The Simple Arithmetic of the ACA Individual Insurance Marketplace

If you have been following the news you know that 2016 has been rife with major health insurance issuers leaving the health care exchanges, i.e. Obamacare.  Some have thrown the entire line of business under the bus claiming that it will always be unprofitable.  Others like Aetna, that is the most recent exit, were less pessimistic in the long run but were losing gobs of money in the short run.  Their CEO blames Risk Adjustment saying it wasn’t properly reimbursing them for their relatively unhealthy population.  This is of course a stupid thing to say and I will point out why.  The interesting question in my mind is still whether there is a stable profitable equilibrium for the individual marketplace and this post will explore the simple arithmetic for determining this.  The answer will become particularly important if some markets are reduced to having only one issuer.

So I said simple arithmetic.  That is because the profitability of the marketplace as a whole is really quite simple, money in has to be greater than money out.  The input is member premium and government subsidies (Advanced Premium Tax Credit and Cost Sharing Reduction).  Money out is medical claims cost.  You will notice Risk Adjustment (RA) is not in there.  RA is a zero sum transfer between insurance issuers, it does not affect the sustainability of the market as whole, only the profitability of an individual issuer.  It also becomes moot if there is only one issuer.  When Aetna whines about RA they are essentially saying that they want a piece of their competitor’s profits.

Now both sides of our expression are variable based on which members are purchasing insurance.  Even with a tax penalty, not everyone will buy insurance.  So if you jack up the premium, your healthier population will likely take the penalty and you lose their premium while medical costs will only go down slightly as sicker individuals that incur most claims will continue to purchase.  Thus the question simplifies to: is there an equilibrium premium that keeps enough healthy people paying premium to cover the medical costs of the unhealthy people?

This is slightly complicated by the government subsidies which are mutable based on the marketplace.  The CSR depends on the out-of-pocket (OOP) limits of the plan.  This will induce more healthy people to purchase insurance (since the benefits are greater) and issuers are really only on the hook for very sick patients that blow through their OOP expenses.  A plan design that maximized the Max OOP expenses will extract the largest subsidy from the government.

Similarly, the APTC is based off the second lowest cost silver plan.  If issuers become monopolies in their market they could potentially set the price of this plan to whatever they want and thus determine the APTC.  This allows them to extract whatever they want from the government.  And much like CSRs we would expect more people to purchase insurance if the issuer sets the APTC such that it covers a large portion of a bronze or lowest cost silver plan.

People talk about the pillars of the ACA: no underwriting, subsidies and a mandate.  The first requires a mandate in order for healthy people to subsidize sick people.  Otherwise healthy people opt out because the premium price is higher than their expected value from insurance.  However, the presence of subsidies suggests the writers of the ACA think even the tax penalty is not enough to create a market equilibrium where expected medical costs are lower than expected premium.  In other words, the writers of the law think the only way private health insurance that covers everyone with no underwriting can be profitable is essentially if the government is the one supplying the profits!

The conclusion then is that health insurance for all is not profitable and furthermore the current design of the ACA is probably not welfare maximizing.  The tax penalty is inducing people to purchase insurance that is costlier to them than not having insurance.  This is a classic situation for government provision of a public good and instead we have a system that BY DESIGN requires the government to pump money into it for private insurers to be profitable.

Thus the only rational next step is a public option/single payer system.




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Kubo and the Two Strings Review

We saw this movie over the weekend because of glowing reviews and as some kind of counter-programming from a dull summer blockbuster season.  This is coming from someone who enjoys comic books and superhero films.  Unfortunately, I can’t really understand all the adulation of Kubo.  The movie never meets the expectations it sets and seems to be gathering most of its praise due to some kind of hipster iconoclasm that praises the stop motion animation.

First, let me tackle the much lauded visuals.  I don’t really care that it is stop motion.  On an intellectual level what they did was amazing.  However, at this point it would be easier to use 3D computer animation to simulate stop motion than it is to actually do stop motion.  Also I am not sure the distinctive stop motion style really adds much here.  In general there were very few scenes of visual splendor and awe and most of them were because of some gorgeous backgrounds.  As such it’s very hard to concur with reviewers praising the movie’s visuals and it certainly does not substitute for the movie’s other flaws.

