The Center for American Project’s Ben Furnas responded to my post about the political Left’s misunderstanding of health insurance markets by . . . showcasing the political Left’s misunderstanding of health insurance markets. 

I claimed that the individual market provides reliable to lots of very sick people  — protection better than or equal to that provided by job-based health insurance.  Furnas responds:

The main reason (not mentioned by Cannon) that some people who develop health problems can renew their health insurance without seeing higher premiums is federal regulation through the Health Insurance Portability and Accountability Act (HIPAA). States have improved on these regulations, offering more protections to sick consumers of private health insurance, but John McCain, in his push for an unregulated national market, would undermine these additional protections.

Actually, 75 percent of policies sold in the individual health insurance market provided those protections before government required them.

Furnas has more to say about the dangers of freedom and the need for more government control of people’s health care decisions, but that suffices to make the point.

Excellent.

Nearly two years after its release, David Hyman’s satire Medicare Meets Mephistopheles is still generating reviews — and controversy. 

In the April 2008 issue of the Michigan Law Review, Michigan law professor Jill Horwitz raves:

Hyman is extraordinarily knowledgeable about health care regulation and his exposition is succinct. The book is filled with informative and accurate summaries of Medicare’s complicated program design and related laws. The summaries of fraud and abuse law, for example, make my heart sing. I’ve seldom seen such an accessible and accurate primer.

It would be a stretch, however, to claim that Horwitz and Hyman see eye-to-eye.  Horwitz concludes her 19-page review thus:

Medicare Meets Mephistopheles is a terrific overview of a troubled system, but a missed opportunity to help reform Medicare. Providing health care fairly and efficiently is a complicated process that necessarily involves a heavy dose of government. Libertarian railing against big government, regulation, and all lefty foolishness that market proponents despise doesn’t get one very far in determining how to get health care to 300 million people. In the end Hyman doesn’t offer any realistic alternative to this government-regulated muddle because, God knows, his plans are unacceptable anywhere but in hell.

Ay caramba!

Consider the following:

1. Research suggests the federal Medicare program spends as much as $100 billion per year on medical care that makes seniors neither healthier nor happier.
2. Medicare’s payment system continues to reward low-quality and even harmful medical care.
3. The trustees of the Medicare program have issued yet another annual report containing dire warnings about Medicare’s financial sustainability, including an unfunded liability of $86 trillion.
4. According to economist and former Medicare trustee Tom Saving, Medicare alone will require tax rates to rise by 25 percent within a generation, and to double within 75 years, absent reform.  
5. The picture is far worse than it was when politicians were developing fundamental Medicare reforms 10 years ago.

You would think that Medicare reform would be a high priority for politicians.  You would be wrong. The president has proposed reforms that would barely slow the program’s growing dependence on general revenues — a proposal that Congress has largely ignored. The leading presidential candidates advocate tweaks — such as reducing payments for private plans and prescription drugs, or tying payments to quality measures — rather than fundamental reforms.

To help get the politicians focus on this crucial issue, the Cato Institute will host a policy forum on Thursday, May 15, titled, ”Whatever Happened to Medicare Reform?”  Tom Saving, the Commonwealth Fund’s Stuart Guterman, and I will discuss the current state of the Medicare program, and how the program needs to be reformed.  The forum will run from 12pm to 1:30pm. 

Click here to register.

Market-oriented health-care wonks have proposed various ways of reforming the tax treatment of health insurance that would level the playing field between job-based coverage and coverage that consumers purchase directly (i.e., on the “individual” market).  The key to those proposals is that they would let workers control money their employer now controls, and generally would allow workers to spend those earnings on the mix of medical care and health insurance that meets their needs. 

The political Left typically protests that if workers had the freedom to spend their earnings however they want, the multiplying villainies of the market would swarm upon the sick, leaving them with no insurance coverage.  For example, Elizabeth Edwards and others chide Sen. John McCain because, they claim, people with chronic conditions could not obtain health insurance in an unregulated individual market.  Edwards even wrote: “The insurance company makes money when it doesn’t have to pay for our health care. (I suspect that if they could, they would write obstetrical-only policies for nuns.)”

