So, You Want a Swiss Healthcare System?

So, You Want a Swiss Healthcare System?

So, You Want a Swiss Healthcare System?

If you fail to comply with the mandate, the Swiss government will garnishee your wages and charge you a penalty equivalent to the cost of the premiums plus up to 50 percent, and, if you persist, the government will sign you up for an insurance policy and allow the provider to sue you for back premiums covering the period during which you were uninsured.

So, You Want a Swiss Healthcare System? Over at the National Review, Kevin Williamson does a terrific job of describing the highly-lauded Swiss health-care system. Read the whole article and you’ll understand why such a system is unlikely to work here. I’ll give the Cliff’s Notes version here.

There is no such thing as employer-provided health insurance in Switzerland. Residents pay for their own insurance. All insurance and care is offered on private markets, consumers have choice (with one big exception), and government spending on health care is relatively low.

Swiss law mandates that all citizens purchase insurance. It establishes a minimum package of benefits that meet the mandate. Insurance premiums for lower-income folks are subsidized with a goal no more than ten percent of household income should be spent on insurance. Pre-existing conditions must be covered. There are controls on procedure costs and reimbursement.   Insurance companies must offer their minimum policies on a nonprofit basis. Payments for services co-pays and deductibles) are relatively high. Prices must be made public, encouraging competition. And “community rating” is required. However, the Swiss version of “community rating” allows variation in premiums for age and gender. (The Swiss have always had, um, unique attitudes towards women. It was 1991 when the last canton, Appenzell Innerrhoden, allowed women to vote.)

Per-capita spending on health care is about the same across a wide swath of countries, including Switzerland, the U.S., the Netherlands, Sweden, Germany, and Denmark.

But the real key is compliance. One reason the Affordable Care Act is collapsing is that younger, healthier adults are not buying insurance. They have figured out that they will be subsidizing the elderly and they don’t like that much. And the penalties are laughably small. By the way, remember that younger workers are likely to have much lower household income than older workers. Do you blame them for resenting having to subsidize health care for those earning higher incomes than them?

Swiss compliance is very high. One reason is cultural. The Swiss people generally believe in following the rules. About a century ago I spent a summer working near Zurich. At 2 am it was common to see cars and pedestrians waiting for traffic lights, even though the streets were empty.

But the real kicker is one more law. Kevin says it better than I ever could:

If you fail to comply with the mandate, the Swiss government will garnishee your wages and charge you a penalty equivalent to the cost of the premiums plus up to 50 percent, and, if you persist, the government will sign you up for an insurance policy and allow the provider to sue you for back premiums covering the period during which you were uninsured.

The ACA doesn’t come anywhere near that level of enforcement. The next time someone says the U.S. should have a health insurance and care system like Switzerland’s, remember these small facts.




Mini-Clawback, Oregon Exchange Version

John Kitzhaber and Cylvia Hayes

John Kitzhaber and Cylvia Hayes

Part of the funding for the Patient Protection and Affordable Care Act (ACA) was supposed to help states set up their own health care exchanges. Many of those exchanges crashed and burned. Oregon was especially egregious. Much of the $305 million spent on the state’s exchange was flat-out wasted. The website never came close to actually working. But never fear – the Feds want their money back!

Oh, wait, just kidding. The Feds want money back all right. About $800,000. That total is funds that were spent on items that were “not allowable.” That’s right – the Feds are trying to claw back all of 0.26% of total spending. The rest, apparently, is the state’s participation trophy from the Feds. Nothing to see here, just normal and necessary expenses.

You may also recall that former Governor John Kitzhaber who resigned in the wake of scandals surrounding his relationship with staffer/consultant/marijuana entrepreneur wannabe Cylvia Hayes. Investigations are ongoing. But Kitzhaber and Hayes have the ultimate get-out-of-jail-free card: they are lifelong Democrats.




Healthcare Spending and First Quarter GDP

[First revision July 30, 2014, 1:00 pm noted that the link to the Excel workbook was broken.  Second revision July 30, 2014, 5:30 pm uploaded and linked the correct Excel workbook.]

