Wednesday, June 24, 2009

Miracle of the market place?

Senate Democrats have provided a timely reminder that private health insurance also has drawbacks.

Which is not to say that public insurance is problem free.

Faulty reporting

The New York Times finds fault with a new geothermal energy technique. The technique takes advantage of an abundant energy source--heat from the Earth's core. The minor downside is that it also causes earthquakes. Oops.

A new project is beginning 40 miles east of the San Andreas fault, in an area that already experiences swarms of earthquakes associated with previous projects.

Maybe it's time to go back to the drawing board on this one.

Friday, June 19, 2009

Going back to the 2006-7 budget would be draconian

North Carolina, which was already in tough fiscal shape, has revised its revenue projection for the upcoming (2010-11) fiscal year downward. The state legislature is meeting to close the budget gap. The Governor and state Democrats are looking to raise taxes and other revenues by approximately $1 billion. Republicans counter that revenue increases are not needed because the projected amounts would only lower the budget to 2006-7 levels.
Without raising taxes the state could spend $19.1 billion next year, the same as in 2006-07... Claims of the necessity for "Draconian" cuts and massive tax increases were wildly exaggerated. Thoughtful prioritization of spending could have balanced the budget without the need for massive tax and fee increases.
Because the Republicans have raised the issue, it's useful to consider why cuts back to the 2006-7 budget would be "draconian."

By the time that the 2010-11 budget year begins, the population of North Carolina will have increased by about 6 percent beyond its 2006-7 level. Though we can't say for sure, it's also likely that prices will have increased by at least that amount (they're already 6 percent higher than they were in 2006). So, just to keep up with population growth and price inflation, the budget would need to increase by at least 12 percent.

Unfortunately, those are not the only drivers in the budget. Higher education spending is a significant share of the budget, and the college-age population is currently growing faster than the population as a whole. Another large chunk of the state budget goes to Medicaid. Because of the recession, the number of households that qualify for Medicaid is increasing. Also, medical costs are rising faster than other costs. Although the American Recovery and Reinvestment Act provides states with additional Medicaid funding, North Carolina's own costs are still going to increase.

Thus, once we adjust for changes from inflation, demographic change, and economic circumstances, the 2006-7 nominal budget falls roughly 1/6 short of state needs, assuming that the Republicans' choice of 2006-7 represents state needs.

As it is, the proposed $1 billion in additional revenues would only close about a third of this gap. Thus, even with a tax increase, spending will still need to be cut about 10 percent below what it would have been to keep pace with 2006-7 levels.

A 1/6 budget cut would be draconian, yet that's all the Republicans can offer.

Expressions of regret leading to healing

Contrary to critics' predictions, the Greensboro City Council's expression of regret for the killings at the 1979 "Death to the Klan" march does appear to be leading to increased racial healing.

Yesterday, the Senate unanimously passed a resolution apologizing for slavery.

And last night Jon Stewart healed some of the wounds between blacks and Jews.

The Daily Show With Jon StewartMon - Thurs 11p / 10c
Blacks and Jews
Daily Show
Full Episodes
Political HumorJason Jones in Iran

Can rapprochement between dogs and cats, old men and kids on their lawns, and road runners and cayotes be far behind?

Thursday, June 18, 2009

Insurance fraud in North Korea

The Washington Post describes how the North Korean kleptocracy has raked in millions of dollars through insurance fraud.
...the impoverished and isolated North Korean government has collected hundreds of millions of dollars from some of the world's largest insurance companies on large and suspicious claims for transportation accidents, factory fires, flood damage and other alleged disasters.

...For years, the U.S. government and law enforcement agencies around the world have documented what they describe as state-sponsored criminality in North Korea. They have linked the North to illegal manufacturing and trafficking of drugs ranging from heroin to Viagra, as well as to expert counterfeiting of $100 bills and the production of high-quality counterfeit cigarettes.

Much less has been disclosed about North Korea's international insurance claims, in part because they have been cloaked in legal settlements by firms with no interest in highlighting their losses.
The scheme involved reinsurers who backed up policies written by the state-owned Korean National Insurance Corporation (KNIC). Initial claims would be adjudicated in North Korean kangaroo courts and then passed on to the reinsurers. The KNIC appears to have profited through outright fraud and by skimming money that should have gone to victims. Those profits were then funneled to the North Korean regime.

The obvious question is how did the North Koreans lure the reinsurers in. A defector from KNIC explains.
While working for North Korea's insurance monopoly, Kim Kwang Jin said, he and other managers had a tightly focused mission: to find reinsurance companies and brokers in different parts of the world who would accept high premiums to reinsure KNIC's policies.

