Taxpayers Spent Billions Covering the Same Medicaid Patients Twice

When recipients signed up in two states at once, insurers often got paid by both; ‘it definitely is wasteful’

By Christopher Weaver, Anna Wilde Mathews and Tom McGinty of The WSJ. Excerpts:

"Health insurers got double-paid by the Medicaid system for the coverage of hundreds of thousands of patients across the country, costing taxpayers billions of dollars in extra payments.

The insurers, which are paid by state and federal governments to cover low-income Medicaid recipients, collected at least $4.3 billion over three years for patients who were enrolled—and paid for—in other states"

"The biggest Medicaid insurer, Centene, received $620 million in duplicative payments between 2019 and 2021"

"Insurers said it is up to states to verify people’s eligibility, and to disenroll them if necessary."

"The Medicare and Medicaid agency doesn’t screen for the double payments, leaving that to the states. State officials said identifying people who moved is difficult, and that recoveries of improper payments from managed-care companies are limited."

"The federal government’s emergency pandemic rules made it much harder for states to disenroll beneficiaries."

"double payments nationwide increased from $814 million in 2019 to $2.1 billion in 2021."

"When an enrollee leaves one state and signs up in a different one, though, the first state isn’t automatically informed." 

"it is difficult for states to claw back payments from managed-care companies for covering relocated enrollees, largely because it can be unclear exactly when they left."

"taxpayers were wasting about $1 billion a year"

"it can be difficult to verify where people are living" [this reminds me of Hayek saying that the central planners don't have local knowledge so they can't run the economy very well] 

Information Discovery for Industrial Policy

By Michael Sockin & Wei Xiong.

"Amid growing interest in industrial policy, we develop a model exploring the tension between market-driven information discovery and policymakers' career incentives. While market-based information discovery can help address informational barriers faced by policymakers, career incentives may lead them to aggressively pursue their agendas to signal political capability, shifting dynamics toward a government-centric equilibrium. In this equilibrium, market participants focus on policy-related information over industry fundamentals, weakening the market’s role in information discovery and reducing policy efficiency. Our analysis highlights the importance of bureaucratic frictions and market-based information discovery in jointly shaping the effectiveness of industrial policy implementation."

AJR’s economics Nobel is a partial victory for institutions

By Ryan Young of CEI.

"This year’s economics Nobel Prize winners are Daron Acemoglu, Simon Johnson, and James Robinson. They are frequent collaborators, often collectively called AJR. Much of their work is about institutions. Institutions are things like the rule of law, a country’s regulatory process, or the way it treats property rights. Think of institutions as the rules of the game, rather than the game itself.

Those of you familiar with CEI’s work, especially on regulatory reform, know that one of our policy mantras is that institutions matter. Since Nobels often honor a sub-field or a research program more than the individual honorees, from that perspective this is a gratifying prize. In many ways, AJR’s work complements previous institutions-matter economists like Douglass North, Oliver Williamson, Elinor Ostrom, and James Buchanan. And yet, it feels incomplete.

While AJR are right that institutions matter, they do not explore institutions’ deeper roots. They have also fallen for recent political trends, especially Acemoglu. These trends include populist anti-tech animus, cozying up to illiberal governments, and asking the fashionable questions about inequality instead of the right ones.

The first AJR paper to make a big splash was 2001’s “The Colonial Origins of Comparative Development: An Empirical Investigation.” They argued that deadly disease rates in colonial-era Africa help to explain many African countries’ economic performance today. The general rule is that the higher that European colonists’ disease mortality rates were in a given country during the 19^th century, the worse that country does today. The reason why is institutions.

In places with high mortality rates, European colonizers set up extractive institutions. Rather than take on a long-term project like building a sustainable liberal democracy, colonists instead extracted resources as quickly as they could and got out. After independence, these countries’ new governments kept these extractive institutions, which are keeping their people poor to this day.

European colonizers in countries with lower disease rates tended to think more long-term. They built more inclusive institutions, which also persisted in post-independence governments. As a result, low-disease mortality countries in the 19^th century are more likely to have relatively stable and liberal governments today.

When I was in grad school, the economics discipline was gushing over how AJR used such a subtle correlation to tell such a big story. One professor of mine called it the “killer variable” of the last twenty years. Journals were saturated with copycat articles. AJR were already on the Nobel short-list, and the main surprise is that it took them until 2024 to win.

