Q    This new idea for the health insurance rate commission, I guess my confusion is, is this a commission that would sort of be -- serve as a guide to the other states, to the 50 states that do the actual regulating?  Or is this supposed to be a regulatory agency with --

MR. GIBBS:  No, no, no.  This is a -- the Secretary in conjunction with states will develop a review process for unreasonable premium increases.

Q    So the states are still going to be the regulators?  The federal government is --

MR. GIBBS:  Well, obviously they're still going to have --

Q    -- acting as a guidance counselor of sorts?

MR. GIBBS:  They're going to still have a big role in this.  Obviously there are state insurance commissioners that have some ability to change these.  Not everybody does.  But these can -- these will be looked at and evaluated in conjunction with the states, and then steps and measures can be taken.  Because again, Chuck, I think that -- I mean, we've even seen it now with Anthem, that proposed the 39 percent increase, that they've even put that increase on hold.  I think they understand that this was not a --

Q    No, I understand, but is this supposed to be a new federal regulatory agency?

MR. GIBBS:  It's not a new federal agency.  There's no new bureaucracy.  This will be done out of the Secretary's office in Health and Human Services.

Q    Out of HHS?

MR. GIBBS:  And we'll get -- I'll get Reid to walk you through some more --

Q    Okay, because that -- it's just a little confusing if this is a new agency.

MR. GIBBS:  Yes, ma'am.

WASHINGTON -- President Obama will propose on Monday giving the federal government new power to block excessive rate increases by health insurance companies, as he rolls out comprehensive legislation to revamp the nation's health care system, White House officials said Sunday.

...

By focusing on the effort to tighten regulation of insurance costs, a new element not included in either the House or Senate bills, Mr. Obama is seizing on outrage over recent premium increases of up to 39 percent announced by Anthem Blue Cross of California and moving to portray the Democrats' health overhaul as a way to protect Americans from profiteering insurers.

Anthem, California's largest for-profit insurer, has announced premium increases for nearly 700,000 customers, citing the soaring costs of medical care and the effects of a weak economy in which many younger and healthier people are dropping insurance. But the increases, far outpacing the rate of medical inflation, led to outrage among officials in Sacramento and Washington.

The president's bill would grant the federal health and human services secretary new authority to review, and to block, premium increases by private insurers, potentially superseding state insurance regulators. The bill would create a new Health Insurance Rate Authority, made up of health industry experts that would issue an annual report setting the parameters for reasonable rate increases based on conditions in the market.

The legislation would call on the secretary of health and human services to work with state regulators to develop an annual review of rate increases, and if increases are deemed "unjustified" the secretary or the state could block the increase, order the insurer to change it, or even issue a rebate to beneficiaries.

The new rate board would be composed of seven members, including consumer representatives, an insurance industry representative, a physician and other experts like health economists and actuaries, the White House said. The board's annual report would offer guidance to the public and states on whether rate increases should be approved.

Seven (politically appointed) people in charge of deciding how much you'll pay for health insurance.  Of course, they will be infinitely wise, incorruptible, and above political influence, right?  Yeah, right.

[Senator Dianne] Feinstein said that only 25 states allowed their insurance commissioners to regulate rates and that California was not one of them. "For the life of me, I am not sure why not," she said. "The time has come for the secretary of health and human services to step into this."

I'm not a huge fan of government regulation, but in our country we have come to a basic agreement that insurance should be regulated by the states.  This is an imperfect system.  Some states will do it well; others will not.  But the same is true of roads and schools, which have also been left in their care.  So half of the states have figured out how to take care of this themselves, and we need the federal government to be the nanny for the ones that don't have the courage to do it.

Now the fact that Anthem is raising their rates 39 percent suggests to me that Anthem may have caught onto the fact that California's regulatory environment is lax.  If there was a stronger insurance regulator, perhaps they would be a bit less aggressive.  Perhaps.  I'm trying to give the benefit of the doubt here.  Ms. Feinstein, I agree with you that for the life of me, I'm not sure why California hasn't done it since it looks like it might be a problem.  But with all due respect, that's California's problem.

On a related note,

Leaders of the National Governors Association meeting in Washington on Sunday expressed frustration that they had been largely shut out of negotiations over the future of the health care system, even though they would be responsible for carrying out many of the changes envisioned by federal officials. They said they wanted more of a voice in shaping those changes.

Indeed.  Nervous about turning your state's regulatory power over to seven federal appointees?  Come on... what could go wrong?

Mankiw calls this an example of price controls.  He's right, to a point.  Our system of health insurance, such as it is, really stinks.  The fact that it really is 50 different statewide markets with different regulations is bad enough.  Tying health care to employment is another problem.  There are plenty of things that could be done to improve the system.

This isn't one of them.

Selling insurance isn't like selling apples.  There are a lot of variables to consider.  Suppose companies are forced to accept lower rate increases.  There are dozens of ways that they could respond to reduce coverage.  How is that seven member committee going to keep up with that for all the insurance companies in the U.S.?  Are they going to tell them what they have to cover?  What the deductibles can be?  Hardly realistic, is it?  I mean, that sounds like that seven member panel would be more ambitious than whatever bureaucratic apparatus would run Obama's health plan.

Actually, they would probably just publish guidelines as to what is acceptable, but how detailed could those guidelines be?  If a company wanted to go outside those guidelines would they have to appeal?

The mind reels.

There is no way that this would end well.

To be continued...

Kenneth Trump, a security expert who founded the National School Safety and Security Services consulting firm, said ... zero tolerance policies can work if "common sense is applied."

Alan Stockman, the Marie C. and Joseph C. Wilson Professor of Economics at the University of Rochester, died January 14 after a long battle with cancer. He was 58.

A talented teacher, inspiring mentor, and respected scholar, Professor Stockman made major contributions to the fields of international finance and macroeconomics, publishing seminal papers on exchange rates and international business cycles. He is remembered by colleagues as a man whose infectious enthusiasm for economics was characteristic of his general approach to life.

"He had a passion for ideas and a childlike pleasure in all things," said Steven Landsburg, professor of economics at the University, who was a close friend of Professor Stockman since their days as doctoral candidates at the University of Chicago. "He had a sparkling, bubbling enthusiasm" that came through whether he was discussing economic theory, playing a guitar, or participating in one of the department's musical skits, Landsburg recalled.

"He was willing to talk to colleagues anytime and anyplace, whether it be about economics or anything else. He had a wonderful clarity of thought and an ability to analyze problems," adds Michael Wolkoff, deputy chair of the Department of Economics. "He was a very warm, generous person. He truly had many friends in the department and the profession."

I used Stockman's intro textbook most of the way through my grad school years as both TA and instructor and for a year or two when I first started teaching full time.  I still have a copy and refer to it occasionally for an example or exercise.  I corresponded with him on one occasion about the book and received a gracious reply.  Over the years, I heard only wonderful things about him.  He will be missed.

SYDNEY (Reuters) - Australia's central bank raised its key cash rate by 25 basis points to 3.25 percent on Tuesday, as surprising economic strength allowed it to withdraw some of the exceptional stimulus doled out during the global credit crisis.

Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn.  Conditions in financial markets have improved further, and activity in the housing sector has increased.  Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.  Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales.  Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability.  The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.  To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt.  The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010.  As previously announced, the Federal Reserve's purchases of $300 billion of Treasury securities will be completed by the end of October 2009.  The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.  The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.