Tag Archives: privatization

Filling in the Potholes: Highway Funding Options

NV road construction funds

The Nevada Department of Transportation lists 13 current projects [NDOT] and the planning division suggests another round of major projects running from 2015 to 2018. [NDOT pdf]  This makes sense given that the population of Nevada in 1990 was 1.221 million, the population was 2.019 in 2000, and the population grew to an estimated 2.839 million as of 2014.  The problem, of course, is how to pay for the construction and maintenance of roads and highways to meet escalating population demands.  The current financial resources are explained by NDOT:

“State highways maintained by the Nevada Department of Transportation are financed with dedicated highway-user revenue and federal funds. No General Fund (general tax) revenue is used. State and federal highway funds are principally derived from vehicle fuel tax and registration fees.” [NDOT]

Clark and Washoe counties index their taxes to the price of fuel, a ballot measure in 2016 would make such indexing statewide, and this should be considered in the light of two factors. First, the relative volatility of fuel prices, and second, the increasing population of the State, up 132% since 1990. [LVSun]  So, where does the money come from?

“Figures compiled by The Associated Press show the total amount of money available to states from the Federal Highway Trust Fund has declined 3.5 percent during the five-year period ending in 2013, the latest year for which numbers were available. During that span, the amount of inflation-adjusted federal highway money dropped in all states except Alaska and New York.

In Nevada, the 6 percent drop from 2008 to 2013 comes in spite of a 41 percent increase from 2003 to 2013. At the same time, needs in Nevada are mounting. Current funding levels only provide 60 to 70 percent of what’s needed to maintain state highways, according to a recent report card from the American Society of Civil Engineers.” [LVSun]

The idea that current funding levels from both state and federal sources only meets 60 – 70% of our needs isn’t an appealing thought.  Could it be that the state might see more assistance from Federal sources?

“A temporary funding patch on highway funding is scheduled to expire in May and lawmakers in Congress have been at odds over a long-term plan. A federal fuel tax increase appears unlikely.” [LVSun]

We should note that the last time the Federal gasoline tax was increased was in 1993, when it was raised to 18.4 cents per gallon. [WaPo]  That was when the population of Nevada stood at approximately 1.411 million, and the price of a gallon of gasoline was about $1.16/gallon. Nevada’s state gasoline tax was 24 cents in 1993 and has dropped to 23.804 (-0.2%) as of 2014. [TPC pdf]

One of the obvious problems with pegging highway construction and maintenance financing to the price of a gallon of gas is that more fuel efficient cars on the road means fewer trips to the pump.  Another factor to consider is the increasing use of public transportation.  Indeed, in spite of the drop in fuel prices recently, national transit ridership figures are up. [NYT]  While increasing revenues from higher gasoline taxes would help resolve some immediate funding issues, the source is less robust than we might need in the long run.

As noted previously, AB 21 introduced in the Nevada Legislature as of December 20, 2014, calls for the issuance of ‘special obligation bonds’ for the financing of highway projects. Specifically, it allows for extending the maximum maturity from 20 to 30 years.  This, too, is problematic.  The extra ten years may allow for an extension of repayment schedules, but it also allows for the piling up of interest.  If the “coupon” on a transportation related bond is approximately 4.0% [MuniNV] then that extra 10 years could be rather expensive.

At compound interest rates, $10 million would end up costing about $21 million in 20 years, or about $32.4 million in 30 years. [MC] Even simple interest rates would add $8 million to the cost of a $10 million project at 20 years, and $12 million in 30.

There’s always the Throw Up Your Hands and Let Someone Else Do It Solution, i.e. Privatization.

“Another idea tossed around in the Legislature is high occupancy transit lanes — better known as toll roads. The fast lanes, aimed at reducing congestion, could be financed by a private company, which would own the lane and keep the toll revenue for a set period of time.

