Thursday, March 31, 2011

Financial Firms Driving US Profits

The economy’s profits are being driven by financial firms, writes Annie Lowrey: “For most of 2009 and 2010, a range of U.S. corporations saw post-recession rebounds in profits. The manufacturing sector, for instance, made about $140 billion in annualized profits in the second quarter of 2009, a recession-era low. Last quarter, it made about $241 billion. Similarly, auto manufacturers lost about $50 billion in the last quarter of 2008. Today, the sector is breaking even. But in the last quarter of 2010, the story was all about Wall Street. Profits actually decreased a bit at nonfinancial firms. But companies like investment banks and insurers saw profits climb to an annualized $426.5 billion. The financial sector now accounts for about 30 percent of the economy’s overall operating profits.”

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NC State Employees Asked for the First Time to Contribute to Their Health Plans

Carolina Journal:

The State Health Plan for Teachers and State Employees faces a $515 million budget shortfall over the next two years and a $30 billion unfunded liability over the next 30 years. Lawmakers hope to balance the budget by making state employees to pick up more of the tab and by placing the plan under the supervision of the state treasurer.

Senate Bill 265, State Health Plan Appropriations and Transfer, calls on teachers and other state employees to pay for the first time a monthly premium for their health insurance — $21 for the plan offering the best coverage and about half that for the basic plan, amounting to roughly 5 percent of the cost of coverage.

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On the Community Reinvestment Act

In light of the Obama administration's stated goal of expanding the CRA, separating fact from fiction regarding this issue is of towering importance — to set the historic record straight and to prevent another financial calamity.

FICTION: Because the CRA was passed in 1977, long before the subprime crisis, it couldn't have caused the recent explosion in bad loans.

FACT: The toothless 1977 regulations fully expired in July 1997, when President Clinton rewrote them to toughen CRA enforcement as part of a crusade to close the "mortgage gap" between blacks and whites.

For the first time, banks were required to show results. One of the five performance criteria in the "lending test" — the most heavily weighted component of the CRA exam — was adopting "flexible lending practices" to address the credit needs of poor borrowers in "predominantly minority neighborhoods." Banks that didn't bend their underwriting rules risked flunking the exam.

Ex-Federal Reserve Board Gov. Lawrence Lindsey, a staunch CRA defender, acknowledges that the changes "did contribute to a downgrading of credit standards."

FICTION: "Many of these (CRA) loans were not very risky," the FCIC report claims.

FACT: Studies show that CRA loans have higher delinquencies and defaults and act as a major drag on bank earnings. In 2008, CRA loans accounted for just 7% of Bank of America's total mortgage lending, but 29% of its losses on home loans. Also, banks with the highest CRA ratings tend to have the lowest safety and soundness ratings.

FICTION: Only 6% of subprime loans were originated by banks subject to the CRA, so the vast majority of risky lending was not tied to the law.

FACT: Among other things, the figure does not count the trillions of dollars in CRA "commitments" that WaMu, BofA, JPMorgan Chase, Citibank, Wells Fargo and other large banks pledged to radical inner-city groups like Acorn, Greenlining and Neighborhood Assistance Corp. of America (NACA) after they used the public comment process to protest bank merger applications on CRA grounds.

All told, they shook down banks for $4.6 trillion in such commitments before the crisis, boasts a report by the National Community Reinvestment Coalition, or NCRC, the nation's top CRA lobbyist (which conveniently removed the report from its website during the FCIC hearings).

FICTION: "These loans performed well," the FCIC report maintained.

FACT: Brookings found that the loan commitments were set aside for low-income minorities with "marginal credit scores" and posed a higher risk. They were even riskier than regular CRA loans, because the banks delegated underwriting authority to the nonprofit shakedown groups, which had no experience judging credit risk.

NACA thinks traditional underwriting standards are "patronizing and racist." It advertises that anyone — "regardless of how bad your credit is" — can qualify for the mortgages it's arranged through special deals with banks. Not surprisingly, one study found that its delinquency rates were eight times higher than the national average.

Banks reported delinquency rates ranging from 5% to 50% on loans made pursuant to their merger-related commitments.

Yet the FCIC refused to investigate the more than 300 CRA agreements that banks and community organizers entered into before the subprime bubble burst.

Despite repeated requests by Commissioner Peter Wallison, the panel never examined the performance of the trillions in loan commitments.
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Tuesday, March 29, 2011

On Plastic Bags

 National Review:

Unfortunately, study after study has shown that most of the supposed “benefits” of these bans and taxes have a negligible effect on the environment at best, and can actually have unintended consequences that cause greater environmental harm. Take Ireland, for example. When the New York Times reported the 94 percent decrease, it neglected to specify that it was referring only to plastic grocery-bag use. Sales of non-grocery plastic bags (garbage bags, etc.) rose an astonishing 400 percent, amounting to a net increase of 10 percent in total plastic-bag consumption. In an interview with National Review Online, Patrick Gleason, state-affairs manager of Americans for Tax Reform, explains why.

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Monday, March 28, 2011

Rhode Island Cuts Medicaid Spending Gets Better Results

Wall Street Journal:

In 2008, then-Governor Don Carcieri asked Washington for a Medicaid waiver and block grant to reform a program that consumed 30% of its budget. The state encountered months of federal foot-dragging and, according to one of Mr. Carcieri's deputies, at one point a health administrator in Washington asked: "If you get this waiver, what will our job be?" In January 2009 during the final days of George W. Bush's Presidency, the feds finally gave the Ocean State a sweeping Medicaid waiver.

