Coyote Blog

A new study on medical malpractice decisions by Alexander Tabarrok and Amanda Agan of George Mason University was released last week.  A lot of the study is dedicated to countering some economically-ignorant canards (e.g. the charge that the recent rise in malpractice insurance is all due to price gouging and not due to malpractice awards).

The most interesting piece is where they compare malpractice awards to results of the independent medical review board rulings.

Our test finds that the tort system and review system do not correlate. Figure Five shows that
adverse actions per doctor in the medical review board system do not correlate with the number of medical malpractice cases per doctor in the tort system, nor do they correlate with the
average award per doctor....                               

In no case is the correlation large; in some
cases, it is actually slightly negative. What these results indicate is that the two systems
we have for determining malpractice, the tort
system and the medical review system, result 
in very different determinations of malpractice.
Surely, one of them is wrong!

The conclusion is one I think many neutral parties have suspected for quite a while:  The tort system is doubly broken:  Bad outcomes that truly are the result of malpractice often do not result in an award, while numerous tort awards go to people who are not the victim of any real malpractice.  Or to put it simply, people who are owed restitution aren't getting it and people who get money often shouldn't be owed anything.

The obvious result is a gross miscarriage of justice.  However, there is a second, less talked about result:  If the tort system is random, having no correlation to real doctor error or doctor quality, then it is impossible to charge doctors with risk-adjusted premiums.  In an efficient market, the worst doctors would pay the highest premiums and would get driven out of the market, just like bad drivers must change their behavior or face lifelong high auto premiums.  However, if tort awards are not correlated with bad behavior, as the study implies, then the system creates a huge moral hazard, with bad doctors underpaying for insurance and good doctors overpaying.  The result is that at best, good doctors will be driven out of the system at least as frequently as bad doctors.  At worst, good doctors, frustrated by the lack of justice in the system, will actually be more likely to leave the system than bad doctors.

I loved this email received at Maggie's Farm:

What are you guys smoking over there? Here I am in Massachusetts,
without health insurance, and with a family of four, and all that has
happened is on top of having to pay full freight for my family's doctor
bills, I get fined $1000.00 for the privelege.

I don't want
your stinking welfare greenstamp department of motor vehicle government
cheese copay paperwork foodstamp prepaid doctor tax charity ward let a
million flowers bloom supervision of my family's medical situation,
thank you very much.

Catastrophic medical insurance is
currently illegal in Massachusetts. All they had to do is allow me to
purchase what I could get if I lived 50 miles west, which is REAL LIVE
INSURANCE, that is, they would pay if something unexpected,
substantial, and expensive happened. And it would cost me a couple
hundred bucks a month. But no, I have to pay full freight for every
lamebrain thing that every knucklehead who has a job with benefits
wants tax free, like gym memberships and aromatherapy and acupuncture
and reiki massage and "mental health," ie, I'm a miserable failure as a
human being and I want to talk to another miserable failure that went
to community college for psychology about it, at great expense. Oh,
yes, let's not forget all middle age men that need free blue pills
because what a mean spirited thing it would be [if] middle age men didn't
wander the earth with extra free hardons.

And so "insurance"
becomes paying in advance for others to get what they don't need or
deserve, to the point where "Insurance" costs 1200 a month and if
something catastrophic did happen, would bankrupt me anyway, because
instead of paying $50 for an office visit for an imaginary ailment, but
having a real catastrophe paid for, the powers that be would prefer
paying $5 dollars copay for an office visit to their yogurt enema
wellness healer, but have to chip in 20% for cancer therapy, which
would bankrupt anybody that has to worry about the cost of health
insurance in the first place.

ROFL. I too am a big believer in catastrophic health insurance.  My home insurance does not cover broken light bulbs and leaky plumbing.  My car insurance does not cover air filters.  Why does my health insurance have to cover routine stuff?  I pay for my own health care and this is exactly how my family handles both dental and medical:  We pay regular visits but have catastrophic coverage for major health breakdowns. 

Jeez, I wish I had written that email and could take credit for it.  The blog does not reveal the emailer's identity, but whoever you are you're welcome to guest blog here any time.

Update: About a year ago, my family of four was quoted about $650 a month for the type of full (not catastrophic) medical insurance that the state of Mass. is requiring.  This is about $8000 a year.  This strikes me as by far the most expensive item that any US government has required its citizens to purchase, and given the average GDP of most nations, may be the most expensive item any government in history has required all of its citizens to purchase.  Up to this point, many municipalities have shied away from requiring purchase of $40 smoke detectors.  The only thing that is even within an order of magnitude of this is perhaps car insurance, but even car insurance is not required of every citizen, just the ones with cars (don't laugh, if car insurance laws followed the same logic as this health insurance bill, not having a car would not be a legal excuse for not having auto insurance.)

Update 2:  I am sure I will get the response, "but the supporters promise that the bill will halve the cost of private health insurance.  Right.  Here is a clue:  Except for the reform plan in California pushed by Gov. Arnold, every single state attempt to "reform" workers comp. has resulted in my premiums going up.  I am sure we are all holding our breath for the price drop in passenger rail service and first class mail. 

This plan removes the last people from the market who are price sensitive shoppers of individual medical services (i.e. those who pay expenses out of pocket rather than having them covered by medical insurance).  If you drive down the marginal cost to all consumers to the level of the copay from the much higher true-cost of the procedure, then you are going to get a lot more use of all medical procedures.  Higher use = higher cost.  Higher cost = higher premiums, even when spread over more people.

I am constantly stunned that this concept has to be explained to people.  Let's consider a test that costs $1000 to administer that can detect a very rare type of cancer that only occurs in 1 in 100,000 people.  Well, if they charged you anywhere near the $1000 cost, few people would choose to pay for a test to identify something so low-risk.  But if you could take the test for a $20 copay?  Sure doc, let's do it!  So the insurance pool has to fork over $1000 for a procedure that you might only value at $20.   Also see this post for more along the same lines.  And here too.

Insurance legislation passed in Massachusetts:

The bill requires that, as of July 1, 2007, all residents of the Commonwealth must obtain flood insurance coverage, even if they don't live in a flood plain.... The purpose of this "Individual Mandate" is to strengthen and stabilize the functioning of flood insurance risk pools by making sure they include people outside of flood plains with no flood risk as well as people who know they live in a flood plain.

What?  We have to get insurance, even if we think there is no risk and the insurance is just wasted money?  Yes indeed, that is correct.  Well, almost correct.  I changed a few words.  The actual wording of the bill, sent to me by reader L Cole, mandates unwanted health insurance rather than unwanted flood insurance:

The bill requires that, as of July 1, 2007, all residents of the
Commonwealth must obtain health insurance coverage.... The purpose of
this "Individual Mandate" is to strengthen and stabilize the
functioning of health insurance risk pools by making sure they include
healthy people (who, if not offered employer-sponsored and -paid
insurance, are more likely to take the risk of not having insurance) as
well as people who know they need regular health care services.

More from Bloomberg.

