Eclipse Musings

General, Science Fiction

The Great American Eclipse of 2017 has come and gone.

A year ago, I would have said that I expected to spend today in the path of totality, thanks to the fact that my father-in-law happens to own some suitably-located property in SE Nebraska.  Alas, for a variety of reasons my wife and I concluded several months back that it wasn’t going to be practical for our family to journey to Nebraska for today.  I was pleased, for my kids’ sake, that my ex-wife picked up the slack and decided to take the kids to the path of totality near St. Louis; sounds like they had excellent weather and a great eclipse-viewing experience.

My youngest kids are only slightly older than I was during the last total solar eclipse visible in the continental US, the eclipse of 1979.  I was an elementary school student in London, Ontario, where the maximum coverage was roughly 80%.  I vividly remember our class being shuttled to the school gymnasium so that we could all watch the live CBC feed from Winnipeg, which was in the path of totality.

As for me today, I was in Minneapolis, where sunny weather in the early morning was replaced by cloud cover at midday.  I wandered outside at what ought to have been the maximum eclipse period, which for Minneapolis was only 83% coverage.  Unfortunately it didn’t feel much different than a cloudy day, the sun being largely obscured by clouds.  Ah well.

For me it’s hard to think about eclipses without thinking of two pop culture touchstones.

One is Carly Simon’s “You’re So Vain” – or, as I refer to it, “The Nova Scotia Song”:

Then you flew your Learjet up to Nova Scotia
To see the total eclipse of the sun
Well, you're where you should be all the time...

An interesting piece of trivia I recently learned from Wikipedia is that there is apparently some ambiguity regarding which eclipse Carly Simon is to referring here!  Both the eclipse of 1970 and the eclipse of 1972 were visible from Nova Scotia, and the song was released about four months after the latter but purportedly had been written in 1971.  Personally I think that the song most likely refers to the 1972 eclipse, since one would have had to fly to Nova Scotia (or parts further north) in order to be in its path of totality, whereas the 1970 eclipse was visible throughout the US Eastern seaboard.  (And this lyric is in the final verse, which one could imagine to have been added to the song after the rest had been written.)

The other is Isaac Asimov’s classic short story “Nightfall”.     It was once named the very best sci-fi short story written prior to the introduction of the annual Nebula awards in 1965; and I for one would not quibble with that choice, although I recognize that there are some who consider it overrated.  It certainly captured my imagination when I first read it as a teenager, and remains vivid in my mind these many years later.

For the benefit of those who’ve not read it – “Nightfall” is set in a planetary system that involves one planet and six suns, and where darkness is unknown because at least one of the six suns is always in the sky.  The planet has a human-like intelligent race, whose scientists have recently made two interesting observations.  The first, from archaeologists, is that ruins suggest a significant cyclical pattern, with civilization being destroyed by fire approximately every 2000 years.  The second, from physicists who only recently have developed a theory of gravity, is that in order to completely explain orbital movements one would need to hypothesize the existence of a previously undetected planetoid – and furthermore, once every 2000 years, there would be an extended period of time where none of the six suns were visible, with 5 having set and the 6th being eclipsed by the planetoid…

Although I’ve never seen anything to suggest this is actually true, I have a pet theory that the final verse of the Billy Joel song “Two Thousand Years” was inspired by “Nightfall”:

And in the evening
After the fire and the light
One thing is certain: Nothing can hold back the night
Time is relentless
And as the past disappears
We're on the verge of all things new
We are two thousand years

Ah well.  Enough eclipse musings for today.  Time to start the countdown for the eclipse of 2024, whose path of totality includes where my parents live in Eastern Ontario!

Why I Naturalized

General

Next month will represent the 25th anniversary of when I arrived in the USA, for good, as it would turn out.

I’d lived here before, mind you:  My family had moved from Canada to the USA while I was growing up, spending about 4 years here, although we moved back to Canada a year before I graduated from high school.  After staying in Canada for university, in September 1992 I came back to the USA on a student visa, to enroll in graduate school.  It was pretty common at that time for the best Canadian university graduates seeking PhDs to go south of the border for their doctoral studies.   While some of my fellow Canadians came south with clear intentions to return to Canada after their degree, my plans were more ambiguous.  Having lived in the USA previously, I was more open than most Canadians to staying here permanently, but I could certainly have imagined going back to Canada.