Once more into the breach, I’ll take a final look at the first quarter GDP. (At least, I sure hope it’s the final look.) Many pundits have noted that healthcare spending actually fell in the first quarter. Their hypothesis seems to be that healthcare spending and first quarter GDP are cause and effect. Zerohedge (Tyler Durden) has the best stories about this (http://www.zerohedge.com/news/2014-06-25/gdp-disaster-final-q1-gdp-crashes-29-worst-2009-far-below-worst-expectations and http://www.zerohedge.com/news/2014-06-25/here-reason-total-collapse-q1-gdp). Mr. Durden cynically believes that this is a deliberate fudge, with the spending being pushed forward into the second quarter. Normally I’d debate that point, but in view of other information I’ll simply wait and see. Here’s a key chart from Mr. Durden’s excellent website:

Zerohedge Graph Healthcare Spending and First Quarter GDP

Meanwhile, California’s Medicaid Expansion Is Going As Expected — Very Badly

Why did healthcare spending fall? A clue is found in the June 29 San Jose Mercury-News. Apparently California’s Medicaid expansion is not going well. (This program is called MediCal, of course.) The Mercury-News reported that some 900,000 applications were waiting to be processed. The backlog was 800,000 in April. Another 100,000 were added in May. The backlog has not changed since then meaning the state is processing new applications as fast as they arrive. But this keeps the stock of unprocessed applications constant. Without more resources, the backlog is unlikely to be reduced.

Those 800,000 unprocessed applications accumulated during the first four months of the year. During that period, many people were left in limbo about healthcare coverage. And remember, this is Medicaid. These people are likely to be relatively poor. They probably did what most poor people have done for several decades: ignore minor health issues and visit an emergency room if they really need healthcare. But, of course, those emergency room visits are “free” in that the consumer does not pay for the visit. Those visits will show up as higher healthcare premiums in the future.

My guess is that healthcare spending fell precisely because the same story applies to most of the country.  Obamacare is like watching a slow-motion train wreck.  Just when you think things can’t get any worse, they get worse.

Was Healthcare Spending That Important?

Yes, healthcare spending fell in the first quarter — by 1.42% to be precise. The table below is based on Table 1.5.6 from the Bureau of Economic Analysis. Red highlighting and percentage change calculations by your faithful author. (Normally this is the place where you could download the Excel workbook including the original BEA data. I uploaded the wrong file and have misplaced the original.  My apologies.  If I can retrieve the file I’ll post it.) (The Excel workbook has returned.  Click here to download.)

U.S. GDP Consumption Healthcare Spending and First Quarter GDP

But why worry so much about healthcare? Recreation services fell by 2.5%. Spending on clothing and footwear was down 4.17%. And, the worst news of all, consumer durables, furnishings and durable household equipment decreased by 1.51%.

To understand the importance of that last figure, consider the gross private domestic investment part of the table:

U.S. GDP Investment Healthcare Spending and First Quarter GDP

The key point is that spending on construction (both residential and nonresidential structures) fell sharply, by 4.25% and 7.97%. Less housing construction fits with lower spending on stuff that goes in houses. And less nonresidential construction fits nicely with reduced spending on equipment. It appears that this decrease was demand-driven, not caused by supply issues.

What About Winter?

Well, it happens that there’s a country just north of us that had about as bad a winter as the U.S. That’s Canada, where first quarter GDP grew 2.2%. This growth occurred despite a contraction in gross investment (-1.6%) and a huge drawdown in business inventories of -$495 million (Canadian dollars, of course). Somehow, even faced with harsh winter conditions, those intrepid Canadian consumers managed to increase spending by 2.6%. Perhaps Amazon.com and Google shopping are easier to use north of the border.

Canada GDP Healthcare Spending and First Quarter GDP

Was the Weather Really That Bad?

Not really.  Here are some summary statements and maps from Environment Canada:

The national average temperature for the winter of 2013-2014 was 0.4°C [0.72°F] below the baseline average (defined as the mean over the 1961-1990 reference period), based on preliminary data, which is the 24th coldest observed since nationwide recording began in 1948.

Canada Temperature Deviation Map

Canada Temperature Deviation From Trend

We can also look at precipitation for Canada:

Canada Precipitation Deviation Map

Environment Canada has a comment and a caveat for those interpreting the precipitation map:

The national average precipitation for the winter of 2013-2014 was 9% below the baseline average, based on preliminary data, making it the 15th driest winter since nationwide recording began in 1948.

It should be noted that “average” precipitation in northern Canada is generally much less than it is in southern Canada, and hence a percent departure in the north represents much less difference in actual precipitation than the same percentage in the south. The national precipitation rankings are therefore often skewed by the northern departures and do not necessarily represent rankings for the volume of water falling on the country.

