The Civil War, According to John Kelly

During an October 30 interview on Fox News, John Kelly, White House Chief of Staff, said that an inability to compromise led to the Civil War.  Although Kelly is considered one of only a few adults on the Trump team, it seems that the media and Washington insiders have given him too much credit. One thing is clear: Kelly is not a negotiator.

Many wars arise from an inability to compromise. A war with North Korea may result from an inability to compromise. The Iran deal was a compromise that President Trump does not like; perhaps his rejection of this compromise will ultimately lead to a war with Iran.

An inability to compromise is not an explanation for war (or litigation, or divorce, or a failure to make a deal). The underlying issue that defies compromise is what explains the story. In the case of the Civil War, that issue was slavery, even if the legal basis for war was that states had no constitutional right to secede.





The Healthcare Reform Non-Debate Continues

In closed sessions, a handful of U.S. Senators are working on a revised plan to repeal and replace the Affordable Care Act.  The nation’s entire population has a stake in the outcome of the process that is ongoing in the Senate and, therefore, everyone has an interest in open debate about the specific items under discussion. Nevertheless, only thirteen (13%) percent of the nation’s senators – members of the least democratic (lower-case “d”) institution in our government – are working in private meetings, avoiding debate and refusing to disclose the details of their work.

Our American experiment thrives only if we are prepared to engage in open debate and to participate in interest-based negotiations, but the primary mission of Mitch McConnell and others, in the context of healthcare reform, is apparently to avoid open debate and to prevent interest-based negotiations.  Why the secrecy?


Most Americans are concerned about the rising costs of healthcare, and many erroneously believe that these rising costs are a direct result of provisions in the Affordable Care Act (ACA).  In a letter that I received last month, my Congressman addressed this erroneous belief:

Reports that the ACA alone has increased private healthcare costs are false.  Insurance premiums were already on the rise, and annual increases of 8% before the ACA have been reduced to 5% — the average family would now be paying $3,600 more on their premium if not for the Affordable Care Act.


The ACA has had the effect of putting some downward pressure on healthcare costs by imposing new standards on insurers.  However, the ACA does not directly address the other major drivers of costs: (1) hospital profits; (2) pharmaceutical company profits; and (3) medical device manufacturers’ profits.

Addressing these three drivers directly would require a great deal of political courage or, at least, more courage than is readily apparent on Capitol Hill.  So, despite the great potential for cost reduction in healthcare, most of the debate to date has involved a different question: WHO PAYS?  By channeling their debate in this way, lawmakers perpetuate the erroneous belief mentioned above – that rising costs are a direct result of provisions of the ACA.  From here, it is only a short step to false narratives that connect rising costs to subsidies benefiting the less-deserving among us – those who do not look or think like us, or who do not live where we live.  Among various constituencies, emotions heat up, and rational discussion ceases, because so many folks think of “subsidies” as something that benefits others, and not themselves.


When you file your tax returns, and you claim a deduction from your gross income, you are claiming an indirect subsidy from the U.S. Treasury.  So, for example, if you are in the 28% tax bracket, and you claim a deduction for $10,000 in mortgage interest paid, you are permitted to keep $2,800 that you would otherwise owe to the IRS.  To look at it another way, the U.S. Treasury has helped with your mortgage interest payment.  Indirect subsidies, like the mortgage-interest deduction, are meant to incentivize behavior that the government seeks to promote.  In the case of this particular deduction, the desired outcome is more home ownership by more Americans.  The bizarre element, applicable to all tax deductions, is that those with the highest income receive the largest subsidy.

Health insurance premiums work in essentially the same way, for tax purposes.  If you are fortunate enough to have a salaried position with a company, and you receive health insurance coverage through your employer, the cost of those premiums is excluded from your gross income.  In other words, you are receiving an indirect subsidy, from the U.S. Treasury, for your health insurance premiums.  As your income rises, your subsidy increases.  So, if you are a taxpayer with enough annual income to itemize deductions on your tax return, you may well be realizing more benefits from the U.S. Treasury than those who buy subsidized insurance on exchanges set up under the ACA.


The ACA was enacted with three objectives in mind: (1) insure more Americans; (2) improve the efficiency of health care; and (3) reduce health care costs.  The law has been reasonably successful in meeting the first two objectives.  Sooner or later, Congress will need to tackle costs.  This cannot be accomplished in a conversation over who pays.


