Angry Bear

Comment woes.

2009-11-21T12:17:00.001-05:00

Js-kit has some comments embedded in the post, at the bottom of each post after clicking on the title of the post you want to read. There is a disconnect with the blue comment link at the top of the post (blogger comment format). Very inconvenient. Sorry.

Open thread Nov. 21, 2009 (no GW)

2009-11-21T06:24:00.003-05:00

The Phantom Menace

2009-11-21T01:27:00.002-05:00

Robert Waldmann

The one by Paul Krugman is a must read.

what I hear is that officials don’t trust the demand for long-term government debt, because they see it as driven by a “carry trade”: financial players borrowing cheap money short-term, and using it to buy long-term bonds.

[skip]

the remedy should be financial, not fiscal. Have the Fed buy more long-term debt; or let the government issue more short-term debt.

That does sound rather obvious doesn't it ? Why aren't they doing that ?
My guesses after the jump.

I assume you have read Krugman's post. The very brief recap is that someone in the Obama administration does not want to count on carry traders to short short term bonds and hold long term bonds, yet they are not arguing that the Fed or the Treasury should do that directly.

I can only guess that the Treasury has strict taboos against this sort of thing and I further guess that the origin of the taboo is that fiscal honesty requires the Treasury to act like a private firm.

A private firm that issued a huge amount of short term debt to finance medium and long term liabilities is vulnerable to bankruptcy. The firm has to roll over it's short term debt. A prophecy that it will fail to do so will be self fulfilling. For a private firm, issuing a huge amount of short term debt and counting on being able to roll it over is reckless.

I guess that some permanent employees at Treasury have a very strong rule that the correctly stated Federal deficit is the deficit it would have if it followed similar rules to a private firm. Counting the cost of carrying debt long term at the short term interest rate is cheating. The Treasury has to constantly fight politicians who want to cheat and understate the deficit. This temptation can only be resisted by strong taboos and bogus arguments based on wildly overstating the risk the Treasury will go bankrupt.

Another issue is the perpetual war between the political staff which wants high spending and low taxes and economic advisors and the Treasury and which wants a low deficit. Polls are showing strong public concern about the deficit and a desire for lower deficits causing the political staff to switch sides. Economists who have been warning of the dangers of deficits are reluctant to reverse field. In particular, people are reluctant to admit that arguments which they made in support of low deficits are and were bogus. Economists are reluctant to admit that their predictions were dead wrong. They are tempted to argue “It hasn't happened yet, but it will soon.” A well known Obama administration economist has been predicting a sharp rise in interest rates on Treasury bonds for a while now.

Quantitative Easing

2009-11-21T00:25:00.002-05:00

Robert Waldmann

Can the Fed do any more to stimulate the economy ? The question is back. The answer is only by making credible promises about the fairly distant future. My view is that this means no. I review the issue after the jump.

Long ago Paul Krugman proposed that the Bank of Japan target inflation. In the new millennium this is called quantitative easing. The idea is that when an economy is stuck in a liquidity trap, the real interest rate can only be cut by causing expected inflation. The monetary authority can achieve this by promising to cause inflation when it can. It can only after the economy is out of the liquidity trap. So only if the monetary authority can pre-commit to high inflation when things are back to normal and it will want low inflation, can it stimulate investment in an economy in a liquidity trap.

The argument (due to Krugman of course) is that right now the monetary authority can only push on a string. Private agents are willing to hold unlimited amounts of money given the current short term safe interest rate of almost exactly zero. Only when agents want to do something else with their wealth will it be possible to cause inflation by pouring in more money than people are willing to hold at current prices.

The proposal is that the Fed pump huge gigantic amounts of money into the economy (oops it has already) *and* promise not to buy that money back when prices finally start rising. I quote Brad DeLong

Quantitative easing--pouring a whole bunch of cash in the system with the idea of never reversing the money stock expansion could boost spending and employment considerably by creating expectations of inflation and so reducing the spread--but the Federal Reserve is not going there, and regards the idea with horror, shock, and shame.

I note that the first step, pouring a whole bunch of cash, has been done already and that it isn't needed for the scheme to work. The Fed doing nothing with the idea of pumping a whole bunch of cash in the system when unemployment is back to normal would work just as well.

Brad also has another approach

I do wonder how much good would be done if the FOMC were simply to stand up and announce that they were raising their long-term GDP-deflator inflation target from 2% to 3%. It might do a lot of good. And it is certainly something the Fed could do without cracking its credibility as committed to low inflation.

It might, but it might not. The Fed can't keep inflation as high as 2%. The announcement is an announcement about policy in the distant future.

OK assume that the Fed has a precommitment technology so it can set future policy now. Should it commit to higher inflation ?

This is a purely academic deeply hypothetical question. I love those. I have two arguments for no.

1) First a major effect of promising inflation in the future is to drive down the dollar. This would help the US economy at the expense of other countries. One of those countries is called China which is investing huge amounts of Yuan in an effort to keep up the dollar. A Fed vs People's bank of China war over the exchange rate is a terrifying prospect. Basically the Fed might win, the PBC decide to cut it's losses by shifting to Euros and suddenly US nominal interest rates are very very far from zero.

Recall what Ben Bernanke used to do. He studied the depression. One lesson is that competitive devaluations were a very bad policy for everyone. He must be thinking of that lesson. I'm sure he is trying to maintain exchange rate peace in our time with the PRC.

2) Aside from that, the policy only works if managers and/or shareholders are smart and managers care about the long term interests of shareholders. That is it works if pigs fly.

The policy is to have inflation low to negative until the unemployment rate returns to normal (because there is no way to avoid this) then have high inflation once it returns to normal (by making unemployment lower than the NAIRU). This means that long term bonds will be cheap (have high yield) and that the return from holding them will be lower than the stated yield (their market price won't rise steadily as maturity approaches but rather will stay the same until the economy exits the liquidity trap).

The assumption is that firms decide how much to invest based on demand and long term real interest rates. This simple formula fits the post wwII data. However, for that period current inflation is a reasonable forecast of future inflation. The proposal is to make a rapidly changing path of expected inflation. The effect of such expectations on investment can't be determined from available data.

The argument for investing is that the firm can issue say a 10 year bond and invest in real capital and in 10 years, much of the real value of the bond will be inflated away. For this to work, managers have to believe what the Fed says about monetary policy 3 to 10 years from now *and* they have to care. That is not the way in which managers manage (and they admit it). Larry Summers did a survey once. Many CEOs actually responded. The average response was something like

" to decide whether to make an investment we construct an estimate of the effect of the investment on accounting profits equal to sales plus net inventory investment minus spending on labor, materials and excise taxes, then we discount that flow at an annual rate of 30% and see if the number is positive. If the result is positive we invest". 30% ! They said they had an extreme short term bias. They also care about accounting.