An economist at the University of Pennsylvania named Mark Pauly spends much of his time collecting evidence — I repeat, evidence — that this view does not reflect the reality of unregulated health insurance markets.  Pauly and his colleagues have found:

[A]ctual premiums paid for individual insurance are much less than proportional to risk, and risk levels have a small effect on obtaining coverage. States limiting risk rating in individual insurance display lower premiums for high risks than other states, but such rate regulation leads to an increase in the total number of uninsured people. The effect on risk pooling is small because of the large amount of risk pooling in unregulated individual insurance.

and

[T]here was substantial cross-subsidization of high-risk by low-risk persons in the individual insurance market in a period in which there was only minimal state regulation. Premiums do rise with risk, but the increase in premiums is only about 15 percent of the increase in risk. Premiums for individual insurance vary widely, but that variation is not very strongly related to the level of risk.

A new Health Affairs Web Exclusive by Pauly and colleague Robert Lieberthal offers further evidence that a freer market would provide high-cost patients more protection than today’s government-created employment-based system.  Pauly and Lieberthal write:

[A] young high-risk male who initially had small-group coverage faces a 44 percent chance of becoming uninsured in the next period—a risk nearly twice as great as it would be if he initially had individual insurance.  Somewhat ironically, the usual blame for such a person’s lacking coverage will be laid at the door of the medically underwriting individual insurer, which quotes a high premium, rather than being referred in part to the group insurance system that plunged this person into such a vulnerable situation in the first place.

Thus, it is not true that more freedom would mean no health insurance for people with costly medical conditions.  Provided consumers insure while they are still healthy, individual-market coverage offers as much or more protection to high-cost patients than they have now.

In the transition to a level playing field between employer-sponsored and individual-market coverage, there may be some people with high-cost conditions who lose their existing coverage, and cannot obtain subsequent coverage.  If that occurs, most Americans will want to offer some form of subsidy to those hard cases — a group that does not include wealthy people like Elizabeth Edwards, John McCain, or Jay Cutler.  

When fashioning those subsidies, policymakers should bear two things in mind.  First, as Pauly’s work suggests, this is likely to be a temporary problem; markets can and will cover tomorrow’s high-cost patients.  Second, policymakers should not try to force insurance markets to provide the desired subsidies; that would undo the substantial good that unregulated insurance markets can achieve.

Florida lawmakers struck a deal (.pdf) to raise the cap on the state’s scholarship donation tax credit program by $30 million dollars last Friday, the last day of the legislative session. Under the program, businesses that donate to nonprofit scholarship organizations for poor children can claim a tax credit for the value of the donation. For the past seven years, these scholarships have been bringing private schooling within reach of families that couldn’t otherwise afford it.

But while the legislature has raised the cap on donations, that doesn’t meant the program will expand automatically. In order for the program to grow, more low income parents have to ask for the scholarships, and more businesses have to choose to make donations. The program is completely voluntary. So far, the interest definitely seems to be there: the program doubled in size over the past three years, to nearly 20,000 children.

Scholarship tax credits are a tremendous boon to low income families, businesses, and taxpayers all over the state. They broaden educational options for poor kids, let businesses directly help their communities, and for every student who chooses a private instead of a public school, they save taxpayers thousands of dollars. The maximum scholarship size allowed under the program will now be $3,950 (up from $3,750) – less than one third of total per pupil spending in Florida public schools (which was $12,263 in 2006-07, according to Richard Harbin of the Florida Dept. of Ed. — hat tip to my research assistant, Elizabeth Li).

The fact that parents are clamoring for a $4,000 scholarship to help their children escape from public schools that spend over $12,000 per year says a lot about the need for expanded educational options. No single system of schools can ever serve all children well. In education, as in so many other things, one size does not fit all.

Let’s hope governor Crist signs the new bill into law.

Not content with a protected near monopoly of the domestic market, American sugar producers are demanding that Congress make their pot of subsidies and protection even sweeter.

