands the Work Opportunity Credit which provides tax breaks to for employers that handle certain classes of people likely to have trouble finding a job. The credit would apply to the first $12,000 of first year wages, rather than the first $6,000, it would be extended by five years through 2012, and the age limit for "high risk youth" would be expanded from 18 to 39. Cost $1.79 billion. Impact on minimum wage impacted businesses: High. Tax policy impact: Modest (tax credits are often a form of welfare/spending program; stability and a more broad based definition are good and it encourages progressivity and future taxable earnings, but it is still a crude preference).

5. Provides tax relief to S corporations that used to be C corporation and accumulated profits in the process that sell stock or securities at a gain. Normally, these sales would be subject to capital gains taxes a C corporation rates as part of the S corporation to C corporation transition rules. Cost $111 million. Impact on minimum wage impacted business: Negligible. Tax policy impact: Bad.

6. Allows banks organized as S corporations to give directors token shares. Cost: $66 million. Impact on minimum wage impacted business: None. Tax policy impact: Bad.

7. Allows banks organized as S corporations which used to be C corporations to use a favorable method of accounting for and paying transition related taxes connected to bad debts. Cost: $60 million. Impact on minimum wage impacted business: None. Tax policy impact: Negative.

8. Clarifies rules governing an S corporation's sale of an S corporation subsidiary. Cost: $15 million. Impact on minimum wage impacted business: Negligible. Tax policy impact: Neutral to good.

9. Forgives tax liability of S corporations which were C corporations prior to 1983. Cost $11 million. Impact on minimum wage impacted business: None. Tax policy impact: Negative.

10. Allows certain trusts which are allowed to be S corporation shareholders to have non-resident aliens as beneficiaries. Cost: $10 million. Impact on minimum wage impacted business: Slight. Tax policy impact: Good -- This eliminates unnecessary complexity without reducing revenue.

11. Allows temp agencies to conclusively take responsibility of payroll tax liabilities. Cost: Negligable. Impact on minimum wage impacted business: Positive. Tax policy impact: Good -- this is a rules of the road provision clarifying tax law in a muddy area.


Offsets are tax increases used to pay for tax cuts, usually involving abusive interpretations of tax law, generally unrelated to the main bill.

1. Closes international tax loophole involving sale and lease out transactions. Revenue: $4.3 billion. Tax policy: Good.

2. Doubles tax penalties for offshore tax shelters. Revenue: $5 million. Tax policy: Mixed -- this adds complexity, but punishes particularly fraudulent conduct.

3. Increases tax barriers to expatriation of domestic corporation. Revenue: $449 million. Tax policy: Good.

4. Authorizes IRS to make rules limiting foreign tax credit abuses. Revenue: $4 million. Tax policy: Good.

5. Tightens rules for an obscure form of financial debts (contingent convertable debts under original issue discount rules). Revenue: $222 million. Tax policy: Good.

6. Makes government fines and punitives damages and the like non-tax deductible. Revenue: $302 million. Tax policy: Good.

7. Accellerate capital gains taxes on U.S. citizens who expatriate. Revenue: $220 million. Tax policy: Good.

8. Limits non-qualified deferred compensation to the lesser of $1 million or the average of the last five years of compensation. Revenue: $307 million. Tax policy: Mostly good -- Closes a major tax loophole for the rich in an inelegant way.

9. Increases criminal tax fraud penalties. Revenue: $1 million. Tax policy: Good.

10. Increases bad check fees. Revenue: $10 million. Tax policy: Good.

11. Moves hearings on employment tax liability property seizures from before the seizure to after the seizure. Revenue: $156 million. Tax policy: Negative. Constitutionality: Questionable.

12. Improves administration of whistleblower cases. Revenue: $77 million. Tax policy: Good.

13. Broadens the definition of certain people subject to rules for senior corporate officers of large corporations. Revenue: $104 million. Tax policy: Good.

Petitioning Onto the Ballot Retrospective

Election geek, Stonewall Dem, and Denver Dem's officer candidate Dan Willis in June of 2006 recapped the candidates who tried to petition onto the ballot in Colorado, rather than using the party caucus process. Post-election, the results aren't pretty. Who tried?

Gov: Marc Holtzman (R) insufficient signatures - challenging the decision LOST IN PRIMARY

CD5: Lionel Rivera (R) certified to ballot LOST IN PRIMARY
CD5: Bentley Rayburn (R) certified to ballot LOST IN PRIMARY
CD5: John Anderson (R) certified to ballot LOST IN PRIMARY
CD5: Duncan Bremer (R) certified to ballot LOST IN PRIMARY

CD7: Peggy Lamm (D) certified to ballot LOST IN PRIMARY
CD7: Herb Rubenstein (D) certified to ballot LOST IN PRIMARY

SD9: Eric Singer (R) insufficient signatures
SD22: Kiki Traylor (R) certified to ballot LOST IN PRIMARY
SD22: Justin Everett (R) certified to ballot LOST IN PRIMARY
SD30: Mark Baisley (R) certified to ballot LOST IN PRIMARY
SD32: Chris Romer (D) certified to ballot WON PRIMARY AND GENERAL ELECTION RACE

HD1: Margaret Atencio (D) insufficient signatures
HD13: Jim Rettew (D) certified to ballot LOST IN PRIMARY
HD35: Jeffrey Vigil (D) certified to ballot LOST IN PRIMARY
HD37: Mick Davis (R) insufficient signatures
HD59: Jeffrey Deitch (D) certified to ballot LOST IN PRIMARY

Who won?