For years I have criticized the argument which says that the problem with the health care system is that there are too many uninsured people.  My argument was always that there were many people who choose to self-insure, and that the real "problem," if there is one, is how many people there are who need care but can't get it (a much much smaller number that is never discussed). Just look at the attached bill - the justification is that there are people uninsured, not that there are people unserved.  Now we can see the end result:  Instead of fixing the actual problem, which is people who need care not getting it, they fix the problem as it was discussed:  they literally forced people to get health insurance, even if they don't want or need it.  Now some elected weenie can say "in Massachusetts, we have licked the problem of people without health insurance."  Reminds me of this Rush song.

Like many parallel bills proposed in other states, this one requires businesses to provide health insurance or to pay into a state fund if they don't.  But the bill also has this scary provision:

The Free Rider surcharge will be imposed on employers who do not provide health insurance and whose employees use free care. Imposition of the surcharge will be triggered when an employee receives free care more than three times, or a company has five or more instances of employees receiving free care in a year.

First, as an employer, why am I a free rider?  It is not me that received any free services or care.  My employees medical problem is not my fault (or else it would be workers comp).  If I hire someone that takes advantage of government loans to send their kids to college, am I a free rider?  If my employees choose subsidized mass transportation over driving their own cars, am I a free rider? 

Second, I sure hope all you poorer folks with health problems understand that it is now going to be really hard to find a job in Massachusetts.  No employer in their right mind is going to hire someone who may trigger this liability.  This provision would be a disaster for our company, since we tend to hire older retired people (with lots of health problems) for seasonal work (for which it is impossible to structure a health insurance plan).  Fortunately, I guess, Massachusetts is one of the states our company red-lined years ago as a place we will never do business, so this does not change our strategy much.

I have no idea what this will cost taxpayers and businesses in Mass.,
but I am positive it is substantially more than the bill's sponsors have
let on.  And there is a lot of hand-waving going on by supporters who insist that this bill will drive premium costs way down that strikes me as bullshit as well.

Update:  This article in Business Week provides some insight into the 500,000 uninsured in Mass.  Supporters of the bill claim that 100,000 of these are poor people who qualify for Medicare but haven't bothered to sign up.  200,000 are higher income folks who could afford insurance but choose not to buy it.  The other 200,000 are people they claim can't afford it, but surely even if they could, some portion would choose not to buy it.  So by the admission of the bill's supporters, at least 60% and probably more of the uninsured are that way because they choose to be.   Lets come up with a costly socialization of the medical industry in order to force on people something they don't necessarily want or need.

Progressives often wrap themselves up in a lot of libertarian-sounding jargon.  But when push comes to shove, progressives are more comfortable with coercion than free association.  James Taranto links this piece in his Friday Best of the Web:

A longtime singer and guitarist with the Zucchini Brothers and a substitute teaching assistant for Washington-Saratoga-Warren-Hamilton-Essex BOCES [school board], Powell has lived frugally for years. He works about three days a week as a sub, earning about $70 a day, with no benefits. From March to October, he rides his bike 20 miles to work when work is available....

Part of that survival--or so he thought--included shopping at Wal-Mart to take advantage of cheaper prices for himself, his partner and her two children. Then his discussions about Wal-Mart with Sandra Carner-Shafran, a teaching assistant at BOCES and a member of the Board of Directors of New York State United Teachers, started churning inside him. . . .

"I don't like what Wal-Mart stands for," Powell said, noting the mega-chain's scanty health insurance for staffers. "Because of all those things they can lower the prices."

He and his partner agreed to go on food stamps for their family rather than shop at Wal-Mart any longer.

Please observe the moral choice he made that is being applauded by those on the left:  Rather than get low cost food from Wal-mart, which generally* transacts with its suppliers, employers, and customers through mutual self-interest and the consent of all parties in each transaction, he has decided it is MORE MORAL to get his food expropriated from the American taxpayer without their consent.  Lovely.  By the way, it is ironic that he is mad that Wal-mart employees accepts jobs with no health benefits when he in fact has made the same choice himself.

More on what makes progressives tick here.

*The exception being that Wal-Mart does use the force of government via imminent domain to obtain land where the free will of landowners would not cooperate and to get special tax credits from local governments to get area citizenry to subsidize its business.  If Mr. Powell were to protest these practices, I would be all for it, but my guess is that he is not protesting government handouts to Walmart by signing up for... government handouts for himself.

First, a little background as I understand workers comp:  Years ago, government, workers and employers effectively made a deal that has worked pretty well for everyone.  In that deal, workers gave up the right to sue for workplace injuries in exchange for a program where employers were required to contribute to a workers comp fund and employees are paid by a government bureaucracy for their health care and lost time.  The system is "no-fault" to the extent that it does not matter if the worker is hurt because the employer had unsafe conditions or if the worker is hurt because he did something boneheaded in violation of rules - either way he gets paid the same.  The system avoids moral hazard at least on the employers side by charging higher premiums to employers that have higher claims rates  (based on an experience mod system explained here).  Employee moral hazard (ie cheating) is supposed to be policed by the bureaucracy, and one can evaluate how much cheating is going on by how high the rates in the state are.  California used to have very high rates and lots of cheating, but has cracked down of late and things are better.  Florida is the king of workers comp fraud and employee cheating, so much so that many national insurers won't touch Florida and our rates are twice as high (or more) in Florida than in other states.

Already frustrated with Florida over the high amount of cheating and high rates, two things I have seen here of late make me doubly depressed.  First, in the last year or so we have started to see claims paid where in addition to, say, $20,000 in actual compensation to a worker, there is an equal amount paid to lawyers.  The first time, I was irate.  Why are my workers comp dollars going to lawyers?  The whole point of the workers comp system is to substitute an administrative no-fault claims system for expensive lawyers and trials.

So this week I get my second surprise about Florida workers comp.  I am down in Florida, doing some business as well as visiting the in-laws (which is why blogging has been light) when I start to hear radio commercials by law firms that say "If you have been hurt at work, call us first before you claim workers comp."  The message is not even, "call us if you think the administrative decision was unfair" but was "get us involved with every little claim."  Does this mean that I am going to start seeing a lawyer 'tax' on every workers comp claim in Florida?  If so, Floridians must have passed some pretty dumb legislation somewhere along the way.  Now, I might understand this if this was a worker backlash in some state that administratively is over-tough on workers in filing their claims, but Florida has historically been the most generous already.  I am sure most of the employers in this state have experienced the "debilitating injury the day before I was going to quit,"  a tried and true Florida technique for supplementing unemployment insurance for a bit of paid vacation. 

Maybe some of the readers can confirm if Florida did something new legislatively over the past few years that opened this up.  By the way, and I apologize in advance to all my hard-working readers in Florida, but I don't think there is any other state with a larger population of searching-for-something-for-nothing freeloaders than one can find in Florida.  Something culturally seems to be wrong here, and I wonder if Florida might not be the next California, with businesses heading for the exits.

I posted on shareholder suits over at Overlawyered.  A reader sent me this great article from 2000 in Fortune on Bill Lerach, the kind of shareholder suits.  These thoughts echo my own (or, since I guess this was written long before my post, my thoughts echoes these):

Stanford law professor Joseph Grundfest, a former
SEC commissioner, goes so far as to describe the current system governing
securities fraud as "nuts." As he sees it, class-action settlements amount
to nothing more than an unproductive "transfer payment" from current shareholders
to past shareholders--with big contingency fees skimmed off the top. "The
plaintiffs lawyers are getting a cut of the money that flows from our left
pocket to our right pocket," he says. Even in those cases involving genuine
wrongdoing, he adds, the individual perpetrators rarely pay anything out
of their own pockets, thanks to insurance and indemnification policies.
Nor do the shareholders get much--generally no more than 15% of their losses,
studies show. "Fraud is wrong," says Grundfest. "It has to be punished.
But what we have here is a shell game."

