Welfare program succeeds at giving out welfare, film at 11

WunderDataVox is still pointing to the Number Of Obamacare Signups as evidence of…something: Obamacare succeeded for one simple reason: it’s horrible to be uninsured

What has Obamacare ‘succeeded’ at exactly? Signups! You know, because the number (7 million something) was bigger than another number (7 million) that was arbitrarily laid down as a magic number benchmark of (something). And that’s all you need to know if you are part of the New, Data-Driven Journalism: ‘Success’!

Look. You created a welfare program (or something equivalent to one). The welfare program gives a nonzero amount of Money (or something equivalent) to a certain class of people. And so, lo and behold, some nonzero number of people, mostly drawn from that class, come ‘sign up’ for getting that Money. Is this fact, in itself, noteworthy? Is it surprising? Is it an achievement? Is it ‘success’?

Sure, if you are retarded.

Look, I can’t keep on doing this. It’s too much. Just wake me when the Obamacare discussion stops being retarded. Which is going to be a long sleep because that will be precisely never o’clock.

But do they “like-like” Obamacare?

Smart People are trumpeting a Gallup announcement today that states which ‘like Obamacare’ [sic] are reducing their, and have a far lower, percentage of ‘uninsured people’ than states which don’t ‘like’ [sic] Obamacare.

What is this ‘like’ vs ‘not like’ distinction they are referring to? It mostly boils down to ‘expanding Medicaid’:

…states expanding Medicaid have had faster growth in the public program than those that have opted not to participate. States that do not expand Medicaid…

News flash: Medicaid is a welfare program. It is welfare. ‘Expanding Medicaid’, if it means anything, means giving more people more welfare.

The other (secondary) reason cited is that the ‘like’-Obamacare states have set up ‘exchanges’ [sic] and people have ‘bought’ [sic], i.e. obtained subsidies to partially or almost-wholly pay for, insurance plans on those ‘exchanges’. Which is, in such cases, just another form of (disguised, apparently, though not if you think about it for more than 2 seconds) welfare.

So boil it down and we are being given the jejune information that states which have expanded welfare programs are able to engineer the (good?) result of more people being on welfare.


It’s just that this information is being conveyed by everyone using different words, and so the listener – and perhaps even the speaker! – might not realize that this is what is being said. The most magic word involved here is ‘insurance’. ‘Getting people insured’ qua ‘insured’, regardless of details and cost and even the precise definition of what it means to be ‘insured’, is of course the Smart Person holy grail.

So fine. But what am I meant to cheer, or be impressed by, in this result? That is not so clear when you think about the actual mechanics of what has taken place.

What I gather has taken place in the states that ‘like’ [sic] Obamacare is this. Initially, some number of people were ‘uninsured’. To state this more neutrally, let’s think about what this means vis-a-vis their health care provision (which is what I actually care about; I don’t give a rat’s ass about ‘insurance’ as such): it means that if they needed health care, inevitably, it would be paid for one way or another by others – primarily, taxpayers. Then, they were given ‘insurance’ by Obamacare because their state ‘liked’ it. This either means they were (a) given Medicaid, i.e., will have their health care paid for by taxpayers, or (b) given a (presumably) subsidized ACA insurance plan on the exchange, i.e., will have their health care paid for by others – primarily, taxpayers.

In short: some number of people who previously had their health care paid for by taxpayers will now have their health care paid for by taxpayers. (But in, like, a different way, and with different paperwork.)

SUCCESS! Could anything be more obvious than that this miraculous transformation of these people from [being given taxpayer-funded health care] to [being given taxpayer-funded health care] must now be replicated at any cost all across the Union?

And if you disagree, you must not be a Smart Person.

Top men have made a plan. Top. Men.

Wonkblog says that the administration ‘has a plan’ to ‘avoid’ the Obamacare Risk Corridors becoming a ‘bailout’ (i.e. not really necessarily a bailout per se but costing taxpayers a lot of money nevertheless).