Chris Romer, a Democrat running in Senate District 32, is the only person running for state office in the entire state who was nominated by petition, rather than a caucus and made it past a primary.

Senate District 32 is a safe Democratic district so the primary in this open seat vacated by Dan Grossman was the election for all practical purposes. The primary results were as follows:

Jennifer Mello (DEM) 3073 35.64 %
Fran Coleman (DEM) 1294 15.01 %
Chris Romer (DEM) 4256 49.36 %

While petitioning onto the ballot and getting elected isn't impossible, but it is very nearly so. Romer came to the party with name recognition, as the son of the former Democratic Governor of Colorado, and may have been influenced in his decision by the fact that three candidates were running for this safe open seat, making caucus voting (where 30% support is required) less predictable.

Bits and Pieces of Data On Health Care Costs

In 1850 physicians had an average income of about $600 per year, only 248 percent of the average manufacturing worker's annual income. By 1900, physicians' annual incomes had risen to about $1250, still only 297 percent of the average manufacturing worker's annual income. Physicians' relative incomes continued to rise until by 1988 physicians' income had risen to $117,800 which represented 553 percent of an average manufacturing worker's yearly earnings.

From Reed Neil Olsen, "The Reform of Medical Malpractice Law: Historical Perspectives", note 11, The American Journal of Economics and Sociology, July, 1996.

Looking back since 1965, the history of payments to physicians under Medicare falls into three different periods. During the first period, from 1965 to 1984, physician fees were based on historical charges. With few constraints in place, it is not surprising that charges and volume increased substantially during this period. During the second period, from 1984 to 1991, fee growth was limited by the Medicare Economic Index. This period also experienced a rapid growth in spending.

The primary lesson learned over these first two periods was that controlling fees under a disaggregated fee schedule is not a very effective way to control or moderate spending on physician services. During these 25 years, spending for physician services grew more than 2.5 percentage points faster than spending for all services.

Legislation passed late in 1989 that introduced the concept of a resource-based relative value system, brought a series of changes to physician payment, leading to the third historical period, from 1991 to the present. These changes included:

Abandoning a charge-based system
Limiting the liability that beneficiaries could face (that is, limiting balance billing by physicians)
Redistributing physician payments
Introducing explicit controls on volume
The first volume-control mechanism was the volume performance standard, or VPS. It tied annual updates to physician spending relative to a target by impacting the conversion factor, which translated the relative values of the RBRVS to dollars. Over the next several years, however, problems primarily relating to unstable updates became increasingly apparent although the rates of increase in spending definitely declined. From 1992 to 1998, for example, the MEI varied from 2.0 percent to 3.2 percent, while the annual update varied from 0.6 percent to 7.5 percent.

The VPS was replaced by the SGR approach in 1997. It tied growth in the physician fee schedule to the growth in “real” (that is, inflation-adjusted) growth in the economy, per capita. The update now adjusts the MEI by the cumulative spending on physician services relative to the target. The problem is that since 2002 and for the next four years of the budget period, the update has been and is predicted to be a negative 4 percent to 5 percent.

From Gail R. Wilensky, "The Challenge of Medicare Physician Spending", Health Financial Management Magazine, December 2006.

Throughout the 1980s, Medicare's spending for physicians' services grew faster than its spending for all other services; in the 1990s, that trend reversed. From 1981 through 1990, spending for physicians' services grew at an average annual rate of 13.7 percent, whereas spending for all other services grew by 11.1 percent per year. By 1990, Medicare's total payments to physicians were more than three-and-a-half times greater than they had been 10 years earlier, and the average physician was receiving more than two-and-a-half times as much in Medicare payments. Indeed, the program's payments per physician increased almost twice as fast as did the nation's economy during the 1980s.

From May 5, 2004 testimony from Douglas Holtz-Eakin, Director, of the Congressional Budget Office.

Data on spending are readily available for 29 Organization for Economic Cooperation and Development (OECD) countries. In every one, medical spending has gone up significantly both in inflation-adjusted dollars per person and as a fraction of national income. In 1997, the United States spent 14 percent of gross domestic product on medical care, the highest of any OECD country. Germany was a distant second at 11 percent; Turkey was the lowest at 4 percent.

A key difference between medical care and the other technological revolutions is the role of government. In other technological revolutions, the initiative, financing, production, and distribution were primarily private, though government sometimes played a supporting or regulatory role. In medical care, government has come to play a leading role in financing, producing, and delivering medical service. Direct government spending on health care exceeds 75 percent of total health spending for 15 OECD countries. The United States is next to the lowest of the 29 countries, at 46 percent. In addition, some governments indirectly subsidize medical care through favorable tax treatment. For the United States, such subsidization raises the fraction of health spending financed directly or indirectly by government to more than 50 percent.

What are countries getting for the money they are spending on medical care? What is the relation between input and output? Spending on medical care provides a reasonably good measure of input, but, unfortunately, there is no remotely satisfactory objective measure of output.

Ultimately, the purpose of this article is to examine the situation in the United States. I have mentioned the data on the OECD countries primarily to document the two (related?) respects in which the United States is exceptional: we spend a higher percentage of national income on medical care (and more per capita) than any other OECD country, and our government finances a smaller fraction of that spending than all countries except Korea. . . .