Read the whole article.  In many of the anecdotes, Lerach seems to be channeling Tony Soprano.

As I mentioned in an earlier post, we recently won the concession for Elk Creek Marina on Blue Mesa Lake, Colorado.  For the last week, I have been scrambling to take the steps necessary to take over this business without disrupting service to customers. There are a lot of things to do from a customer service standpoint to get the business up and running, but there is a staggering list of permissions and licenses we need from the state of Colorado and other government bodies to be able to conduct this business, particularly since this is our first entry into Colorado.  Here is what we know we need so far, though I caution that this list continues to grow at the rate of 2-3 more items a day as we learn more:

• Our corporation must register with the Colorado Secretary of State as a "foreign" corporation, foreign in this case meaning that we are registered in another state.
• To register as a foreign corporation, we need to hire a person to be a "registered agent" to be a contact with the state.  The only real purpose of this person I have ever found is to provide an avenue for mail to get lost
• We have to register to pay Colorado unemployment insurance tax
• We have to register to withhold Colorado income taxes from our employees
• We have to register to pay state corporate income taxes and franchise taxes
• We have to register to collect sales taxes
• I think we have to get a special license for collecting electricity taxes, since we sell power to boats at some of the docks
• We need to go through an extensive application process to transfer three current liquor licenses into our name.  I wrote about liquor license hassles here.
• The person on the phone today told me a corporation in Colorado cannot own more than two liquor licenses.  If this is true, we will have to form a second company in Colorado, repeating all the tasks above plus the initial work just to form the company
• I need to fly to Colorado to get fingerprinted for my FBI background check that is needed for the license.  This despite the fact that I have been fingerprinted and background-checked for liquor licenses in several other states.
• Since the company will hire out fishing guides from the marina, the company has to have a Colorado outfitter license, which includes a 13 page application and very detailed regulations and required contract terms I must use to provide the life-and-death service of helping people find fish.
• The outfitter license requires that I post a bond, which in turn requires I submit detailed financial and background information to get the bond approved
• Our managers need to attend food handlers training in Colorado.  Of course, they have attended the exact same course in California, but Colorado wants them to sit through it again within their state's borders
• We need to fill out a pretty elaborate application to sell Colorado fishing licenses, and may need to post another bond to do so. (Update: Confirmed, we need a $4000 bond).
• We will likely need an occupancy license from the county
• We will need a health department inspection and license for the two retail stores, since they sell packaged foods, and a more detailed inspection for the restaurant
• We will need a fire inspection of the restaurant
• We will need Coast Guard inspection and certificate for the docks
• We will need to change the registration of all 45 boats that are kept at the marina for boat rentals  (imagine standing at the DMV to register 45 cars).
• We will need Coast Guard inspection of all the boats

75 days until we open.  Eeek.

Today, the town of Sedona, Arizona joined the ranks of government organizations trying to make business incrementally more difficult.  I operate campgrounds in the Sedona area, and as such I have already registered my business there with:

• The federal government for social security and medicare taxes
• The federal government for employee payroll withholding
• The federal government for income taxes
• The federal government for federal unemployment insurance
• The State of Arizona secretary of state and corporation commission
• The State of Arizona department for unemployment insurance
• The State of Arizona department of revenue for sales taxes
• The State of Arizona department of revenue (second time) for corporate income taxes
• The State of Arizona department of liquor, for liquor license
• Coconino County tax collector, for property taxes
• Coconino County health department, for health inspection and certificate

I am sure this list is incomplete, but you get the idea.  I know for a fact that the town already has access to my business information, because they have access to the state department of revenue sales tax database that has all the data they want.  However, I guess so they can feel important -- they want to make sure I have THEIR approval to exist and conduct private transactions with the public as well.  Here is the only rational offered in their letter:

To those businesses operating in the City limits of Sedona:

Help Create Our Economic Future

To Create a viable economic future for Sedona, it is important to know what types of businesses currently exist within the community.  As of January 31, 2006, in order to create a database, all businesses operating in Sedona, or headquartered elsewhere and doing business in Sedona, will need to apply for a business registration.

First, we businesses are already creating Sedona's economic future, and this notion that a couple of people in a small town city clerks office can do anything to add to productivity and economic growth is the worst form of governmental hubris.  Second, though filling out a couple of pages may seem  too small to complain about, we operate in over 200 locations.  Thank God that most of them are in unincorporated area, or we would be filling out hundreds or thousands of pages a year just to help some city clerks with their "database". 

Third, it is interesting to note that Sedona is starting is campaign for their economic future by making doing business there harder.  Sedona reminds me a lot of Boulder, Colorado, where I used to live.  In Boulder, this kind of data request would be the harbinger of some massive new regulation program.  My best guess is that this will be the case in Sedona as well -- this database will be used to justify new regulations and taxes, not less.

I ran corporate planning staff groups at several large corporations.  Every time my staff guys had a new analysis they wanted to do, they often wanted to send out a new requirement to all of our operations managers to report some new data they needed for their project.  As their manager, I tried to be ruthless in defending our operating people, pushing back on my staff guys to find any other way to get the data they need, or to justify strongly the need to ask our folks to report yet another bit of data.  In most cases, the analysis did not justify the work or the data could be acquired some other way, a way that required more work of my staff guys but a lot less from the operating guys who really mattered.  This requests smacks of the exact same thing, except without the adult supervision to push back on their endless data requests.  (Other example here).

This all made me think of this, maybe because my mind works in strange ways. 

The Senate has introduced the "Digital Content Protection Act of 2006,"
a bill that will create "Broadcast Flags" for all digital radio and
television, leading to FCC oversight of all new digital media
technologies from iPods and PSPs to TVs and DVD recorders.

Under the DCPA proposal, digital media technologies would be
restricted to using technologies that had been certified by the FCC as
being not unduly disruptive to entertainment industry business-models.

Beyond my irritation at this whole broadcast-flag-FCC-power-grab raising its head again, it made me think about people's reaction to regulation.  In general, when people actually run into government regulation face to face, they hate it.  That's why with this broadcast flag issue you tend to see a lot of people who generally profess to be comfortable with big government suddenly freaking out, perhaps because this is the first time, beyond the drivers license office or trying to mail a package at Christmas, they every run into the true face of government.  Most corporations today are pretty good at sheltering customers and employees from the mind-numbing regulation they face. 

To all you guys who are fed up with the FCC, let me assure you as a small business owner:  The Department of Labor, Federal Trade Commission, Social Security Administration, Department of Commerce, and every state, county, and city agency you can think of is at least as overreaching and destructive.

The government:  Not to know it is to love it.

Update:  In the past, I have had a field day laughing at left-of-center groups who scream privacy rights at every occasion but support all the intrusion above.  Most recently, I have taken on NOW and the ACLU over this issue.

