Who could have seen this coming?

Even the Chicago Tribune has realized it.  Obamacare has failed because of easy-to-predict adverse selection.

•  Obamacare allowed consumers to sign up after they got sick.

• Obamacare straitjacketed insurers wasn't flexible enough so that people could buy as much coverage as they wanted and could afford — not what the government dictated.

• Too many carriers simply can't cover expenses, let alone turn a profit, in this rigidly controlled system 

• Obamacare couldn't lure them in, couldn't persuade them to buy on the chance they'd get sick.

Appropriating Your Adversary's Weapon

The Takeaway aired a story about Joe Hill to commemerate Labor Day, but one episode makes for some interesting game theory. Joe Hill was a labor leader and songwriter for IWW (the Wobblies) in the early 20th century.

1. He, and other labor leaders, would often set up a soapbox to agitate for better labor practices. 
2. Employment agencies would counter by trying to disperse the crowd, often resulting in violence. A clever, non-violent reaction was to hire the Salvation Army band to drown out these agitators. It is difficult compete with a brass band.
3. Joe Hill, and others, cleverly wrote new lyrics to the melodies the Salvation Army would play. The crowd would quickly learn the lyrics from the leaders. This way, instead of drowning out the protesters' message, they were accompanying the impromptu 'choir.'

Change the game to get your preferred outcome.

What do college textbooks, academic journals, healthcare and education have in common?

They all have big price inflation because those who consume the product don't pay the price. Instead, they are paid for using other people's money.

Why does women's pay fall behind after they have children?

Note the last sentence by the reporter: after she identifies a likely reason for the pay differential, she asks "is this an appropriate reflection of their lower productivity?," implying that someone else (perhaps the government) would be able to choose a better compensating differential than the market.

The Best Entry Barrier is a Government Entry Barrier

The whole quadrupling of the price of EpiPens episode inspired Scott Alexander at Slate Star Codex to write a wonderful little allegory.

Imagine that the government creates the Furniture and Desk Association, an agency which declares that only IKEA is allowed to sell chairs. IKEA responds by charging $300 per chair. Other companies try to sell stools or sofas, but get bogged down for years in litigation over whether these technically count as “chairs”. When a few of them win their court cases, the FDA shoots them down anyway for vague reasons it refuses to share, or because they haven’t done studies showing that their chairs will not break, or because the studies that showed their chairs will not break didn’t include a high enough number of morbidly obese people so we can’t be sure they won’t break. Finally, Target spends tens of millions of dollars on lawyers and gets the okay to compete with IKEA, but people can only get Target chairs if they have a note signed by a professional interior designer saying that their room needs a “comfort-producing seating implement” and which absolutely definitely does not mention “chairs” anywhere, because otherwise a child who was used to sitting on IKEA chairs might sit down on a Target chair the wrong way, get confused, fall off, and break her head.

(You’re going to say this is an unfair comparison because drugs are potentially dangerous and chairs aren’t – but 50 people die each year from falling off chairs in Britain alone and as far as I know nobody has ever died from an EpiPen malfunction.)

Imagine that this whole system is going on at the same time that IKEA donates millions of dollars lobbying senators about chair-related issues, and that these same senators vote down a bill preventing IKEA from paying off other companies to stay out of the chair industry. Also, suppose that a bunch of people are dying each year of exhaustion from having to stand up all the time because chairs are too expensive unless you have really good furniture insurance, which is totally a thing and which everybody is legally required to have.

And now imagine that a news site responds with an article saying the government doesn’t regulate chairs enough.

There is more detail about instances of each of the implied claims of thwarting competition in EpiPen-like products, but this part is just beautiful.

Liberals worry about the short-run; conservatives about the long-run

Tyler Cowen reviews a book written by Clinton's chief economist who wants government to take a much larger hand in paid sick leave, parental leave, and care for the elderly, among other issues.