What is this ‘plan’? Let me boil it down for you:

1. Save any money it takes in, just in case it costs money later, and hope the saved money will be enough to cover any later liability (fingers crossed!)
2. Don’t pay early-year claimers all that’s owed to them under the corridor, promise it to them in yearly installments and hope that future years they’ll turn green anyway & we can net things out then.

This is a ‘plan’ to ‘avoid’ any possibility of a large taxpayer hit, you wonder? And the answer is a resounding no, according to the actual article:

So what happens if at the end of the three-year program, HHS hasn’t collected enough payments or it’s collected too much? Well, HHS doesn’t know yet what happens then

Um, what happens then is that (assuming that ‘hasn’t collected enough’ is the likely situation) taxpayers will either have to make good on the tranched insurance protection their wise Congressmen sold to insurance companies, or renege somehow. Or in colloquial terms, taxpayers will have to ‘bail out’ insurance companies to the tune of $X billion, for some unknown but possibly large and not even apparently bounded X.

And that’s the ‘plan’!

I’d hate to think what ‘no plan’ looks like.

I Don’t Understand Why Kathleen Sebelius Had To Resign

What did she do wrong? Can someone explain?

I look at Kathleen Sebelius and see a well-coiffed woman in a pants-suit. She seemed to wear that pants-suit successfully. She looks serious and businesslike and even has shortis whitish hair, so as not to be too threateningly feminine. She’s even also skinny for pete’s sake. You could picture her getting invited to a fancy DC-area cocktail party.

Therefore, what’s the problem?

Or we can just look at her background. Wiki says she has a master’s degree in ‘Public Administration’. You could therefore put some letters after her name. That’s a credential. What more do you need? She should just be kept in whatever position she holds (as long as she wants to hold it) thereafter. (Credential).

Then for the subsequent 30 years it looks like she’s been doing ‘jobs’ involving getting elected to stuff. So what more qualification do you need? How can we not have her in roles involving power and authority now?

I bet she even ‘leaned in’. Now granted this is just a conjecture on my part, but an educated one. I’m just saying that if you were a fly on a wall at one of the numerous meetings we presume she was always having about this and that at HHS, her ‘leaning’ posture was probably in rather than out. Maybe she even wore reading glasses (just a guess) and asked pointed questions like, ‘How are we doing on those timelines?’ and then nodded her head thoughtfully at the responses while checking her Blackberry.

All I’m saying is that when I think about whether she satisfies all the criteria for success and qualification and doing a good job that we actually impose when selecting who will be our leaders (in particular female ones), as far as I can tell she passes with flying colors. I can literally think of no single criterion that we currently impose on leaders and authority figures that she doesn’t fully satisfy just fine. With respect to those criteria, she passes with flying colors as far as I can tell.

I mentioned the pants-suit right?

Klein: We Won We Won Neener Neener

Der Wunderkinder: Kathleen Sebelius is resigning because Obamacare has won

It’s a lovely mentality, isn’t it, that conceives of a policy as ‘winning’. Back in grownup-land, policies might succeed or fail, they might be costly or efficient, they are helpful or unhelpful, while all along they have distributional effects, they have subtle unintended consequences, and so on and so on.

But in Wunderkindia, it’s all about whether they ‘win’. It’s only about whether they ‘win’.

Maybe I’m being unfair though. Let’s dig into the 5th-grade-level prose that is apparently in conformance with Vox’s style guide to see what he means by ‘win’:

In other words, the law has won its survival. [...] And Sebelius can leave with her head held high. She can leave with the law she helped build looking, shockingly, like a success.

It’s ‘won’ its…survival. And therefore it’s a ‘success’ because…it will survive. The law existing means the law is successful means the law won.

But why did we want the law to exist? Why do we care that it ‘survives’? Do we even remember? (Something about ‘getting people insured’ qua insured regardless of cost no doubt)

When Obamacare supporters like Ezra Klein strike postures of foisting these policies because they care so much and want to improve lives, just remember that when the rubber meets the road all they really care about is their policy ‘winning’. They win and the bad guys lose.