But then, while in graduate school, I met an American woman… (cue The Guess Who, or perhaps Lenny Kravitz!)  When we’d each reached the point where we were growing jaded with our doctoral program and sought to do something different with our lives, our relationship gave me a reason to want to stay in the USA and build my life here, rather than go home.  And so in 1996 I found an entry-level actuarial position in Chicago, returning to Canada briefly so I could re-enter the USA on a TN visa.  Shortly thereafter I convinced my employer to sponsor me first for an H-1B visa (back before those visas became exploited by the outsourcing firms), and ultimately for my green card.  Delays in immigration processing after 9/11 slowed matters down, to be sure, but by 2005 I was a permanent resident of the USA.  (Along the way I did marry the American woman, but that didn’t actually have beneficial immigration consequences for me: Marrying her when I did would simply have entitled me to join the green card queue in the very same place that I was already at thanks to my employer’s efforts.)

When I got my green card, I wasn’t sure if I would ever take the next step and seek to become an American citizen through naturalization.  The question wasn’t yet ripe, mind you:  A new permanent resident doesn’t become eligible for citizenship until 5 years have passed.  So when 2010 rolled around, I finally had a decision to make:  Should I naturalize?

It wasn’t a decision I took lightly, being proud of my Canadian heritage.  Having said that, in many respects it felt as though whether or not I was an American citizen would be a distinction without a difference, in that changing from a green card holder to a citizen wouldn’t have much immediate impact on my day-to-day life.  For example, nothing about my income tax situation would change if I were to become an American citizen; nor would becoming an American citizen have any impact on such longer-term issues as my eligibility for Social Security or Medicare.

In the end I decided I would go ahead and naturalize, which I did in early 2011.  In my thought process at the time I identified 6 reasons why I felt becoming an American citizen was the appropriate thing to do.

Reason #6 was estate taxes.  It is widely known that there is an unlimited spousal deduction to estate taxes, so that when one spouse dies the surviving spouse can inherit everything without worrying about potential estate tax.  However, it is perhaps less well-known that this deduction only applies if the surviving spouse is a citizen.   As such, naturalizing would insulate me from a potential tax exposure, albeit one that would only occur in the unlikely parlay that not only my wife died before me, but also our financial situation had somehow improved to the point where estate taxes were potentially relevant.  While that parlay seemed remote, it was a tally for the “yes naturalize” column.

Reason #5 related to potential eldercare issues.   Like many only children, I can imagine that someday one of my parents might need to come live with me – particularly with my maternal line being so long-lived (my grandmother is still doing great at 97; her mother was still living alone and smoking a pack a day when she passed at 97; and her mother lived to be 105).   However, with my parents being in Canada and me being in the USA, it’s not so simple.  As a citizen I would have some ability to sponsor a parent into the US to live with me, whereas as a permanent resident I would not.

Reason #4 was more ephemeral:  recognizing the reality of my life.  Regardless of which country I might cheer for at the Olympics, for all intents and purposes by 2010 I’d irrevocably thrown my lot in with the United States:  my professional specialty (health insurance) only exists in the USA, my children are Americans, I’d married an American.  Rightly or wrongly, I’d chosen to live my life in the United States, and naturalizing would be an acknowledgement that I’m not really a Canadian anymore, except in my memories.

Reason #3 was voting, and politics.  I’ve always had a very strong interest in politics, and there was something odd about a passionate politics-watcher being unable to personally participate in the political process.   And not just national politics, but also local politics.  After I did naturalize, the first vote I got to cast was in a local referendum about increasing the property tax levy for my kids’ elementary school district.  It was a closely fought race, I had a strong point of view on the right course of action, and I’m really pleased that I was able to cast a vote on something that directly affected my family.

Reason #2 had more of an actuarial flavor:  mitigating deportation risk.  I’m a pretty straight arrow, so the likelihood that I would do something that could, as a non-citizen, get me deported was very low.  But, the consequences of being deported would have been very dire, for my family and for my professional prospects; and there was a lot to be said for the notion that reducing deportation risk from near-zero to zero was the right thing to do.

