FDA Regulations Kill

11840327_SPaul Howard and Yevgeniy Feyman in Health Affairs:

Meningitis is a terrible disease that can kill its victims in a single day. About 4,100 new cases are diagnosed annually in the U.S., with a mortality rate of more than 10 percent. Even with treatment, survivors are often left with serious side effects that can include brain damage and limb loss...

Swiss drug manufacturer Novartis has developed a vaccine—Bexsero—that specifically targets this strain of meningitis; the drug has already been approved for use by the European Medicines Agency (EMA), the European Union’s equivalent of the Food and Drug Administration (FDA). And within about nine months the FDA allowed Princeton University to offer the vaccine on campus to its students.

But the drug is not available elsewhere in the U.S. And it won’t be until Novartis completes a costly phase III trial. The authors ask:

The natural question to ask is why the FDA shouldn’t just approve a product already approved for the European Union, Canada, and Australia, while monitoring the vaccine (as all vaccines are already monitored—Bexsero is being actively monitored in the E.U.) through postmarket surveillance records? (Indeed, the more than 5,000 patients vaccinated at Princeton are close to the total number of patients tested in the EMA required trials.)

[Cross-posted at Psychology Today and John Goodman’s Health Policy Blog]

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For more on the health hazards of current FDA practices, see FDAReview.org. For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.

Health Spending on State and Local Government Workers Has Outpaced Medicaid Spending by 20 Percent

SHCS-NHEA-02_01_28_2014In a previous post I reported that health benefits for government workers cost 40 percent more than benefits for private-sector workers. This extra cost imposes a significant burden on taxpayers. Researchers at the Pew Charitable Trusts have now answered another, related question: How does spending on health benefits for state and local government workers compare with spending on Medicaid?

In a recent report, the researchers conclude that state and local spending on government workers increased by 444 percent in real, inflation-adjusted terms from 1987 through 2012. Spending on Medicaid grew by 375 percent.

That is, spending on government workers increased almost 20 percent more than spending on Medicaid. Free-market reformers continuously promote the idea of getting people off Medicaid, which is a bloated welfare program. However, we should be increasingly concerned with spending on government workers.


TSA Vet Admits Scanners Are a Joke. And So Are You (to the TSA).

TSARadiationIn a recent coming-out piece for the longtime anonymous blogger behind the site “Taking Sense Away”, “Dear America, I Saw You Naked. And yes, we were laughing. Confessions of an ex-TSA agent,” Jason Edward Harrington details his six years as a TSA agent at Chicago’s O’Hare airport.

We knew the full-body scanners didn’t work before they were even installed. Not long after the Underwear Bomber incident, all TSA officers at O’Hare were informed that training for the Rapiscan Systems full-body scanners would soon begin. The machines cost about $150,000 a pop.

Our instructor was a balding middle-aged man who shrugged his shoulders after everything he said, as though in apology. At the conclusion of our crash course, one of the officers in our class asked him to tell us, off the record, what he really thought about the machines.

“They’re s***,” he said, shrugging. He said we wouldn’t be able to distinguish plastic explosives from body fat and that guns were practically invisible if they were turned sideways in a pocket.

Mr. Harrington also offers a behind-the-scenes profile of these men and women in blue, the forefront of America’s security against domestic terrorism: their primary occupation is ogling attractive females, and making fun of the unattractive—especially fat people; they racially profile; and they routinely retaliate against people whose attitudes they don’t like by “randomly” selecting us for “enhanced” screening.

And, as I have detailed previously, TSA agents share scientists’ concerns of the safety of these unlicensed radiation machines, calibrated and operated by incompetents—their concerns disregarded equally as those of us travelers:

Many of my co-workers felt uncomfortable even standing next to the radiation-emitting machines we were forcing members of the public to stand inside. Several told me they submitted formal requests for dosimeters, to measure their exposure to radiation. The agency’s stance was that dosimeters were not necessary—the radiation doses from the machines were perfectly acceptable, they told us. We would just have to take their word for it. When concerned passengers—usually pregnant women—asked how much radiation the machines emitted and whether they were safe, we were instructed by our superiors to assure them everything was fine.

The article is a valuable addition to our body of knowledge—which is vast and unequivical. But of course it will do no more to abolish the TSA and surveillance state than the numerous other whistleblowing and exposés until those whose culture and liberty is being undermined by fear-mongering grow up and decide to assert their God-give rights as a free people.

No elected “leader” is going to save us, folks: it’s up to each and every one of us—let’s go viral.

What Republicans and Democrats Don’t Understand About the Insurance Company “Bailout”

Goodman_450x300Last week I testified before the House Oversight committee on the “risk corridors” in the (ObamaCare) exchanges. Republicans claim that this is a device to bail out the insurance companies. Democrats, in the unusual position of defending the insurance companies, actually claimed that the government was going to make a “profit” because of it. I was in the uncomfortable position of not agreeing completely with either side.

