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A Lesson in Moderation
August 30th, 2009There is an old saying that is passed down through the generations. It is typically sung to the effect: everything in moderation. Various individuals attribute the wisdom to various past figures, but no matter the source, the saying has some bite. Read the rest of this entry “
“Pre-existing Conditions”, it’s the new blue
May 25th, 2009And so it begins….the Obama administration is ready to venture into hostile territory, the land of health care reform. To be sure, this precocious administration has already seen the likes of financial calamity and rising unemployment and even cast their environmental policy line in the face of both. They have listened to the dying engine rumbles of Detroit and continue to push progressive tax policies in the face of stern opposition. For many presidencies, all of this would have sufficed to “call it a term”, if you will, but for the Obama team, these are all mere fire-starters. Now, they feel prepared to engage the 60 Years War (this one goes back to the FDR-Truman eras). Many have encroached upon this dynamite field before, armed with reasonable valor and intentions, but none came away with much less than a sound drubbing. So, will Obama prove more tactful, more disarming, or more of the same?
As the ballooning budget is becoming evermore disconcerting to the administration, the handful of Congressmen still identifying as Republican, and the general public, the actual “reform” might undergo a metamorphosis into a series of small concessions from all major stakeholders. Perhaps not, but for your weekly dose of skepticism, pick up the recent version of “cap-and-trade”. After its dilution, the only environmental impact that legislation will have is if they manage to send the bill to the paper-recycling bin. There is a critical mass of support (going well beyond the walls of the White House) for the premier element of the Obama plan, the government managed health insurance plan. However, this is also the most contentious reform proposal. I am not fully aware of how they intend to run this scheme (manage asset, equity, and risk portfolios like private insurance companies?), or most importantly, how they plan to garner the necessary marginal support (at least a few fence dwellers will have to take the decisive step). So, in these regards, I will be watching this particular drama in anticipation along with much of the rest of the country (and likely world). But I can make a recommendation for the near-term while they wage battles for the long-term (insurance companies will never go quietly into the night).
One of the strongest criticisms of the private insurance industry is its trepidation vis-a-vis “adverse selection” (the concept that the sickest are the most likely to seek health insurance…and are also the most likely to prove costly for the insurance company and its risk pool). To hedge against these folks, they actively pursue the statistically healthy and try to screen out those with significant pre-existing health problems. Part of the Obama plan’s mission is to offer a health insurance home to these otherwise beneficiary pariahs, as well as attract any others who are looking for a better deal. Assuming the government scheme desires a risk pool, like other insurance schemes, then I suspect they are hoping that enough relatively healthy, inexpensive shoppers cross the line to dilute the intrinsic risk baggage brought with the least healthy. Could certainly work, but there are some hang-ups. For one thing, there will be immense industry push-back (but that is a foregone conclusion, so no need to dwell upon it). But there may also be some financing issues. The private companies work the hardest to attract the most healthy, least risky clientele. Therefore, it might be quite difficult to win enough of this group over, in the near-term. What may happen is the least healthy are the first to join, followed closely by those able to get insurance but just barely due to their not-so-good statistical health (with a significantly marked up premium). This does not make for such a promising risk pool and may be quite expensive in the short run.
To avoid this (again in the near-term, the long-term is for the administration and the public to decide), they may decide to operate in the facet they know best: the Payables Department. If “pre-existing conditions” keep individuals out of private insurance schemes, then make it the ticket into government sponsorship. In this way, it would now be fashionable to divulge such health problems to demonstrate absolute exclusion from private insurance and then qualify for government protection. The government can then negotiate fees for their care with given institutions and providers and pick up the tab. Conversely, if they want such individuals under a traditional insurance plan, they could accept bids from private insurance companies for this group of patients and then top off the beneficiaries’ (the patients) contributions in order to cover the otherwise unaffordable premiums. Either way, the government will write checks, which is what they will ultimately do irrespective of their scheme’s details. This is just one modality that I think could prove useful and not too expensive in the coming few years. Additionally, the insurance industry may even be amenable to it since it does not make them redundant nor coerce them into accepting their least favorite customers. Furthermore, it could help those not-so-healthy individuals with coverage but also high premiums that I mentioned before. Their premiums could actually slide down a bit and/or more of these riskier customers could be offered attractive private plans due to dilution effects: If the riskiest people in the pool are not leaving the insurance company exposed because they are shielded by the government, then the ratio of least risky to risky (but not riskiest) goes up. Meaning the risky (“not-so-healthy”) could enjoy swimming around a safer pool with lower costing flotation devices (premiums).