My thinking on this issue was also motivated by what I, as a loyal reader of SCOTUSBlog, had learned about the current state of immigration law.  The Supreme Court case Carachuri-Rosendo v. Holder was in the news in 2010, and it greatly troubled me.   Jose Angel Carachuri-Rosendo was a permanent resident  with 4 American-born children who served a 10-day jail sentence for possession of a single tablet of Xanax without a prescription.  The federal government argued that his conviction for this offense made him mandatorily deportable, i.e., that he had no ability to apply for what is called “cancellation of removal” based on an evaluation of the impact that deportation would have and him and his US citizen dependents.  The Supreme Court ultimately ruled in Carachuri-Rosendo’s favor, thus returning some administrative discretion to the question as to whether he would be deported.   Nevertheless, the case reinforced that even “permanent residents” can be subject to deportation for relatively trivial offenses.  I wasn’t planning on committing any such offenses; but why take that risk?

That bring us to my rather curious Reason #1:  giving me the flexibility to leave the USA.  “Permanent residency” is only permanent so long as you continue to live in the USA, you see.  My family actually had our green cards when we lived here in the 1980s, but when we moved back to Canada we had to give them up.   So, if I remained a green card holder, and circumstances arose where I might want to live in a foreign country for some period of time, coming back to live in the USA afterwards would not be a slam-dunk for me.  Whereas by naturalizing, I’d gain a potentially useful right:  the right to leave, knowing that I was free to return.

You’ll notice that the canonical “love of my adopted country” didn’t make my list.  That’s not because I don’t love the United States; I do, to be sure, although that love can wax and wane with the political winds…   Clearly there are many, many naturalized American citizens for whom the United States has given them an opportunity for a good life that didn’t exist for them in their homeland, and for those people the opportunity to call themselves a citizen of the United States has a deep emotional meaning.  I respect that.  And I have a very good life in the USA, and I’m thankful for that.  But, I had the good fortune to have been born in an equally wonderful country.  If I’d never immigrated to the USA, my life in Canada would certainly have been very different in the details than my life here – some other career, some other wife & family – but I don’t doubt that I’d have been able to have a very good life in Canada.  As such, I wasn’t exactly inclined to sing along to the Lee Greenwood song at my naturalization ceremony.   I’d like to think that doesn’t make me any less of an American than anyone else.

Bug Jack Barron and “Poli-Sci-Fi”

Politics, Science Fiction

Like many children of the 1980s, I grew up reading heavy doses of science fiction; although I was perhaps a bit unusual in that my tastes ran more to short stories than to novels, and more to the Golden Age than to the New Wave or cyberpunk.   Clarke and Asimov were my lodestones at first, and while my tastes later expanded to the likes of Sturgeon and Heinlein, I never quite made the leap to appreciate Ellison and his contemporaries, or their progeny.

Every rule has its exception, of course.  And in my case, one piece of New Wave science fiction to which I was exposed and immediately loved was Norman Spinrad’s Nebula-nominated 1969 short story, “The Big Flash.”   The story’s writing style captured my attention, to be sure:  It is written from a first-person perspective, except that every few pages the narrative shifts to a different person’s perspective (without repetition).  But it was really the subject matter of the story and, more generally, the subgenre of the story that captured my interest:  “The Big Flash” is a stellar example of what one might call political science fiction, which for short I’ll call poli-sci-fi.

Now, there are different things one could mean by poli-sci-fi.  It could mean speculative fiction involving political science themes, but without an evident “science fiction” element as that term is generally understood.  A good example (in my opinion) of this type of poli-sci-fi would be Tom Clancy’s Jack Ryan novels viewed as a whole, up through 2000’s The Bear and The Dragon, by which point Clancy had constructed an alternate present that was clearly distinguishable from our present due to different geopolitical choices made during the period 1985-2000.  (And then he went and ruined his own universe, by implausibly assuming in 2003’s The Teeth of the Tiger that 9/11 would have happened anyways in the Ryanverse, at which point I stopped paying any attention to Clancy.)  Of course one doesn’t typically recognize the Ryan novels as being “science fiction” and instead views them through alternate genre lenses – such as “spy fiction”, or “military fiction”.  But to me the poli-sci-fi frame is compelling, particularly after considering the events taking place after the deus ex machina conclusion to Debt of Honor thrusting massive political change upon the USA.  Another well-known example of this type of poli-sci-fi would be Margaret Atwood’s The Handmaid’s Tale.

