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Fixing The Affordable Care Act Requires Us To Ignore The Sunk Cost Fallacy

Over the weekend I was amused listening to the Plant Money podcast, Dear Economist, I Need A Date.  On the show they had the economist and author, Tim Harford, using economic theory to give love advice. While chuckling at his advice I was struck with the idea that most of the proposed fixes to the Affordable Care Act requires us to ignore the Sunk Cost Fallacy. For those who are unfamiliar with the concept of the Sunk Cost Fallacy, here is a nice synopsis from The Skeptic’s Dictionary.

When one makes a hopeless investment, one sometimes reasons: I can’t stop now, otherwise what I’ve invested so far will be lost. This is true, of course, but irrelevant to whether one should continue to invest in the project. Everything one has invested is lost regardless. If there is no hope for success in the future from the investment, then the fact that one has already lost a bundle should lead one to the conclusion that the rational thing to do is to withdraw from the project.

To continue to invest in a hopeless project is irrational. Such behavior may be a pathetic attempt to delay having to face the consequences of one’s poor judgment. The irrationality is a way to save face, to appear to be knowledgeable, when in fact one is acting like an idiot.

The Affordable Care Act supporters and a majority of the people in the United States would like the Affordable Care Act to be fixed despite the fact that most of them acknowledge that the www.healthcare.gov website and those narrow network insurance plans look like hopeless investments. The idea that we cannot keep our existing health care system of doctors and insurance plans with these new plans begs the question whether this investment has no hope for success even with additional tweaks. The problem is simple. I can understand why insurance companies want me as a healthy person to buy their plans. I do not understand why I should. If we remember one of the important characteristics of health care expenditures in the United States, half of all health care costs in the US is concentrated in only 5% of the population. If you are not part of that 5% and you are financially disciplined, the odds of you being successful with self-insurance is pretty good. All you are doing is copying the same plan the insurance companies are using to pay for the 5%. The high cost of the ACA insurance premiums becomes  a very powerful incentive for self-insuring. If you are successful with your self-insured health care plan, you get to keep the rewards.The Sunked Cost Fallacy reminds us that it  is irrational to continue to invest your money into the Affordable Care Act web site and health care plans and hope that things will get better. Here is an old graph from the Kaiser Family Foundation for you to ponder.

concentration-of-health-care-spending-in-the-u-s-population-2010-healthcosts

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What I Was Eating For Super Bowl Sunday

Buffalo Chicken NachosOkay, this the Buffalo Chicken Nachos I mentioned earlier. Buffalo chicken, cheddar and blue cheese, celery and black olives on top of Cool Ranch Doritos. It is really good but too much for two people. It is an interesting combination of flavors. I drank my California Steam lager with it. I have a love-hate affair with this beer. I initially thought I had screwed it up since it has a little sweet taste on the first sip. That sweetness may be because I forgot to decant the fermented starter liquid before pitching the yeast. I tried it a couple of days later and noticed that the beer was much clearer than my ales and it had a nice lager taste. The initial sweetness was less of a problem. So it has gone from one of my worst beers of 2013 to one of my best.

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My Reasons for Cancelling Amazon Prime

Yesterday Amazon announced that it may be raising the price on Amazon Prime by $40. That got me to thinking. Was the Amazon Prime subscription a good deal for me? Since I track my expenses in Quicken I ran a report on my payments to Amazon. Next I imported the report into Quicken to do some quick calculations. I found that I had 5 transactions that were less than $35 and greater than $10. Transactions greater than $35 are generally free shipping and last year I bought my niece a bunch of books for school. They cost less than $10 and did not qualify for Amazon Prime. Then I remembered that two of the remaining 5 transactions did not qualify for Amazon Prime. Wow, I was very good to Amazon last year! I did not break even on the shipping, I barely used the video streaming, and I did not use the Kindle lending. My calculations tell me to cancel my subscription. I did.