The inflation targeting proposal is that one should invest, even if one only cares about the short term, as one will gain as the value of debt rises less quickly than the calculated yield on debt. That one can write down the debt marking it to market. This does not work. Investors do not want shares of a firm which claims profits because its own debt has lost market value. The firm's debt loses market value as the risk of bankruptcy increases. In this case, it is losing value (compared to a silly forecast) because of increasing expected inflation. However, the approach to accounting is one to avoid like the plague.

The firms will gain overt the life of the bond, but they won't be able to tell investors this in the medium future. The policy should cause increased investment but, in the real world, I think it won't.

I Blame This on the NHL

2009-11-20T20:11:00.008-05:00

With all the talk of "Detroit," you would think that Michigan would have lost the most employees, as a percentage of same, on the year. After all, the scariest graph of the U.S. MSAs isn't scary for nothing.

But the Regional and State Employment data is out for October (h/t CR), and there's a different leader.

Apparently, the bursting of the Sunbelt Bubble (building expensive houses in the absence of a water table; what could go wrong?) compares well with destroying unionized automobile production. (Note to Senator Shelby: destroying Detroit didn't keep your state from being #10 on the list.)

Also note that #4 on the list is my favorite state for bank failures. (The three states with 20 or more bank failures since Bear Stearns failed are 4th, 9th, and 11th on the list. The only other state in double-digits right now, Florida, is 16th.) I'll wait patiently for Brad DeLong to explain again how "support of the banking system by the Fed and the Treasury [has] significantly helped the economy."

The third and biggest point is that many of those are large states that have leaned Democratic in the past several years. Anyone betting that they—and the next two states, North Carolina and Wisconsin, which both went for Obama in 2008—will be hard-pressed to support Democratic policies twelve months from now without a significant change in the trend.

New Jersey showed you what happens when you run a former Goldman Sachs CEO for Governor right now. Virginia showed what happens when the base isn't motivated. Paul Krugman makes the point directly:

The longer high unemployment drags on, the greater the odds that crazy people will win big in the midterm elections — dooming us to economic policy failure on a truly grand scale.

What are the odds of crazy people winning big? I'm not certain, but I make them much better than 20:1 based on the current data.

UPDATE: Via Mark Thoma, Free Exchange, of all places, also sees the danger:

[W]hat is clear is that it does no good for prominent, respected economists to continue heaping praise on a Fed that failed in its mission before the crisis and which [sic] is failing in its mission now.

Because as unpleasant as the prospect of Congressional intervention in monetary policy is, two more years of high unemployment might well lead to far worse.

Open thread Nov. 20, 2009 (with GW)

2009-11-20T18:24:00.003-05:00

Update:
Menzie Chin weighs in:

http://www.econbrowser.com/archives/2009/11/the_global_surf.html

Teaching that Contracts Should Be Broken is Rewarding

2009-11-20T17:27:00.002-05:00

Congratulations to Andrew Samwick of Capital Gains and Games for being named Professor of the Year in New Hampshire.

Agribusiness, Food, Vegetarianism----and Taxes

2009-11-19T17:25:00.009-05:00

[cross-posted on ataxingmatter--see posting there for additional comments]

As some of you may know, I am one of the many people who eat a vegetarian diet. I don't eat cows, pigs, fish, whales, sharks, chicken, turkey, sheep, wild game, tame game... As I sometimes say when people ask me about my diet, I eat everything you eat, except for a very short list of items--the critters that can move themselves from one place to another (or move their appendages) under their own propulsion.

(Note that we often have two words for animals that we eat--their live-form word --e.g., cow, sheep, pig-- and their edible-corpse form word --e.g., beef, mutton, pork. That evolved when we borrowed the Romance language word for what we ate but kept the Germanic language word for the animals.)

It started when I was a child--I was one of those who would cut the meat into tiny pieces and then spread it all over my plate so it looked like I'd eaten it. The idea of eating a cow, with those beautiful liquid brown eyes, was repulsive. (My father came from a family with thirteen kids in the hills of Tennessee, so I'd seen cows up close.) I even took a whole piece of veal once and hid it behind the dining room cabinet (taking it out to the wastebasket after it dried)! I refused to eat the squirrel and venison that my dad brought home from hunting trips (mostly, if not always, somebody else's kill). I even refused to let my cocker spaniel share in that dead stock.

But now that I'm an adult, why do I maintain that diet? I get asked that a lot.

Funny, nobody says (with shocked exression)--"Gee, you eat meat? Why would anyone ever want to eat a toxins-laden dead corpse of an animal that lived a horrendous life and suffered an agonizing death? " But they do often ask--usually treating it as a good-natured tease about a wacky alternative diet--why I'd want to avoid eating corpses.

James McWilliams got me thinking about this again this morning, when I read his "Bellying up to environmentalism" in the Washington Post for Nov. 16, 2009, where he noted that we should be asking questions in the reverse, that make meateaters feel uncomfortable at defending their own meateating. After all, there's really no good reason for eating meat other than that someone is so addicted to its taste that he or she can't exert the willpower to do without it.

The whys for not eating meat, on the other hand, are legion. Let me just list a few here, from the mundane to the truly significant:

1. cooking is easier--throw veggies in a pot and steam them; throw veggies in a pot and make soup, throw veggies in a fry pan and fry them, throw beggies in a pot and bake them; and variants thereon

2. clean-up is a lot easier--none of that icky clinging greasy layer of animal fat on every pan

3. refrigerated leftover use is easier--throw the leftovers in a pot and steam them (etc. from one above) and there's none of that congealed lard on top of the leftovers in the fridge

4. rotten vegetables in the fridge are less disgusting than rotten corpses in the fridge

5. a decent diet is generally considerably cheaper

6. the more people who adopt a vegetarian diet, the more people who are currently going hungry could be fed

one of the many articles I've read said something that stuck with me (sorry, don't have the cite)--that it takes the same resources to feed one meat-eater that it takes to feed about 80 vegetarians.
That's because of the huge waste as you use up primary foodstuffs to feed the animals that will be slaughtered, then use up primary energy stuffs to slaughter, process, ship and deliver the meat to the meat eater, compared to even transported vegetables (localvore, with vegetables, is even more saving of resources)

7. without meat-eating, there are no feedlots where animals literally eat and sleep out the remainder of their short lives in their own shit

8. you can have a small flock of hens who live out their natural lives with nice living conditions (indoor/outdoor)

disclosure: I had one hen who lived to be 22; she was still laying eggs up until the week or so before her death from natural causes

9. Hens lay bigger and bigger eggs each year that they live past the first year w(hen most are slaughtered) and they still lay fairly regularly

disclosure: 6 eggs every 7 days was typical in my experience

10. Even hens have personalities

disclosure: when I lived in upstate New York, I had one named Gumption who loved to fly up to the top of a two-story house and survey her domain, and another named "kiss me" who would follow me around all day like a pet dog

11. Animals that we eat are as smart as--or smarter than--animals that we keep for pets (pigs compared to dogs, for example)

