Medical catastrophes are not stories about health insurance

When it comes to opinions about health care, there are two kinds of Americans. No, I do not mean Republicans and Democrats. There are (1) people who have actually experienced a medical catastrophe, and (2) people who have not yet experienced a medical catastrophe. (But don’t worry – you and your loved ones are not immortal. You will learn what it means to be vulnerable eventually.) I used to be a government economist, and I can tell you… the policy wonks have no idea when it comes to the myriad problems with health care. This reality is why so many people of all political persuasions hate the “establishment.”

By my reckoning, I have now experienced four medical catastrophes. A family member miraculously survived an aortic aneurysm, something that is damn near universally fatal. A family member survived a horrific car accident that involved being cut from a car with the Jaws of Life and required a month-long stay in the ICU. I gave birth to a critically ill child. And, as followers of this blog know, my husband recently accidentally swallowed a metal needle from a grill brush that worked its way through his entire digestive tract, requiring a week-long hospitalization.

Needless to say, I have learned a heck of a lot more than I ever wanted to learn about how health care and long-term care works in this country over the last ten years. I’ve navigated the nuances of government programs in several states. Our household has been covered by the best private insurance that money can buy and by Obamacare plans. I can tell you that private insurance is a hell of a lot better than what was offered under Obamacare. Honestly, I think Obamacare is deeply immoral and far-from-progressive policy.

A little digression on Obamacare

For the couple of years that we had an Obamacare plan in Kentucky (because there were no good private options available to self-employed individuals), it was an absolute nightmare. I had to get our daughter’s kindergarten vaccinations at a public university hospital because literally no pediatrician in our city would accept Obamacare. None. I called every single one. It was the first question their secretaries asked when they picked up the phone, even before asking your name or the age of your child. “Do you have Obamacare? We do not accept it. You will have to pay for your appointment in cash, up-front.” The hospital knew that it had a captive group of customers too, which is why a 15-minute appointment with a nurse practitioner at the children’s hospital there cost twice as much as the permissible amount for a doctor’s visit under Obamacare. They essentially got to bill twice for services, knowing that customers would end up having to pay the gap. They could go nowhere else for care because their insurance cards were radioactive.

Staying under Obamacare, we would have been forced to pay over $1,000 a month to a nonprofit that had only been in the insurance business for a couple years because every big insurer had been driven out of the state. We might as well have been uninsured from a financial perspective. That’s not quality health care, but we counted as “insured” for government statistical purposes, which is all that mattered to the program’s proponents. They continue to congratulate themselves for doing this to people. They radically transformed your life!

And that was without a catastrophic event, which would have cost us tens of thousands of dollars even under Obamacare. We could have handled that expense, but I know most American households would have been sent over the edge. The notion that Obamacare is saving normal households from health care-driven bankruptcy is an outright lie, and people like Bernie Sanders are correct to point that out. And really all you need to do to understand that is to get a simple quote.

You know why the level of uninsured is increasing now that the Trump administration has removed the tax penalty for not carrying insurance? Because Obamacare was always bullshit as far as coverage goes and young people now have the freedom to choose to be uninsured rather than being fleeced for coverage that they do not perceive a real need for. I’m not saying being uninsured is a good idea, but it is undeniable that they are doing what they think a rational economic actor should do under the circumstances.

The Affordable Care Act was nothing but a giant Medicaid expansion. If you are on Medicaid and were marginally qualified before in terms of means testing, you love the ACA. If you actually purchased coverage on an exchange, which is quite different from Medicaid, it is pure unadulterated hell to deal with. And chances are you are choosing not to see a doctor when you actually need care because it costs so much to do.