Rhode Island agreed to a global cap on expenditures over five years of $12.075 billion in exchange for broad reform authority. The waiver is not a pure block grant, because the state agreed not to drop coverage for anyone eligible under federal Medicaid rules and retains the federal-state cost sharing for Medicaid expenses.

The results? After 18 months, Rhode Island's Medicaid spending, which was projected to reach $3.8 billion, has declined to $2.7 billion, according to a report by Mr. Carcieri's Office of Health and Human Services. The state implemented a blizzard of reforms, including wellness programs, co-payments, audits of hospitals and nursing homes, fraud prevention, and letting seniors move from nursing homes into home and community care. The state has also saved a bundle by replacing federal "any willing provider" rules—which require that Medicaid dollars flow to any federally approved doctor or hospital regardless of cost—with competitive bidding.

Not every Rhode Island reform has worked, and some critics question whether the savings are as large as advertised. The state HHS is studying that issue now. But what almost no one challenges is the improvement in the quality of patient care.

The Providence Journal investigated the program and acknowledged last year: "To the surprise of many, everyone involved seems satisfied with the way the state's much-debated 'global Medicaid waiver' is working—at least for now."

Kathleen Connell, the head of Rhode Island AARP, says her group supports the waiver because "Seniors have absolutely benefited from being moved out of nursing homes into home and community-based care. The program is moving in the right direction for seniors."
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How Much Oil Does Libya Really Supply Us?

Washington Post:

Libya is not a big enough global oil supplier for the battles there to have a meaningful effect on gas prices. In the 1970s and early 1980s, Libya was a major U.S. supplier, selling us around 700,000 barrels of oil per day. But today, we import less than 50,000 barrels per day from Libya — a tiny fraction of the 9.2 million barrels per day the United States imported in 2010. Worldwide, the story is no different: Of the 86 million barrels consumed globally each day, less than 2 percent come from Moammar Gaddafi’s regime.

So why are gas prices up? Though Gaddafi’s fate is largely irrelevant to the oil market, unrest throughout the greater Middle East is not. The Persian Gulf region produces almost 24 million barrels of oil per day, more than 25 percent of global oil consumption.
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Class Size

I don't know that you can generalize from this, but it certainly is interesting.

Washington Post:

Yet small class size is neither a guarantor nor a prerequisite of educational excellence.

The worst public elementary school in Manhattan, 16 percent of whose students read at grade level, has an average class size of 21; PS 130, one of the city’s best, has an average class size of 30. Small class size is one factor in academic success. The question, then, is whether the educational benefits of class-size reduction justify the costs.
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Dangerous IP Bill Passes Senate

Washington Post:

The proposed changes give the U.S. Patent and Trade Office the ability to set its own fees, manage its own revenue, establish an expedited patent-review system and expand the ways in which a patent can be challenged. But no provision generated more interest among the organizations that weighed in than the switch from a first-to-invent to a first-to-file system used in most other countries, which would grant a patent to the first inventor to file an application even if others conceived of a similar idea first.

The shift was a victory for big companies such as Johnson & Johnson, Eli Lilly and General Electric, which are adept at filing patents often and early and hope the new system will help keep disputes over patent ownership out of court. The Coalition for 21st Century Patent Reform spearheaded their campaign, doling out more than $1.4 million to the lobbying firms Akin Gump Strauss Hauer & Feld and the Palmetto Group last year on behalf of these corporations and dozens of others that included BP, Dow Chemical, Motorola, PepsiCo and Procter & Gamble. At times, coalition members hired their own lobbyists to work on the issue, with Eli Lilly bringing on Heather Podesta and the Nickles Group, and Novartis retaining the shop of former Clinton White House staffer Steven Ricchetti.

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Saturday, March 26, 2011

Corporate Profits Reach All-Time High

Carpe Diem:

U.S. corporate profits reached a new record high in the fourth quarter 2010 at $1.25 trillion (at an annual rate), after taxes and adjustments for inventory valuation and capital consumption (see graph above, data here), according to today's BEA report.  Compared to the third quarter, corporate profits increased by $39.5 billion last quarter, and that makes eight straight quarterly gains in profits going back to the first quarter of 2009.  From the cyclical bottom of $774 billion of profits in the fourth quarter of 2008, profits for U.S. companies have rebounded by 61.5%, and by $476 billion.

Adjusted for inflation (using the Business Sector Deflator), real corporate profits in the fourth  quarter 2010 rose above the previous all-time record high of $1.229 trillion Q3 2006 to reach a new record high of $1.25 trillion (see red line in graph above).

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The Mancession

Carpe Diem:

On any fairly balanced scale, the acceptance rate for women at selective colleges should be far higher than for men. Instead it’s the other way around.  William and Mary, for instance, accepted 40 percent of the boys who applied in 2006 and only 26 percent of the girls. The reason is “affirmative action,” sometimes called preferences, sometimes called quotas—though never publicly."

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Friday, March 25, 2011

Another Problem with the Health Insurance Law

Washington Post:

Buried deep in the Affordable Care Act, the CLASS Act — short for “Community Living Assistance Services and Supports” — is a voluntary disability insurance program. Workers can choose to pay a monthly premium and, if and when they become disabled, the government will provide them with long-term care assistance. More on that here. In part, this is an effort to take some of the burden off of Medicaid, which currently pays these costs, and without much in the way of contributions to cover them.