Acemoglu and Robinson have coauthored three books on institutions, starting with 2006’s Economic Origins of Dictatorship and Democracy. Their second book, 2012’s Why Nations Fail, brought them popular acclaim. As with their previous work, they contrast extractive and inclusive institutions. Countries with extractive institutions tend to be corrupt, oppressive, and poor. Countries with inclusive institutions tend to be freer and richer.

Their chapter on Nogales, a city that has the US-Mexico border running through it, is a fantastic example of the effect institutions can have in otherwise identical places.

Even more vivid is the difference between North Korea and South Korea. Like the two halves of Nogales, the two Koreas share the same language, culture, and geography, and over a thousand years of history. But the country split into communist and liberal halves in 1950.

Extractive North Korea may be the only place on Earth that still regularly experiences famines in peacetime. Inclusive South Korea transformed in two generations from one of the world’s poorest countries to one of its richest, and it has become a stable democracy.

Acemoglu and Robinson’s third book, 2019’s The Narrow Corridor, tells a similar story. But instead of repeating Why Nations Fail’s black-and-white story of institutions being either extractive or inclusive, Acemoglu and Robinson fill in some of the colors and shades of gray. Their onslaught of terminology, distinctions, and metaphors makes it a bit of a muddle, but the general picture is clear enough.

A country should have a government powerful enough to protect people’s rights, but not powerful enough to abuse them. That is the narrow corridor within which states should be kept. My review of The Narrow Corridor takes a deeper look.

My colleague James Broughel argues that the economics Nobel is an insiders’ club, with the same few universities and dissertation trees winning in most years as friends reward their friends. AJR teach at MIT and the University of Chicago, which are both in the club. Johnson is also the IMF’s former chief economist.

Even for insiders like AJR, it often takes a fair amount of lobbying to get the prize. Researchers’ ambition to win can color their research agendas and the positions they take. This may explain why Acemoglu in particular has lost the plot in the last few years.

Acemoglu and Johnson in 2023 coauthored Power and Progress, which is about inequality. They argue that technological innovations over the last thousand years have tended to benefit powerful people at regular people’s expense. Like other voguish inequality analysts such as Thomas Piketty, they focus on levelling income ratios, but not on making poor people richer. This is opposite to the approach Iain Murray and I favor in our paper “People, Not Ratios.”

Acemoglu has had two other slipups recently.

One is his signing onto an open letter endorsing the Brazilian government’s ban of Twitter for political reasons. Whatever one’s opinion of Twitter or its owner, Brazil’s ban was outside of the narrow corridor Acemoglu endorses in his book with Robinson.

In a separate incident, Acemoglu showed a poor understanding of the knowledge problem. The short version of the knowledge problem is that nobody has all the knowledge they need to plan or direct an economy. This makes life extremely difficult for policymakers, however well-intended.

As early as the 1920s calculation debate, aspiring planners have argued that advances in computing technology would overcome knowledge problems. This was in the age of mechanical calculating machines. The predictions repeated themselves with the transistor, the mainframe computer, the PC, the Internet, and the search engine. Yet each time, the knowledge problem remained unsolved.

Maybe this time will be different, Acemoglu argues. In a 2023 Twitter thread about artificial intelligence, he writes: “Coming back to Hayek’s argument, there was another aspect of it that has always bothered me. What if computational power of central planners improved tremendously? Would Hayek then be happy with central planning?”

The answer is no. The knowledge problem isn’t about the amount of knowledge. It is about the type of knowledge. The type of information Hayek wrote about is tacit, qualitative, hyper-local, difficult to verbalize, and often impossible to quantify. It is inaccessible to planners, no matter their computing power.

Think about the factory worker who knows the quirks of the machines he works with. Or the teacher who knows her students’ learning styles. Or the entrepreneur who spots a hole in the market and has an idea for how to fill it that comes from their unique life experiences. Computers can’t model that. AI cannot generate those human discoveries. Acemoglu misunderstands the knowledge problem at a fundamental level, which in turn affects his and his collaborators’ policy prescriptions.

The Nobel Committee could have made a worse choice than AJR. Despite their inconsistencies and trend-following, all three understand the importance of institutions, at a time when many academic economists in top-five departments do not."

Notes on Hayek's "The Use of Knowledge in Society"

By David Henderson. 