12. Animals care for their young and suffer when their young are taken from them (think dairy cattle and the young that are bred so that the mothers will give milk)

13. Some eating of animals is even more obnoxious than the norm (think "veal calves" that are taken and put in tiny sheds to they can fatten without any musculature development or "foie gras" where geese are fattened by having food stuffed down their throats with a tube)

14. Life is precious: there is no reason to sacrifice animal lives to lead a decent human life, so why do it?

15. Agribusiness--the main way that animals are raised and sold for meat--is an environmental nightmare

use of fertilizers to grow the grain that is fed to the cattle that are fed to the humans results in polluted land, water and air and uses up petroleum and other resources
consolidation results in long transportation (inhumane to animals; wasteful of oil and gas resources)
the subsidies (including some tax expenditures) for agriculture have gotten out of control--costly, misdirected, ill-conceived, and essentially now a form of corporate welfare for huge agribusiness enterprises

16. A meatless diet is healthier for humans than a meat-based diet, so we could cut health-care costs by simply cutting out meat

17. The process of butchering animals is a cruel leftover from the dark ages--people who work in slaughterhouses are inured to suffering, and that may well spill over into their "normal" lives outside work

18. The process of butchering animals is itself a source of harm--

sick animals are slaughtered, making it possible that eaters of that dead flesh will be sickened as well (mad cow disease);
animals are slaughtered in the midst of their own excrement, and some of that excrement gets into the food chain (making people sick as well);
the leftovers from the animal slaughter have to be gotten rid of somehow, leading to even more water, land and air pollution
workers are exposed to awful conditions--not just the process of mercilessly killing animals day in and day out, but also the risk of infection and injury on the line

19. The use of antibiotics in animal feed (given to healthy and unhealthy animals alike) ensures that resistant strains will develop even more rapidly, while leaving excess antibiotics not absorbed by the animals to pass out in their urine and excrement and into the land and water to act as toxins to others (including fish and birds and humans) leading to additional environmental nightmares...

20. Agribusiness pig farms and cattle feedlots are a blight on any humans within their vicinity (as well as a disaster for the natural world, noted above under environmental problems) from the stench of the manure (that can pollute the countryside for miles around) to the ugliness of the barren, treeless manure-laden fields.

So what to do? Maybe we should enact an excise tax on all meat products, like a"sin" tax for sodas and sweets and cigarettes. Comments, anyone?

PS Arthur C. Clarke has a great sci fi short story, taking place some time in the future, when a more advanced civilization than ours is aghast at the purported discovery that their ancestors used to--cover the young ones' ears--eat dead corpses of animals.....Clarke's ideas were way ahead of his time in lots of ways.

Heath Care Reform-- Looking at the Glass Half-Full

2009-11-19T17:16:00.002-05:00

Rdan
(Run 75441...h/t)

Maggie Mahar writes an essay that is now cross posted at Angry Bear with the author's permission:

Health Beat, a Project of the Century Foundation;
November 4, 2009 Heath Care Reform-- Looking at the Glass Half-Full

What Has Been Accomplished; What Still Must Be Done

These days, many progressives are expressing deep disappointment with the health reform legislation now moving through Congress. Some suggest that some legislators made deals with lobbyists and let them write the bills. Others complain that both the subsidies and the penalties are too low. Still others don’t like the fact that states can “opt out” of the public insurance option, and decide not to offer Medicare E. Finally, many ask:
Why can’t everyone sign on for the public plan in 2013? Why do we have to wait until 2013? Why cn’t they roll out universal coverage next year?”

Normally, I would be among the first to critique the bills. By temperament and training, I’m both a skeptic and a critic.
But in this case, I think it is important to recognize that we cannot expect this first piece of health reform legislation to be anything but wildly imperfect. In fact, I’m impressed by the progress Washington has made in just ten months. I’ve been watching the struggle for health care reform since the early 1970s, and compared to what has happened over the past 39 years, this is mind -boggling.

I also believe that those who favor overhauling our health care system should send a strong signal to legislators: we support you for having come this far. We realize that you have three years to strengthen, change and refine the plan before rolling it out in 2013.

What Has Been Accomplished

What is astounding is that this Congress has made as much progress as it has. We may have a new administration in the White House, but we do not have a brand-new group on the Hill. The majority of our legislators are moderates; many are conservatives. Nevertheless, a sufficient number have found the will to stand up and back changes that would make health care affordable for millions of poor, working-class and middle-class Americans.

For example, under the House bill,a family of three making $32,000 a year would pay just $1,360 in annual premiums for good, comprehensive coverage; under the Senate Finance Committee bill, the same family would be asked to lay out only $2,013. Today, without reform, if that family tried to buy insurance, it would find that the average plan costs $13,500. For this household, the current legislation makes all of the difference.

Too often, the press suggests that such a family would be expected to pay $10,000 out-of-pocket to cover co-pays and deductibles. That just isn’t true. Even if the entire family were in an auto accident and racked up $200,000 in medical bills, at their income level, the House bill caps out-of-pocket expenses at $2,000 a year. Under the Senate Finance bill, the family would have to pay $4,000. Moreover, under both bills, there are no co-pays for primary care. Even private insurers cannot put a $25 dollar barrier between a family and preventive care.

Moving up the income ladder, a median-income household earning roughly $55,000 would pay premiums of $4,300 to $6,500—depending on whether the Senate Finance bill or the more generous House bill sets the terms. Without legislation, they too would face a $13,500 price tag --and that is if they could get a group rate. If they are buying insurance on their own, coverage could easily cost $16,000.

For self-employed workers, early retirees, and those who work for (or own) a small business; the legislation offers major savings. They will be able to buy coverage on the Insurance Exchange, where they would suddenly become part of a group—which makes their premiums much lower. Whether rich or poor, this is great news for anyone who works for himself, retired early (voluntarily or involuntarily), or is part of a small firm.

Granted, the legislation now on the table still doesn’t make insurance affordable for many Americans at the upper-edges of the middle-class–-or the upper-middle-class. They don’t qualify for subsidies. But, as I discuss below, the legislation does point the way to lowering their premiums. Before reform becomes a reality in 2013, I am convinced that this will happen, in part because it must. We can no longer ignore the waste, inefficiency and pure fraud in our health care system. There is absolutely no reason why we should pay so much more for health care than any other nation in the developed world.

And at least the current legislation protects these more affluent households from medical bankruptcy. No matter how much a family earns, they cannot be asked to pay more than $10,000, out of pocket, in a given year. For households that have savings and property to protect, this means that they don’t have to worry about being wiped out by a medical disaster. Even if you and your family are in that car accident that leads to $200,000 in doctors’ and hospitals bills, you will owe only $10,000. In that situation, doctors and hospitals will let you pay off your bills over time, because they know you can. You won’t be forced into bankruptcy court. This represents an enormous step forward.

