Somewhat Instant Karma

I’m not usually into tabloid style headings unless they provide some cautionary tale or lesson.  I will admit to feeling  smug about this one:

‘I’d kill myself first!’ John Edwards ‘suicidal’ over facing jail, claim pals

Disgraced politician John Edwards is said to be deeply depressed – to the point of being suicidal – over the prospect of a criminal trial that could end with him being jailed if found guilty.

The 57-year-old former Presidential candidate reportedly told a close friend: ‘I won’t go to jail. I’d kill myself first!’

He has lost 20lb in the last year and is a ‘broken spirit,’ reports the National Enquirer.

According to the Enquirer, a close source said: ‘I think John is suicidal. He knows that if he’s indicted, prosecutors will try to get him to serve jail time and make an example of him.

‘He’s absolutely despondent over the fear of prison.

‘Over the last year, he’s lost about 20lb and friends are concerned that he’s escaping reality with booze.

I still remember when he announced his candidacy for the Presidency near my house a few years back.  The kids were so precious.  Recently deceased Elizabeth Edwards was still fighting cancer.  I was eager to share my cancer experience with her.  I had not figured out exactly who I would support but after a few years of post-Katrina New Orleans, let me tell you, the Two Americas theme ran really true to me.  I guess that’s what good speech writing and years of practice as a trial attorney can do.  It can hone your speeches and up your sincerity factor.

The first few things that started really turning me off to the man was that hair do thing and Iowa. I watched Bill Richards, Barrack Obama, and John Edwards conspire to remove votes from the people in Michigan and Florida to up their chances of taking out that horrid upstart woman with the cankles.  I started associating Edwards with words like smarmy, insincere, and egoist.  So, isn’t interesting that all that narcissism and self indulgence wearing the mask of social justice has finally caught up to him?  He’s just a whining boy now. Part of me wonders why– with all the sex scandals in the beltway–this one fresh hell for one man seems so sweet?  It’s not like I wouldn’t like to see any of the serial adulterers in the Senate or Congress strung up for insincerity or lying.  David Vitter is sadly my senator and wreaks of evil intent and selfishness.  Maybe that’s it in the final analysis.  I expect nothing but evil intent and selfishness from David Vitter and I expected more from John Edwards.

So, I’ll leave you to discuss this. I will probably head to the mat and meditate on the Path of Bodhisattva while trying to beat the thought “Man up!” out of my monkey mind.  He reminds me of the bully next door who got caught drug muling one load of about five of marijuana runs at $250k a pop, then cried like baby every night on the phone to his pothead girlfriend when they finally threw him in jail.   She used to throw the phone at me to listen because it so repulsed her.  She married him anyway.  Goes to show you what years of pot abuse can do to your judgment.  What was that about not doing the crime if you can’t do the time?

Ah, never mind …. om!

Government Insurance and Annuities are not Entitlements

I’m hoping that I can elucidate a theoretically complex idea for you as simply as possible. One of the hardest topics to study–if you’re doing anything with finance–is the area of decisions made under risk.  It’s mathematically complex and the results depend on the types of assumptions you make about the decision maker.  The assumptions dictate the shape of the ‘utility’ curve for the decision maker.  That curve represents the choices that the decision maker will make at varying levels of risk and the costs of that risk as situations change. It sort’ve a ranking of how useful insuring against the risk will be under varying pricing schemes.  You can assign people profiles that make them averse to risk, neutral to risk, or risk-loving. These profiles project their demand for insurance under various prices and policy offerings.

Insurance policies pay off under specific circumstances.  The probability of those circumstances occurring and the amount of money they will provide on occurrence determines policy costs.  Probabilities of occurrence for the varying circumstances must be estimated.  Actuaries work with those probabilities using historical data and inference.  It’s not a straightforward math problem.  Some circumstances are more obvious and predictable than others.  Time plays a role in the numbers.  Behavior places a role in the numbers. Randomness plays a role. Of course, the final amount of payout plays a huge role. Many things are difficult to quantify.  You can, however, bet that actuaries set rates and terms that benefit the house.  It’s very much like the casino business except no one is very entertained by it.

