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Monday, January 20, 2025

To the Dustbin of History

Today, I celebrate the end of the Biden administration. I do not celebrate his successor, for I'd be similarly happy today had Kamala Harris won. Joe Biden was a terrible president--divisive, destructive, and deceptive--and the country will be better with him gone.

Some will surely argue that Trump is worse than Biden in every important way, and I accept their criticisms, though I disagree with the relative magnitudes. I also would point out that Trump's misbehaviors are much more constrained than Biden's by outside forces--by the Democrats' effective control of the most important media outlets and their ubiquity in the administrative state. In addition, their is a resistance to Trump even within his own party that didn't exist for Biden.

Today, I celebrate the departure of Merrick Garland, Alejandro Mayorkas, Karine Jean-Pierre, Jill Biden, Hunter Biden, Antony Blinken, and Lloyd Austin. All of these people put themselves, their party, and their politics above the country.

Friday, January 3, 2025

Administrative Costs Aren't Waste

The murder of Brian Thompson has rejuvenated debate on the American health care industry, which had been a relatively sleepy topic since the failed attempt to repeal the ACA in 2017. Prior to the passage of the ACA in 2010, the American health care industry was decried as high cost, inefficient, and poor quality. Documentarian Michael Moore released Sicko in 2007 documenting all the problems with American healthcare: our life expectancy was comparatively low even though we spent more money than any other advanced nation in the world; health insurance companies caring only for profit, would deny legitimate claims; hospitals and physicians charged too much; there was too much emergency care which was higher cost; the system treated symptoms not causes; health insurance was too expensive and people with pre-existing conditions couldn’t purchase it at all; and 45 million people were uninsured.

While the ACA did nothing for most of those problems, the debate about healthcare practically disappeared after its passage. There were individual issues here and there—surprise billing, individual mandate, public option—but the topic never became a major national issue the way it was from 2004-2010 until last month.

Time will tell if this persists, especially once President Trump takes office and begins working on his agenda which will focus more on immigration, taxes, and regulations, but the recent uptick has resurfaced some of the same arguments from 15 years ago.

The Debate So Far

Noah Smith, an economist and writer, argued that the criticism of insurance companies is misplaced. Smith’s core argument is that because insurance companies are not very profitable, they cannot reasonably be thought of as the source of the large problems in healthcare. Essentially, the anti-insurance company bastion are arguing that insurance companies are collecting premiums and then doing everything they can to not pay for their beneficiaries’ care, and pocketing the difference, but if their profits are low, then the degree to which they could be squeezing those in need, must also be low.

In response, Matt Bruenig argued the opposite, that health insurers are the worst aspect of America’s health care system, and bear a disproportionate share of the blame for the problems. The crux of his argument is that 16% of money spent on health insurance goes to administrative costs. On top of that, another 19% of hospital revenue goes to administrative costs. He concludes, then that for every $100 spent on health insurance, only $68.04 actually goes to health care.

Firstly, he omits some important elements, out-of-pocket costs bypass insurance altogether and go to the hospital. Hospitals aren’t the only entities that insurance companies pay. Physicians and clinics both have lower administrative costs according to the CBO analysis he cites. The CBO report he references also doesn’t seem to include administrative costs outside of CMS, such as the Centers for Medicare and Medicaid Innovation or MedPAC; both of which represent government spending to support Medicare. Further, Avik Roy points out how Medicare administrative costs can be misleading.

Administrative Costs Can Help Reduce Overall Costs

Bruenig’s core argument is that these administrative costs are completely wasteful, but that’s not entirely true. Firstly, there’s profits. Profits are incentives for both sides to reduce costs. And these are low for insurance companies, below 5%, lower than other insurance products and most other industries. Hospitals’ profit margins are even lower.

Insurance companies reduce costs in many ways beyond the most infamous. They research the value of new and existing procedures; they use network design to nudge beneficiaries to the most efficient hospitals; and they find design their cost structures to incentivize better-value care. There’s no better example of what the benefits of administrative costs can achieve than the example Bruenig believes supports his argument—Medicare Advantage. While we tend to think of Medicare as a fully government-run and administered insurance product, it is actually divided roughly equally between the traditional Fee for Service Medicare (FFS) that everyone basically understands, and Medicare Advantage (MA), which allows seniors to choose a private plan that offers all the services of traditional Medicare with extra benefits.

Medicare Advantage Deflates Bruenig's Argument

Bruenig points to sources that claim that Medicare Advantage plans have much higher administrative costs, 17% versus 1.3% for FFS. Though the numbers he uses aren’t entirely accurate1 or instructive, what Bruenig and most others don’t realize is that Medicare Advantage plans provide the same services to seniors that traditional Medicare provides, but at a lower cost. So, whether in spite of the higher administrative costs or because of them, the private payers achieve lower overall costs than the public payer.

