Adonis Diaries

Posts Tagged ‘David Cay Johnston

Another Myth: Health Care’s Free Market

This article has a clear, factual approach to why the US health system is expensive from price gouging by providers, denial of coverage by insurers, onerous patents by drug companies, high salaries of doctors, and the lack of single-payer system.

It also questions the fundamental rhetoric behind the ‘free market:’ “When opponents of the Affordable Care Act argue for patients negotiating health-care prices they make as much sense as proposing that passengers haggle over pay with an airline pilot.”

Has it ever occurred to you to negotiate with the pilot of the plane you just boarded about her pay?

Assuming the pilot was willing to take bids for her services, would you have any idea of how to evaluate the worth of that particular pilot compared to anyone else who might be at the controls?

How long would it delay the flight while you and other passengers haggled over that fee?

And what of the risks in having a pilot focused on whether she negotiated good deals with her passengers, rather than getting everyone safely to their destination?

 posted this January 03 2014 on Newsweek
The Myth of Health Care’s Free Market
1-3-13_NW0401_Hospital

                Ever wonder why an appendectomy costs $8,000 in one place and $29,000 elsewhere?                                              REUTERS/Jim Bourg

While haggling with pilots is absurd, the idea that individual Americans should negotiate the prices each pays for health care is getting a lot of serious discussion right now.

The reason is the Affordable Care Act, a.k.a. Obamacare, which critics are desperate to find some way to stop.

For weeks, politicians and writers in the opinion pages of The Wall Street Journal and other critical outlets have declared Obamacare a failure with plenty of victims.

Those are silly assertions because the law only took effect this week, on the first day of 2014.

These critics are all outrage with no detailed alternatives, except the mantra that competition will magically bring down health-care costs.

The libertarians at the Cato Institute argue “we need market competition more than ever. Not the mealymouthed substitutes bandied about by most health policy wonks. We need something that none of us has ever seen – real competition in a free health-care market.”

No. We need something easier, simpler, and already proven to cut costs.

1. For starters, markets can push prices up as well as down.

The electricity market rules, initially written by Enron (at the urging of former Vice President Dick Cheney, who was pals with the company’s late founder), can raise prices to 90 percent of what an unfettered monopolist could charge, as I showed in my book Free Lunch, citing research by Professor Sarosh Talukdar of Carnegie-Mellon University that no one has challenged.

2. There’s the knowledge component of markets.

When one side knows and the other side is ignorant, you get price-gouging. Under current policies, prices for medical services are generally confidential. You could call hospitals and your health insurer to ask the cost of a standard medical procedure, say cataract or gall-bladder surgery. I tried that, and was told at every turn that prices were proprietary information – none of my business, until I got a bill.

More than 4 decades ago the Supreme Court defined a fair market as the “price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.

How many of us have “reasonable knowledge” of medical procedures, costs, or even the difference between a neurologist and a nephrologist?

Is an accident victim writhing in pain, life’s blood flowing out of his body, free of compulsion?

And how many of us know the assortment of facts needed to price an MRI, an angiogram or just a dozen stitches?

Or, for that matter, whether any of those procedures is the best alternative, or even necessary?

We don’t have a free market for health-care services.

If we did, we would see a narrow range of prices for the same service. After all, a Ford F-150 pickup with the same options costs about the same in Washington, West Virginia, or Wyoming.

Not so hospital and medical costs, a fact brought home in the 2012 Pricing Report of the International Federation of Health Plans, a trade association for health insurance companies.

While the average U.S. hospital stay is just under $4,300 per day, one in four patients are charged $1,514 or less and one in 20 pay $12,537 or more.

The total cost for an appendectomy ranges from $8,156 for a fourth of these procedures to more than $29,426 for the most expensive 5 percent. The average cost is $13,851.

Economists learn before they get their undergraduate degrees that such huge variations are signs of inefficient markets or even “faux markets“.

Such wide price variations may even indicate collusion among some providers to jack up prices, which is generally illegal.

Even if we ignore these huge price variations, the trade industry report illustrates another problem: American health-care costs are completely out of line with the rest of the modern world.

In France the average daily cost of a hospital stay is $853; in the U.S., it’s $4,287.