“We’re going to look to private industry to help us with some of our issues,” said Republican Assemblyman Jim Wheeler, who chairs the Assembly Transportation Committee.” [LVSun]

This, too, comes with some significant costs.  A few of these can be categorized under the general heading of “public control.” For example, how can taxpayers be assured of the implications of “non-compete” clauses? Must adjacent municipalities add traffic lights and decrease speed limits in order to guarantee usage rates (i.e. toll revenues) for privatized roadways or access lanes?  Is the state required to agree to compensation clauses which demand that the state pay the investors if it adds an exit ramp or other fixture which might reduce toll revenues?  What of the effects of clauses which seek to divert traffic to the toll lanes or roads? For example, if a state were to contract with a private corporation for a toll road it might agree to 4.5% of the revenue if the speed limit were set at 45 mph, or 9% if it agreed to set the limit at 60 mph?  What implications might that have for public safety and general transportation policy? [PIRG pdf]

There’s also the old business adage to consider: You can’t control what you don’t own.  This leads to more questions.  Does the contract require that the private corporation adopt the best practices and most modern maintenance standards?  Will the state get what it is due?  Again, if the contract is for 99 years and the investors are assured they’ll get their returns in 20, then is the state actually losing money on the deal?  When speaking of long term contracts, it’s also important to consider how long the contract should last.  It’s not only difficult to value projects over a 50 year period, it’s also a iffy proposition to determine if that 50 years is too much to give away to private corporations. [PIRG pdf]

Sometimes, getting things done “on the cheap” can lead to more problems than the initial ‘solution’ intended.

There are other ideas we might want to consider:

#1. Take some of the pressure off the road/highway system by improving options for public transit.  If congestion is causing havoc in some urban areas, consider light rail or bus transport to ease the problems.  Some consideration might be given to comparative costs involved in installing options from funding sources other than the highway funds, and providing the public with transit choices other than using private cars. This could be especially useful in crowded urban areas.

#2. Give some consideration to options other than in 10 year intervals for special obligation bonds. If the costs are increased with a 20 year bond, then they’d be less at 25 than they would be at 30.

#3.  Consider the current structure of Nevada’s vehicle registration fees, some of which are earmarked for transportation needs. 

There are no magic solutions, no silver bullets, when it comes to addressing public infrastructure projects like roads and highways.  What is needed is some careful study of the implications of transportation policy with an eye towards Nevada’s future population trends, projected revenues, and estimated capacity to pay for long term projects.


Filed under gasoline prices, highways, Infrastructure, Nevada economy, Nevada politics

Heads Up Items: Infrastructure, ALEC, Social Security, Financial Reform

Jig Saw Puzzle

There are items which don’t lend themselves to a full blog post, but are of immediate interest. Here’s a sampling:

#1. ALEC may be down to nine big corporate sponsors, but that doesn’t mean it doesn’t have a full agenda for its 2015 legislative season.  Watch for bills, often crafted from ALEC ‘models,’ on pre-empting efforts to increase the minimum wage. depriving low wage workers of health insurance, deregulating electronic cigarettes, protesting global taxes on tobacco, regulating ride share companies, lowering certification standards for dental practitioners, limiting the ability of individuals or businesses to dispute a denied property insurance claim, and school privatization.

#2. We’d probably ought to be watching the state of pipeline infrastructure in this country.  The current pipelines are aging, and some were constructed during the 1950s when low frequency electric resistance welds were popular – these welds are failing.  There’s more information from Inside Climate News, and from the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration reports.

#3.  There are inklings that the Republicans in Congress are planning to turn discussions of Social Security into an Annual Crisis – such as they’ve done with debates about the budget deficit and the national debt.  The process is almost an art form: Declare a CRISIS; mount a full-on publicity campaign complete with constant press releases, comments from members of Congress, and pundits on television; ignore factual refutation and information; then use the CRISIS to leverage concessions from the Democrats.

#4. Expect the Republicans in Congress to step up their attacks on the financial reform regulations enacted in the Dodd-Frank Act.  For some excellent background information see the conversation between Bill Moyers and Simon JohnsonSalon also has a piece on the same subject, and the New York Times weighs in as well.  If you missed these, it might be a good idea to have a click and read.