An alternate definition of poli-sci-fi that might be more widely accepted would be speculative fiction that explores technological change primarily from the perspective of its political implications.  In other words, fiction that everyone would recognize as “science fiction” but where political ideas are paramount.   Huxley’s Brave New World or Orwell’s 1984 would clearly fit here.  As does “The Big Flash,” which was set in the then-present (i.e., the USA of the late 1960s) and explored the following question:  Given that tactical nuclear weapons had recently become technologically feasible, how could one create conditions under which their use in the Vietnam War would be embraced by the American people?  I wouldn’t want to deprive the reader of the experience of finding out how Spinrad answered that question, but I will mention that the first time I heard Blue Oyster Cult’s “Don’t Fear The Reaper” after having read “The Big Flash” was a very odd experience…

“The Big Flash” was not the high point of Spinrad’s 1969 literary output, however.  That honor technically goes to Bug Jack Barron, his best-known novel and one that fits very snugly into the second definition of poli-sci-fi above.  I say “technically” because Bug Jack Barron had actually been completed in 1967, but was serialized in New Worlds magazine in 1967-68 due it having been rejected by Spinrad’s publisher, before finally seeing print as a novel in 1969.

I read Bug Jack Barron for the first time this month, having stumbled across it on sale at my local independent bookstore.   And like “The Big Flash”, its plot centers around a question involving the intersection of scientific progress with contemporary American politics:  Should Congress pass a bill granting a monopoly on human cryogenics to a nominally not-for-profit Foundation for Human Immortality, which charges $500,000 to freeze one’s body upon death (with the deceased hoping that future life-extension research would eventually enable resurrection)?

It was, without doubt, a highly controversial book when it was first published, and understandably so – copious amounts of explicit sexual content and drug references, very liberal use of the c-word and the n-word, experimental sentence structure, et cetera.  It’s hard for me to completely appreciate how shocking it would have been to read in 1967; it would still offend a lot of sensibilities in 2015.   And while it was acclaimed at the time (garnering a Hugo nomination but losing to LeGuin’s The Left Hand of Darkness), there’s plenty about the novel that one could criticize, even leaving aside the more controversial elements.

But even so, there are a number of interesting political musings in the novel.  At the time the novel was written Spinrad was speculating about the future, but from our perspective the world of Bug Jack Barron represents an alternate past; and it’s intriguing to step back and evaluate what Spinrad got “wrong” and what he got “right” in extrapolating forward from his 1967.

The timeframe of the novel is never explicitly stated, but there a number of clues.  We’re told that the next US Presidential nominating conventions are a little over a year away as the novel opens; that our protagonist, Jack Barron, is 38 and first came to prominence as a “Berkeley rabble-rouser”; and that a 1981-model car is considered old.   Putting those pieces together, it appears to me that the novel very likely takes place in the spring of 1987.

But this 1987 is one in which the USA has been in a prolonged state of single-party rule – a premise that was already obsolete by the time the novel was published.  In Spinrad’s 1987, the Republicans have not managed to elect a President since Eisenhower.  (Reagan is mentioned in the novel, in passing, as an example of a media figure who successfully turned to politics.)  The current Democratic president is unnamed but apparently isn’t standing for re-election; one of the leading Democratic candidates for President is referred to throughout the novel as “Teddy the Pretender”, which could very well be a veiled reference to Teddy Kennedy.  Moreover, Spinrad’s 1987 is one in which the USA is no longer a two-party state.  Spinrad posits that a new party, the Social Justice Coalition (SJC), has emerged to the left of the Democrats, as an outgrowth of the protest movements of 1960s; our protagonist Barron was one of the founders of the SJC.

