Coyote Blog

Hospitals are required to treat everyone who shows up at the door, which results in a substantial amount of uncompensated care that hospitals must spread into their rate structure for other patients (and which also gives the lie to the syllogism that being uninsured means one does not have access to health care).

Supposedly, the PPACA was going to eliminate all these costs.  Actually, it does not eliminate these costs, it just changes who subsidizes them.  Currently, other hospital patients (and their insurers) subsidize this care.  In the PPACA medicaid expansion, some of this subsidy would shift to taxpayers  (whether the actual amount of costs subsidized would go up or down depends on your assumptions as to whether the Feds or the hospitals are better at managing them).

But hospitals think they might have found a third approach.  By law, insurance companies cannot legally turn down any applicants, particularly through the exchanges, based on their health condition.  So why not have the hospital (or its non-profit Foundation) buy policies for its perennially most expensive uncompensated patients?

US hospitals are exploring ways to buy “Obamacare” insurance plans for their sickest and poorest patients as they strain under the weight of tens of billions of dollars in uncompensated costs from the uninsured.

...The controversy is another reminder of the complexity of the US healthcare system, where hospitals are forced to pay about $40bn a year in so-called “uncompensated care”. People who are not insured go to emergency rooms because they cannot legally be turned away, and often hospitals bear the brunt of the costs.

“Hospitals are considering it,” says Mindy Hatton, general counsel of the American Hospital Association, the hospital lobby group. “Hospitals shouldn’t be on the front lines delivering preventive care that patients should be receiving in a clinic or doctor’s office. That doesn’t make sense for anyone.”

This is insurance companies' worst nightmare, of course.  It would not take very much of this sort of thing to trash the whole insurance market.

The Administration response to all this has been typical of its behavior through the whole PPACA implementation.  In general their approach to all new problems has been to:

1. Make it clear that it hadn't really thought very deeply or completely about important implementation issues
2. Make snap implementation decisions to tactically deal with one problem only to find they had created new problems
3. When everything gets really messy, claim broad dictat-by-press-release powers it is not clear the law actually gives them

In this case, the Administration was faced with questions from Representative Jim McDermott.  He asked if exchange-sold health plans were considered Federal Qualified Health Plans (QHP) under the law.  If so, he pointed out that several of the things the Administration had discussed (e.g. allowing insurers to offer monetary inducements to customers who maintained good health habits) could be illegal under anti-kickback provisions.

As usual, it was pretty clear the Administration had no answer.  Or more accurately, had five different answers from five different people and agencies.  Kathleen Sebelius wrote back to McDermott that no, exchange sold plans were not QHP's and so the anti-kickback law did not apply.  This tactically solved McDermott's issue.  But it created large new issues, since it is the anti-kickback law that would have prevented hospitals from buying exchange plans for their most expensive patients.  If exchange plans are not QHP's, then hospitals considered that buying such plans was now legal.

All Sebelius has been able to do to temporarily quiet this mess has been to claim vague and unlimited powers to regulate virtually any behavior related to the exchanges.  Like Obama, she believes her press releases have force of law.  But in fact, even if she does have the claimed regulatory power, she actually has to go through a rules-writing process before any such rules can take effect.   These are structured, drawn out affairs with long delays for public comment.  This is the type of thing she needed to be doing 18 months ago.

Kevin Drum wonders whether the proposed $700 million bid by Farmers Insurance for naming rights on a prospective LA NFL stadium makes any economic sense.   It is an interesting question.  I wrote:

This has always struck me as one of those agency problems, where the executive's incentives are different from the shareholders. Executives get a ton of benefits personally from this -- higher profile for the company which improves their profile and marketability, they get a prime box for the games, parties, etc.