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Filed under Economy, financial regulation, Infrastructure, Social Security

The Crisis Factory goes Dancing With the Debt Fetish

Marathon DancersOne of the little problems with the Politics of Hyperbole is that eventually someone may notice not every minor annoyance constitutes an emergency.  Not even every major issue is an emergency.  However, nothing has prevented the radicals from manufacturing crisis after crisis in order to monopolize the conversation and distract this country from some very real issues we need to address.

The Distractions

Pillar OnePeople are in imminent danger of becoming dependent upon government.   Hogwash. Only the most extreme social libertarian would contend that having police, fire, and emergency medical personnel creates “dependency,” and how foolish does a person have to be to argue that we don’t need public health inspectors?  Further, if we allow for the old saws that two “heads are better than one,” and “many hands make light work,” then we know there are many tasks at which we do much better when we work together: Building roads, dams and bridges; Conducting relations with foreign countries; Protecting our citizens from or responding to natural and man-made disasters; Promoting our national economy.  And the list goes on.  Or, to introduce yet another well known concept:

“No man is an island,
Entire of itself,
Every man is a piece of the continent,
A part of the main.
If a clod be washed away by the sea,
Europe is the less.
As well as if a promontory were.
As well as if a manor of thy friend’s
Or of thine own were:
Any man’s death diminishes me,
Because I am involved in mankind,
And therefore never send to know for whom the bell tolls;
It tolls for thee.” — John Donne (1572-1631)

Pillar Two: People are burdened by an unconscionable level of federal debt.   This argument is extremely convenient for those who have another agenda — cutting spending on domestic programs with which they are in fundamental disagreement.  The proposition requires adopting a variation on the White Queen’s belief in “six impossible things before breakfast.”

The United States is the most powerful nation, with the most powerful economy in the world.  China’s GDP is $8.227 trillion; U.S. GDP is $15.68 trillion.  Therefore, it is necessary to manufacture PERIL in order to substantiate the claims that we are burdened by indebtedness such that we cannot afford to (fill in the blank with the program one wishes to dismantle).   There are some real issues, just not the ones usually cited in the conservative press.  For example:

The Trifflin Dilemma Peril:  “He pointed out that the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, and thus cause a trade deficit.”  Translation – The stronger the nation the more likely other nations are to want to invest in it, and the more other nations invest in it the more vulnerable the nation becomes to foreign influences on its economy.

A variation on the Trifflin Dilemma often shows up in the conservative media in the form of a new version of the old obnoxious  Yellow Peril argument — What if China called in its investments?  They could OWN us.  Instead of rewriting the posts, this topic has been discussed at more length in “The Republican Debt Wish” (2006), “Something to Think About,” (2008) and “When Willful Ignorance Meets Economic Reality,” (2011).

One one of the consequences of paying attention to the debt, as opposed to focusing on the economic growth which facilitates the repayment of those obligations, is dangerous in itself, as explained by Nobel Prize winning economist Joseph Stiglitz:

“The fundamental problem is not government debt. Over the past few years, the budget deficit has been caused by low growth. If we focus on growth, then we get growth, and our deficit will go down. If we just focus on the deficit, we’re not going to get anywhere.

This deficit fetishism is killing our economy. And you know what? This is linked to inequality. If we go into austerity, that will lead to higher unemployment and will increase inequality. Wages go down, aggregate demand goes down, wealth goes down.” [HuffPo]

Pillar Three: The free market will cure all ills.   When pressed to explain why, for example, the Affordable Care Act, is so onerous, the right is often moved to propose that the “free market” could have solved all the problems associated with health care insurance situation in the United States.

The first question we need to ask in regard to this contention is: Are we using the right tool from the box?  Consider your utensil drawer in the kitchen.  Does it contain at least one table knife, bent at the tip because it was pressed into service as a screw driver or as a lever?  Like the trusty table knife, the free market is an excellent tool for delivering the goods and services we require, but there are some tasks for which is it simply not the best implement to apply.

We could apply the free market to our transportation system by privatizing all our now public roads and charging tolls for their maintenance and use — however, we need to calculate the cost to our economy of raising costs for the factors in our transportation sector.  In this instance, the cost to the trucking industry is a negative factor in economic growth, and it is better policy to “subsidize” the industry by providing well maintained roads and functional bridges to secure the benefits of our economy.