If Obamacare has ‘won’, who has ‘lost’? The American middle class, obviously. Congratulations on your big ‘victory’ in raping the American middle class, I guess.

It’s us vs. them. It’s Smart People vs. the rabble dummies. It’s high school all over again.

Except for CLOs, of course

It’s morally and economically imperative for regulators to ban banks from doing trades regulators inconsistently and arbitrarily label as ‘prop trades’ unless banks complain that taking off those trades will lose them a lot of money and (gasp) widen spreads in the space in which case regulators should go ahead and unilaterally give them an arbitrary, extralegal ‘extension’ during which banks can just go ahead and disobey the morally and economically imperative law that was passed banning the activity and which is supposedly in effect.

What’s really going on here, you may wonder. Well CLOs are the one product from the Scary Three-Letter Acronym Family that ‘still work’ and so, nobody wants to rock the boat. Oh yes, the Volcker Rule surely was an intelligent rule based on informed judgment and sound, highly consistent principles.

Why do we want all people to be insured?

Why do we want so much for all people to ‘be insured’?

It’s not as if this is a recent development but it’s been getting under my craw lately just how much debate on Obamacare and health-care financing/distribution centers on the single, monolithic issue of how many people ‘are insured’. How exactly did this get to be the all-encompassing metric of everything towards which all of society’s rules ought to point?

I mean, what’s so great about ‘being insured’? For one thing this way of speaking ignores all the economically-meaningful details of whatever insurance one may have. $1/year premium and no deductible? $2000/month premium and $25k deductible? In both cases, the person ‘is insured’ and we’re supposed to rejoice (equally?).

Similarly, elevating ‘being insured’ to some kind of holy, sanctified, sought-after-at-any-cost status ignores ways of dealing with things that, nevertheless, don’t qualify as ‘insurance’ on technical grounds. We are constantly told that people who ‘weren’t insured’ would use the ER and Medicaid and whatnot. But now they will ‘have insurance’, so that’s better. But wait: why is that better? For whom? By what standard? No explanation is proffered. Who needs one? ‘Being insured’ is good and ‘not being insured’ bad, period, say all the Smart People. And nevermind the fact that (in a sense) all those people were ‘insured’, it just wasn’t by an insurance company, it was by taxpayers-and-whoever.

But I went too far with that ‘at-any-cost’ part, didn’t I? Cost is not even mentioned in the first place. As far as I can tell, I’m supposed to think that increasing the percentage of people who ‘are insured’ (whatever that means) by one basis point is worth spending X dollars – for any value of X whatsoever. The ledger of this retarded debate, as conducted by (retarded) Smart People, has only one side to it.

So I’ll ask again: why do we want to much for all people to ‘be insured’? It’s not obvious if you really think about it. Which few seem to.

Please oh please let Jonathan Pollard out of jail for some reason

There are a lot of people who totally care that this guy Jonathan Pollard is in jail & want him to be let out. These people don’t appear to dispute that Pollard committed the crimes for which he was convicted and imprisoned, they just want him to be let out. Such that from time to time (i.e., now appears to be another instance) Letting Jonathan Pollard Out Of Jail comes up in some sort of negotiation as a concession that party 1 could make to party 2 in order to coax party 2 to do whatever. Implicitly meaning that party 2 is among those people who totally care that this guy Jonathan Pollard is in jail & want him to be let out.

Could someone please explain why? There’s lotsa guys in jail you know. If and when Pollard finally is let out of jail as a (weird) concession to (weird) people, are we all gonna shift our focus to random jailed guy #2 for the next 30 years till he too is let out of jail as a (weird) concession? Who’s in line for #2, #3, etc.? Can we speed up these conversations a little and cut to the chase: why exactly should we let guilty and duly-convicted people serving lawful sentences out of jail?