Chairman of the House Agriculture Committee, Rep. Colin Peterson (D-Minn.), is pushing language in the latest proposed farm bill that would raise domestic price supports for sugar and mandate that sugar imports be used for ethanol production.

His proposals would virtually lock in an 85 percent share of the U.S. market for domestic sugar beet and cane growers, even though a number of foreign countries can grow sugar more cheaply than most American growers. And by the way, did I mention that Rep. Peterson’s district is among the nation’s top producers of sugar beets?

The Bush administration, to its credit, opposes Peterson’s changes in the farm bill. The sugar industry, of course, loves the idea. A spokesman for the pro-protection American Sugar Alliance told this morning’s Wall Street Journal, “We have an administration that seems more interested in supporting foreign producers, than producers right here in America.”

Notice the sugar industry doesn’t mention American consumers. U.S. agricultural policies should not be about favoring “our” producers over “theirs,” but about advancing such national interests as freedom, prosperity, and a more peaceful world. As we’ve explained in detail at the Center for Trade Policy Studies, the U.S. sugar program favors American sugar producers primarily at the expense of the rest of America. American families pay higher prices at the store, while U.S. producers that use sugar as an input — bakeries, food processors, restaurants, candy makers, etc. — incur higher costs because of our sugar program.

As we read daily in the newspaper about soaring food prices, this Congress is the verge of passing a farm bill designed explicitly to raise domestic food prices.

… that one day, corporate executives will tire of being bullied by demagogic politicians. I was reminded of that dream by a press release issued yesterday by Sen. Pete Domenici, ranking member of the Senate Energy and Natural Resources Committee and long-time Republican major-domo on energy policy. Sen. Domenici asked the heads of the five largest oil and gas companies in America (BP America, Chevron, ConocoPhillips, ExxonMobil, and Shell America) to promptly send reports to his office “explaining” their individual corporate investment strategies with particular attention to their work in the “clean energy” sector.

In my dream, Senator Domenici would get a reply like this:

Dear Sen. Domenici:

We appreciate your interest in our corporate operations, but we are too busy at the moment to expedite your request as outlined in your letter dated April 30. You write in that letter that you are interested in a compilation of all previously released, publicly available data on this matter. Accordingly, we suggest that you put some staffers on the job and compile those reports for yourself. To help you on your way, you will find enclosed our 2007 Annual Report.

That having been said, Senator, we answer to our stockholders, not to you. Our investment strategy is our business, not yours. While we are happy to discuss our perspective on the energy market and the merits of existing and proposed public policy, we are not interested in encouraging the idea that our investment strategy is a legitimate matter of interest to the United States Senate.

Cordially,
Big Oil CEO

Alas, it is only a dream.

By all accounts, U.S. spending on health care has been growing much more rapidly than national output. Health statistics–health spending as a share of national output or per person, compared across developed nations–routinely ranks the United States at the top of the list, and statistics on effective health care delivered per dollar spent routinely ranks the United States near the bottom. So news reporters could not miss the clear implication that Americans need to cut health care spending growth and make their health care sector more efficient. If we could reduce spending on unnecessary and low-value health care services, it would go a long way in achieving both objectives.

Now for the doublespeak: Many proponents of Health Savings Accounts (HSA) that can only be accessed under a high-deductible health plan tout the increased role of health care consumers. With larger out-of-pocket spending initially, consumers have greater incentives to eliminate unneeded and costly health services. But success on this count is routinely dismissed in the media as having undesirable side effects–as in today’s Wall Street Journal (HSA Users Find Hassles Amid Savings, May 1, 2008, Personal Journal, page D1):

…average health-insurance costs rose 3.6% in the past two years for employers who offered high-deductible plans, compared with a rise of 7% for employers without such plans.

That’s followed by

Some analysts say much of those employer savings come because many HSA participants tend to forgo care.

Excuse me, but isn’t this exactly how it’s supposed to work?! The language in all such instances usually hints (as does this WSJ report) that the forgone care is valuable and people with HSAs are therefore suffering unduly. Such implied criticism is unjustified unless accompanied with the qualification that the rejected health care services may not be valuable or cost effective.