When the State of Arkansas announced that it intended to execute eight death-row inmates in eleven days, the story became national news.  What was apparently lost in the story is that more than half of these death-row inmates were likely suffering from serious mental illnesses that gave rise to the criminal acts for which they were to be executed.  The question that we need to be asking is whether the public-safety (or moral/punitive) response to mental illness, which is evident in its extreme form in these Arkansas cases, is truly serving our interests.

Neuroscience, genetics and psychiatry have greatly expanded our understanding of mental illnesses in the past twenty years, and they give us many reasons to re-think our punitive approach to persons who are suffering from these illnesses.  Neuroscience tells us that some people have more free will than others, and that some people have more self-control than others; these findings are linked to structural elements of the brain.  Genetics tells us that certain mental illnesses may be coded in our DNA.  Psychiatry has developed new therapies that enable the vast majority of persons with mental illnesses to lead productive, satisfying, and relatively stable lives.

Despite these developments, too many among us cannot seem to let go of our punitive response to mental illness. As the branch of mathematics known as game theory shows, the desire to punish is overwhelming, even when punishment is irrational and economically burdensome.  When an antisocial act occurs, especially one that is also horrific, our attention shifts from science to our own (often flawed) intuitions about human nature.  We embrace the idea that mental illness is a failure of will or a defect of character — that a mentally ill person’s antisocial behavior manifests a failure of personal responsibility.

We punish those who, in our view, have shown a failure of personal responsibility.  (Too many of us attribute great value to personal responsibility whenever we find it lacking in others. It is overlooked, however, when we engage in inconsiderate or unethical behavior as commuters or airline passengers, and in either scenario, we blame our lapses on others or on the environment.  But I digress . . .)  In a punishment regime, we heap condemnation on the offender for the violation.  In effect, our prison systems are managed by Departments of Condemnation.


Much has been written, in the past several years, about the crisis of mass incarceration in the United States.  The National Academy of Sciences published a report entitled “The Growth of Incarceration in the United States” in 2014. (The report is available at for free download in PDF format.) Here is a table from the report:

Punishing Post Table

The report also indicates that an estimated fifty-six (56%) percent of state prison inmates and sixty-four (64%) percent of persons held in jails suffer from mental illness.  The prison system has become the safety net – or the “default” destination – for mentally ill persons who are not receiving adequate or effective treatment. We need to do better.

Of course, doing better inevitably raises fiscal concerns.  In light of recent data, we ought to be asking how the monetary and social costs of incarcerating persons with mental illness compare against the projected costs and potential benefits of providing adequate and effective treatment that would enable mentally-ill persons (a) to lead productive lives and (b) to avoid entanglements with the criminal justice system.

In “The Growth of Incarceration in the United States” at pages 314 – 315, the National Academy of Sciences frames the fiscal problem as follows:

The corrections system and the public safety system more broadly (that is, police, prosecutors, and the courts) command a larger share of government budgets than was the case 30 years ago. Budgetary allocations for corrections have outpaced budget increases for nearly all other key government services (often by wide margins), including education, transportation, and public assistance. Today, state spending on corrections is the third highest category of general fund expenditures in most states, ranked behind Medicaid and education.  Corrections budgets have skyrocketed at a time when spending for other key social services and government programs has slowed or contracted. As a result, the criminal justice system increasingly is the main provider of health care, substance abuse treatment, mental health services, job training, education, and other critical social and economic supports for the most disadvantaged groups in U.S. society.

Between 1972 and 2010, public expenditures for building and operating the country’s prisons and jails increased sharply, keeping pace with the increase in the number of people held in those facilities.  (footnotes and citations omitted)


It is time to acknowledge the extraordinary costs and inefficiencies inherent in our use of the justice system to address mental illness.  It is time to move mentally ill persons from prisons to treatment facilities and to shift expenditures accordingly.  It is time to elevate the recovery, restoration and re-integration of mentally ill persons over the societal impulse to punish, so that more of our people can lead productive lives, for their benefit and for the benefit of all of us.

Fixing Obamacare

A week ago, Paul Ryan, Speaker of the House, withdrew the American Health Care Act from consideration in the House of Representatives, without a vote.  The Speaker, among others, had counted heads, and he knew that the AHCA would be defeated.  For now, at least, Obamacare lives on.