I just don’t get it. Please explain. I’m not even really being facetious or sarcastic here. I literally don’t understand why anyone not directly related to this guy Jonathan Pollard would care that Jonathan Pollard is in jail for crimes he actually did commit, & would want him to be let out of jail despite having committed those crimes for some weird reason. I mean when I put it that way is there any rational way to explain? I don’t even think so. So why did I bother writing this post? Not the first time I’ve asked myself that.

UPDATE: Since I can see this question however seemingly straightforward is hard to answer on its own terms by the people I’m directing it at, here’s another angle you could try. Explain how freeing Jonathan Pollard is a ‘concession’ to the people it’s supposedly a concession to. Concession implies they get something out of it. So: what do the people who Want Pollard Freed For Some Reason get out of freeing Pollard? Are they planning to give him a big bear hug? And then what? Did he promise to come work on their farm or marry their daughter? Explain the ‘concession’ logic if you can. And sure, one way to explain it could be, ‘because we care about principle and freeing him accords with principle while keeping him in prison doesn’t’. But then you’ll have to explain what principle that would be exactly. Good luck,

Smart Religion


Gently correcting Sailer on ‘Nate Silver’

He writes:

I seem to be the only person in the world who has usually had mildly positive views of Silver.

Technically not 100% true. There’s also me.

During the 2012 election, he did a good job of making up a spreadsheet with weighted averages of the 90 or so different Presidential polls out there.

Sure did. But so did I. I’m also winning my March Madness pool BTW (basically same type of spreadsheet).

Anyway, Sailer does a good job of pointing out how the subject of ‘Nate Silver’ seems to just drive certain people crazy. I include myself here. For example, there’s this guy I’ve been seeing on the train lately who wears jeans on his way to work, sports closed-cropped brown hair, and wears glasses. And so of course, what do I think?

“Hey! That dude’s probably Nate Silver!”

Which is just crazy, of course. (But still could be kinda true?, whispers a voice in the back of my mind.) Nate, if that’s you, sorry I ignored you when you tried to make some funny comment to me. I was just too freaked out. Now, because I, like ‘Nate Silver’, am “Data-Driven”™, here’s a graph (which I trust will be self-explanatory):



Open Borders is a morally imperative free-lunch, and also, it will have little measurable effect

Open-bordersers using utilitarian arguments need to argue that opening borders will necessarily lead to a materially-large influx of immigrants quickly. That’s because they need to point to a gigantic World-Utility-Function free-lunch gain supposedly to be had, and they need people to perceive it as so automatically large that it outweighs any doubts about the (dubious, and Large) calculation methods used to get there, not to mention whatever nativists’ petty and racist selfish concerns are (being unemployed, paying a lot of taxes, being victimized by criminals, etc.)

However, they also don’t want to spook non-open-bordersers too much, lest they lose the political battle. Gotta win arguments any way they can! So, for that purpose they will now apparently trot out arguments that – don’t worry, guys! – opening borders won’t necessarily lead to a materially-large influx of immigrants quickly, because you need a diaspora of some critical-mass size to already be there first. (This diaspora-necessity factor never having been mentioned before or alluded to, nor will it be, in the free-lunch argument, of course.)

So now you know: it will, but it also won’t. It all depends on which particular argument open bordersers are trying to make at the moment.

Wunderkindz on Teh Debt

Apparently this is the sort of output we can expect from wunderkind Ezra Klein and wunderkind Matthew Yglesiases’s new multimillion-dollar media outlet, which I assume is called “Wunderkindz”. (If it’s not, it should be.)

I have no reaction to it as the video is so mind bogglingly dumb and simplistic that it basically parodies itself. Or rather, J.D. Tuccille wrote my reaction already so I can outsource my blogging to him (thanks! I don’t really like blogging).

Did Ezra Klein really raise 8-digit funding to make news-oriented web cartoons pitched at people with the knowledge of 7 year olds? If so, well done sir. Bravo.