Second, the dialogue in this movie is mediocre and verging on bad.  Most of the jokes fall flat and seem like an obligatory sop to the convention of animated films and to the younger viewers in the audience.  The rest of it often falls flat, like the monkey trying to be intimidating or the witch sister’s pretty much every utterance.  There is also a lot of pseudo-philosophical rambling that tries to add depth to the film but such explicit musings are usually a sign that the story is handling the topic poorly and that is the case here as well.

On a macro level, it was really the plot that let the movie down.  The movie opens with a scene of a woman literally parting a squall with a burst of energy from her sitar.  Then the first part of the movie reveals that she is hiding him from gods and that Kubo himself is half-divine.  This could lead to some epic American Gods or Illium level god smackdown.  Instead Kubo partakes on a rather bland adventure to acquire some unimpressive artifacts that appear to be lying around for no articulated reason.  There are some decent action scenes along the way, though you wonder why all the gods seem to abandon their magic to fight with melee weapon or turn into glowing centipedes rather than just smudge Kubo off the map.

However, the ending almost ruins the movie.  It kills off some major characters quite abruptly, but due to poor quality of their interactions earlier, it doesn’t have the emotional punch the filmmakers wanted.  Then the movie just kind of fastforwards to the final confrontation between Kubo and his grandfather.  It turns out all those artifacts were Mcguffins.  Instead we get some trite nonsense about memories.  The movie ends with the grandfather being turned human with a bad case of amnesia.  At that point the village engages in a conspiracy of lying where they embed him with made-up memories to sway him towards good.  It seemed antithetical to the entire movie and the immediately prior scene about memories.

The movie really needed to expand on its mythology and present some kind of internal conflict for Kubo.  There was an eye monster that revealed unsettling truths, but they didn’t take advantage of that.  Maybe juxtapose the perfection of godhood and the inadequacies of mortality.  Maybe it’s just the fantasy lover in me, but there was also a scope for some epic battles with gods and a young boy coming into his powers that are largely untapped.

Then there are just inconsistencies.  Why are the divine sisters caricatures of evil, but the third sister looks like a typical woman?  Why did they easily overpower the third sister but succumb to a monkey and an untrained boy later?  What was the point of the artifacts and why was one just sitting in a town unknown?

I don’t know, this movie teased a much better movie.  While the team has their technical craft down, after five years their plot and characterization could have been much better.  This, in my mind, was just another mediocre 2015/2016 movie release.


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2015 was Officially the WORST Year for Movies

Somehow I though I had already written this post.  I must have just said it OVER AND OVER again to my wife throughout 2015 and in the period in 2016 when you catch up on 2015 movies.

The terribadditude of 2015 movies extended across the entire spectrum of movies, from summer blockbusters to Oscar bait to comedies.  The number of movies I could stomach for the entire running time was vanishingly small.  A big part of this is that movies are getting longer on average with no commensurate increase in quality to earn that extra running time.  I mean why was any Transformers movie longer than 2 hours, let alone 2 and a half hours like the last one?  I thought summer movies were supposed to be short and pithy and yet they seem to be the worst offenders of increased length.

This lack of what I will call goodness density is particularly hard to swallow with the renaissance of television.  I have, literally literally, a billion TV shows I want to try and for the most part the payoff of a good TV show far exceeds most movies and it does so in more manageable and well-paced chunks (the episode).  It seems like movies are the only arena that sees all the trends towards everything being faster and more convenient and decided to make movies slower and more drawn-out.