Running for-fee campgrounds on public lands often gets us into some controversy.  For example, many people wonder, sometimes in a fairly excitable manner, why they have to pay for camping on public lands when they have already paid their taxes.  The simple answer to this is that Congress and administrations of all flavors have consistently ruled for years that fees rather than taxes should support developed campgrounds.  Read this post for more, or call your Congressman if you don't agree.  Also, here is my company's FAQ on camping fees and private companies operating on public lands.

However, there ARE many free camping opportunities on public lands, but because of Forest Service terminology, these are sometimes missed by the public.  In most cases, when the Forest Service has a named campground, it requires a fee because it has a number of minimum features for the facility:

• Graded, and sometimes paved, roads and spurs
• Bathrooms, and sometimes showers
• Picnic table, tent pad, and fire ring / grill at each site
• On-site host / security to enforce rules (e.g. quite time)
• On-site operator with property and liability insurance
• Water supply that is frequently tested and treated when necessary
• Hazard tree removal
• Trash and (for campgrounds not on a sewer system) sewage removal
• Leaf blowing from trails and roads, site raking, painting, etc.

This stuff does cost money, and so the typical campground we run charges $12-14 a night, with 50% off for Golden Access patrons (i.e. senior citizens).  Heck, the insurance alone costs about $1.50 per night's stay, thanks to our friends in the tort bar.

However, most National Forests offer what is called dispersed camping.  This is camping out in the wilderness, without any amenities, and, at least in most cases, is totally free.  Most of these camping areas don't have names, just locations and boundaries.   Expect to give up all of the above amenities, and be ready to pack your trash out, but you can still pitch your tent out in nature without charge.  And in many of these locations, you can get far away from other campers.  Just call the local ranger district (contact info here) and ask them for information on dispersed camping.

One proviso - the biggest problem with these dispersed, non-hosted areas is, if they are heavily used, they can be a worse experience than the paid campgrounds.  They can accumulate trash from thoughtless patrons, and they can get very rowdy.  Dispersed campgrounds attract the best of campers - those truly trying to get a natural experience; and the worst of campers - those who don't want to follow rules, don't clean up after themselves, and who don't want to shut down their loud partying just because it is two in the morning.  Many people who initially opposed paid camping are now big believers, since they have learned to value campgrounds with rules and security after a few late nights listening to loud generators and drunken parties.  Talk to the ranger district to know what you are getting into at a particular site.

This was funny, from labor boss John Sweeney (via Cafe Hayek):

Let's require big, profitable companies such as Wal-Mart to provide health care
to their employees instead of passing the cost along to everybody else, and
let's begin to develop a national health care plan that provides affordable
coverage to all Americans.

This is really, really funny.  Notice that in the first half of the sentence, he decries passing health care costs "along to everybody else" and then in the second half advocates a national health insurance plan that would pass individual health care costs onto... everybody else.  Also note that since Wal-mart, despite Mr. Sweeney's description as being big and profitable, has one of the lowest profit margins in the Fortune 100, it would likely have to raise prices in order to... pass these costs along to everybody else.

What Mr. Sweeney is actually frustrated about is that there are a large number of individuals in the labor force that he does not make decisions for and who do not in turn contribute to his personal power.

Cafe Hayek has more.

My Vioxx post below got me thinking about choices, and in particular, how we "grade" other people's choices.

My first thought on this topic is that assessing the "right" choice for an individual, when a decision affects only that one individual, can only be made by that person.  That seems like a dumb and obvious statement, but actually its fairly relevant to public policy nowadays.  Want to ride your motorcycle without a helmet?  Sorry, we think that is a bad decision and we aren't going to let you make it.   Want to reduce excruciating pain even at the risk of future heart problems?  Sorry again, can't let you do that.  Want to let Florida State continue to use your tribe's name (Seminoles) for their mascot?  Sorry, but that is degrading to you, even if you don't know it.  Want to enjoy some french fries (maybe even some Snuffers cheese fries, for those who have ever lived in Dallas) at the risk of a future heart attack - well, you can still do that, but we're working on it.  I wrote much more on this topic here.

Beyond the moral problem I have with having the government limit our ability to make decisions for ourselves, the fact is that we are generally really bad at assessing other people's choices.  I will make the analogy using blackjack.  I remember sitting at a table in Vegas and watching some woman take a hit on 18.  For those who don't know blackjack, trust me - you are always statistically reducing your odds of winning when you hit an 18.  Anyone, the woman draws a three, for a perfect 21, the dealer reaches 20, and she wins the hand.  Several people around the table said to her "great decision to take another card".  No it wasn't!  It was stupid!  It was a bad decision that, in this particular case, she was bailed out of by good fortune, but over the long haul of hitting 18's, she's going home broke.

Lets take a second example.  I buy liability insurance for my company every year.  Because I am in a public contact business, which makes us a particular target of the litigation industry, we pay nearly $100,000 a year for the policy.  Last year, we had no claims.  Does this mean that I made a bad decision buying insurance last year, because it turned out that we had no claims?  No, of course not.  It would be irresponsible in today's litigious environment to engage in unprotected business.   The insurance is a smart decision, even in years without claims.

But juries always assess choices based on the outcomes, not on the inputs the individuals involved were facing when they made the choices.  In the hands of a good litigation attorney, a jury will always find that hitting on a 12 in blackjack and drawing a king was a bad decision, even when the dealer is showing an ace and the odds say you HAVE to draw. 

Which brings us back to Vioxx.  Lets imagine ten thousand people who have excruciating pain, pain that prevents them from actively participating in and enjoying life, that choose to take Vioxx, knowing that there is a tiny risk of heart problems.  9,999 live a better life.  One man dies.  A jury eventually decides that the one man made a bad decision (since he died).  I would argue that the man who died did not make a better or worse decision than the other 9,999.  He made what he thought was a good decision, the same decision all the others made; he just happened to be the one who came out unlucky, but they all knew going in that someone in their group would probably draw the short straw.

Postscript:  Of course, no one ever thinks its going to be them who draws the short straw.  There is a famous story from WWII about a soldier being told with his company that two out of every three of them would likely die in the coming D-Day invasion.  The soldier looked to his comrade on his left, and then the man on his right, and thought "poor bastards".

This is something our company has encountered a couple of times now:  There is apparently danger nowadays in posting warning signs.  Apparently, courts and juries are taking the position that by posting any warning at all, you are communicating to the public that you are taking on the task of warning them about any possible danger.  Then, when someone gets hurt by something you did not warn them about, they can argue that you are liable. Via Overlawyered:

Putting up signs warning visitors of the dangerous rip currents off New Jersey's
Long Beach might seem like an obvious step. "However, Long Beach Township
Attorney Richard Shackleton said there are liability issues to consider.
According to the law, the town does not have to warn people about natural
conditions, and if Long Beach put up a sign and a jury found its warnings to be
inadequate, the town could possibly be found liable for a drowning or injury.
Having no signs, he said, reduces the risk of being sued."

We have similarly had our attorneys and/or insurance inspectors recommend we take down a number of warning signs for this reason.  I have no idea how this outcome can be in the public interest.