I Could Totally Be Saying Nate Silver Is Right Right Now

Being immune to whatever it is that made so many people so fascinated by the guy, I barely pay attention to ‘Nate Silver’ except via secondhand chatter/gripes, which is how I know he seems to have ticked off the left recently. Not sure how though, which is a damn shame, because as one of the few righties who defended (what I gathered about) Nate Silver back during the Great Silverbating Spasm of 2012, I have quite a lot of Consistency Points™ saved up. I could totally cash them in and trumpet – without being accused of opportunistic bandwagonesque thinking – whatever Silver is saying that the left is so peeved about, if only I knew what the heck it was. Ah well. I never was a very good blogger.

Stopped Clocks

I agree with Kevin Drum:

And what has Russia gotten in return? Ten thousand square miles of territory that, nationalistic pride aside, mostly represents a political and economic drain on the state. That Putin sure is a master geopolitical strategist, isn’t he?

I dunno, it’s just such a rare event that it seemed worth noting.

STUDY: Volckerified, risk-free, post-Dodd-Frank banks somehow would lose money in a downturn

I heard they stress-tested banks and found that, in a ‘major economic downturn’ scenario, the banks they stress-tested would collectively lose $501 billion. Can someone explain this?

I was told that the Volcker Rule banned prop trading by banks. Prop trading, as we all know, is a totally real and definable thing: it means when banks do trades ‘for their own account’ instead of ‘on behalf of a client’. Banks can’t do this anymore. All trades they do, if they do, must be ‘on behalf of a client’.

So hey then, why would they lose a single cent in a downturn? That makes no sense. Even if/when bad stuff happens, presumably it only happens to whatever client(s) the banks did their trades ‘on behalf of’. What’s that got to do with the banks themselves?

I was thinking maybe a downturn means less economic activity overall, thus, less fees and such, and somehow that added up to $501 billion (the same way Starbuck’s would lose money in a downturn), but no. The article explicitly breaks out this $501 billion as including ‘loan losses of $366 billion, and $98 billion in trading and counterparty losses’. Wait, what??

Counterparties are counterparties to trades of some kind or another. Banks can’t do that anymore, ‘for their own account’. See Volcker Rule.

Trading is, well, trading. How could banks lose $98 billion on something they’re clearly no longer allowed to do? Volcker Rule.

And loans are trades too: cash money is traded for a piece of paper. The paper says ‘I promise to pay you back’. That kind of trade involves a risky bet that the person signing that piece of paper will indeed pay the person back. So again, surely, banks can’t put on such risky trades, i.e. make ‘loans’, anymore. Volcker Rule!

Actually, why are they still even doing this exercise, post-Volcker? What is there to even ‘stress test’? We had all already agreed that banks shouldn’t have risk anymore.  Then we passed the Volcker Rule, and so now they don’t. The whole thing just makes no sense. Can someone explain? Why it’s almost as if every argument that was ever put forth in favor of the Volcker Rule was not only self-contradictory but made no sense whatsoever.

Callous and cruel

Bryan Caplan wrote:

March 16 is Open Borders Day, an international holiday to raise awareness of the single most important policy issue of the modern world.  Open Borders Day is a time to reflect on the many immigrants – legal and illegal – that we see all around us – and to contrast their value with the callous and cruel treatment they endure in virtual silence.  More importantly, it is a time to reflect on the far more numerous immigrants you can’t see.  Why not?  Because virtually every country on Earth considers being born in the wrong country a crime worthy of lifelong exile.

When I reflect on immigrants – (primarily illegal) – and ‘the callous and cruel treatment they endure in virtual silence’, the first thing that comes to mind is, naturally, their what amounts to second-class status here. That reminds me that it’s precisely because they have second-class status here that they can be paid significantly less in money, compensation and living standards than citizens would expect and get to do the same tasks and play the same roles. That fact, in turn, is what causes them to have ‘value’ (to whatever extent that they do – in particular, ignoring the liability side of the ledger) in our economic statistics.

And yet it is this entirely-second-class-status-derived ‘value’ that people like Bryan Caplan point to in order to try to persuade us that we should want more of them.