Since we accept that corporations should operate for a profit, then in the realm of health care insurance it makes good free market sense for the company to insure only healthy persons (certainly not those with pre-existing medical conditions, or those who are elderly) and to keep those medical loss ratios at the lowest possible level.  In short, if we allow the free market to function in its purest form in the delivery of health care, then we should rationally expect that the least costly services will be provided, to those who need the least service.  Sometimes it’s really not about the money.

We can quantify the economic contribution of a father or mother in the family, but that doesn’t determine his or her value.  We don’t calculate a cost-benefit analysis in order to decide on marriage. We can quantify the economic contribution of roads, bridges, and airports, but that alone doesn’t determine their value to us.  We can quantify the benefits of education in terms of test scores, but we can’t determine how a person will synthesize information accumulated from the arts and from engineering to determine the best design for a marketable household appliance.

Focus Please

There are issues we need to address, most of which have profound implications for our economy. Among these are:

#1. Global climate change.  This isn’t “lib’rul hype;” this is about living on a planet capable of sustaining human life. Yes, if we foul our nest, the planet will probably last another 6 billion years, but WE won’t.   The 2007 University of Maryland study (pdf) projects economic impacts in terms of agriculture, energy, and transportation; in terms of our eco-system; and, in terms of water and infrastructure elements.   The fifth assessment from the IPCC released recently should convince all but the most delusional that WE are the problem.

The conservatives continue dancing with the Debt Fetish

#2. Student Loan Indebtedness.  If we’d really like to have young people start contributing to our economy, especially in regard to consumer spending, then it would be nice if they had more unencumbered income with which to do just that.  The Wall Street Journal calls the current situation the “Student Loan Straitjacket.”

The conservatives continue to dance with the Debt Fetish, but “What of the debt for our grandchildren?”  Flash Dispatch to the conservatives — These ARE our grandchildren.

#3. Infrastructure issues.  It isn’t like the American Society of Civil Engineers haven’t been trying to get our attention.  The National Report Card is not pleasant or reassuring reading — but it should be read, and we should be paying attention.

The conservatives continue to dance with the Debt Fetish.  How do we pay off any portion of the debt if our physical infrastructure is so dilapidated as to impede the progress of our distribution systems?

#4.  Employment. Of all the associated issues this is the most central.  We could be putting people in the construction sector back to work if we could enact funding for infrastructure projects.  We could be putting people to work in alternative energy projects… We could be putting people back to work in new jobs in new manufacturing sectors.  However, we are still dancing with the Debt Fetish…

…and like the marathon dancers of the Depression Era we will proceed having put a great deal of effort into endeavors promising very paltry results.


Filed under Economy, Politics

Broad Strokes and Narrow Visions

The ubiquitous “47% discourse” is generating commentary ranging from a focus on short term political tactics to broad exegetic discussions about political theory.   One line of analysis concerns the utility of a distorted perspective defining what constitutes “redistribution” of wealth and for what legitimate purposes that might be done.

How is it possible for any sentient being to hold up a sign in 2010 saying “Keep the Government Out of My Medicare,” or for a presidential candidate to offer this message:  “Mitt Romney has a different idea. He knows that we need to foster growth and create wealth, not redistribute wealth, if our economy is to grow the way it has in the past.” [USAToday]  The paucity of thought is obvious in the first example, not so evident in the second.

Message to the supposedly business oriented Republican Party:  All economic transactions are a transference and redistribution of wealth.

One of the more interesting aspects of the ideological arguments between Republicans and Democrats is the variation in the meaning of the terms of the debate.  For example, the manipulation of the term “Entitlement” has reverts the meaning to a definition held in the late 19th century — i.e. any government activity designed to sustain individuals in poverty, or likely to become poor.  A brief historical review —

The Social Security Example

The argument took flight when the Roosevelt Administration proposed the enactment of legislation to create Social Security in the 1930’s.  The right wing Liberty League, small businesses in the American south, and the National Association of Manufacturers were vehemently opposed to the implementation of the program.  [DB]