Expressed as a fraction of national income, spending on medical care went from 3 percent of the national income in 1919 to 4.5 percent in 1946 to 7 percent in 1965 to a mind-boggling 17 percent in 1997. No other country in the world approaches that level of spending as a fraction of national income no matter how its medical care is organized. The changing role of medical care in the U.S. economy is truly breathtaking. To illustrate, in 1946, seven times as much was spent on food, beverages, and tobacco as on medical care; in 1996, 50 years later, more was spent on medical care than on food, beverages, and tobacco. . . .

The data document a drastic decline in output over the past half century. From 1946 to 1996, the number of beds per 1,000 population fell by more than 60 percent; the fraction of beds occupied, by more than 20 percent. In sharp contrast, input skyrocketed. Hospital personnel per occupied bed multiplied ninefold, and cost per patient day, adjusted for inflation, an astounding fortyfold, from $30 in 1946 to $1,200 in 1996. . . . Hospital days per person per year were cut by two-thirds, from three days in 1946 to an average of less than a day by 1996. . . .

Expected longevity went from 47 years in 1900 to 68 years in 1950, a truly remarkable rise. From 1950 on, expected longevity continued to increase but at a much slower rate, reaching 76 years in 1997. For our purposes, it is of fundamental importance that, whatever its source, the increase in longevity did not have any systematic relation to spending on medical care as a fraction of income. . . .

In terms of holding down cost, one-payer directly administered government systems, such as exist in Canada and Great Britain, have a real advantage over our mixed system. As the direct purchaser of all or nearly all medical services, they are in a monopoly position in hiring physicians and can hold down their remuneration, so that physicians earn much less in those countries than in the United States.

From Milton Friendman, How To Cure Health Care, Hoover Digest, 2001, No. 3.

Data from the Medicare Payment Advisory Commis-sion and the Centers for Medicare & Medicaid Services(formerly the Health Care Financing Administration) (3,4) suggest that from 1991 to 2002, Medicare paymentrates for services provided by internists and family practitioners increased by 17% and 45%, respectively, relative topayment rates for all physicians. Payment rates for primarycare services, mainly office and hospital visits (but irrespective of the specialty of the physician) also increased by asubstantial amount in relation to payment rates for all physician services, probably in excess of 40%. . . .

Physician incomes have not kept up with inflation,presumably reflecting the expansion of managed carethroughout the 1990s. According to the American MedicalAssociation, inflation-adjusted physician incomes declined5% from 1991 to 1998 (5). Compared with inflation, in-comes of general internists and family practitioners in-creased by 2% and 8%, respectively (5).

The pressure on fees that came from the expansion ofmanaged care in the 1990s, along with the extensive use ofcapitation for primary care services, probably explains thelimited gains in income for primary care physicians.

Paul B. Ginsbergy, Payment and the Future of Primary Care, Annals of Internal Medicine, 2003;138:233-234.

The United States has long been the most expensive health system in the world, and it remains so today, even after a decade of "managed care." Table 1 shows the most recent available data on total national health spending in 1999, with the U.S. per-capita health spending ($4,358) and U.S. percentage of GDP spent on health care (13%) each set to 100%. The ranking for 1990 would have been quite similar. Several points may be noted in connection with this table.

First, with the exception of Canada, the populations of all other nations shown in the graph are much older than ours. To illustrate, only in the year 2020 will the percentage of the American population over age 65 reach the current German percentage, and only in 2025 will the American age structure reach Sweden’s current age structure.

Second, if one distinguishes between real health care services (physician visits, hospital days, drugs, supplies, and so on) and financial resources (spending), it is found that most of the nations shown in Table 1 actually devote more real resources overall per capita to health care than does the U.S. The U.S. does rank higher, however, in the availability and use of highly sophisticated medical technology.

Third, as is seen in Table 1, all other industrialized nations cede to the providers of health care (doctors, nurses, pharmaceutical manufacturers, etc.) a much smaller fraction of the nation’s GDP than does the U.S. The other nations can do this because the structure of their health insurance systems amasses monopsonistic (single-buyer) market power on the demand side of the market , which allows third-party payers to pay the providers of health care lower money prices for that care than they would have to pay under the more loosely structured U.S. system. It is the reason, for example, why prices for the same brand-name prescription drugs can be so much higher in the U.S. than in Canada and Europe, and why American physicians are much better paid than their colleagues abroad. On average, the net income of American physicians in 1999 was 5.5 times average employee compensation. The comparable numbers for Germany and Canada are 3.4and 3.2, respectively.

Fourth, the U.S. has by far the most complex and bureaucratic health-insurance system in the world. In an elaborate cross-national study of health spending in 1990 published in 1996, for example, the McKinsey Global Institute found that after all conceivable adjustments were made for demographic and other differences between nations, Germans in 1990 spent an average $390 more on health care proper than did Americans, while Americans spend $360 more on "administration" and another $256 more on "other" items not specifically identified by McKinsey, but probably including still other administrative overhead. There simply does not exist anywhere in the world a pluralistic health insurance system as complex, as paper hungry and as computer- and labor-intensive as is the American system.

Fifth, on most measurable, population-based health status indicators — e.g., life expectancy at birth or at age 65, infant mortality, preventable years of life lost — the U.S. always has ranked and continues to rank rather poorly relative to the rest of the industrialized world. Neighboring Canada, whose age structure is similar to ours, and which spends less than 60% of the comparable U.S. figure on health care per capita, ranks higher than the U.S. on all of these indicators.

