Morningstar: Will Cash for Clunkers keep the auto industry rolling?

The US enacted a program informally known as Cash for Clunkers, where the government sponsors rebates of $3,500 to $4,500 for consumers to trade in old vehicles to new, more fuel efficient ones. The old vehicle must have had an EPA-rated fuel economy of less than 18 mpg, and the new one must have over 22 mpg. The standard, in other words is quite lax. Nonetheless, it seems that most people who are taking advantage of the program are trading in heavy vehicles for smaller ones. This is good.

I'm not sure that the bill is good from an environmental standpoint. The government requires that the traded in vehicles be disabled by destroying their engines. The remains would presumably be scrapped. This too incurs environmental costs.

Here, Morningstar argues that the auto industry has long-term issues that they will have to resolve independent of this program, although it is definitely a short-term boost and does provide some stimulus to the economy. To revive the industry, all players (even the Japanese manufacturers) have overcapacity that they need to reduce.

My view is that there are probably better places to put the US government's money. The House passed an extension, and the Senate is likely to vote yes - my inclination would be to vote no if I were a Senator, but there are (sadly) political factors here. In any case, the program would probably get only $1-2 billion more - there are bigger battles to fight.

Barbara Ehrenreich: the Destruction of the Black Middle Class

Barbara Ehrenriech is a journalist who wrote a book, Nickled and Dimed, after she went undercover, worked several minimum-wage jobs and basically failed to make ends meet. In an article on Huffington Post she coauthored with Dedrick Muhammad, a researcher at the progressive think tank Institute for Policy Studies, she argues that the African-American middle class is being severely affected by the recession:

Left out of the ensuing tangle of commentary on race and class has been the increasing impoverishment -- or, we should say, re-impoverishment -- of African Americans as a group. In fact, the most salient and lasting effect of the current recession may turn out to be the decimation of the black middle class. According to a study by Demos and the Institute for Assets and Social Policy, 33 percent of the black middle class was already in danger of falling out of the middle class at the start of the recession. Gates and Obama, along with Oprah and Cosby, will no doubt remain in place, but millions of the black equivalents of Officer Crowley -- from factory workers to bank tellers and white collar managers -- are sliding down toward destitution.


For African Americans -- and to a large extent, Latinos -- the recession is over. It occurred between 2000 and 2007, as black employment decreased by 2.4 percent and incomes declined by 2.9 percent. During the seven-year long black recession, one third of black children lived in poverty and black unemployment -- even among college graduates -- consistently ran at about twice the level of white unemployment. That was the black recession. What's happening now is a depression.


Black unemployment is now at 14.7 percent, compared to 8.7 for whites. In New York City, black unemployment has been rising four times as fast as that of whites. Lawrence Mishel, president of the Economic Policy Institute, estimates that 40 percent of African Americans will have experienced unemployment or underemployment by 2010, and this will increase child poverty from one-third of African American children to slightly over half. No one can entirely explain the extraordinary rate of job loss among African Americans, though factors may include the relative concentration of blacks in the hard-hit retail and manufacturing sectors, as well as the lesser seniority of blacks in better-paying, white collar, positions.


But one thing is certain: The longstanding racial "wealth gap" makes African Americans particularly vulnerable to poverty when job loss strikes. In 1998, the net worth of white households on average was $100,700 higher than that of African Americans. By 2007, this gap had increased to $142,600. The Survey of Consumer Finances, which is supported by the Federal Reserve Board, collects this data every three years -- and every time it has been collected, the racial wealth gap has widened. To put it another way: in 2004, for every dollar of wealth held by the typical white family, the African American family had only one 12 cents. In 2007, it had exactly a dime. So when an African American breadwinner loses a job, there are usually no savings to fall back on, no well-heeled parents to hit up, no retirement accounts to raid.


All this comes on top of the highly racially skewed subprime mortgage calamity. After decades of being denied mortgages on racial grounds, African Americans made a tempting market for bubble-crazed lenders like Countrywide, with the result that high income blacks were almost twice as likely as low income white to receive high interest subprime loans. According to the Center for Responsible Lending, Latinos will end up losing between $75 billion and $98 billion in home-value wealth from subprime loans, while blacks will lose between $71 billion and $92 billion. United for a Fair Economy has called this family net-worth catastrophe the "greatest loss of wealth for people of color in modern U.S. history."

I'd invite readers outside the US to think about wealth and income disparities in their own countries. How are various minority groups in your own country being affected by the recession? Is your government directing aid targeted at those most in need?

