Monthly Archives: June 2009

Why Health Care is So Expensive

Originally published at on June 29, 2009

As the health care debate moves forward, the mess of issues surrounding why health care is so expensive is finally being fleshed out.

Private insurance and costs for health care make up great deal of our national economy. If we were all receiving excellent care and had few complaints about the system, the fact that it costs so much might not be a problem.

However, companies can ill-afford insurance costs when they offer insurance to employees and compete in a global economy. Some of our most successful corporations, those that have “adapted” to international competition such as Walmart, have dropped health care insurance for their employees. Others such as automobile manufacturers and airlines could not compete partly because of the growing costs of health care plans for current and retired workers. Bankruptcies have resulted and health care plans for retired workers have been trimmed or eliminated in the process.

About eighteen percent of the population is uninsured and are likely to avoid some care that would be important for good health and then pay for private care on their own or use expensive public resources without paying for care.

Even the insured have complaints about the system. The public often blames the insurance companies for skimping on coverage and profiting unfairly. While Americans who have employer-provided insurance are most often satisfied with their health care, those who have to obtain insurance privately have great concerns about exclusions of pre-existing illness and recession of contracts for insurance after they become ill.

A recent New Yorker article attempted to discover why the costs in different areas of the country differ dramatically. The article is a must-read for sorting out one aspect of health care: can costs be lowered while still providing excellent care? The writer, an M.D. himself, Atul Gawande, interviewed doctors in two Texas areas, where statistics show widely different costs per person for about the same health care outcomes for their patients. In one section of the article, Dr. Gawande recounts a conversation with doctors from the more expensive health care area:

Some were dubious when I told them that McAllen was the country’s most expensive place for health care. I gave them the spending data from Medicare. In 1992, in the McAllen market, the average cost per Medicare enrollee was $4,891, almost exactly the national average. But since then, year after year, McAllen’s health costs have grown faster than any other market in the country, ultimately soaring by more than ten thousand dollars per person.

“Maybe the service is better here,” the cardiologist suggested. People can be seen faster and get their tests more readily, he said.

Others were skeptical. “I don’t think that explains the costs he’s talking about,” the general surgeon said.

“It’s malpractice,” a family physician who had practiced here for thirty-three years said.

“McAllen is legal hell,” the cardiologist agreed. Doctors order unnecessary tests just to protect themselves, he said. Everyone thought the lawyers here were worse than elsewhere.

That explanation puzzled me. Several years ago, Texas passed a tough malpractice law that capped pain-and-suffering awards at two hundred and fifty thousand dollars. Didn’t lawsuits go down?

“Practically to zero,” the cardiologist admitted.

“Come on,” the general surgeon finally said. “We all know these arguments are bullshit. There is overutilization here, pure and simple.”  Doctors, he said, “were racking up charges with extra tests, services, and procedures.”

This does not demonstrate that the problems of health care costs are all related to decisions made by doctors. But research shows that the outcomes of care provided in lower-cost areas can be as good as that provided in high cost areas. If this is the case, insurers, the government and the public pay more than what is necessary through premiums, co-pays and taxes. A change in the care prescribed by doctors could save everyone a great deal of money without providing less care. In fact, patients would endure fewer tests, less and medical procedures than they are currently made to face.

Much of the current debate focuses on the politics of health care. People imagine a war between socialism and capitalism fought in the guise of health care reform. Good financial reform will be much more specifically tailored to deal with the problems in the current system and hopefully will give us more for less.

What can Canada teach us about banking regulation?

By Marc Seltzer and Leslie Schreiber; originally published as “Northern Light” on June 19, 2009, in Commonweal Magazine and at

US Regulatory Reform Follows Canadian Model

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Amid the greatest worldwide financial meltdown since the Great Depression, there have been few examples of sound financial management and regulation. Public authorities have had to provide billions of dollars to support ailing institutions and have acknowledged far-reaching gaps in public oversight. Responding to the disastrous bubble and bust, the Obama administration is calling for comprehensive reform. International leaders have even gone so far as to call for the creation of a world financial regulator.

U.S. Treasury Secretary Timothy Geithner, while not going that far, is asking Congress to grant the Treasury broad oversight authority for virtually all financial institutions, and a mandate to monitor systemic risk. Additional proposals seek to insure that financial instruments, such as credit-default swaps, are subject to federal regulation. While Congress will ultimately be responsible for crafting legislation, Geithner’s proposals provide a road map for a new financial order, in his words-“not modest repairs at the margin, but new rules of the game.”

The economic crisis has tested the stability of financial systems across the international community. The results differ widely, from Iceland’s near-bankruptcy to Canada’s remarkable financial health and insulation from risk. Beyond the private gains and losses, the crisis has revealed strengths and weaknesses of different regulatory environments. Remarkably, not a single major Canadian financial institution has needed a bailout. In March, the International Monetary Fund praised Canada’s banks for their “remarkable stability amid the global turbulence.” Howard Kaplow, an investment executive and director of financial services in Montreal, noted that Canadians “tend to be more conservative, but we also have a more restrictive financial authority with tougher rules to follow.” The IMF agrees, commending Canada’s “strong regulatory and supervisory framework.”

