Sunday, January 25, 2015
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

  • Recent Posts

  • Enter your email address to subscribe to this newspaper and receive notifications of new articles by email.

  • .

    News

    Bridges of Yolo County: Wear, tear … repair?

    By Elizabeth Case | From Page: A1 | Gallery

     
    Four days of unusual, adventuresome music

    By Jeff Hudson | From Page: A1 | Gallery

     
    Spanish police arrest 4 suspected members of a jihadi cell

    By The Associated Press | From Page: A2

    Rockets kill 30 in Ukrainian city as rebels launch offensive

    By The Associated Press | From Page: A2

     
    Abe ‘speechless’ after video claims IS hostage dead

    By The Associated Press | From Page: A2

    GOP presses state bills limiting gay rights before ruling

    By The Associated Press | From Page: A2

     
    Abortion opponents express renewed hope at California rally

    By The Associated Press | From Page: A2

    Share your love (story) with us

    By Enterprise staff | From Page: A3

     
    Sip wines at St. James’ annual tasting

    By Special to The Enterprise | From Page: A3

    Fake schools draw federal scrutiny

    By The Associated Press | From Page: A3 | Gallery

     
    Winter produce available at Sutter market

    By Special to The Enterprise | From Page: A3

    Vote for your favorites in Readers’ Choice poll

    By Enterprise staff | From Page: A3

     
    Donations to be distributed during homeless count

    By Anne Ternus-Bellamy | From Page: A4

     
    Speaker will share computer security tips

    By Enterprise staff | From Page: A4

    Logos Books celebrates 5 years, offers language groups

    By Enterprise staff | From Page: A4

     
    Australian olive oil company opens U.S. headquarters in Woodland

    By Special to The Enterprise | From Page: A4

    Explore at the YOLO Outdoor Expo

    By Enterprise staff | From Page: A4

     
    Pedal around Davis on weekly bike ride

    By Enterprise staff | From Page: A4

     
    Yolo animal shelter seeking rawhide donations

    By Lauren Keene | From Page: A5

    Woodland Healthcare employees take Great Kindness Challenge

    By Special to The Enterprise | From Page: A5

     
    At the Pond: Nest boxes give birds new homes

    By Jean Jackman | From Page: A6 | Gallery

    California ranks worst in nation for guidance counselors

    By The Associated Press | From Page: A7

     
    Davis, Woodland are saving water

    By Elizabeth Case | From Page: A12

    Words and Music Festival events

    By Jeff Hudson | From Page: A12

     
    .

    Forum

    Family isn’t keen on relationship

    By Creators Syndicate | From Page: A8

     
     
    Caring for the aging mouth

    By Samer Alassaad | From Page: A8

    Big utilities’ nightmare begins to play out

    By Tom Elias | From Page: A10

     
    Mayor’s Corner: Let’s renew Davis together

    By Dan Wolk | From Page: A10

    We have the right to choose

    By Letters to the Editor | From Page: A10

     
    We don’t have to suffer

    By Letters to the Editor | From Page: A10

    City helped immensely

    By Letters to the Editor | From Page: A10

     
    Rick McKee cartoon

    By Debbie Davis | From Page: A10

    When measles spreads from Disneyland, it’s a small world after all

    By New York Times News Service | From Page: A11

     
    From innovation parks to innovative buildings and planning

    By Special to The Enterprise | From Page: A11

    .

    Sports

    Wildcats’ inaugural kids development league exceeds expectations

    By Bruce Gallaudet | From Page: B1 | Gallery

     
    Aggies get top 2015 gymnastics score, but fall short

    By Bruce Gallaudet | From Page: B1 | Gallery

    Loud crowd sees DHS boys win

    By Spencer Ault | From Page: B1 | Gallery

     
    Lady Devils hold off Pacers, stay perfect in league

    By Enterprise staff | From Page: B1

    UCD men take two tennis matches

    By Enterprise staff | From Page: B8

     
    Watney in ninth at Humana Challenge

    By Staff and wire reports | From Page: B8

    .

    Features

    .

    Arts

    .

    Business

    Davis man focusing on cannabidiol business

    By Will Bellamy | From Page: A9

     
    Marrone Bio’s Regalia approved for new uses in Canada

    By Special to The Enterprise | From Page: A9

     
    UCD grad makes insurance ‘hot 100′ list

    By Enterprise staff | From Page: A9

    Yolo County real estate sales

    By Zoe Juanitas | From Page: A9

     
    .

    Obituaries

    .

    Comics

    Comics: Sunday, January 25, 2015

    By Creator | From Page: B8