Current Events Economics - General

Cats and dogs

Here are two interesting articles from the blog-o-sphere:

Cat Bonds

The NY Times has an interesting article about catastrophic risk (“In Nature’s Casino“). The article talks about how individuals such as John Seo and Karen Clark have helped to create a market for cat bonds.

The problem with catastrophes is that insurance companies have not been able to adequately diversify in the event of a natural disaster.

“But by their very nature, the big catastrophic risks of the early 21st century couldn’t be diversified away. Wealth had become far too concentrated in a handful of extraordinarily treacherous places. The only way to handle them was to spread them widely, and the only way to do that was to get them out of the insurance industry and onto Wall Street.”

Cat bonds are a solution to this problem. These bonds are basically insurance policies which are sold as bonds to investors. If a catastrophe does not occur, the investors earn returns generally far above market returns. If the catastrophe does occur, than usually most of the investor’s principal is wiped out.

Just another example of markets in action.

Political Dogs

Merrill Goozner of GoozNews has a very compelling report on The Most Costly Earmark in S-CHIP.

“Last week, I learned that the bill contains another unheralded earmark, also unrelated to children’s health. This one, too, funnels hundreds of millions of dollars to special interests. And unlike the hospital earmarks, which were a mere raid on the treasury, this earmark, given the Orwellian name “Quality Incentive Payments in the End Stage Renal Disease Program,â€? will subject hundreds of thousands of Americans on dialysis to unnecessary risk, and will in all likelihood lead to premature deaths.”

It looks like both Democrats and Republicans are equally adept at inserting their favorite earmarks into a bill. Goozner reports that the legislation earmarks $300m over the next 3 years towards rewards for clinics which reach quality benchmarks for treating Medicare’s End Stage Renal Disease (ESRD) patients.  Those clinics who have 92% of their ESRD patients with red blood cell counts over 11 g/dl will receive the bonus.

“The measure gives clinics a powerful incentive to continue using large quantities of one company’s drug – Amgen’s Epogen, which stimulates red blood cell production…Recent studies have shown that raising red blood cell counts over 12.5 grams per deciliter in dialysis and cancer patients increases the risk of heart attacks and premature death. Any clinic that raises 92 percent of its patients above 11 will probably have half its patients above 12 – the maximum allowable level on the FDA black box warning – and a sizable fraction above the 12.5 danger line.”

Goozner writes than Amgen hired a team of lobbyists who likely influenced the insertion of this earmark into the SCHIP bill.  Goozner’s thorough reporting has more details on the Epogen saga, which gives more evidence that one should be very weary of medical decisions dictated by politicians.