Tuesday, September 28, 2010

ObamaCare: you can't be dropped when you are sick?

Proponents of ObamaCare along with President Obama have made the claim that you no longer have to be worried about losing your health insurance when you are sick. (1) That statement carries the implicit assumption that people were in fact somehow losing their health insurance in the past when they were sick. The statement paints a picture that someone in the middle of an illness, in need of insurance benefits, are suddenly cut off because they are sick.

Does this sound familiar?

"But the problem that plagues the health care system is not just a problem for the uninsured. Those who do have insurance have never had less security and stability than they do today. More and more Americans worry that if you move, lose your job, or change your job, you'll lose your health insurance too. More and more Americans pay their premiums, only to discover that their insurance company has dropped their coverage when they get sick, or won't pay the full cost of care. It happens every day." -Barack Obama September 9, 2009 (2)

Painting a picture

Lets paint that picture onto a canvass. John Q. Public has a health insurance plan through ABC insurance company. John has paid his premium for years. Suddenly John has a kidney stone. John enters treatment and about half way through treatment John is booted off his health insurance because he is "sick". Sounds rather sinister.


The practice of insurers dropping coverage is actually known as "rescissions". Recissions is an underwriting review process based on insurers sometimes reviewing an individual's initial application and cancelling the policy if the application is found inaccurate.(3) (4)

How widespread?

Exactly how widespread is this "rescissions" process? One hundred thousand rescissions per year? Half a million rescissions per year? If you no longer have to worry about losing your health insurance because you are sick, and this is a major talking point regarding ObamaCare, then the phenomena has to be affecting a major portion of the population. Right?
Wrong. Sorry, its yet another ObamaCare riddle.
"According to a congressional report, there were actually fewer than 5,000 recissions per year, and at least some of those were actual cases of fraud....". (5) (6)
Hence the talking point of "losing your health care when you are sick" is really the subject of less than 5,000 annual recissions based on inaccurate applications "and at least some of those were actual cases of fraud..".
If Paul Harvey was here, you know exactly what he would say.
(3) Bad Medicine, Cato Institute, M. D. Tanner, page 7.
(5) Bad Medicine, Cato Institute, M.D. Tanner, page 7

Sunday, September 19, 2010

ObamaCare and the government delivery system

Why choose a government delivery system?

Who can forget the above flow chart of the bureaucracy associated with ObamaCare. Tens of thousands of additional government workers will populate a new mega bureaucracy produced by ObamaCare and another 16,000 IRS agents to enforce ObamaCare penalties/fines.

The above flow chart begs a question: why choose a government delivery system? That is, why choose a delivery system that is managed by a monopoly, that is very well known as a highly inefficient system, a system that has been known to breed corruption and waste, that is full of red tape that frustrates the end users of the system?

The government delivery system as the first choice rather than last choice

Robert Nozick in his book Anarchy, State, and Utopia puts forth the following observations:

(a) people tend to forget about the possibilities of acting independently of the state,

(b) presumably what drives people to use the state's system of justice is the issue of ultimate enforcement,

(c) similarly, people that want to be paternalistically regulated forget the possibilities of contracting into particular limitations on their own behavior or appointing a particular paternalistic supervisory board over themselves. (1)

What Nozick is observing the use of the state as the first choice rather than a last choice. That the state is used for enforcement. That those subscribing paternalism have a quest to broaden their paternalism to all individuals rather than focusing upon themselves.

Conflict of Visions

Thomas Sowell has described a conflict of visions. That two broadly defined groups exist: the empirical camp vs. the anointed/intelligentsia camp. The empirical camp is based on the concepts that the vast collection of mundane knowledge possessed by individuals based on experience and empirical evidence, individual and property rights, and individual freedom to choose - is in direct conflict - with vision of the anointed/intelligentsia group who's position is based on "special knowledge" which is a non-empirically proposition based upon "the way things ought to be" delivered through verbal virtuosity resulting in painting the world in one's own self image. (2) (3)

The mega state vs. the small state

Although the two groups described by Sowell are clearly in conflict of visions, both groups subscribe to Nozick's points (a) and (b) described above. To one extent or another both groups choose the state to deliver their vision. The difference being that the empirical group wants a smaller state to deliver and enforce their vision whereas the anointed/intelligentsia adds Nozick's point (c) yet wants everyone to subscribe to paternalism through an all encompassing state to deliver and enforce their vision (rather than self imposed paternalism upon only themselves).