Living in the world we do, where the civil rights movement of 1960s led to the transformation of the Republican party’s base via the Southern strategy and to 20 years of Republican presidents over a 24-year period (1968-1992), it’s a little hard for Spinrad’s vision of the future political landscape to be resonant.  However, was it a crazy idea?  Not necessarily.  If you grant the conceit that the hippies and African-American civil rights activists could have transformed their activities into a new political party separate from the Democrats, then it becomes easier to imagine that working-class whites (particularly in the South) would have remained in the Democratic fold and that the Republicans would have remained primarily the party of moneyed interests.  (Another main character in the novel is the African-American SJC governor of Mississippi, which seems to imply that the SJC garners essentially all of the African-American vote.)  Indeed, Spinrad’s version of American politics as having a dominant centrist party flanked by smaller parties on each side of the spectrum is far from unfamiliar: We just have to look north of the border, to the Liberal Party (or, as they were often referred, the “natural governing party” of Canada), who were in power for all but one year over the period 1963-1984.

In imagining a USA in which there is a flourishing progressive party to the Democrats’ left and a struggling Republican party, Spinrad was anticipating that the country as a whole would settle further to the left on the political spectrum than it did in reality.  This viewpoint is reflected in two other aspects of Spinrad’s 1987 that seem strange today.

One involves marijuana legalization.  In the novel, not only had marijuana become legal in almost 40 states by 1987, but it had become big business: The major sponsor of the most popular TV program in the USA is a brand of marijuana cigarette called Acapulco Golds.  Moreover, regular marijuana usage by major political and public figures is presented as being normal.  While in our 2015 we can start to see that type of future as being plausible, it’s certainly a far cry from how marijuana was regarded in our 1987.

The other involves the role of regulation in overseeing the media and political debate.  The novel assumes, as a matter of course, that the Federal Communications Commission would continue to ensure that each media outlet remained comparatively free from political bias, via what was known as the fairness doctrine.  Barron, while formerly an SJC political figure, had abandoned politics prior to the start of the novel and instead is the host of a current affairs TV show, and he and his staff are constantly concerned about the need to present matters in a way that will keep the FCC off the network’s back.  Ironically, in reality the FCC abandoned the fairness doctrine in….1987, thereby paving the way for today’s partisan media climate.  Barron is also continuously worried about potential accusations of libel for statements made on his TV show, which is interesting from a contemporary perspective, inasmuch as that I can’t recall the last time I heard anybody in the USA (as opposed to the UK) express concerns about libel.

Along similar lines, the central political debate of the novel involves a tension between capitalist and socialist values – a tension that would have been far more one-sided in our 1987.  The fact that the Foundation for Human Immortality requires $500,000 of liquid assets in order to purchase a space in one of its “freezers” is quite controversial.  The principal alternative under discussion is not, as one might think from today’s perspective, to deny the Foundation its monopoly in order to encourage competition in the field of human cryogenics.  Rather, it is to nationalize the cryogenics facilities, so that wealth would not be a mechanism for triaging access.  (I don’t imagine that Spinrad would have foreseen either the high inflation of the late 1970s and early 1980s or the rise of Wall Street in the 1980s, so his $500,000 threshold probably seemed more insurmountable at the time then it does to those of us who lived through the 1980s.)  Unsurprisingly, Spinrad doesn’t really discuss what triage mechanisms the proponents of the alternative “public freezer bill” might suggest employing.

But not all of Spinrad’s extrapolations missed the mark.

One of the central themes of the novel is the potentially corruptive influence of money on politics.  The not-for-profit Foundation for Human Immortality is controlled by a billionaire who uses his purse-strings to control senators, governors, and FCC commissioners – with the ultimate objective (for reasons discussed below) being to control the next President.  As the jacket blurb to the 2004 paperback edition of the novel reads, in trying to summarize the novel’s appeal in a single sentence:  “[Bug Jack Barron‘s] exploration of how big business corrupts the democratic process is as relevant as ever to today’s television and media obsesses culture.”