The problem is that CLASS’s numbers don’t add up. The healthy aren’t likely to buy in, and that means it’ll be too expensive for the unhealthy. Secretary Kathleen Sebelius has admitted this, and promised she’ll use her authority over the program to make the reforms needed for the numbers to work.
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Thursday, March 24, 2011

Benefits of Being in the Public Sector


In 2009, hourly compensation (wages plus benefits) for the average state and local government employee was 45 percent higher than the private-sector average. The share of state and local employees offered health care benefits was 88 percent versus 71 percent in the private sector.

For retirement benefits, it's 90 percent to 67 percent. State and local employees are also more likely to be offered life insurance (80 percent to 59 percent) and paid sick leave (89 percent to 67 percent).

Did I mention that defined-benefit pensions are offered to about 80 percent of state and local employees, versus 20 percent in the private sector? Or that they're typically twice as generous? That's kind of a problem because these pensions are underfunded by about $3 trillion and state and local government finances are already in poor shape.

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New Health Care Law to Cost Medium-Sized Businesses


Estimates from the Urban Institute, a left-leaning think tank that is generally favorable to ObamaCare, indicate that medium-sized businesses (those with 100-1000 employees) will pay $11.8 billion in new penalties under the law, and that businesses with between 80 and 100 employees will pay approximately $2 billion in similar penalties when employees end up purchasing health insurance through the law’s new exchanges.
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Wednesday, March 23, 2011

Tuesday, March 22, 2011

No Country Leans on Top Income Earners as Much as US

A must-read.

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Walter Williams on Race

If you have an income of a certain level, you're no longer eligible for unemployment benefits. So, it subsidizes a lack of marriage.

Wall Street Journal:

Even in the antebellum era, when slaves often weren't permitted to wed, most black children lived with a biological mother and father. During Reconstruction and up until the 1940s, 75% to 85% of black children lived in two-parent families. Today, more than 70% of black children are born to single women. "The welfare state has done to black Americans what slavery couldn't do, what Jim Crow couldn't do, what the harshest racism couldn't do," Mr. Williams says. "And that is to destroy the black family."
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Puerto Rican Governor Luis Fortuno

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Monday, March 21, 2011

A Primer on Free Banking

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New Jersey Does Not Know the Cost of Its Own Government?


On page 14 the report says it did no analysis “due not only to the fact that the actual cost of a privatized alternative will often not be known until the end of a full fledged competitive bidding process, but also because New Jersey state government agencies have difficulty calculating with precision the full cost of functions currently performed at the state level.”
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Sunday, March 20, 2011

Difficulty of Providers Getting into Medicare


As a practicing psychologist with offices in Fairfield and Albany, California, I have been attempting to obtain a Medicare Provider number.

I applied despite horror stories from doctors who informed me that just the enrollment process takes a few years and I may need to hire a professional to assist me.

Being a geek by nature, and already on the panels of five insurance companies and workman's comp, it seemed like a trivial matter to get one additional certification.

The first problem involved needing to complete a mandatory electronic payment form that I found via a Google search since the provider analyst never responded to any of my inquiries.

Months later I received a notice telling me that my application had been rejected with no reason given. By phone, I found out that they needed a canceled check which hadn't been included. However, I had received no request for a canceled check.

The provider analyst then said I needed to seek permission to re-enroll, a process that takes up to three months.

Persevering, I went through the process, getting “permission” to re-apply. After carefully seeking help going through exactly what would be needed in the new application, resubmitted it.

Months later I received another rejection. This time it was because they wanted a specific contact person's name from the bank on the electronic payment form instead of the general customer service name and number.

I was told that the provider analyst had sent me a request for the needed information, but that she had sent it to the wrong email address. Still, there was “nothing that they could do,” since my application number no longer existed and I needed to once again seek permission to re-apply with another three month wait.

Persevering, I noted the reasons for the rejection, and reapplied for permission to re-apply. Months later my request was rejected on the grounds that I had exceeded the 60 day period for requesting reconsideration.

It turns out the provider enrollment analyst used the initial versus current request number, despite my including the current request number in bold letters at the top of my letter.

Next, I send a letter which noted the error, and enclosed a copy of the rejection letter which confirmed that my response had been the following week. A month later, I received another rejection letter from the same analyst that merely copied her original reason for rejection. Clearly, the analyst had not even looked at the letter.

Since the customer service representative has no access to records, she can only direct me to a number for “complex cases.” I have tried for a month at various times of day, and have never been able to get through to anyone. Generally, after an extended message, the call is disconnected, or I am put on hold for about an hour before it disconnects. I was told that the reason for this is that they are “busy.”

In a period where the issue of government involvement in healthcare is being considered, I ask myself why there is absolutely no accountability for the worse than horrible management of Medicare?
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Friday, March 18, 2011

GAO Report on Waste

Canon City Daily Record:

Since the report was released earlier this month, legislators, the media and pundits have focused on the array of programs that overlap or duplicate services: for example, the more than 100 programs that deal with surface transportation issues, 82 that oversee teacher quality and training, 80 economic development programs, 47 for job training and 20 that deal with homelessness.

But two other GAO findings are more worrisome on a national level:

“Fragmented food safety system has caused inconsistent oversight, ineffective coordination, and inefficient use of resources.”

“Fragmented federal efforts to meet water needs in the U.S.-Mexico border region have resulted in an administrative burden, redundant activities, and an overall inefficient use of resources.”

Keeping our food safe and meeting water needs are biggies. These two items should be Congress’ priority.