What is particularly galling is that 2015 was also the first year where I felt completely at odds with both popular and critical opinion.  There were many well-reviewed movies that turned off 30 minutes to an hour in.  Here are some examples:

  1. Force Awakens – see my review.  This movie was bad and I am severely disappointed so few people called it out.
  2. Hateful Eight – I love Tarantino for the most part and he has had a resurgence in quality with his last two films so I was looking forward to this one.  Bloated doesn’t even begin to accurately describe this flaccid film.  It seems like Tarantino thought he could just rely on his classic fast-paced and witty dialogue to carry a three hour plotless movie.  Unfortunately, you actually have to write that good dialogue and Tarantino fell into the common trap of thinking that whatever he put down on paper was gold.  Perhaps the biggest disappointment of the year.
  3. Jurassic World – Oh god, I can’t believe how much money this made.  This was so stupid you could point out the idiocy in real-time.  You should at least strive for coherency during the running time even if it falls apart in retrospect, but Jurassic World couldn’t even manage that.  Every attempt at pathos was laughably bad.  I can’t believe this did so well and was immediately greenlighted for a sequel.
  4. Sicario – I am surprised I don’t have a review for this.  This movie was pile of steaming elephant crap dressed in a beautiful package.  I think this was the biggest gap between my views and critical praise.  Sicario is empty, with nothing interesting to say and the worst main character of the year, if not decade.  I saw numerous articles praising Emily Blunt’s character and her portrayal of a strong female.  DID THEY EVEN WATCH THE MOVIE?  The entire thing was Josh Brolin and Benicio Del Toro saying stupid inscrutable shit and walking all over Emily Blunt and the Constitution.  The one time she could have made a difference was at the end by shooting Del Toro in the back of the head but she chickens out like the weak person she is.  Too bad because the film was executed marvelously even if it was in pursuit of vacuity.
  5. Ant Man/Age of Ultron – Really mediocre year for superhero movies in general, but these were both exceedingly mediocre.
  6. The Big Short – Combines the worst features of both a documentary and a typical feature film to produce something unwatchable.  Go read one book that is better paced and more informative and skip this.
  7. The Revenant – Surprisingly OK, but I had low expectations after 2015 kept disappointing me.  The main problem here is that it was too long and that it never really seemed to get me to buy into the REVENGE angle as strongly as it should have.  Beautiful scenery though.
  8. Hunger Games – The first two films were fine.  The third films (intentional) were utter dreck and revealed the shortcomings of the source material.  Also how these films catapulted Jennifer Lawrence into the highest paid actress position I will never know.  I find her abilities notably lacking and these movies did nothing to change that opinion.
  9. Spectre – This was horrible and boring and completely lacking cogency or momentum.  What happened to this series from the amazing Casino Royale?  I was also not a fan of Skyfall.
  10. Ex Machina – Hey people. GO READ A FREAKING BOOK FOR A CHANGE.  This would be poor science fiction 50 years ago and yet you put it onto a movie screen and people praise it to no end.
  11. American Sniper – Are you kidding me?  So boring even letting aside the obvious overblown jingoism.

There are 10 high profile movies in no particular order.  There was a lot of smaller or mediocre stuff I watched that didn’t seem particularly galling or disappointing (Furious Seven, MI5, The Man from Uncle, Inside- Out, etc.).  But while they may not have gotten a rise out of me, they didn’t really help lift the malaise.

So what was good last year?

  1. Kingsmen – Yeah, I am putting this above Mad Max as my favorite film of the year.  Despite some failed, over-the-top humor from Samuel Jackson and a somewhat weak ending sequence this was my favorite film of the year.  Funny and good fight sequences.  This film put me into a Firthor (get it I combined Firth and furor).
  2. Mad Max – I am not a huge fan of the original trilogy beyond the setting so I was extremely surprised at how good this was.  I can’t recall a movie more intense and it set a new bar for action sequences and chase scenes.

And that was really I would single out.  Yeah, worst movie year ever.

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Reduce state sovereignty to improve governance

Let me ask a question, can you name an instance where the states in opposition to the federal government were on the right side of history?  On a more mundane level, there are obviously huge inequalities in the quality of government between states.  Look at Kansas which has turned farcical under the poor management of Brownback.  Look at all the Republican states that refused Medicaid expansion, which ended up costing them money!