Medicare Advantage plans are private insurance plans paid based on many factors, interacting in complicated ways. What’s important to know is that every year these plans estimate the cost of covering their beneficiaries. This estimate is submitted to the government as a “bid.” The government compares this bid to what it pays to cover similar seniors2 and pays the plan their bid plus some of the difference between the plan’s bid and what Medicare expected to pay for that beneficiary.

MedPAC reports that, on average, Medicare Advantage plans’ bids are 79% of traditional Medicare’s costs, suggesting that the private plans can provide the same services as Medicare inclusive of administrative costs, for 21% less than Medicare.

To be sure, there are many countervailing facts that muddy this comparison. Many people believe that MA plans manipulate the system by attracting healthier people within the risk groups and then “up-coding” them into a less-healthy risk group to boost their payments. However, even after these elements are factored in, MedPAC concludes that the bids are about the same as Medicare’s actual costs, meaning that even accounting for favorable selection, up-coding, administrative costs, and profits, MA plans cost about the same as traditional Medicare, and there is reason to believe that their estimate of up-coding is excessive.3

Lastly, the bids are inclusive of administrative costs and profits so are above what the plans actually spend on direct healthcare for their beneficiaries. Bruenig uses the Medical Loss Ratio (MLR), to determine what actual costs are, which seems appropriate. He points to a KFF analysis that found that 83% of MA plans’ revenues goes to actual healthcare1, which would imply that the administrative costs are allowing these private plans to find a way to provide the same healthcare services to seniors for 17% less than traditional Medicare.

Private plans provide the same services to Medicare beneficiaries at lower cost than traditional, government-run Medicare

When all of this information is taken together, it shows that Bruenig is incorrect to say that the administrative costs in health insurance represent an enormous, wasteful drain on resources, and the Medicare Advantage program, contrary to his assertion, undercuts his argument. Given MedPAC’s analysis, one could conclude that administrative costs do serve to lower health care costs, but perhaps not by more than the administrative costs add to it. As with most topics, it’s a complex issue with many interacting and constantly changing components that defies simple analysis.

Footnotes

1In reality, the MLRs for MA plans are higher than 83%. By law, they must be 85% without incurring penalties. 83% was specific to 2020, which was an uncharacteristic year due to Covid. Most years KFF found MA MLRs fell between 85 and 87%. Also, KFF’s analysis leaves out money that plans spend on health benefits that beneficiaries receive. Including them as administrative costs is inappropriate.
2Medicare risk adjusts payments to account for differences in age, sex, previous diagnoses, and geography.
3To estimate up-coding in 2024, they took their 2021 estimate, and extrapolated a 2024 estimate based on the 2017-2021 trend, which was higher than other years. While it wasn’t necessarily wrong, it’s an estimate based on three-year old, atypical experience in an extremely dynamic environment.

Monday, December 30, 2024

Social Security and the End of the Age of Responsibility

Background

On December 21st, Congress reiterated its disinterest in fiscal prudence. While its free-spending inclinations have long been obvious, the affliction is certainly getting worse, illustrating a broader surrender to populism.

On December 21st, Congress passed the cheerily named "Social Security Fairness Act". With this act, they dismantled a 41-year-old, reasonable compromise passed overwhelmingly by a Democratic Congress and Republican Senate and signed into law by Ronald Reagan.

The Reasonable Provisions Being Repealed

If two people both worked a fast-food job part-time for their whole lives but one of those people also had a full-time government job with a lifetime pension that pays more than Social Security, while the other one never held another job, should they receive the same Social Security benefit?

While explanations of what this act does immediately defy a normal person's interest, the rationale behind the WEP and GPO provisions is eminently sensible.

Social Security was designed during the Great Depression to ensure that everyone was eligible for some income and a retirement in their later years. It would reduce any necessity for people to work the entirety of their lives. Moreover, it was intended to provide proportionally more for low-income workers than high-income workers. Like the progressive tax structure, the formula used to calculate benefits, was more favorable to low-income workers.

With taxes, lower income workers pay a lower percentage of their income, but with Social Security, it works in the reverse direction. Social Security basically is designed to replace a percentage of your income in retirement, and for lower-income workers, that percentage is higher. What the designers of Social Security didn't account for, however, are people who split their working lives between a Social Security-eligible job and a Social Security-exempt job. Readers may not be aware, but there are certain jobs, generally government jobs, where workers pay into and receive a government pension in lieu of Social Security. They do not pay Social Security taxes, and they do not receive Social Security benefits.

