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Archive for July, 2013


Post Office pricing

Recently, I paid to rent a P.O. Box for another year. At that point, a thought crossed my mind. They charge me $50 per year while home delivery is free. That can’t be right. Sure, my P.O. Box takes up a little piece of real estate, but that seems really trivial. Why not get rid of free home delivery and give everyone a P.O. Box? Let’s start with the more rural Post Offices that the experts say are losing money. At the same time, let’s install a few government-email-only computers at each of these Post Offices. Give everyone who wants it a government email address.


Rethinking health care reform

The President recently said that people like me, the always griping, should keep their mouths shut about Obamacare . . . unless they have a better idea. Well, here it is.

Obamacare is failing. Some skeptics would say that it was intended to fail. The thought is that the left would then opt for a single payer (government) system, thereby completely socializing the health care system. Others might suggest that there is less of a conspiracy here and the Obamacare failure is simply another bit of evidence that massive government can do little that is good.

It is time to reassess and to craft a new kind of health care reform. In doing so, let’s recognize that the Democrats identified some real problems with the existing system. Some of these problems are a lack of insurance transportability, cancellation of insurance of high risk individuals, and issues about who is really bearing the cost of the health care system. This last point can be expressed in other words: the general population, including the young, is not subsidizing the uninsured poor; instead, the uninsured poor are being subsidized by those who are insured and buying medical services.

There are really two pieces to health care reform, insurance and costs. Both should be addressed. First, let’s create an insurance system that brings in many more people but offers transportability and universal access.

Health insurance reform

First, get rid of the notion that health insurance comes from employers. This was originally a notion that grew out of a way to get around wage controls during WWII. This system, in combination with high job mobility, has produced problems associated with a lack of transportability and a lack of access to those with preexisting conditions.

New groups need to be created. It is best if these new groups are “natural” groups (i.e., groups to which everyone automatically belongs). One example of a natural group is State of birth. But other people may have other and better ideas for natural groups. Anyone who belongs to a group (e.g, a State of birth) should be able to buy a health insurance policy from among the insurance companies with offerings for the group.

Second, get rid of mandates. Decrees requiring that people or businesses must do thus and so just tick people off. Instead, rely on pricing to achieve the desired results. Prices will not be correct initially, and that is one reason why it is desirable to have multiple groups. It is like having multiple experiments. Some will be more successful than others, and the more successful ones will be copied by the less successful ones. It is like the prices for travel delay when an airline overbooks a flight. It is not obvious how much the airline will have to pay to get passengers to give up their seats; the price is ultimately found by a discovery process that looks very much like an english auction.

An example of the use of a price rather than a mandate is helpful in understanding this distinction. Suppose it would be desirable if young adults have insurance. The government could issue a mandate requiring that they have insurance. Alternatively, insurance contracts could have a schedule of co-pays that decreases with the number of years in the system. For example, the first year might have a co-pay of 50%, the second 45%, the third 40%, and the fourth 35%, and so on until the co-pay is 20% in the seventh year and all following years. If young adults drop coverage, it takes six years to achieve the long-run, co-pay level, so they are less likely to drop coverage and likely to get back in quickly if they do drop coverage.

Although the insurance contract should “belong” to the insured, various parties could pay for some part of the insurance: the insured, the insured’s employer, relatives, associates, charities, or the government. One might allow the same tax benefits to all the private parties who pay, perhaps a deduction from their taxable income. Among other things, this would encourage parents of young adults to keep their “children” active in the system, because they care about their “children’s” health insurance even though their “children” may not care. If the government chooses to contribute, then there is an element of socialized medicine and one could substitute this policy for Medicaid.

Third, catastrophic (i.e., high deduction) insurance in combination with health savings accounts for minor issues should probably be a focus (i.e., not necessarily the only focus) of the new groups. What should be realized is that annual checkups, dental cleaning, and other recurring expenses are not really appropriate subjects of insurance. As a result of this realization, prepayment via health savings accounts seems appropriate.

Cost reform

There are a couple of dimensions of cost reform: transparency and shifting the supply curve, ,

In terms of transparency, customers of health care services need to see the costs prior to undergoing any procedure: the overall costs and the division of costs between the insurance company and the patient. The existence of co-pays is absolutely necessary to provide discipline in the system, as is complete information on the costs.

The supply curve can shift if the cost of monitoring health status can be decreased. For example with the right regulatory environment, drug stores could employ a nurse who would take vital signs and some other monitoring functions. Perhaps taking photographs of skin anomalies, drawing blood, and collecting urine samples, and issuing fecal sample kits. EKG or ECG tests are also possible at the drugstore. Of course, the results would be forwarded to a center staffed by doctors and they would interpret the tests and communicate with the customer regarding diagnosis and any next steps that might be advisable.