Before the audience here slips into a round of corporate executive bashing, my sense is that the same perverse incentives are working for municipal leaders who have a mismatch with taxpayer interests when they shove huge amounts of taxpayer funds to owners in stadium deals (deals which economists speak with one voice on -- they never pay off for the community in full). One of the dirty secrets of these deals is that they generally include a sort of kickback in the form of boxes and club seats for the Mayor and city council's use (and sometimes multiple boxes for leaders of other government agencies in the town).

This was simply amazing to me.  For years, I and others have said that putting more health care spending under insurance plans was going exactly the wrong direction, both from an individual choice as well as a system cost perspective.  By eliminating the need or incentive to shop by the consumer of services, prices almost inevitably rise.

Here is a fabulous smoking gun example from my windshield repair today.  I happen to have free windshield replacement in my insurance policy.   I called the insurance company and said I had an auto glass claim.  I was transferred to Safelite Auto Glass, who apparently (very intelligently) have a contract to process claims for my insurance company.  They said I could use any provider, but would I like them to call out someone for me -- if I used their choice, the insurance company would guarantee the work.

Well, what did I care -- I wasn't paying for it -- so I had them make an appointment for me.  Unsurprisingly, it was with Safelite Auto Glass.

I must add here that Safelite did an exceptional job, the guy who showed up at my workplace was friendly and competent.  No complaints at all about the service or workmanship.

Anyway, I got a bill for which I owed zero dollars, which I suppose is heading right this minute for the insurance company.  Before I show it to you, I was curious what I would have paid for this service if it hadn't been insured and I shopped around.  I got just one quote - from the Safelite Auto Glass web site.   This is a bit unrealistic because for a purchase this large, I would have gotten several quotes.  But this was the only quote I needed.  The charge to me if I bought the new glass service with my own money without insurance was$321.05  (click to enlarge).

And this was the bill I signed for the insurance company:

For a total of $710.40.  Same service.  Same car.  Same customer.  Same part.  Probably the same repair guy.  2.2x higher price.

Now, I suppose I might be willing to believe there is some invoice pricing game here and the insurance company may get a discount over invoice, similar to car sales, though I am not sure what their incentive would be for this game -- it should be the opposite.  In fact, we can be nearly positive they are marking up the price to insurance companies given a) the web quote says right up front it is not good for insurance work and b) I have already shown how glass companies give enormous consumer kickbacks for insurance work.

If I had cared, I would have eschewed the offer on the call to have them set up the appointment and shopped around for the best kickback.  All a cross subsidy from those who don't use the insurance to those who do use the insurance.  Talk about a terrible incentive.

I think the conclusion is pretty strong.  Anything we shift to insurance from having individuals pay out of pocket gets substantially more expensive.  And this doesn't even address my changing willingness to live with a small windshield crack and avoid this purchase altogether when I am paying the bills vs. when I am not.

When insurance covers routine expenses, perverse incentives often follow.  Here is an example I found today shopping for a company to replace my car's windshield -- This sure looks to be an absolutely blatant kickback (image from a glass company website here).

All the pitches on my Google search are like this.  Here is another one:

But here is the winner, at least as far as I got through the google search:

Don't you have to wonder about a $1,000 rebate on a procedure that retails for perhaps $250?

I am not a lawyer, nor do I play one on the Internet, but it certainly appears that the glass companies are charging the insurance companies for more than the glass replacement would normally go for in a competitive marketplace, and then splitting the extra money defrauded from the insurance company with the consumer.   Another way of putting it is that in selecting a glass company for an insurance-covered repair, the consumer is acting as an agent for the insurance company, and as such an agent the consumer is taking a monetary inducement from a particular vendor to throw business to that vendor.

Arizona has explicit no-fault legislation banning insurance companies from raising insurance rates due to broken windshields.  I wonder what there is to stop someone, then, from heaving a rock at his/her windshield every other week?  Further, I wonder what stops such offers, which look like blatant kickbacks to me, from being either illegal or prosecuted?  I can only guess that in the weird interest-group-politics that substitute nowadays for ethics that its OK to commit fraud if the little guy is the beneficiary and unloved insurance companies are the victim.