An MRI costs on average $335 in Britain and $363 in France, but $1,121 in the U.S.

Routine and normal childbirth costs, on average: $2,641 in Britain and $3,541 in France but in the U.S. averages $9,775. Caesarean section delivery runs $4,435 in Britain, $6,441 in France; $15,041 in the U.S.

This pattern holds for all 21 procedures examined in the report.

Excessive health-care costs drain both the public purse and private purses, make manufacturing noncompetitive and force employers to divert attention from running their firms to dealing with health insurers.

Our universal single-payer health-care plan for older Americans, Medicare, has lower costs and lower overhead than the system serving those under age 65.

If everyone in the U.S. was on Medicare, the savings would move the federal budget from deficit to surplus.

Of the 34 modern economies, the U.S. has by far the costliest health care system.

For each dollar per capita that the other 33 economies spend on health care the U.S. spends $2.64, my analysis of Organization for Economic Cooperation and Development data shows.

Canada, Germany, and France each spend about 11.5 percent of their economy on health care, compared to 17.6 percent in the U.S.

We could have eliminated the income tax in 2010 had we adopted the Canadian, German, or French health-care systems.

Look at your pay stub and how much goes to federal income taxes, then think about the unnecessary economic pain American health care causes you.

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One important distinction between other modern countries and the United States is that they all provide universal health care, while 48 million Americans had no health insurance in 2012 and another 30 million had coverage for only part of the year.

Millions have coverage riddled with loopholes and exceptions, not paying for such vital services as an ambulance, even when the patient is unconscious.

And all private health insurers try to avoid paying claims in various ways, from requiring onerous paperwork to denying a procedure was necessary.

On top of all this are restraints on trade in American medicine, like limiting the supply of doctors and nurses. The American Medical Association has acknowledged that it worked to hold down the number of physicians to push up income for doctors.

Under state licensing rules, many of even the best-trained foreign doctors cannot practice here.

And there are the drug and other medical patents. Economist Dean Baker notes that in America, “we grant patents to providers and then let them charge pretty much whatever they want, while other countries also grant patents, but then limit the prices charged.

When a patent expires, American law allows the drug company to pay would-be makers of generic versions to not produce the drug. That keeps prices, and profits, high. It ought to be illegal.

Congress expressly forbids Medicare from negotiating wholesale price discounts for the Medicare Part D program initiated by President George W. Bush, so Americans pay far more for drugs available in other countries, which negotiate huge discounts.

Finally, not everything should be judged by price competition.

The love and affection of our families, the loyalty of our diplomats, and the integrity of jetliner makers and of the airlines that hire pilots are not matters for market economics.

We could experiment with the kind of price competition that the Cato Institute proposes. It might even work, though I doubt it. But why?

We already know that universal coverage with a single payer is much cheaper than what America spends now. And we know that the quality of U.S. health care is far from the best – 37th in the world, according to the World Health Organization, which ranks France No. 1.

When opponents of the Affordable Care Act argue for patients negotiating health-care prices they make as much sense as proposing that passengers haggle over pay with an airline pilot.

 

How Motown Detroit went bust? Hard Lesson …

Anyone in a public-sector job, and  looking forward to retiring in comfort should look carefully at what is going on in Detroit and Springfield, Ill.

News leaking out this week from the Motor City tells how the enormous gap between the pensions workers earned and the money set aside to pay for them will be closed. By stealing from the workers.

Courts, legislatures, and corporations are all working in concert not to pay the full benefits owed.

 published on Newsweek this December 4, 2013

Sherlock Holmes would call it the case of the missing pension money.

For decades, political and business leaders failed to set aside the right amount of money each payday to cover the pensions workers earned and, in some cases, covered up the mismanagement of pension fund investments.

Detroit

Like Detroit firemen and policemen who paid their full pension dues, many Americans will be rewarded in old age by poverty.   Rebecca Cook/Reuters

This is nothing short of theft, as pensions are simply deferred wages, that is, money that workers could have taken as cash in their regular paychecks had they not opted to set it aside.

In Detroit, a federal bankruptcy judge handling the city’s Chapter 9 case held Tuesday decided he could safely ignore a Michigan Constitution provision barring any reduction in pension benefits to already retired public sector workers.