Still, no argument here that the federal government should root out waste and duplication whenever it can, particularly if following the GAO’s recommendations will save $100 billion or $200 billion.
GAO Report:

[W]e identified 44 federal employment and training programs that overlap with at least one other program in that they provide at least one similar service to a similar population.
The federal government has 18 different programs to help people eat. In some of them, administrative costs consume a quarter of the funding.

There are seven agencies administering more than 20 programs to help the homeless. Eight departments run 80 programs to provide transportation assistance to the disabled and elderly. Three federal agencies run 47 different programs to help people find jobs.
AZ Central:

There are seven agencies administering more than 20 programs to help the homeless. Eight departments run 80 programs to provide transportation assistance to the disabled and elderly. Three federal agencies run 47 different programs to help people find jobs.

The report was released in the midst of the dispute over the proposal by House Republicans to cut $61 billion from this year’s budget. Conservatives widely cited the report in support of the proposition that significant cuts are in order.

[...]Over a half century ago, Milton Friedman proposed that all poverty-related programs be replaced with a negative income tax, through which the federal government would similarly simply give poor people cash. We could bring everyone above the poverty line for a fraction of what’s being spent on low-income services.
Politics Daily:
In one example, the watchdog group said a broad restructuring of the military's health care system could save up to $460 million annually. On the energy front, losses to the Treasury of as much as $5.7 billion could be eliminated by dealing with duplicative policies in federal programs promoting ethanol production.
Wall Street Journal:

The report said there were 18 different food- and nutrition-assistance programs, 20 programs to help the homeless, 56 for financial literacy and many redundancies in military operations. It also cited overlapping programs for teacher quality and job training.
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Drug War in NYC


A new report from the Drug Policy Alliance estimates that New York City spends $75 million a year to arrest people for marijuana possession, even though possession of up to 25 grams (about nine-tenths of an ounce) is not an arrestable offense in New York state. The report's authors, Queens College sociologist Harry Levine and drug policy researcher Loren Siegel (formerly with the ACLU), note that "carrying a small amount of marijuana in a pocket, backpack or not a crime" in New York. It is a citable offense, similar to a traffic violation, punishable by a $100 fine. But as Levine has shown, police in New York City routinely trick people (overwhelmingly young blacks and Hispanics) into taking out their marijuana and exposing it to "public view," which converts a citable offense into a misdemeanor. "From 1997 through 2010," Levine and Siegel report, "the NYPD made 536,000 arrests for marijuana possession." This little-noticed crackdown on pot smokers, they estimate based on conservative assumptions, has cost taxpayers between $500 million and $1 billion. That's on top of "the serious human costs and consequences," which include not only the inconvenience and humiliation of the arrest and time spent in jail but permanent criminal records that can be a lifelong handicap.

Go here for more on Levine's studies of marijuana arrests in New York and California.
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Thursday, March 17, 2011

Tuesday, March 15, 2011

Saturday, March 12, 2011

Redevelopment Agencies

Wall Street Journal:

The roots of this story go back to 1945, when the California legislature allowed cities and counties to form these redevelopment agencies. Their purpose, at least in theory, was to fight urban blight. Once public officials deem an area blighted, redevelopment agencies can use eminent domain to clear old properties and sell bonds to pay for improvements.

To pay off the bonds, the agencies gobble up any subsequent increase in tax revenue—what the state calls the "tax increment." In addition, a portion of the sales taxes generated by the new retail and commercial centers go into city, not state, coffers. That's the main reason redevelopment agencies are popular among local politicians, Republican and Democratic alike. (Plus, they allow pols to reward favored corporations and developers.)

But in the last 60-some years, redevelopment agencies have become fiefdoms that run up enormous debt and abuse eminent domain by transferring private property to large developers promising to build tax-generating bonanzas. Today, there are 749 such projects. In the late 1950s, there were only nine. According to the state controller, redevelopment agencies consume about 12% of all state-wide property taxes—money that would otherwise go to critical public services.

[...]These mayors may have the rhetoric down, but a new report from state Controller John Chiang explains why the governor is intent on closing these agencies. The report portrays them as a source of waste and governmental abuse—not a generator of jobs and economic growth. Among his audit of 18 agencies, Mr. Chiang found that Palm Desert's redevelopment agency proposed to eliminate so-called blight by spending nearly $17 million on revamping a municipal golf club that remains one of the nation's premier golfing locales.

In the 12 years I've spent reporting on this issue, I've seen an agency attempt to bulldoze an entire residential neighborhood and transfer the land to a theme-park developer. I've witnessed agencies declare eminent domain against churches—which pay few taxes—in order to sell the property at a deep discount to big-box stores that promise to keep city coffers flush. Working-class people and ethnic minorities often are the victims of this process since they often live in the vulnerable neighborhoods, and they have less muscle than big business developers.

[...]In 1995, one area of the city of Diamond Bar, where I lived, was declared blighted because there was chipped paint on some buildings.

[...]Redevelopment has attracted the Brown administration's attention for an obvious reason: The more aggressive cities have become in using this "tool," the more they divert tax dollars from traditional public services like schools, fire-fighting and police services.
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Friday, March 11, 2011

NC Republicans Compromise on Charter Bill, Democrats Still Want More


Carolina Journal:

In an effort to alleviate Democrats’ concerns over Senate Bill 8 — No Cap on Charter Schools — Republicans have offered to change charter school funding, set minimum enrollment requirements, and limit the number of new charters than can open per year. Dissatisfied, Democrats have proposed an alternative bill.

