It’s the Incentives, Stupid

For the last couple of weeks there has been increased interest in reforming the U. S. healthcare system. I think many of the pieces I’ve read have been well-intentioned but miss a key point. This piece by Deane Waldman at RealClearHealth certainly fits that description. Here’s a snippet:

News media are replete with stories about the killing of UnitedHealthcare CEO, Brian Thompson. While the murder mystery elements still dominate, a constant subtext is the perpetrator was angry at greedy insurance companies like UnitedHealthcare and frustrated that care is unaffordable and inaccessible.

With Trump in the White House and with the DOGE (Department of Government Efficiency) advising him how to improve efficiency of federal activities, radical reform may be possible, transforming healthcare to become affordable and accessible. Might there be anyone opposed to such transformation?” The surprising answer is, YES!

Who are these people? There are three reasons why some would resist: self-interest, wrong reform, and fear of change.

I think there’s actually other reasons, even a group of related reasons, that there would be resistance to change in our healthcare system including longterm trends within the practice of medicine. Dr. Waldman is pretty forthright about how he thinks our system should be reformed. I think he’s engaging in wishful thinking and introducing advertising and price competition into healthcare are unlikely to result in the cost savings that are necessary.

I would like to open this post up to a conversation about reforming healthcare and air some of my own prejudices about it. I don’t believe that any conceivable reform will result in more, better healthcare at a price we can afford unless the incentives are changed and any attempt at changing the incentives in healthcare will be fought to the death by all of the stakeholders, e.g. patients, providers, insurers, employers, etc.

Please don’t say “well, other countries pay less for equivalent care so it must be possible”. That’s a cop out. Say what you think should be done and how it can be done. There are a number of things that should be kept in mind. First, there is no country that is actually comparable to the United States. There is no country that is as large as the U. S. and as rich as the U. S. and shares a 1,600 mile land border with a country with a median household income a quarter its own.

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Top-Heavy

You don’t need to just take my word for it. At Defense One R. D. Hooker, Jr. illustrates how the U. S. Army is “top-heavy” and calls for reorganization:

Growth in staff size and the proliferation of unneeded headquarters is accompanied by a strong tendency to “over-officer” the force, one factor in the explosion of personnel costs since 9/11. In 2024, one in six soldiers is a commissioned officer (a 21 percent increase since 2000). About one-third of the Army’s personnel budget goes to officer pay and allowances. Between 1965 and 2018, the number of general and flag officers in the U.S. military as a percentage of the total force increased by 46 percent; of 4-stars by 114 percent; and of 3-stars by 149 percent. Such deliberate rank-inflation and over-staffing contributes to a bureaucratic culture that demands constant reporting from junior commanders, so much so that one authoritative Army War College study found a “suffocating amount of mandatory requirements” they are “literally unable to complete…forcing them to resort to dishonesty evasion.” Almost certainly, this environment contributes to an exodus of young officers who are frustrated by crushing administrative burdens they cannot reconcile with their duty to train their soldiers for war.

In short, the Army should shutter those organizations not deemed essential, reduce the officer-to-enlisted ratio, and streamline its bloated staffs. These measures will increase the number of billets available to operational units, decrease unnecessary reporting requirements on them, reduce personnel costs and increase the productivity and efficiency of those headquarters that remain. Leaner and flatter are watchwords in the private sector—and are clearly priorities for the incoming administration. America’s Army should adopt them as well.

That will have beneficial run-on effects that go far beyond remaining within its authorized end strength. The focus must be unswervingly on readiness and lethality.

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Biden Pardons Crundwell

In 2013 Rita Crundwell, the city comptroller of Dixon, Illinois, pled guilty to embezzlement in what has been called “the largest municipal fraud in United States history”. She was sentenced to 19 years in prison. As part of his mass pardon, President Joe Biden has commuted her sentence. NBC 5 Chicago reports:

Rita Crundwell, the former Dixon comptroller who stole more than $50 million in what some publications called “the largest municipal fraud in United States history,” had her sentence commuted by President Joe Biden Thursday.