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Amazon Raising Its Popular Prime Service By $40

Unique competitive strategies fascinate me so it goes without saying that Amazon’s business strategies fascinate me. They have always marched to the beat of a different drummer. One of their more unique competitive strategies has been free 2 day shipping via Amazon Prime. Two years ago I subscribed to Amazon Prime to see if I would break even on the shipping while enjoying some Netflix type video streaming. What I found surprised me. I purchased more incidental items through Amazon and rarely used the video streaming. I suspect this incidental shipping is killing Amazon’s bottom line. As an example I was repairing a computer and needed some thermal paste. Rather than going to the local computer store I ordered it I from Amazon because I had free shipping. The paste cost me $5 and was shipped to me using UPS. As a person who is real familiar with shipping costs, I am guessing that Amazon lost $5 on that transaction. I followed that up next week with a $10 purchase for a different repair. For high priced items I found that I could find lower prices that include free shipping outside of Amazon if I ran a simple internet search. Since free shipping is such a mixed blessing, I was debating whether to pull the plug on Amazon Prime this year. Now we hear this. It should be interesting to see how the Amazon’s competition respond.

Amazon also said it is considering raising the price of its popular Prime service by as much as $40 a year due to higher fuel and other shipping costs.

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Buffalo Chicken Nachos

buffalo-chicken-nachosHere is what I am cooking for the Super Bowl. This week we were talking about taco salads at work and one person mentioned how much he like taco salad with Doritos. Another person disliked the idea of a taco salad made with Doritos. I was curious. When I saw this recipe on Ziplist I knew I had to try it. I had all of the ingredients in my refrigerator except for the Doritos and blue cheese crumbles.The source for the the picture and the recipe is the The Girl Who Ate Everything who got it from the Food Network. No better recommendation than a well traveled recipe. I plan to pair it up with some California Steam Lager I bottled last month. So without further adieu, here is the recipe.

Ingredients

  • 8 cups Ranch flavored tortilla chips (I used Cool Ranch Doritos)
  • 4 cups cooked chicken shredded
  • 1 1/2 cups Frank’s Buffalo Wing sauce
  • water
  • 3 cups shredded cheddar cheese
  • 4 ounces blue cheese crumbles
  • 1 cup chopped celery

Instructions

  1. Preheat oven to 475 degrees. Spread tortilla chips on a rimmed baking sheet or in a shallow dish.
  2. Bring wing sauce and 1/2 cup water to a simmer. Add shredded cooked chicken; heat through. Strain the chicken (reserving the sauce) and spread over ranch-flavored tortilla chips. Top with shredded cheddar.
  3. Bake in the upper third portion of the oven until cheese is melted for about 5-7 minutes. After nachos are baked top with blue cheese, chopped celery and the reserved wing sauce.

Notes

Note: All these measurements are approximate. As with any nachos, adjust ingredients to your personal preference.

Source: adapted from Food Network

Read more at http://www.the-girl-who-ate-everything.com/2011/02/buffalo-chicken-nachos.html

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Things That Make Me Go Hmm… Did Sen. Coburn lose his cancer doctor because of Obamacare?

I was reading Sarah Kliff’s article, “Did Sen. Coburn lose his cancer doctor because of Obamacare?”, explaining the circumstances why Senator Coburn’s long time cancer doctor was not covered by the Affordable Care Act and I started to wonder where we went wrong. I really like the idea expressed by the President that most of us would be able to keep our doctor and insurance plan while at the same time help the uninsured get coverage. This was a win-win situation. Now we find that Senator Coburn’s experience is far from a win-win situation. This was not supposed to happen.

For the moment let us assume that the President honestly believed that the Affordable Care Act would allow most of us to keep our doctor and insurance plan. This was both good politics and policy. The Affordable Care Act was passed in 2010 and according to Sarah’s reporting that was “how insurance markets worked before the health care law and how they work after it.” So if the President wanted people like Senator Coburn to keep their doctor we have to ask the question, why didn’t anyone try to minimize this problem in the last three years with some good policies? In the not to distant past we used to have a class of bureaucrats who could turn almost any dog piece of legislation into a workable policy. Where have all of the good bureaucrats gone? Did they look at the Affordable Care Act and give up? Three years out of the starting gate and all we have to show for it is a lousy web site and a bunch of narrow network insurance plans. When do we start winning?