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Poor Climate Scientists

National Review:

In other words, climate-science compensation has risen by 30 percent in five years, while pay for other university instructors has increased by only 15 percent.
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Scott Walker on Collective Bargaining

Perhaps take this with a grain of salt, but I thought it was interesting.

Wall Street Journal

When Gov. Mitch Daniels repealed collective bargaining in Indiana six years ago, it helped government become more efficient and responsive. The average pay for Indiana state employees has actually increased, and high-performing employees are rewarded with pay increases or bonuses when they do something exceptional.
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Creative Destruction


The start-up boom isn’t limited to technology. More Americans have launched businesses during the Great Recession than at any time in the past decade and half, according to a recent report from the Kauffman Foundation. Last year, 0.34 percent of Americans started a business each month, creating 565 000 start-ups.
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USDA Budget Balloons

Spending at the U.S. Department of Agriculture will be an estimated inflation-adjusted 43 percent higher this year compared to just a decade ago.
[...]Most folks probably think of farm subsidies when they think of the USDA. However, farm programs only account for 19 percent of total USDA outlays. The vast majority of USDA spending, 69 percent, goes to food subsidies: food stamps, school breakfast and lunch programs, and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). In fact, spending on food stamps alone this year will account for roughly half of total USDA spending.
Why aren’t these programs housed at the Department of Health and Human Services, the government’s chief welfare bureaucracy? The answer is politics, of course. Every five years or so Congress passes a new “farm bill,” which updates or sets the agenda for USDA programs and policies. Stuffing welfare programs in with traditional farm subsidies engenders broad legislative support for the total legislative package. Including food subsidies helps secure votes from urban and suburban legislators who would otherwise have little or no incentive to vote for farm subsidies.
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Drug Goes from $10 to $1,500 a Dose


The price of preventing preterm labor is about to go through the roof.

A drug for high-risk pregnant women has cost about $10 to $20 per injection. Next week, the price shoots up to $1,500 a dose, meaning the total cost during a pregnancy could be as much as $30,000.

That’s because the drug, a form of progesterone given as a weekly shot, has been made cheaply for years, mixed in special pharmacies that custom-compound treatments that are not federally approved.

But recently, KV Pharmaceutical of suburban St.Louis won government approval to exclusively sell the drug, known as Makena (Mah-KEE’-Nah). The March of Dimes and many obstetricians supported that because it means quality will be more consistent and it will be easier to get.

None of them anticipated the dramatic price hike, though — especially since most of the cost for development and research was shouldered by others in the past.
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Thursday, March 10, 2011

FAA Secretly Enacts Deadly Rule

Air Worthiness Directive 2011-04-09. That's the name of a new FAA rule that might kill you one day. It dictates that emergency oxygen masks should be removed from lavatories in every commercial plane in the United States.

The new rule was just made public by the FAA after keeping it secret for a long time in the name of "national security". It was communicated to airlines previous to this date and it has already been enacted in 6,000 airplanes across the US commercial fleet as of Friday, March 4. But neither the government nor any of these airlines have notified passengers about these changes.

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Wednesday, March 9, 2011

Health Care Info

Again, I just started reading away.

NY Times:

As I noted in “The Pricing of U.S. Hospital Services: Chaos Behind a Veil of Secrecy,” the prices actually paid by private payers are not transparent to all market participants, because they have always been treated as proprietary trade secrets.

NY Times:
The chart below shows the average payments made by the nine largest private health plans to Oregon hospitals for a set of fairly standard medical procedures. The average payment for a vaginal delivery, for example, rose to $6,424 in 2009 from $3,805 in 2005, and the payment for a knee joint replacement to $28,682 from $19,866. Data for California hospitals shown in the report are just as alarming.
NY Times:

In the words of Prof. Rick Mayes of the University of Richmond, who has chronicled the genesis of the D.R.G.’s in a fine paper: “The change was nothing short of revolutionary. For the first time, the federal government gained the upper hand in its financial relationship with the hospital industry.” Indeed, that revolutionary innovation has by now been widely copied around the world, first in Australia and France, and subsequently in Germany and several other countries.

[...]The new Medicare fee schedule was based on research financed by the Reagan administration during the 1980s and conducted jointly by Prof. William Hsiao of Harvard and the American Medical Association. It was implemented in 1992 by the Bush administration, along with what was, in effect, a national budget for Medicare’s total payments to physicians, then known as the “volume performance standard,” and modified in 1997 to what is called the S.G.R. system, for “sustainable growth rate.”

This new payment system for physicians replaced a highly dubious mechanism under which Medicare paid each doctor his or her “customary, prevailing and reasonable” fees, a clone of the “usual, customary and reasonable” system then widely used by private health insurers. It was a bewildering, computer-intensive system, with several filters based on each physician’s own charge profile for each service during the previous year, along with frequency distributions of fees for each service by all physicians in the physician’s market area.

The “usual, customary and prevailing” system, used since the inception of Medicare at the insistence of organized medicine, had proven to be highly inflationary, as could have been predicted at the outset. It also was unfair, because it could result in quite different Medicare payments for the same service to two physicians working in the same building — simply because one was more aggressive in billing than the other.

