Tag Archives: greed

Why is Health Care So Expensive?

According to Steven Brill, whose 26,000 word article in Time is getting all kinds of attention, one big factor is price negotiation. An uninsured patient can’t negotiate at all, so they get charged $1.50 for a single Tylenol in a hospital. Insurance companies negotiate on their customers’ behalf, so they get charged less. And Medicare, which is the biggest player of all, negotiates hard — volume discounts and all, just like any big customer anywhere in the world — and thus pays the least for the same products and procedures.

Interestingly, Brill steps away from one obvious solution — have Medicare cover everyone — because he says it will leave doctors underpaid. Felix Salmon takes him to task for this, pointing out that Brill never states what “underpaid” is. Since my greedy doctor post remains my most read and commented of all time, I feel a certain obligation to chime in here. I have never seen any analysis that tries to show what doctors might get paid in an all-Medicare system. Maybe it would be pretty low; if GPs maxed out at $50,000 per year, they probably wouldn’t spend all that money and time at medical school. But maybe doctors would still get paid what they do now, and it would be hospital administrators (whose multi-million dollar salaries are the true villains in Brill’s piece) getting a pay cut. Or maybe it will be CEOs of drug companies getting paid less; who would complain about fewer $78 million severance packages being paid to CEOs?

You can read more commentary regarding Brill’s article here and here.

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Aside

First of all, how come nobody told me that Richard Posner and Gary Becker had their own blog? I have never referenced Becker in this blog, but he is a big hitter economist of the Chicago school. But I have … Continue reading

Matt Taibbi on Romney and Private Equity

Matt Taibbi has a new piece in Rolling Stone about Mitt Romney’s time at Bain Capital, and how Bain used large amounts of debt to execute its buyouts. The overall theme is one of financial engineering vs. making things, of pillaging companies to generate wealth vs. building companies to create jobs.

Like most things Taibbi writes, this article is:

  1. Very funny
  2. Savagely mean
  3. Only about 75% accurate, and you need to know a lot about Wall Street to know which quarter is wrong

However, in light of my prior post on private equity, there are two paragraphs that I wanted to quote because they are both amusing and apt.

Talking about the private equity model of loading up a company with debt and then paying fees and dividends to the buyout firm, Taibbi says:

This business model wasn’t really “helping,” of course – and it wasn’t new. Fans of mob movies will recognize what’s known as the “bust-out,” in which a gangster takes over a restaurant or sporting goods store and then monetizes his investment by running up giant debts on the company’s credit line. (Think Paulie buying all those cases of Cutty Sark in Goodfellas.) When the note comes due, the mobster simply torches the restaurant and collects the insurance money. Reduced to their most basic level, the leveraged buyouts engineered by Romney followed exactly the same business model. “It’s the bust-out,” one Wall Street trader says with a laugh. “That’s all it is.”

And then, comparing Romney’s speeches decrying America’s level of debt with his Bain Capital strategy of loading up companies with debt, Taibbi writes:

To recap: Romney, who has compared the devilish federal debt to a “nightmare” home mortgage that is “adjustable, no-money down and assigned to our children,” took over Ampad with essentially no money down, saddled the firm with a nightmare debt and assigned the crushing interest payments not to Bain but to the children of Ampad’s workers, who would be left holding the note long after Romney fled the scene. The mortgage analogy is so obvious, in fact, that even Romney himself has made it. He once described Bain’s debt-fueled strategy as “using the equivalent of a mortgage to leverage up our investment.”

I like that one because it makes the connection between private equity and mortgages, as I did in my post.

Again, I’m not fully supporting Taibbi’s reporting or his conclusions, but he makes some good points.

Ditto

See yesterday’s post, and repeat. Names change, facts remain the same.

Joe Stiglitz on Income Inequality

He’s a Nobel Prize winner, so he must be smart.

Read his article here.

Links to Great Articles

Yves Smith on the macro effects of oversized Wall Street pay.

I normally don’t love Paul Krugman, despite his Nobel Prize, since he is too strident and preachy and predictable, but this take on what really separates Right from Left in America is pretty interesting.

John Mearsheimer on American foreign policy and realpolitik.

John Cassidy on whether Wall Street adds value to society. Hint: it doesn’t. This is from the New Yorker, so it won’t be available online forever.

Law professor David Beatty compares American constitutional jurisprudence to how they do it in other countries. I’m no expert, but I found it fascinating.

Red States Living on Federal Money

Here is a new article with data showing a direct correlation between how GOP leaning a state is and how much federal money it sucks down. This follows up on my posts on this very topic.