Sunday, December 27, 2009

Health bill thoughts

Short version: It's an expansion of Medicaid, with some doodles in the margin.

Longer version:

Today, the US has the world's highest medical spending and poor-to-mediocre health outcomes. It's the only rich country where health coverage is provided by private insurers; where most people's coverage is linked to their jobs; with a large number of people without health insurance; where millions of people lack any health coverage; and where medical problems often mean financial catastrophe. When this legislation is fully phased in, by 2016 or so ... it still will be.

We know what the bill won't do: fundamentally change the structure of health coverage and finance. But what will it do? My own bottom line is, Enough to be worth passing.

The bill's provisions break down into half a dozen major categories: (1) new insurance regulations; (2) health insurance exchanges; (3) individual and employer mandates; (4) Medicaid expansion; (5) Medicare (and Medicaid) spending cuts; (6) tax on high-cost insurance policies, plus a bunch of other smaller taxes; and (7) a grab bag of experimental measures to improve the efficiency and quality of health care. And then there's the provision that's not there, (8), the public option. There are serious questions about the logic and impact of most of these provisions, many of which I have not seen analyzed seriously. As time and inclination permits, I'll dig more into the most glaring ones. The bottom line, per the CBO, is that the uninsured would fall from 19 percent of the population today to 8 percent after 2015. [1]

I was thinking of walking through the major provisions of the bill one by one. But you can find that elsewhere. (Start here.) I might come back and write up a full summary, but in the meantime, I want to flag a half dozen important issues and questions that I haven't seen discussed much elsewhere.

1. The individual mandate -- is it really necessary to make community rating and related regulations work?
2. the distribution of new Medicaid spending, which is highly unequal between states.
3. The cuts in DSH payments, which could be catastrophic for some urban hospitals.
4. The crazy-quilt employer mandate.
5. Why the public option mattered.
6. How meaningful in practice are the limits on out-of-pocket costs, premiums, and medical loss ratios?
7. How much do insurance companies gain?

There are a couple other issues that have gotten a bit more discussion, where I don't think I have anything much to add.

First, what is the role of insurance companies under this system? It seems they no longer have access to the two main choice variables on which they maximize profits currently: the terms on which they offer coverage, and the mix of benefits they will pay for. If they must offer policies on publicly-fixed terms with a publicly-set package of benefits, there's no margin left for them to operate on. (Which doesn't mean they won't be profitable, just that their profit will depend on federal policy, not on factors under their direct control.) Two possibilities here: First, they will find ways to continue selecting healthier populations and limiting payments; the medical loss ratio restrictions won't bind; in short, the status quo. Second, the insurance companies become essentially vestigial, simply taking a cut off the top of what is basically a public system. Purely parasitic insurance isn't something anyone would propose, but it does have to be admitted it's an improvement on insurance companies that take their cut and try to increase it by denying people health coverage.

Anyway, this is looking at the bill through the lens of universal reform -- what is the logic of the system it creates? Whereas it plainly isn't fundamental reform, and it doesn't create a system with any particular logic, just tweaks the system that's formed itself willy-nilly.

Second, the abortion restrictions. It's clear that for some women, the bill will actually make things worse -- it will restrict abortion coverage compared with the status quo. How much, for how many? I don't know. But I did want to flag this lovely quote from The New Republic: "Poor people pay surprising amounts for cell phones and cable TV. They can be surprisingly resourceful in paying for abortions, too."

[1] Also, at The New Republic, Jonathan Cohn writes, "For nearly a hundred years, the political system has been debating whether access to basic medical care should be a right all citizens enjoy. When reform passes, the political system will finally render its verdict: 'yes.'" But 92% -- or even 94%, if you don't count undocumented immigrants -- is not "all". This kind of dishonest rhetoric has been all too common among those defending the bill.

Friday, December 11, 2009

How biologists think about genes

From Tangled webs: Tracing the connections between genes and cognition, by Simon E. Fisher:

The deceptive simplicity of finding correlations between genetic and phenotypic variation has led to a common misconception that there exist straightforward linear relationships between specific genes and particular behavioural and/or cognitive outputs. The problem is exacerbated by the adoption of an abstract view of the nature of the gene, without consideration of molecular, developmental or ontogenetic frameworks. ... Genes do not specify behaviours or cognitive processes; they make regulatory factors, signalling molecules, receptors, enzymes, and so on, that interact in highly complex networks, modulated by environmental influences, in order to build and maintain the brain. ...

What is a gene? Answering this question is far from trivial, but a useful operational definition might be ‘‘a stretch of DNA whose linear sequence of nucleotides encodes the linear sequence of amino acids in a specific protein’’. ... It is important to realise that the appearance and biology of a mature organism is the result of a complex series of ontogenetic events unfolding over time, moderated by environmental and stochastic influences. Genomes are much more like knitting patterns or recipes than blueprints (although even the former are poor analogies for the peculiarities of the genome). ...

The apparent ease of correlating genotype with phenotype without reference to molecular/developmental mechanisms promotes an erroneous impression of neurogenetics; one in which individual genes are able to mysteriously control specific behaviours or cognitive abilities, leading to talk of ‘‘language genes’’, ‘‘smart genes’’, ‘‘gay genes’’, ‘‘aggressive genes’’ and so on. It is indisputable that variations of gene sequence can contribute to variability in cognitive abilities and personality traits (sometimes in a dramatic manner) and that apparently straightforward genotype-phenotype correlations can sometimes emerge in our datasets. But the simplicity of these relationships is merely an illusion; genes do not (and indeed can not) specify particular behavioural outputs or cognitive processes, except in the most indirect way. ... The gross activities of the human brain are the products of a complex interplay between factors at multiple levels; be they genetic, cellular, developmental, anatomical, or environmental, and the routes linking genes to cognition will inevitably be tortuous...