Soviet label notwithstanding, the relative fee structure underlying the Medicare fee schedules imposed in 1992 — the so-called “resource-based relative value scale” — has by now been widely adopted by many private health insurers in the United States as the basis for negotiating fees with physicians. The scale values procedures relative to a base unit that is given a monetary value by Congress and adjusted every year.
Medicare’s physician payment system was developed by Harvard professor William Hsiao and put into place in 1992. The Resource-Based Relative Value System (RBRVS) is founded on the simple, but incorrect, view that higher payments are justified for services that require greater inputs—ignoring the consumer side of the market.
Wall Street Journal:

Doctors participating in Medicare must practice medicine under an outmoded, wasteful payment system. Typically, they receive no financial reward for talking to patients by telephone, communicating by e-mail, teaching patients how to manage their own care, or helping them be better consumers in the market for drugs. Medicare pays by task, and these are not reimbursable activities. So doctors who help patients in these ways are taking away from billable uses of their time.

In fact, physicians who help patients in these ways may end up with less payment from Medicare. To make matters worse, as Medicare suppresses reimbursement fees, they are increasingly unable to perform any task that is inadequately reimbursed.

[...]Geisinger Health System in central Pennsylvania provides an example of what could be done. It offers a 90-day warranty on heart surgery, similar to the type of warranties found in consumer product markets. If the patient returns with complications in that period, Geisinger promises to attend to it without sending the patient or the insurer another bill.

The problem is that Geisinger doesn't get financial support from Medicare for this practice, even as it can save money for Medicare overall. This is because health-care organizations like Geisinger get paid more when patients have complications that lead to more visits, more tests and more readmissions. What is needed is a system willing to pay for such guarantees. Medicare should be willing to pay more for the initial surgery if taxpayers save money overall.

Another innovative example: Virginia Mason Medical Center in Seattle offers a new approach to the treatment of back pain, a source of considerable medical spending nationwide. Under the old system, a patient would often first receive an MRI scan or specialty consultation and other tests before referral to a physical therapist. Under the new system -- which cuts the cost of treatment in half -- patients are first seen by a physical therapist unless additional diagnostic measures are clearly indicated, and receive an MRI scan only if the therapy doesn't work and symptoms persist.

The new system improves efficiency and saves money for payers but leaves the providers financially worse off

[...]Studies show that diabetics, asthmatics and other chronic patients can often manage their own care as well as, or better than, conventional physician care, and at lower costs, when given the support they need. Yet to do this patients need training, easier access to information, and the ability to purchase and use in-house monitors. One way to do this is by allowing patients (especially the chronically ill) to save money when they choose less costly, high-quality care. They should be able to use the savings to purchase services that are not paid for by traditional health insurance, including telephone and e-mail consultations and patient education services.

Almost all the states now have "Cash and Counsel" programs for homebound, disabled Medicaid patients -- allowing them to manage their own health-care dollars and hire and fire the people who provide them services, instead of having these decisions made by an impersonal and outdated schedule of covered services and regulated prices. Patient satisfaction in these patient-controlled programs is almost 100%, according to government surveys. We need to build on this highly successful program by giving chronically ill Medicare patients some of the same opportunities.
New Yorker:
As he sorts through such stories, Gunn usually finds larger patterns, too. He told me about an analysis he had recently done for a big information-technology company on the East Coast. It provided health benefits to seven thousand employees and family members, and had forty million dollars in “spend.” The firm had already raised the employees’ insurance co-payments considerably, hoping to give employees a reason to think twice about unnecessary medical visits, tests, and procedures—make them have some “skin in the game,” as they say. Indeed, almost every category of costly medical care went down: doctor visits, emergency-room and hospital visits, drug prescriptions. Yet employee health costs continued to rise—climbing almost ten per cent each year. The company was baffled.

Gunn’s team took a look at the hot spots. The outliers, it turned out, were predominantly early retirees. Most had multiple chronic conditions—in particular, coronary-artery disease, asthma, and complex mental illness. One had badly worsening heart disease and diabetes, and medical bills over two years in excess of eighty thousand dollars. The man, dealing with higher co-payments on a fixed income, had cut back to filling only half his medication prescriptions for his high cholesterol and diabetes. He made few doctor visits. He avoided the E.R.—until a heart attack necessitated emergency surgery and left him disabled with chronic heart failure.

The higher co-payments had backfired, Gunn said. While medical costs for most employees flattened out, those for early retirees jumped seventeen per cent. The sickest patients became much more expensive because they put off care and prevention until it was too late.
[...]Several hospitals took the deal when the program was offered, in 2006. One was the Massachusetts General Hospital, in Boston. It asked a general internist named Tim Ferris to design the effort. The hospital had twenty-six hundred chronically high-cost patients, who together accounted for sixty million dollars in annual Medicare spending. They were in nineteen primary-care practices, and Ferris and his team made sure that each had a nurse whose sole job was to improve the coördination of care for these patients. The doctors saw the patients as usual. In between, the nurses saw them for longer visits, made surveillance phone calls, and, in consultation with the doctors, tried to recognize and address problems before they resulted in a hospital visit.