“James A. Emery, chief counsel for NAM, articulated the views of the opposition business well when in 1935 he declared: “General recovery depends on our ability to enlarge our production, to employ more people, and to cut down and not raise up the price of goods. Every time we increase the price of goods in a diminishing market, we are diminishing the possibility of employing other men, because we are making it more difficult, not less, to sell goods. Until we can market goods, we cannot employ men.” [Ezine]

The Liberty League, NAM, and their allies argued that transferring government resources to, and the creation of payroll taxes for, the sustenance of Social Security would be such a burden on American business as to forestall any economic recovery.   Conservatives of the time also argued that Social Security reduces individual ownership by redistributing wealth from working people to retired persons, thereby bypassing the “free market.”   The “free market” in this instance is, of course, banks and brokerages which offer retirement savings programs.

Failing to demonstrate that Social Security didn’t work to keep elderly U.S. citizens from abject poverty, the opponents shifted in the 1980’s back to the free market line of attack.  The political verbiage included messages like “Social Security is Going Bankrupt,” and “You’ll Get A Better Return on Private Savings Accounts.”  Both are demonstrably false, not that the Right Wing is particularly interested in the facts of the matter.   This, combined with the “Creeping Socialism” line, is a classic reversion to the rhetoric of the Depression Era, with bit of xenophobia tossed in for good measure:  “Warning us against the dangers of Social Security in 1935, GOP Sen. Daniel Hastings stated, “I fear it may end the progress of a great country and bring its people to the level of the average European.” [CCT]

Packing the transference of wealth argument into the same suitcase as their “creeping Socialism” attack, the Republicans added another element by seeking to reclassify Social Security as an “entitlement” program — changing the definition from meaning that one was entitled to benefits because the person had paid payroll taxes to support the Trust Funds during their working lives to one which conflated it with welfare — a classic conflation dating back to the Liberty League and NAM opposition of the 1930’s.

The bottom line is still the bottom line.  The opponents of Social Security in the 21st century are the ideological descendents of the opponents of Social Security of the 1930’s — both seek to establish a system in which the banks and financial institutions are the means by which wealth is distributed — to their profit; and not one in which a non-profit agency (in this case government) is responsible for the distribution.

Out of Thin Air

Second message to supposedly business oriented Republicans is wealth cannot be created if it is not distributed.  The question is not IF wealth will be distributed but where.  The only thing that generally happens over the long haul to wealth that is not distributed in some way is shrinkage.  Inflation happens.

Those seeking to foster growth and create wealth have no choice but to redistribute it.   Where?  Consider the following illustration of the income level of tax return filers in 2009.

We know that in 2009, the most recent for which complete data is available from the Internal Revenue Service, some 8,461,137 filers reported adjusted gross income of less than $50,000.  6,738,675 households filing income tax returns reported adjusted gross income between $50,000 and $200,000.  That leaves approximately 338,103 homes in which the adjusted gross income over $200,000 annually. [IRS]

How does it make any economic sense whatsoever to argue that promoting (distributing) more accumulation of wealth within a small minority of the total number of households will cause economic growth?

In 2011 there were 2,966,133 automobiles manufactured in the United States of America.  [WrldMtr]  Those reporting income above $200,000 per year would have had to purchase about 9 cars apiece in one year to clear the sales lots.   What makes more sense in terms of economic growth — having the top 2% accumulate more wealth, or pursuing policies which leave more discretionary income in the hands of those reporting less than $200,000 annual income?

All the lamentations of the arch conservatives clutching the economic elitism of a bygone era notwithstanding, in the simplest possible terms — the U.S. economy will not see significant growth if we “Double Down on Trickle Down.”

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Filed under 2012 election, Economy, Politics, Romney, Social Security

Suppressed Laughter: Muddling the Medicare Issue

There are those who find the Democratic charge that the Republicans would end Medicare as we now know it risible, but there are some very practical reasons for stifling the guffaw.