Table 2 depicts the share of health spending paid by four groups of payers [from 1965 to 2000]: government, private insurance, other private third-party payer and patients, out of pocket. Some remarkable features stand out from the display. First, the share of health spending paid out of pocket by patients has decreased steadily over time, although it has remained stable since 1995. Out-of-pocket spending varies, of course, enormously among families. Second, private insurance now covers only a third of all health spending in the U.S., over 90% of it provided by employers at the place of work. Finally, governments at all levels combined now represent the major source of all health spending in the U.S. If one adds to the direct government payments shown in Table 2 the roughly $130 billion or so added taxes all taxpayers must pay annually to cover tax-revenues lost under the tax-preference accorded employer-paid health insurance premiums (these premiums are not added to the employee’s taxable income), then more than 60% of all U.S. health spending is now tax-financed. As a percentage of GDP, tax-financed health care in the U.S. now exceeds tax-financed health care even in the U.K., with its government-run health system.

Table 3 shows the time path of per-capita U.S. health spending, in constant (inflation-adjusted) dollars. It is seen that, from 1965 to about 1987, actual per-capita spending closely followed a trend line according to which the health sector asked and received from society, each year, 4.5% more real purchasing power per man, woman and child than it did before. By contrast, constant-dollar GDP per capita rose at a long-run average of only 1.7% per year over the same period.

[In 1965 per capita spending in health care in constant 2000 dollars was roughly $1,000, in 2000 it was roughly $6,000 per capita.]

From 1987 on, actual spending rose above the historic trend line. Most of the more rapid growth in spending originated in the private insurance sector, which then still paid each doctor, hospital, and other provider of health care more or less whatever they were billed, with few questions asked. By contrast, for Medicare patients, the Reagan administration had as early as 1983 imposed on the hospital a centrally administered system of price controls that imposed a common, uniform fee schedule for all hospitals in the entire nation. (Were this essay not addressed to Princeton alumni, one might properly call it a Soviet-style approach to hospital pricing). For his part, President Bush followed suit by imposed a nationwide, centrally set fee schedule similar with strict price controls on physicians in early 1992, along with a total global budget for all annual Medicare spending on physicians.

As a result of these tough price controls, Medicare spending per beneficiary during most of the 1980s actually rose much less rapidly than per-capita spending in the private sector. Indeed, private insurers and the employers behind them loudly complained that the annual premiums increases of 15% to 18% they suffered during the late 1980s were in good part the result of a "cost shift" from government to the private sector. The theory is that whenever government tightly controls health spending, the providers of health care simply increase the prices charged private payers or persuade their patients to use added health services.

The onset of managed care

The rapid escalation of employer-paid insurance premiums, coming as it did in the midst of the economics recession around 1990, set the stage for the onset of what has come to be known "managed care." At the core of this approach was the ability of private employers, during the recession, to force upon their anxious employees health insurance products that limited the employees’ choice of providers to defined networks, which often limited direct access to medical specialists, and which sometimes limited patients’ access to new and expensive medical technology — e.g., to new, expensive brand-name medicines. Employees accepted these novel strictures at the time, because they worried more about keeping their jobs than about the design parameters of the health-insurance policy that came with the job.

These limitations of choice enabled the health insurance companies that were writing these policies to contract selectively with physicians, hospitals, pharmacies, and other providers for the health care owed the insured. Selective contracting, in turn, converted these providers of health care into fiscally dependent subcontractors of particular health plans. The plans could impose serious fiscal hardship on individual providers, simply by canceling their contracts with the plan. That fiscal dependence, and the constant economic threat it implied, enabled the health plans to extract from the providers of health care steep price discounts. It also enabled the health plans to impose upon providers clinical practice guidelines that determined whether or not a health plan would pay for particular services rendered. Altogether, these novel relationships among insurance plans, on the one hand, and the providers of health care and their patients, on the other, constituted the phenomenon properly called "managed care."

As is shown in Table 3, the attempt to control American health spending through the techniques of "managed care" did bend the time path of actual real per-capita health spending during the period 1992-97 below the long-run spending trend line. During the mid 1990s, real per-capita health spending rose at rates much below the historical long-run average of 4.5%. The health insurance premiums charged employers for their group policy rose at ever smaller annual rates, reaching an average of a zero increase in 1996. The percentage of GDP spent on health care was virtually constant, hovering about 13.5%. In 1993 Congressional Budget Office (CBO) had projected that health spending in the year 2000 would be $1.67 trillion, or close to 20% of the GDP. The actual number for 2000 turned out to be $1.3 trillion, or only about 13% of GDP.

Economic theory suggests that, in the tight labor markets of the 1990s, the bulk of these savings in health spending are likely to have flown through to employees in the form of higher take-home pay. That theory, however, is not widely shared among non-economists. A more popular theory in the press, and especially among the providers of health care, is that these savings reflect the denial of needed care to the insured and that they flowed mainly into the bottom line of employers and the paychecks of health insurance executives. The "managed care" backlash unleashed by physicians, politicians, and the media was driven by this popular theory.

Starting in 1997, with "managed care" in wholesale retreat, overall average real per capita health spending in the U.S. has been rising once again, at an ever-accelerating pace. As is seen in Table 1, it now proceeds at roughly the same high growth rate that was experienced during the late 1980s—albeit still below the long-run historical trend line. For the 2001-2002 season, these increases are projected to be in the mid- to high double digits, even for large employers, and in excess of 20% for small employers and individuals.