The whole logic of Obamacare was to end the practice of people going to the emergency room for standard health care. Guess what? If you go to the ER a decade into the Obamacare era, you still have a three-hour wait to get into a room. Be sure to tell them you have difficulty breathing and are in excruciating pain. It’s about the only thing that will help you see a doctor within five hours. If you don’t do that, you will be waiting behind sixty families who really only need antibiotics that have already learned how to game the system. I watched my husband sit for several hours with a needle lodged in his throat while doctors saw a parade of people who were there before us with colds and the like. The ER is still where a lot of people are getting care, even with a litany of subsidized programs.

Hospitals charge immense amounts for phantom care

But anyway, the point is to talk about why looking at health care from an insurer’s perspective is useless. Changing who the bills go to will not cure the system. In fact, having taxpayers absorb everything will probably make it much worse. Much like allowing college students to borrow virtually unlimited amounts of money from the federal government at subsidized interest rates jacked up the cost of college astronomically.

I am thoroughly convinced that Democrats have absolutely no idea what insurance of any kind is. I mean, they can’t explain how it functions as a financial instrument. They talk about it as if it’s a newspaper subscription instead of a risk pool that redistributes costs. There is an episode of the comedy show Superstore that offers an excellent parody of this mentality. The episode where the annoyingly idealistic and naive Jonah creates an employee health care fund for the store, only to discover that half the employees routinely milk the system and the risk associated with their health costs could not be reasonably divided among the employees even if they were all rich. I highly recommend hunting it down so you can appreciate exactly how stupid Obamacare is. And how Medicare for All is even worse. It is hilarious either one has made it past the thought experiment stage.

If you have ever had a loved one in the hospital, you understand that most hospitals are financial predators masquerading as charities. When my husband was in the hospital recently – to be monitored, which means he saw a doctor for five minutes a day, and even then we had to explain to the latest doctor on call what was going on – the hospital charged us … no kidding, here…. $1,000 per hour for the hospital stay. It was the most expensive daytime television our family had ever watched. To be monitored overnight for the first hospital he was at resulted in a bill for $24,000. The hospital did absolutely nothing to improve his situation during that time (in fact, they arguably made it worse). Over twenty thousand dollars to lay in a bed.

When our daughter was in the NICU after being born, the hospital charged us around $30 for every package of baby wipes she required. Each day, we watched the nurses open a package of baby wipes every time she needed to be changed, and then toss the package and remaining wipes in the trash afterwards. They were the same way with packages of gauze, and many other things. If we had known that we would be paying $30 a pop for something you could get for $1 at Walmart, we would have seen the whole episode differently. The charges from specialists were nothing compared to the overall cost of being hospitalized, which in the end was well over $1.5 million.

I have a friend who is in perfect health – perhaps too perfect health, because she injured her knee as a marathoner and had to have some ligaments fixed. For OUTPATIENT surgery, she was charged $75,000. She was in and out of the hospital in three hours, with a $75,000 bill. Did she get the world’s best knee surgery because she lives in the United States instead of Mexico? I doubt it. This is why medical tourism exists.

Now you can say, hey, at least you guys had insurance, so you aren’t eating the actual cost of those procedures. That is missing the point. The point is that the procedures are not actually worth that much money. The hospitals and pharmaceutical companies are gouging prices the same way colleges and universities are now gouging prices on tuition. Baby Boomers paid next to nothing for college and now an undergraduate degree alone costs a quarter of a million dollars – and arguably the product has decreased in practical value in the meantime. The only thing that changed was the perception of how much families should be willing to sacrifice financially for something that is pretty basic.

The federal government rewards hospitals and health care providers for antisocial behavior. They reward them with a tax exemption under the federal tax code. They reward them with grants and line-item appropriations. They reward them with bundled fees for entitlement programs. You go bankrupt, but these “nonprofits” get subsidized. They get subsidized so much that hospital administrators can buy all the hookers and blow they want for three lifetimes.

The problem is not private health insurance. The fact that private health insurers can turn any profits for their shareholders in this policy environment is insane. We live in an era where insurers are opting not to do business in regions altogether, and presidential candidates think they are Rockefellers.