In other words, what I reflect on is how open borders advocates, in their sales pitch for why we should want open borders, implicitly contemplate the United States’s having a more or less permanent underclass of large numbers people who endure callous and cruel treatment in virtual silence so that we can derive ‘value’ from them. After all, if the second-class status went away, the significantly lower compensation/living standards would go away, thus the ‘value’ would go away, and hence the sales pitch would evaporate. So indeed, Caplan – if he believes his own sales pitch – must want a renewable crop of second-class immigrants here indefinitely.

Also, he and other open-borders advocates feel good about themselves for wanting that.

Happy belated Open Border Day!

How many loose nukes were tracked down in the past year?

Last year, Ezra Klein was among the first to break the news that if there were a ‘sequester’, the first item on the chopping block would be our unheralded crack squad of heroes who Track Down Loose Nukes.

You know the guys I mean. Sometimes Nukes just get Loose, and you gotta Track Them Down. Hey, it happens. Well after all that’s what government is for. And so, we have some guys doing it. Day in, day out. Tracking Down Loose Nukes. They’ve got tracking devices. They’ve got sensors. They’ve got friends in every town and village from here to the Sudan, they speak a dozen languages, they know every local custom, they’ll blend in, disappear, you’ll never see them again. With any luck, they’ve got the Loose Nukes already. Only problem: if the government budget is ever constrained in any way, you also gotta fire ‘em. Immediately. I don’t like it, you don’t like it, Ezra Klein doesn’t like it, President Obama doesn’t like it, but it’s the law.

Well now fast forward to 2014 and Ezra Klein is forming a new media whatchamacalit with Yggie, or Nate Silver or whoever the hell. Some 19 year olds. I know they all have close cropped brown hair and careful stubble and possibly thin hipster sideburns and glasses and they like Arcade Fire or The Arcade Fire (or is it An Arcade Fire). They are ‘wonks’ because they know how to make graphs on a spreadsheet, as so few people do. And they all, every last one of them, went to the Dalton school followed by Princeton. (Or Middlebury, whatever it’s called).

But I digress. Ezra’s media venture, or possibly app, which at press time I believe is going to be called “Vonk”, is going to explain the news to us. Because how often are you paying attention to the news and you’re reading or hearing the words and you’re like Yes yes, this is all very well and good, but where’s the part that explains what’s being said here? And that’s why there’s Vlok. Every piece of news, every event, will now be helpfully Explained to you, either by some kid who 2 years ago was getting up at 6:45 and grabbing his French horn case to catch the bus to that faraway magnet school, or by Ezra Klein who knows how to Explain what’s what because he apparently cultivated some friendships with and hangs out with some people who work in the White House.

It is to the latter then that I wish to direct our attention. Ezra Klein. He told us about the Loose Nuke Tracker-Downers. He warned us about the constitutional requirement to fire them immediately anytime a projected spent-dollar was eliminated from a budget. Again and again. And for this, we thank him. But we need him again. Because now it occurs to me: it’s been over a year since our Loose Nuke Tracker-Downers were almost fired. That means they’ve been on the job, 24/7, for more than a year. So here’s my question for Ezra Klein, and I sincerely hope he can discover, from his trendy fellow molecular-gastronomy aficionado White House contacts, and then tell to us, the answer to this question:

How many Loose Nukes have been Tracked Down in the past year? At least a ballpark figure please. And then what was done with them once they were Tracked Down?

Presumably, with his new media venture Volk, he’ll devote a daily column – or perhaps bar chart – to giving us this crucial data.

Black markets work

Why I Hire Undocumented Workers, short version: because I can pay less for a given level of quality.