Center on Budget and Policy Priorities: insurance plans offered in an exchange should have limits on out of pocket spending

I mentioned earlier that, while searching for individual health insurance plans for myself, I noticed that a number of plans from Kaiser Permanente had limits on out of pocket costs. In insurance jargon, this can be called a stop-loss. In my current plan, I would pay no more than $10,000 a year (including my premiums) out of pocket. Services excluded from my plan would not count towards this limit, but unlike some other plans I've seen, my Kaiser plan has no illogical exclusions.

It is very likely that health reform will create a national exchange where Americans who can't get insurance through their employer can shop for it. Judith Solomon, a senior fellow at the Center on Budget and Policy Priorities, argues that insurance plans offered on the exchange should contain an out-of-pocket limit. In addition, the minimum benefit design should ensure that there are no illogical exclusions or limits on certain services; for example, some individual plans limit mental health treatments or limit inpatient (i.e. in the hospital) treatment. These limitations would be harmful if someone got hospitalized, or needed mental health counseling for any reason.

I would go so far as to say that Congress should mandate that all plans offered anywhere (i.e. including through large employers) should contain an explicit stop loss. It can be tiered by income, and I'm not saying that we should limit rich folks' out of pocket expenses to $1,000. However, one of the main purposes of insurance is to protect your assets. People who get really ill might otherwise spend a lot of money out of pocket, and we don't want people rationing their own care in an emergency situation. Judging from my own insurance plan, a high stop loss (i.e. high enough that it would only apply to people in major accidents) should be feasible without driving premiums up significantly.

In addition, Solomon cites some research on how much low-income people can afford to pay out of pocket. For example, one study conducted among 4 states showed that enrollment in public programs dropped by half if eligible people had to pay more than 3% of their family's income in premiums. When premiums exceeded 8% of income, enrollment dropped by 90%. In other words, the exchange's rules must protect the poor.

Dr. Abramah Verghese: The Practice Of Medicine and The Color of Money

Dr. Abraman Verghese, an internist, offers a perspective on American medicine.


So seriously, does anyone believe that we doctors can own a hospital (or sleep center if you are a sleep specialist, or imaging center, or outpatient surgery center, or chemo center) and be totally objective about referring patients there?
We doctors aren't coming out pretty in the health care debate. A few days ago in a Wall Street Journal online piece, I asked, Who Speaks for Medicine? With physician groups lobbying for their self interests, who, I asked, represents medicine, by which I mean the art of medicine, the ideals that we love to impart to our students at graduation and white coat ceremonies?

Well today's New York Times has two stories that show us at our conflicted best:

First, a report of a doctor-owned hospital in McAllen, called, appropriately, Doctors Hospital, which is flexing its muscles in Congress in the health care debate. The hospital (or rather its doctor-owners) has a big voice largely because of the substantial donations it or its proxy made to politicians. What does Doctors Hospital want? It wants to be sheltered from legislation that affects its income--and so far it has worked. (This is the same hospital that was written about beautifully in the New Yorker by Atul Gawande--a hospital that provides great care for patients but consistently does more tests and has more consultants involved per patient than comparable hospitals elsewhere.)

Another report also in today's New York Times describes dozens who were arrested in a health care fraud sweep. Alas, doctors were among those arrested in this scheme. It involved selling 'arthritis kits' to patients that were worthless; another scheme involved billing Medicare for Ensure and other liquid supplements that were never given to patients or billed to dead patients. The estimate is that BILLIONS of dollars are lost in this fashion, by bilking Medicare.
I am more and more convinced that the President does not need to look for new taxes to fund his health care plans. The savings in Medicare from eliminating fraud would be huge; add to that savings from restructuring payments and it would be even more substantial.

Speaking of payments, the AMA and other organizations are fighting the idea of an independent commission that would set fees and reimbursement schedules. God knows, such a commission might make it pay to be doing for a patient rather be doing to a patient. Alas, the money is in doing to; the AMA is against that changing.

As a confession, in those days when we all had close and cozy relationships with pharmaceutical companies, I took honoraria, spoke at conferences in beautiful resorts and had many free lunches. Of course I told myself, that all my professors and colleagues were doing it so it had to be OK; and I actually thought I could certainly separate the free lunch from any tendency on my part to prescribe a drug produced by that company. Looking back that was naive.

What brought about change was public scrutiny. Universities became hyper aware and now of course we all treat pharma contact with great caution. My point is, until public sentiment, embarrassment and finally our good conscience kick in to tell us something is wrong, we will keep dipping into that trough.