According to the WSJ($), you and I are going to take on the pension obligations of UAL:

A bankruptcy judge approved a
proposal from United Airlines parent UAL Corp. to transfer four
underfunded employee pension plans to the federal government, paving
the way for the largest pension default in U.S. corporate history.

The plans, which have a shortfall of $9.8 billion,
cover more than 120,000 United workers and retirees. United, the
nation's second-largest carrier in terms of traffic, wants to transfer
them to the federal Pension Benefit Guaranty Corp., or PBGC, which
would add to the already heavy strain on the agency from a spate of
pension defaults in recent years. Since accounting for United's
obligations last year, in anticipation it would assume them, the agency
has taken on obligations exceeding its assets by $23.3 billion  [ed note- the agency takes in only about $1 billion a year in premiums, so $23.3 billion in the hole is a very big number]....

The court's decision could have wide
repercussions in the airline industry, which is struggling with high
fuel costs, intense fare competition and overcapacity. Sidestepping its
pension liabilities will help UAL attract additional funding, while
giving it a huge cost advantage over many of its rivals, which are
saddled with underfunded defined-benefit retirement plans of their own.
That will put further pressure on those airlines to slash their costs
or in some cases seek bankruptcy protection in hopes of terminating
their own pension plans.

It is difficult for me to even start on how much this pisses me off.  These pensions are real obligations that UAL took on, and represent value provided in exchange for work that has already been done.  As outlined below, I am not big on the defined benefit pension model, but that does not change the fact that these companies are defaulting on a solemn obligation.  The temptation I guess is always great when finances get tight to defer obligations that are the farthest in the future, and so pension underfunding is one of the first things to occur.  There is no way management should get a pass for this, and I am flabbergasted that equity holders expect to retain anything out of the bankruptcy when employees have not been fully paid.

This being said, there is plenty of blame to go around, including for the union and the government.  The UAL unions should have been dropping the hammer on the company in the form of strikes or whatever at the first sign of under-funding.  Instead, they were more concerned about jacking up their salaries to the highest levels in the industry, ignoring the reality that airline finances by the late 90's were basically a balloon that if you pushed on it in one place, it popped out in another.  Unions allowed the underfunding to continue in large part lulled by the promise of the PBGC and taxpayers to make the pension funds whole if they continued to be underfunded.  This is the moral hazard that occurs in any kind of financial insurance like this, and the unions apparently were both right and wrong - we taxpayers will take on the obligations but their benefits will also get a haircut.

One of the lessons I thought was learned from the S&L bailouts of the 90's was that you can't provide such financial insurance without a parallel regulatory structure to make sure some kind of minimum fiduciary responsibility exists.  But, not learning a thing, the government has this pension guarantee program in place and exercises virtually no oversight over the funding or management of the insured pensions.

It is astounding to me that a large number of people still support defined benefit plans over defined contribution plans. What I don't honestly understand is why the rank and file still buy into this.  Defined contribution plans are much easier to monitor and audit and keep companies honest.  Once the money is in a vehicle such as a 401K, the money can't be taken away by the company or lost in a bankruptcy (unless the 401K is invested in the company's stock, which any adviser will tell you to never, ever do (see "Enron").  Now, I understand that there can be some tricky migration issues from one system to another, and companies use the transition as an excuse to cut back on their net contributions, but these are workable and negotiable issues .  My guess is that the support for defined benefit plans comes mainly from union leadership, since these plans give
them control of huge amounts of funds and thereby gives them extra
power (see Teamsters for the classic example, or more recently, the situation at Calpers).  I wrote more on this topic here.

The issues here are surprisingly similar to the Social Security debate, as discussed here.  Would you rather have the money in your own account, despite the fact you will then have to bear market risks, or would you rather the money remain in the hands of your company or your Congress.  In entirely parallel situations, money entrusted to UAL management and to Social Security has all been spent, with nothing now left to pay retirees. 

Update:  It just occured to me to ask - why don't frequent flyer mile holders ever have to take a haircut in an airline bankruptcy?  We frequent flyers are creditors too, holding a claim on the company in the form of our miles.  In fact, I would think my claim as a holder of miles is much much worse than other creditors.  For example, why should employees have their pensions cut before I get my miles account cut?  Heck, employees seem to have a much better claim than I do, especially since many of my miles were earned, like everyone else's, as marginally ethical kickbacks directly to me for influencing my employer's spending on air travel.  Despite this, it appears that pensions will be cut, and salaries will be cut, and bondholders will lose value, and stockholders will be diluted, but my miles will all still be good.

Update #2: Assymetrical information has a nice post along the same lines, pointing out an issue with corporate defined benefit pensions that I forgot to mention:  If you are 20 years old with a company, are you really willing to make a bet that your company will even exist in 60 years to pay off your pension?  Not to mention the portability issues, since few people remain with the same company to retirement.  I think I actually have a couple of defined benefit pension plans I am vested in from early in my career - one from Exxon, when I was about to quit to go back to school and was offered, due to poorly structured plan rules, the chance at early retirement instead.  I think I qualify for like $1.23 a month for life from that plan.

More also from Will Collier:

I don't mean to tread on Martini Boy's turf here, but the pensions
crisis among all of these old-line companies illustrates a great no-no
of long-term investing: lack of diversification. In the end, even
though they presumably didn't have much choice in the matter, all those
UAL employees who've been promised a defined-benefit pension are in the
same boat as the Enron and WorldCom employees who voluntarily put all
of their 401(k) money in their own company's stock. They bet the house
on one horse, and by they time old age caught up with the grizzled nag,
there was barely enough left of it to cart off to the glue factory

Kevin Drum also points out that these defined-benefit funds are easy to manipulate, since managers can play with the "expected returns" variable to change the necesary annual contribution. 

Arizona Watch has a great post today about our state government's foray into amusement park regulation after several folks were stuck on a local ride for a couple of hours. 

There are no major amusement parks in Arizona, although two large
ventures are apparently planned. Currently, inspections are handled by
insurance companies, who have a serious financial stake in maintaining
the safety of the rides. Insurers can't afford to have unsafe rides at
their client's amusement park. Compare that to the state, that has
exactly what at stake?

As an aside, Phoenix is an awful place for a roller-coaster and amusement park fan like myself to live.  Basically, we have no real amusement parks  (though there are some great ones about a 6-hour drive away in LA).  I have sat and pondered this a lot - why does a city this large with such a strong tourist economy not have a Six Flags type attraction?

The answer I guess is  that our season is wrong.  Our season is November-April, when the weather is nice.  Unfortunately, the kiddies are in school then.  During summer vacation months, Phoenix is a bit, uh, toasty (but its dry heat, as we tell our Thanksgiving turkey each year).  This answer is not totally satisfying, as uncomfortable summer cities like San Antonio and Houston have major theme parks.  Also, Phoenix has no real world class water parks (just a couple of places with 2 slides and a pool).  Maybe its because all the developpers here have golf courses on the brain.

Where do Phoenix people go for fun in the summer?  Well, if you are ever in San Diego or LA during the summer, check the license plates.  Then you will know where we are.

Earlier this week I posted my thoughts on taxation, which included thoughts on taxation and class warfare and linked this recent WSJ editorial on tax shares paid by the rich.