The Affordable Care Act creates a new health insurance marketplace (the exchange). But because of the great uncertainty about what buyers will enter the market and who will buy what product, the law creates three vehicles to reduce insurance-company risk. Risk adjustment, a permanent feature of the exchange, redistributes money among the participating insurers, depending on the health status of the enrollees. That is, plans with healthier enrollees are “taxed” and plans with sicker enrollees are “subsidized.” Reinsurance allows insurers to hedge against the possibility of enrolling a very high-cost patient. This program lasts for only three years, and the funds come from an assessment on all non-grandfathered health insurance sold in the country. These two programs are both deficit neutral, in the sense that outflows equal inflows. See the explanations by Greg Scandlen and John R. Graham and the summary chart below.

The third vehicle is the risk corridor, which basically redistributes funds from profitable insurers to unprofitable ones. Unlike the first two vehicles, however, this adjustment is not revenue neutral. If the entire market turns out to be unprofitable, the federal government steps in to subsidize some of the losses. In fact, there is potentially an unlimited taxpayer liability here—at least for the next three years.


The U.S. Government Makes a Mockery of the Principal-Agent Relationship

HandShake_450x300The philosophical and legal foundation of the U.S. government (and some other governments) is that government officials are the agents of the citizens—in the familiar phrase, those who govern have the “consent of the governed.” An agent, of course, is someone I authorize to act on my behalf. For a host of reasons, this doctrine has always been more or less absurd, but its absurdity has been placed in stark relief recently by the government’s mass spying, which violates the Constitution, various statutes, and many official declarations and promises.

Imagine that I have an agent—for example, I currently have a building contractor in Mexico to whom I have given a legal power of attorney to act in specified ways for a specified duration in carrying out various transactions related to the construction of my house there. Now suppose that my agent refuses to give me full information on his activities performed on my behalf and—outrageous as it might seem—undertakes to spy on me. Then, when I challenge his defective agency and his unauthorized actions in court, he has the impudence to defend himself on the grounds that I lack standing to sue him and that the secrets he keeps from me are legally unblemished because they are “state secrets.” Obviously no one would tolerate such an agent; nor would any court uphold such blatant highhandedness.

Unless, of course, my agent—my agent according to the alleged agent, that is, not according to me—happened to be a government, the U.S. government in particular. Indeed, this twisted, sophistical, legal mumbo jumbo has prevailed for more than half a century pretty much without objection. In the past year, Edward Snowden’s revelations about the NSA’s massive spying activities have provoked for the first time substantial public protest and legal challenges to the government’s outrageous conduct in relation to the “principals” (the public) on whose behalf government officials purport to act as agents. Never before has the U.S. government’s sheer imperiousness been placed so clearly on public display.

To repeat, the claim that the rulers act as our agents has always been nonsensical, as Lysander Spooner showed almost a century and a half ago, but its incoherence is now illuminated as never before. If the government acts as my agent, it does so entirely by accident, because no agent that acts without my knowledge, approval, or accountability to me can make a plausible claim to agency. Our rulers may or may not be accurately described as dictators, but in no event may they be accurately described as my agents or as acting with my consent.

America’s Spymasters and Cultural Propaganda

books_450x300The U.S. intelligence community has come under fire for its mass electronic surveillance programs designed to discover what Americans talk about privately. But would it surprise anyone to learn that the nation’s spymasters have also tried to shape what Americans read? And not only disinformation they feed to credulous journalists—such skullduggery has been known for ages—but also the kinds of poetry and fiction that we might read?

Eric Bennett, an assistant professor of English at Providence College in Rhode Island, attended the prestigious Iowa Writers’ Workshop from 1998 to 2000, hoping it would help him to become a literary giant. It didn’t do that, but it did help him to eventually discover surprising truths about American literary culture—as well as hidden facts about covert “perception management” and soft diplomacy during the Cold War.

Here, in my words, are some of the revelations in Bennett’s illuminating essay published this week in the Chronicle of Higher Education.

Revelation #1: One of the most influential writing programs in American academia was underwritten in part by the CIA.


Krugman Plays a Mulligan

24258155_SThe CBO now estimates that Obamacare will reduce the labor supply by the equivalent of 2.4 million jobs by 2024. The main reason: the implicit marginal tax rates created by the withdrawal of the Obamacare tax subsidies in the health insurance exchanges. Like unemployment insurance, food stamps, and other welfare benefits, government help gets smaller as incomes rise and this is an implicit tax on labor.

The CBO’s estimate is based on the work of University of Chicago labor economist Casey Mulligan, who estimates that the average marginal tax rate in the economy is 47%—meaning that workers get to keep a little more than half of what they earn. Mulligan says the real loss of labor due to Obamacare will probably be twice what the CBO is reporting. He also estimates that about half of the excess unemployment we have been experiencing in recent years is due to the combined effect of all entitlement programs.

