Riding The Red Line In Richmond

Meanwhile, in Post-Racial America(tm)…

Black borrowers in Richmond are less likely to be approved for home loans and refinancing than white applicants regardless of their income levels, according to a study by fair-housing advocates.

The effect is a continuation of the “redlining” that explicitly denied loans to minorities in the 20th century, according to Housing Opportunities Made Equal of Virginia.

“Certainly lenders and banks tell you money is all the same color and they’re an equal opportunity lender, but when you get down to it, you have individuals who are underwriting loans who have biases,” said Brian Koziol, the nonprofit organization’s director of research and the report’s author.

The group’s study found that between 2010 and 2013, the most recent year for which mortgage data is available, 13.7 percent of white borrowers had loan applications denied while black applicants experienced a 34.6 percent denial rate.

The report found that Hispanic residents also faced higher denial rates than white residents, but overall were granted loans more frequently than black borrowers.

Koziol said that a lenders’ willingness to finance home purchases directly corresponded to a neighborhood’s racial makeup.

The study found that for each percentage point increase in the minority population of a census tract, 12.5 fewer mortgages would be made.

The neighborhoods impacted are the same ones historically excluded for lending through redlining, and more recently, targeted for subprime loans, Koziol said.

While those neighborhoods have disproportionately high poverty rates, a borrower’s income doesn’t account for the difference: The report found a 9.9 point disparity in loan approval rates among black and white low-income applicants and a 27.5 point disparity among black and white upper-income borrowers.

That’s the best part, really.  The higher your income as a black potential mortgage borrower, the larger the disparity in actually being approved for a mortgage. Because a black family making good money is automatically more suspect, you see. They could afford the house in the nicer white neighborhood, but why would the bank want to lower the property value of the houses of their other mortgage clients? Mortgage loan decisions aren’t made by banks, they’re made by people.

Redlining has been going on for decades, folks.  It’s been going on not just in the South but all over the country, in red states and blue states and liberal enclaves and conservative strongholds.

And if you don’t think this isn’t happening in just about every decently sized US city in America right now, with the rush to segregate schools and neighborhoods through gentrification and exurban gated communities where “we don’t think it’s a good idea that you move in to this neighborhood, you see”, well I have some property for sale for you that you mysteriously can’t get a mortgage on.

Very little has changed in the last few decades, social media and instant news just makes it more visible.

Today in Sociopaths

This jackass is getting 15 minutes of fame he probably shouldn’t want, but seems to like anyway:

Martin Shkreli (above) is a former hedge fund manager and the current CEO of Turing Pharmaceuticals. In August Shkreli bought a drug called Daraprim. It’s been around for 62 years and is used to treat toxoplasmosis, a life-threatening parasitic infection. “Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars,” reports the New York Times.

It’s fun to single out Shkreli for his questionable ethics, but plenty of other pharmaceutical companies also jack up the the price of formerly cheap drugs to levels that will bankrupt people who need them. The antibiotic Doxycycline was $20 a bottle in 2013. Today, the same bottle costs $1,849. Cycloserine, a tuberculosis treatment, used to cost $500 for a 30 pill bottle, until Rodelis Therapeutics acquired the drug and increased the price to $10,800.

Clinton commented on this first class douchebag’s practices and said she was developing a plan to deal with bullshit like this, and Biotech stocks crashed.

I have a solution but I probably shouldn’t say it in public.

Yooge, Classy Jobs Report

Economy added 173,000 jobs in August, a bit of a miss, but upward revisions in June and July added 44,000 jobs to make up for it.  Unemployment rate down to 5.1% from 5.3%.  Not stellar, but very solid.

Hours worked and hourly wages up 0.3%, up 2.2% for the year.  Labor force participation rate unchanged.

Open thread otherwise.

Medicare 101: Part D

Yesterday we briefly talked about Medicare Part A and Part B. Part A covers in-patient/overnight stays at the hospital while Part B covers most other services that involve interacting with other people.  When Medicare started, prescription drugs weren’t a big cost driver.  Basic drugs were available, they treated most common cases to some degree of effectiveness and unsusual cases were out of luck.  And then drugs got expensive as they got more complex and the US patent regime encouraged non-market pricing of drugs.  Additionally, the US Congress also discouraged non-market pricing of drugs as the federal Medicare program is not allowed to use the simple fact that it is the biggest buyer of medical supplies in the world to get a good price.  Drug costs for old people became a massive political issue.