...According to Kim, KNIC would target a different potential disaster and a different reinsurance company each year. "We pass it around," he said. "One year, it might be Lloyd's; the next year, it might be Swiss Re; and the next, Munich Re."
A reinsurance expert added
"They pay good premiums, and they are very sophisticated, very clever," he said. "They would divvy business up into very small bites and use different brokers in different places. The division of losses was such that it would never be apparent to a prospective reinsurer just how bad the business was."
Thus, each reinsurer faced a high potential reward. And although each also faced an increased risk, the individual policies were small and diffuse enough to hide the risk.

Because of the publicity of some recent cases, reinsurers appear to be wising up. Nevertheless, stockholders and investors in reinsurance companies should insist that their companies cease all business with KNIC.

Wednesday, June 17, 2009

"Breaking the Bank"

Frontline aired a great report of the deal-making, arm-twisting, and self-dealing that occurred among the Treasury, Fed, and major banks during last fall's crisis, with a focus on the Bank of America/Merrill Lynch shotgun marriage.

The report should be required viewing for Money & Banking classes going forward.

Greensboro turning a page

Last night, the Greensboro City Council took the tough but necessary step of expressing regret for the killings at the 1979 Death to the Klan march.

From the News & Record
Thirty years after a Greensboro shooting — and four years after the issue first came before the City Council — the council said Tuesday night that it regretted the 1979 killings at Morningside Homes and pledged to help the city heal.

The council voted 5 to 4 to approve a statement of regret about the incident — one of the recommendations the city Humans Relations Commission made after studying the shootings and the 2006 Truth and Reconciliation Commission report about it.
The statement addresses a central concern of the Truth and Reconciliation Commission. By acknowledging problems in the past, the city is in a better position to move forward.

The statement does not go as far as the Commission has recommended, and it would be foolish to think that this will mend all of the racial division in the city. However, the statement does go farther than many thought possible and is a positive step for the community.

Friday, June 12, 2009

What would you do for a Klondike bar?

I am frequently contacted by companies promising some compensation if I will write something nice about their site or product. Yesterday's post should give you a fair indication about my feelings toward these kinds of arrangements.

Last night, as if on cue, another of these e-mails along these lines arrived, but with a twist. The e-mail described a Spread the Word for Charity campaign, in which hotelscombined, a hotel search and comparison site, would contribute $20 to World Vision for mentioning its site.

World Vision is a charity that I support and advertise, so, the offer of a $20 donation hit a soft spot. Mentioning the site did mean a somewhat embarrassing retreat from yesterday's post; however, it didn't involve eating any more SNAP meals.

I went to the hotelscombined and Expedia sites to check hotels for an upcoming trip to a small southwestern U.S. town. For the town itself, hotelscombined returned the same hotels and indicated the same availability as Expedia. Hotelscombined also offered a better price on one of the hotels. Expedia listed additional hotels outside the town along with the distances to the town center.

I hope that readers appreciate the hypocrisy irony, and I especially hope that World Vision enjoys the donation.

Thursday, June 11, 2009

Study results as told to

Bloomberg reports how Eli Lilly & Co. and other drug companies "ghostwrote" manuscripts for doctors to submit to scientific journals.
Eli Lilly & Co. officials wrote medical journal studies about the antipsychotic Zyprexa and then asked doctors to put their names on the articles, a practice called “ghostwriting,” according to unsealed company files.
Lilly also engaged in other unethical practices.
Lilly employees also compiled a guide to hiring scientists to write favorable articles, complained to journal editors when publication was delayed and submitted rejected articles to other outlets, according to documents filed in drug overpricing suits against the Indianapolis-based company, the largest manufacturer of psychiatric medicines.
Lilly was not alone.
In May 2008, Whitehouse Station, New Jersey-based Merck agreed to pay $58 million to 29 states and stop ghostwriting articles to resolve claims that its advertisements for the withdrawn painkiller Vioxx hid the drug’s health risks.

...Pfizer paid $60 million to 33 states in October to settle claims it improperly marketed its Bextra and Celebrex pain relievers. New York-based Pfizer agreed to halt off-label marketing of the medicines and stop ghostwriting about them. It withdrew Bextra in April 2005. Celebrex is still on the market.

...In 1996, Wyeth hired Excerpta Medica Inc., a New Jersey- based medical communications firm, to write 10 articles promoting drugs aimed at treating obesity...
As despicable as the drug companies' behavior was, it pales in comparison to the medical shills who abetted this practice.

Universities regularly flunk and expel students who engage in academically dishonest practices, such as turning in other people's papers from paper mills and fraternity files. As the Bloomberg article indicates, universities need to look more closely at their own faculty members regarding the same practices.

