Problems with Obama's Criticisms of Insurance Rates

The New York Times reports that the President "will propose on Monday giving the federal government new power to block excessive rate increases by health insurance companies." The policy is intended "to frame his debate with Republicans over health policy at a televised meeting on Thursday" by "seizing on outrage over recent premium increases of up to 39 percent announced by Anthem Blue Cross of California."

I have at least 4 problems with all of this: one about the uncritical media coverage, one about the political games being played, one about unintended consequences, and the last about the role of government.

1) news story after news story is reporting Anthem's rate hikes as "up to 39 percent". I have yet to find one news story that digs into this number. Out of the 700,000 affected customers, how many will see 39% increases? One? All of them? What's the average increase? Is anyone seeing a rate decrease? With all the coverage this is getting, you think someone would look into this instead of just repeating the number, which has the effect of supporting Obama.  This statistic is becoming the new "47 million Americans are uninsured."

2) The article says "the legislation unveiled on Monday will actually be the first comprehensive proposal put forward by the White House." The President keeps criticizing the Republicans for not having good ideas, but he comes out with new proposals, immediately before a televised meeting with them? I hope voters see that "seizing on outrage" = "pandering"; it does not equal good policy based on a long-term strategy. Senate Republican leader, Mitch McConnell said “If they are going to lay out the plan they want to pass four days in advance, what are we discussing on Thursday?”

3) The House and Senate health insurance proposals will require insurers to cover more high-risk patients, and will regulate how much more insurers can charge high-risk patients, compared with low-risk ones. To comply, insurers will have to raise rates overall, and particularly to low-risk patients because the new regulations are an explicit subsidy from the healthy to the sick. Part of these rate hikes are certainly due to the bad economy, but how much is a result of the oncoming Obamacare train? Is Obama criticizing something here that is actually the direct result of what he is proposing?  This WSJ editorial thinks so.

4) Who decides what is an "excessive rate increase"? If customers are not getting value for their money, they should be able to choose a different insurance plan. The government should take steps to increase competition so that consumers can make these choices, instead of waiting for a government panel to decide what is appropriate.

Advice for Republicans?

A commenter on Megan McArdle's article has some advice for Republicans:

"Republicans should do exactly what Democrats do: Promise to pay for everyone's health care and give each person a unicorn. That's how you get elected."

Somehow, I don't think that would be good for anyone but the professional Republican politicians.  If Republicans do this, I really hope voters would see right through this and vote with their feet (i.e. even more Republicans become Independents).

Why AIG Was Saved

An article on the WSJ's opinion page says the AIG hearings in Washington "showed that the story of why AIG could not be allowed to fail continues to change, which inspires little confidence that Washington can be trusted with new powers to identify and address systemic risk."

The best illustration I've seen of why AIG had to be saved is this chart from the IMF. The arrows show the % change in default risk of an institution, if the institution the arrow is pointing at defaulted. For example, if AIG defaulted, Bank of America was 4.56 times as likely to default. If AIG had gone under, the US government may have ended up in the position of backing up consumer deposits at Bank of America, Wells, Fargo, Wachovia, Citigroup, etc. The FDIC doesn't have nearly enough reserves to take care of that. By bailing out "Wall Street" (many of these institutions are not part of Wall Street, but politicians refer to them as such), the US government essentially bailed out Main Street. However, demonizing "Wall Street" is a message that gets more votes.

More on the State of the Union

In the end, the State of the Union address was a long speech about how government is the way to address all of the many problems facing our country. I would have preferred Obama to say that "We are strong, we are resilient, we are American," and that the "spirit of determination and optimism" of Americans means they need less, not more, government "help". Basically, more of this, this, and this would have been better, and far less of the obvious, two-faced contradictions ("I will not give up on trying to change the tone of our politics", followed later by "let's put aside the schoolyard taunts" -- comparing your opposition to children is not going to improve the tone in Washington).

This is what I like least about the SOTU - it begs you to judge the speaker, not on policy and ideas, but on things that are immaterial to the well-being of the country, like reading words other people wrote from a teleprompter, and that are open to vastly different interpretations:

Example 1: To Richard Cohen in the Washington Post, Obama was "moderate", had "poise", "self-confidence", and "seemed the only adult in the room." "He conjured up a Washington where things once worked."

Example 2: To Jonah Goldberg in the NY Post, Obama had "supreme arrogance", a "distinctly unpresidential whine " while arguing "anyone who feels differently hasn't heard or understood the president's explanations." "Aside from a few throwaway lines of self-deprecation, whenever he grew passionate, it was to blame others."

Stray Thoughts During the SOTU on CNN

Is it odd how the State Of The Union gives the impression that Congress is somehow subordinate to the President? Technically, they are equals. Congress does not work for the President.

As everyone was walking in, CNN said Sonia Sotomayor was one of Obama's successes during his first year. Is it a little early to declare her a success as a Justice?