In this light one may ask how Secretary Geithner’s proposals for regulatory reform measure up against the Canadian model. Are the Obama administration’s efforts to monitor systemic risk and regulate all substantial financial entities and instruments in line with the Canadian approach?

In contrast to Canada’s conservatism, the U.S. system has gone through a period of “irrational exuberance.” Over the past twenty years, Congress deregulated financial industries in order to maximize business opportunity. New financial instruments, markets, and conglomerates were unleashed without oversight. In a recent debate over the causes of the crisis, New York University Professor Nouriel Roubini (nicknamed “Dr. Doom” for having predicted the current crisis) argued that, “deregulation occurred too fast and in ways that did not provide prudential regulation for provision of the financial system.”

The dominant political ethos was trust in free markets, competition, and modest regulation-even self-regulation. Where regulators did act, they followed a framework that called for distinct regulators in compartmentalized markets. The FDIC has been highly praised for its success at handling the closing of failed banks, but neither the FDIC nor the Federal Reserve had authority to intervene when an investment bank or insurer acted unwisely or teetered on the brink of bankruptcy.

In the end, the failures were systemic and pervasive. They could not be limited to one sector of the financial system, nor were they detected by any existing regulatory agency. In warning that the problems would not respond to a quick fix, President Barack Obama observed that the crisis “didn’t result from any one action or decision. It took many years and many failures to lead us here.”

New regulations were contemplated long before Secretary Geithner was confirmed. Former Treasury Secretary Henry Paulson and the General Accounting Office oversaw substantial groundwork in 2008, but it now falls to Geithner to finish the job. While Geithner is promoting a more comprehensive regulatory regime, the proposals have been developed by financial and market experts and insiders who believe in free-market capitalism. They do not wish to stifle financial innovation. Instead, the aim is to protect the overall system while allowing risk-taking activity to continue. This approach is in line with the Canadian system, where, despite strong regulatory authority, the financial sector has prospered. Today, five of the country’s banks are among the top fifty banks in the world. Ten years ago none of them was.

The lead financial regulatory authority in Canada is the Office of the Superintendent of Financial Institutions (OSFI), currently headed by Julie Dickson. She chairs the Financial Institutions Supervisory Committee, which has broad authority to monitor systemic risk and, for that purpose, brings together regulators who oversee market stability, risk-management, and business practices from across the financial economy. The OSFI mandate covers “all banks, along with federally regulated property, casualty, and life insurers, and trust and loan companies, plus about 10 percent of private pension plans” according to OSFI spokesman Jean Paul Duval. If any of the institutions “raise a red flag, the OSFI can implement a range of disciplinary measures, affecting everything from bank capitalization to controlling assets, and even getting directly involved in business planning.” Indirectly, this also includes securities firms, which are 70-percent bank-owned in Canada (for example, RBC Dominion Securities is part of the Royal Bank of Canada). The OSFI oversees 450 banks and insurers, and approximately 1,350 private pension plans. Its authority, while not reaching all financial institutions (hedge funds are not regulated by the OSFI), is fairly comprehensive and is foundational for the soundness of the Canadian system.

Secretary Geithner told Congress in March that the oversight he was proposing “would include bank and thrift holding companies and holding companies that control broker-dealers, insurance companies, and futures commission merchants, or any other financial firm posing substantial risk” (emphasis added). Not every financial entity reaches the size and significance to affect systemic risk, but Geithner wants to avoid a system where the legal form of an entity can be used to shield it from regulation. A key component of meaningful oversight is the ability of the regulator to set standards for institutional risk management. Geithner is asking Congress for authority to increase capital requirements, to restrict leverage ratios, and to enact additional prudential rules.

In Canada, the OSFI has substantial experience with such oversight. According to Duval, since its creation in 1987, the OSFI “has always been vigilant in the development of its risk-management practices.” Capital requirements for Canadian banks have been held at 7 percent, while the global average is closer to 4 percent. Similarly, Canada’s bank-leverage ratio has been kept under twenty-to-one, while international bank leverage ratios were thirty-to-one and even forty-to-one. OSFI Superintendent Dickson remarked in November 2008, “We have seen how strong capital cushions in Canada have paid off to the benefit of our institutions and overall financial system.”

Canadian institutions were not free from risk-taking or even from exposure to subprime loans from the United States, but strong capital and leverage standards kept the damage from overwhelming Canada’s banks, let alone destabilizing the economy. In addition, Canadian banks generally still maintain the mortgage portfolios of loans they originate, retaining direct knowledge and responsibility for their management. These conservative practices reinforce sound regulation, and vice versa.