... the gap between genes and cognition can only be bridged by a thorough systems biology account of brain development and function. Even pure candidate gene approaches can be victims of the ‘‘abstract gene’’ perspective. In many cases, when researchers find statistical evidence to support association between a particular variant of a gene and a common trait, it is erroneously assumed on the basis of this that the variant is likely to be causative and that there is a simple pathway connecting gene to trait. ... There is a large gulf between finding statistical evidence for a genotype-phenotype correlation and demonstrating a convincing causal relationship...

There is no doubt that the gene known as FOXP2 is relevant to linguistic ability. However, any characterisation of this as a ‘‘gene for grammar’’ clearly becomes untenable once we are able to view it within a more complete biological framework. ... Reduced amounts of functional FOXP2 protein can lead to disordered brain development or function, in a manner that primarily interferes with speech and/or language abilities. ... this is emphatically not the same as saying that FOXP2 is a ‘‘gene for speech’’ or a ‘‘gene for language’’... FOXP2 [also] regulates key pathways in the developing lung, heart and gut. .... The recycled use of the same regulatory factors to control multiple pathways in different developmental contexts is a common feature of complex biological systems; it is rare to find a transcription factor that has an exclusive role specific to only one context. Thus, calling FOXP2 a ‘‘language gene’’ makes no more sense than referring to it as a ‘‘lung gene’’... the data on FOXP2 from molecular and developmental biology confounds any expectations that one might have for a hypothetical ‘‘language gene’’; and the reason for this is that this entire concept is flawed, being rooted in an abstract view of the nature of the gene. ...

Wednesday, December 9, 2009

Credit and car sales

Here's another one for the file on credit availability and the downturn: How much has tighter financing contributed to the decline in car sales?

The conventional view is that auto sales, like other categories of consumer spending, have been sharply and directly reduced by the financial crisis. From today's Wall Street Journal:

The hardest-hit markets since the crisis were ones at the heart of the financial problem -- the "securitization" markets where loans for everything from mortgages to credit-card debt get sliced up and repackaged into complex securities.

The size of the market for securities backed by loans tied to homeowners' equity has shrunk more than 40% since the second half of 2007. The market for securities backed by auto loans has shrunk 33%...

These securitization markets provided as much as 50% of consumer lending in the years leading up to the crisis, says Tim Ryan of the Securities Industry and Financial Markets Association, a financial-industry trade group. "Without [the securitization markets], it's very difficult to replicate the amount of money moving into the economy," he says.

I've been skeptical about this story in general, but let's see how it holds up in this case. (Click the graph to make it readable; I'm still figuring out the mechanics of blogging.)

The top panel shows the real interest rate on new car loans, the second shows the average loan-to-value ratio, and the bottom shows monthly auto sales in millions, at a seasonally-adjusted annual rate. (Source: Table G.20 from the Flow of Funds; BEA via FRED.) The vertical lines mark business cycle peaks. To make the argument clear, here are the same graphs for just the past two years. The gray area in this one shows when the "Cash for Clunkers" program was in effect.

We see a few things here. First, while auto financing clearly did get tighter as measured both by interest rates and loan-to-value (the latter is a measure of credit availability), the decline in sales started first. Sales were already falling by the end of 2007, while there's no sign of tighter credit until August 2008. So while the collapse of the secondary market for securitized auto loans may indeed have caused lenders to tighten their standards, it's not clear that this was a major factor in reducing sales. Further evidence on this point: Auto credit tightened just as much in 2003-04, with no effect whatever on sales.

Second, while lending standards relaxed this past spring (the bailouts worked), easier credit didn't get people into the dealerships. The spike in sales this summer was all about cash for clunkers; once that ended, sales collapsed, even though interest rates remained extremely low and credit availability, as measured by the loan-to-value ratio, remained fairly high (lower than in the 2000s, but similar to the 90s.) Interestingly, dealers seem to have tightened credit standards during the period of heightened demand in July and August; in this case, the real dog was wagging the financial tail.

So as far as cars go, we can conclude: The credit crisis may have contributed to the decline in real activity, but it wasn't the sole or the decisive cause. And now that sales have collapsed, there's no reason to think that credit conditions are what's holding them down. If you want to support the auto industry, give people money to buy cars (or retrofit car factories to build windmills). Don't try to revive the market for securitized auto loans.

Tuesday, December 1, 2009

Quoted for truth

"You can't completely trust anyone who's not a communist," says Jim Crotty.

No you can't -- except one is often inclined to let the trust extend a generation down. Case in point: A. Hiring A. was, for better or worse, probably my biggest single contribution to the Working Families Party in my five years there. But the guy was a puzzle -- his vibe was pure corporate-pragmatic -- "we don't really believe our own propaganda, do we?" he'd say -- and yet he'd left a successful and presumably lucrative career in business (he'd been, inter alia, general counsel at the teen clothing chain Delia's) to do grunt work in left-wing politics. And he was good at it!

So, a puzzle. So one day, driving back from Albany, E.B. and I started asking him about his background, where his politics came from. And come to find out, A.'s father was a Chilean communist, who'd fled the country after the coup against Allende. We looked at each other as if to say: Well, now it makes sense.

(EDIT: Names changed to abbreviations because these folks still work in politics and possibly don't want to be outed as crypto-commies. Lame, I know.)