Archive for September, 2009


The Case Against Insuring Illegals

   Posted by: Robert    in Politics

In skimming their website for something else, I stumbled across a Newsweek article making the case for health insurance for illegals.  The main thrust of the article is that there is an economic advantage to insuring people who are in the country illegally.  The advantage is based on the notion that illegal immigrants are, for their age and occupation, generally healthier than a similar American.  Because of the way insurance works, a healthy individual paying into the system reduces costs for everyone else because they contribute more money than they demand.  Unfortunately for Newsweek, even assuming that the average illegal is healthier than the comparable American, there are at least two fundamental flaws in the article’s argument providing them with insurance.

The first and most glaring flaw is that the article appears to simply assume that illegals are going to pay for their insurance like the rest of us.  Given that these people are “undocumented,” that they do not pay taxes, and that they do not appear on official company payrolls, this appears to be an assumption that deserves close scrutiny.  Furthermore, if the attraction of hiring illegals is the fact that they can be paid below minimum wage for long hours and given few benefits, these people are certainly not all that wealthy.  Most probably couldn’t afford insurance if they wanted to.  Thus, in order to be covered by universal health care, their premiums would need to be subsidized by raising the premiums (or taxes) on none other than the people whose costs they are supposedly bringing down.  Insuring illegals is a losing proposition the instant one of them goes to the doctor.

The second flaw is somewhat more subtle, but it amounts to the author assuming that the number of sick illegals entering the country will not increase.  That assumption will undoubtedly be false.  The reason illegals are so healthy now is because they need to be in order to not only cross the border but to then also work the long hours of physical labor required for them to succeed.  Insurance for illegals adds a new form of success: Without having done any work or paying a dime, an illegal would be cured of all that ails him.

It is a good sign that even the left understands the need to talk about economics.  They would be better served if their arguments were correct.  The economics are undoubtedly against the left on this issue.  Illegals should not be spending our tax dollars in our hospitals while American citizens are standing in line; they should be where they belong — at home.

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Re: How Did Economists Get It So Wrong?

   Posted by: Robert    in Politics

In a New York Times op-ed, Paul Krugman offers his answer to the question of where economists erred in their treatment of the economic crisis.  (The article is lengthy and probably not all that interesting, but it does have a flow that keeps it going.)  While I may not be as educated in economics as Mr. Krugman, there were a number of points in the article that struck me as strange, lacking in context, or simply wrong.

For all the length and discussion, his basic answer to the topic question is that economists got it wrong by abandoning Keynesian economics.  Readers will find it unsurprising that his proposed solution going forward is to start thinking, again, more like Keynes.  In short, he believes that investors and economists came to rely too much on a view of financial markets which holds that they always get the right answer given the information available at the time, that “bubbles” are impossible, and that people in general can be counted on to act rationally.  Reality, he claims, is a lot more messy, and often needs to have the government involved to swim against the free market tide to bring stability to an otherwise unstable system and to head off the inherently bad problems of recession and unemployment.

The largest problem that I see with Mr. Krugman’s argument is that it ignores entirely one of the greatest destabilizing forces currently active in the market: The government itself.  Instead, Mr. Krugman appears to operate from the view that the current market is a largely untamed free market wilderness.  This position is not uncommon among liberals or other advocates of a centrally planned economy, who tend to label any market that does not behave as they desire as “free” (even such heavily regulated markets as health care) and in need of regulation.  In reality, it is hard to think of a market that hasn’t got a federal regulatory agency dedicated to it and which isn’t subject to countless regulations, not to mention the threat of lawsuit, even during “deregulation” periods.

Government meddling is certainly one factor which can, and likely does, cause “bubbles” to form in the economy.  A “bubble,” it has always appeared to me, is little more than a market response to incorrect or incomplete information which paints a rosier picture of the market than actually exists.  A bubble “bursting,” then, would simply be the market correcting itself once new information comes to light which points out investors’ exuberance.  In the late 1990s, the “tech bubble” grew from investor confusion as internet companies grew and appeared to succeed despite having no obvious business plan, strategy, revenue stream, or even product.  It burst when reality set in and people started to realize that traditional business rules applied to the web after all.  We know that the “housing bubble” was caused at least in part by the Fed driving interest rates (and, thus, mortgage rates) down and by the government pressuring lenders to make loans to people who had no financial business buying a house.  Here, too, something eventually had to give, especially once new government “mark to market”kicked in and eliminated any sense we might have had about how much anything might be worth.