Indeed, the article later cites a patient with an HSA “fighting” with a doctor about routine physicals and cardiac exams. The doctor wants these exams to be taken regularly, whereas the patient does not because the high-deductible HSA implies larger out-of-pocket payments. In my personal experience, both types of health checkups are most often a waste of time–all they do is separate the patients from their money, which goes to the doctors.

But if many more consumers were to obtain HSAs and economize their health care spending, it would clearly be a problem for the medical profession. And news reporters usually accept, without further questioning, analysts’ comments about unneeded patient suffering because of forgone care. Clearly, wider use of HSAs and better management of consumers’ health care dollars face tremendous hurdles–the medical profession’s self-interest being the biggest one of all. (And I hope my doctor doesn’t read this.)

USA Today ran an article about the ever-expanding band of bureaucrats on all levels of government. Citing Bureau of Labor Statistics data, the author points to a new 76,800 bureaucrats added to payroll from January-March this year;

That’s the biggest jump in first-quarter hiring since a boom in 2002 that followed the 9/11 terrorist attacks. By contrast, private companies collectively shed 286,000 workers in the first three months of 2008.

For the most part, when a public employee is hired the full cost of their labor – including generous government pensions and health care coverage – is not accounted for upfront.  With the baby boomers starting to retire, the costs of maintaining the army of bureaucrats will only rise.  Tack on the large unfunded liabilities in government-provided defined benefit plans and retiree health plans, and you easily have a trillion-dollar problem. 

Most governors in “fiscal crisis” states will call for temporary hiring freezes that fail to address the core issue of reckless government expansion.  But watch for some states, like Tennessee, to take steps to cut costs by culling a small number of their taxpayer-funded workers.

Supporters of ethanol, stung by the backlash over its unintended but foreseeable consequences (see, e.g., here and here), namely, increasing hunger due to a run-up in global food prices and increased threats to biodiversity, now tell us that cellulosic ethanol will come to the rescue. The theory is that cellulosic ethanol, which is still in the research and development phase, would be produced from non-edible plant material, e.g., switchgrasses, crop residue and other biomass that is not currently grown or used as edible crops. Thus, it is implied, it would have no effect on food prices.

But this is wishful thinking.

If cellulosic ethanol is indeed proven to be viable (with or without subsidies), what do people think farmers will do?

Farmers will do what they’ve always done: they’ll produce the necessary biomass that would be converted to ethanol more efficiently. In fact, they’ll start cultivating the cellulose as a crop (or crops). They have had 10,000 years of practice perfecting their techniques. They’ll use their usual bag of tricks to enhance the yields of the biomass in question: they’ll divert land and water to grow these brand new crops. They’ll fertilize with nitrogen and use pesticides. The Monsantos of the world — or their competitors, the start-ups — will develop new and genetically modified but improved seeds that will increase the farmer’s productivity and profits. And if cellulosic ethanol proves to be as profitable as its backers hope, farmers will divert even more land and water to producing the cellulose instead of food. All this means we’ll be more or less back to where we were. Food will once again be competing with fuel. And land and water will be diverted from the rest of nature to meet the human demand for fuel.

Does this mean that biomass – and farmers — should play no role in helping us meet our energy needs? Not necessarily. If farmers can profitably grow fuel rather than food through their own efforts, so be it. But we shouldn’t favor growing one over the other either through subsidies or indirectly through government mandates for so-called renewable fuels. And if anything should be subsidized or mandated, it shouldn’t be growing fuels. That would inevitably compete with food.

Here’s a new bill in Congress that strikes me as a peculiar encroachment on freedom. H.R. 5912 would amend the U.S. code to make cigarettes and certain other tobacco products nonmailable. Undoubtedly, this would make it a teensy bit harder for some people to smoke and chew tobacco.

More importantly, I think, it would deepen the role of the Postal Service in surveillance and enshrine the USPS a part of our niggling nanny state.

Does this bill affect you directly? Chances are it doesn’t, as few people send or receive cigarettes in the mail. But what happens tomorrow when you’re part of a disfavored group?