As I said before, I offer this only in the interest of political expedience. The administration could use something like this, or something fancier if they so choose in the immediate future while still pushing climactic reform for down the road. However, if their fortitude is not in question and their sense of adventure intact, then good luck soldiers….the war is long and the battles many….but then again, perhaps like never before, the troops are in no short supply.
Carbon bad, taxes good (sometimes)
April 26th, 2009On the 17th of April, the Obama administration proclaimed the new doctrine that carbon dioxide is bad for our health and circumstance. Not much of a revelation for many in the fields of public health, but certainly a bold move politically. With this announcement, and the Clean Air Act already in play, the EPA can step in and begin regulating emissions with the blessing of the Supreme Court and Executive branch. The Financial Times writers, Andrew Ward and Sarah O’Connor, offer a brief synopsis of it in their article “US declares carbon dioxide a danger to human health”.
I find the maneuver encouraging, but we are still at least one large step from doing much of anything tangible to curb emissions…and a chasm away from doing it right.
Does the Obama administration really want the EPA to handle CO2 admissions? I doubt it. In fact, the real bite of this new axiom and emboldened EPA has already been noted by much of Congress: it’s twisting the screw to get them to pass some legislation. It is always more pleasant for an elected official to vote for the obvious than vote for the confrontational. Naturally, some of them are quite uncomfortable with the Obama camp turning up the heat on potential environmental legislation (perhaps that will make them more empathetic to the scientific community’s discomfort with the world’s rising temperature). Notwithstanding some Congressional pleas that Obama isn’t playing fair, the legislative branch will now have to take a long, serious look at the current cap-and-trade proposal. Before, it was just a matter of voting down something they (and some lobbyists) didn’t want any part of. Now, it means forfeiting a market-based system of regulation for an executive agency book of mandates (you can almost hear the far-right teeth grinding…environmental protection, bigger government…they haven’t experienced such agony since the 70s).
But will cap-and-trade do it? Maybe, but I’ve got my doubts. I should moderate my demur with a caveat: it probably will do something, it just might not be much. Briefly, this system aims to declare a national ceiling on emissions, slice the total up like a pie and distribute them to every corporation that pollutes. Those that need more permits (slices of pie) will have to buy them from others, who have permits to spare. Ideally, it keeps the total emissions at an agreed upon level and encourages innovation (i.e. do what you can to need as few permits as possible and sell the left-overs). Not so bad thus far, but the tricky part comes next. PRICING.
The conundrum of this particular proposal is putting the right price tag on the permits. Aim to low, and they become so cheap that nobody changes behavior and we’ll merely have a bunch of permits laying around on the ground like unwanted grocery store coupons (EU demonstrated this one). Price them too high, and you can significantly alter your export industries and engender a whirlwind of business backlash (that will be there regardless, so it’s the first point that matters). I think this is an especially important consideration in the wake of our financial armageddon. To curtail America’s prodigal ways, it needs to reconcile its trade deficit (i.e. export a little more and import a little less). Some careful mathematics and a stroll down a fine line is in order if we hold to cap-and-trade.
To get away from the precarious efforts to price permits, I think we should just implement a carbon tax. Get a few smart people in a room, initiate a circumspect approximation of the negative externalities intrinsic to each unit of CO2 emissions, and charge the polluter accordingly. Take the new revenue and invest it in environmental protection interventions and subsidize new technology (help businesses pollute less, make solar and wind power implementable, etc.). Don’t want to pay more taxes? Then stop polluting…that changes behavior, right? Additionally, the price is stable (just like a sales tax), so any business can calculate its upcoming fiscal year liabilities based on expected emissions multiplied by per unit tax. No black magic or unexpected outcomes (like rock-bottom permit prices). And last but not least, the carbon tax has a social appeal: it gives Rush Limbaugh and his delusional acquaintances an excuse to get together again over a cup of tea.
Japan stimulus package still missing something
April 12th, 2009There is an interesting article at the Financial Times, “Japan unveils $154bn stimulus plan” (free registration required), and given the parallels to our current debacle, here are some thoughts.
Japan, a global economic powerhouse and the Asian leader as far as GDP per capita goes, announced a new plan to tackle some of its old problems, namely deflation. One lost decade appears to have been enough for Japan, and its government is now throwing quite a bit of money around to quell the threat of another downward spiral. This is not breath-taking news as most other developed countries have deployed similar measures. But what I have found interesting is what is present in the proposed stimulus, and most importantly, what is not.