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Things that make me go hmm…Credit Card Security and www.healthcare.gov

This week we had another credit card breach announcement, Michaels Warns Customers of Possible Credit/Debit Card Leak. This breach sounds more like the Target breach rather than the alleged security problems with www.healthcare.gov. Once again the best information on the breaches can be found at KrebsOnSecurity. Unlike the problems identified at www.healthcare.gov by TrustedSec, the problems at Target and Michaels appears to require some inside access to get the malware on point of sale terminals. Like most security breaches we, the public, will not know the extent of the problems for some time. The good news is that I can minimize my exposure to credit card fraud and identity theft by avoiding these places. As an additional security measure I bit the bullet and installed the mobile client for Quicken 14 on my phone. Although I am a long time user of Quicken I am updating on a three year cycle. This version has a mobile client. I was not excited about using the mobile client until I got worried about credit card fraud and identity theft. My solution is to minimize my credit card use and monitor my spending habits more closely. Even though I may become a victim of credit card fraud, I can minimize the damage.

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I Think I Know Where the Uninsured Have Gone

One of my favorite writers, Megan McArdle, asked the question recently, “Where Have All the Uninsured Gone?” It was an interesting piece to me because it chipped away at the philosophical underpinnings of our understanding of the uninsured. It must have struck a nerve with a lot of people since it had 1976 comments at last count. In that piece she says,

“Somewhere between 65 percent to 90 percent of the 2.2 million folks who bought insurance on the exchanges through late December seem to be people who already had insurance.”

One of the primary goals of the Affordable Care Act was to dramatically reduce the number of uninsured who were freeloading on the health care system. The idea was that they either belonged in Medicaid or they should be buying one of the affordable plans available through the health exchanges. This looks as American as apple pie. What could go wrong?

The problem is that health insurance must be marketed like it was a business. The Affordable Care Act took the path less traveled and that has made all the difference. The ACA focused on expanding subsidies and free health care. They assumed that the uninsured wanted health insurance and had the money to pay for it. The enrollment numbers makes it look like the Affordable Care Act supporter either forgot to talk to the customer or conveniently ignored what they said. The uninsured may care about health care but they definitely do not like paying for health insurance.

Then the Affordable Care Act supporters committed the ultimate marketing faux pas and ignored what the paying, healthy customers wanted. The problem is that un-subsidized health insurance costs are so much higher than last year that your best customers are freaking out. Freaked out customers is bad for business and encourages talk about the collapse of the health exchanges. Now we have a situation in which the uninsured are questioning why they should make the effort to acquire a health insurance through the exchange if the exchange is doomed to fail. The sad truth is that the people who are getting free or heavily subsidized insurance are not nearly as important to the insurance companies and the exchanges as the customers they can make a profit on. It is this profit that pays for the subsidies to the poor! If health insurance is a business then you must have a clue what the paying customers want and what they are willing to pay for.   I can’t say I didn’t warn you. The only people who care about health insurance and health exchanges is the middle class. Last year I wrote in Health Care Reform for the Forgotten Man:

Health insurance was a product created for the middle class and paid for by the middle class. The rich do need it and the poor do not have the money to buy it. Do we really want to go down the path in which health care insurance reforms do not make sense to the man and woman who are ultimately paying the bill? Are we really asking the most price sensitive people in the health insurance market to bear a disproportionate share of society’s burden for un-insurables and hope that it turns out okay?

Health insurance for the uninsured is much ado about nothing. All the poor want is someone to pay their hospital bills and they already have that. They just do not care about health insurance!