Today, Kevin Drum rebuts the WSJ editorial with a post of his own.  Though I find Mr. Drum's consistent socialism and the-rich-will-be-first-against-the-wall rhetoric tedious, he is a smart guy and does have a point.  There is, as usual, a mixed message in the data.  However, this also means, as I will point out in a second, that Drum is guilty of picking and choosing his data points just as much as does the WSJ.

Drum points out, rightly, that while the share of taxes paid by the "super rich" (his term for the top .5% of income earners) has increased, their share of income has increased faster, such that their rates have gone down (god forbid that anyone violate the left's rule of the tax ratchet that says that tax rates may always go up but can never ever come down).  Using the same study as the WSJ, he rebuts this table of share of tax burden...

...with this chart , including Drum's subtle annotations in red:

His point is that the Super Rich actually pay lower rates now and the middle class pays higher rates, or as he puts it:

So shed no tears for the super rich in America. Their incomes have tripled in
the past couple of decades and at the same time their tax rates have decreased
by 9 percentage points. That's a pretty sweet deal in anybody's book.

Here are some thoughts on Drum's rebuttal:

Drum cherry-picked data too:  I will get back to the folks in the top 1 percentile in a minute.  Leaving them aside for a minute, note that Drum's storyline breaks down for everyone else.  If you compare the merely rich in the 1-20th percentiles, they got a smaller reduction in the Bush tax cuts than anyone in the middle and lower quintiles.  For example (comparing the 1999 before tax cut and 1999 after tax cut lines) the 1-5% richest got a rate reduction of 0.21%, while Kevin's favored group at 40-60% got a 1.45% rate reduction.

Don't blame this administration for previous tax increases:  Drum is correct in saying that the tax rate has risen for the middle class over 20 years, but incredibly disingenuous not to explain why.   Note that the 1 point rise (which presumably Drum wants to hang on the current administration) actually consists of a 2.5 point rise from past tax increases, AMT creep, and payroll tax changes (passed by Democratic Congresses and generally supported by Drum) offset by a 1.5 point cut courtesy of the current administration.  Drum is in fact using data that clearly disproves his ongoing "tax cuts for the rich" mantra.  By the way, it is also interesting to see a good "progressive" ignoring progress on the lower two quintiles to decry higher taxes on the upper middle class -- seems like an interesting shift in focus.

Payroll taxes skew the picture:  Including payroll taxes (social security and Medicare) in these numbers causes funny things to happen.  Why?  Because social security tax is straight-out regressive since it is flat up to about $90,000 in income and then zero after that.  This means that the total tax rate shown for the lower quintiles will include nearly 8% for payroll taxes (if this looks funny to you because it seems to imply that the lowest quintile must be paying negative income taxes, you are right, they are paying negative income taxes via the EITC).  However, as incomes rise above $90,000, taxpayers get an effective total rate reduction.  For an income of $180,000, a taxpayer only is effectively paying 3.1% to Social Security.  At $1 million, they are only paying 0.56%.  So, even if income tax rates were perfectly flat with no deductions for anything, those in the 1% category of richest people would have a total rate including payroll taxes over 5.5% points lower than the middle class.  If you recast the numbers above leaving out payroll taxes, you would not see the decrease in rates into the 1% group, the numbers would continue to increase, as can be seen here (from government data):

So, for income tax rates, there is still progressivity all the way to the top.  If you want to argue Social Security taxes, fine, but don't use Social Security tax effects to make a point about income taxes

By the way, in terms of the regresivity of Social Security, the defenders of that program need to stick with a story - is it a transfer payment or is it a government run insurance program?  If it is a government run insurance program (as defenders want to argue, since that seem more palatable to the public) then the $90,000 income cutoff makes sense:  Since the program does not pay benefits based on any incomes higher than this, "premiums" shouldn't be based on higher incomes.  Update: Kevin Drum says in this post that Social Security is

a modestly progressive social insurance program that's paid for by everyone and
that benefits everyone. If it ever stops being that, if it ever stops being
universal, it will eventually cease to exist.

OK, but stop lumping the "premiums" of this program in with income taxes to try to prove a point about the income tax system.

All that being said, there may be something funny going on in the top 1%:  As pointed out above, a portion of the apparent rate reduction for the top taxpayers is in fact due to the odd math surrounding Social Security taxes.  Any income tax cut, even if it is progressive, can make total taxes more regressive by shifting the mix to the very regressive social security tax. All that being said, the taxes of the very very rich are odd, because their income streams are so very different than those of you and I.   In particular, that weird mess of targeted tax reductions that I have decried on any number of occasions come much more into play in the very rich's tax returns, with results that are almost impossible to understand or forecast.  If Drum wants to use this data to argue for flat taxes and an elimination of deductions, I am all ears.

Welcome to the Carnival of the Capitalists.  Many thanks to Silflay Hraka for starting the Carnival of the Vanities, of which this is a spin-off, to showcase smaller blogs to a wider readership.  Look for future Carnivals of the Capitalists at these sites (you can submit articles here):

While you're here, feel free to look around -- this post will tell you more about what I do at Coyote Blog.

For this week's Carnival, I have decided to take a bit of a risk, and, in true capitalist fashion, I have taken on a sponsor for this week's Carnival:

This Carnival of the Capitalists is Proudly Sponsored by"¦ ACME Maker of fine anvils for over 50 years

Continue reading ‘Carnival of the Capitalists’ »

Jane Gault at Asymmetrical Information is on a roll with a series of posts about the problems with the Medicare system.  Check out her posts on the ,  the media bias when programs are cut, and the rising cost of Medicaid.

The problem in the world of health care costs is actually very simple:  patients have the incentive to over-consume services and providers have the incentive to over-provide services.  Patients consume as many services as possible because some other entity is generally footing the bills, such that the marginal cost to the patient of extra services is generally nil (if you don't believe this, imagine a world where a 3rd party paid for your car - would you choose the same care you drive today?)  Providers tend to over-provide in part for the same reason, and in part as a defensive response to the threat of torts.  As a result, costs go through the roof, and those who pay (government, insurance companies, employers) respond by rationing, which pisses everyone off.

This disconnect between the entity paying the bills and the entity selecting the care cannot endure.  The fix in the future is guaranteed to be one where the decision maker on the selection of care is the same person who is paying for the care.  The only choice we have in designing the system is whether that entity making the decisions is the government (as preferred by statists of all stripes) or the patient. 

We need a system where people pay their own everyday medical bills, with insurance in place for catastrophic needs (which is basically how we take care of our cars).  You could probably incentivize this tomorrow by making personal medical expenses tax deductible while at the same time making employer-provided medical insurance taxable just like every other kind of compensation.  Not only would this fix the incentives problem in the system, but would also eliminate the portability issue associated with employer-provided coverage.

Unfortunately, people have a huge mental block where paying for their own medical care is concerned.  My wife is a great example.  When I became self-employed, she was shocked that I did not get dental insurance.  I tried to explain that we would just use the insurance to pay for checkups and a filling here-or-there, and it would probably cost more than just paying the expenses ourselves.  But for her, medical bills are paid by insurance, not by individuals, and it actually felt wrong for her to pay her own doctor's bill (we have a big annual deductible on our medical insurance too so it acts mainly as catastrophic coverage).  This is not an isolated attitude - it is why many people equate "not insured" today with "not getting medical care".