Per capita health spending under the public Medicare and Medicaid programs currently are still rising at much lower rates than those in the private sector, partly as a result of cost-control measures legislated in the late 1990s. It is only a matter of time until these public programs must adapt to the prices and spending levels set by the private sector. Furthermore, just as in the later 1980s, private insurers and employers are convinced once again that the tighter control of government health spending shifts costs to private payers. Therefore, they will lobby the Congress to relax the reins on public health spending. In short, the health-care cost crisis of the late 1980s has returned to the U.S. in full bloom.

From Uwe Reinhardt, "How healthy is our health care", Princeton Alumni Weekly, April 10, 2002 (I am generous in excerpting from this article on the theory that the author, a tenured professor of economics at Princeton, likely is more concerned about getting the facts out to influence policy than about economic compensation for the article.)

A report planned for release today indicates that the average physician's net income declined 7 percent from 1995 to 2003, after adjusting for inflation, while incomes of lawyers and other professionals rose by 7 percent during the period.

The researchers who prepared the report say the decline in doctors' inflation-adjusted incomes appears to be affecting the types of medicine they choose to practice and the way they practice it — resulting in fewer primary care doctors and a tendency to order more revenue-generating diagnostic tests and procedures.

Primary care doctors, who are already among the lowest-paid physicians, had the steepest decline in their inflation-adjusted earnings — a 10 percent drop — according to the report by the Center for Studying Health System Change, a nonprofit research group in Washington.

The average reported net income for a primary care physician in 2003 was $146,405, according to the study, after expenses like malpractice insurance but before taxes. The highest-paid doctors were surgeons who specialize in areas like orthopedics, who had an average net income of $271,652, nearly double what the primary care doctors said they earned.

The report was based on a national telephone survey of roughly 6,600 physicians in 2004 and 2005 and earlier surveys by the research center. . . .

While the general inflation rate was 21 percent during the period, payments from Medicare rose only 13 percent, according to the study, and payments from private insurers rose even more slowly.

From Reed Abelson, "Doctors' Average Pay Fell 7% in 8 Years, Report Says", New York Times, June 22, 2006.

The average physician earned almost 4% less in 1994 than in 1993. . . . Since 1982 when statistics were first collected, up until 1994, median physician income had risen at an average annual rate of 5.9 percent in nominal terms, and 2.1 percent in inflation-adjusted dollars.

From Carol J. Simon and Patricia H. Born, "Physician Earnings in a Changing Managed Care Environment", Health Affairs, Volume 15, No. 3 (1996).

From 2000 to 2004, average inflation-adjusted nursing salaries went up by 12.8%. That’s real salary, not nominal, folks. Salaries for teachers and nurses were about equal in 1986. Now full-time nurses average $60,000 annually, while teachers make about $48,000. In fact, over the last 20 years, registered nurse salaries have risen faster than teachers, professors, architects, engineers, ubiquitous lawyers, even physicians.

A chart in the same source shows that physician pay rose 34% from 1986-2005 and that pay for nurses rose 36.2% in that time period. In the same time period lawyers saw an 18% increase in pay, teachers 6.1%, engineers and architects 5.0%, and academia 0.3%.

From Statastic (citing U.S. government sources)

These are among the findings of the Department of Labor's 2004 National Compensation Survey, which was released this month and reports hourly wages across more than 450 occupations covering 81 million workers. . . .

[T]he average hourly pay for pilots was $113.82 last year, up 15.6% from 2003 and the highest for any job category measured. Economics professors . . . came in second, with average hourly pay of $63.98, up 1.9% from 2003. In third place were medical doctors, with average hourly pay of $57.90 last year, up 9.4% from 2003. . . .

The Wall Street Journal asked Economy.com, an economic consulting firm in West Chester, Pa., to compare the results of the 2004 National Compensation Survey with the 1997 survey and to compute changes in wages, adjusting for inflation. . . .

The shortage of nurses, coupled with the aging and ailing population, pushed nurses' wages up 14% during the period, to an average hourly rate of $26.87. . . .

Dental hygienists is another category of health-care worker who have registered strong hourly wage gains, despite the fact that their average annual pay has trailed inflation since they are working fewer hours. Their average hourly wage was up an inflation-adjusted 30% for the seven-year period that ended in 2004, and now stands at $30.86. The climb has narrowed the salary gap between hygienists and dentists, whose average hourly salary fell an inflation-adjusted 3% during the period despite the fact that from 2003 to 2004, dentists' wages were up 7% after inflation to $42.91.

The table shows an inflation adjusted increase of 33.3% for physicians from 1997 to 2004.

From Jessica E. Vascellaro, "Wage Winners and Losers Most Paychecks Fell in 2004 But U.S. Survey Finds Pilots, Doctors Came Out Ahead", The Wall Street Journal, September 13, 2005, page B1 via Economist's View.

The rising share of U.S. gross domestic product (GDP) devoted to health care has been well documented and often lamented. Growth in health care spending appears to have recently accelerated after a slowdown in the mid- and late 1990s. In fact, for most of the post–World War II period, inflation-adjusted health care costs rose at a much faster rate than did GDP. To illustrate, between 1945 and 1998 the growth rate in real per capita national health care spending averaged 4.1 percent, compared with a 1.5 percent increase in GDP. Moreover, for every ten-year period between 1945 and 1998, spending on health care grew at a rate faster than that of income. Although some increase in health spending would be expected solely from the aging of the U.S. population, evidence suggests that historically, changing demographics have accounted for only a small fraction of the gap between the growth of real health care spending and GDP. . . .

[I]n the 1980s (the decade that saw the highest share of income growth spent on health care), real health care spending per capita rose by nearly 70 percent, but this growth consumed only about one-quarter of the increase in real income per capita. That is, the substantial growth in health spending during the 1980s did not prevent three-quarters of real income growth from being spent on goods other than health care.