The bill’s sponsor is Rep. John McHugh (R-NY) who today features on his homepage House passage of a bill to establish a thing called the Hudson-Fulton-Champlain Commemoration Commission.

Former U.S. Senate Majority/Minority Leader Tom Daschle (D-SD) says no way, Jose. 

In a recent interview about his new book, Daschle stressed:

Congress is just not capable of being the manager of a health care system and yet it’s largely Congress today that has that responsibility. It hasn’t worked for the last 50 years. It’ll work even less in the next 50.

Thus Daschle advocates creating a Federal Health Board to manage this $2 trillion chunk of the U.S. economy. 

Where does he look for a model of this type of centralized planning agency?  Quoth Daschle:

I believe that the connector idea is really the Massachusetts version of the Federal Health Board. I like a lot of what the connector is all about.

At a recent health policy forum in Washington, D.C., noted health economist and wit Uwe Reinhardt shed some light on that question:

[T]he following can be said: the United States Congress has absolutely no interest in reducing . . . dubious Medicare expenditures. Let me repeat that. The United States Congress has no interest whatsoever in reducing dubious Medicare expenditures . . .

So the interesting and intriguing question for all, for journalists too, [is]: why is the Congress so disinterested in cost containment when it constantly whines about having to restructure Medicare? That is to me a huge mystery.

Obviously, Prof. Reinhardt hasn’t read this.

The Wall Street Journal has been extremely ecumenical about airing a variety of critics of the Federal Reserve on its editorial page. In a series of posts, I will suggest reasons for remaining skeptical about the logic and evidence behind all of this policy advice.

On April 14, John Makin of the American Enterprise Institute proposed, “The Inflation Solution to the Housing Mess.” He thinks, “The Fed should announce its intention to add to its holding of Treasury securities in order to provide additional liquidity.” Makin knows “there is a substantial risk that inflation may rise for a time – this would be the policy goal.”

To establish higher inflation as a “policy goal” gives a small part of the economy (the existing inventory of new and used homes) priority over the rest (he does not and could not claim inflation would be confined to housing). He thinks easy money could halt declines in the Case-Shiller index of homes prices, although I have shown that index is not representative of nationwide housing prices

Makin argues that

the Fed’s lending programs have not provided adequate liquidity to financial markets: Reserves supplied to the banking system have grown at a tiny 0.6% annual rate since December. That’s because the reserves the Fed is injecting by lending are effectively pulled out or “sterilized” by its sales of Treasury securities. The Fed has been selling these securities to keep the fed funds rate at the level targeted by its Federal Open Market Committee directives.

But it doesn’t matter whether the Fed increases the monetary base (reserves and currency) by buying Treasury bills, gold bars, or Bear Stearns’ securities. In each case the Fed pays for new assets by writing a check on the Fed which ends up being added to bank reserves at the Federal Reserve banks.

The biweekly bank reserve data bounces around too much to speak of an annual rate of change between two dates. Reserves were $91.8 billion in the two weeks ended October 24 and $97.1 billion by March 26, but converting that into an annual rate of change would be just as misleading as Makin’s selective comparison.

Bank loans have been growing at a 10% annual rate this year, with Commercial and Industrial loans growing at a 20% pace. This does not look at though the banks are starved for reserves or that the Fed is “pushing on a string.”

Makin’s inference that monetary policy is too tight is dubious but also redundant. He clearly wants inflation to be higher, as a policy goal.

Last week, a Gallup poll was released revealing that about one-third of Americans worry “a great deal” about global warming, a number that hasn’t changed much since 1989. Less than half of the respondents believed that climate change would pose a serious threat to them in their lifetimes. The trade publication ClimateWire (subscription required) quotes a Gallup official as noting that “there has been no consistent upward trend on worry about global warming going back for decades.”