Let’s start with the proposition that the current Medicare program is a very popular single-payer system for providing health insurance coverage to individuals in the United States who are over 65 years of age.   Let’s also accept that a single payer system like Medicare has helped reduce the financial strain on our elderly.  [CMS pdf]

Additionally we can find historical data indicating that those elderly citizens who have annual incomes of $40,000 or less spend a higher percentage of their income on health care than those more affluent: [CMS pdf]

We also know that the elderly have moved from a demographic group less likely to have health insurance coverage to the one in 2000 most likely to be covered:

“Prior to Medicare’s enactment, about half of America s seniors did not have hospital insurance. By contrast, 75 percent of adults under 65 had such coverage, primarily through their employer. For the uninsured, needing hospital services could mean going without health care or turning to family, friends and charity to cover medical bills. More than one in four elderly were estimated to have gone without medical care due to cost concerns (Harris, 1966). Today, Medicare covers nearly all of the elderly (approximately 97 percent), making them the population group most likely to have health insurance coverage.”  [CMS pdf]

At this point it ought to be reasonable clear that if (1) we want elderly Americans to have affordable health care insurance, and (2)  especially want those at the lower end of the income scale to secure affordable health care insurance, then by those standards the current program is successful.

If It Ain’t Broke Why Fix It?

Across the philosophical divide:   One important facet of current conservative thinking holds that any government program which offers services to individuals  in the form of a social safety net “creates dependency.”   The proponents of this argument rely on philosophic arguments almost as arcane as the extensions of Anselm of Canterbury’s Scholasticism before Abelard arrived to rescue the scholars.

Theoreticians are invited to weigh in on discussions bounded by such definitional perimeters as the following from the libertarian Cato Institute:

“The central idea behind the theory is that government officeholders, as individuals, have strong incentives to alter important political transaction costs facing the public and facing others in government in order to secure more of what they want with less resistance. As economists use the term, transaction costs are costs to individuals of negotiating and enforcing market exchange agreements, including information costs, negotiation costs, enforcement costs, and the like.”

One is pretty much left to imagine what “and the like” might mean.  However, the message is clear – government office holders have an incentive to promote their programs and to minimize the resistance to those projects.  This assumes that people are naturally resistant to efforts by their own government to assist them, and that all government services must be resisted.  In other words, in order for this argument to work in general terms we’d have to assume that everyone is naturally a radical libertarian.

We’d also have to assume that the populace doesn’t want the government to “alter important transaction costs” on its behalf.   This is a hard point to sustain given that most citizens don’t appear to be enthusiastic supporters of personally negotiating defense contracts — which if we were to extrapolate the localism of the initial argument to its illogical extreme would be required to reduce “Constitutional level political transaction costs.”

Culturing Dependency:   The current arguments from the radical Right, framed philosophically as described above, march to the next milepost — that citizens are naturally “free” (individualistic) and any government programs which provide services to the elderly (or indeed anyone else) create a dependency on government action at the expense of individual “freedom.”

All we have to do to subscribe to this position is to completely ignore the preface to Robert’s Rules of Order:   “Where there is no law, but every man does what is right in his own eyes, there is the least of real Liberty.” (Henry M. Robert)

There are also some uncomfortable questions raised by this proposition.  Does hiring a local police force create a dependency on my part for the protection of my life and property?  Does having a local fire department make me dependent on government for fire suppression, rescue, and EMT services?  Does having a Department of State make me dependent upon government for the implementation of foreign policy?   Does having a Department of Commerce make me dependent upon government for statistical reports on my economic environment?

Splitting Differences:  If the answers to the questions above are equivocal, then it’s probably because there are some definitions of “legitimate” and “illegitimate” government services involved.  If a person defines government as only responsible (legitimate) for national defense and foreign policy, then only government programs in those realms are legitimate.  If, however, we see government as formulated for We The People, life gets a bit more complicated:

 “…of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”

Now we add “establish Justice, insure domestic Tranquility, … promote the general Welfare…” to the list of legitimate concerns of our government.  It’s time to come back around to the main argument.  If Medicare is a popular single payer system for promoting the availability of health insurance coverage to elderly individuals, and if it is successful in that regard, then why argue that it’s illegitimate?