The first set of results assumes that real per capita national health care spending rises one percentage point faster than real per capita GDP, before accounting for demographic changes. The second set assumes that the differential is two percentage points, again before adjusting for demographic changes.

One-percentage-point gap. Under the one-percentage-point-gap assumption, which matches what the technical review panel recommended and what was adopted by the Medicare trustees as the base scenario, spending on non–health care goods and services continues to rise throughout the seventy-five-year period. Even between 2050 and 2075, about 35 percent of the forecasted increase in per capita GDP remains available for increased spending on non–health care products. By 2075 health care represents 38 percent of GDP. . . . the share of income growth devoted to health care is quite high by historical norms. The highest percentage devoted to health care in any of the past four decades (25.3 percent in the 1980s) is lower than the projected percentage in the 1999–2010 period (30.9 percent).

Further, the projected percentage of income growth consumed by health spending continues to rise after 2010. This suggests that should health care costs continue to grow even at this seemingly conservative rate, it would represent a major break with historical norms in terms of the share of income growth devoted to health care. . . .

Two-percentage-point gap. The two-percentage-point assumption, which is closer to the historical gap between health care spending growth and GDP growth, reveals a greater burden on the economy. Through 2039 spending on non–health care goods and services continues to grow, but at a much slower rate (Exhibit 4). About two-thirds of the increase in per capita income between 2010 and 2040 is devoted to health care.

The period between 2040 and 2075 exhibits a drop in spending on non–health care goods and services (which would not be affordable according to the definition adopted by the technical review panel). Under this scenario, per capita non-health spending drops to 1999 levels around 2062. By 2075 the rise in health care spending has reduced nonhealth spending to about 60 percent of current levels, which suggests that a two-percentage-point differential would not be sustainable by the second half of this century.

Michael E. Chernew, Richard A. Hirth and David M. Cutler, "Increased Spending On Health Care: How Much Can The United States Afford?", Health Affairs, 22, no. 4 (2003): 14-25

In 2004 (the latest year data are available), total national health expenditures rose 7.9 percent -- over three times the rate of inflation (1). Total spending was $1.9 TRILLION in 2004, or $6,280 per person (1). Total health care spending represented 16 percent of the gross domestic product (GDP). . . .

In 2006, employer health insurance premiums increased by 7.7 percent - two times the rate of inflation. The annual premium for an employer health plan covering a family of four averaged nearly $11,500. The annual premium for single coverage averaged over $4,200 (3). . . .

Although nearly 47 million Americans are uninsured, the United States spends more on health care than other industrialized nations, and those countries provide health insurance to all their citizens (4).

Health care spending accounted for 10.9 percent of the GDP in Switzerland, 10.7 percent in Germany, 9.7 percent in Canada and 9.5 percent in France, according to the Organization for Economic Cooperation and Development (5). . . .

Premiums for employer-based health insurance rose by 7.7 percent in 2006. Small employers saw their premiums, on average, increase 8.8 percent. Firms with less than 24 workers, experienced an increase of 10.5 percent (3)

The annual premium that a health insurer charges an employer for a health plan covering a family of four averaged $11,500 in 2006. Workers contributed nearly $3,000, or 10 percent more than they did in 2005 (3).The annual premiums for family coverage significantly eclipsed the gross earnings for a full-time, minimum-wage worker ($10,712).

Workers are now paying $1,094 more in premiums annually for family coverage than they did in 2000 (3).

Since 2000, employment-based health insurance premiums have increased 87 percent, compared to cumulative inflation of 18 percent and cumulative wage growth of 20 percent during the same period (3). . . .

According to the Kaiser Family Foundation and the Health Research and Educational Trust, premiums for employer-sponsored health insurance in the United States have been rising four times faster on average than workers' earnings since 2000 (3).

The average employee contribution to company-provided health insurance has increased more than 143 percent since 2000. Average out-of-pocket costs for deductibles, co-payments for medications, and co-insurance for physician and hospital visits rose 115 percent during the same period (7).

The percentage of Americans under age 65 whose family-level, out-of-pocket spending for health care, including health insurance, that exceeds $2,000 a year, rose from 37.3 percent in 1996 to 43.1 percent in 2003 - a 16 percent increase (8). . . .

National surveys show that the primary reason people are uninsured is the high cost of health insurance coverage (9).

Economists have found that rising health care costs correlate to drops in health insurance coverage (10). . . .

One in four Americans say their family has had a problem paying for medical care during the past year, up 7 percentage points over the past nine years. Nearly 30 percent say someone in their family has delayed medical care in the past year, a new high based on recent polling. Most say the medical condition was at least somewhat serious (13).

National Coalition on Health Care, Facts on the Cost of Health Care.

According to the national health spending estimates from the Center for Medicare and Medicaid Services (CMS), the administrative costs, taxes, profits, and other non-benefit expenses of private health plans have averaged about 12 percent of premiums over the last 40 years. This includes all types of health insurance purchased privately, ranging from employer-based coverage to individually purchased plans, Medigap and long-term care insurance. (These figures do not include private health plans operating in Medicare or Medicaid.) . . . .

Single-payer health reform advocates tout Medicare's low administrative cost rate, which was estimated by CMS to be 3 percent in 2003. However, it is particularly difficult to compare the reported administrative costs of Medicare with those of private health insurance plans.

