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That there is a Pavlovian dog: Obamacare and mismatched incentives

That there is a Pavlovian dog: Obamacare and mismatched incentives

This one ought to go down in the annals of “You just can’t make this stuff up,” but sadly when it comes to the twisted rewards system innate in government, this is more the rule than the exception.

Recently the Daily Caller reported that the very firm responsible for the disastrous roll out of Obamacare was awarded six more contracts by the administration’s Centers for Medicare and Medicaid Services AFTER the massive flop of a launch!  Yes, you read that right… AFTER!

In the private sector, businesses and individuals are rewarded for doing more with less.  The company that is able to provide a better product that costs them less to make will be able to charge less than the competition and will sell more.  Win!

Individuals that are able to accomplish more in less time or with fewer resources tend to get promoted, get raises, bonuses, more responsibilities.  Win!  Their behavior gets rewarded, so they do more of it.  The incentive system focuses them on being more efficient, accomplishing more with less.

The company that is able to generate greater returns for investors with fewer resources is rewarded with increased investor interest, lower borrowing costs, (as they’ve shown they are less risky) and better talent shows up on their doorstep, wanting to be associated with such a successful organization, (think Google).

These normal human desires, when expressed in the public sector, get seriously wonky.  Bureaucrats publicly state with great pride that some societal ill is a serious problem and they are going to marshal their resources to address it.  Fantastic.  We’d all like to see a lot less of whatever ill is the flavor of the week.  Who could possibly be against that?  So now all these well meaning sorts get together to work on the problem.  They come up with a budget to address the issue over the next few years and off we go.

Except unexpected things happen along the way, as they always do, and we can’t quite get this addressed the way we originally planned.  The easiest solution would to just get more money.  In the private sector, getting additional funds takes a lot of work, is time consuming and in the end may be impossible.  In the public sector, just whip up some stories that pull at the heart-strings and what politician can risk appearing heartless?  More funds are granted and government spending goes up.  If the plan actually starts to work, now we have to worry, as how do we justify our salaries?  The budget we control?  Ah ha, scope creep!  Now we need to expand into yet another area that is in “crisis” and probably need a bigger budget too while we are at it.

In the private sector, more funds are awarded when you prove you are able to accomplish your goals.  In the public sector, more funds are awarded when you can’t accomplish your goal as originally planned.  In the public sector, the greater the problem, the harder it becomes to solve, the larger your budget.

The private sector pressures individuals and organizations to be efficient with the resources, (money and time) that is invested in them.  The public sector rewards ineffectiveness with bigger budgets and greater scope … because clearly now that I look at it, this problem is just so much bigger than I originally thought!

Bottom Line:  In the private sector you always have to answer to someone for what you are doing with their money, which keeps the pressure on.  In the public sector, there is no such pressure, so the reward system is no longer tied to effectiveness and taxpayers in the end pay too much for too little.

 

Obamacare and the Orwellian Oath

Obamacare and the Orwellian Oath

On February 18th, I spoke with Charles Payne and Julie Roginsky on Fox Business’ Cavuto show about the headlines claiming that Obamacare aka the Affordable Care Act (ACA) will harm jobs. We had a lively debate, which was surprising given that the three Sports Illustrated models gracing this year’s cover were waiting in the green room, an understandable distraction for many! Got me thinking that perhaps I ought to entertain the idea of becoming the first “bikini economist.” No sure that my supply curves would stimulate like claims around QE, but I digress…. For all the administration’s protestations that the ACA isn’t going to harm jobs, their own actions show they know it is. In a press briefing last week Treasury officials made it clear that firms will be required to certify to the IRS under penalty of perjury that ACA was not a motivating factor in their staffing decisions. So… to protect your company from the increase in costs from ACA you must swear that you are not trying to avoid the impact of ACA. But I thought this wasn’t a problem for jobs? If it has no impact, why the Orwellian oath? To be fair, the CBO doesn’t exactly say that jobs will be lost, but rather that ACA discourages work, particularly for those at the lower end of the income scale, in that you get bigger subsidies the less you make. Talk about a poverty trap! When did rewarding people for NOT trying to improve their circumstances become the American dream!? What kind of senseless drivel has the national conversation descended into when Jay Carney assures us that rather than “disincentivizing” these subsidies allow people to “pursue their dreams” without having the terrible burden of working. And just who is paying for these people to pursue their dreams? Oh right, those who STILL WORK! What about their dreams? Their desire to pursue other leisure activities? I guess it is OK to put those on hold so that they can involuntarily support the pursuit of dreams for those who choose to not work! Oh, and wait a minute! I thought this was all supposed to be good for the economy. Now how in hell does having fewer people working or having people work less grow the economy? So far the ACA gives us three little gems

  1. The employer mandate discourages hiring. No point in arguing that fact since firms now have to certify that it didn’t alter their staffing decisions!
  2. ACA delivers $1 trillion in tax increases . What does Congress do when it wants less of something, like smoking tobacco or using fossil fuels? Tax it! So again, can’t argue that this is a negative for growth.
  3. Now the CBO acknowledges that the $2 trillion in subsidies discourages work, but hey, how great is it to pursue leisure interests at the expense of your fellow taxpayer?

Well… at least you get to keep your insurance if you like it.

Another unilateral change to Obamacare

Another unilateral change to Obamacare

Obama already pushed back the employer mandate to 2015 from 2014, conveniently after the mid-term elections. Now his administration is pushing back the mandate for businesses with 50-99 employees to 2016. For companies with over 99 employees, they must cover 70% of employees by 2015 vs. 95%.