Here are the state by state maps for the U.S. for the winter of 2013-2014 (from the NOAA website):

U.S. State Temperature Map December, 2013 to May, 2014

US_StatePrecipitationMapDec2013toMay2014

Conclusion

The winter of 2013-2014 was not as bad as the headlines would have you believe, especially in the western U.S. and Canada.  Naturally, the east coast media bias tends to focus on what reporters and editors are seeing outside their windows rather than actual data.  In any case, those who blame the bad winter for the U.S. economic performance should perhaps take a lesson from our neighbor to the north.

 




“Freeing Workers From the Insurance Trap”

Update an hour later: The People’s Cube has some hilarious stuff under the title Rejoice! You have been liberated by the Red Army!  Here’s a sample:

You have been liberated by the Red Army!

Credit: Oleg Atbashian, creator and editor of ThePeoplesCube.com. Used by permission of Mr. Atbashian.

Update February 6, 2014: There has been much handwringing from ACA supporters.  Several even went so far as to say that even though the labor force will lose 2.5 million workers, that doesn’t necessarily mean there will be 2.5 million fewer jobs.  At this point, I like to bring out my ultra-simple model of the economy: GDP = labor productivity x number of workers.  Fewer workers means lower GDP unless something drastic happens with productivity.  (Economic theory says fewer workers should raise the marginal productivity of labor.)

Luckily, CBO Director Dr. Douglas Elmendorf testified before the House Finance Committee.  Below is a video showing his reply to questions from Rep. Paul Ryan (R-Wisconsin).  Dr. Elmendorf confirms that the reduction in labor supply directly leads to the CBO forecast of lower economic growth.

The February 4, 2014 New York Times includes an editorial that pegs the Orwell newspeak meter.  Headlined “Freeing Workers From the Insurance Trap” the editorial goes on to laud the virtues of not working.  A few excerpts:

The Congressional Budget Office estimated on Tuesday that the Affordable Care Act will reduce the number of full-time workers by 2.5 million over the next decade. That is mostly a good thing, a liberating result of the law.

“Liberated” from a job.

The report estimated that — thanks to an increase in insurance coverage under the act and the availability of subsidies to help pay the premiums — many workers who felt obliged to stay in a job that provided health benefits would now be able to leave those jobs or choose to work fewer hours than they otherwise would have. In other words, the report is about the choices workers can make when they are no longer tethered to an employer because of health benefits. The cumulative effect on the labor supply is the equivalent of 2.5 million fewer full-time workers by 2024.

Apparently all those workers losing their jobs are just quitting or choosing to switch to part-time employment.

 The report clearly stated that health reform would not produce an increase in unemployment (workers unable to find jobs) or underemployment (part-time workers who would prefer to work more hours per week).

Yet, somehow, the labor force has shrunk dramatically in the last five years, while both the unemployment and underemployment rates have remained very high. I’ve written about this in numerous articles, including two from early 2010 (click here and here) and my in-depth study of the labor force participation rate.

Huh?

Huh? (from Tammy Bruce website)

And I have to point out a major error in this piece.  The claim that you can quit your job and not worry about healthcare for the first time is misleading at best.  You will still need to purchase individual health insurance, either directly from a provider or on one of the exchanges.  If you make the latter choice, I don’t think it’s fair to say there is “no cost” to this option.  Heck, both choices have costs, but using an exchange consumes much more time, exposes your personal data to much more risk, and is more intrusive than the private alternative.  And, under the old system, you actually could extend your health insurance after you left a job via COBRA.

The Times editorial board has now officially become a propaganda wing of the Obama administration.

Other opinions on the Times editorial:

Peter Ferrara of Forbes 

John Luciew in the The Patriot-News (central Pennsylvania) 

Tammy Bruce 




Where the Vanishing Students Are Going

Today’s New York Times carries a story about declining college enrollments.  The article asks where the vanishing students are going.

College enrollment fell by 2 percent in 2012-2013 compared to 2011-2012.  The Times hypothesizes that these former students have entered the workforce.  However, as I’ve written elsewhere, the labor force participation rate among younger workers (16-35) has been declining (with an update here).  Are these former students being abducted by aliens? Although I think that’s unlikely, it’s more reasonable than simply assuming they have gone out to look for jobs.

My guess is that these students have entered the informal sector (formerly known as the underground economy).  They get paid in cash (actual currency), do not file income taxes and (important) remain invisible to Obamacare.  Since many of the Obamacare taxes and restrictions will be implemented by the Internal Revenue Service, not filing a tax return is an excellent way to avoid the whole train wreck.  (I’ve also written about Obamacare, including predicting the slow-motion train wreck that the program is becoming. For additional readings, click here and here.)

I have no direct evidence to support this hypothesis.  I merely offer it as an alternative to the implausible New York Times story.