Earlier this week, Mr. Ryan was interviewed by Norah O’Donnell of CBS News.  During that interview, he continued to bang the drum for repeal and replacement of Obamacare.  He expressed his desire to “get to yes” on some version of the American Health Care Act, implying that he would be interested in substantive, interest-based negotiations.  (“Getting to YES” is the title of a book on interest-based negotiation by the late Roger Fisher, director of the Harvard Negotiation Project.)

When asked whether he would consider working with Democrats to amend the elements of Obamacare that he and his fellow Republicans view as problematic, he dismissed the idea of an amended Obamacare as not “conservative enough” for many Republicans.  So much for being open to interest-based negotiation.

Mr. Ryan then reached for a standard Republican catchphrase (in discussions of health care, but not abortion), stating that Americans need a new health care law that allows for more freedom of choice.

The Problem

When Obamacare was implemented, many low-income Americans were able to get health insurance for the first time in ten or twenty years.  Some of them had received no preventive care for decades and were in very poor health.  Their care was, and continues to be, expensive.

Congress anticipated the high costs associated with providing care to this group.  To address these costs, various provisions in Obamacare (e.g., Section 1402) provided that the Secretary of Health and Human Services would reimburse a health insurer when payouts for treatment made coverage a losing business proposition for the insurer, due to the relatively low premiums paid for that coverage.

For several years, Republicans on Capitol Hill have attempted, repeatedly, to blow up Obamacare by interfering with this reimbursement scheme. For example:

  • In September of 2013, Senator Ted Cruz filibustered to shut down the federal government over a funding re-authorization, asserting that President Obama would not cooperate with Republican efforts to de-fund Obamacare.
  • In the 2013 – 2014 budget, the House would not authorize an appropriation for these reimbursements; in 2014, House Republicans sued the Obama Administration and obtained a court order that prohibited the Secretary of Health and Human Services from reimbursing insurers, since the reimbursement funds had not been specifically appropriated by Congress. The case is still pending.
  • In 2015, health insurers seeking reimbursement for extraordinary losses incurred in specific geographic areas during the first several years of the exchanges were thwarted by a provision that Senator Marco Rubio proposed for inclusion in an appropriations bill.

These maneuvers are obviously not about freedom of choice; they are about money.  In purely political terms, they are also about breaking Obamacare, so that lawmakers can label the current system as irretrievably broken and swirling in a “death spiral” – such a “disaster” that the only reasonable solution is repeal and replacement.  The vague assertions about freedom allow the players to pretend that they are defending what we value most, rather than quibbling about money.

Freedom is not the Solution

In the health care system, there is one group of Americans who would obviously benefit, at least in the short term, from more freedom of choice.  That group is the young and healthy people who do not like paying their premiums and deductibles for routine wellness exams.

If we allow this group the freedom to go without health insurance coverage, we all lose, for two reasons.  First, premiums rise for those with health insurance, as explained in a previous post.  Second, in twenty years, this group of voluntary free-riders will be the next group that, due to a lack of preventive care over the long term, will need expensive care for diabetes, heart disease, various cancers and so on.

Obamacare was enacted with three objectives in mind: (1) insure more Americans; (2) improve the efficiency of health care; and (3) reduce health care costs.  The law has been reasonably successful in meeting the first two objectives.  Sooner or later, Congress will need to tackle costs.

It is time for some substantive, interest-based negotiations concerning health care on Capitol Hill, with or without Mr. Ryan.

Replacing Obamacare: Math & Madness

As our lawmakers on Capitol Hill consider a repeal and replacement of the Affordable Care Act (ACA, or Obamacare), we have seen media reports on the projected adverse impacts of the proposed replacement plan.  We have heard President Trump declare, on more than one occasion, that Obamacare is a disaster, and that the replacement plan will make affordable health insurance coverage available to all Americans.  Meanwhile, the Congressional Budget Office has projected that, in less than a decade, 24 million fewer Americans would be covered under the new plan than under ACA.  What on earth is going on here?  A look at the math of (1) health care services and (2) health insurance may provide some answers.


In February 2013, Time magazine published a piece by Steven Brill titled, “Bitter Pill: Why Medical Bills Are Killing Us.”  (It can be found online.)  The piece is a rather long read, and it provides a stunning look at the forces driving up the costs of medical services.  Prominently featured among those forces are hospital profits.