Obama/CBO: The highly lucrative Obamacare-insurance business will be so unprofitable next year it will need $5.5 billion in taxpayer money

A while back, ACA Death Spiral had an interesting post in which he tried to make sense of CBO’s claim that the Obamacare-related health-insurance synthetic CDOs “risk corridors” your Congressmen have committed your tax money to would actually (a) make the government a net $8 billion over three years, in the process (b) receiving from 2x as many insurers as it pays to. You should go read that post, but his method seems sound enough: he just tries to calibrate a reasonable loss-distribution to that payoff-outcome. When he does he finds that to realize such an outcome, insurers will have to be making 7+% profits on average.

I didn’t follow his Black Scholesy calculus to the letter but I did try to replicate the basic finding using his same assumptions (namely that the average premiums are $3962, & the total count of assumed signups) and some poor-man’s spreadsheet mumbo jumbo. Wanna see? Well I’m gonna show you anyway.

The Simplistic

Here’s a simplistic model then: pretend all Obamacare risk-corridor-eligible insurers will fall into three ‘buckets’. Gainers (who make X% profit), Breakevens (0% profit), and Losers (who lose X% on each policy). How many Gainers vs. Breakevens vs. Losers are there gonna be? And how much Gaining/Losing do they do? Lay out the 3 buckets in a spreadsheet, use ‘solver’, and try to get USG Profit to =$8 billion and Gainers/Losers = 2.

One thing here is obvious, if you get 2x as much from Gainers as you pay to Losers then (in this setup) the former bucket has to be 2x as big as the latter. Just making them 67% vs 33% is one way to get there.


The end result is that if we live in this 3-bucket world, the CBO is saying that insurers will make 6.9% profits on average (the number in green).

“But your breakevens bucket is empty”, you protest. You’re right. That’s weird. Let’s look for a solution in which the plurality of insurers just break-even, since that’s more realistic. Obviously, to still give USG the same profit, we’ll need to make the Gainers/Losers a bit more Gainy/Losey. We could have a world where Gainers make ~32% profit:


This means overall insurer profits average 6.2%. Either way, we’re ending up with a number in the 6-7% range.

Less Simplistic

“But we don’t live in a 3-bucket world” you protest. And indeed there’s something very artificial about a 3-bucket world with only ‘gainers’ and ‘losers’.

So let’s make more buckets. Imagine some insurers make -100% (i.e. lose $1 for every $1 in premiums they collect), some make -90%, -80%, … and on up to +100% (i.e. they collect a bunch of premiums, somehow have no costs, and never have to make payouts). We once again need to figure out what% of insurers need to be in each bucket to get USG profit to $8 billion on 2x winners/losers. That’s too many moving parts so I assume bucket-membership falls into a sort of bell-curve and play with the mean/variance of the bell curve till those numbers match CBO’s. Here’s the result:


If we live in this world, and if CBO is right, insurers will make 6.2% profit on average (again, see number in green). Hey! That’s the same number we ended up with in the simplistic 3-bucket model.


“But a bell curve isn’t just 21 buckets!” you protest. Fine, I’ll make the buckets tiny (0.1% each) running from -100% to 100% and repeat the exercise. That should be granular enough for this poor-man’s model. The resulting insurers distribution looks like this:


And the average insurer profits in such a world – the peak of that bell curve? 6.2%! It’s almost like you don’t need no fancy-schmancy bell curves or Black-Scholes integrals to get the big-picture answer.


1. The first takeaway is that I would like to confirm the substance of what ACA Death Spiral is saying: filtering CBO’s predicted $8 billion profits number through some common-sense feasible loss distributions implies insurers will be making at least a certain average profit. He says it’s 7+% and I say 6+%. In part the difference owes to technical reasons I think; I use normal distributions of [profits]/[premiums], he uses, I think, lognormal distributions of [costs]/[premiums], which gives his bell curve a certain skew. (When I do this in my spreadsheet version I get 6.8% for the insurer-profits answer.)

2. He says this is an unbelievably-large expected profit. I’m going to have to take his word for it, since I don’t have a feel for what’s high or low here. Health insurance seems like such a capital-intensive, pain-in-the-ass, heavily-regulated and litigation-risk-prone business to be in that I can’t imagine anyone wanting to do it for less than double-digits. But what do I know.