And thus an opportunity for Republicans in 2003 to do two things.  The first was to offer a solution that emphasized “compassionate conservatism” for old people to help them get their drugs.  Secondly, it was an opportunity to shovel a massive amount of money at drug companies without asking for a whole lot in terms of policy concessions.  Thus Medicare Part D was born.

The initial design of Medicare  Part D was a kludge of managed market competition.  Private insurers offer plans that cover a variety of different drugs according to a basic benefit design.  Companies could offer limited lists of covered drugs (formularies) or expansive (and expensive) lists of covered drugs.  They could create two tiers (generic and brand) or seventee tiers of coverage with different co-pays and cost sharing.  They could decide to require that all beneficiaries try Drug X before they would authorize Drug Y.  The rules and plan requirements for Mayhew Insurance would be diametrically opposed to the rules for Big Blue Drug Value Super Duper Plus.

There are common benefit design elements for the individual beneficiary responsibility of costs.  The individual would be responsible for a medium sized deductible of roughly $250.  After that, the insurer would pay 75% of the contracted costs until the donut hole started at $2,250.  From $2,250 to $3,600, the individual was responsible for all of the cost.  After $3,600 in total drug costs, the insurer would pay roughly 97% of the remaining drug costs.

Compared to the previous Medicare drug benefit of almost nothing, Medicare Part D as originally designed was significantly better than nothing.  It does provide some significant benefits to seniors while being confusing, complex and a massive give-away to drug makers as Medicare was expressly forbidden from getting good deals.

The Affordable Care Act made several signifcant technical changes to Medicare Part D.   It still maintains the managed competition design but changes the payment structure.   Over the long run, the goal is to get rid of the donut hole completely while in the short run, the goal is to minimize the out of pocket expenses for seniors who are still stuck in the donut hole.

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Labor-capital disputes and the ACA

I had a friendly series of e-mails with a commenter late last week.  His bargaining unit at Verizon is now working without a contract.  I don’t know how the contracts that the CWA and IBEW have with Verizon treat healthcare.  My experience and knowledge is solely personal as my family’s health insurance as a child was provided through a benefit/welfare fund administered by my dad’s union for its members who worked for hundreds of companies.  I don’t know if Verizon creates a massive ASO with defined benefit structures for its union contracts or offloads all of the risk onto union welfare funds.  That difference will matter.

My correspondant’s big worry would be what would happen to his health insurance if he either went on strike or was locked out.  He stated that Verizon had stated that health insurance would disappear as soon as a work stoppage of any sort started.  He knew COBRA insurance at 102% of monthly premium would be available, but no one could afford COBRA if they aren’t working anyways.  Pulling health insurance is an effective (and underhanded) way of dividing union solidarity as it pits the members who are either old or sick or who have old or sick dependants against members who don’t have pressing medical needs.  Someone whose daughter needs chemotherarapy next week will push leadership to take a shitty deal far faster than someone whose kids eventually need to go in and get their teeth cleaned.

However, the ACA changes this power dynamic a bit.

Losing employer sponsored coverage is a qualifying event.  It creates a special enrollment period for all locked out or striking workers to go on the Exchanges and get coverage.  That coverage will not be anywhere near as good as the coverage they currently have in their union contract (Verizon workers have the equvilent of Platinum plus plans) but it provides oh-shit coverage possibilities for the families of workers who don’t use a lot of services, and it provides cheaper than COBRA platinum coverage for the worker whose daughter is mid-way through her chemo.  It reduces a pressure point that Verizon can use as health insurance is no longer directly tied to employment.

This is a subtle value add of PPACA. It is a slight corrective to the massive bargaining differential between Capital and Labor that has tilted so many agreement zones towards capital instead of labor over the past forty years.

Why not charge more?

Insurance companies can make their money in two basic ways.  The first is to organize themselves as a funky looking hedge fund with an odd cash flow model.  Insurance companies often will invest their reserves in a wide variety of instruments, some liquid and some extremely illiquid in an attempt to get better than market rates of return.  Health insurance companies, if they keep only slightly more reserves than required, often can’t play this game too aggressively as they need a lot of cash on hand.  Property and other insurers that operate on longer contract horizons with fewer but bigger pay-outs are more likely to make their money as finance companies.