 

This is now the 18th executive branch unilateral change to the Obamacare. Safe to say that at this point, the LAW now says whatever Obama wants it to say on any given day. So much for our Constitutional Republic form of government! Changing a statutory mandate requires the approval of Congress, yet Congress hasn’t done much to stop these dictatorial edicts.

 

We were told that ACA was going to solve a myriad of problems and that once we got it, those of us who were opposed, would understand the veritable utopia it created. If that’s the case, why keep delaying implementation? If this thing is so great, why wait at all? What is it that is going to happen in a year that will then make this legislation a net positive whereas apparently today even the White House thinks it is a net negative?

 

Let’s take a step back and look at the big picture. The administration claimed that the ACA would lower healthcare costs for the vast majority and would provide “affordable” insurance for significant portions of the population that were previously not covered, with the assumption that those without insurance were in need or desired it.

 

So where are we now? So far costs are going up and we have a net loss of coverage as more people have lost the coverage they had pre-ACA than are gaining coverage without having any previously. This is not at all surprising and some simple economics tells us that it’s likely to get worse. ACA increases the demand/use of healthcare while at the same time doing nothing to increase the supply, and in many instances actually reducing the supply of healthcare. How can the price not go up?

 

Now we’ve gotten an even more troubling dynamic going on with more artificially created warfare between various parts of society. The administration has been doing a bang-up job creating an irrational and self-destructive war between different income and wealth levels, now they are fostering a war between individuals and businesses, creating a lovely trap that the Republicans seem all too eager to fall into.

 

We’ve now got the Republicans ranting and raving about how it is unfair for businesses to get a break when “hard working families” aren’t. I suppose that makes for a compassionate sound bite, but talk about losing the forest for the trees. Healthcare isn’t a war between businesses and families. Hell, the two shouldn’t even be in the same sentence. Why is health care even remotely related to employment? I don’t get my car insurance or my home owner’s insurance through my employer. Why is my health insurance employment related?

 

Employers didn’t start offering health benefits roughly 60 years ago because they were experts in medical decisions. It was a way of circumventing the World War II wage and price controls. Barred from offering higher salaries to attract workers, employers offered health insurance instead. Aided by an IRS ruling that said workers who received health benefits did not have to pay income taxes on them, and by the fact that employers could write off the cost of the health benefits as a business related expense, this accidental arrangement became the primary way most Americans access health care and is now viewed as just the way it works.

 

The system worked at first, but a lot has changed in 60 years. Back then, the average soldier returning from World War II took a job with a local company where he would work for decades until he got a gold watch at a big retirement party. Today, lifetime employment is dead. By 42, the average American will change jobs 11 times.

 

Sixty years ago, most American companies competed only against neighboring companies for lucrative contracts. Today, most businesses are up against foreign companies that don’t foot the bill for their employees’ health-care costs.

Bottom Line: Obamacare cannot reduce the price of healthcare when it increases demand and at best keeps supply flat, at worst decreases it. What the legislation has done masterfully is show how poorly the public sector addresses pricing and availability problems in the private sector. Health insurance and employment should be separate. Individuals should be able to pick whatever type of insurance best suits their preferences and finances. One-size fits all solutions stifle innovation and in the end, satisfy no one.

Obamacare delays highlight the dangers of an ever-expanding government

Obamacare delays highlight the dangers of an ever-expanding government

By completely restructuring how health care works in the US, those responsible for implementing the Affordable Care Act are restructuring and controlling what today amounts to about 15% of the U.S. economy.

With that in mind, after having 4 years to prepare for this, they still are not ready to implement a major portion of it.  The Obama administration has stated that it will not have the capacity to collect from employers the information required to determine which employers will be subject to penalties in 2014.  Thus it will not require employers to report that information until 2015, even though the very statute that this Administration pushed through Congress requires employers to furnish that information in 2014.  This doesn’t exactly instill confidence in the government’s ability to improve our healthcare system not does it? 2013-07-11 Expect-Delays-sign2

Four year and they can’t even collect data!

The employer-mandate penalties unequivocally take effect on January 1, 2014.  When Congress passed this Act, it gave the Treasury Secretary no authority to postpone the implementation, which is not unusual.  Congress rarely passes anything giving other parts of the government discretion over how and when to implement.  This would be akin to Congress raising or lowering tax rates, but then telling the Treasury it can decided when it wants to implement those  changes,  “Ehhh, next year or maybe the year after.  Whenever you can get around to it.”

The statute gives the Treasury secretary the authority to collect these penalties “on an annual, monthly, or other periodic basis as the Secretary may prescribe.” It does not allow the secretary to waive the imposition of such penalties, unless the State has implemented an acceptable health insurance program for its residents.  Then the Treasury is allowed to waive the imposition until 2017.

So here we have a clear example that Congress did in fact contemplate giving the Treasury the ability to waive penalties, but decided to do so ONLY under specific conditions.

If one wants to continue to try and argue that the Treasury does in fact have the ability to waive parts of the ACA, then what is the limit of the Treasury’s ability to waive any portion?  If it can extend 1 year, why not 5 or 10 or 500?  What authority then does Congress have to enforce the very Act it passed?

Now the Republicans, seeing clear signs of distress from their opposition, are trying to take advantage, as is always the way in DC.  They are saying that if businesses get a one year waiver, individuals should too.

No wonder American’s have less respect for their government than at any other time in history.  Those in DC, whether it be Congress, the President and his Administration, the Treasury and the IRS, have no respect for the very laws they pass and are charged with enforcing and are even comfortable exempting themselves from them!  This is exactly what one would expect to happen when you have a government that has grown entirely too large and is beyond unruly.

We cannot respect our government when it does not respect itself.  If we cannot respect our government, then how does our society function when those tasked with implementing and enforcing laws cease to do so in any reasonable way?  Rome…are we there yet?