March 8, 2007 2:08PM

Medicare Rx: Let the Sickie‐​Dumping Begin

When Republicans created the Medicare prescription drug entitlement, I warned that the private drug plans would take steps to avoid sick seniors and enroll only healthy ones. Since the plans receive the same amount per senior, the healthy ones are a cash cow while the sickies are a liability.

It seems that the sickie-dumping has begun.

The Hill reports that one private drug plan, Sierra Health Services' SierraRx, noticed that a lot of new and very costly enrollees were formerly enrolled in Humana Health Services' Complete plan. Sierra alleges that Humana urged maybe 4,000 to 7,000 of its sickest enrollees to switch to SierraRx. According to the article:

Humana counters that it merely passed along information to its customers about a competing product that might better suit their needs, and said federal regulators approved its actions....

“Our goal was to make sure these people continued to have access to prescription coverage,” Humana’s director of media and public relations, Dick Brown, said. Humana also asserts that CMS approved the script the company used for these calls.

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March 8, 2007 11:52AM

Edwards’s 2‐​to‐​1 Budget Law

How should government officials decide on whether to fund big projects such as fighter aircraft, highways, bridges, and other types of infrastructure?


First, they should check the Constitution to see whether they are legally allowed to spend on the object in consideration.


Second, they should assume that the item will cost at least twice as much as initial estimates indicate. There should be a 2‐​to‐​1 hurdle when the price tag of a project is being considered.


Government purchases of military hardware, highways, energy projects, space equipment, and other items often cost 50% or 100%, or more (see here and here), above what politicians originally promise.


Let’s be conservative and say that a 50% cost overrun is typical, such that we can expect a new $1 billion project to actually cost taxpayers $1.5 billion. But as economists often point out, paying for $1.5 billion in government spending will cost taxpayers much more than $1.5 billion because of the “deadweight losses” or inefficiency costs created by extracting taxes from the private sector with a complex and high‐​rate system.


How much more? Harvard’s Martin Feldstein thinks deadweight losses might be $1 for each added dollar of taxes. But let’s be conservative and say it’s only 50 cents on the dollar. So government projects impose deadweight losses of 50% on costs that are likely to balloon at least 50%. 


The bottom line is that when America’s taxpayers hear that politicians want to spend, say, $10 billion on a new scheme, they should assume that they will face an ultimate financial hit of $22.5 billion. And that’s conservative!

March 8, 2007 11:41AM

Soaring Cost Overruns

Last week, we found out that new combat ships for the Navy will cost taxpayers at least 59% more than promised.


Today, the Washingon Post reports that upgraded Air Force cargo planes will cost taxpayers at least 35% more than originally promised.


Are such cost overruns some sort of unfortunate accident? Or are they a routine scam perpetrated by an iron triangle of federal officials, companies feeding off the government’s teat, and members of Congress with taxpayer‐​financed activities in their districts? 


Examine the record of overspending in the table here and decide for yourself.

March 8, 2007 10:44AM

Hill Fires Back at Bolton

A lot of observers took note when former U.S. ambassador to the UN John Bolton blasted the Bush administration's new North Korea deal before the ink was dry:

You know, Secretary Powell in 2001 started off the administration by saying he was prepared to pick up where the Clinton administration left off. President Bush changed course and followed a different approach. This is the same thing that the State Department was prepared to do six years ago. If we going to cut this deal now, it's amazing we didn't cut it back then. So I'm hoping that this is not really what's going to happen.

Now that the deal has been seemingly endorsed by the president, it looks like Christopher Hill, the architect of the deal, is feeling his oats and looking to shoot back at Bolton. On the Charlie Rose Show the other night, Hill engaged in this exchange:

CHARLIE ROSE: You believe — there are those who suggest there are hard-liners in North Korea who don't believe this will happen.

CHRISTOPHER HILL: Hard-liners in North Korea? There are hard-liners all over the place.

CHARLIE ROSE: Hard-liners in Washington?

CHRISTOPHER HILL: I sometimes think they're all related, because there are hard-liners who don't believe in a negotiated process.

Now, for those not versed in the subtlety of cufflinked diplo-speak, this isn't such a jab, but in the State Department lexicon, this is about as close as you get to a middle finger. (Secretary of State Rice had responded to Bolton's criticism by stating flatly, "He's just wrong.")

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March 8, 2007 10:04AM

California’s Burgeoning Nanny State

Los Angeles Times reporter Nancy Vogel has a roundup of nanny-state bills pending in the California legislature:

Enjoy fast food? Like to light up while you watch the waves? Forget to sock away money for your kids' education?

Some California lawmakers want to change your ways. They've planted a crop of proposals this year — "nanny" bills, as they're called — that would:

•  Restrict the use of artery-clogging trans fat, common in fried and baked foods and linked to heart disease, in restaurants and school cafeterias.

•  Bar smoking at state parks and beaches, and in cars carrying children.

•  Open a savings account, seeded with $500, for every newborn Californian to use at 18 for college, a first home purchase or an investment for retirement.

•  Fine dog and cat owners who don't spay or neuter their pets by 4 months of age.

•  Require chain restaurants to list calorie, saturated fat and sodium content on menus.

•  Phase out the sale of incandescent light bulbs, which are less energy-efficient than compact fluorescent bulbs.

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March 8, 2007 9:59AM

The IBD Calls for More Central Planning

The Investors’ Business Daily newspaper is viewed as “exceptionally pro‐​economic individualism” with an editorial page that is “especially pro‐​capitalist.” But there is at least one issue on which the paper’s stance would be more at home in a politburo meeting than a capitalist publication: the federal No Child Left Behind law.


An editorial in yesterday’s edition opens with the assertion that the law is “far from perfect,” but that its “no‐​excuses approach to school accountability is worth keeping.” The NCLB’s “most fundamental flaw”, according to the IBD, is “the lack of credible national benchmarks for school performance. Without these, no reform has much of a chance.”


When I regained consciousness after reading that, I had to double‐​check that I was indeed reading the IBD and not the IBRP.


The editors of Investors’ Business Daily are telling us that Washington must set output targets for the education industry and that, without them, no reform can succeed. They would not make that recommendation for any other industry.


It seems that the IBD’s editors have bought into the myth that education is somehow different from all other human endeavors, and therefore not able to benefit from the market forces that have been responsible for the economic miracle of the last 200 years. Nothing could be further from the truth. As I summarized in my talk at our NCLB forum yesterday, there is overwhelming evidence that choice and financial responsibility for families, coupled with freedom, competition, and the profit motive for schools, produce by far the best educational outcomes on both an individual and a social level.


The research shows that markets are not only better at raising achievement overall, but also at diminishing the racial and socio‐​economic achievement gaps that have been created, to a significant degree, by the existing top‐​down monopoly system.


The IBD is right that accountability is crucially important in education as in every other human exchange. But simulated bureaucratic “accountability” has proven grossly inferior to real market accountability. Being able to leave bad schools and move to good ones at will is the only kind of accountability that produces real and sustained results.


The IBD’s editors not only should know this, they already do know this with respect to the rest of the economy. They need only recognize the fact that education and educators are part of the same reality that is discussed on the news pages of their own publication.