The progressivity of the formula would have worked as intended as long as people were in one or the other, but a problem arose because some people worked a Social Security job for part of their lives and a non-Social Security job for another part. Even if the worker worked full-time her whole life and received her full government pension in retirement, the Social Security formula assumed she spent half her life unemployed, and replaced a high percentage of her income as it was designed to do to support low income workers.

The Windfall Elimination Provision (WEP) was designed to address that. It didn't remove her Social Security benefits entirely, but it adjusted them down to account for the fact that this isn't a low income person, and so shouldn't receive the favorable benefit calculation that was intended for them. It was entirely reasonable, aligned with the program's intent, and improved the financial outlook.

The Perception of Unfairness

Unfortunately, these provisions created a perception of unfairness. It meant two people who paid the same amount into Social Security could receive different benefits. This outcome offended an intuitive sense of fairness. Of course, in the broader sense, it was supposed to be unfair, the way progressive taxes are unfair. Rich people pay more taxes because they're better able to afford it. Likewise, two people who paid the same into Social Security shouldn't get the same benefit if one of those people was poor and had no other source of income.

The Effect

The average pensioner, who, for the last forty years, received reduced Social Security benefits given their pension income, retires at 62, three years earlier than people on Social Security. And for income, 61% of the people whose Social Security benefits were cut due to WEP are earning more in retirement than the average Social Security beneficiary. Nearly 1/3 of the people who will get a Social Security raise are already earning more than twice as much from their pension.

Nearly one third of people who will get a Social Security boost are making more than two times the average Social Security recipient.

This is an entirely unnecessary change in Social Security, but it again highlights how political culture has changed. Forty years ago, elected officials had enough wherewithal to say no to their constituents, that the greater good required some sacrifice, that not everyone could benefit in all things in perpetuity. That restraint has been dwindling ever since.

Republicans used to at least talk about cutting ballooning, unpaid-for entitlements, but have completely abandoned that because it was hurting them. During the presidential campaign, both candidates promised to expand tax credits and cut taxes for important groups. No one mentioned cutting spending or the debt.

Fifty years of increased deficit spending with no adverse consequences has taught the public and the politicians seeking their votes to make ever-growing promises unconcerned with the eventual bill.

Other Links

Tuesday, December 10, 2024

Democrats' Deal with the Devil

From the Invasion of Iraq to 2020, Democrats unquestionably held the moral high ground in politics. Bush led the war in Iraq where tens of thousands of people were killed without as much to show for it as he promised. Obama ran on hope, change, and unity. Democrats were the party of healthcare, education, science, diversity, and good government. Republicans were the party of rich people, tax cuts, laissez-faire economics, and an aggressive foreign policy.

When Trump was elected, this perceived moral gap between the parties grew even larger. Trump (and Republicans) were racist, misogynist, xenophobic, corrupt, anti-science, and every other bad thing you can think of.

Conversely, Joe Biden was a saint.

For four years, many, including myself, have been arguing that Joe Biden was not a good person, he was just better than Trump. If not for Trump, though, Biden would have been the worst person in terms of character to be President since Lyndon Johnson. I maintained a list of things Biden did while President that showed a deficiency of character. Things that he did as a bad person, and things that he did that made him a bad leader.

Now, four years later, a few of those things have allowed many Democrats to realize this, too. Particularly the last year where he stubbornly remained in the race for President even though he was headed for failure, undermined his VP's candidacy, and pardoned his son.

The result of this chain of behavior, and its national prominence and undeniability, is the Democrats have surrendered the moral high ground (and here).

Democrats made a bargain with the devil. They nominated a morally deficient politician because he was their best chance at getting rid of someone worse, then they boosted his ego by lying about his moral stature, and it came back to bite them.

Not only did Biden lose, and the guy they deemed worse is back in office, but Biden has now destroyed precedent after precedent and sledgehammered some walls that held back presidential power just in time for Trump to turn those new abilities toward his own goals. The Democrats' ability to criticize and appeal to the public are greatly diminished because Biden conspicuously laid the groundwork and the media discredited itself by lying on his behalf and then getting caught holding the bag.

Monday, November 11, 2024

Why Harris Lost

Many others have offered myriad explanations for how Trump defeated Harris. Some think Harris lost because she didn't appeal enough to women. Some argue that Biden stayed in the race too long, and it doomed Harris because she didn't have enough time to win. Some say it was trans issues. Some say it was inflation. Some even say that Trump voters were duped by a disinformation bubble.