First, Medicare's "capital costs" are not included in government estimates of Medicare spending. Here is a simplistic, but revealing example: federal net interest payments to the public -- the government's overall capital cost -- totaled $160 billion in fiscal year 2004. In that year, Medicare benefits (net of premiums collected from beneficiaries) comprised about 12 percent of federal non-interest spending. Therefore, Medicare's share of the government's debt-service costs could be estimated at about $19 billion in 2004. Adding these payments alone would boost Medicare's administrative cost rate by almost 7 percentage points, to just under 10 percent.

Second, Medicare's "benefit cost per claim" is likely higher than that of private plans serving the non-elderly population. However, high-cost claims can be just as easy to process as smaller claims. For example, it might cost $50 to process either a $5,000 claim or a $1,000 claim. If Medicare's claims-paying methods were applied to a younger population with lower benefit costs per claim, its reported administration rate would be higher simply because the "denominator" -- the overall claims cost -- was smaller.

Third, many private health plans allocate costs from their health improvement and care management efforts to "administration," not "benefits." Yet these initiatives can have a powerful payoff in improved health and reduced overall claims costs. For example, if Medicare's new disease management programs succeed at reducing expensive claims, Medicare's reported administrative cost rate would rise. (Administrative costs to implement disease management programs and evaluate outcomes would go up, but overall costs -- the denominator again -- would be lower.)

The accompanying table shows a range of 9% to 16% from 1960 to 2005, with no clear trend over time and cites CMS Office of the Actuary, January 2005 as the source. It claims a 40 year average of 12.4% and a current level of 14-15%.

From Jeff Lemieux, Perspectives:Administrative Costs of Private Health Insurance Plans, American's Health Insurance Plans

Administrative costs account for 25 percent of health care spending, but little is known about the portion attributable to billing and insurance-related (BIR) functions. We estimated BIR for hospital and physician care in California. Data for physician practices came from a mail survey and interviews; for hospitals, from regulatory reporting; and for private insurers, from a consulting company. Private insurers spend 9.9 percent of revenue on administration and 8 percent on BIR. Physician offices spend 27 percent and 14 percent, and hospitals, 21 percent and 7–11 percent, respectively. Overall, BIR represents 20–22 percent of privately insured spending in California acute care settings.

James G. Kahn, Richard Kronick, Mary Kreger and David N. Gans, "The Cost Of Health Insurance Administration In California: Estimates For Insurers, Physicians, And Hospitals", Health Affairs, 24, no. 6 (2005): 1629-1639.

22 January 2007

A 5-D Theory of Physics

I am predisposed to be skeptical of versions of fundamental theories of physics that require more than the common place three dimensions of space and one dimension of time that are commonly observed (although theories like loop quantum gravity in which the four common dimensions are emergent properties of a more fundamental theory can be tolerable).

Never the less, a 2003 speculative physics paper by Paul S. Wesson illustrates in a way just barely comprehensible by a sophisticated layman, the beauty possible in a 5-D theory that drives many of the world's top theoretical physics egg heads to consider it seriously.

The wonder of Wesson's paper is that it uses the proposed 5th dimension to turn concepts like Heisenberg's uncertainty principle and quantum randomness, into a property of a larger deterministic (i.e. non-random) theory, and it also suggests how apparent non-local or non-causal action in quantum physics can actually be causal and local in a 5th dimension. In short, it can make quantum physics much less weird.

It isn't that I agree that Wesson's version of a 5-D theory is correct. Indeed, the tone of the paper strongly suggests that he also, while believing he is on the right track, doesn't think his theory is correct either. But, a physics that uses one odd assumption to resolve many other head scratchers is attractive, in much the same way that general relativity has (appropriately and based upon empirical evidence) won over all mainstream physicists with the same sort of gambit.

Charity in Poverty and Thoughts on Africa

It is well know that some of the most generous charitable givers, on a percentage of income basis, are the poor. This phenomena takes place on the international scene as well.

No one would fault the government of Southern Sudan for shirking its international obligations. This is the government of a genocide ridden semi-autonomous region (with a status simliar to Kosovo) oppressed by the more widely internationally recognized government of Sudan -- whom Andrew Romanoff, Speaker of the House in Colorado's General Assembly, and leaders in many other state governments, are seeking to divest themselves from economic associations with, due to their heinous disregard for their own citizens.

But, that isn't what is happening. Instead, the government of South Sudan is seeking to host peace negotiations between the government of Uganda, and Lord's Resistance Army rebels (a fundamentalist Christian movement known for its brutality that has operated mostly in Southern Sudan and Uganda).

He identified the countries as South Africa, Kenya, Tanzania and Mozambique. "We asked for guarantors, so these countries will be external observers at the same time the guarantors of the peace talks," he said.

It makes sense, once you've been through the process of goverment-insurgency negotiations, you become a pro, and putting those skills to good use is one of the few assets you have and a way to build international stature and recognition.

Meanwhile, to the East, we see Ethiopia, another nation whom no one would fault for sitting out its international responsiblities as it licks its wounds after seemingly eternal civil war and strife (ultimately resulting in independence for Eritrea a few years ago), for bowing out from military involvement in international basketcase Somolia. But, rather than shirking its duty, Ethiopia has sent in large contingents of troops to dislodge Islamist forces who seek to displace the nominal government of the country. In part, this make sense, not because Ethiopia's legitimacy is at issue, but because Ethiopia has an excess of men (and women) under arms who need constructive missions to undertake, and because Somolia, with whom Ethiopia shares a long Eastern border, is a potential security threat.