Three years later, hospital stays and trips to the emergency room have dropped more than fifteen per cent. The hospital hit its five-per-cent cost-reduction target. And the team is just getting the hang of what it can do.
 John Goodman's Health Blog:
The term "medical home" conjures up HMO-type medical care to many. Ironically, the medical practice might turn out to be similar to what is being done by direct service (concierge) doctors – who refuse to take third-party payment. Here is what Group Health Cooperative (an HMO in Seattle) is doing:
  • The number of patients each primary care doctor sees was reduced from 2,300 to 1,800; appointment times were increased from 20 to 30 minutes; primary care staff was increased by 30%; and there was increased use of telephone, e-mail and electronic medical records.
  • Result: 29% fewer emergency room visits and 11% fewer inpatient hospital stays.
  • Bottom line: The greater investment in primary care pays for itself in lower downstream utilization.
USA Today:
Barry Straube, chief medical officer at the federal Centers for Medicare & Medcaid Services, says 25 million Americans have kidney disease, but Medicare benefits don't kick in until patients are at the most advanced stage. Many patients with earlier-stage kidney disease aren't treated for high blood pressure or diabetes, which cause two-thirds of kidney failures.
John Goodman:

Manhattan Institute:

One analysis showed that hospital activities accounted for $400 billion of the excessive costs of U.S. health care while all too many quality measures have worsened. Patients learn -- sometimes the hard way -- to bring along an assertive, intelligent loved one to protect them during a hospital stay.

[...]Third parties' lock-hold on reimbursement punishes innovators. When the Duke University Medical Center's innovative new program for people with congestive heart failure so substantially improved patients' health that hospital visits and usage plummeted, the perverse nature of the payment system meant Duke couldn't benefit from saving its patients' money -- nearly $8,000 per person. In only one year, the program had reduced costs by 40%, yielding the kind of do-good returns that would normally earn kudos from Wall Street and Main Street. But, because the third parties pay providers only for treating sick people, they penalize innovators who make people healthy.

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Doctors as the Root of Fee-for-Service Medicine

Uwe Reinhart:

It is doctors who have always wanted this piece-rate system, because it allows them infinite freedom to manipulate their income and preserves their individual autonomy in treatments of patients. In fact, I bet you most policy analysts will agree with me that the largest obstacle to the Herzlinger-Porter-Teisberg proposal to bundle services and price them as a bundle will be physicians unwilling to give up the autonomy that comes with piece-rate compensation. Steve Wiggins of Oxford Health had trieed to entice doctors to bundle their services for heart-failure treatments in NYC and bid a lump sum price for the bundle. He got nowhere with it; physicians gave him the c\old shoulder. At the PPRC we tried bundling services and got nowhere with it either. In fact, unbundling was de rigeur.
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One Way to Save Money on Health Care

Read the entire thing to see the obstacles that people like Brenner have to face.

John Goodman's Health Policy Blog:

Following on this success, Brenner found that out of the hundred thousand people who used Camden’s medical facilities only a thousand people — just 1% — accounted for 30% of its costs. He then:

Made block-by-block maps of the city, color-coded by the hospital costs of its residents. The two most expensive city blocks were in north Camden, one that had a large nursing home called Abigail House and one that had a low-income housing tower called Northgate II.

[Over 7 ½ years] some nine hundred people in the two buildings accounted for more than four thousand hospital visits and about two hundred million dollars in health-care bills. One patient had three hundred and twenty-four admissions in five years. The most expensive patient cost insurers $3.5 million.
Brenner next formed the Camden Coalition to apply his methods to these patients. The results are impressive:

On its first thirty-six super-utilizers, they averaged sixty-two hospital and E.R. visits per month before joining the program and thirty-seven visits after — a forty-per-cent reduction. Their hospital bills averaged $1.2 million per month before and just over half a million after — a fifty-six-per-cent reduction
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NYC Throws MTA Cars into the Ocean

And apparently this is a good thing!
For more than a decade, the New York Metropolitan Transportation Authority has treated the Atlantic as its very own graveyard, tossing thousands of old subway cars off a barge to rust away on the ocean floor. An environmental crime? Hardly. The program creates habitats for marine life from Georgia to Jersey and gives New York’s aging subway cars a vibrant (and free!) retirement home.
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British Socialized Health Care


In England's state-run system, the waiting list is nearly 800,000 people. This is in addition to those denied medical attention: 7,000 for hip replacements; between 4,000 and 20,000 for coronary bypass surgery; 10,000 to 15,000 for cancer chemotherapy. Even with our current, screwed-up system one can get treatment if they, or their friends or charities, can pay the price. Under socialized medicine, where many are prevented by the government from getting care, the socialist's "right" to healthcare certainly goes out the window.
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Social Welfare Checks Go Up


Even as the economy has recovered, social welfare benefits make up 35 percent of wages and salaries this year, up from 21 percent in 2000 and 10 percent in 1960, according to TrimTabs Investment Research using Bureau of Economic Analysis data.
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Tuesday, March 8, 2011

Rand Paul Has a Good Talk with Jon Stewart

Rand was pretty much on point for a good part of this interview, then let Stewart slip away a little towards the third part. I don't blame him though; you have to know so much more when you argue for limited government than the people who just parrot the popular wisdom or government line.

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The FDA and Poison


It's as if we've become accustomed—or maybe a better word would be resigned—to living in a country where people shouldn't really trust their food. None of these were isolated incidents, after all. The U.S. Centers for Disease Control and Prevention now estimates that food poisoning outbreaks can be blamed for 76 million illnesses and 3,000 deaths annually.

We can be proud that our government responded to this alarming pattern by passing a new law this year seeking to better protect the nation's food safety. The act gives the Food and Drug Administration unprecedented enforcement powers, such as the right to remove dangerous foodstuffs from the market rather than negotiating for voluntary recalls

[...]Wiley persuaded Congress in 1902 to fund what he called "hygienic table trials" of commercial food products.

His plan was simple from the beginning. He'd build a test kitchen and dining room in the basement of the Agriculture Department building on Independence Avenue. Then he'd serve poisoned food to a group of young volunteers. Wiley chose men in their 20s because he thought they were sturdy enough to withstand the diet he had in mind.