Here are a couple rundowns of reasons from Vox and AEI. I find this explanation closest to my own view, and below, I explain it more comprehensively.

I'm a long-time proponent of the median voter theorem. The concept is more simple than the name. The idea basically is that to win an election, a candidate needs to win a majority of the votes, and to win the majority of the votes, that candidate has to win the vote of the median voter--the voter exactly in the political center of all voters. The candidate who wins that voter, generally by staking positions closest to them, wins the election.

The story of 2020-2024 is that in 2019 Harris was pretty far to the left, and lost the primary. Biden was pretty close to the center and won it. In the general election, he campaigned as a perfect centrist. However, once he became president, he shifted to the left and stayed there. When Harris took over, she moved up to, but not beyond where Biden governed, which left Trump much closer to the center than Harris, so Trump won.

In 2020, Joe Biden ran as a moderate

The 2020 Democratic primary featured candidates spanning the entire Democratic party, from Sanders and Warren representing the far-left to Biden, Buttigieg, and Klobuchar representing less far-left. And of them, Biden had the most experience, name recognition, and political power.

Once he won the nomination, he campaigned on ending the pandemic, but never said how. He was ambiguous on fracking. He thought Trump's immigration restrictions were too restrictive.

The Brookings Institute: "Joe Biden appealed to the center of the electorate across party lines. He did 10 points better than Hillary Clinton among Independents, and he doubled her showing among moderate and liberal Republicans...If the Democratic Party is regarded as going beyond what the center of the electorate expects and wants, Democrats' gains...could evaporate."

The BBC: "Biden stuck with a centrist strategy, refusing to back universal government-run healthcare, free college education, or a wealth tax. This allowed him maximise his appeal to moderates and disaffected Republicans during the general election campaign."

Biden won independents by 9 points--52 to 43, when Clinton had only won them by 1 point in 2016.

Joe Biden barely won his election

Even with all the benefits of running against one of the most singularly despised candidates in decades, a pandemic roiling the economy and the culture, civil unrest, record-setting fundraising, Biden only barely defeated Trump in the electoral college. Biden won three states by less than 1% of the vote--Georgia (0.23%), Arizona (0.30%), and Wisconsin (0.63%). Combined, Trump lost by a total 42,918 votes.1

Votes are still being counted in the 2024 election, but at the moment, Harris's easiest path would have needed to swing Pennsylvania, Michigan, and Wisconsin to have won the election. She would need to swing 255,000 votes. The differences in margin are 1.2% (PA), 1.4% (MI), and 0.8% (WI). Not quite as close as 2020.

Biden Moved Left

Once in office, President Biden swiftly moved left. He issued executive orders "at a record pace," signing more executive orders in his two days than any other president signed in his first 30. His executive orders were not just undoing President Trump's work, or meant to address the pandemic, but showed that he was "taking steps Democrats have long demanded on immigration, the environment and racial justice."

In his initial flurry of executive actions, Biden required masks on federal property, extended foreclosure and eviction moratoriums, froze student debt collection, revoked the permit for the Keystone Pipeline, cancelled other energy rules created under the Trump administration, and pulled back on immigration enforcement. While many of these were demanded by Democrats, even the ones that were arguably centrist positions at the time, came to represent a immoderate president.

In February, Biden indicated he was more beholden to the teachers' unions than science when he waffled on re-opening schools. The head of the CDC, Rochelle Walensky indicated it was safe to re-open schools, but teachers unions scoffed, and the Biden administration fell in line and called for more funds before they could re-open.

In March, Joe Biden nominated Lina Khan to be an FTC Commissioner, notably, not the chair. Lina Khan was notable for writing a very famous article calling into question the application of anti-trust law to the current slate of American tech companies, most prominently Amazon, because they served as platforms that gave their products away for free, so the conventional approach of using price increases to prevent monopolies wasn't reliable.

She went on to work for other Democrats, and was considered a talented but pretty far-left expert on anti-trust in the digital age. Many Senators thought being a commissioner was acceptable given it was the President's prerogative, and the FTC could have three Democrat-appointed commissioners. One of them being more progressive was unobjectionable. However, immediately after she was confirmed with bipartisan support, she won confirmation in a 69 to 28 bipartisan vote, President Biden named her the chair of the FTC.

"Her appointment was a victory for progressive activists" according to the New York Times and was "hailed by many Democratic lawmakers." Elizabeth Warren said "With Chair Khan at the helm, we have a huge opportunity to make big, structural change..." The Vice President of NetChoice said she would make the independent agency more political. In office only briefly, she embarked on a aggressive agenda to push the FTC firmly in the progressive direction.