We also need to shift the supply curve for more-or-less trivial visits to doctors and emergency rooms. Of course, what might seem trivial at first may not end up being trivial. So here is how this could be handled: the first visit is to relatively low level personnel, but they would not be permitted to handle a second visit for the same physical complaint. What categories of complaint are we addressing here? Basically, we are talking about self-limiting conditions that may be addressed by OTC medications or anti-bacterial medications: colds, flu, poison ivy, minor bacteria infections and so on. Please note that I am not suggesting anti-bacterials for colds and flu.

Finally, we need to shift the supply curve for major health issues. One big way to address this is to limit punitive malpractice lawsuit awards. This suggestion does not address awards that compensate for various damages; it only addresses punitive awards. The idea is to reduce the cost of medical liability insurance without reducing the ability of patients to recover for real damages they have suffered. Of course, there must also be enough to compensate lawyers who take cases on a contingency basis. At the same time, there should be a realization that malpractice is not at the root of all bad outcomes. Perhaps we need bad outcome insurance as a rider on health insurance policies and not just malpractice insurance that doctors purchase.

A second way to shift the cost curve for major health issues is to provide information to potential patients of the costs of various settings inside and outside the United States. This requires transparency in costs. It also requires that the natural group coverage could be for hospitals any where in the US and the world. So even though a group might be for persons born in Ohio, hospital coverage could include Texas and Thailand as examples.


Selling Detroit?

When an entity goes bankrupt, it is ordinarily the case that assets are sold so that the creditors can be satisfied . . . to some extent. With Detroit going bankrupt there are a lot of assets. There is a trial balloon that Detroit might sell land, land that the City has acquired through tax liens or will acquire by eminent domain. The thought is that developers will buy this land. Really?

The problem is that jurisdiction would have to be sold. Nobody is going to develop land in the City of Detroit. What Detroit must do is to sell the right to govern these territories. Who would buy? Nearby jurisdictions are the most likely buyers, but there could be totally new municipalities.

What is the most reasonable way to sell jurisdictions? Combinatorial auctions would be the best way. These auctions are used to sell FCC spectra. That is, suppose you want to buy the right to broadcast in a certain frequency band and in a specific region. In this case, a combinatorial auction provides a way to combine several regions and/or frequency bands.

What about other assets? Detroit has a zoo, museums, water treatment facilities, and so on. These facilities ought to be sold. It is doubtful that combinatorial auctions would be appropriate for these disconnected and greatly differentiated facilities.

On the other hand, the land to be sold should also be sold via combinatorial auctions. My own economic experiments suggest that this method will maximize the value. If you want to learn more about combinatorial auctions, take a look at the site of the person who invented them, Rex Schrader.


Fed stimulus?

There is a general worry that if and when the Fed dials back on its extreme asset buying programs, the economy will lose a source of stimulus and might stagnate or decline. On the other hand, there is not one iota of credible, empirical evidence that what the Fed has been doing is, in fact, stimulative. Suppose instead that the Fed activities have crowded out private investment or credit market activity, have been contractionary all along, and have delayed recovery. In this case, losing this Fed policy would be a good thing.

Well, maybe not. Medicine can have a placebo effect.  So removing that medicine could create worries that problems will follow and generate defensive behavior. What we might hope for is that the talking heads would be a little more careful with regard to characterizing what the Fed has been doing and what the effects might be of getting rid of the current policy. This new pill will be difficult to swallow for those who belong to the cult of low interest rates.


A view of the second amendment: Militias

As ratified by the states, the second amendment is as follows: “A well regulated militia being necessary to the security of a free state, the right of the people to keep and bear arms shall not be infringed.”

So where is the “well regulated militia?” Clearly, militias are not encouraged in the present environment. You could say that militias are crowded out by police. But police forces are few relative to the population. If order were to break down, say, due to an EMP attack, the police and national guard could be stripped of transportation and communications. Protection would have to come from a much more numerous and more widely spread out force, a militia. This is a point that is missing from the prepper shows on TV. It is impossible to go it alone in such a circumstance.

What could the framers have had in mind? Their society was one with a frontier. There were dangers on the frontier that could not reasonably be addressed by a police force. But a militia would be just the answer.

The bottom line is that it follows that if there might be an occasion in which a militia is useful, then the population must be armed to some extent. While the Supreme Court has determined that the right of people to bear arms is justified by the use of arms in self protection alone, the language regarding a militia could still be relevant. It seems reasonable that when the police are not readily available to protect individuals or groups, then individuals or groups may protect themselves with arms.

Do people buy guns because they imagine joining a militia at some point? Probably not very many. Primarily, people buy guns to shoot them at ranges, for personal defense, for hunting, and/or for collections/investment. Of course, many gun owners have them for more than one of these purposes or have some guns for one purpose and some for another. But again, very few actually contemplate joining a militia and using guns in the context of militia activities. On the other hand, it would be impossible to form future militias without rather extensive private gun ownership. The reason is that militias will probably only exist if the public sector is substantially disabled so that police forces cease to function. Private gun ownership is necessary under these conditions because the public sector could not be counted on to distribute guns and ammunition from governmental caches.