Following any of the bubble bursts is a period which, as a matter of definition, we get to call a “recession.”  Whether or not this is bad would seem to mostly depend on whether or not recession values are more reflective of reality than the bubble values which preceded them.  If it is bad to live in the fantasy world of a bubble, it should be better to live in a post-bubble world where the value of things more closely reflects what the value ought to be.  Yet, Obama’s first reaction to the housing bubble collapse — of which Mr. Krugman seems to implicitly approve — was to exert government force to drive housing prices back up to their bubble levels, effectively locking in the bubble forever.

Of course, evidence so far suggests that even Obama’s Reality Distortion Field is not strong enough to pull that one off.  Despite the TARP money, the credit markets are still tight.  Despite the stimulus, unemployment continues to rise.  Despite bailing out GM and Chrysler, both companies still went bankrupt.  Despite every Keynesian action Obama has taken, he has utterly failed to produce a single long-term positive result for the economy as a whole.

So, how did economists get it wrong?  Well, Mr. Krugman certainly does have a point that it makes little sense to consider the correctness of housing prices by comparison to what other houses cost.  It also seems likely that they did put too much emphasis on the free market, neglecting to carefully analyze what effect government regulations were producing.  Whatever the conflicts within the economics community, we would seem to do ourselves no favors by pretending that central planning is any sort of economic panacea.

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Thoughts on Medical Tort Reform

   Posted by: Robert    in Law, Politics

I have been spending a bit of time lately thinking about what I would like to see from a medical tort reform package.  Along with a couple of other things, tort reform seems, to me, like one of the most important and powerful ways to reduce the cost of health care in America.  America’s tort system is unique in the world (not only in medicine, but throughout the civil arena) because of the high damage awards possible in US courts.  Cutting these awards would reduce the need for and cost of malpractice insurance, which imposes a significant burden on doctors.  Changing the system of punishment in general would also offer a greater opportunity for targeting misbehavior and ensuring a more fair system overall.

Punitive damages are a form of non-economic damage that courts, through juries, are able to award to a victorious plaintiff.  In general, punitive damage awards are large, often several times the actual damages suffered by the plaintiff.  The logic of punitive damages is twofold: They serve as a way to compensate plaintiffs for injuries to which no dollar value can be easily attached, and they punish defendants for misbehavior in the hope that people in the future will not behave the same way.

The reality is that malpractice punitive awards tend to compensate lawyers and the IRS, and punish the doctor’s insurance company which is otherwise unrelated to the case.  The insurance companies, in turn, effectively punish all doctors by raising premiums to offset the huge losses that they suffer as a result of the lawsuits.  An individual doctor who loses may suffer a higher rate increase than the rest of his insurance company’s customers, but he will not suffer all or even most of the punitive damage cost.  After all, that’s why he bought insurance in the first place.  The result is that parties who were not injured reap most of the reward from insurance companies while doctors face very few consequences for their misbehavior, but have to charge patients more money to cover insurance premiums raised by other doctors’ mistakes.

Is there anything about this system that isn’t broken?

A better system, it seems to me, would be to do away with punitive damages entirely and, instead, expose doctors to non-economic punishments which cannot be insured away.  In particular, what I propose is that any doctor found liable would have their case referred to an oversight panel composed of practicing physicians and patient advocates.  The oversight panel would have the option to assign no additional punishment, to suspend the doctor’s license for a period of time, or to revoke the doctor’s license entirely.  The expert composition of the panel more accurately reflects a doctor’s peer group than does a lay jury, so they would be more likely to understand a doctor’s thought process and less likely to be swayed by hindsight bias in deciding an appropriate punishment.  Selecting both practitioners and patient advocates would ensure that both interests are fairly represented.  Finally, affecting a doctor’s license affects the misbehaving doctor directly, ensuring that he and he alone is punished for his misdeeds, that he is punished significantly by affecting his livelihood, and that other patients are made safer by removing a potentially harmful doctor from the market.

Tort reform is often opposed by people who believe it would prevent plaintiffs from bringing claims for certain types of injuries regardless of their claim’s merit.  Indeed, many tort reform proposals do exactly that.  Mine does not.  While this assumption may be questionable, I am willing to assume that every plaintiff who wins a case did receive an injury in fact and deserved to be compensated.  However, when compensation turns to punishment, I am convinced that there are more fair and cost effective solutions available than the punitive damage system we have today.

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