Today, ClimateWire reports that a new study from the Pew Research Center for the People & the Press has even worse news for environmentalists: climate change is at the absolute bottom of the public’s list of priorities for the federal government (oddly enough, there’s no trace of the report on Pew’s website). When given a list of issues and asked to state whether the issue should be a “top priority” for President Bush and the Congress, those surveyed responded as follows:

Strengthening the nation’s economy: 75%
Defending the country against terrorism: 74%
Reducing health care costs: 69%
Improving the educational system: 66%
Securing social security: 64%
Improving the job situation: 61%
Securing Medicare: 60%
Dealing with energy problems: 59%
Reducing the budget deficit: 58%
Protecting the environment: 56%
Reducing crime: 54%
Providing insurance to the uninsured: 54%
Dealing with the problems of the poor: 51%
Dealing with illegal immigration: 51%
Reducing middle class taxes: 49%
Dealing with moral breakdown: 43%
Strengthening the military: 42%
Reducing the influence of lobbyists: 39%
Dealing with global trade: 37%
Making tax cuts permanent: 35%
Dealing with global warming: 35%

Surprised? You shouldn’t be. The political strength of the environmental lobby is almost entirely based on the proposition that they represent a large number of well organized swing voters who will reward and/or punish politicians for their position on environmental issues in general and climate change in particular. Hence, a great deal of hard work and effort goes into the Green campaign to scare hell out of politicians regarding the political risks associated with saying no to things like a cap & trade program to reduce greenhouse gas emissions. To be fair, all special interest groups have the same incentive to talk-up their alleged public support. Regardless, this particular political Green emporer has no clothes.

George Will has another great column on threats to political speech in modern America. He reports the story of some people in Parker North, Colo., who didn’t want to be annexed to the larger town of Parker. When some residents proposed annexation, others

began trying to persuade the rest to oppose annexation. They printed lawn signs and fliers, started an online discussion group and canvassed neighbors, little knowing that they were provoking Colorado’s speech police.

One proponent of annexation sued them. This tactic — wielding campaign finance regulations to suppress opponents’ speech — is common in the America of the McCain-Feingold campaign finance law. The complaint did not just threaten the Parker Six for any “illegal activities.” It also said that anyone who had contacted them or received a lawn sign might be subjected to “investigation, scrutinization and sanctions for campaign finance violations.”

Quite a chilling effect on the speech of a few local residents. Fortunately, Will notes, the Parker Six (why not the Parker North Six? After all, Parker is what they don’t want to be part of. But who am I to question George Will?) are represented in their defense of their First Amendment rights by the Institute for Justice.

Meanwhile, in another section of the same Washington Post, a similar story is playing out in Virginia. A Democratic candidate for the U.S. House of Representatives began placing campaign signs in supporters’ yards a full year before the election. Botetourt County officials reminded people of a longstanding ordinance about how long political signs can be displayed. In this case it’s the ACLU of Virginia threatening to sue. But Botetourt (pronounced BAHT-uh-tott) officials are not deterred in their determination to protect law, order, and the Botetourt way:

“If we don’t have some semblance of order, we’d just have a libertarian society where anything goes,” said Jim Crosby, a longtime resident and former chairman of the Botetourt Republican Party.

Yep. First political signs in someone’s yard, then a bunch of competing churches, school choice, deregulation, women working outside the home, and pretty soon you’d have a libertarian society where anything goes.

The Supreme Court has rendered its decision in Crawford v. Marion County Election Board. This is the case challenging Indiana’s voter ID requirement.

Briefly, the plaintiffs in the case did not establish sufficient proof of the burden on voting that the ID requirement would have. This was a facial challenge to the statute, and there was no plaintiff who had actually been dissuaded or prevented from voting. Sayeth the court:

[O]n the basis of the record that has been made in this litigation, we cannot conclude that the statute imposes “excessively burdensome requirements” on any class of voters.

There was also no evidence that Indiana has ever been victimized by impersonation at the polling place, which a voter ID requirement would help thwart, but in a facial challenge to a law like this, courts will defer to the state’s interests in deterring and detecting voter fraud, and in safeguarding voter confidence.