If you want to fix health care, you need to start with the actual institutions that are providing care. Not the people who are pooling risk using financial technology that dates back to Ancient Greece and hasn’t changed one iota.

And for what it is worth, this same financially predatory behavior is being imitated by dentists nationwide too. You go see a dentist now and you are going to come away with a treatment plan that costs as much as a yacht even if your teeth are fine. If you are poor, you can go to some medieval joint in a strip mall where the patients can’t take out a home equity line of credit for Instagram-worthy smiles. Hospitals have gotten away with it for so long, they are joining in the great health care bubble.

George Will on the value of a classical education

To those who say we are threatened by a suffocating “hegemony” of Western civilization’s classic works, the correct response is: If only that were the problem. The danger is not cultural hegemony but cultural amnesia, and the concomitant balkanization of the life of the mind.

George Will, The Conservative Sensibility

As I mentioned in an earlier post, I have been working my way through George Will’s new tome on political philosophy and history, The Conservative Sensibility. It is an excellent read, even if (especially if) you do not share Will’s political biases. (I do, however.)

The general purpose of the book is to provide a timeline for where the dueling conservative and progressive strains in American political thought emerged and developed. I don’t think there is much controversial content in what Will writes on that account. Conservatives are people who see themselves in the Enlightenment and neo-classicism of the nation’s Founding Fathers; progressives are creatures of Nietzsche’s postmodernism. For folks who did not receive a solid liberal arts education, however, the easy manner in which Will distills historical events and philosophical shifts could be very helpful in understanding how they are situated among moral and other conflicts.

My favorite chapter of the book so far is Will’s defense of a classical education. I think it is safe to suggest that – at least in American public schools and universities – there is a crisis regarding what exactly an education should do for a child or young adult. Education in the US from kindergarten through graduate school has been colonized by Nietzschean progressives who see “virtue” in turning their backs on what have been historically regarded as “the classics.” And they’ve replaced the classics with… Well, a whole lot of nothing, actually.

For most of K-12 education, there is no serious attention paid to history or literature or languages (certainly not the dead languages of the world’s greatest civilizations), which are now often portrayed as tools of oppression. Most attention is paid to subjects that can be easily measured by standardized tests, and by all accounts schools are failing at teaching them as well. If you look at the gaps in academic performance between kids who attend public schools and kids who attend private schools or are homechooled, one thing is clear: kids who are raised on the classics are more literate and analytical individuals. They are challenged intellectually earlier in life and their sense of learning is more systematic and less chaotic. This has been a formula for success for millennia, but educators in the 21st century are rejecting it with predictable results. (This is quite ironic too, as the founder of postmodernism was himself an impressive classicist. I used to be able to read Nietzsche in his original German, and the wordplay with Greek and Latin was fantastic. I don’t think he anticipated his disciples abandoning his intelligence altogether, but here we are.)

Folks on the left love to portray everything as an “existential crisis.” It’s Armageddon 24-7 in their world. Electing a Republican president means a nuclear holocaust is coming. We are at full employment, wages are rising, asset prices are increasing broadly, consumers are happier than they have ever been, demand for benefits is down, but a recession is just around the corner – as if a recession is just going to sneak up on you out of nowhere, because that’s totally how economics works. I read a news article recently that was predicting doom based on the obviously standard economic indicator of recreational vehicle sales. Is it possible to get less serious than that? Americans have endured several decades now of environmentalists predicting the end of life on Earth without trillions of dollars of new investment. When I was a kid growing up in the 80s and 90s, aerosol cans were the era’s plastic straws, because a younger, but substantially similar Al Gore thought the hole in the ozone layer would kill off life on Earth. (In reality, it closed up on its own and he moved on to selling other forms of doom because he has no other shtick.) Now we have politicians saying that we need to support black and brown people in developing nations killing their babies because otherwise they will steal all our natural resources. We need genocide for the environment – that’s a real claim made by liberal political elites in 2019, and they wonder why kids these days feel okay hurting their peers.