Another recurring theme in the novel is race relations.  Spinrad’s 1987 is hardly a post-racial paradise.  Although Mississippi spent money to build “a new capital for a new Mississippi” and named it Evers, the new city contained “some of the ghastliest slums Barron had ever seen … [and] made Harlem, Watts, Bedford-Stuyvesant look like Scarsdale.”  The governor of Mississippi takes it as an undeniable fact of life that he can never aspire to the Presidency due to his skin color, and therefore resigns himself to projecting his ambitions on sympathetic whites (or “black shades” as he calls them).  And even though the viability of the SJC depends on fusing the interests of progressive whites with African-Americans, there is still evident tension between the white and black wings of the party.  And, interestingly, Spinrad foresaw that African-Americans would reclaim the n-word.   None of this sounds all that unfamiliar.

One last final political element of Bug Jack Barron worth noting is a plot point about separation-of-powers concerns.  The piece of proposed legislation that is the main subject of the book would establish a 5-member Presidential Commission to oversee all of the activities of the Foundation of Human Immortality and regulate the field of life-extension.  This specific legal framework is exceptionally important to the billionaire overseer of the Foundation; his ultimate intent is, by virtue of controlling the President and hence his appointments to the Commission, to get the Commission to sanction certain Foundation activities that would otherwise be illegal, without risking Congressional interference.   Although the technical details are somewhat inapposite, it’s interesting to note that the Sarbanes-Oxley Act created a similar commission to regulate the accounting industry (the Public Company Accounting Oversight Board) and that there was a 2009 Supreme Court case calling into question the constitutionality of that scheme.

All in all, Bug Jack Barron is a somewhat dated but nonetheless worthwhile read for those who are interested in poli-sci-fi (and willing to tolerate copious amounts of vulgar language!)

Kansas Proposal to Increase HMO Tax: Unsound Policy?

Health Insurance, Tax Policy

Today I read an article in a national outlet about proposed legislation in Kansas that touches on a number of themes I’ve dealt with in my professional career.  (Full disclosure:  Until recently I worked for a major insurer that is identified in the article as leading the lobbying effort against this legislation; however, I had zero involvement in that lobbying effort and in fact was completely unaware of this issue until reading about it today.)

My understanding of the situation, based largely on reporting from the Wichita Eagle, is this:

  1. It is well known that Gov. Brownback has been pursuing an aggressive tax reduction campaign in Kansas.  As part of this, he is looking to find a new revenue source to replace about $80 million of general state tax revenues that are devoted to support Kansas’ Medicaid program.
  2. His proposal involves increasing a particular Kansas tax that applies only to HMOs (and not to other health insurers) and that has a peculiar name:  the privilege fee.  This tax is currently defined as 1.0% of annual premiums, but under the legislation it would increase to 5.5% of annual premiums.
  3. Three of the HMOs to which the tax increase would apply are contractors under the Kansas Medicaid program, KanCare.  If I understand correctly, the privilege fee applies to all premiums written by HMOs, including both KanCare and non-KanCare premiums.

This proposal strikes me as suboptimal public policy, for a number of reasons:

The tax increase on HMOs will ultimately get passed through to other parties, so what exactly is the point?  Look, it’s potentially very appealing for a politician to be able to say, I’m reducing the general tax burden, and in exchange I’m increasing taxes paid by a special interest group – particularly when the group in question is one of the few industries that is almost as unpopular as Congress.

But, it’s not a particularly intellectually honest position.  The privilege fee paid by Kansas HMOs is one part of their cost of doing business; and it is rational to expect that those HMOs will ultimately adjust their pricing – that is, the insurance premiums they charge – to reflect any increase that legislators enact in that aspect of their costs.

So, at the end of the day, this tax increase will be borne broadly:  by individuals who purchase insurance policies directly from HMOs; by employers who purchase insurance from HMOs for their employees; by the employees of those employers, to the extent that the employers react to the premium increases by ratcheting up the portion of healthcare benefits that they ask the employees to fund themselves; and by the consumers of those employers’ products, to the extent that employers react to the premium increases by increasing the prices they charge for their goods and services.  I think it will also be borne by one other party, which makes this even odder…

Won’t KanCare end up having to pay for part of this tax increase?   As far as I can tell, the 5.5% privilege fee will apply to all the premiums that Kansas HMOs write, including those for KanCare business.  But what the HMO contractor calls revenue, the state Medicaid program calls an expenditure.