Crundwell was one of nearly 1,500 individuals who had their sentences commuted by the president in one of the largest single-day actions in U.S. history, with the president also issuing more than three dozen pardons.

Crundwell served as Dixon’s comptroller for more than 20 years, and pleaded guilty in 2013 to embezzling more than $50 million from the city over the course of that time. She used the funds to build a massive championship-winning horse breeding and show operation, according to prosecutors.

Pardoning her is certainly clement but I believe it is a miscarriage of justice. She should serve her full sentence and not under home confinement.

Is pardoning her just part of a mass pardon? If so it illustrates the injustices of mass pardons. If not did someone advocate for her pardon? I believe the voters of Illinois deserve to know if their elected officials are advocating the pardon of their corrupt peers.

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About Those Drones

Can someone explain how the large drones, described in this story at ABC News, are not the work of some foreign government?

Some of the drones are apparently quite large, the size of a car or larger. Those drones cost upwards of $300,000.

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Wray’s Notice

There’s quite a bit of whinging about FBI Director Christopher Wray’s giving notice that he will resign his post at the end of President Biden’s term. Wasn’t that inevitable after Sen. Chuck Grassley’s letter?

To save you the trouble of reading it, in the letter Sen. Grassley makes a prima facie case that Director Wray has been nonfeasant, misfeasant, malfeasant or all of the above.

You may disagree. You may think that Kash Patel is unfit to rectify the situation at the Federal Bureau of Investigation. Maybe the Bureau is unmanageable at this point. But it’s pretty clear that something is very, very wrong with the FBI.

As I’ve said before I think the Bureau is redundant at this point. When the FBI was founded more than a century ago the federal government didn’t have dozens of armed agencies with police powers as is the case now. I don’t know that there’s a better illustration of the need for a major reorganization of the federal government than that. The left hand doesn’t know what the right hand is doing.

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The Rising Costs


The graph above was produced by economist Mark Perry. What about healthcare insurance costs? (That was my immediate question.) Fortunately, Statista has that for me.

As you can see individual healthcare insurance prices have more than trebled since 2020. Not just fast but faster than hospital costs or medical service costs. Both of the latter have increased faster than wages in general.

Some are concluding from the above that the Affordable Care Act has failed in slowing the increase in healthcare costs and while that’s certainly the case it wasn’t my conclusion. My conclusion is, I have said many times, that the incentives in healthcare are completely out of whack. A change to single payer is not merely unaffordable and unsustainable in the absence of the will to constrain costs which is demonstrably absent, insurance isn’t the primary problem.

Please, please don’t tell me that other countries do it so it must be possible, particularly not if you’re pointing to tiny countries with high social cohesion. We are starting from too high a baseline. Pointing to insurance is misdirection. It’s the prices, stupid.

As I’ve also said before, I have all sorts of proposals for fixing the situation but everybody hates them so they’re not worth repeating.

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Birthright Citizenship

IMO abolition or reform of birthright citizenship should be wayyy down on the priority list of changes to immigration. Just off the top of my head my priorities would be:

  • Expel security risks and prevent them from returning
  • Expel public safety risks and prevent them from returning, i.e. known felons
  • Reduce the number of asylum applications accepted on an annual basis to the number we can actually process
  • Require that asylum applications be made before entering the United States
  • Expand the number of work visas issued, particularly for people living in Mexico
  • Make it at least as difficult to work without authorization (citizenship, green card, or other) in the United States as it is in Canada, Australia, and New Zealand, countries with which we have much in common

That would be a start.

That’s not to say that I think that birthright citizenship is a complete non-issue. I think its urgency as an issue would be greatly diminished of the reforms above were adopted. I suspect the reason it has been brought up at all is the inevitable appeals to emotion on behalf of the first two categories I’ve listed above.

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Where to Cut

Speaking of the Department of Government Efficiency (DOGE), California Rep. Ro Khanna has an idea of where he’d like them to start:

I want the U.S. to have the greatest military in the world and the resources to counter increasingly sophisticated threats from our adversaries, but we need a more sensible approach. That is why I have been the only member on the House Armed Services Committee to vote against the bloated defense budget.