The first 12 members of the squad were all department employees who had agreed to eat their meals in Wiley's kitchen over a span of six months. The menus were set so that each day's food would include exactly one suspect ingredient. Squad members never knew what possible poison they were eating. Still, they all signed waivers absolving the government of liability for possible health impacts.

It helped that the meals served from that tidy kitchen were guaranteed excellent—a typical meal might be roast chicken, braised beef, buttered asparagus, hot rolls, and fresh fruit pies with coffee and cream. The only catch was that one of those dishes—and the squad members never knew which—would be laced with a test substance. These added ingredients were chosen by Wiley from a list of highly suspect preservatives and coloring agents used in food.

The first compound mixed into the meals was borax, a commonly used preservative loaded with the silvery, metallic element boron. Borax and the related compound, boric acid, were high on Wiley's list because butchers commonly mixed them with salt and red dye to disguise old, or even rotting, meat.

Wiley started out by mixing borax powder into butter but rapidly discovered that the diners were responding to its metallic tang. They quit buttering their bread. He then mixed it into milk and coffee, but the men then began avoiding those beverages. Finally, Wiley gave up on deception altogether. He simply placed capsules of the poison into a serving bowl, and put it out for each meal.

The most remarkable part of the story is that the men doggedly swallowed those borax-filled capsules. They did so even though they developed persistent low-grade headaches, nausea, and rumbling abdominal pain as a result. Borax, as we now know, is not acutely poisonous, but it's definitely irritating to tissues and over the long term can cause weight loss and reproductive system damage. "Today the men are thinner than usual and all show the effects of the strain," the New York Times reported in 1904, in an article on some recent graduates from the poison squad.

Later volunteers swallowed capsules filled with other toxic food additives, including copper sulfate and formaldehyde. Copper sulfate, today primarily used as a pesticide, was at the time added to fancy grades of peas to make them look greener than ordinary ones. Formaldehyde, used as a meat preservative, is widely known today as a corrosive poison and suspected carcinogen. Wiley had to end those tests early when the men became so sick that they could not rise from their beds. "The addition of formaldehyde to food tends to derange metabolism," Wiley explained.
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Obama Ratifies Bush

Wall Street Journal:

No one has done more to revive the reputation of Bush-era antiterror policies than the Obama Administration. In its latest policy reversal, yesterday Mr. Obama said the U.S. would resume the military tribunals for Guantanamo terrorists that he unilaterally suspended two years ago, and he may even begin referring new charges to military commissions within days or weeks.
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The "Employee Free Choice Act"

National Review:

Nothing shows the utter cynicism of the unions and the politicians who do their bidding like the so-called “Employee Free Choice Act” that the Obama administration tried to push through Congress. Employees’ free choice as to whether to join a union is precisely what that legislation would destroy.

Workers already have a free choice in secret-ballot elections conducted under existing laws. As more and more workers in the private sector have voted to reject having a union represent them, the unions’ answer has been to take away secret-ballot elections.

Under the “Employee Free Choice Act,” unions would not have to win in secret-ballot elections in order to represent the workers. Instead, union representatives could simply collect signatures from the workers until they had a majority.

[...]The most famous labor union leader, the legendary John L. Lewis, head of the United Mine Workers from 1920 to 1960, secured rising wages and job benefits for the coal miners, far beyond what they could have gotten out of a free market based on supply and demand. (As far as I can tell, it is private sector, so it is free market. Although the results, according to Sowell, may not have been what he intended)

[...]His strikes that interrupted the supply of coal, as well as the resulting wage increases that raised its price, caused many individuals and businesses to switch from using coal to using oil, leading to reduced employment of coal miners. The higher wage rates also led coal companies to replace many miners with machines.

The net result was a huge decline in employment in the coal-mining industry, leaving many mining areas virtually ghost towns by the 1960s. There is no free lunch.

Similar things happened in the unionized steel industry and in the unionized automobile industry. At one time, U.S. Steel was the largest steel producer in the world and General Motors the largest automobile manufacturer. Not any more. Their unions were riding high in their heyday, but they too discovered that there is no free lunch, as their members lost jobs by the hundreds of thousands.
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FDIC Role in Bailout

Zero Hedge:

At its peak the FDIC guaranteed almost 350 billion of debt outstanding. As of December 31st, 2010, the total amount of remaining FDIC guaranteed debt was 267 billion. Of that amount 100 billion, or 37 percent, will mature in 2011, and the remaining 167 billion will mature in 2012.
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Differences in Public vs. Private Pension Rules

American Enterprise Institute:

I’ve argued many times that Bureau of Labor Statistics (BLS) data on employer contributions to defined benefit (DB) pensions can understate true employee compensation because public sector DB plans use more aggressive funding rules than private-sector DB plans or defined contribution (DC) 401k-type pensions. The result is that state/local employers offering DB plans contribute around one-third less today for a given level of future retirement benefits than would an employer offering a 401(k) plan, which most private employees hold. If you look only at employer contributions without accounting for different funding rules, you’ll understate the true retirement income that state/local employees will actually receive. (And they will receive it, since these benefits are effectively guaranteed.)
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Is Planned Parenthood Broke?


Americans for Tax Reform:

[A]s Chuck Donovan at the Heritage Foundation has pointed out, Planned Parenthood is awash in net income. From 2002 to 2007, the national organization and its affiliates took in $388 million more than they spent on programs and services.”
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Monday, March 7, 2011