In addition, under reform, private insurers will not be able to put a cap on how much they will pay out to you and your family, over the course of a year, or over a lifetime. If tragedy strikes and a child needs six or seven years of cancer treatments, your insurance will not “run out.” For some families, this one provision will mean the difference between being able to care for their child and financial ruin (coupled with the suspicion that, if they had just had more coverage, they might have been able to save their child.)

Moreover, in the very first year of reform, the public plan will offer less expensive, higher quality coverage to millions of Americans. Congressional Budget Office director Douglas Elmendorf disagrees. He has been spreading misinformation about the government plan. First he low-balls the number of Americans who will be eligible for the Insurance Exchange where they can choose between a public plan and private insurance. . He then asserts that only 20 percent of Exchange shoppers will choose the government plan while 80 percent will pick private insurance. Here Elmendorf pretends that he can read minds:

“Elmendorf goes on to argue that despite the fact that its administrative costs will be far lower, the public plan will cost more than comprehensive private insurance. This theory is based on the unfounded assumption that very few people will select the public plan , coupled with speculation that the public plan will make no effort to control costs and utilization. This makes no sense; as reform legislation makes clear, part of the purpose of the public plan is to offer higher quality care for less. (In part two of his post, I will examine Elmendorf's guesstimates in detail.)”

For peculiar reasons that I don’t fully understand, progressives have been listening to Elmendorf’s numbers. They seem to forget his past: a student of the Dean of Conservative Economists. Elmendorf first made his mark in Washington by helping to quash the Clinton’s hopes for health care reform.
Finally, under the House and Senate reform bills, insurers will no longer be able to deny coverage, or charge a customer more, because of a pre-existing condition. If you have begun to take that idea for granted, keep in mind the Republican’s recent 11th hour proposal for reform “gives the insurance industry more leeway” as the Wall Street Journal put it yesterday (Media Matters for America blog points out the disappearance of WSJ story; “GOP Health Bill Gives Insurers More Leeway” from the paper’s website sometime last night.) Under the Republican proposal, insurers would be able to take pre-existing conditions into consideration.

House Speaker Nancy Pelosi’s “Fact Sheet” offers two examples illustrating just how easy it is for insurers to deny coverage today:

Peggy Robertson: A Colorado mother of two who was denied health coverage because she had a c-section in 2006. The insurance company told her if she got “sterilized” she would be eligible for coverage.

Christina Turner: After being sexually assaulted in Florida, Christina Turner followed her doctor’s orders and took a month’s worth of anti-AIDS medication as a precautionary measure. She never developed an HIV infection. Months later, when shopping for new health insurance coverage, Ms. Turner was repeatedly denied coverage because of the precautionary treatment she received after being raped.

In most states today, this could happen to anyone. I live in New York where we have community ratings and I don’t have to worry about pre-existing conditions. My employer provides excellent insurance, with no annual or lifetime caps, so the current reform legislation would probably have no immediate effect on my life. But, we all should recognize that the bills on the table would change the lives of millions of Americans, giving them the security that they don’t have today.

Progressives cannot let this opportunity slip through our fingers because we are so busy critiquing the legislation--and arguing with each other. Online WS Journal reports that Senate Majority Leader Harry Reid has begun to warn that the Senate may not be able to complete the legislation by the end of this year.

Given all of the criticism he has faced, Reid could be losing heart. After all, Conservatives continue to argue that legislators like Reid will be punished at the polls. Congressmen who have been pushing for reform need our encouragement. Progressives should continue to make it clear that the majority of Americans want reform-- and a public option-- even if the legislation is far from perfect.

2010 is an election year. Fearful of losing, some Congressmen will begin to back away from change making it critical that broad reform legislation is passed this year. Over the next three years, it can be amended as the critical details are fleshed out. Anyone who thought that Congress would be able to overhaul a $2.6 trillion dollar industry with just one bill was, I submit, terribly naïve.

What Remains To Be Done In the Next Three Years

There is so much to be done and this is one reason why reform cannot be implemented until 2013:
- Congress must figure out how to regulate the private insurance industry. This will require enormous cunning.
- Reformers will have to find a way to stiffen the penalties for those who choose not to buy insurance, without alienating young, healthy voters. This is a job for a charismatic president.
- Legislators must map out how the Insurance Exchange will work.
- They also will need to come up with a formula that will adjust for risk if one plan winds up with a larger share of poor and sick customers. (Some fear that this will happen to the Public Plan, so this, too, is a crucial detail.)
- Finally, and perhaps most importantly, Medicare needs time to begin eliminating waste in the system—saving billions of health care dollars while simultaneously lifting the quality of care. In fact, while all eyes are focused on the legislation, Medicare already has begun putting its own house in order.

What many reformers don’t seem to understand is when the public plan begins to negotiate fees with providers in 2013, Medicare fees for some very expensive services will be significantly lower than they are today, while reimbursements to primary care doctors will be higher.

“Medicare already has announced plans to cut fees for CT scans and MRIs next year, and has proposed trimming fees to cardiologist by 6 percent . Meanwhile, it would hike fees for primary care physicians by 4 percent. Congress has just 60 days to respond to the changes in reimbursements to doctors or they will automatically take effect January 1. Over the next three years, we can expect more changes in the fee schedule. And private insurers will follow Medicare’s lead.”

As they have explained to the Medicare Payment Advisory Commission (MedPAC), they just want Medicare to provide political cover. In other words, in 2013 the public plan will be negotiating fees with providers in a very different, less expensive, and more rational context.
This is another reason why public plan premiums will be significantly lower than Congressional Budget Office (CBO) director Douglas Elmendorf suggests.

Over the next three years, Medicare will be realigning financial incentives to reward preventive care and management of chronic diseases, while reducing payments for overly aggressive tests and treatments that have no proven benefit-- and penalizing hospitals that don’t pay enough attention to medical errors. In the process, Medicare will be conserving health care dollars while protecting patients from needless risks. As President Obama has promised, Medicare cuts can make healthcare safer and more affordable for everyone—including the upper-middle class. Because most private insurers will mime Medicare’s efforts to reduce overpayment, the cost of care will come down for everyone.

The Public Plan will incorporate Medicare’s reforms and it will have clout. Seven percent of Americans purchase their own insurance in the private sector market. Most of the seven percent are neither poor nor sick. If they were, they wouldn't be able to buy insurance in the individual market.)( More than half of this group earn over $55,000. They will be able to go into the Exchange and sign up for the public plan. In addition, a large share of relatively young Americans (ages 25-34) are uninsured and relatively healthy. No one knows how many will choose the public plan; but since it will have much lower administrative costs than private sector plans, it will be less expensive and more attractive to younger Americans.

States will not opt out. It would be too difficult for politicians to try to explain to voters why they cannot have access to a government plan that will be able to offer comprehensive insurance for less.

In part 2 of this post, I will explain what Medicare is already doing to pave the way for a structural overhaul of our health care system, and why none of these cost-saving reforms need to be –or should be--spelled out in reform legislation.

Why is this so difficult to understand?