Brill begins with a discussion of the hospital “chargemaster” – an internal document that assigns prices to all goods and services provided at that hospital:

The chargemaster, I learned, is every hospital’s internal price list. Decades ago it was a document the size of a phone book; now it’s a massive computer file, thousands of items long, maintained by every hospital . . .  It would seem to be an important document. However, I quickly found that although every hospital has a chargemaster, officials treat it as if it were an eccentric uncle living in the attic. Whenever I asked, they deflected all conversation away from it. They even argued that it is irrelevant. I soon found that they have good reason to hope that outsiders pay no attention to the chargemaster or the process that produces it. For there seems to be no process, no rationale, behind the core document that is the basis for hundreds of billions of dollars in health care bills.

If you have looked at a bill from a health care provider recently, and the services reflected on the bill were covered by health insurance, you undoubtedly noticed several “adjustments” on the bill.  Your insurer likely paid a fee lower than the “list price” for the care that was provided.  Perhaps the bill noted an “amount non-billable” or a contractual adjustment.  In other words, the service provider, whether it is a hospital, physician or lab, has agreed to accept a “discounted” fee for each specific service.  The obvious benefit to the service provider is that fees are reliably and timely paid, and there is no expenditure of resources on collections.  The less-obvious benefit, as Brill points out, is that the “negotiated” or “discounted” fees translate to handsome compensation for service providers:

. . . hospital patients who have private health insurance also get discounts off the listed chargemaster figures, assuming the hospital and insurance company have negotiated to include the hospital in the insurer’s network of providers that its customers can use. The insurance discounts are not nearly as steep as the Medicare markdowns, which means that even the discounted insurance-company rates fuel profits at these officially nonprofit hospitals. Those profits are further boosted by payments from the . . . patients who have no insurance . . . These patients are asked to pay the chargemaster list prices. If you are confused by the notion that those least able to pay are the ones singled out to pay the highest rates, welcome to the American medical marketplace.

. . . no matter how steep the discounts, the chargemaster prices are so high and so devoid of any calculation related to cost that the result is uniquely American: thousands of nonprofit institutions have morphed into high-profit, high-profile businesses that have the best of both worlds. They have become entities akin to low-risk, must-have public utilities that nonetheless pay their operators as if they were high-risk entrepreneurs.

On March 6, 2017, a list published in The Boston Globe revealed that at least 93 employees of tax-exempt nonprofits in Massachusetts earned over $1 Million in 2014.  Many of these employees were executives at hospitals.

Although Massachusetts has a reputation as an expensive place to be sick, it is consistent with the national picture.  Steven Brill asserts that, from coast to coast, we have created:

. . . a uniquely American gold rush for those who provide everything from wonder drugs to canes to high-tech implants to CT scans to hospital bill-coding and collection services. In hundreds of small and midsize cities across the country — from Stamford, Conn., to Marlton, N.J., to Oklahoma City — the American health care market has transformed tax-exempt “nonprofit” hospitals into the towns’ most profitable businesses and largest employers, often presided over by the regions’ most richly compensated executives. And in our largest cities, the system offers lavish paychecks even to midlevel hospital managers, like the 14 administrators at New York City’s Memorial Sloan-Kettering Cancer Center who are paid over $500,000 a year, including six who make over $1 million.

Taken as a whole, these powerful institutions and the bills they churn out dominate the nation’s economy and put demands on taxpayers to a degree unequaled anywhere else on earth. In the U.S., people spend almost 20% of the gross domestic product on health care, compared with about half that in most developed countries. Yet in every measurable way, the results our health care system produces are no better and often worse than the outcomes in those countries.

According to one of a series of exhaustive studies done by the McKinsey & Co. consulting firm, we spend more on health care than the next 10 biggest spenders combined: Japan, Germany, France, China, the U.K., Italy, Canada, Brazil, Spain and Australia.

My intent is not to start a conversation about how much compensation is “deserved” by anyone who provides medical services.  However, I think we Americans need to discuss whether millions of Americans “deserve” to be excluded from health insurance coverage and health services due to a decision, conscious or not, that our resources must be directed first to the highly compensated individuals who are cashing in on the U.S. health care bonanza.  That discussion is not taking place on Capitol Hill.  If any reform plan is to be successful, it must address where the money goes.


Nearly everyone understands the mechanics of insurance: the group of insured persons pool their resources, in the form of premiums; when a covered event affects an insured person, payment is made from the pool, to or for the benefit of that person.  In general, a larger pool means lower premiums.