Of course, in diplomacy, everything is more than it seems.

The genocidal wars in Sudan are to a great extent, religious wars, between a North African Islamic population that dominates the country politically, and a Christian-Animist population in the South (and it is likewise no surprise that the Christian West has taken the side of Southern Sudan).

Ethiopia was a nation with a large Christian community before Ireland was (in contrast, most of Africa's Christians are converts of Western missionaries), and it is thus no surprise that it would favor preventing the rise of a hard core Islamic state in Somolia (and it is likewise no surprise that the Bush Administration, which sees Islamists as the new communists, finds common cause with them in this action).

Back in Southern Sudan, "the peace talks that are being boycotted by the LRA on claims that Sudan is not a neutral country. They also claim Dr Machar, the chief mediator, is pro-Uganda government." Still, it is natural that a government of an insurgent people whose tendency towards Christianity is highlighted in Sudan, would see themselves as qualified to be honest brokers in a conflict between a neighboring government and insurgent Christian rebels in Uganda, a country with a religious make up similar to Canada (predominantly Catholic and Anglican).

Somolia and Sudan, by the way, are not the only flash points in a larger African Islamic/non-Islamic cultural, political and military struggle. Schismatic tendencies in Nigeria largely follow these lines. The imperfect peace that has been in place in Chad since 1982 has largely involved similar dividing lines.

It would oversimplify to boil it all down to religious conflict. Eritrea and Ethiopia's long civil war, for example, was one fought between two multi-cultural societies. Tribal affliations rival religious ones in modern conflicts, and the fact that most African nations have no one dominant ethic group or even native language, is often as relevant as the connections between groups in different regions. And, broad based impacts of dictatorial governments have muted expressions of real and demagogue created divisions between groups for much of the post-Colonial era.

But the themes of the use of African regional military and diplomatic efforts to address regional conflicts (largely because no one else is interested in getting involved), and of local conflicts taking on world dimensions in a struggle between Islamist and non-Islamist forces, is one that is likely to continue going forward. There are powerful outside forces to drive that dimension of the conflicts, that were almost inevitable at some point as the anemic Western style democracies in large states with artificial boundaries instituted when colonial powers left have floundered for a generation.

Military footnote:

It is easy to forget just how feeble the military efforts that are changing the face of Africa, both on government and insurgent sides of these conflicts can be. Consider one of the government responses to the Lord's Resistance Army in Uganda in 1991:

As part of Operation North, Acholi Betty Oyella Bigombe, the Minister charged with ending the insurgency, created "Arrow Groups" mostly armed with bows and arrows, as a form of local defence. As the LRA was armed with modern weaponry, the bow-and-arrow groups were overpowered.

Here is what happened in the Rwandan genocide in 1994:

Most of the victims were killed in their villages or in towns, often by their neighbors and fellow villagers. The militia members mostly killed their victims by chopping them up with machetes, although some army units used rifles. The victims were often hiding in churches and school buildings, where Hutu extremist gangs massacred them. On 12 April 1994, more than 1,500 Tutsis sought refuge in a Catholic church in Kivumu. Local Interahamwe then used bulldozers to knock down the church building. People who tried to escape were hacked down with machetes or shot.

What was the revolutionary weapon introduced to local military tactics by Darfur rebels in Sudan in 2003?

The rebel tactic of hit-and-run raids using Toyota Land Cruisers to speed across the semi-desert region proved almost impossible for the army, untrained in desert operations, to counter.

These are some of the more extreme examples, but unlike the Cold War, the many late 20th century and early 21st century brush wars in the Third World, often with a religious dimension, have not primarily or even significantly about technological titans or economic power houses working to to develop superior stockpilies of military might. They have been widespread conflicts, fought at the grass roots level, with only vague strategies, with relatively primative weapons.

Virus Vanquished

After a marathon session of computer work induced by a snow storm that kept me homebound much of the day yesterday, I have finally vanquished the virus that has been ravaging my laptop with the help of an update to Norton Anti-Virus that finally recognized the beast. So, the war is over and the reconstruction stage has begun.

Alas, reconstruction won't be easy. The sustained campaign to kill the thing did quite a bit of damage to the software infrastructure of the machine, although I lack the forensic capacity to discern what was done by the virus, and what was done by me in the course of trying to destroy it.

Suffice it to say the drivers for the CD-ROM, digital camera memory card, and audio functions of the laptop have been ravished, that the settings have been thrown drastically out of whack, and that there may still be undiscovered damage lurking in the hard drive.

Linux is still looking attractive, because I really don't want to endure this again, but before then, I'll need to sequester the surviving data someplace safer, without the benefit of a CD-ROM drive, and evaluate all possible options.

My laptop, from a hardware perspective, is probably the best computer that I've ever owned, so simply abandoning it is out of the question. But, cleaning up will still be a long slog.

Scooter Libby's Trial

Reports from the Scooter Libby trial in Washington D.C., on NPR make it hard to feel assured that it will produce a fair trial. It seems more than coincidental that he, of all people, has ended up with an overwhelmingly white jury pool in an overhwelmingly black city. Likewise, while it is common place for parties to remove someone from a jury pool for political reasons, it is rare for jurors to be removed for cause because they disagree with the President, something that is happening in this case on a regular basis.

Admittedly, this is a special set of circumstances, but Scooter Libby's jury may be so atypical of the population from which it is drawn, and so expressly biased towards administration supporters in a place where they are as rare as hen's teeth, that it seems hard to believe that the trial will be fair.