2009-11-19T16:00:00.001-05:00

Suppose I make my monthly budget, and assume I'm going to spend $600 for food.

At the end of the month, I discover that I only spent $520.

I expected to take $80 out of savings that I now do not have to. My bank account is now $80 higher than I expected it to be at the end of the month.

Is this difficult to understand? Apparently it is if you're a financial journalist:

The White House, we are told, won’t be using about $200 billion of the $700 billion authorized under the Treasury’s Troubled Asset Relief Program, a lifeline for ailing banks. Instead it plans to use money never borrowed, never spent, that nonetheless increased the projected 2010 deficit, to narrow that projection of $1.4 trillion, according to a Congressional Budget Office estimate.

This un-borrowed, un-spent money qualifies as deficit reduction?

Yes. We expected a $1.4B deficit, it will only be $1.2B.

Next silly question.

For Asia’s emerging economies, Geithner’s high road entails strengthening “their social safety nets through sustainable health and retirement-benefit schemes, thus reducing the need for high precautionary saving that contributes to global imbalances.”

Uh, I think I'll leave the rest of this to Bruce. Who knows better than to bother with resent Valuing only one future cash stream and pretending it's the same as the current budget.

Top down or bottom up models....useful thoughts

2009-11-19T11:52:00.000-05:00

Rdan

Hat tip to Economist's View for the post from Top-down versus bottom-up macroeconomics, by Paul De Grauwe, Commentary, Vox EU for starting an interesting conversation on macro that I think is very relevant to the public story we tell ourselves about how our economy works. One key point is the nature of central planning in the private sector by private companies, especially those who drive how things are done. The public and media narrative tend to be quite skewed and limited, depending on the nature of special interest.

Open Thread on Senate Health Care Bill

2009-11-19T10:34:00.003-05:00

by Bruce Webb

I am still working out the new formatting and rather than hog all the page space here I'll just put up some links to the bill, the CBO Score, plus some extended discussion with extracted Tables at my site.

Senate Merged Health Care Bill (2.5MB PDF)

CBO Score

Discussion at the BruceWeb

$894 billion cost offset by taxes and fees for a Ten-Year $129 billion deficit reduction.

Coverage for 94% of all legal non-elderly residents, 98% for all legal residents (includes Medicare). Public option opt-out. Abortion not covered in the PO but at least one plan in the Exchange must offer coverage, and one must not.

Otherwise take it away. Updates in Comments.

Today is International Toilet Day

2009-11-19T09:48:00.003-05:00

And, if I were a better person, you would be reading my interview with David Kurla, CEO of IkoToilet/Ecotact in this space.

But I'm not, so go to his website, especially the links for school, urban, and slum toilet provisions, and then see this John Sauer piece at the Huffington Post, and check out the information at Sauer's organization, Water Advocates.

Template woes

2009-11-18T09:30:00.000-05:00

My apologies for the inconvenience of changing the template. Even feed links were changed about in the transfer. Since the posts are intact, my first priority is fixing comments with js kit (and blogger comments for new).

Dan

Mid week open thread Nov. 18, 2009

2009-11-18T08:32:00.000-05:00

The Mythology of the Future Job Market

2009-11-18T05:07:00.008-05:00

Rdan

Martin Ford continues his thoughts on:

The Mythology of the Future Job Market

Angry Bear recently picked up an article by Michael Lind at Salon on the jobs of tomorrow. The story notes that advancing job automation technology is going to be the primary force that will shape the future job market. That’s something that I have also been talking about here.

Lind’s article then goes on to do a pretty good job of fleshing out the conventional wisdom on where jobs are going to come from in the future:

The most numerous and stable jobs of tomorrow will be those that cannot be offshored, because they must be performed on U.S. soil, and also cannot be automated, either because they require a high degree of creativity or because they rely on the human touch in face-to-face interactions. The latter are sometimes called "proximity services" and they include the fastest-growing occupations, healthcare and education.

So we are led to expect that, over time, the bulk of the workforce is going to migrate into jobs that require creativity or innovation, or jobs that depend on uniquely human traits or talents. Furthermore, these new jobs are going to require that any innovation, creativity or personal attention occur pretty much while actually holding onto your customer’s hand—so that the job can’t be offshored. Is that really a likely scenario?

The first thing to note is that the two sectors singled out as being promising—healthcare and education—are by no means exempt from automation. Specific healthcare tasks are likely to be automated, while decision making and patient monitoring may migrate increasingly into expert systems.

Automation is clearly going to be a major factor in specialized, vocational-type education and training. Today in California, you can get your real estate license completely online. You won’t encounter an actual human being until you run into a proctor at the licensing exam. A similar thing has happened with the traffic school programs that drivers have to complete after getting a ticket. If training can be offered online, it will be. I see no reason why something similar won’t eventually occur in college education, especially since new graduates have been seeing a lower financial return on their investment. It seems likely that if the credential is worth less, many people will gravitate toward less expensive, automated online learning.

The biggest problem with the conventional wisdom is the number of jobs we are talking about. In the U.S. we have a workforce of around 140 million workers. The majority of these jobs are basically routine and repetitive in nature. At a minimum, tens of millions of jobs will be subject to automation, self-service technologies or offshoring. The automation process will never stop advancing: computer hardware and, perhaps most importantly, software will continue to relentlessly improve. Therefore, simply upgrading worker skills is not going to be a long-term solution; automation will eventually (and perhaps rapidly) catch up. If you are willing to look far enough into the future, the number of impacted jobs is potentially staggering.

Can we really expect that such an enormous number of these supposedly safe creative/“proximity service” jobs are going to materialize? And even if they do appear, can we reasonably anticipate that millions of workers who are now employed as cashiers, accounting clerks, materials movers—or even as college-educated “Dilberts”—are going to be able to successfully transition into those jobs?

Historically, the job market has always looked like a pyramid in terms of worker skills and capabilities. At the top, a relatively small number of highly skilled professionals and entrepreneurs have been responsible for most creativity and innovation. The vast majority of the workforce has always been engaged in work that is fundamentally routine and repetitive. As various sectors have mechanized or automated, workers have transitioned from routine jobs in one sector to routine jobs in another. In many cases, skills have been upgraded, but the work has nonetheless remained routine in nature. So, historically, there has been a reasonable match between the types of work required by the economy and the capabilities of the available workforce.

Now, as it becomes clear that automation is going to ultimately consume the entire base of the job skills pyramid, the conventional wisdom is that we are going to somehow cram everyone into the very top. And even if we somehow manage to do that, the jobs will be highly susceptible to offshoring, so we also have to require that the jobs be somehow anchored locally. I think this is somewhat analogous to having the agricultural sector mechanize and then expecting that everyone will get a job driving a tractor. The numbers don’t work. The problem with the conventional wisdom is that it underestimates the long-term impact of automation, and it expects too much in the way of occupational acrobatics from the average worker.