Delivering the vision

ObamaCare is in fact a "vision" of the anointed/intelligentsia. Beyond the laundry list of short comings associated with ObamaCare, beyond an attempt to mold a health-care system based on "the way things ought to be", the chosen delivery system, the state (government), will never deliver the "vision". That is to say, no matter how well a construct or how poorly a construct, the "vision" can not be delivered through a monopoly, that is a well known highly inefficient system, a system that has been know to breed corruption and waste, that is full of red tape that frustrates the end users of the system.


(1) Richard Nozick, Anarchy, State, and Utopia. Page 14.

(2) Conflict of Visions, Thomas Sowell.

(3) Intellectuals and Society, Thomas Sowell.

Saturday, September 11, 2010

ObamaCare: The Individual Mandate

ObamaCare hinges upon the individual mandate. The mandate is the legal requirement of every American to obtain health insurance coverage that meets the government's "minimum essential coverage". The problem is that the U.S. Constitution, established long before any living legislator voted to pass ObamaCare, does not require individual citizens to purchase any particular good or service. (1)

Besides a certain group of legislators somehow having "special knowledge" enabling them to pick and choose a particular good or service for individual citizens, let us investigate the individual citizen's failure to meet the mandate. We have heard of the fine but exactly who is at risk of being fined? What exactly is the fine?

Who is at risk of being fined by ObamaCare?

If you do not receive coverage through a government sponsored program, or your employer does not offer coverage, or some other group sponsored setting (e.g. union, association, etc.), then you must buy coverage. Failure to buy coverage results in a fine. (2)

What exactly is the ObamaCare fine?

In 2014 the fines begins at $95 or 1% in annual income which ever is the greater. In 2015 the fine become 2% of annual income or $325 which ever is greater. In 2016 and later the fine becomes $695 or 2.5% of income . (3)

What about families? An ObamaCare fine-formula exists for families. The formula is as follows:

Family fine formula: (uninsured adult = 1 fine unit) + { uninsured children = 1/2 fine unit) x $695 = ObamaCare fine.

Plugging a family of four into the above formula, in the year 2016, the family would pay an ObamaCare fine of $2,085. The fine is prorated if you, your spouse, or children were covered for a number of months during the year e.g. covered for three months means 3/12 x $695 times number of fine units. (4)

There is an exemption. Apparently, those between some slim line, the line of qualifying for government sponsored health-care and the line of income inability to buy "essential coverage" receive an exemption from the ObamaCare fine. The exemption is: an exemption income threshold will be applied (yet unknown) by the secretary of Health and Human Resources. Presumably the poverty level threshold will be applied.

What might surprise you is that ObamaCare has already calculated the total fine that will enter government coffers. According to the Congressional Budget Office (CBO), ObamaCare expects $17 billion in ObamaCare fines in 2019. (5)



(2) Bad Medicine, A Guide to the Real Costs and Consequences of the New Health Care Law, Michael D. Tanner, Cato Institute, page 2.

(3) Ibid.

(4)Patient Protection and Affordable Care Act, public law 111-148, subtitle F, part 1, section 1501.

(5) March 20. 2010, director of the Congressional Budget Office, Douglas Elmendorf, in a letter to House speaker Nancy Pelosi .

Sunday, September 5, 2010

ObamaCare: more on categorical risk management

As previously discussed, households and firms exercise incremental risk management decisions on a cost-benefit basis regarding the implementation of increased levels of risk management. Conversely, institutions such as government agencies, public interest private organizations, and public interest movements exercise categorical risk management with decisions based on a zero cost basis with the incentive being purely benefit based. (1)

A short review:

(a) Categorical risk management appears when the "cost" component of the cost-benefit approach to risk management is born by an exogenous entity. That is, when the institution making risk management decisions has no cost basis they opt for categorical risk management. The implicit assumption to categorical risk management is that no risk can be taken. Items and situations must be absolutely safe. (2)

(b)What institutions have no cost basis, exercise categorical risk management, and make the assumption that absolute safety must exist? Government agencies, public interest private organizations, and public interest movements have no cost basis and exercise categorical risk management. The cost basis used by these organizations is taxes, donations and in some cases law suit proceeds (using other people's money).

(c) How does this difference in incremental risk management and categorical risk management relate to ObamaCare? Beyond ObamaCare being a price fixing scheme, the health-care reform legislation comes from and sponsored by the same group of institutions that have the mind-set of categorical risk management. The mandated coverages, deductibles, co-insurance requirements, the requirement everyone must buy coverage or else be fined, etc. comes from the exact same organizations that perceive absolute safety at any cost. In other words, the absolute coverage mandates, the exercise of categorical risk management, the deletion of incremental risk management, is due to the years and years of making risk management decision with other people's money.