I think legislation needs to put an end to doctors profiting on businesses to which they can funnel patients--that is business not medicine. If you try to call it medicine then it is corruption. Without legislation, it will keep happening.

Washington Post: article on a small, African-American LGBT church

A recent article in the Washington Post offers a peek into the lives of Black LGBT folks who are also religious. The church has been a bedrock of African-American culture, but African-American Christians tend to have more negative views of homosexuality. Homophobia from the church, coupled with the very human need to find acceptance, can lead to LGBT people leaving the church and/or being careless in their sexual behaviors.

Then, to his surprise, about a dozen HIV-positive men and women answered Cheeks's call. Finally, Walker stood, too.

"I felt like I was in heaven," said Walker, who always heard homosexuality condemned from the pulpit of other churches he had attended. "The only place I feel safe is in my church."

He credits Cheeks with changing his life. The bishop told him to let God in and stop living in the shadows.

Walker was able to confess a deep secret for which he had long sought forgiveness. On the night of his honeymoon in 1973, he had slipped away from his wife to have sex with his best man. During his seven years of marriage, he betrayed her again and again.

The acceptance Walker found at Inner Light gave him the strength to stop abusing drugs and alcohol, he said. But it hasn't entirely erased the stigma of having HIV. Every morning, Walker opens a chest drawer filled with about 20 brown and white bottles of medicine for HIV, staph infection and failing kidneys. He doesn't keep the pills in the medicine cabinet of his Northwest Washington apartment for a reason, said his partner, Keith Short, who is also HIV-positive.

"You don't want visitors to come into the bathroom and say, 'Oh my God,' " Short said.

The desire to hide being HIV-positive -- not just from visitors but from prospective sexual partners -- is powerful and difficult to change. Some men are reluctant to reveal their health status to possible partners for fear of being rejected. Short said he might avoid the subject if he and Walker broke up and he were dating again.

"It would depend on how I feel," Short said, adding that he would probably use a condom but that in the heat of the moment, he couldn't guarantee it. "Sex is a very powerful thing."

That attitude, Cheeks said, is part of why gay black men in the District are disproportionately affected by HIV and AIDS. And why he has to keep preaching the message of safe sex.

Center for American Progress: LGBT Issues in Health Reform

CAP, a liberal US think tank, highlights some issues that same-sex couples face in health insurance.

One major issue: LGBT couples are usually not able to access insurance on the same terms as heterosexual couples. While insurance benefits offered to opposite-sex spouses and children are not taxed in the US, benefits to same-sex partners are, to the tune of about $1,069 in additional taxes per year per partner. Additionally, not all employers offer domestic partner benefits. It is an option for same-sex couples where both partners are employed at large firms to get two different policies. However, the small and individual markets are broken.

Another major issue that would likely be solved without any additional action is that pre-existing conditions are denied. LGBT folks have a higher prevalence of HIV and certain cancers.

The last major issue is that transgendered people have significant problems with insurance. Many companies have attempted to deny certain services, or coverage in general, to transgendered applicants. In some cases, insurers may have denied coverage for completely unrelated conditions (e.g. a broken arm) by claiming that these were related to gender transition. Additionally, gender transition services are generally uncovered. However, due to the small number of transgendered people in general, coverage is usually cost-neutral. Several large companies cover these services successfully.

A discussion of community rating versus experience rating in health insurance markets

I apologize for the technical title, but I thought readers should be made aware of an issue in US health insurance markets that needs to be fixed.

Community rating means that every enrollee in a health insurance market gets charged the same price based on the health status of the community. In other words, healthy people subsidize the sick. Some definitions of community rating allow insurers to charge based on demographic variables such as age bands, gender or tobacco use (this may be referred to as modified community rating in technical literature).

Experience rating means that individuals have their premiums set based on their own health status (i.e. the experience of the individual or group). For example, if I have diabetes, I would be charged a higher premium - assuming I'm even offered insurance.

In the US, the first health insurers generally offered community rating. When for-profit insurers came along, they used experience rating to offer cheaper premiums to younger and healthier people. This was good for the new entrants. However, the older, community-rated insurance pools had sicker people, and they had to raise prices. This set off a cycle, where sicker people tended to remain in the pool as prices rose and healthier people left. This is an example of adverse selection (link to Wikipedia article on the subject).

Briefly, experience rating basically prices sick people - and any of us could become sick - out of the market. In addition, you cannot have a market where some insurers are using community rating and some are using experience rating. The Democratic health reform proposals in the US Congress would all end experience rating. I am under the impression that many Republican Congresspeople supported an end to experience rating as well. To my knowledge, all the European countries with private insurance markets do not allow experience rating.

