Marginal Utility

• My employer unfortunately resembles this NYT story about small businesses that face skyrocketing health insurance premiums after employees suffer serious illnesses. This year, we have been enjoying a 36 percent increase — following several years of "only" 10 percent-ish annual increases — after our insurer complained they weren't making money (or enough money?) off our group. There were a couple serious, but fortunately treatable, illnesses and a couple other surgeries in our history. The company's baby boomlet reportedly was not a factor, though the Times's Milt Freudenheim reports that is not universally the case.
  
• I would contrast this with the behavior of our auto insurer after last year's big hail storm knocked about $8,000 worth of dings in the cars: they paid the claims and there was no effect on our auto premiums. It's almost like they were insuring us!
• A theme you hear from conservative "policy" circles is that it's supposedly undesirable to bundle catastrophic-care insurance with provision of routine health care. This idea even sometimes afflicts the usually sensible, not just Heritage Foundation hacks and George W. Bush. From our perspective, we might be able to evaluate such claims better if we were really getting insurance instead of something that works like a group health savings account with overdraft "protection." Insurance is not so insurance-like when your premiums rise after the fact to cover the cost of what you're supposedly insuring against. At a minimum, the risk pooling for small groups like us appears to be inadequate.
  
• Also, there is nothing especially odd about bundling preventive and catastrophic care, insofar as the former can mitigate or delay the latter. An issue that is arguably underplayed by the other side is that private insurers can't capture the full benefits of preventive care. That implies that there's a positive externality, and that the "market" would under-provide preventive care. Moreover, while the usual spectre is unnecessary diagnostic testing to keep the trial lawyers at bay, a recent experience makes me wonder how much unnecessary care actually is provided to convince insurers' claims-denial apparatuses that people really are sick.
• Here are two favorable reports regarding members of the Illinois congressional delegation:
• First, in a piece buried a few pages into Saturday's business section, the estimable David Cay Johnston reports Rahm Emmanuel appropriately doubting a committee staff letter suggesting that the main culprits for capital-gains tax cheating are people in the 10 and 15 percent tax brackets. People with lower-middle class incomes take so little of the capital gains pie — some $15 billion out of $471 billion — to make it believable that the extent of their frauds could be the low-hanging fruit for legislative attention when the "tax gap" is measured in the hundreds of billions of dollars annually. Johnston's incredulity is as evident as good journalistic practice would allow. One possibility is possible that the committee staff has put its finger on a narrow problem, "The dollar amounts of underreported capital gains income from securities transactions." As Johnston describes in Perfectly Legal (which could use an update but which remains required reading on means of gaming the tax code), reporting of gains related to S-corporations and parnerships is a far bigger deal.
• Also, good for Barack Obama for saying the obvious — at the Detroit Economic Club — regarding the need for stricter U.S. fuel economy standards. Just recently, the domestic Three of the Big Four had been exhibiting their full can't-do spirit, with GM's Bob Lutz complaining that it would cost them $5,000-6,000 per car to meet a 35 mpg standard by 2020. At least for "cars" (as distinct for the purposes of U.S. regulations from vehicles classified as "trucks"), there's no reason to think that 35 mpg couldn't be reached for less than half Lutz's figure with existing technologies. Perhaps using Big Tobacco as the model of candor isn't the greatest idea. Members of the Michigan delegation inclined to continue to run interference for the industry, from the Democratic side of the aisle on behalf of union auto manufacturing jobs, might consider what Michigan automaking employment might be like had the GM, Ford, and Chrysler product lines more resembled those of Honda and Toyota rather than those which the cheap-oil illusion gave them.
  
• Last, Vanguard's John Brennan takes on the research purporting to show that Americans save adequately for their retirement, observing that over- and under-saving have asymmetric consequences. I gotta say I find the result to be too counterintuitive. Is it a problem that lots of people are going around saying, "If only I drank another beer back in college, I could have $10 less in my savings today"?! I blame the intertemporal utility maximization model. I don't necessarily mind the method of comparing actual behavior to some characterization of an optimum, but there's an obvious market imperfection in that our future selves can't freely negotiate with our current or past selves, etc. Maybe there's research that addresses this, but anyway I'd want to be convinced that it didn't matter.
  

Labels: Economics, Health Care, Personal Finance Advice of Alan Greenspan, Random Bullets

// posted by Tom Bozzo @ 5:59 AM