The older I get, the more absurd claims that it’s all going to collapse any day now seem. The world never ends; the Chicken Littles in politics just retire to a beach house bought from a lifetime of brokering government contracts. A beach house they spent their life arguing would be underwater thanks to global warming, like the Obamas new mansion on Martha’s Vineyard. That’s how seriously they take their own panics. It’s like Paul Krugman predicting global economic collapse with Trump’s election. If he had actually put his money where his mouth was and went massively short the financial markets, he’d be bankrupt. Because the world didn’t end, because people in the real economy rightfully don’t care about the dystopian fantasies of the chattering class.

The one sector that these folks do not see Armageddon in is the one they probably should: education. The US has long been losing its intellectual hegemony to other countries. Even the Chinese are increasingly choosing to keep their children at domestic universities rather than send them to the American Ivy League. And who can blame them? All US schools are doing now is cranking out kids that will be easily replaced with algorithms (likely written by their peers in India and China). That is a bona fide existential crisis.

America desperately needs to turn its educational institutions around. Right now, the classroom is seen as space for indoctrination rather than a place to teach kids how to succeed and flourish in the real world. We won’t continue to be a superpower or have the world’s largest economy unless we can produce future generations who are willing and able to compete for that status.

Unfortunately, this is at its core a political problem. What postmodernists believe necessarily makes them destructive educators. We did not place astronauts on the Moon by believing that there are no facts, only interpretations. Cancer won’t be cured by opinions. There’s a reason why the Enlightenment was a period of great discovery and the space program died when the hippies of the 1960s went into government and got jobs as teachers.

US taxpayers across the local, state, and federal levels of government spend roughly $1 trillion every year on education. Think about that for a second. One trillion dollars annually. That’s the scale of bad investment in postmodernism right now. We don’t need to throw more money at education consultants and academics to invent ever-new philosophies of education.

The answer to improving education is pretty simple. You want smarter kids? Read better stuff to them. George Will gets that.

Why a “wealth tax” is terrible public policy (and this is not even a controversial observation among economists)

The trouble with Socialism is that eventually you run out of other people’s money.

Margaret Thatcher

For months now, Democratic presidential candidates have proposed a litany of new spending proposals to woo the electorate into voting for them.

These include:

  • Medicare for All, which has a $32 trillion price tag – assuming it is extended only to US citizens, though most Democratic candidates have suggested also extending it to tens of millions of undocumented immigrants. I am not sure this additional cost has ever been scored, and any number would also be dependent on changes to immigration policy. For example, if crossing the border were made into a civil offense *and* immigrants qualified for entitlement programs, there would likely be an unprecedented number of border crossings. This would, in turn, significantly increase the cost of Medicare for All.
  • Forgiving trillions of dollars in outstanding student loan debt.
  • “Free” postsecondary education at public institutions.
  • A “Green New Deal,” which has not exactly been well-framed. The legislation introduced by Representative Ocasio-Cortez has been estimated to cost over $90 trillion. Presumably, the candidates want something a little more… modest… than replacing or retrofitting every building in the country. But after Medicare for All for anyone on the planet who wants to enter the country, who knows.
  • Universal pre-kindergarten.
  • Universal child care.
  • Universal raises for child care professionals and teachers.
  • Hundreds of billions of dollars to combat the heroin crisis.

I’m sure there are many more that I did not list here. Basically, so long as you are not a member of the dreaded “1%,” the federal government is going to assume all of your household’s ordinary expenses.

Nevermind that our existing entitlement programs are going broke, and no one is even trying to solve that…. Let’s add more!

This also does not take into account the fact that America’s existing entitlement programs are all headed for insolvency with no current plan to shore them up.

I’m impressed that Millennials think they are going to get Social Security, let alone free health care. Lol.