Judge Steven W. Rhodes went beyond asserting the supremacy of federal law over state regulations, ruling that the pensions workers earned were a mere “contractual obligation,” no different from any other bill the city owes but lacks the money to pay.

The result will mean even worse poverty in the sputtering Motown, where a once robust industrial tax base has withered away, the starkest example of the economic devastation wrought by government policies that for decades have encouraged companies to move manufacturing offshore.

Financial mismanagement in Detroit under every mayor in the past 6 decades also contributed to the disaster, except for the honorable exception of  Coleman Young in the mid-1970s.

The result: Public worker pensions averaging $19,000 a year will be cut to the bone. That is sure to increase demands for federally funded food stamps, a program which Congress has just cut, and other welfare to make up for some of pensions workers earned but will not collect.

Norman Stein, a Drexel University law professor who is an expert on pensions, said that if the Detroit order stands it will become standard practice to slash benefits.

It would be a human catastrophe of the first order if pensions of vulnerable older workers can be cut whenever a local government goes to bankruptcy court. We will be consigning firemen and policemen, who did nothing wrong other than protecting the city and depending on the city’s promise, into old-age poverty.”

In Illinois, legislators have agreed to cut future public employees’ retirement benefits by $160 billion over the next three decades. That 43% reduction will be achieved gradually, unlike the draconian Detroit ruling where the loss will be borne heavily by current retirees.

For decades, Illinois failed to invest the necessary funds each year to support the pensions it was promising. In effect, they were stealing from the workers today with a feeble promise to somehow make it up later.

If workers got only 90 cents on the dollar owed in their paychecks they would soon notice and kick up a fuss. But money not paid over to the pension plan rarely shows up on pay stubs.

Properly funded and invested, traditional defined benefit pensions are the most economical way to save for old age, combining contributions in a large pool to absorb short-term swings and the vagaries of professional investment management. They also have much lower costs than 401(K) plans. And they require a much smaller reserve against an unexpectedly long life, where the actuarial risk is concentrated in one person who must save too much or risk dire straits late in life.

But, as millions of workers are learning, the laws requiring that money be set aside and prudently invested are more loophole than safety net.

This is producing not just misery for those left broke and helpless in old age, as seems about to happen in Detroit, but it is eroding trust in democratic government and the rule of law.

According to Government Accountability Office research, public employees across America may be cheated out of almost a trillion dollars, nearly half the benefits they have already earned, but not yet collected.

Private-sector workers are at risk of losing almost as much, about $840 billion, although at the moment Congress guarantees a portion of company pensions so actual losses could be much smaller.

Failing to turn money over to pension plans each pay period has become commonplace for states and local governments in the past three decades.

When Republican Christie Todd Whitman became governor of New Jersey in 1994, she financed a tax cut by not funding the state employee pension plan, fulfilling her promise to that blue state’s voters.

What Whitman really did was force future tax hikes or cuts in government services, but they would not come due until long after she left office in 2001 – another kind of reckless cheating on ordinary folks.

Politicians in both parties have employed similar short-funding strategies across the country.

In New Orleans, bankrupt Stockton, Calif., and 3,000 other local government districts, shortfalls have been met by taking on more debt. Instead of investing money and earning interest, these feckless administrators borrowed and paid interest, magnifying taxpayer costs, Boston College researchers found.

Private-sector corporations that surreptitiously shorted worker pay by not setting aside enough money in pension plans have long found ways to cheat workers out of the benefits they earned as well as reneging on a federal guarantee that the money due in old age would be there.

Even worse, Congress and the courts have approved these deals, either tacitly or directly.

One technique used to chisel workers is to replace the pension with a private annuity. If the insurer issuing the annuity goes broke, the workers collect next to nothing, as happened to textile workers in the South.

Another strategy is to convert a single-employer plan to a multi-employer plan. That reduces the federal guarantee from more than $1,000 per week to a quarter of that sum while wiping out a great deal and sometimes all of a shortfall.

Almost four decades after Congress passed the Employee Retirement Income Security Act in 1974, corporate pension plans are short by more than $800 billion worth of assets.

Fifty of these plans, out of 26,000, are short by more than $450 billion.

