Sunday, October 19, 2014
YOLO COUNTY NEWS
99 CENTS

They’re carelessly spending our money

RichRifkinW

By
From page A6 | January 30, 2013 |

“Very few people spend other people’s money as carefully as they spend their own.”
— Milton Friedman, 1975

Seven years after professor Milton Friedman spoke of “other people’s money” on “The Open Mind” television show, the Nobel Prize-winning economist came into my life.

It was 1982. I was a freshman at UC Santa Barbara. The course was Robert Crouch’s Econ 1: Introduction to microeconomics. In a Phelps Hall classroom packed with hundreds of undergraduates, professor Crouch had us watch Friedman’s 1980 television series, “Free to Choose,” and read the book of the same name.

One particular lesson has stuck with me ever since.

In “Free to Choose,” Friedman explained why so many municipal governments were then on the verge of bankruptcy: Unions had won too much in “bargaining” sessions with managers who failed to stand up for the public good.

Sound familiar?

The problem was and is an imbalance of incentives. The employees are motivated by self-interest. They will ask for everything they can get and more. The managers hired to speak for the public have no reason to spend the taxpayers’ money as carefully as they would spend their own. The taxpayers who pay the bills are kept out of the negotiations.

As Davis amassed a $64 million unfunded retiree health care debt, one thing that never occurred to me was that the massive increases in the city’s medical costs over the past 15 years were the result of CalPERS unwisely and irresponsibly spending other people’s money.

I had incorrectly assumed that health care inflation was something beyond the control of the Public Employees Retirement System.

I thought that until I read a recent statement by Peter Orszag, who directed the Office of Management and Budget for President Obama.

Orszag wrote, “… health care costs have decelerated over the past few years, and Medicare costs have decelerated more than other health costs.”

That was news to me.

Last summer, CalPERS announced that its rate for the Kaiser Family Plan — the HMO Davis uses as a base for its medical benefit — was going up another 9 percent in 2013. That was on the heels of a 7.28 percent price increase in 2012.

I had assumed the prices CalPERS was charging Davis, after negotiating with Kaiser, tracked with general medical inflation. It turns out they don’t. It turns out that CalPERS is doing a terrible job when it comes to spending our money.

As bad as it is now, it’s been even worse in the past. In 2002, CalPERS agreed to a 23.3 percent premium increase. That was 5.8 times the medical inflation rate that year. In 2003, the Kaiser price inflated another 17.83 percent — 4.1 times the health care CPI. In 2004, it was a 16.13 percent rate hike — 3.82 times the medical inflation rate.

I tried multiple times over the past three weeks to get CalPERS to explain to me why our costs keep going up so dramatically. They have not replied to my queries.

Next month, the city of Davis will spend $470,710 for health care premiums. That does not count approximately $200,000 more for cash-outs to employees who do not use their entire $1,730 monthly benefit. February’s $470,710 bill covers 239 current employees ($278,314) and 240 retirees ($192,396).

Over the past 14 years, the rate Davis pays for health benefits has increased on average 10.29 percent per year compounded. In 1999, what cost $100 now costs us $394.10.

Over that same period, health care costs in urban areas, according to the Bureau of Labor Statistics, have gone up 3.95 percent per year compounded. That means a 1999 medical bill of $100 is today $171.90.

If Kaiser’s prices had inflated at 3.95 percent per year since 1999, our $470,710 monthly bill would be $205,273. Davis taxpayers would be spending $3,185,300 less in 2013 to cover the costs of the city’s medical benefit, not counting millions more we would be saving on cash-outs.

The fact that the prices CalPERS pays Kaiser have inflated 2.3 times more than general medical inflation cannot be explained by the fact that the Kaiser Family Plan is a premium service. It is now and it was then.

The reason Kaiser and other “not for profit” insurers have been able to increase the prices they charge PERS as much as they have is well explained by Friedman’s aphorism: “Very few people spend other people’s money as carefully as they spend their own.”

In its latest labor contracts, Davis has made a small dent in our growing problem of medical debt. We are also now funding retiree medical costs. However, CalPERS is still run by and for the public employee unions. And as long as that remains the case, we can expect to get ripped off every year it spends our money.

— Rich Rifkin is a Davis resident; his column is published every other week. Reach him at Lxartist@yahoo.com

Comments

comments

.