Insurance companies are actually a lot like bookmakers and bookmakers who want the odds in their favor.  I’ve always compared the insurance industry to Vegas and its surrounding thugs.  The deal is this.  If the odds are in their favor, private insurers are happy to offer up policies.  If the odds are not in their favor, they either don’t offer the product or they try to do things to put the odds in their favor, or they charge a hell of a lot of money for the policy.  A lot of getting people to pony up money for a policy has to do with getting them to overestimate the risk of something.  A Fire policy is a great example of this.  Insurers hate to insure things that have reasonably high probabilities of happening like old age and infirmity.  They prefer the rare and random event like a house fire.

A really good example of something that no private insurer wants to touch is flood insurance.  That’s why we have a National Flood Insurance Program. You never hear any one call that an entitlement. It’s not referred to as creeping socialism. It’s administered by one agency but sold by many insurance providers. It covers property and not life. If you live in a low to moderate risk area, your premiums are fairly reasonable.  It’s not a for-profit product. It’s a huge risk pool set up so that an individual’s risk of suffering catastrophic loss due to devastating floods is minimized.  It’s got deductibles and it has caps.   You sign the contract.  They tell you under which circumstances things will be paid and how much will be paid.  You pay the premium.  You’ve got the coverage and you’re supposed to sleep a little bit better at night knowing if that happens, you won’t be ruined for life.  A private fire policy is similar.  The reason private insurers provide fire policies is they are profitable.  Devastating fires rarely happen.  Floods are not so rare.

People aren’t always the best assessors of risk.  We know from studying various human behaviors and decision making in game situations that many people will over or underestimate risks and this makes them liable to pay for a policy that’s got the odds of paying out of a slot machine.  The industry thrives on this.  It’s another example of our old enemy information asymmetry.  Businesses–like the insurance industry–exist mostly because of these types of decisions and situations and the analysis they entail are beyond the grasp of most people.  I’ll give a you a textbook definition of insurance from one of my doctoral seminars on Risk Theory.  (Economic and Financial Decisions under Risk by Eeckhoudt, Gollier, Schlesinger.)

Insurance occurs when one party agrees to pay an indemnity to another party in case of the occurrence of a prespecified random event generating a loss for the initial risk-bearer.

Notice the use of the word random.  Insurance is cheaper when the event is random and unlikely. So, fire and flood protection–hazard protection–tends to be something where actuaries must obsess on probabilities.  As I said, the probability that you will experience a devastating house fire is extremely low and your insurance premium is based on that.  Fire policies are quite profitable for insurance companies.  Getting a hurricane policy in Nebraska is a breeze too.  Not so for me in Louisiana.  My house was barely touched during Hurricane Katrina and yet now, my deductible has been  set at what they paid me last time for wind damage and the cost of my policy is now quite high.  Even if they pay me my policy next time around, it will ruin me.  I went from from a $1000 deductible to a $10,000 deductible within a year.  If I’m wiped out by a hurricane, I will be wiped out even with insurance.  That’s because the industry considers it just a matter of years before they will have to pay me again.  I’m lucky (hah!!) to even have that bit of nonsense because it is required by my mortgage holder.  Major Hurricanes in the Gulf are not considered very random any more.  Also not very random is getting sick and getting old. It’s also very expensive these days to be sick and to be old and private insurance providers have not done a very good job of controlling the costs and risks of either.  This is why they’ve relied on increased premiums and decreased underwriting.  If the odds move against the house, the house changes the rules of the game.

Many insurance programs in the past were offered by mutual companies that operated on simply returning cost savings to policy holders and maintaining good records of cost control.  Their profits were fairly meager by today’s standards because they weren’t expected to generate bonuses or extraordinary returns to a group of demanding stockholders. Blue Cross and Blue Shield was a pretty good example of what used to be the model of reasonably-priced insurance that brought the benefits of group coverage to consumers.  They’ve now joined the let’s have stockholders bandwagon. They had a large risk pool which means the risks were spread over people likely and unlikely to have bad outcomes.  This reduces the probability of payout and increase premium revenues to cover payout.  BCBS has large enough numbers that they can negotiate price breaks with health care providers.  This reduces the level of payout when triggered by the event.