Postscript:  There is nothing magical about the system of employer-paid medical insurance we have today.  Many large employers implemented paid health benefits as a way to evade government wage freezes during the NRA of the 30's and later in World War II.  In the tight labor market of WWII, government mandated maximum wages could not lure enough workers, so free health benefits were thrown into the compensation mix since only cash wages were frozen.  The system is perpetuated today by a tax code that does not tax health insurance as it does all other parts of the compensation package.

UPDATE:  Or, we could just try this

UPDATE#2:  A small example of the mindset:  Carly Fiorino get $42 million as a parting gift from HP, but still insists that HP privide her medical insurance.  With $42 million, she couldn't pay for it herself? (via gongol)

I have written a lot on my frustration with the tort system.  If I had to summarize my issue in one sentence, it is that the system has moved away from assessing damages against parties truly guilty of substantial negligence or malpractice and has instead shifted to granting payouts to the injured, charging whoever happened to be nearby with deep pockets with the cost (see the tort thought experiment here). 

The result in this current system is that the innocent at best get high insurance premiums and at worst have to fight for years against ridiculous suits.  At the same time, the truly harmed fail to get compensation in a system clogged with BS claims, and the worst, truly bad doctors continue to practice.

But, as I said in the title, just because I am passionate about the tort system being broken does not mean that real damages aren't occurring.  For example, this story via Kevin Drum about medical interns:

In New York City residents routinely begin their day at six or seven in the morning, work twelve hours, then stay on call all night. In a practice that I think is particularly cruel, they typically don't get home until noon the following day "” several hours after morning rounds.

I have never, never understood why having interns practice medicine while sleep-deprived makes them better doctors.  This is fraternity hazing, plain and simple (not to mention cost reduction for hospitals).  I find it astounding that this practice still exists today, with the complexity that is modern medicine.  Astonishingly, most doctors seem to support this practice.  I find it even more astonishing that some smart attorney's haven't found a way to bring suit against hospitals for the plainly dangerous practice.  It is a great example of what I said above about what is wrong with the system - OB's are getting sued every day for birth defects they had no power to correct or prevent, but hospitals get away with this clearly dangerous practice?

UPDATE:

Reason has more here.  They make the interesting point that doctors support this hazing because it is a way to deter doctors from the field, in the same way as does occupational licensing, thus raising salaries. 

There are legitimate concerns that need to be addressed in putting together tort reform legislation; and there are shortcomings, as usual, in the GWB proposals (see below).  This, however, via Kevin Drum, is grasping at straws by tort reform's opponents.  Drum cites a recent UC San Diego Study described here that shows that there are a disproportionate number of medication errors in the first few days of the month.  The study claims that this is due to pharmacists being overworked and making mistakes because they claim poor people all rush to buy their drugs after their government checks arrive.

Kevin Drum cites this study as evidence that malpractice tort reform is misguided, because, as he puts it "one of the causes of malpractice lawsuits is "” surprise! "” malpractice".

OK, its hard to know where to start.  Though I am a supporter of tort reform, I would probably not have gotten worked up enough to bother to post.  However, this is another example where science and "studies" are misunderstood and perverted in the media, which DOES tick me off enough to write.  Here goes:

• This study has nothing to do with medical malpractice!  The debate is around doctors and doctors getting driven out of business by their malpractice rates.  What do pharmacist mistakes have anything to do with the types of medical malpractice and medical malpractice insurance rates.  The departure of doctors from certain counties has nothing to do with pharmacy errors.
• Though the authors and Mr. Drum wish to imply that all the medication mistakes measured are by medical professionals, the study in fact includes:

"wrong drug given or taken," or "accidental overdose of drug," or "drug taken inadvertently."

Note that of the four categories of mistakes above and included in the numbers (wrong drug given, wrong drug taken, accidental overdose, and drug taken inadvertently), three of the four are reasonably the fault of the individual taking the drug, not the pharmacist.  However, since most supporters of the current tort system tend to reject the notion individual responsibility, I guess this little issue was ignored. 

• The authors never have anything to say about Mr. Drum's point, ie they do not correlate these deaths with actual malpractice suits, so it is impossible to actually make Mr. Drum's point in the first paragraph.  The best evidence I have seen is equivocal - it says that a large number of lawsuits are baloney, but that a large number of true malpractice victims go uncompensated.
• The authors actually have no evidence, other than their supposition, that these deaths are due to pharmacists being overworked.  They did not do any research into the specific cases involved - they just surveyed notoriously inaccurate death certificates.  In fact, though it may be in the actual report, I don't see any evidence that demand actually increases or that pharmacists are indeed overworked the first few days of the month - they just seem to hypothesize it without proof.  And, if there really is more work load the first few days of the month, they never mention any data on staffing - presumably if there is such a trend, pharmacies may actually staff up for it, which would also defeat their supposition.  My business gets more traffic on certain days of the year and we staff for it.

OK, while we are on the topic of medical tort reform, I will offer up a couple of more thoughts beyond just the silly use of this study:

• No one denies that some malpractice torts are from real malpractice.  Wrong legs ARE cut off, etc.  No one wants to protect people who are guilty of obvious malpractice.
• The issue is less with the existence of medical torts but with their enormous escalation in the last 10-20 years.  To argue that malpractice torts mostly result from real malpractice, you have to argue that the incidence of real malpractice has gone up dramatically over the last 20 years.  That may be, given the great increase in complexity of medicine, but I doubt it is the entire explanation

As usual, part of the problem in this argument is that GWB and his minions suck at getting a message out that can drive a consensus.  Here is my alternate message on medical malpractice:

The system today is broken for two reasons: 

• First, bad doctors and real malpractice is not punished strongly enough, and some of the worst practitioners go on to hurt more and more people.   Insurance today spreads the cost of bad medicine to all doctors, reducing the negative impact on the worst.  In addition, insurance premiums and torts are a poor substitute for better discipline and penalty systems for bad medicine
• Second, too many good doctors are punished with suits because they had bad outcomes from good medicine.  Sometimes babies are born with birth defects, sometimes medications that help millions have unpredictably bad side effects for a few unlucky people, and sometimes people die and there is nothing that can be done.

More important than damage caps, both for truly injured patients and good doctors, is to bring scientific sanity to the system, and to make sure that bad medicine, not bad outcomes, are punished.

By the way, in a previous post Mr. Drum said that there is no cost to "frivolous" suits since they don't go to court.  This is quite wrong:

• I am not in medicine, but I am in a public contact business that gets some slip and fall suits, but I assure you that your insurance premiums can go up substantially even for suits that don't go to trial
• You still have to have a lawyer at $400 or so an hour to defend against a frivolous suit.  You can't walk in the first day and say, "hey judge, this is BS, let's drop it".  I have spent tens of thousands of dollars before frivolous suits against me get dropped
• Frivolous suits do go to trial and can win.  Just think McDonald's coffee.

And yes, I have had experience with frivolous suits.  In one case, a person who claims to have stepped on a nail head protruding from a board in our campground sued us for sexual dysfunction.  That case is still active more than 3 years later!  In another case, a person claimed to have hurt her knee falling on some steps.  Excluding the issue of why I am at fault if she fell down a perfectly safe set of steps, we eventually discovered that she had hurt her knee several weeks earlier, had no medical insurance, and was visiting a number of local businesses making the same claim to try to get someone to pay for an operation.