Am I the only one who gets ethical qualms about frequent flier programs?  If your job was to buy supplies for the company you work for, and a printer company offered to give you and your family a Hawaiian vacation if only you would have your company buy their printers instead of the competition's, could we all agree that would be a kickback or bribe?  And that it would be, if not illegal, certainly unethical?

So why don't the same rules apply to airline travel?  When buying an airline flight for business, you are acting as a purchasing agent for your company.  And the airlines, in the form of frequent flier miles, are offering you [not the company] something of value to steer your corporate purchasing decisions to their product.  Frequent flier miles are a blatant kickback.  Informal poll:  How many of you have purchased flights that are a worse deal for your company but a better deal for your frequent flier account?

A further rant: OK, if you are not turned off by that rant, here is a related one about Visa cards that give out frequent flier miles.  As mentioned earlier, these are hugely profitable for credit card companies, so much so that they create much of the value in modern airlines.  Credit card companies, perhaps the only stable monopoly I have seen in my lifetime, have perfected the art of forcing retailers to subsidize their credit card users. 

Now, a fairly rational person would expect that a cash transaction is cheaper than doing one on credit.  However, due to the very strong position of MC and Visa processors, credit card customers actually get a lower price than cash customers.  Here is why:  Credit card companies have taken to giving their users a rebate on their purchases, either in cash or frequent flier miles or some other compensation.  These rebates are funded by charging higher interchange fees to merchants (basically a percentage of credit card transactions cleared).  The magic occurs because merchants, in their processing agreements, are generally banned from giving discounts to customers for using cash.  As a result, the higher credit card interchange fees are spread among all customers, cash or credit card, equally.   The result is that credit card customers pay lower net prices than cash customers, when the rebates are factored in.

Though our trade association tries to seek government action of some sort, I am neither confident that this will help or philosophically inclined to ask for such help.  Right now, I am working within the association to try to build support for some sort of one day boycott against accepting credit cards as a starting point to trying to build up some group negotiating power vs. the credit card processors.

COYOTE BLOG EXCLUSIVE!!  We have obtained the preliminary agenda for the upcoming UN Internet Conference in Tunisia.

AGENDA

Day 1

Dinner
Benon Sevan has generously offered to supply dinner from a selection of
the food provided to the Iraqi people under the UN Oil-for-food program.
Unfortunately, it was found at the last minute that no one in the
oil-for-food department has any contacts with companies that actually sell food.
The French delegation has generously stepped in the last minute with
chicken and Vichy water for everyone.

After-Dinner Keynote Address:  Fighting Hate Speech
Wen Jaibao
Premier, China

All of us are concerned with the growth of hate speech on the web.  Spread by foreign anarchists and CIA operatives called "bloggers", these lies present a constant danger to all of our governments..  Premier Wen, whose country under Chairman Mao broke Germany's and Russia's records for the most people sent to government-sponsored sensitivity training, outlines some of the technologies China is using to protect Chinese citizens from foreign deception.  He also will discuss how he got US companies like Cisco and Microsoft to abandon their public principles in exchange for promises of large contracts

Day 2

Pricing for Domain Names
Kojo Annan

Kojo will discuss a number of technical issues associated with domain name pricing.  Among the topics discussed will be "how large a kickback should be demanded of large US companies renewing their domain name registrations", "how should kickback money be distributed between general assembly members", "how can sub-contracts be funneled to key family members", and "how Paypal can be used to facilitate 'courtesy' payments".  Kojo will also discuss the mechanics of Swiss banking as it applies to government Internet supervision.

Pornography on the Web
Hassan al Saud
Saudi Arabian Security Service

Director al Saud will discuss approaches for limiting pornography on the web, such as photos showing NFL Cheerleaders, hot protest babes, or any woman with tattoos, body piercings, or a bare midriff, including nearly the entire UC-Santa Barbara female population.  Al Saud will review his groundbreaking work filtering news service web pages for the names of women and women authors and replacing them with men's names.  Afterwards, al Saud will be signing copies of his bestseller "Gone with the Wind".