If we just abandoned this idea of state sovereignty we could drastically improve the quality of services in many poor areas (usually Republican-controlled) and reduce inequality stemming from arbitrary state borders.  The biggest sham is the idea of state block grants usually proposed by Republicans.  This, as far as I am aware, has never worked. States find ways to spend it on what they want or do so poorly.  See the sorry state of TANF  in Red states.

For instance here are some low hanging fruits if we got rid of this ridiculous notion:

  1. Health care.  Medicaid expansion should be mandatory It is ridiculous that anyone can refuse this, on either fiscal or moral grounds.  This is free and it helps the poor, especially poor children.  Even better we should just combine everything into one federal program and provided basic healthcare to all.
  2. Schools.  Currently schools are mostly financed by local property taxes.  This means schools in rich areas get more money when their students are probably going to do well regardless.  This is completely backwards.  Federal funding of schools would more equitable.  Furthermore, why are we not just having the government provide free open source textbooks for every subject written by experts?  This would save so much money and ensure a baseline level of quality of materials.  But no, we have to appease the idiots that are still horrified that evolution is taught in school.
  3. Taxes.  Many states are engaged in a race to the bottom offering staggering tax breaks to lure businesses.  This is a beggar thy neighbor policy at best and a beggar thyself policy in many cases.  If most of the tax base was at the federal level it would be much harder to get away with this.  Also, state taxes are regressive in general, while federal taxes are usually progressive.  We  can hope that a shift to federal tax collection would make a more progressive tax burden.
  4. Unemployment insurance and other welfare programs are a mess of state and federal programs.  I already mentioned the sorry state of TANF in many states, but it’s indicative of other programs neglected by states not very interested in providing for their poor.  And again, the poor are mostly concentrated in conservative states where these programs are skimpy.  Apart from reducing administrative overhead, federal consolidation of these programs would eliminate much of the wide disparity in the generosity of welfare among states.


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Killing Baby Hitler

This philosophical time travel dilemma has come up frequently recently, even Jeb Bush was asked about it.  For those unfamiliar with the Baby Hitler problem, it basically asks the question: if you could go back in time and kill Hitler as a baby, would you do it and would it be morally righteous?

The problem here is that it has become a proxy for stopping WW2 and the Holocaust and if that were the case then the choice is obvious.  But we don’t know that is the case, maybe there is some kind of Zeitgeist that would ensure that roughly the same sequence of events occurs.  And then maybe Hitler’s replacement is more effective and holds off on attacking Russia until he has subjugated the U.K. and the Third Reich becomes real and with it the concomitant decrease in the goodness of the world.

Unfortunately, this inability to determine the full consequences of our actions plays havoc with any attempt to ascribe morality to our actions.  Maybe some Roman raider is faced with the choice of killing a young woman and ends up sparing her.  This woman is the distant ancestor of Hitler.  Are all of the people that Hitler murdered on that raider’s head as well?  This despite choosing the more immediately moral choice.  It presents a dour nihilism that would seem to prevent any action on the basis that you could be killing millions in the far future by drinking that coffee in the morning.  You never know.

Maybe we should only consider the consequences of our actions out to the boundary of our ability to extrapolate the future?  However, that means that the morality of an action is determined at some level by the person faced with the choice.  If they are smarter or more informed then they can make better and more far reaching predictions.  Then we have to ask how good we are at making predictions and assigning probabilities to various outcomes.  This is impossible to verify, particularly at the decision point.  Therefore, it comes down to the whims and personality of the person.

This leaves us with an untenable moral philosophy whereby good intentions are enough.  I am sure Hitler believed the world would be better without any Jews, but I think we can all agree that genocide is evil.  How can we possibly save any conception of morality?  I don’t know and neither does philosophy.

This is where religion steps in saying that only a supreme omniscient being can extract us from this moral muddle.  But then I have to ask how God does not fall prey to the same issues, why is his moral judgement invulnerable?

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Nick Rowe Fails at Taking Down Paul Krugman… Again

Nick Rowe gets a bit too much attention for his poor economics blog.  Mostly it is full of arguments too clever by half and remonstrances that math is too hard for him AND unnecessary.