Among the 1,475 multiemployer plans commonly used by trucking and construction companies, the shortfall is about $390 billion and 50 plans account for more than half the missing money.

When US Airways and United Airlines sought refuge in bankruptcy a decade ago they stuck the Pension Benefit Guaranty Corporation with about $9 billion of obligations. Those bankruptcies came after executives took enormous salaries, even by the already bloated standards of big companies, and pocketed their pension money in lump-sum payments.

As long as a company does not file for bankruptcy within a year, executives are allowed to keep their pension money even as more humble workers are forced to take cuts. The cuts were especially hard on pilots: Federal pension law only insures pensions at age 65 and pilots, by a law in effect at that time, had to retire at age 60, meaning they got less than 60 percent of the pension benefits they earned.

It’s not as if this problem came out of nowhere.

Congress and state legislatures have known about the failure to properly fund pensions since at least the 1964 collapse of Studebaker. Workers for the South Bend, Ind., carmaker who retired on a Friday that year got their pensions; those retiring the following Monday and later got nothing.

A decade later, the Employee Retirement Income Security Act became law, setting standards for how much money had to be set aside in private-sector pension plans. Before the ink from President Gerald Ford’s pen had barely dried, however, corporate America started working to reduce the funding requirements.

One arcane rule after another was enacted by Congress or written into regulations that allowed companies to invest less than sound financing required.

At the insistence of Democrats, the amounts that could be put into pension plans were limited. The maximum salary that can be covered by a pension this year is $255,000.

That leaves out most of the pay to the top 1 percent of workers, who just happen to include the top executives who set the compensation for everyone below them.

Once a CEO’s pension benefits became disconnected from the office worker, factory hand, and janitor, companies began emphasizing executive retirement plans that were lavishly funded. Some executives built billion-dollar fortunes tax-free.

In theory, these executive plans were risky because they lacked a PBGC guarantee. But when companies collapsed, the rank-and-file were shortchanged and sometimes wiped out of their retirement money, while executives walked away with every penny and in some cases got their retirement money doubled.

Congress did nothing to address this or subsequent reports by others, notably Ellen Schultz, whose incisive coverage of pension thievery was abruptly stopped by The Wall Street Journal just as the trend was taking off. Instead, Congress has gradually weakened worker pension protections.

Congress required companies to put away less money for many workers than good financing required because of the way the maximum salary qualifying for a pension is calculated.

A worker whose pay at the age of 30 shows that at 65 she would likely be making twice the maximum has only about half the necessary money set aside. The result is that for workers who leave an employer before age 65, too little money is set aside to cover the benefits they earned, making the overall pension pool too shallow.

Yet this scandal in the way pensions are inadequately funded is not a hot political issue. Neither party appears interested in what is of key importance to all older Americans – and should be of interest to younger ones too.

The number of hearings held by Congress this year on protecting pensions? Zero.

Note 1:  The writer claims to be an investigative reporter, but this article does not show any kinds of investigation or doing his due diligence. Why  didn’t mention the mayors of Detroit or the governors who mishandled the pension funds? I guess he prefer to receive awards instead of extending his hands over the fire.

He started well by stating “When Republican Christie Todd Whitman became governor of New Jersey in 1994, she financed a tax cut by not funding the state employee pension plan, fulfilling her promise to that blue state’s voters”  Who else emulated Whitman? How many other stealing techniques were used to deplete the pension funds?

Johnson does not need a pack of lawyers to defend his puny rights for freedom of expression, relevant to pieces that are not that dangerous to the power to be.

Note 2 claims that he paid for publishing this post (or that I didn’t pay to re-post it, which is the same thing in my mind since I never got a penny from all my pieces) and he hates to have his piece re-posted it in its entirety. He wants me to abridge it and add  a link that says “Read More”, otherwise he will unleash a pack of lawyers to satisfy his weird attitudes. Stuff like that… Can I jump to a conclusion that Johnson is ashamed of this article?

Since I will be commenting on his “post”, a “read more” link won’t do: Not many people click on these kinds of links, especially for a post that is general in nature and doesn’t add much value to a notion that is pretty known that pension funds have been the prime targets to dip in as budgets go bust…


adonis49

adonis49

adonis49

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