Rating bands are a related concept. Generally, a rating band of 2:1 means that the highest premiums in a market could be no more than twice the lowest premiums. This is after considering all factors on which you can rate people, so if a state did this, a (for example) 64 year old obese female smoker who had cancer, diabetes and heart failure would pay no more than twice a 20 year old healthy man.

The health reform proposals would generally impose tight rating bands in the individual and probably small group markets (companies in the large group market, over 200 or so enrollees, generally charge everyone in the group the same premium anyway). I don't think most states don't have rating bands, so if you're a sicker person, if you're even offered individual insurance you could probably pay more than 10 times that of a healthy person. If you impose a rating band where there wasn't one previously, though, younger folks would face significantly higher premiums than they previously did. They'll have to a) be subsidized and b) stop their damn griping.

Back to the concept of experience rating vs community rating. As I said, I thought this was a no-brainer concept that was settled long ago. However, to my dismay, I've recently seen two articles which condemn the move away from experience rating based on the flawed 'skin in the game' argument:

Government could also free up the private market to change the economic incentives to have better health. If people have skin in the game, preventable costs fall. Safeway and other companies have saved a lot of money with wellness programs, and increasing cost-sharing also has a huge effect. Yet Democrats are moving in the opposite direction, prohibiting insurers and employers from designing policies based on health status and limiting the financial involvement of patients in their own care.

Shawn Tumulty, of CNN Money, has an article where he directly condemns moving away from experience rating:

2. Freedom to be rewarded for healthy living, or pay your real costs

As with the previous example, the Obama plan enshrines into federal law one of the worst features of state legislation: community rating. Eleven states, ranging from New York to Oregon, have some form of community rating. In its purest form, community rating requires that all patients pay the same rates for their level of coverage regardless of their age or medical condition.

Americans with pre-existing conditions need subsidies under any plan, but community rating is a dubious way to bring fairness to health care. The reason is twofold: First, it forces young people, who typically have lower incomes than older workers, to pay far more than their actual cost, and gives older workers, who can afford to pay more, a big discount. The state laws gouging the young are a major reason so many of them have joined the ranks of uninsured.

Under the Senate plan, insurers would be barred from charging any more than twice as much for one patient vs. any other patient with the same coverage. So if a 20-year-old who costs just $800 a year to insure is forced to pay $2,500, a 62-year-old who costs $7,500 would pay no more than $5,000.

Second, the bills would ban insurers from charging differing premiums based on the health of their customers. Again, that's understandable for folks with diabetes or cancer. But the bills would bar rewarding people who pursue a healthy lifestyle of exercise or a cholesterol-conscious diet. That's hardly a formula for lower costs. It's as if car insurers had to charge the same rates to safe drivers as to chronic speeders with a history of accidents.

This is all part of their effort to pass “universal” coverage and gradually transition everyone into a single government program like Medicare, thus insulating people even more from the costs of their lifestyle decisions. Don’t expect to win the war on obesity by making the government fatter.

The basis of the skin in the game argument is that people make wiser decisions about their health when they're exposed to costs. If you have a copay for a doctor's visit (meaning that you have to cough up some sum of money, that it isn't covered fully by insurance), you'll be more careful about visiting the doctor for trivial reasons. Similarly, if you're exposed to some sort of financial penalty for being fat or sick, you'll be careful not to be fat or sick. I find the first half of the argument more compelling than the second. However, when insurers charge sick people the full price for their illness, the result is that sick people get priced out of the market.

As to the second, most people don't choose to become sick or obese. It sure sounds like the WSJ folks think obesity can be treated simply by charging obese people more in insurance - and if so, why do those idiots oppose taxing fatty foods? Obesity is not simply a matter of faulty choice. In addition, to my knowledge, you need quite a large financial penalty or bonus to get people to change behavior. Applied to obese folks, that could be viewed as discrimination.

Now, I'll deal with Tumulty's argument. In the first part of his argument, he argues that states which made their individual insurance markets community rated drove up costs for everyone, and drove the younger people out of the plan. He is actually correct. Community rating in isolation is not health reform, and healthy people will be unlikely to buy insurance as it will cost them more than they think it's worth. However, if you mandate insurance, you get everyone into the market, so that the healthy subsidize the sick. If you add marketing and other restrictions that prevent each insurer from attracting a healthier group of enrollees, so that healthy and sick people are evenly distributed among all insurers, you avoid situations where one insurer gets all the sick people. If you add subsidies, you make sure that no one is paying too much. Tumulty forgot to mention that.