Yet another problem is that even if all these creative jobs materialize, the result would likely be far from optimal. Jobs that rely heavily on creativity, talent or unique personality traits (think authors, actors, musicians, commission sales people) very often have a power law income distribution. In other words, a few people do phenomenally well, while nearly everyone else struggles to survive. Even if vast numbers of workers could successfully migrate into these more creative areas (and I doubt that), it would probably do very little to slow down our drive toward ever-increasing income inequality.

The bottom line is that, at some point, we are all going to have to wake up to reality. It will be a long, arduous trek across the wasteland of denial, but someday all of us will have to start thinking the unthinkable and saying the unsayable: The jobs of the future…are not going to be there. Jobs are disappearing, and we will have to somehow adapt to that. In the long run, the solution will likely have to involve some type of job sharing, and it will also have to incorporate income supplementation for most people. It’s almost impossible to imagine how that will happen in a world that includes Fox News, but I think it will nonetheless have to happen. Perhaps the chances of it happening will improve when conservatives and business owners begin to recognize that workers and consumers are basically the same people and that the vast majority of consumer spending is supported by wage income.

The good news, though, is that you can ignore all this because it’s wrong. Many economists will tell you so. Ask any well-regarded economist such as Krugman, DeLong, Mankiw or Thoma. None of them are really worried about this, or if they are, they’re certainly not talking about it. They may nibble at the edges of this issue. Yes, we might have some structural unemployment for a few years while the economy adjusts and new jobs are created, but, no, jobs aren’t going to disappear. The economy always creates jobs; it gravitates toward full employment.

Why? Because it always has. Economists have studied it and analyzed reams of data from the past. They’ve built mathematical models, and the models say there will be jobs. It’s a rule. Hundreds of years ago there were lots of jobs for guys who shoveled coal into steam engines. Now those jobs are gone, and we all have jobs that people back then could never have imagined. It will be the same this time around. So don’t worry. And leave a cookie out on Christmas Eve. Santa might be hungry.
______________________________________________________
Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future and has a blog at econfuture.wordpress.com.

Industrial Production

2009-11-17T15:03:00.004-05:00

By Spencer

Industrial production only increased 0.1% in October, from a previosly estimated 98.5 to 98.6.
But I suspect this number was biased downward and will be revised higher.

As the chart shows, this changes the impression the previous reports had given that this was a normal to strong recovery in industrial output to one that it is a weak recovery.

A primary reason industrial production appears so weak is that October auto and light truck output fell to 6.83 million vehicles as compared to 7.15 million in September and a cyclical low of 4.05 million in June. However, as the production of all items excluding autos and high technology was unchanged in October the weakness appears to be widespread.

However, I am suspicious that this report overstates the weakness and will be revised up as other information is included and revised data is reported.

Much of the initial estimates of monthly industrial production data is based on electricity consumption data. However, the national average temperature days for October 2009 were extremely low at only 50.8 degrees Fahrenheit. In a quick check of my data base this is the second lowest October reading on record going back to 1921. The lowest was 49.4 degrees in 1925 and the only one I saw below 50 -- the highest was 60.0 in 1963. The norm is around 55 degrees so the October temperature days was some 10% below normal. This strongly implies that the electricity usage would have been significantly below normal in October and consequently the industrial production data estimates are undoubtedly biased downward.

Part of the Problem Becomes Part of the Solution

2009-11-17T14:34:00.003-05:00

Moody's had always assumed banks and their securities were "Too Big to Fail." Not any more:

Moody’s Investors Service will no longer assume that holders of the securities will benefit from government support to shore up troubled lenders, after the global financial crisis proved this wasn’t the case, Moody’s said in an e-mailed statement today.

"In some cases government bank interventions throughout the crisis have not benefited, and have even hurt, the holders of those instruments," Barbara Havlicek, a senior vice- president at Moody’s, said in the statement. "It is clear that hybrids are highly susceptible to losses due to their unique equity-like features."

Since ratings are essentially answering the question "Should I expect to receive full payment on this security?" the previous proclivity to rate paper AAA based on the idea that the U.S. Government would make investors whole in the case of a crisis* contributed to rating inflation.

This change is a welcome first step.

*This is essentially the same scenario as all the lendings that caused the S&L crisis: "we think the land has oil in it" so it's worth $X. So the banks lent X. And the land very often didn't have oil in it. So $X had been given for a dust pile in West Texas around which the also oilless land was selling, if at all, for Y, X>>Y. Oops.

ER: It is the law, and often a slogan "Everyone can get care"

2009-11-17T10:34:00.004-05:00

Rdan

Not only is ER care enormously expensive for 'more routine' health concerns than a clinic, but perhaps are not equal for insure/uninsured even for traffic accidents, not withstanding our best wishes.

Sphere notes a report from the Archives of Surgery:

It's federal law: All seriously injured emergency and trauma patients must be given equal lifesaving care, whether or not they can pay for it. But that's not happening, according to a new report. The study, conducted by Children's Hospital Boston research fellow Dr. Heather Rosen and colleagues from three other hospitals, found that uninsured trauma victims ages 18 to 30 are dying at an annual rate 89 percent higher than insured victims with identically severe injuries.

As the health reform tornado continues to swirl on Capitol Hill, the data could provide fresh ammunition for those pushing for expanded health insurance coverage.

The study, published today in the Archives of Surgery, examines the survival rates for patients brought to about 900 U.S. trauma centers between 2002 and 2006, analyzing some 690,000 patients who had suffered penetrating trauma -- such as wounds inflicted by a gun or knife -- or blunt trauma from vehicle crashes and falls. Earlier research found 18,000 extra deaths a year among uninsured victims of such injuries. Rosen and the other researchers chose to focus on the 18-to-30-year-old subset because they had fewer existing conditions -- comorbidity -- that muddy the evaluation of the cause of death.

[snip]

In a comment published with the journal article, Dr. Brent Eastman, a trauma and vascular surgeon from Scripps Memorial Hospital in San Diego who was just elected chairman of the Board of Regents of the American College of Surgeons, noted that emergency rooms and trauma centers "are the safety net for many communities." He called for Rosen's conclusions to be taken seriously.

Rosen cautions that the definitive cause for the higher death rate for uninsured people remains to be determined. Still, the hard number -- the nearly 90 percent jump in mortality rates for uninsured accident victims -- speaks loudly on its own. "Although the lack of insurance may not be the only explanation," she says, "the accidental costs of being uninsured in the United States today may be too high to continue to overlook."

More on the CMS Report

2009-11-16T21:57:00.002-05:00

Robert Waldmann+

I paraphrase Kevin Drum

My post last night about the CMS report on healthcare reform ... [was not] a model of clarity. For more, see Ezra Klein here and Jon Gruber here. Combined with ... [Drum's original] post and this Wonk Room post, you should get a pretty good idea of what's up.

Kevin Drum's orginal post is much clearer than mine and makes the point I tried to make in the last paragraph.

After the jump I have further thoughts.