Again, mutual companies act for the benefits of their policy holders.  Companies owned by stockholders act for the benefit of stockholders.  Government programs generally come about when private insurance won’t offer a reasonably priced product to every one.   I still pay a premium for my flood insurance.  I pay premiums for old age health insurance.  I pay premiums for insurance against loss of income upon retirement.  I have paid these since I had my first job at 15 so for me, that’s over 40 years of premiums paid into Medicare and Social Security.  Ronald Reagan increased my premiums tremendously but promised that my policy would still be in effect when I retired.

Since my father first contributed to medicare and to Social Security in the 1930s, we’ve had this Social Contract.  We’ve had this contract with the government that they would put us all into a risk pool and provide us an old age pension if we paid them.  They would not seek to profit from our infirmities, our death, or our misfortune like private insurers do.  We would pay them now and they would give us money later.  They provided us with old age annuities and with old age health insurance because the private sector won’t do it at a reasonable cost.  The federal government has messed with the programs a lot and changed the benefits, but the guarantees stood the test of time and promise, until now.

The Social Security system is not an “entitlement” program in the way of  WIC or Food stamps or subsidies to farms and the oil industry.  It’s not based on giving something away for nothing provided unless you were some of the very first recipients. It takes more than just being a demographic to get at the benefits.  That’s why I hate this blurring of the word “entitlement”.  Social Security is a program established to provide something that the private market either will not provide or will only provide at exorbitant costs. Annuities are costly.  In the case of Medicare, costs go down when every one is in and paying.  That’s how that public program should work.  It’s not socialized anything because there are no real ‘assets’ to socialize.  There’s no mine, there’s no factory, and there’s no inventory.  It’s a contract.  People like Paul Ryan are mislabeling the contract, breaking the contract, and lying about that contract. If anything drives the reliability of US debt repayment down it will be all this talk by people like Ryan of welshing on long term contracts.

I read the CBO Report on Ryan’s proposal today to turn the country over to the ice floes.  Where is all the discussion on Death Panels now?  I’ve also been reading the responses by people –like me–that really know about these things.  First, let me quote something from the CBO.

Under the proposal, most elderly people would pay more for their health care than they would pay under the current Medicare system. For a typical 65-year-old with average health spending enrolled in a plan with benefits similar to those currently provided by Medicare, CBO estimated the beneficiary’s spending on premiums and out-of-pocket expenditures as a share of a benchmark: what total health care spending would be if a private insurer covered the beneficiary. By 2030, the beneficiary’s spending would be 68 percent of that benchmark under the proposal, 25 percent under the extended-baseline scenario, and 30 percent under the alternative fiscal scenario.

Federal payments for Medicaid under the proposal would be substantially smaller than currently projected amounts. States would have additional flexibility to design and manage their Medicaid programs, and they might achieve greater efficiencies in the delivery of care than under current law. Even with additional flexibility, however, the large projected reduction in payments would probably require states to decrease payments to Medicaid providers, reduce eligibility for Medicaid, provide less extensive coverage to beneficiaries, or pay more themselves than would be the case under current law.

A bookie would blush at those terms.

Paul Ryan is proposing to throw future seniors to the very people that have made health care unaffordable and unattainable for years.  This is a plan designed to fail.  It’s worse than just a simple privatization scheme.  Insurance companies–as an example any Medicare Advantage program–have not been able to control health care costs.  They just adjust their policies prices, coverage, and underwriting as the market unfolds.  All this plan does is push incredible problems off of a huge entity that can broker price breaks on to the individual seniors or future seniors.  Even the ones with Alzheimer’s Disease.   It is immoral.  It also violates any precept of actual insurance provision.  I can only think that this is because they’ve got public insurance provision deadly wrong. It’s not socialism. It’s not an entitlement.  It provides coverage for an event given payment of premiums.  It’s just provided by the government which makes it more cost and risk efficient than the private sector.  That’s the major part of the big lie.  That’s also why they worked their hardest during the Bush years to set up Medicare for near term failure.  They want this to fail.  It plays into their rhetoric of failure.