Professor Cowen correctly points out that, at best, the policies can have only a short-run effect.  As anyone who has read chapter 9 realizes, in the long run, attractive mandated benefits means that a firms do not have to pay as much to workers to attract them:

So let’s say America’s future means better sick leave and pregnancy leave for employed women, but a narrower choice of jobs, including lower pay, for those same women. Is that better? And do we trust the legal machinery of government to be making that decision anew over decades of social and economic change? Keep in mind that there is an alternative mechanism, which for all its imperfections is far more flexible: Let companies and workers make such decisions through employment bargains.

And this cannot be good:

Boushey doesn’t estimate or indicate the expense of her proposed mandatory benefits, although she does suggest on page 1 that the cost would be “very small.”

The idea that her policies would have only a small long-run effect probably reflect a deeper philosophical belief:

Charles L. Schultze, chief economist for former President Jimmy Carter, once proposed a simple test for telling a conservative economist from a liberal one. Ask each to fill in the blanks in this sentence with the words “long” and “short”: “Take care of the ____ run and the ____ run will take care of itself.”

Liberals, Mr. Schultze suggested, tend to worry most about short run, while conservatives are more concerned with the long run.

What could possibly go wrong?

In Los Angeles, why do equivalent land parcels sell for 35% difference?

New paper compares sales of individual parcels of land to sales of plots that are immediately assembled into bigger aggregate parcels used for building higher density buildings, like high-rise apartments. Controlling for amenities like distance to a highway and access to commuter rail, the authors find that soon-to-be-assembled parcels sell for 35-40% more than similarly situated individual parcels in the same neighborhood.

Why?

The 40% price differential means that it is not possible to turn individual parcels into soon-to-be-assembled parcels for one of two reasons:

1.  Zoning, like that in Sweden where residents can veto new development plans, makes it difficult, if not impossible, to assemble bigger individual parcels into plots of land (on which higher density apartments can be built).

2.  The hold out problem, where owners of individual parcels of land hold out in expectation of a better offer.  This is a type of "free riding," that can be analyzed as a prisoners' dilemma.

Either or both of these problems could account for the premium on land that can be assembled into larger parcels.

HT:  Marginal Revolution

Legal Markets in Kidneys

Q: What bastion of free market liberalism has virtually eliminated the waiting list for kidneys and dramatically reduced deaths due to kidney failure?

A: Iran

Will bundled payments change health?

CMS is changing the way that Medicare and Medicaid pay providers:

The CMS announced a proposal last week to put three new episodes of care under mandatory experiments with bundled payments, potentially compelling hundreds of additional hospitals into becoming financially accountable for what happens to Medicare patients long after they leave the hospital. 

In theory this is supposed to align hospital incentives more closely to the health goals of a patient.

“All those involved in healthcare have always wanted the best for their patients. Providers now have a greater amount of skin in the game and risk in the outcome.”

What could go wrong?

Why do we spend so much on health care?

Its the incentives, stupid!  The Atlantic has a nice summary of the problem.

Ten days after my father’s death, the hospital sent my mother a copy of the bill for his five-week stay: $636,687.75. ... but why should my mother care? Her share of the bill was only $992; the balance, undoubtedly at some huge discount, was paid by Medicare.

And what about President Obama's Affordable Care Act?

Like its predecessors, the Obama administration treats additional government funding as a solution to unaffordable health care, rather than its cause. The current reform will likely expand our government’s already massive role in health-care decision-making—all just to continue the illusion that someone else is paying for our care.

A better solution would limit the government's role to catastrophic insurance:

...a threshold of $50,000 or more ... (Chronic conditions with expected annual costs above some lower threshold would also be covered.) ... But the real key would be to restrict the coverage to true catastrophes—if this approach is to work, only a minority of us should ever be beneficiaries.

But what about poor people who cannot afford catastrophic insurance?

...the government should fill the gap—in some cases, providing all the funding. ... If we abolished Medicaid, we could spend the same money to make a roughly $3,000 HSA contribution and a $2,000 catastrophic-premium payment for 60 million Americans every year. That’s a $12,000 annual HSA plus catastrophic coverage for a low-income family of four. Do we really believe most of them wouldn’t be better off?