Enter Paul Krugman, who week after week, month after month, in his New York Times columns has been telling us that there is no evidence that entitlement spending reduces work effort. He responds to the CBO report by endorsing it. He explains:

[T]he incentive to work will be somewhat reduced by health insurance subsidies that fall as your income rises.


Federal Government Gives Patients a New “Right”: Access to Lab Results

14712500_SMany patients groups and their allies understandably cheered a new regulation that just came about as a result of many years of advocacy: Nationwide, patients now have a “right” to access their lab results directly. The “right” to receive test results directly from labs now ranks equally with the “right” to get our medical records.

Clinical labs had been treated differently than healthcare providers because they have their own federal law: the Clinical Laboratory Improvements Amendments of 1988 (CLIA), which delegates regulatory power to the U.S. Department of Health & Human Services (HHS).

Previously, CLIA regulations had allowed only “authorized persons,” as defined by state law, to receive test results. Thirteen states had excluded patients themselves from the definition of authorized persons. Patients have long expressed concern that giving physicians monopoly control over lab results risks their being lost in the busyness of physicians’ practices.

I certainly applaud the outcome. Nevertheless, I question whether the means fully justify the end. I have three major concerns, in increasing order of importance.


Krugman: “Why aren’t wages going up?”

In his New York Times column yesterday, Princeton economist Paul Krugman argues that unprecedented extended unemployment benefits can’t have been the cause of the unprecedented average duration of unemployment during the “Great Recession.” He reasons, “If unemployment is high because people are unwilling to work, reducing the supply of labor, why aren’t wages going up?” (Writing Off the Unemployed, Feb. 10, 2014.)


Krugman’s elementary error is that he fails to realize that market wages result from the interaction of both supply and demand for labor: If supply falls while demand remains constant (that is, if the supply schedule shifts to the left while the demand schedule remains unmoved), equilibrium wages will rise. However, if both schedules shift an equal distance to the left, the equilibrium wage will be unchanged, and if demand shifts by more than supply, equilibrium wages will actually fall.

Economic news is either good, bad, or indifferent. The bad news about recessions is that they embody bad news. The demand for output, and therefore the derived demand for labor, unexpectedly shifts to the left in most sectors. Unfortunately, this means that the equilibrium wages required for full employment fall below expectations. Workers who are laid off in a booming economy can often find even better jobs than they left, resulting in a surprise increase in the average wage rate. But workers who are laid off in a recession ordinarily have to settle for a less attractive job than they had, resulting in an unexpected decline in the average wage rate.

An extension of the duration of compensated unemployment effectively diverts part of the potential labor supply into prolonged unemployment. By itself, this reduction in the supply of labor would, as Krugman notes, increase equilibrium wages given a normal downward-sloping demand curve. However, if it comes at the same time as an even bigger decline in labor demand, the net result will be wages that fall, but not by as much as would have been required to maintain full employment.

Krugman’s elementary error would make a good exam question for any Econ 101 class: Given a downward-sloping demand curve for labor and an upward-sloping or vertical supply curve, a leftward shift in the demand curve and a smaller leftward shift in the supply curve will cause the equilibrium wage to: a) rise, b) fall, c) remain constant, d) rise or fall depending on the actual slopes of the two curves. Unfortunately, Krugman gets this one wrong.

In my earlier Beacon post, A Chance to End the Great Recession, I called attention to the very strong time-series correlation between the maximum duration of unemployment benefits and the average duration of unemployment. To be sure, the causality causing this correlation works both ways: High benefits cause higher unemployment, but at the same time, high unemployment causes higher benefits, either politically through ad hoc legislation, or automatically through state-wide “triggers” that typically must be met before the extensions take effect. As a result, it has been difficult to pin the disincentive effect down empirically, and studies have had mixed results. Nevertheless, the economic theory is quite clear.

With the expiration of the federal subsidy to extended benefits expiring at the end of 2013, we can expect to see even further declines in the national unemployment rate over the coming months.

Will the Federal Government Turn a Profit on Risk Corridors? That Can Be Stopped.

Money-Spiral-Image-for-PostI have written twice about the “risk corridors” in Obamacare’s health-insurance exchanges. The first post described how risk corridors will work in the exchanges. Risk corridors exist for three years and are designed to partially immunize insurers from losing money in the exchanges.

Recently, the risk corridors have been described as a “bailout,” especially by Republicans who seek to have them repealed. The political goal is to discourage insurers from continuing to participate in exchanges in 2015, thereby further weakening and crippling Obamacare.

The major difference between risk corridors and the two other methods of protecting insurers in the exchanges (“reinsurance” and “risk adjustment”) is that risk corridors have an unlimited claim on federal taxpayers for three years, whereas the other two are funded by insurers and capped.

Because the exchanges are enrolling more older and (likely) sicker people than originally anticipated, it has dawned on many observers that insurers, overall, will likely lose a lot of money in the exchanges this year. My second post examined the likelihood of any Congressional Republican attempt to repeal the risk corridors (or “bailout”).