His latest references a takedown of a new Krugman article.  Now the first thing to note is that this graph of Canadian spending under the Harper government is, at best, only tangentially related to Krugman’s column.  Krugman was pointing out that recently Keynesian rhetoric proved, if not popular, at least politically tenable in both the UK and Canada.  The Conservative rhetoric was far more in austerity territory.  Rowe claims Krugman got it wrong on what actually happened regarding Keynesian policy in Canada, but Krugman was only writing about rhetorical stances.

But let us pursue Rowe’s point that, in the depths of the recession, Canada did engage in fiscal stimulus.  However, he shows spending at all levels of government, when Conservatives only controlled the federal government and parties are much different at the province level in Canada.  But let’s credit the Conservatives anyway.  As the adage goes, in a crisis, everyone is a Keynesian.  Even the far more extreme Republicans in the U.S.A. signed on to some fiscal stimulus.

The other part of Rowe’s piece is that many economists, including Keynes, thought you should only engage in fiscal stimulus at the Zero Lower Bound of interest rates.  Canada raised their interest rates above the ZLB and soon after Canadian government investment declined.  Rowe argues that the Conservatives were then exactly following Keynesian prescriptions.

However, if this recession has shown us anything, it is that central banks are not infallible.  Yes the Bank of Canada raised rates a little, but recently they have lowered them again.  Furthermore, inflation in Canada was persistently low after Canada raised its rates.  This suggests that the Canadian economy was not ready for hiked rates and it took a few years before the BoC figured out they were wrong.  More concretely, Canadian GDP was actually shrinking at the beginning of this year with a discount rate of 0.5% (0.25% is the official ZLB in Canada), which suggests that Canada could use some fiscal stimulus RIGHT NOW.  Yet, I don’t hear anything of the sort from Harper; instead I keep hearing about his austerity policy.

So another Nick Rowe fail.  Talking right past Krugman’s article AND getting his own argument wrong.

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The Ends Justify the Means on Weekends and Holidays and… Always…

I was reading my favorite socialist blogger when I came across an article that I pretty fervently disagree with.  It is on the “theory of second best” and its application outside of economics and policy.  The idea is that because we do not live in an ideal world we may have to engage in acts that are ethically or morally wrong in order to arrive at an improved state of the world.  However, the author, Chris Dillow, points out, rightly, that “There is, though, a massive problem with such second-best thinking – it can justify pretty much anything.”

This is just “ends justify the means” morality in a different form and as everyone knows, this is the inherent weakness of the philosophy.  Anyone can rationalize their actions under the auspices that their ultimate goal warrants the (literal or figurative) blood on their hands.  In fact when people decry this philosophy this is the implicit argument that they are making.  However, the only possible way to make any decision is to employ this strategy.  I give up much of my free time to go to work and make money because I believe the ends (money) justifies the means (working).  Similarly we take money from people (a violation of private property) to fund programs that we believe enhance the welfare of all citizens more than the cost of seizing private property.  This is always the moral calculus we engage in.

I guess the only time you don’t need to justify your ends are situations that are in a sense “no-brainers.”  If I have a bunch of leftovers I wasn’t going to eat anyway and I give them to a homeless person, it really entailed no sacrifice on my part to give them to him.  It was a non-decision.  At the same time this also washes away any goodness associated with the act.  To pick up a strain of thought in Dillow’s piece, engagement with an imperfect world does not sully us.  I would argue that it is in fact through this interaction that our moral worth is assayed.  A perfect world would not require sacrifice (nor would it allows harm) so how would we ascertain the morality of an act?

However, I digress.  My point is that despite the fact that you must always justify your means by your ends only under the most extreme moral relativism does that mean that if a person believes that the consequences of his actions will outweigh the costs of the action itself that the action is morally permissible.  This is why we form societies and governments and democratically elect leader so that people can come to an agreement on which actions are justified.  This should be obvious, but instead I suspect many people would disagree that “ends should justify means” after numerous media portrayals of heroes and villains that ostensibly deny or manipulate this doctrine.  Of course as my earlier post on macro morality discusses, they are often in the wrong.

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