The other, and far more prosaic way an insurance company of any type makes money is to pay out less in claims than they collect in premium revenue.

None of this is earth shattering, but I want to reply to a comment by Raven on the Hill as it is something I’ve seen a number of times — namely that the ACA is a corporate give-away that will only feed the gaping maw of corporate America.  There is a limited model where I can see that critique, but in general, I think it is more of a shiboleath instead of a model.

The insurance industry only gets paid if it funds treatment. And these days the percentage they can take is limited to 15% (the medical loss ratio) (or I think 20% in some cases) depending on the type of insurance. So how to increase profits? There is only one way: spend more on treatment.

The one case where this makes some sense is when an insurer is the only insurer in a region, and it is operating right at the threshold medical loss ratio.  If the insurer is the only insurer in the region, they are taking on all of the medical risk, but they are probably fat and lazy.  Here the decision to either make hard decisions and start saying no to high cost providers who want to perform low value treatment versus raising rates can look attractive. Cutting administrative costs would be a second choice (trust me, I spent a year of my life on a project that had a goal of reducing mail costs by a nickel per member per month (PMPM), three years out, the reduction was six cents PMPM, so it was a smashing success) .

There are a couple of constraints on how high the rates can go.  National insurers are available to provide a ceiling on rates, state level political pressure can name and shame rate increases downwards, and finally PPACA has lowered the cost of entry for insurers to enter new markets as the exchanges can serve as the a common, low cost sales platform.  If a monopolistic insurer started to charge as its base Exchange rate $1,000 PMPM for 21 year olds, I guarantee that there will be 10 insurers looking to enter that Exchange market for the next open enrollment as there is too much money on the table not to.

Now if that same insurer is operating at three or four points above the minimum required MLR, raising rates to increase profits could work. However, cutting the MLR and administrative costs are other ways to increase profits. Here the insurer could offer a narrow network with 80% of the providers of its broad network in order to exclude the high cost, always ordering expensive treatment providers.

One of the major differences in the PPACA world versus the pre-PPACA world for this monopolostic insurer is the underwriting standards. Previously, the insurer could underwrite based on medical history and experience. That meant each individual could be assigned a unique price point. In practical terms, the insurer could have several thousand price points for a single product in a single county depending on age, gender, zip code, BMI, smoking history along with dozens of perosnal and family history variables. In economic terms, underwriting allowed for an insurance company to massively segment a market. A perfectly segmented market with no information costs would lead to insurance being offered at each individuals maximum willingness to pay. This means the insurance comnpany would collect a massive amount of the social surplus as monopoly rent.

In the PPACA world, insurers have far less ability to segment the market as they can only use age, zip code and smoking history as direct pricing variables for individuals. There might be 80 PPACA allowed price categories instead of 1,500 potential price points for the same zip code in the pre-PPACA world. Some of the social surplus is returned to the general public.

That is the monopoly case. I think it is an interesting case, but it is a limited case for both empirical reasons as there are very few pure monopoly regions in this country, especially on Exchange (West Virginia is one, I think significant parts of Alabama is another), and the binding constraints of fat, dumb, lazy and already paying out at minimum allowable MLR. Now let’s take a look at the other extreme, the perfect competition model.

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A Generally Higher Elevation Point Upon Which To Expire

Progressive organizations keep winning big, you guys.

With the high-stakes vote on Fast Track set for today, the liberal group Democracy For America is threatening to primary any Democrats who vote for it. From DFA’s statement:

We will not lift a finger or raise a penny to protect you when you’re attacked in 2016, we will encourage our progressive allies to join us in leaving you to rot, and we will actively search for opportunities to primary you with a real Democrat.

If Fast Track passes, and we do get a final Trans Pacific-Partnership trade deal, these divisions will only continue.

Awesome. I move across town and get my new apartment set up, I get internet back and this is the crap that greets me: DFA now actively threatening to primary anyone who backs President Obama on fast track authority.

What could possibly go wrong there?

Fight it out in the comments.