"Because this is the 50th anniversary of the announcement that Friedrich Hayek was co-winner of the Nobel Prize in economics (the person who shared it was Gunnar Myrdal), it’s a good time to look closely at his 1945 article in the American Economic Review, “The Use of Knowledge in Society.”

When I used to cover the article in my classes about 30 years ago, the students had trouble following his argument. Part of it, I think, was Hayek’s Germanic writing style: lots of long sentences. So for a few years, I quit covering the article. But that wasn’t satisfactory. So instead, I sent the students detailed comments and questions on various paragraphs to guide them through the article. That worked well.

Each time I look at my notes, I update. So this morning I updated yet again.

Here are my notes.

Teaching Notes on Hayek, “The Use of Knowledge in Society”

http://www.econlib.org/library/Essays/hykKnw1.html

David R. Henderson

October 9, 2024

I think this article is one of the ten most important articles published in economics in the last 80 years. So, it’s worth the effort.

The most important paragraph in this article is the third paragraph and the most important sentence in the article is the first sentence of this paragraph:

The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate “given” resources—if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.

Economists today who draw on Hayek’s insight often refer to this point about dispersed information as “local knowledge.”  Think about kinds of local knowledge you have about your job or other parts of your economic life, knowledge that would be unavailable to a central planner.  Now ask yourself how things would work if you had to get a central planner’s permission each time you wanted to act on this knowledge.  Think about your job and about other parts of your economic life.

In Section II, second paragraph, Hayek writes:

The answer to this question is closely connected with that other question which arises here, that of who is to do the planning. It is about this question that all the dispute about “economic planning” centers. This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals.

When economists stared criticizing the idea of central planning early in the 20^th century, the comeback from some of those who wanted central planning was, “Don’t you think we need to plan?” That’s why Hayek has this paragraph.

Read and reread Section III, second paragraph. There’s so much in there. One example: Think of someone who graduates at the top of his/her class at Stanford, Yale, or Harvard Law School. On a scale of 1 to 10, what does he/she know on the first day at the job that will help him/her do the job? My guess is that’s no more than 4 and could well be 2 or 3.

In Section III, third paragraph, Hayek writes:

Even economists who regard themselves as definitely immune to the crude materialist fallacies [i.e., thinking in terms of material wealth] constantly commit the same mistake where activities directed toward the acquisition of such practical knowledge are concerned—apparently because in their scheme of things all such knowledge is supposed to be “given.”

About 15 years ago, our dishwasher was leaving our dishes streaky and so we called the appliance repairman. He came out—minimum charge $69.95—and in 5 minutes assessed the situation and told us we should use powder instead of liquid dishwash detergent. For a few minutes I was angry. Then I remembered Hayek.  Explain.  What did I figure out that is contained in this quote?

Read Section IV, fifth paragraph. Some economists who studied the Soviet Union and other centrally planned economies have claimed that the biggest failure of such economies was not in manufacturing but in agriculture.  Given Hayek’s reasoning in this paragraph, explain why.

In Section IV, sixth paragraph, Hayek writes:

It follows from this that central planning based on statistical information by its nature cannot take direct account of these circumstances of time and place and that the central planner will have to find some way or other in which the decisions depending on them can be left to the “man on the spot.”

No question on this: Just think about it.

In Section V, first paragraph, Hayek states the dilemma:

We need decentralization because only thus can we insure that the knowledge of the particular circumstances of time and place will be promptly used. But the “man on the spot” cannot decide solely on the basis of his limited but intimate knowledge of the facts of his immediate surroundings. There still remains the problem of communicating to him such further information as he needs to fit his decisions into the whole pattern of changes of the larger economic system.

This is the dilemma. So far, Hayek has explained why central planning can’t work. Things seem hopeless. Information constantly changes and each person has only his or her little bit of information. It seems as if things would end in chaos. Is there hope? Yes, which is why I call this next part, “Free markets to the rescue.”

Let’s see what solves it.

Carefully read Section V, fifth paragraph, another key paragraph. Hayek writes:

It does not matter for our purpose—and it is very significant that it does not matter—which of these two causes has made tin more scarce.

Why is it very significant that it does not matter?

In Section VI, first paragraph, Hayek gives an analogy between the price system and machinery.What is that analogy?

In Section VI, second paragraph, Hayek uses the word “marvel” to describe the price system and then explains in the third paragraph why he uses that word.Why?"