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Crock Pot Apple Pie Moonshine

Crock Pot Apple Pie Moonshine This recipe caught my fancy last month. For me apple cider is a drink I associate with winter. My wife liked it so much I made another batch this month. The recipe is simple. You add a gallon of cider and a couple of cinnamon sticks to a large, 6 quart crock pot. Cook on low for about eight hours and then add a bottle of Everclear. In Ohio Everclear is 151 proof and costs about $16.  Mix thoroughly and then transfer to 5 quart jars. When you add in the apple cider and cinnamon the cost of a quart jar of Crock Pot Apple Pie Moonshine is about $4.80.

With the cold weather we have had recently, the hoses in our barn are now frozen. As a result I spend about thirty minutes hand watering the horses every night. It is cold. After this chore I enjoy a glass of this spiked cider as I let my body work its way back to room temperature.

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Things That Make Me Go Hmm… Startup-NY advertising in Ohio?

Migration Map 2010Recently Start-Up NY has been advertising heavily in Cincinnati touting New York as a great place to start a business. Cincinnati has a small but interesting start-up business. Most of the buzz has been about Cintrifuse. Although there have been some successes, no one has confused Cincinnati with the start-up meccas like Silicon Valley. Start-ups in Cincinnati and Northern Kentucky largely remain a work in progress. When we look from New York’s perspective the grass sure looks greener over Ohio’s septic tank. The recently released United Van Lines 2013 migration study press release says that New York has the third highest ratio of traffic moving out of state. The reason for the high outbound ratio is complicated but it is hard to ignore the business climate’s consistently low ratings. The 2013 version of the ALEC-Laffer State Economic Competitiveness Index has New York ranked 49th. The year before they were ranked 50th. So why would a budding start-up move from a state like Ohio who is ranked 26th to a state ranked 49th? Cincinnati may not have the cachet of Silicon Valley but it has a better business environment and a lower cost of living than New York.

New York has a difficult marketing problem and from their perspective at the back of the pack, the Cincinnati start-up market is a more appealing target to attract businesses from than Texas or California. Their plan is to create tax free zones in which “businesses can operate 100% tax-free for 10 years. No business, corporate, state or local taxes, sales and property taxes, or franchise fees.” This is an interesting offer but it is restricted to areas located primarily on SUNY campuses around New York City. Their idea was to pair up high tech businesses, low taxes, and college campuses. This might eventually work with Columbia university but I am skeptical of its usefulness at the SUNY campuses. Even if this plan happens to be successful at a major university, what is going to stop Kentucky and Ohio from setting up similar plans at the University of Cincinnati, Xavier, Miami, or Northern Kentucky? In the grand scheme of job migration their plan is a nice employment solution for high tech, college students but it really does not address the much larger unemployment problem with the low education, low skill job market. They may save a few jobs for college graduates but the rest of the people are going to have to look for jobs elsewhere. To fix that problem we have to learn how to grow low and medium tech companies again. We tried to fix the problem by encouraging the growth of the service industries at the expense of manufacturing companies. Now we have learned that the service industry is not the magic bean that will grow the low education, low skill job market. “To grow middle class wealth you must be making things bigger, better, faster, or cheaper.” That will take a different mindset. A mindset that made New York city great a long, long time ago.

When I think of New York City I think of this poem. From huddled masses to high tech college students, it is amazing how the vision of who we are has changed. It is hard to embrace a return to the optimistic vision of the poem when a poor business climate is undermining that vision at every turn. In a very provincial sense I feel like Samuel Gerard in “The Fugitive” who kept telling Dr. Kimble, “I don’t care”. I have a job to do, New York has a job to do, and it is very likely that never shall the twain meet. I hope local start-ups will look at the numbers and stick with Cincinnati. That is the smart decision. Regardless of their decision my life is unaffected. However there is a deeper issue in play. Like Samuel Gerard who finally admits that he does care, I want New York to be successful again.  When I root for New York’s success I am not rooting for a more optimistic future for all of us and the success of New York is part of it. I am rooting for the unbridled optimism of the poem.

Give me your tired,
your poor,
Your huddled masses
yearning to breath free,
The wretched refuse
of your teeming shore.
Send these, the homeless,
the tempest-tost, to me,
I lift my lamp beside
the golden door!