So, to the extent the HMOs need to increase the premiums they charge KanCare in order to cover the privilege fee increase, doesn’t that automatically lead to increased Kansas Medicaid expenditures?  A recently-adopted Actuarial Standard of Practice reiterates that, in order to be actuarially sound, the rates that Medicaid agencies pay to HMOs need to take into account any taxes or fees that the HMOs need to pay out of the revenues they receive.

Thus, we have some dollar-trading here:  The HMOs that participate in KanCare will pay higher privilege fees, but then they’ll receive correspondingly higher revenues from KanCare.  This doesn’t strike me as a model of efficiency.

Having said that:  I’m not a Medicaid expert, but the fact that Medicaid is a joint state/federal program may mean that it’s not purely dollar-trading viewed from the standpoint of the state of Kansas.   If Kansas collects an additional dollar in privilege fees from a KanCare contractor, and then as a result that contractor needs an additional dollar in revenues from KanCare, does the federal government end up subsidizing some portion of that new dollar in revenues?

Differential tax rates on market participants can create market distortions.   The privilege fee we’re discussing applies only to HMOs, who pay this fee but in exchange are exempt from the Kansas premium tax paid by all other insurers.

In my view, this is an accident of history.  While there are exceptions, today most HMOs operate in a manner very similar to most other health insurers, in that the underlying healthcare services are provided not by the HMO’s own employees but by an unaffiliated network of providers; the main difference today is that, typically, an HMO network will be narrower than a non-HMO network.  This convergence of business models over the past couple of decades calls into question historical practices in some states that treat HMOs differently from other health insurers.

In the Kansas case, today HMOs enjoy a modest competitive advantage relative to other health insurers:  HMOs pay a privilege fee of 1.0% of premiums, whereas other health insurers instead need to pay premium taxes equal to 2.0% of premiums.  The proposed legislation would turn this around, and give non-HMOs a very significant competitive advantage.

This in turn can be expected to have ramifications on choice in the broader health insurance market in Kansas.  It’s a fair generalization that HMO products tend to be cheaper than non-HMO products, to the extent that HMO products generate cost savings via the usage of narrower provider networks.  By placing HMOs as a tax disadvantage to non-HMOs, the inherent cost advantage of those HMO products will shrink, which arguably will make consumers worse off.  (This is the argument being advanced by Aetna, according to the Wichita Eagle article.)

The tax increase will, in a sense, be retroactive.  I argued above that, ultimately, HMOs will react to this tax increase by passing it through to their customers via increased premiums.  And while that may be true in the long run, it would likely be far less true in the immediate term.

The statute calls for the increased privilege fee to apply to all premiums written by HMOs in calendar year 2015.  The problem is that insurers in general (including HMOs) price their products well in advance of when the premiums take effect, and then by regulation hold each customer’s premiums steady for an agreed policy term (typically 12 months for health insurance, as opposed to 6 months for auto insurance).  So, presumably all the HMOs in Kansas had priced their 2015 premiums under the assumption that the privilege fee would remain at 1.0%, and cannot go back and change those premiums if the statute is enacted.

Thus, from the HMO’s standpoint, this proposal represents a material change in the rules in the middle of the game.  An unanticipated expense in 2015 equal to 4.5% of premiums (the new rate of 5.5%, less the existing rate of 1.0% already reflected in pricing) could absorb most or even all of an HMO’s expected profits for the year, health insurance being a relatively low-margin business.  Regardless of how one may feel about the HMO industry, there’s something untoward about a mid-year tax change that can be expected to have such a dramatic impact on the short-term financial prospects of an industry, given that by regulation the industry cannot take immediately effective action to react to the changed circumstances.

 

 

Welcome

General

Welcome to my homepage and blog!

My name (predictably) is Rowen Bell.  I am a Canadian by birth, but I’ve lived more than half my life in the USA.  By profession I am an actuary, with the bulk of my experience being in the health insurance field.  I’m also an amateur musician, a sports buff, a bridge player, an interested observer of politics and the law, and a few other things to boot.

I’ll be adding to this website from time to time, as time & interests allow.  To understand what I’m hoping to accomplish with this website, take a look at my Introduction page.