The UK’s Orwellian sounding Equality Act 2010 is strikingly Marxist

See Equality Act 2010 by Alex Tabarrok.

"The UK’s Orwellian sounding Equality Act 2010 is strikingly Marxist. It demands equal pay for work of equal value where these are defined as follows:

A’s work is equal to that of B if it is like B’s work, rated as equivalent to B’s work, or of equal value to B’s work.

A’s work is like B’s work if A’s work and B’s work are the same or broadly similar, and such differences as there are between their work are not of practical importance in relation to the terms of their work.

…A’s work is rated as equivalent to B’s work if a job evaluation study— gives an equal value to A’s job and B’s job in terms of the demands made on a worker

…A’s work is of equal value to B’s work if it is neither like B’s work nor rated as equivalent to B’s work, but nevertheless equal to B’s work in terms of the demands made on A by reference to factors such as effort, skill and decision-making.

In short, supply and demand have been replaced by judges and labor boards with the authority to deem which jobs are “equal” and therefore should be paid equally. And the labor boards do so based on vague and subjective considerations that do not change with changing circumstances. Imagine replacing “jobs” with “condiments” and having judges decide whether ketchup and mustard should be priced equally because they are similar, broadly comparable, or rated equivalent in terms of the effort, skill, and decision-making that went into their production.

You think I am joking. I am not. Here’s an example of a case just decided in the UK.

More than 3,500 current and former workers at Next have won the final stage of a six-year legal battle for equal pay.

An employment tribunal said store staff, who are predominantly women, should not have been paid at lower rates than employees in warehouses, where just over half the staff are male.

The tribunal ruled that retail workers and warehouse workers were “equal” and thus had to be paid equally. Next replied that they paid everyone market wages. Verboten!

Next argued that pay rates for warehouse workers were higher than for retail workers in the wider labour market, justifying the different rates at the company.

But the employment tribunal rejected that argument as a justification for the pay difference.

According to the tribunal’s ruling, between 2012 and 2023, 77.5% of Next’s retail consultants were female, while 52.75% of warehouse operators were male.

The tribunal accepted that the difference in pay rates between the jobs was not down to “direct discrimination”, including the “conscious or subconscious influence of gender” on pay decisions, but was caused by efforts to “reduce cost and enhance profit”.

It ruled that the “business need was not sufficiently great as to overcome the discriminatory effect of lower basic pay”.

No one is alleging that male and female warehouse workers were paid unequally or that male and female retail workers were paid unequally or that there was any direct or indirect discrimination. The only claim is that warehouse workers, who are less likely to be female than retail workers, earn more than retail workers. And since these jobs have been judged “equal,” the company has violated Equality Act 2010.

Who could have predicted that jobs as disparate as warehouse and retail jobs might one day be deemed “equal.” Yet because Next failed to foresee such lunacy they are now required to pay millions in back wages to their retail employees. Software engineers, particularly in AI, are currently in high demand. A British firm looking to hire them may hesitate to raise wages, fearing that a future ruling could classify software engineers as “equal” to a larger, lower-paid group like HR administrators. Such a decision could easily push the firm into bankruptcy.

The warehouse workers were almost 50% female (47.25%). So females were not barred from the higher paying jobs. The fact that 77.5% of the retail workers were female suggests that retail work has special appeal to females relative to males and thus that there are compensating differentials. Any of the three female plaintiffs could have taken jobs in the warehouse. If the jobs are equal and the warehouse jobs pay more this is, on the plaintiffs’ theory, “puzzling”. [Or, as Ayn Rand would say, blank out.]

In fact, the court case reveals that Next was struggling to fill the warehouse positions and offered any retail employee—including the plaintiffs—the opportunity to switch to warehouse work. On cross-examination, one of the plaintiffs admitted that, given the unpleasant conditions in the warehouse—described by the court as “the drone of machinery,…vibration, alarm sirens and the screeching of machinery, wheels and rollers, continuously present in all areas”—the warehouse job “did not seem particularly attractive” compared to the greater autonomy and more appealing environment of the retail job. The plaintiff added that she would only have considered the warehouse job if it paid “a lot more money.”