3. Since he wrote that post, we have some new info to incorporate into this model! Namely: the Obama Administration has, in their budget, asked for $5.5 billion (positive, not negative) to fund these ‘risk corridors’ in their first year of operation.


That’s right. This program that, we are told, is going to net us $8 billion in the first 3 years is also, we are told, going to cost us $5.5 billion in year 1.

How to make sense of that? I’d love to see ACA Death Spiral’s take, but for now let me take a stab. Note that per the assumptions of our models, in that first year there should have been 8 million signups and hence health insurers will have received $31.7 billion in premia. Obama is now telling us they’ll lose so much money in that year that they’ll get $5.5 billion net in risk-corridor payouts. Damn! That’s a bad year! What does it look like?

Let’s just use my 3-bucket model (since it seemed to be a decent poor-man’s approximation to the full bell-curve model). Here’s a way to get to that number:


So as you can see, apparently Obama is telling us that 80%+ of Obamacare insurers will lose money next year, and that insurers will lose an average of 25%. BUT WAIT THERE’S MORE. Since (obviously) we all believe the CBO number, this means insurers are due for a massive turnaround in the following 2 years: they’ll make so much that we will net $13.5 billion, more than making up for this year-1 $5.5 billion loss (and at the end of the day we will, again, have made 2x from gainers as paid out to losers). How will that happen you ask? Here’s the 3-bucket way:


So now you can see that by year 2 (once we have given insurers $5.5 billion), they will turn around and become a business that makes 12-13% in profits on every dollar of premiums they collect. Now that’s more like it, that’s a business model I can get interested in!

Disclaimer: all of the preceding depends on numerous assumptions. Big Assumption #1 is that the CBO number is not B.S. built on rosy and ridiculous assumptions. Big Assumption #2 is that Obama’s $5.5 billion budget-request is also not B.S. (like a made-up opening salvo based on nothing concrete), let alone some sort of outright fraud attempt. But of course, we all have no problem accepting those Big Assumptions. Right? Right.

UPDATE: Commenter Texan99 points out that standard lore says insurance companies make ~3% profit. In light of that, the fact that Obama claims to need $5.5 billion for corridor-losers is highly suspicious. How on earth can that number happen? I have laid out the simplest way (poor-man’s version). It involves insurers so severely mispricing their plans (or overestimating pool quality) that they anticipate taking ~25% in losses on average. Is that believable? And if it is, the idea that the Obamacare-insurance plans are anything but welfare is untenable. And in particular, the CBO estimate of $8 billion revenue within 3 years is a fairy tale that relies on year-1′s pools being dominated by adverse-selection but then curing themselves (and more) by years 2-3 as the healthy join and turn the pools into 12+% profit-generators for insurers. Again: 12+%, when the standard profits – in the pre-Obamacare environment, which presumably involved less competition – are 3%.

This number, if it stands, needs to be getting far more attention than I have seen.

‘Self-determination’, and me & the President

Someone complains Obama has come out against self-determination.

If true, that would then be one of the few areas of commonality between myself and the President: I do not believe in the ‘right’ of ‘self-determination’ either.

Let me translate what such a ‘right’ means in the context of Crimea: Some gang of a small number of people in Crimea (it’s left ambiguous who) should rule over Crimea and wield a monopoly on the use of force within it. How can this be a ‘right’? Of whom? That gang? How’d they get that ‘right’ and how can you think they have that ‘right’ if you can’t even describe who they are?

That is not to say – I hasten to add – that I believe in this position: Some gang in Russia should rule over Crimea. Nor in this position: Some gang in the U.S., or NATO, should rule over Crimea. I agree with most criticisms of Putin and also of Western hypocrisy. Both. But just because I reject the latter does not mean I have to embrace a ‘right of self-determination’.

These are false choices and I won’t be backed into declaring that some gang somewhere has anything like a ‘right’ to wield power over others based on their geographical location.


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