Canadian regulators give special attention to larger, “too big to fail” organizations. Duval explains that “OSFI utilizes a risk-based methodology, where institutions that we believe are operating in a riskier manner are subject to increased supervision. That said, the larger institutions will be operating in larger parts of the market, so [they] would naturally receive greater attention…and can be subject to different supervisory requirements.”

Similarly, the U.S. federal regulator proposed by Geithner will have the power to step in and manage problems when institutions fail to meet prudential standards or find themselves in financial difficulty. Special consideration would be given to entities deemed “too big to fail.” Geithner is asking Congress for the flexibility to intervene where there is risk to the wider economy. He has already intervened with a few of the big banks. Recent “stress tests” resulted in some banks being required to raise capital, although banks could choose whether to seek private or public funds.

Critics have called for regulations that would cap the size or restrict the legal structure of financial institutions. However, noting that other countries have allowed hybrid entities such as Canada’s banking and securities conglomerates, Geithner appears to trust that oversight will protect the system, and that private decision making should be allowed as much leeway as possible. The changes he proposes will require legislation. Under his lead, the Obama administration should be pushing hard for a substantial increase in federal regulatory authority. What might have been politically impossible before the crisis is now high on the legislative agenda. In addition, the chairman of the Federal Reserve, Ben Bernanke, has spoken in concert with the administration. While Congress will take a significant role in designing new regulation and is not likely to rubber-stamp the administration’s proposals, momentum is strong for the creation of comprehensive financial reform. The success of the regulatory system across the border should inspire both humility and hope.

Tweeting the News from Iran

By Marc Seltzer; originally published June 17, 2009 at

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Reporting through Twitter while other outlets are banned

A literary theme familiar in the United States is that government may one day use technology to oppress its people. George Orwell’s novel Nineteen Eighty-Four planted the seed of awareness in the Western mind, and as radars have come to watch our speed on the road, cameras look for criminal behavior indoors and satellites listen to our telephone calls, we have become concerned about the growing power of “Big Brother.”

Could Orwell have imagined that the tables may be turned on oppressive governments in the 21st century? Following the June election in Iran, the Islamic Republic is turning off the technology in hopes of restricting communications among its stirring populace. Journalists are restricted from covering protests. Major news organizations are unable to penetrate the events with video cameras and microphones.

However, regular Iranians are reporting from the streets by Twitter. A social networking site popular among celebrities, Twitter conveys short messages, including images and websites by Internet URL link from a cell phone, handheld digital device or computer. Followers around the world receive updates from the homes, offices and streets of Tehran.

To get a sense of what can and cannot be conveyed in the 140 characters that each “Tweet” is limited, to I have copied a recent series of communications (each of the following paragraph blurbs were originally separate “Tweets”):

  • it is now dawn in tehran – streets are quiet – we must move from here – this was good internet connection but not ours – #Iranelection
  • last night thousands stayed in streets between Parkway and Vanak sq until after 2am – #Iranelection
  • unconfirmed – several Generals have been arested – #Iranelection
  • unconfirmed – military has refused orders to shoot protesters – #Iranelection
  • Kamenei is under pressure and fighting for survival – without ANejad his authority is finished – #Iranelection
  • large demo today outside tehran tv-radio headquerters – Karroubi attended – #Iranelection
  • support for Mousavi in Tabriz is v-high – many protests – #Iranelection

While Twitter is not a major news outlet with live reporting and video, it is still contemporaneous to the events reported. There are questions of credibility as a consequence, such as who is really Tweeting, which we cannot always know. In fact, some Twitter communications have warned that the Iranian Government is setting up fake Twitter sites, spreading false information to protesters.

On the other hand, Twitter has been used to guide hundreds of thousands of protesters to rallies and redirect them quickly and efficiently when locations or times are changed. Reports on the arrest of leaders, the number of participants at government and opposition rallies, and action or lack of action by the police and military are also reported.

A few of the hot Twitter sources are: “Persiankiwi”, “Irannewsnow”, and “StopAhmadi”. The U.S. State Department reportedly asked the executives at Twitter, located in California, to forego a scheduled maintenance shut down in order to keep the Tweets coming during the Iranian crisis. Traditional print and broadcast reporters have been told that they cannot report on events in Iran without permission of the government, and that permission is not being given freely. As events unfold, you may be able to piece together facts on the ground in Iran using updates from Twitter sources.

While the outcome of the election conflict in Iran remains to be seen, at this point, the public is using technology to further democratic ends. Where there is no free press, information still flows from person to person through the Internet. Where the government tries to restrict public assembly, instant communication helps people organize and connect in protest beyond the reach of the government. And, where the government tries to control the story, the truth gets out. George Orwell, who wrote during the consolidation of Soviet authoritarianism, might be surprised. He would certainly be pleased.