And that is why I look forward to working with the Department of Government Efficiency (DOGE) to reduce waste and fraud at the Pentagon, while strongly opposing any cuts to programs like Social Security, Medicare, the Department of Veterans Affairs or the Consumer Financial Protection Bureau. There are several areas of waste and abuse that I hope DOGE will address.

As a starter, consolidation in the defense industry has allowed companies to drive up prices. When I was a freshman member of Congress, I led an investigation on the House Oversight Committee into the defense contractor TransDigm, which through mergers had acquired exclusive rights to sole-source aircraft parts. A report from the Defense Department’s inspector general revealed the company had exploited the American people by overcharging over 4,000 percent on those sole-source parts. In the end, TransDigm returned $16.1 million to the Pentagon. Equally outrageous, a “60 Minutes” report found that the price of stinger missiles has increased from $25,000 in 1991 to $480,000 today. One reason is that Raytheon became the sole supplier and can drive up costs.

He goes on to single out the F-35, oppose sole source contracts, oppose cost-plus contracts, support divesting excessive military property, thereby reducing maintenance costs, and canceling projects the DoD no longer wants. Here’s a reform that hasn’t been on my radar:

One ingredient for effective price monitoring is better communication across the federal government to ensure the Pentagon isn’t paying more than any other department. The Defense Health Agency overpaid by $16.2 million for electric breast pumps, spending as much as $1,400 for pumps that are $192 in stores. The department’s acquisition processes lacks sufficient controls for defense contractors who can get away with overcharging the government. We have a phenomenal workforce, but they must be paired with state-of-the-art systems and policies to ensure contracts only go to qualified contractors with reasonable prices.

My own pet reform to our defense spending is that I believe that we need to reduce the number of flag officers substantially. That will do a lot more than the obvious saving in costs. Nearly every flag officer has a pet project he or she carries with her or him throughout their career and frequently even beyond. Reducing the number of flag officers will organically result in substantial cost savings.

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The WSJ Editorial Stance

This is just an observation. Those who view the editors of the Wall Street Journal as simply pro-Republican and Trump supporters might want to look at today’s WSJ opinion page. The lead editorial is one opposing the appointment of Tulsi Gabbard as director of national intelligence. There is also a featured op-ed opposing the appointment of Kash Patel as director of the FBI. Other editorials, columns, and op-eds include one in support of maintaining birthright citizenship, a somewhat oblique defense of continuing to provide support for Ukraine’s war against Russia, and an op-ed urging the incoming Trump Administration to save Reagan’s National Endowment for Democracy from DOGE.

I think the WSJ’s editorial stance is more complicated than party affiliation. I think they’re pro-business, pro-stock prices, and anti-tax. If that’s pro-Republican, then they are pro-Republican but I think that’s painting with too broad a brush.

I think they are Hamiltonians, viewing the world completely through a business and economic prism.

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Cautiously Optimistic

Reuters reports that the merger of Kroger and Albertsons has been blocked at least temporarily:

Dec 10 (Reuters) – A U.S. judge blocked the pending $25-billion merger of U.S. grocery chains Kroger KR.N and Albertsons (ACI.N), opens new tab on Tuesday, a win for the Federal Trade Commission that Kroger has said would likely scuttle the deal.

The FTC argued at a three-week trial in Portland, Oregon, that the merger would eliminate head-to-head competition between the top two traditional grocery chains, leading to higher prices for shoppers and reduced bargaining leverage for unionized workers.

The ruling, which could be appealed, is a big victory for FTC Chair Lina Khan and the Biden administration in their bid to counter inflation at the checkout. Americans’ discontent over a lingering rise in grocery prices since the pandemic was a key theme in the run-up to President-elect Donald Trump’s win in November.

U.S. District Judge Adrienne Nelson agreed in the ruling that the merger was likely to remove direct competition between the two grocers, which would make it unlawful.

I’m suspicious of such mega-mergers generally. In this particular case I suspect the primary beneficiaries would be a handful of stockholders.

Personally, it may mean that our Mariano’s store will remain open for a while. If the merger went through it was slated to close.

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