I quote from the wonk room post

CMS doubts that the health care industry could “improve their own productivity to the degree achieved by the economy in large” and predicts that the productivity adjustments in the House bill could lead some Medicare providers “for whom Medicare constitutes a substantive portion of their business” to stop seeing Medicare patients.

First I note again, the unrealistic productivity estimates are used to calculate Medicare compensation for institutional care providers (hospitals, nursing homes and home health care agencies) not physicians in private practice. This is important, because physicians in private practice are much more likely to refuse Medicare patients.

Second I ask if CMS chief actuary Foster is familiar with economics 101. The clause “for whom Medicare constitutes a substantive portion of their business” makes negative sense. (I'm trusting Wonk Room's Igor Volsky to have quoted without removing necessary context. I haven't gone back to the pdf.)

As usual, I start with a very unrealistic economics 101 model. I assume that hospitals aim to maximize profits (totally false). In that case, hospitals will accept Medicare patients if the fee is below marginal cost. Marginal cost is increasing along the relevant range. Consider hospital A and hospital B (assume they have the same number of beds and same marginal cost as a function of patient population for simplicity). A does a lot of business with the CMS, B just a little. If A refuses Medicare patients, then the reduction in its patient population will be greater than that of hospital B if hospital B refuses Medicare patients. This means that the average marginal cost of treating the patients it turns away will be lower. This means that it can't be profit maximizing for A to turn away medicare patients and for B to treat them.

Consider the extreme case of a hospital with only Medicare patients. If it refuses CMS rates it will have zero revenues and go bankrupt. Consider the extreme case of a hospital with no Medicare patients. Refusing to treat Medicare patients makes no difference at all.

OK so ospitals, including for profit hospitals, are not profit maximizing entities (I think no firms are). However, I don't think that there are hospitals with many Medicare patients which can afford to refuse Medicare compensation. Note they still have to provide emergency care (by law) and they can not bill the Medicare patients rather than the CMS (If they accept CMS payment, then they can charge patients up to 15% in addition to what they get from the CMS with or without reform).

The logic of Foster's argument is that hospitals which have lots of medicare patients will go bankrupt if the HR3692 is enacted and the limits are actually enforced. This logic is invalid, because the increase in insurance coverage implies more revenues for hospitals. One can't consider money from the CMS alone when considering whether a hospital goes bankrupt.

The relative rates CMS vs other are relevant to the choice of refusing to deal with the CMS. I think this would be financial suicide for the average hospital even if the cuts in CMS rates are enacted and not waived. Only hospitals who have few Medicare patients could afford to refuse to treat Medicare patients.

Basically, I think Foster is confusing marginal and average costs. He decides that if you lose money in an accounting sense doing something, then you have higher profits if you don't do it. That assumes that capital costs and overhead decline proportionally to patient population. That is a plainly false assumption and the inference based on it is nonsense.

Health Affairs States the Obvious, So We Don't Have To

2009-11-16T20:47:00.005-05:00

Bob Somerby has been on a rant at The Daily Howler that "liberals" do not understand the Stupak Amendment.

Unfortunately, claims he makes about Rachel Maddow and Keith Olbermann and their guests do not apply to Laurie Rubner. At the Health Affairs blog, Ms. Rubner is direct and to the point:

From the very beginning, a central tenet of health care reform was that no one would lose coverage they already have. That’s why so many women are outraged by the Stupak amendment to the health reform legislation recently passed by the House. It goes against one of the fundamental tenets of health care reform: do not leave anyone worse off than they were before reform....

The Stupak amendment extends the group of women ineligible for abortion coverage far beyond its current breadth. It is essentially a middle-class abortion ban. The exchange would offer coverage to many of the 17 million women ages 18–64 who are uninsured, along with the 5.7 million women who are now purchasing coverage in the individual market. In addition, small employers are also likely to purchase their health insurance through the exchange where they may find more affordable options. Because the majority of health insurance plans in the private insurance market currently include abortion, many women will lose coverage that they already have in an exchange where abortion coverage is not permitted.

The Stupak Amendment is, among its other ills, not Pareto-optimal.

I wait—patiently, of course—for Andrew Samwick or Greg Mankiw or even Sensible Centrist Economists such as Brad DeLong and Mark Thoma to denounce the Stupak Amendment as a violation of the First Welfare Theorem.

Anerica's Finest News Source Explains Glenn Beck Viewers

2009-11-16T16:34:00.002-05:00

Passionate defenders, gather ye round:

"Right there in the preamble, the authors make their priorities clear: 'one nation under God,'" said Mortensen, attributing to the Constitution a line from the Pledge of Allegiance, which itself did not include any reference to a deity until 1954. "Well, there's a reason they put that right at the top."

Changing the look...heads up!

2009-11-16T12:55:00.001-05:00

Rdan

I will be switching the template this week. The key is function this week...Let me know if everything works from comments to links. Next week come refinements.

The weather was beautiful on the day I was almost murdered.

2009-11-16T08:20:00.001-05:00

by cactus

The weather was beautiful on the day I was almost murdered. Since it happened (or almost happened) in Brazil, it might not seem surprising that the weather was nice, but this was São Paulo where the only certainty is pollution. Beautiful days in São Paulo are worth noting, even when you barely make it through them alive.

The events of that day are not something I talk about much, and I doubt I have ever written about them. But I've been thinking about the murders committed last week by Major Nidal Malik Hasan. See, the guy who almost killed me - and I'll call him G, has a similar ethnic background, though he hailed from a point a few hundred miles and a border crossing away from where Hasan originated.

But there are some differences, or at least were, between G and Hasan. Hasan was in the U.S., and apparently was an American citizen. G was neither. But I don't know if that's still true. It is my understanding that G is now in the U.S., and may have acquired American citizenship. The reason I don't know with absolute certainty is that G's last name is kind of common in the Middle East, and his first name - always popular in the Middle East - became doubly so after an extremely anti-American "warrior" made a name for himself through the sort of spectacular failure that is so widely revered in the region.

G's problem with me was that I was Israeli. Except that I wasn't. To this day, I've never been to Israel. But I am Jewish, and an American, and apparently, to G, there is/was no difference between an American Jew and an Israeli. His problem with Israelis seemed to stem largely from the fact that the Israelis sided with the Christians during one of the Lebanese Civil Wars. Which brings up a wider issue - I don't think he was all that fond of any non-Muslims. Or what he'd call non-Muslims, but which would probably be better termed non-Islamists. (And there is a big difference.) I barely knew anything about him, never associated with him, and generally avoided him, but it was obviously he was pretty pissed off at the world around him.

And its also pretty obvious that G is not unique in disliking non-Islamists. Yet plenty of people fitting precisely that description (i.e., disliking non-Islamists and all that the West seems to stand for) appear to have no problem coming here, as much as they despise this country and its residents. But that kind of internal fucked-uppedness is not uncommon. Hasan could get his jollies at a strip club while mentally and metaphorically applying oil to the cleansing blade of the One True Faith.