Tuesday, June 9, 2009

Middle East election goes our way

The New York Times speculates that the favorable election outcome in Lebanon may be the first tangible benefit from President Obama's outreach to Muslims.
There were many domestic reasons voters handed an American-backed coalition a victory in Lebanese parliamentary elections on Sunday — but political analysts also attribute it in part to President Obama’s campaign of outreach to the Arab and Muslim world.

...It is hard to draw firm conclusions from one election. But for the first time in a long time, being aligned with the United States did not lead to defeat in the Middle East. And since Lebanon has always been a critical testing ground, that could mark a possibly significant shift in regional dynamics with another major election, in Iran, on Friday.

With Mr. Obama’s speech on relations with Muslims still fresh in Lebanese minds, analysts point to steps the administration has taken since assuming office.
Before anyone gets too excited, it's useful to recall that there have been previous "harbingers" of changing Middle East dynamics, such as Libya's dismantling of its nuclear program following the start of the Iraq war.

A bigger and vastly more important test of President Obama's approach will be the Iranian elections later this week. There are lots of internal reasons why the Iranian hard-liners should lose the election. President Obama's conciliatory, yet challenging speech last week may also deprive the hard-liners of an external rallying point.

Thursday, June 4, 2009

Protecting tax payers

The IRS is looking at ways to protect tax filers from unscrupulous preparers.
IRS Commissioner Doug Shulman announced today that by the end of 2009, he will propose a comprehensive set of recommendations to help the Internal Revenue Service better leverage the tax return preparer community with the twin goals of increasing taxpayer compliance and ensuring uniform and high ethical standards of conduct for tax preparers.

Some of the potential recommendations could focus on a new model for the regulation of tax return preparers; service and outreach for return preparers; education and training of return preparers; and enforcement related to return preparer misconduct. The Commissioner will submit recommendations to the Treasury Secretary and the President by the end of the year.
The IRS and the government more generally are right to be concerned about tax payers. However, this is a classic example of one problem begetting further problems.

Tax preparers owe their existance to the complexity of the tax code. The size of this industry (in January 2009 the National Association of Tax Professionals claimed more than 19,000 members) is an immediate indicator of the burdens that tax payers face.

Tax simplification, which hasn't occurred in a meaningful way since 1986, would reduce abuses by reducing the need for preparers.

Sadly, simplification doesn't seem to be in the set of recommendations being considered, but it should be.

Wednesday, June 3, 2009

Preview of Republican-style health care reform

The local News & Record has a poignant story about the cold reality of private, go-it-alone health insurance--the kind of "choice" that Republican lawmakers like Sen. Burr are advocating.
In his mid-50s, George Kretchun was finally living the dream: After years of working for someone else, the Reidsville man opened his own catering business.

But when he went looking for health insurance, the dream dimmed.

At his age and with a pre-existing condition, he faced paying more than $25,000 a year in premiums.
Mr. Kretchun's problem was that he developed a liver condition several years ago. As part of a larger risk pool, such as a large employer, Mr. Kretchun's bad health draw would have been balanced by better health draws, making affordable insurance possible. However, as a self-employed person, Mr. Kretchun constituted a pool of exactly one. Insurance companies seeing his pre-existing condition would only offer him unaffordable policies. Mr. Kretchun's experience illustrates a well-known market failure that can arise in the presence of adverse selection.

The Republican plan, which calls for ending end tax subsidies to companies for providing health care and replacing them with individual subsidies, would lead to the further dismantling of employer-provided care. The plan hails itself as providing "choice," but choice in the insurance market is a two-way street--insurers also get to choose how much they will charge each customer based on that customer's health.

Mr. Kretchun was eventually helped through one of those supposedly awful government-established and subsidized programs, Inclusive Health, North Carolina's high-risk health insurance pool. The pool is administered by a non-profit that was established by North Carolina with strict rules regarding how much it can charge and who can be admitted. The plan is targeted toward people who are unhealthy and who lack access to employer-based plans. Because insurance for these folks would be unaffordable to them, the plan is subsidized by the state. Inclusive Health is still much more expensive than the insurance available to currently health people, but it's premiums are nevertheless within reach of most people.

The Republican plan rules out "new government spending." However, individually-affordable high-risk health insurance requires some type of subsidy. The Republicans also criticize "public plans," like Inclusive Health thusly
Patients should be able to choose from a variety of private insurance plans. The federal government would run a health care system—or a public plan option—with the compassion of the IRS, the efficiency of the post office, and the incompetence of Katrina.
Mr. Kretchun had his choice of market-based private insurance plans--the private insurance market failed him. As he put it "I don’t mind if they tell me you’ve got to pay double. But don’t tell me I’m not allowed to get any insurance." His experience shows that government intervention can be compassionate, socially efficient, and competent, "a God-send" in his words.