So please, don't lecture me on frivolous suits.  When Mr. Drum has to pay $400 an hour to defend a suit from someone who got an infected paper cut while reading his article in a magazine, then he can talk about why frivolous suits are OK.  However, he is right in this respect - I don't think the answer is capping damages.  The answer is having a way to defeat these things, to drop them out of the system quickly and inexpensively.  To have some kind of sanity filter.  This would help those of us subject to BS suits, and would help the truly injured get to trial faster.

I have written a number of times that our health care system will never work right until the person making the choices about health care is the same one bearing the costs of those choices.  Today, individuals and doctors make choices but insurance and employers pay the cost.  As a result, neither individuals nor doctors are very price sensitive, and have every incentive to sign up for every expensive diagnostic imaginable, particularly given whats going on in malpractice law.   Insurers who pay the bills are trying to control more of the decision making, but this just pisses everyone off.  Unfortunately, many want to fix this by putting both selection and payment in the governments hands - ughh.  My preference is of course to find a way to let individuals continue to make choices for themselves, but bear more of the cost.  MSA's are one such approach, I am sure there are others.

Marginal Revolution has an interesting post pointing out that the market for college textbooks has a similar disconnect -- professors choose the book but students pay for them, resulting in rapidly rising textbook costs.

When was the last time you paid attention to the cost of any medical procedure (not your copay or share - but the actual cost)?  When was the last time you balanced whether to have an incremental medical procedure, such as an extra test, based on cost vs. benefits?  If you are like most Americans, the answer is "not lately" because our health care system does not give the end consumer any of the normal incentives to "shop" that they would when, say, buying a TV.

Marginal Revolution has a great post on laser eye surgery, probably one of the most popular medical procedures not covered by traditional insurance (I would normally guess "most" popular surgery, but having lived in Dallas and Scottsdale, I am all-too-aware of the popularity of breast implant surgery as well).  Guess what - it is one of the few medical procedures with high satisfaction and falling prices.

As with any labor law or legal liability issue, there are probably more ways to trip up than you ever imagined.  This article at Faegre.com, which I found via George's Employment Blawg, has a nice summary of key issues in five categories.

Because the vast majority of our employees are over 70, and a number of them have disabilities, we have to be very careful in hiring.  Many of our jobs can be physically challenging, and dangerous to perform with some disabilities, so we have to take care to make sure an employee understands the work and that we mutually agree they can do it safely. 

One related area that I am not sure has been tested regards our corporate insurers.  Increasingly, insurers, particularly for our corporate vehicle policies, are refusing to insure over-70 drivers without some kind of letter from a doctor that they are capable of driving safely.  As you can imagine, doctors face liability if they put in writing the employee can drive safely (so the doctor might be liable if there is an accident) or if they write that the employee can't drive safely (so the doctor might be liable for effectively denying the employee insurance, or even a job).  As a  result, doctors are reluctant to produce such letters. 

It has not come up yet, but what happens if one of my employees is uninsurable for driving, and driving the company vehicle is an essential part of their job?  Do I face an ADA case for discharging them?  What choice would I have in that case?

We also have very severe challenges with off-duty behavior.  Most all of our employees live on the job site (i.e. the campground managers live in the campground).  So, off-duty behavior occurs on the job site.  Until I had this company, I always said that I did not care what an employee did on her own hours at home - but now, what happens on the employee's own time occurs in front of my customers.

We continue to walk a fine line on this.  To date, we have told employees that even if they are not on the clock, if they are wearing our uniform or verbally representing themself as a company employee, they are subject to on-the-job behavior rules.  Once the uniform is off and they are just "Joe", and not "the manager", they are free to do as they please, though they are still bound both by federal and state laws as well as campground rules. 

Maryland doctors are finally starting to shrug under the weight of the current tort system.  Apparently about 50 doctors have canceled elective procedures for a number of days to protest skyrocketing malpractice premiums.  (hat tip: Club for Growth)

What struck me is not necessarily the doctors' actions, which are representative of the state of mind of doctors across the country, but the whiny reaction:

"Actually what they`re doing is going against their doctor`s oath. The patient is more important than malpractice insurance and they have to realize that," said Washington County Hospital patient Brian Levasser.

Remember, these doctors have stopped doing elective surgeries.  So Mr. Levasser's penis enlargement or whatever will have to wait a few days.  He sounds just like Kip Chalmers on the train in Atlas Shrugged.

OK, here is something Mr. Levasser can try:  Go to work each day, work long hours, and do your absolute best in a critical profession.  Then, each day, just before you go home, roll three dice.  If the result is anything but 1-1-1, go home, have  a beer, and relax with your family.  However, on that unlucky day when you roll three ones, you lose everything - your job, your house, your savings, your reputation and your ability to work again in your chosen profession.  Note that you lose everything not because you did a bad job, but because something unlucky but inevitable happened (e.g. child born with a birth defect) and you were the one standing closest.  On the day after you rolled that 1-1-1 and lost everything, tell me malpractice insurance isn't important. 

Doctors used to be the people we looked up to and admired, the pillars of society; now, we treat them like galley slaves.  We keep you alive to serve this patient. So operate well and live.

(By the way, I am sympathetic to the first comment on the Club for Growth post.  Those of us in general business can sometimes get frustrated that doctors seem to be able to get attention on their frivolous suits where the rest of us cannot.  But I refuse the begrudge them that, and wish them well)

Our business is seasonal, meaning that most of the facilities we run are open from about mid-April to mid-September.  Our employees are hired in the spring and then laid off in the early fall.

The unemployment bill is a killer.  Everyone we lay off in the fall, whether they intend to work in the winter or not, files for unemployment.  Like any insurance, your premiums are based on your actual claims, and as a result our unemployment insurance rates are sky-high. 

A few or our employees are actively looking for winter work, and I am OK with their claiming unemployment.  However, the vast vast majority of our employees work for the summer and vacation all winter, since working for us really just supplements their retirement pay.  I know for a fact that some of those who have claimed unemployment in the past weeks are in Mexico on vacation or on the Colorado River or wherever.

Unemployment agencies are NOT doing their job.  By law, in most states, they are not supposed to pay unemployment to people unless they are actively looking for work.  Heck, most of our employees, during the winter, are not even in the state that is paying them unemployment - they are down south or even out of the country vacationing.  However, I have not found a state agency yet that has any interest in dealing with this fraud.

When I first started this blog, I promised myself I would take the time to post featurettes on small business topics for which business school really did not prepare me.   The first such feature was on buying a business.

This week, I turn to the topic of workers comp. insurance.  Never in 2 years at one of the more storied business schools in the nation, nor in nearly 20 years at the largest corporations in the world, did I once encounter the topic of workers comp.  Now, since I bought my own business, I spend inordinate amounts of time dealing with it.

This article will focus on workers comp. from the employers point of view (most state web sites are useless to employers - they have reams of detail for workers on how to file claims or complaints, but nothing to help employers learn how it all works).

Continue reading ‘A Primer on Workers Comp.’ »