Thank goodness for the men and women who were willing to take such jobs for only a little more money! It should not shock that different people have different preferences over jobs, just as they have different preferences over ice cream. In particular, it will perhaps surprise only the judges to learn that men tend to be more wage-focused and “women are relatively more attracted to employers with low pay but high values of nonpay characteristics (NBER 32408).” The court, however, recoiled from this idea, noting that if they were to take demonstrated preferences seriously this would be tantamount to applying “an unfettered free market model of supply and demand.” The horror.

Now consider how the jobs were deemed “equal”. On the left is the job evaluation report for claimant Amanda Cox. The specific categories and numbers are not important; what is important is that the jobs are rated across 11 categories, and the point-scores are then added to get a total score at the bottom.

Amusingly, the evaluators emphasize that they use equal weighting across the categories. Of course, they did—because “equal” is synonymous with fair, right? An unequal weighting would surely be discriminatory!

I am not making this up:

Any scheme which has as its starting point – “This qualification is paramount” or that “This skill is vital” is nearly always going to be biased or at least open to charges of bias or discrimination.

Thus, if you think that a skill is vital for a job, that’s discrimination!

(Notice also that equal weighting is just another form of weighting. Given the subjective nature of both the categories and the points assigned, equal weighting holds no inherent superiority or objectivity.)

But no matter—we have yet to get to the best part. The evaluators selected three warehouse workers and assessed them using the same metric. For example, Amanda Cox was compared to warehouse worker Calvin Hazelhurst, resulting in the table on the right.

Can you spot something surprising in this table? I’ll give you a moment.

The obvious conclusion any reasonable person would draw from this table is that the jobs are clearly not equal. Amanda’s total score is 440, while Calvin’s is 340. 440 ≠ 340. Not even close! In nearly every category—except (no surprise!) physical demands and working conditions—the retail job requires more points, aka “skill and responsibility”.

At this point, most people would stop and ask some critical questions. If the jobs differ so much across multiple dimensions, isn’t it clear that they are not equal? And why do jobs that seemingly require less “skill” pay more? Could it be that our point-score rating system is oversimplified? Maybe the market is telling us something that this crude scoring system isn’t capturing? Is it time to check our premises?

But not the evaluators! Oh, no. The evaluators are thrilled–because the fact that the jobs are unequal proves that they are equal!

War is peace, freedom is slavery, ignorance is strength. UNEQUAL IS EQUAL.

Adam Smith had a much better understanding of wages in 1776 than UK judges have today.

Adam Smith had a much better understanding of wages in 1776 than UK judges have today.

The wages of labour vary with the ease or hardship, the cleanliness or dirtiness, the honourableness or dishonourableness, of the employment. Thus in most places, take the year round, a journeyman tailor earns less than a journeyman weaver. His work is much easier. A journeyman weaver earns less than a journeyman smith. His work is not always easier, but it is much cleanlier. A journeyman blacksmith, though an artificer, seldom earns so much in twelve hours, as a collier, who is only a labourer, does in eight. His work is not quite so dirty, is less dangerous, and is carried on in day-light, and above ground. Honour makes a great part of the reward of all honourable professions. In point of pecuniary gain, all things considered, they are generally under-recompensed, as I shall endeavour to shew by and by. Disgrace has the contrary effect. The trade of a butcher is a brutal and an odious business; but it is in most places more profitable than the greater part of common trades. The most detestable of all employments, that of public executioner, is, in proportion to the quantity of work done, better paid than any common trade whatever.

Today, the UK would convene a labor board to rule that the tailor and the weaver must be paid equally because they DO WORK OF EQUAL VALUE. Case closed.

Labor boards will inevitably lead to the misallocation of labor, diminishing both wealth and fairness. Severe misallocation may lead to further intervention, in the worst scenario, even to the allocation of labor by fiat. Politicization breeds division, rent-seeking, and a stagnant, unpleasant society.

More generally, it pains me that there is no recognition that the market is a discovery procedure, including the discovery of the value of different skills and people’s preferences over different jobs. No recognition that the market harnesses tacit knowledge and knowledge of particular circumstances of time and place–knowledge that is difficult to quantify, communicate, or communicate in a timely manner–and that “society’s economic problems are primarily related to adapting quickly to changes in these circumstances.” No recognition that a price is a signal wrapped up in an incentive.

I despair when I consider that these fundamental ideas are the foundation of our liberal, global, and prosperous civilization. On economics, as on free speech, the UK has entered the great forgetting.

Addendum: A special hat tip to Bruce Greig who brought this to my attention and had the receipts."