News

Housing First pilot project targets West Sac homeless

By Anne Ternus-Bellamy | From Page: A1

 
Howzat! Cricket tradition grows in Davis

By Lily Holmes | From Page: A1 | Gallery

$18.75M grant aims to build global food security

By Special to The Enterprise | From Page: A1 | Gallery

 
Return to sender: MRAP removal options go to council

By Dave Ryan | From Page: A1 | Gallery

 
For the record

By Enterprise staff | From Page: A2

Evidentiary hearing set for man shot by CHP

By Lauren Keene | From Page: A2

 
Cop witnesses car-pedestrian collision

By Lauren Keene | From Page: A2

Hawaii hit by winds, rain as hurricane veers west

By The Associated Press | From Page: A2

 
DHS ski and snowboard swap set on Nov. 9

By Enterprise staff | From Page: A3

 
Quiz Master Gardeners at open house

By Enterprise staff | From Page: A3

 
Firefighters on the town

By Wayne Tilcock | From Page: A3

Senior Computer Club hears from county official

By Enterprise staff | From Page: A3

 
Celebrate origami at Davis library

By Enterprise staff | From Page: A3

Safe viewing of solar eclipse planned

By Special to The Enterprise | From Page: A3

 
Fill the Boot for the hungry

By Lauren Keene | From Page: A3

Crash victim ID’d as Woodland man

By Lauren Keene | From Page: A3

 
Guns to be discharged at police range

By Lauren Keene | From Page: A3

Donate used books at Co-op

By Enterprise staff | From Page: A3

 
Love-life tips on ‘Heart to Heart’

By Enterprise staff | From Page: A3

Wolk sets ‘Morning with the Mayor’

By Enterprise staff | From Page: A3

 
Volunteers sought to chip in on parks cleanup

By Enterprise staff | From Page: A3

Esparto home targeted in three-city pot bust

By Lauren Keene | From Page: A4

 
Apply by Friday for Biberstein grants

By Special to The Enterprise | From Page: A4

 
Wolk earns perfect score from senior advocates

By Enterprise staff | From Page: A7

UCD celebrates 50 years of global agricultural success

By Special to The Enterprise | From Page: A9 | Gallery

 
Special education information night scheduled

By Jeff Hudson | From Page: A11

Be on the lookout for tagged Monarch butterflies

By Kathy Keatley Garvey | From Page: A16 | Gallery

 
.

Forum

Old news disturbs the present

By Creators Syndicate | From Page: B5

 
Are we there yet? Yik Yakking the day away

By Tanya Perez | From Page: A8

Take time to reach out for help

By Creators Syndicate | From Page: A8

 
A bionic hand with feeling

By The Associated Press | From Page: A8

Let’s take Davis’ energy future seriously

By Special to The Enterprise | From Page: A14

 
Ain’t Snow Mountain high enough

By Our View | From Page: A14

Proposed lights harm kids

By Letters to the Editor | From Page: A14

 
Teach cyclists to obey laws

By Letters to the Editor | From Page: A14

Yes on Prop. 47: reasonable changes to curb recidivism, save money

By Special to The Enterprise | From Page: A15

 
No on Prop. 47: an end to safe neighborhoods, and more victims

By Special to The Enterprise | From Page: A15

Be careful cycling on Fifth

By Letters to the Editor | From Page: A15

 
Water theater isn’t fun

By Letters to the Editor | From Page: A15

Elect Granda to board

By Letters to the Editor | From Page: A15

 
.

Sports

Vargas emerges from crowded Aggie WR corps

By Bruce Gallaudet | From Page: B1 | Gallery

 
Competitive Aggies fall at No. 6/7 Montana

By Bruce Gallaudet | From Page: B1 | Gallery

 
Devils stick it to Chico, cancer

By Evan Ream | From Page: B1 | Gallery

JV Devils fall to Franklin

By Enterprise staff | From Page: B2

 
Niemi leads Sharks to win

By The Associated Press | From Page: B4

UCD roundup: Big crowd sees Aggies nip Guachos

By Enterprise staff | From Page: B8 | Gallery

 
.

Features

.

Arts

.

Business

 
Davis is a temple for fine beverages

By Wendy Weitzel | From Page: A5 | Gallery

35 employers will be at West Sac job fair

By Special to The Enterprise | From Page: A6

 
Rob White: Building an economy on innovation

By Rob White | From Page: A6

Arcadia Biosciences earns spot on global innovation list

By Special to The Enterprise | From Page: A6

 
.

Obituaries

Peggy Belenis Swisher

By Special to The Enterprise | From Page: A4

 
Sadie Louise Barga

By Special to The Enterprise | From Page: A4

Morgan Wheeler

By Special to The Enterprise | From Page: A4

 
.

Comics

Comics: Sunday, October 19, 2014

By Creator | From Page: B8