And let’s not even talk about how many public pensions are underfunded, which will be the next big generational pissing match to get lobbed toward the federal government. If you think student loans are a problem, wait until you see what California, Illinois, New Jersey, Connecticut, Kentucky, and Puerto Rico owe their workers that they’ve only saved pennies to pay out.

There is not enough money in the United States to fund Democrats’ spending proposals. Literally.

The obvious problem is how to pay for any single one of these proposals, let alone several of them. I think they are well over $100 trillion in spending proposals at this point. No kidding. According to the Federal Reserve, the aggregate net worth of U.S. households and non-profit organizations is barely $100 trillion, a record level both in nominal terms and purchasing power parity. This means that even if the federal government confiscated every single last dime from American households and every charity in the country, Democrats could still not pay for their spending proposals. That’s how batshit these people have become.

Of all the socialist-chic candidates, Bernie Sanders is at least approximating honesty when he tells people that he’s going to raise their taxes dramatically to fund his vision of universal health care. You won’t be paying health care premiums; you’ll be paying taxes. A lot of taxes. (In exchange for health care from the same geniuses that have veterans blowing out their brains in the parking lot of VA hospitals. But I digress.) Perhaps you won’t notice that he’s only changing “pay to the order of” on the check you write.

But let’s ignore the headline numbers and talk about a wealth tax anyway

The Hot New Thing among Democratic candidates is now a “wealth tax.” It’s not a hot new thing elsewhere in the world. In fact, a dozen other countries have already tried the wealth tax concept and promptly dumped it:

While as many as a dozen countries in Europe had a wealth tax in the early 1990s, that number has dropped to three as of 2018, according to an Organisation for Economic Co-operation and Development report. (In 2018, France replaced its net wealth tax with a new real estate wealth tax.)

So why are Democratic candidates proposing an idea that everyone else in the world has considered but rejected?

I imagine there are two reasons. One, the idea of a wealth tax is included in Thomas Piketty’s tome on income inequality, Capital in the Twenty-First Century. This made a bad idea trendy again. Two, they have nothing else. They are proposing an obscene amount of new spending and are hoping the electorate’s economic resentments will cancel out numeracy. Polls suggest they might be right, particularly among highly innumerate younger generations.

Since some Americans seemingly have to re-discover why socialist concepts of governance necessarily and inevitably fail in the real world, here’s why a wealth tax is a terrible idea.

(1) A wealth tax will not generate as much money as Democratic candidates suggest.

Let’s bracket off the fact that Democratic candidates’ wealth tax projections are insufficient to pay for their proposals in the first place. Even liberal economists acknowledge that the projections they have made are grossly inflated.

This is why the idea of a wealth tax was never seriously considered by the Obama administration. Obama’s policy advisors thought it was laughable when he was in office, and they are trying to communicate that is laughable now.

There is a reason why Elizabeth Warren et. al. have chosen policy advisors that do not have experience in government scoring budget measures. Anyone with experience observing how wealthy people skirt the estate tax understand that people wealthy enough to have tax advisors will understand how to shelter their wealth from taxation. It would do Warren well to take a vacation in the Cayman Islands sometime. Extreme wealth is extremely portable.

(2) “Wealth” is not “cash.” The assets of America’s wealthiest families can fluctuate dramatically day-to-day and can be extremely difficult to value.

What’s the daily mark-to-market value of Zuckerberg’s modern art collection? How much does a $200 million yacht depreciate when you sail it away from the yacht broker? How often are you going to value a privately held company?

Every country that has ever implemented a wealth tax has discovered that it is an administrative nightmare to enforce. It’s not as simple as asking “ultra-millionaires” to check their bank account.

You’d think Warren, an expert in bankruptcy law, would understand this. There’s a reason bankruptcy proceedings can drag on for years. You can dispute the valuation of illiquid assets until the end of the republic.

(3) Contrary to what Warren claims, her proposed wealth tax is not at all like paying property taxes on real estate.