The Magic Market:  The “market” in whatever form it may take is supposed to be the ultimate form of human transaction — the most efficient, the most efficacious, the most Free.  Except when it isn’t.   We’ve had an unpleasant taste of what happens in unregulated, or poorly regulated, financial markets.  Unfortunately, the after-taste is still lingering.  We are now told by the radical Right that an unregulated health insurance market will meet the needs of elderly Americans for their health insurance coverage.  Probably not.

The first point to acknowledge is that the Romney/Ryan plan for Medicare essentially changes the Medicare program from a single payer system to a voucher plan which “incentivizes health insurance corporations to provide coverage for elderly people.”    This is not “Medicare as we know it,” it is Medicare as the Insurance Corporations would like to have it.

The insurance corporation argument is underpinned by the notion that medical care is a commodity which can be purchased by a consumer from a provider, and this is true up to a point, but it’s a point that is very quickly reached.   The problem, as Professor Krugman points out, is that medical care isn’t bought and sold like a loaf of bread.   A person making up a list of groceries may include bread, but if the price of a loaf is too high then it’s logical to skip the purchase or substitute another commodity.  The market works.  However, if a quintuple  by-pass is needed then price is not the determinant of the “purchase.”  The result of “gee, I don’t think I can afford that right now” is poor health or even death.  The Magic Market doesn’t work in this instance.

The second problem with the Magic Market solution is that no one is shopping in the ambulance.   The victim of a motor vehicle accident or a heart attack, even if fully conscious, isn’t saying “Get me to the cheapest Emergency Room,” he’s saying, “Get me to the nearest Emergency Room.”

The third problem with the Magic Market solution is that the health insurance corporations themselves aren’t subject to it.  Under the terms of the McCarran-Ferguson Act of 1945 health insurance corporations are exempt from anti-trust laws.  This is both good and bad news; the bad news is  they may collude to limit access to their products or divvy up regions as sales territories.   The good news is that they are able to share information which might serve in some cases to reduce premium costs.  [KaiserNews]  Either way, the policy purchaser is dealing with a provider which is not subject to the same “free market” forces as the consumer.

The fourth problem inherent in the current privatization of the Medicare program is that it hasn’t worked.  Medicare Advantage was supposed to be the insurance industry version of the original Medicare program, and IF the free market worked the way the ideologues on the Right predicted, then we’d expect massive consumer shifts to the privatized version.  Hasn’t happened.  Altogether too many Medicare Advantage policy holders are there because their employers, many in the public sector, have been pressured into adopting Medicare Advantage plans.  [HealthBeat]*   If the Free Market worked as predicted, then the pressure would not be necessary.

Finally, the “free market” Medicare Advantage plans can hardly be called “private” when the companies offering them are getting an $8.9 billion subsidy from the Medicare program.  [TP]  Further, if the private market-driven plans can produce lower health care costs, then why haven’t they? [Incidental Economist]

Stop Laughing

If the current Republican calls to eventually replace the original Medicare program with a “market-driven” plan are (1) philosophically dubious, (2) politically questionable, (3) grounded in doubtful Constitutional theory, (4)  and premised upon illogical and indemonstrable market behavior; then why would challenging the practicality of such a plan be laughable?

Arguing that Medicare will still be existent even if privatized into a program run by insurance corporations is roughly analogous to contending that an orange is still an orange after it has been reduced to juice and pulp.   The result may be many things — but it’s not an orange.   Nor, would our original Medicare program be the same Medicare which now serves half of our elderly citizens who live on $21,000 per year or less.  [AARP]  Still suppressing that guffaw?

References: “Medicare – A Profile, 35 years of Medicare,” HCFA, July 2000. (pdf)  Charlotte Twight, “Medicare’s Origin,” Cato Journal, Volume 16, No. 3.   Kenneth J. Arrow, “Uncertainty and the Welfare Economics of Medical Care, American Economic Review, December 1963 (pdf).  Paul Krugman, “Why Markets can’t cure healthcare,” New York Times, July 25, 2009.  *Desert Beacon, “Medicare Disadvantage,” August 22, 2012.  AARP Fact Sheet: Who Relies on Medicare – Profile of the Medicare Population (pdf).

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Filed under Health Care, health insurance, Medicare, Politics, Republicans