When glancing through the litany of items, it reads nearly like a direct transcription of an Obama, Sarkozy, or Brown public address. For the medical erudite onlooker, he/she may optimistically note that there is even some money earmarked for health care spending present within the plan. However, I think the global health perspective is lost in Japan’s plan, and I think many other national stimulus packages (including the US) have knowingly or unknowingly eschewed global health as well.
Plenty of academics, pundits, and philanthropists have implored the developed countries to offer a fraction of their stimulus packages to the poorest nations in the form of aid. Yet, those calls have either fallen on deaf ears or led to any appropriations being buried deep within the stimulus package labyrinths. Although the latter may be true, I suspect not. Even small aid gestures are usually flaunted without humility, so I do not believe the rich world governments would cast their heart-felt efforts to less prominent publicity roles. So, at least for the moment, I am going to assume the handouts have been left off the table and posit that this is not in anyone’s best interest.
Briefly, developing nations will have less financial flexibility and credit worthiness to engage in similar maneuvering as Japan, the US, etc. In our current global financial calamity, this puts these nations not only between a rock and a hard place (just as most other countries, regardless of income) but also staring up at an incoming meteorite. The subsequent dominoes spell trouble for international development, geopolitics, resource procurement (even basic necessities like food), and health care systems. For many of these countries, their respective governments shoulder much of the weight when it comes to paying for and providing medical care to its citizens. If credit is frozen and money scarce, then a Ministry of Health budget can be paralyzed just the same as any other government expenditure. Intuitively, this is not good for the nations and their people (especially considering disproportionate disease burdens), but it is bad for the rest of the world too.
We have known for some time that the global population is tightly linked (and our financial mess affirms it). This bond is impetus for humanitarian endeavors and a belief in international harmony. Additionally, it means that disease, and its direct and indirect effects, does not need a passport to move about the world. If we neglect global health, then we all lose. Therefore, I think devoting some of the stimulus money from Japan, the US, and the rest is a worthwhile idea. It would be money well spent, provide for a more prosperous future, and acknowledge that we in the West are really embracing “change.”
For those that are unmoved by my internationalist perspective, they might find solace in the thought that these aid offerings could have significant economic spillover effects as well. And I am not merely referring to the good health and productivity arguments; rather, I find it plausible that money sent abroad to unfreeze credit, encourage lending, and bolster consumption in poor countries could benefit the wealthier as well. Poor countries often play vital roles in the global supply chain (and one weak link…well, you know how it goes) and they are also packed with potential consumers (much of the wealthier countries have flagged their exports and feasted on imports, and now they all scream imbalance and time for correction). So, even if you do not fancy money channeled toward poor country health care systems, you should offer your upright thumb to stimulus package aid anyway. It is in your best interest, believe it or not.
Madagascar’s next transition
March 21st, 2009The coup, which has been a bit more popular throughout Sub-Saharan Africa as of late, has now brought a new government to the people of Madagascar. The new president is young and a proclaimed reformist, most typically are so only time will tell. Of the many challenges in establishing a new government, perhaps the greatest is attempting to determine the long-term outlook for a given nation and its people. Do I think this could put the country in a more precarious position? Potentially, but maybe not. Can I be sure of anything? Not in the slightest. With that, I will stick to the short-term.
South Korea had lofty aims to cultivate over a million acres of underdeveloped farmland within the Madagascar borders and then ship the produce back to South Korea as a measure of “food security.” Those plans have been scrapped. The South Korea proposition had one clear fault: they wanted the land for free. In fact, this dubious arrangement had prompted condemnation from many outsiders and provided additional impetus for the subsequent coup. Naturally, the new administration readily cancelled the deal. This is politically understandable, but I do not believe it is optimal.
Much of Africa, including Madagascar, has an impresive amount of farmland devoid of farming. A good driver of economic growth and wealth generation (typically increases health) is often the farming industry. Any country with the right landscape and climate for a particular good(s) can enjoy a healthy export industry, usually to wealthier nations lacking food production (like the Gulf states). Notwithstanding international trade issues/debates (particularly the Western farm subsidies), it may prove beneficial for Madagascar to put this available land to use, and if needed, use South Korean capital inflows to start the process. The catch is: make them pay rent. The arguments (from South Korea) about job creation and such being a payment of sorts are flimsy. It is difficult to say and especially quantifiy the future effects on Madagascar’s labor market. However, it would be quite manageable to include this new source of revenue in the country’s fiscal budget (using the money to bolster public health and education programs would not be such a bad idea). Thus, I think Madagascar should not fold their cards and walk away from the playing table; rather, they should play a better hand. And if they really are astute, and the land is truly valuable, they may wish to auction the land to all available bidders (tends to drive up prices).