I almost can’t believe Warren is dense enough to make a claim like this. But here we are explaining how taxing unrealized gains in Facebook stock is not like taxing a home on a cul-de-sac in Phoenix. And why she’d essentially be taxing the same assets several times. And why she’d kill the market that state and local governments use to fund infrastructure projects, like roads and schools.

First, traditional property taxes have a comparatively efficient tax base. Traditional property taxes fall on both the building and the land underneath. Land is thought of as a very good tax base because its supply is fixed—individuals and businesses cannot avoid a tax on land by producing less of it. Because of this, economists generally think that land taxes are very efficient taxes. In many jurisdictions, the land is a significant portion of the total value of real estate. As a result, a meaningful portion of real property taxes share this positive characteristic with a land tax.

Warren’s wealth tax would apply to land, but it would also fall on many other types of assets, some of which are much more responsive to taxation. For example, Warren’s wealth tax would fall on the ownership of financial assets such as corporate stock or bonds. A wealth tax would reduce, sometimes significantly, the return to these assets. For example, municipal government bonds, which have interest rates around 2 to 3 percent, would face effective tax rates higher than 100 percent. This would make it much less likely that individuals would hold on to these assets. This could have several negative effects on the broader economy, including a reduction in national saving.

Another virtue of the traditional property tax is that the taxable asset isn’t particularly hard to value. While there can be controversy over the value of property in a given year, localities are pretty good at determining it. One reason is that there is a lot of property to compare to and homes are sold frequently in many places. There are companies that can tell homeowners what their house is worth at any given time.

The wealth tax would fall on many assets that are very hard to price. For example, a closely held business—one that is not traded on the market—does not have a known value, and the value can change significantly from one year to another. As a result, it would be very challenging to apply the wealth tax. Tax authorities would either need to guess or use some sort of formula to impute the value—a process taxpayers would be unlikely to trust.

For homeowners, there is another important distinction to consider. Under current law, the returns to homeownership are mostly exempt from the income tax. Under current law, the first $250,000 ($500,000 for married couples) of capital gains on the sale of your primary residence are exempt from the income tax. In addition, the imputed rental income (the rent you, as a homeowner, pay yourself) is exempt from the income tax. The CBO shows an effective rate close to zero. As a result, the state and local property tax is usually the only tax that falls on real estate for homeowners.

In contrast, a lot of the wealth under Warren’s wealth tax is already taxed under the income tax before it’s hit by the wealth tax. For example, dividends from corporate stock are subject to the individual income tax. Then the value of the stock would be taxed under the wealth tax. The assets subject to both taxes would face significant effective tax rates—a combined tax burden that homeowners don’t face.

(4) A wealth tax will be an economic drag. Not just because it’s going to move wealth away from the country, but because it will influence major investment decisions.

I often say that I would rather get a root canal than talk to a Democrat about economics. Democrats tend to assume that their fellow citizens are not rational economic actors. You create a new tax, they think, and people just roll over and pay it. In reality, people change their behavior in response to ordinary activity suddenly becoming a tax penalty. In policy circles, these behavioral shifts are called unintended consequences.

This means a tax that Warren bills as forcing the wealthy to pay for everyone else to carry less household expenses will actually impact what the latter earns. Or even if they have a job at all. (But, hey, at least that would cut down on child care expenses.) Wealth taxes reduce investment, wages, employment, incomes, and output. They depress financial holdings, which most Americans store their own wealth in.

This also means that this tax, which takes so many government resources even to enforce, reduces tax revenues to the federal government, state governments, and local governments through lost economic activity.

Before you pull a lever for a charlatan selling you on ideas that other countries have already tried and rejected as abysmal failures, ask yourself this question: Will I ever see any of this free shit they promise? Or will I actually be worse off economically than I am now, just like every socialist experiment that has taken place in the history of human civilization? If there is a consensus among educated people that these policies fail, why are they centerpiece of these candidates’ campaigns?