The flip-side of the equation is the problem for me. Just because some people who are messed up in the head can maintain positions that are internally contradictory doesn't mean we should facilitate the process. After all, as its been noted many times, the Constitution is not a suicide pact. We as a people have no requirement to allow extremists into the country whose goal is to kill us. A bit of digging to ensure we don't let in people who believe Americans in general are evil and deserve to die because of their faiths or behaviors would not be unreasonable.

In fact, it should be a flat out question asked of those who would come to the U.S. "OK... Next question... Do you think the infidels should die? Yes or no?" (FYI, my father immigrated from Argentina, and I don't believe that was a question he was asked.) In fact, getting a citizenship should be a bit like a contract, and one of the terms of the contract has to be that citizenship gets revoked and you have twenty minutes to be on the next plane out if you join some organization for which "Death to America" is a rallying cry.

Engaging in such a policy would be discriminatory. I bet it would be opposed by organizations like CAIR. But we already discriminate. A few years ago, my first cousin and her family (from Argentina) were living in Mexico City, as her husband's job had transferred them there for a few years. They wanted to come to the US to visit family and do some tourism, and they had the funds to do so (which would have helped the US economy). The problem was they couldn't get a visa; apparently people with well-paying jobs abroad are viewed as having an almost uncontrollable desire to overstay tourist visas and seek out lucrative positions picking lettuce in Novato, CA or busing tables in some no-name place forty miles from Lincoln, Nebraska. Or something.

The source of discrimination, when it comes to immigration and tourism, is that more people want to come to the US than can fit at any one time without killing the goose that lays the golden eggs, so to speak. So if we're going to discriminate anyway, shouldn't we at least try to differentiate between our friends and our enemies?
______________________________________
by cactus

Health Care Reform and Caregivers Refusing Medicare Patients

2009-11-15T17:58:00.004-05:00

Robert goes out on a limb and guesses that Lori Montgomery fell for (or is pushing) Republican spin in this article in the Washington Post
Report: Bill would reduce senior care
Medicare cuts approved by House may affect access to providers

A plan to slash more than $500 billion from future Medicare spending -- one of the biggest sources of funding for President Obama's proposed overhaul of the nation's health-care system -- would sharply reduce benefits for some senior citizens and could jeopardize access to care for millions of others, according to a government evaluation released Saturday.

The report, requested by House Republicans, found that Medicare cuts contained in the health package approved by the House on Nov. 7 are likely to prove so costly to hospitals and nursing homes that they could stop taking Medicare altogether.

Congress could intervene to avoid such an outcome, but "so doing would likely result in significantly smaller actual savings" than is currently projected, according to the analysis by the chief actuary for the agency that administers Medicare and Medicaid.

I have read the report (warning pdf) ... well actually up to the passage stressed by Republicans and Montgomery. Montgomery's article focuses on one paragraph deep in the report which begins "It is important to note that the estimated savings for one category of Medicare proposals may be unrealistic." That's some serious digging.

The paragraph goes on to discuss what seems to be new additional budgetary flimflam which is assuming that productivity in hospitals and nursing homes grows at the national average (measured productivity grows much more slowly and it doesn't matter if this is due to unmeasured improved quality of care). That would be part of a large savings of $ 282 billion. The report doesn't describe what the savings would be if Medicare rates were adjusted to a reasonable forecast of productivity growth.

Now I had assumed that Medicare cuts other than eliminating the Medicare advantage boondoggle were reductions in money effectively given to hospitals (and nursing homes etc) so they could afford to take care of the uninsured. Hospitals' budgets will be affected by increased health insurance coverage, both by the increases in the total fraction of people insured and the fraction of people with pre-existing conditions insured. This means that the total effect on Hospitals' budgets can't be calculated assuming only Medicare payment rates change.

Importantly, the Foster (the author) assumes that reduced Medicare payments will cause hospitals to choose to refuse Medicare patients and not drive Hospitals bankrupt. It is true that relatively lower Medicare rates will cause more hospitals to refuse Medicare patients. How many currently do? I googled
"hospitals which refuse medicare" I got links to articles about physicians who refuse Medicare patients and this link to someone who works at a hospital where they talked about refusing Medicare patients.

Medicare rates are already low. There sure don't seem to be many hospitals which refuse to treat Medicare patients.

OK so I tried the past tense and googled "hospital did not accept medicare"
This link to someone who says an anonymous hospital told her in 1998 that they didn't accept Medicare patients.

Quite frankly this doesn't seem to be a huge problem. The idea that it will get even bigger if Medicare rates fall further below other rates doesn't seem to me to merit page 1 treatment.

I think Foster is saying that he believes that the new restrictions on Medicare compensation will be waived just as the existing restrictions are waived. He can't say that Congress is flimflamming so he has to explain how this might be a natural response to unforeseen events in the future. My current guess is that the event will be the perfectly foreseeable complaints from hospitals and nursing homes and that the forecast that Congress will waive the rule is the only forecast a responsible actuary can make.

The Republican/Montgomery/www.washingtonpost.com headline guy spin that elderly people will be denied care if the bill passes is absurd. If that's the way things worked, the 1997 rule wouldn't be waived year after year.

There don't seem to be many reports of hospitals refusing Medicaid either.
No google hits for "hospital refuses medicaid" one for "hospital refused medicaid" to a publication of the National Center for Policy Analysis. Hmmm, where have I heard of that? It's the so called think tank which fired Bruce Bartlett for heresy.

The document to which I link asserts that Veterans care is queue rationed and that the veterans administration does provide as high quality care as that available to people with private insurance. Non ideological sources rate the veterans administration as the best care provider -- number one.

I think that "Hospitals will refuse Medicare and/or Medicaid" is a serious policy concern on a level similar to the "tax cuts cause increased revenues." And here it is on the front page of www.washingtonpost.com.

Update: Note I am writing about hospitals who refuse Medicare not doctors in private practice who refuse Medicare. My googling and questions were on hospitals which refuse medicare and/or medicaid. Of the first 7 comments, 5 discussed office based practices which refuse medicare. By my count letters "hospital" appear in that order 18 (eighteen) times in the post (sometimes followed immediately by an s). Somehow commenters seem to have overlooked all 18 (eighteen) of them.

This is not a quibble. The provision of the bill which Foster suspects will not be actually applied concerns "institutional" providers of health care not physicians in private practice. I quote from his report

H.R. 3962 would introduce permanent annual productivity adjustments to price updates for institutional providers (such as acute car hospitals, skilled nursing facilities, and home health agencies) using a 10-year moving average of economy-wide productivity gains. [skip] end participation in the program (possibly jeopardizing access to care for beneficiaries).

That's why I asked about Hospitals refusing medicare patients. There is a big difference between squeezing the entities which can't be squeezed and squeezing those which can be squeezed (provided they are getting a lot more money due to increased insurance coverage so they won't go bankrupt).