Lunch
Robert Mugabe has generously offered to supply lunch from the fine
farms of Zimbabwe.  Unfortunately, unforeseen...technical problems will
make that impossible.  We ask that all delegates go outside the meeting hall and fend for themselves for lunch.

Future of email scams
Dr. Hamzu Kalo
Lagos Nigeria

Many of us are concerned with the growth of email scams.  In this important discussion, Dr. Kalu will discuss topics including "How can other countries get a piece of Nigeria's lucrative email scam business", "how can UN imprimatur be used to increase email scam returns", and "how should government's tax email scam revenue".  Working papers from Dr. Kalo's last conference can be found here.

Shortsighted Nationalization
Hugo Chavez
President, Venezuela

Mr. Chavez will argue his controversial hypothesis that it is shortsighted to immediately nationalize US corporate assets when taking office.  His premise is that it is better to wait 6-12 months, after companies have become complacent, before seizing their operations.  Mr. Chavez will also address the difficult issue of how to attract new foreign investment when every successful foreign enterprise in the history of your country has been nationalized.

Snack Break
Sponsored by Cisco and Microsoft to introduce their joint Internet initiative with the United Nations entitled "We are for freedom and democracy, except when we're not."

Promise of the Internet for Managing elections
Jimmy Carter
ex-President, United States of America

Everyone should be familiar with President Carter's outstanding work courageously certifying the election in Venezuela while challenging corrupt elections in Florida and Ohio.  President Carter will address the topic of using Internet technology for elections.  He will show that paper ballot technology can still leave a potentially dangerous paper trail, while Internet voting allows for nearly total ability to manage elections to make sure that the will of the people is not thwarted by CIA-financed lying upstarts.

Farewell Dinner
Dinner was to be provided by the United States delegation, but US authorities could not provide documentation that no genetically modified foods were used to prepare the meal.  It has been decided that it is better for the meeting delegates to go hungry than risk eating any GM crops.

Transportation
No transportation has been arranged, but officials are encouraged to nationalize any assets they need to reach the conference.

Email
In the spirit of promoting the
Internet and Tunisia's leading role in it, all participants will be
allowed full access to email while in the conference.  All email will
be downloaded by our WIFI (Working-group Investigating Foreign-corruption via the Internet)
and printed out for our guests.  Conference participants should note
that emails with language directly threatening the state** will not be
passed on.

**Note that this includes any references derogatory to the Tunisian government, its officials, and its ruling party, as well as any comments defaming the governments of Libya, Syria, Iran, Venezuela, Cuba, North Korea, or any ally of Tunisia or in fact any other country that is not the United States.  It also includes any references to women without clothes, women working, women driving a car, or women doing anything outside of the house or their male family members' control.  It also includes mentions of provocative terminology and hate speech, including the words freedom, free press, free speech, democracy, property, capitalism, non-Muslim religions, George Bush, the state of Texas, Shiner Bock Beer, or the Dallas Cowboys.  Making fun of the Arizona Cardinals, however, is always OK.

Update:  This column is obviously a failed parody, because to be ironic you have to exaggerate reality at least somewhat.  I may have actually fallen short of reality:

As Tunisia prepares to host the controversial
World Summit for the Information Society in November, Tunisian opposition activist Neila
Charchour Hachicha informs Global Voices that the online freedom of speech protest site launched by
Tunisians on Monday, www.yezzi.org has
already been blocked by the Tunisian authorities.

The online protest, called "Freedom
of Expression in Mourning," is organized by The Tunisian Association for the Promotion
and Defense of Cyberspace (Association Tunisienne pour la Promotion et la
Défense du Cyberespace).

More on the UN Internet conference here as well.

Technorati Tags:  United Nations, humor, internet