This episode symbolized Biden's move from moderate campaigner to aggressively progressive president. No one expected he would put Lina Khan in change of the FTC, even when she was nominated for commissioner. The change was a shock not only because it was unexpected, but it was unprecedented for a President to have misled Senators and the public on his intentions. In addition, while the business world had strongly supported Biden's campaign, their support of him surely wavered with such an anti-business Democrat put in charge of the FTC.

These are just two early-on instances of his lurch to the left, especially as compared to how he campaigned. There were many more. There was Merrick Garland going after parents who were concerned about what their kids were being taught, labelling them as terrorists; there was the student debt relief which he had avoided during his campaign and steered clear of, but then decided to pursue unilaterally despite previous arguments that it was unconstitutional. He tried to require masks on planes and vaccines for workers. Both of which failed in court. Both of which he continued to pursue despite their unpopularity. He always sided with unions and decided he'd be the first president to stand in a picket line. He discontinued natural gas exports. He tried to apply the protections in Title IX, which was meant to prevent discrimination based on a person's sex, to trans students. Biden also moved to aggressively reduce the number of gas-powered cars and replace them with EVs and his administration briefly contemplated banning gas stoves before it went public.

Biden was so committed to not enforcing the border, he wouldn't enforce his vaccine mandate for illegal immigrants even though he did for travelers. He flew illegal immigrants all over the country though he did his best to keep it quiet. He created an app so that illegal immigrants could bypass the border altogether and schedule their entry via airplane. Lastly, when there was a misunderstood photo of the border patrol and a border crosser, he immediately sided with the immigrant and never apologized for his mistake.

Also remember that the Build, Back, Better agenda was originally another multi-trillion dollar package for which many Democrats tried to expand the definition of infrastructure to include their economic agenda.

The result of all of these individual items and moves was that Biden was perceived by many, on the left, and the right, and the center, to be the most left-wing president of the last fifty years. People compared him to FDR and he basked in it.

Biden's Approval Rating Suffered

Source: 538

The other, more significant, consequence of Biden's policy portfolio was an approval rating that danced around 40% for most of his presidency. It's well-known, that his approval rating plummeted after the botched Afghanistan withdrawal. It reached its lowest point in July of 2022, almost a year later, and just before the Chips and IRA bills passed in August. He enjoyed about six months of approval in the low 40s, before it started dropping again. From December 2023 up until his disastrous debate, his approval was slightly below 40%.

Harris Ran as Biden

While many people think Harris ran as a moderate, to be more precise, Harris ran at the exact point on the ideological spectrum that Biden governed. The illusion of being a moderate was created because she shifted her policy stances from where they were in 2019 (confiscating guns, in favor of trans surgeries, opposition to fracking, in favor of Medicare for All), up to but never beyond the positions Biden held in 2024. While she renounced her previous, left-wing positions, she often didn't provide a detailed policy proposal of her own, but when enough detail was provided, she it would perfectly match Biden's policy.

Her response to every question regarding immigration policy was to support the Lankford Immigration Bill which Biden had supported, but did not have support of enough Republicans to pass. She never proposed or accepted any measure that wasn't part of that bill. On Israel/Gaza, she used the same language and answers Biden gave, that there needed to be a cease-fire and the hostages needed to be returned. There was no daylight between her and Biden on any issue.

Despite many opportunities, Harris refused to stake a position closer to the center than Joe Biden on any issue. She famously told The View and Stephen Colbert that she wouldn't do anything differently than was done by Biden. She adamantly refused to move closer to the Center than Biden governed, and that put her to the left of the median voter.

Donald Trump Ran as a Pretty Moderate Republican

Meanwhile, President Trump ran pretty close to the center. It surely doesn't seem that way because of the parts of his campaign that the media chose to highlight, but he is the least conservative president in decades on abortion, saying he does not want a national ban and he's not sure about Florida's six week ban. On immigration, probably his rightest-leaning issue, he supports deportations, but so do 51% of Americans. It flew under the radar, but Trump also indicated that he wanted to give citizenship to any immigrant who gets a degree in the US, which is surely popular.

One can also consider the outcomes of the Senate elections. Which states flipped? West Virginia, where a Democratic Senator, while a thorn in Democrats' side, eventually agreed to the Inflation Reduction Act, which sealed his fate. Montana and Ohio's Senators lost resoundingly, both red states with moderate Democrats who had won before but voted with Biden on everything. Voters are tolerant of moderates to an extent, but that tolerance was exhausted by Biden's governance.

In the end, Trump ran much closer to the center than Harris, and Harris lost because of it.

Footnotes

1 This would have ended up an electoral tie, which Trump would have won in the House.