The insidious Ryan plan is also a lie because it is based on estimates of the economy’s ability to generate historically elevated  incomes and cost savings.  The private insurance market has shown the unique inability to get control of the high costs of health care provision. If you compare them to the VA, they fall miserably short.   Paul Krugman refers to these as unicorn sightings. Ryan’s future economic performance probabilities would make an actuary’s toes curl.  His document is obviously based on wishful numbers for an ideological rampage on America.  Please notice that all of his alleged cost savings go to tax cuts too and we all know who that benefits.  Evidently, Ryan believes the more he jerks off to Ayn Rand, the more the economy will just naturally improve.  It’s the only rational explanation for such disingenuous predictions.

… Ryan is claiming that unemployment will plunge right away; that by 2015 it will be down to the levels at the peak of the 1990s boom (and far below anything achieved under the sainted Ronald Reagan); and that by 2021 it will be below 3 percent, a level we haven’t seen in more than half a century. Right.

Then there’s the Medicare business. According to the CBO analysis, a typical senior would end up spending more than twice as much of his or her own income on health care as under current law. As Dean Baker points out, this means that seniors would end up paying most of their income for health care.

Ryan’s plan amounts to a level of lying for which no proper metaphor can be found.  Ryan is hoping his plan will be bought because it leaves folks like me alone while really screwing young people who don’t care about that sort’ve thing anyway right now.  I don’t know any twentysomething that wouldn’t trade an insurance program premium right now for the money to buy some new gadget.  They all see old age and bad health as an abstract.  That’s why Ryan is trying to play the generational rage card.

Medicaid has not been priced right given today’s health care realities.  The premiums are not high enough.  There probably should be more co-pays.  There are a lot of issues with the program.  Many of the problems have come about because industries have managed to out-negotiate the federal government.  There’s an incredible transfer of wealth to the Drug Industry alone.  Medicare has been overpaying for Part B drugs, as an example.  Medicare, Part D, put into law by the Bush administration was an abomination of a program.  All you have to do is compare what the VA pays for drugs to Medicare.  It’s a trillion dollar subsidy to drug companies.  That’s not the purpose of a health insurance policy at all.  If anything, Medicare Part D is an entitlement program for Big Pharma.

So, what can we do? First, we need to get the discussion back to the idea that these are supposed to be publicly sponsored insurance programs not health or financial industry subsidies.  They aren’t set up to enrich stockholders of nursing care homes, cardiac machinery companies, or drug  companies.  There are substantial cost savings when huge entities risk pool (decreases probability of payouts due to high occurrence of the adverse event) and when they bargain for services (decreased payout when payouts occur).   We don’t need to talk about dismantling Medicaid or Medicare. We need to talk about how to make them cost effective and efficient. We have plenty of evidence that the private insurance sector either can’t or won’t do that. There’s also plenty of evidence that public insurance plans do that much better and at lower costs with uniformity of paperwork and payouts.

Second, this conversation needs to be taken out of the context of the federal budget.  The only people that put the problems  in these contexts are people that prefer anarchy to government; people like Paul Ryan.  These are standalone programs that should standalone.  Also, people should detach Social Security from Medicare.  Medicare’s the problematic one.  Social Security isn’t endangered.   Both need to be put back on financially stable paths by adopting sensible changes that any reasonable, mutual company providing policies would provide.  They’re not supposed to enrich health care providers or bankrupt them.  Reasonable rates of return are fine.   Price-gouging should be unacceptable.  Also, part of the problem is that the Health Insurance Industry itself has a fairly lousy record of costs controls.  It’s not all frivolous lawsuits either.  Doctors make incredible amounts of money sending patients to have multiple tests in facilities where they have financial stakes.  This ought to be questioned.

Still, the problem isn’t so much health care delivery as that we have third party payers in the market and none of them have been getting the correct outcomes. The issue is complex which is why so many people fall prey to the rhetoric of liars like Paul Ryan.  Privatizing all of this is not going to make the social costs associated with old age go away.  We’ve had a American Social Contract for some time. Even the Tea Party didn’t carry signs that said “Steal my Medicare, Please!”  Huge numbers of people have planned their lives based on the provision of public old age annuities and old age health insurance by the federal government.  Breaking faith with the public on such a basic level using spurious rationale and hyped-up projections is just immoral.  I still can’t believe that not one Democrat will engage this nonsense head on. That Democrats are entertaining devastating people’s lives under the banner that austerity is in with some segment of voters is just shameful.

(Sorry this is so long. Somethings just take awhile to expound.)