He's about to start - is this speech #412, or #413...?

Obama just announced several results of the depression, then said these are the reason he ran for President. However, he started running for President far before the recession hit.

Congress is applauding that Obama is "hopeful". Is that news?

The purpose of the bank bailouts was to make the financial system healthy again. Why is Obama now intent on punishing them for doing what they were supposed to do?

After talking about cutting taxes, Obama says "I thought I'd get some applause on that one."

Harry Reid was just caught on camera yawning.

Obama says we should invest in small business lending - by re-using TARP money that has been repaid. Is that even legal?

Obama is addressing a Democrat-controlled Congress and complaining about political gridlock.

Obama still says "real reform" of the financial system means preventing banks from failing - preventing them from taking too many risks. Does this mean they can count on another round of government bailouts if they follow whatever new rules are passed? (When they get around to it)

Obama says he didn't take on health care "because it was good politics." However, if you look back at the polls, it was a popular issue when he was elected, so it was good politics...until Congress and the President started trying to address it...and he admitted it: "The longer it was debated, the more skeptical people became."

"Freeze government spending for 3 years" (starting next year, "after the economy recovers") - He says this after proposing a multitude of spending initiatives, and making no mention of entitlement reform (~60% of government spending)

I just noticed how his red-and-white striped tie matches the flag behind him.

Obama says we need to keep the cost of borrowing down to help businesses. Does he not realize that attacking the financial industry will inevitably increase the cost of borrowing?

Obama will be "addressing" Republican leadership soon. Again, treating Congress like they report to him.

I like how he puts the repeated blaming of the previous administration and Congress in one part of the speech, and the part where he says this is not about the past much later on.

Obama is supporting expansion of the VA and more help for military families, which I support. Fortunately, these are parts of government outside his "spending freeze."

I think Obama is making Biden cry.

US aid to Haiti does not inspire my faith in American government, as Obama suggests, it inspires hope in American people, as private individuals.

Speech is over. I really wish he would have seemed more aware of his plummeting poll numbers, and at least taken a little blame. In the midst of a recession and 10% unemployment, he is sticking to the "change is not easy" lines.

Virginia's new governor, Bob McDonnell, is about to respond...

Is a governor giving the response a subtle hint that the Federal government is getting too big, and more attention should be given to local governments?

Also, McDonnell is not up for re-election.

The President refers to a "freeze", then elaborates. The response refers immediately to a "partial freeze". Spin; then anti-spin.

Solutions.gop.gov - good plug. We'll see if ideas from there get serious attention, or are used.

Hedge Fund Manager Asness Responds to Obama's War on Banks

Hedge fund manager Cliff Asness is "Appalled in Greenwich Connecticut" (the title of his post outlining the problems he sees with Obama singling out "banks" for punishment). His main point is that many, many parties were responsible for the economic crisis, and the solution is less government interaction, not more. "Punish failure. Don’t institutionalize too-big-to-fail by accepting it and then try to regulate away large failures with telephone books of rules and coercive government interference."

Here's his recap, but the entire post is well worth reading:

The bankers are far from without sin, and there are things in the system that need fixing. But the bankers have largely paid back what they borrowed and should not be penalized versus those who cannot repay, simply because the bankers performed well post bailout (wasn’t that the hope and intention?). Bankers didn’t cause this crisis any more than individuals did, and probably less than government. But those last two are inconvenient villains.

Asness, a libertarian, occasionally posts such enlightening and amusing rants at his website http://www.stumblingontruth.com/

Is Obama Principled or Pandering?

President Obama told ABC's Diane Sawyer that "I'd rather be a really good one-term president than a mediocre two-term president." "You know, there is a tendency in Washington to believe our job description, of elected officials, is to get reelected. That's not our job description," Obama said. "Our job description is to solve problems and to help people."

If the only reason people think the job of a politician is to get reelection is cynicism, then Obama is making a strong, principled statement here. However, he is not a king. Obama is serving in a representative democracy, which means that Obama's job is to solve the problems that the voters want him to solve, not the ones that he, in his apparently lofty wisdom, decide need to be solved. Therefore, his job is to get reelected, because in a democracy that is ultimately how the people tell Obama whether he did his job or not.

Obama campaigned on a staggering multitude of issues, promises, and expectations, many of which were contradictory, and therefore went into office with a multitude of constituencies. He was expected to solve a lot of problems and help a lot of people, at no cost to anyone. During his time in office, he has inevitably let people down, and turned his back on many constituents. If Obama is being principled now, which constituencies' principles is he standing on, and which is he rejecting? On health care reform, he has chosen to pander to the political left, while simultaneously, and quite obviously, telling independents to take a hike because he intends to get it done before they can vote him out of office.

Think of it as a 'principled' way of flipping independents the bird.