(d) Hence one of the drivers of the future increased cost of health-care via ObamaCare, which is becoming increasing evident, is in fact due to the framers of such legislation exercising categorical risk management based on their prior experience of of using other people's money, leading to incentives to produce purely benefit based items with disregard to cost-benefit incremental risk management.

One of the best examples of categorical risk management appeared last week that might help the reader better understand categorical risk management and how the framers of ObamaCare used categorical risk management that will drive up health-care costs in the short, medium, and long run.

USA Today published an article 09/01/2010 entitled Kid-in-car warning systems urged.

"Safety advocates are urging Congress and regulators to force carmakers to install warning systems that would prevent distracted parents from leaving children in cars, preventing heatstroke deaths."

"At least 41 children have died already this year in hot cars, more than any previous year at this point. August was the deadliest month on record, according to the advocacy group Kids and Cars." (3)

A child's death is tragic beyond belief. However, these children died due to "distracted parents"?
What exactly is the trend and scope of this particular risk of "distracted parents"? Five (5) children died in 1990 of unattended vehicle heatstroke deaths and forty one (41) have died of unattended vehicle heatstroke death in 2010. (4)

The article goes onto report "From 1998 through 2009, 51% of the deaths involved children forgotten in cars, 30% were children playing in unattended vehicles and 18% were intentionally left in cars, says Null". (5) Forgotten children, children playing unattended, and children intentionally left in cars are not exactly the components of the concept of "distracted parents".

As you can see, the categorical risk management being advocated is the concept that complete and absolute safety must occur. Who would be advocating such categorical risk management? The National Highway Traffic Safety Administration (government), Kids and Cars President Janette Fennell, and Consumer Federation of America and Advocates for Highway and Auto Safety. You guessed it, entities that have zero cost basis and advocate total safety (benefit) regardless of cost. That is, when you have no cost basis in risk management (using other people's money) your incentive to produce the product of risk management is no longer cost-benefit based. The incentive becomes purely benefit based. That is, the public must be made safe at any cost. Even safe from "distracted parents" leaving children in unattended vehicles.

What would such a system cost to produce this "absolute safety"? Is the system available? No cost estimate was forth coming and as far as the system: "Automakers say it's not as easy as it sounds. Using sensors to detect heat, heartbeats and/or the weight of children can be an inexact science, as is deciding when to sound alarms". (6)

Hence we have an unknown cost to produce a non-reliable system. The cost is not a consideration in the least and absolute safety is not achieved. Categorical risk management at it best!

Enter incremental risk management. The cost of "Safety advocates are urging Congress and regulators to force carmakers to install warning systems..." would be a cost added to each vehicle manufactured. Who will oversee such systems and at what additional cost? Do all vehicles have children within them all the time? What about single people that rarely if ever have children in the vehicle? What about commercial vehicles that rarely have children within the vehicle? What about the vast majority of parents that are not "distracted" when it comes to leaving children in a vehicle? Should the overwhelming amount of situations, that yield no heatstroke death, incur an added cost that makes the marginal situations absolutely safe from "distracted parents"? Is the real risk associated with a very, very marginal amount of "distracted parents"? Is the risk based in responsibility, planning, and common sense? Should the responsible, common sense minded, non-distracted parent be able to opt-out? Or is the best course of action to rely on those spending other people's money, that suffer no cost, and advocate only the benefit of absolute safety?

The reason categorical risk management is a necessary study within the field of risk management is: how it costs you, the household or firm, added expense in the quest of absolutes. Now think about ObamaCare. The same categorical risk management process was used by the proponents/framers of ObamaCare. That is, absolute coverage for all with an absolute fine for non-purchasers. An absolute coverage design exists that produces the one size fits all approach of low deductibles, low co-pays, and expanded scope of coverage. Absolute government intervention within a private sector based on absolute price controls that end in quantitative and qualitative reductions in supply. The absolute addition of participants to Medicaid roles. A plan to create absolutes regardless of cost.

One fine point about categorical risk management and its absolutes is that someone or some organization must oversee the absolutes. One must not forget that the concept of "regardless of cost" comes with oversight. Oversight, especially government oversight, costs even more money. Oversight by government is produced through highly paid bureaucrats in a highly rigid manner (central planning). Don't forget the flow chart pictured below that depicts the organizational aspects of ObamaCare delivered through oversight of categorical risk management thinking regarding absolutes.

Hence ObamaCare is merely unknown costs to produce a non-reliable system (rationing due to qualitative and quantitative reduction in supply) managed through central planning through categorical risk management. Brilliant!


(2)Applied Economics, Thomas Sowell, pages 144 - 145

(3) (4) (5) (6)http://www.usatoday.com/MONEY/usaedition/2010-09-01-hotcars01_ST_U.htm