In 2012, the Supreme Court of the United States decided questions of law arising from the ACA in the case of National Federation of Independent Business, et al. v. Sebelius, Secretary of Health and Human Services, et al.  Justice Ginsburg, in a concurring opinion, pointed out the factors that differentiate health insurance from insurance of other types:

Unlike the market for almost any other product or service, the market for medical care is one in which all individuals inevitably participate. Virtually every person residing in the United States, sooner or later, will visit a doctor or other health-care professional. . . .

The large number of individuals without health insurance, Congress found, heavily burdens the national health-care market. See 42 U. S. C. §18091(2). As just noted, the cost of emergency care or treatment for a serious illness generally exceeds what an individual can afford to pay on her own. Unlike markets for most products, however, the inability to pay for care does not mean that an uninsured individual will receive no care. Federal and state law, as well as professional obligations and embedded social norms, require hospitals and physicians to provide care when it is most needed, regardless of the patient’s ability to pay. . . . (emphasis added)

As a consequence, medical-care providers deliver significant amounts of care to the uninsured for which the providers receive no payment. In 2008, for example, hospitals, physicians, and other health-care professionals received no compensation for $43 billion worth of the $116 billion in care they administered to those without insurance.

Health-care providers do not absorb these bad debts. Instead, they raise their prices, passing along the cost of uncompensated care to those who do pay reliably: the government and private insurance companies. In response, private insurers increase their premiums, shifting the cost of the elevated bills from providers onto those who carry insurance. The net result: Those with health insurance subsidize the medical care of those without it. As economists would describe what happens, the uninsured “free ride” on those who pay for health insurance.  (emphasis added)

So, if you have been thinking that the folks who buy subsidized insurance through exchanges under the ACA are the primary driver of high costs in the current system, perhaps you ought to think again.  More importantly, if you believe that excluding these folks from the system will lower your premiums or your cost of care, you are ignoring the realities of health insurance.

Before the Affordable Care Act became law, there was much discussion about establishing a so-called public option – a government health insurance plan, not unlike Medicare, that would collect premiums, limit the fees charged by providers, and operate in competition with private health insurance plans.  Opponents promptly – and falsely – labeled the public option as a government takeover of health care, and it was not adopted.  Here is a look at the basic math of private versus public insurance:

Private Health Insurance
Premiums                                                                 $$$$$$$$
Less: Staff & Administrative Costs                         ($$$$)
Less: Executive Compensation                                ($$$$)
Less: Amounts Paid for Care                                     ($$$$)
Balance                                                Profit, Bonuses, Taxes

Public Health Insurance
Premiums                                                                      $$$$$$
Less: Staff & Administrative Costs                         ($$$$)
Balance                                             Amount Available for Care

It is clear that public health insurance, with no premium dollars going toward profits, bonuses or executive salaries, is less expensive than private insurance.  However, one important point is not obvious in the outline above: the fees paid by public insurance (Medicare) are lower than the negotiated fees paid by private insurers, and these lower payouts are a factor in keeping premiums down.  So, if public insurance were available to everyone alongside private insurance, large numbers of Americans without company-sponsored private health insurance would undoubtedly choose public insurance as the sensible option.  The public option is worth considering once again.  For obvious reasons, hospital and insurance executives would not like that at all.

The usual counter to the public option is the magic of competition.  In the current debates over repealing and replacing the ACA, lawmakers and President Trump are banging the drum for a free-market health system that will lower costs through increased competition.  Have you ever heard of a hospital seeking to solidify its market niche by becoming known as the low-cost provider?  No, because there is no incentive to go in this direction, either in the marketplace or under law.

If the ACA were repealed, insurance companies could presumably offer “competitive” low-cost policies once again, with minimal coverage.  Of course, anyone who purchased one of these policies would need to figure out which bankruptcy lawyer they might like to hire in the event of a medical catastrophe, since their share of treatment costs would be staggering.


If lawmakers were acting in good faith, they would (1) publicly identify the specific issues presented by the ACA – the elements that are not presently working, (2) propose and publicly debate amendments that address those issues, and (3) synthesize the agreed-upon amendments into a new, improved ACA.

Unfortunately, they are not acting in good faith.  They would like to repeal and replace the ACA and characterize the replacement law with broad, general statements – you know, about freedom of choice and the false premise that free-market competition among insurers will lower the costs of care – before the general public realizes that the new law is about class and the insurance-company profits that give rise to campaign contributions.  We deserve better.


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