Advocates of voter ID will interpret this as a ringing endorsement, but it’s an unsurprising result. Hopefully, they won’t pursue a national voter identification requirement. In a recent TechKnowledge column inspired by the case, “Voter ID: A Tempest in a Teapot that Could Burn Us All,” I wrote:

A national registration system for voting would quickly be repurposed and used for many other kinds of regulatory control. There is no shortage of proposals for national registration and control of citizens. Should the voter ID tempest in a teapot boil over, the tiny specter of voter fraud could thrust a mandatory national ID into the hands of law-abiding citizens.

The Constitution gives Congress power to regulate the elections that select its members and, to a lesser degree, the president. But Congress does not have to use that power to its fullest extent. States recognize their own interests in fair elections, and they should experiment among themselves with ways to secure elections while making sure the vote is available to all qualified people.

I’m sorry to bring bad tidings so close to the weekend, but apparently House and Senate conferees have reached agreement [$] on the broad outlines of a Farm Bill.

We will have to wait until Monday to get the full, disgusting details but broadly, we know this about the proposed bill:

• it will raise the target prices and loan rates for northern crops (i.e., wheat, soybeans, other feedgrains) beginning in 2010
• raise the sugar loan rate three-quarters of a cent
• include a sugar-to-ethanol program (whereby the USDA would buy sugar that would otherwise threaten the domestic minimum price and sell it, presumably at a loss, to ethanol plants)
• an additional $4 billion for conservation programs
• $10.361 billion extra for domestic and international food aid programs
• The bill also includes the new “permanent” disaster program (some thoughts on that here), albeit at $250 million less than the original $4 billion request

To pay for this, your representatives in Congress cut the $5.2 billion per year direct payments program (that is the program that pays farmers on the basis of past production and yields, regardless of what they produce now) by 2 percent per year for four years. Recall that the direct payments program, while an offence to taxpayers everywhere, is at least less trade distorting than the price-linked subsidies that the conferees have agreed to increase. And in the final year, when it really counts for purposes of planning future spending levels (i.e., the baseline), the direct payments will go back up again.

The one possible bright light at the end of this sewer-pipe: a presidential veto. No word from the administration on this latest deal, but it does not fit their past definition of an acceptable amount of reform and thus, assuming intestinal fortitude on the part of President Bush (I know, I know), would likely elicit a veto threat.

Happy weekend, everybody.

A National Conference of State Legislatures report released today is sparking gloom-and-doom headlines about states in fiscal crises. Conspicuously absent from the news stories is any mention of the root cause of the “shortfalls” supposedly wrecking havoc in state capitols.  Over the last few years, state lawmakers forgot the lessons of the 1990s, and decided to add new programs and significantly expand general fund spending on existing programs.

Now, according to NCSL:

Current state fiscal conditions are being driven by weak revenue performance. State officials expected revenue growth to slow in FY 2008, but not as dramatically as it has. […] Because most FY 2008 budgets were built on revenue forecasts that are not materializing as expected, budget gaps have grown.

This reminds me of a short story by J.D. Salinger in which the main character describes the tragic lives of “bananafish:”

Well, they swim into a hole where there’s a lot of bananas. They’re very ordinary-looking fish when they swim in. But once they get in, they behave like pigs. […]  Naturally, after that they’re so fat they can’t get out of the hole again. Can’t fit through the door.

In FY 2007 alone, states raised general fund spending by 9.3 percent, well above the 30-year average of 6.4 percent.  18 states saw spending rise by at least 10 percent.  The only real news here is that state governments are finding themselves in a fiscal “hole” because they gorged on revenues when times were good, and now they have been fat so long they forgot how to go on a diet.

Taxpayers can breathe a sign of relief. According to the Tax Foundation, April 23 is Tax Freedom Day. That means that the average American has finally earned enough to pay estimated federal, state, and local taxes for 2008. One of the most depressing finding in the Tax Foundation’s report is that Americans pay more in tax than they do for food, clothing, and shelter combined. To compensate for being the bearer of bad fiscal news, the Tax Foundation released an amusing video. It doesn’t quite equal this classic tax video, but it’s worth watching.

According to HealthLeaders Media:

South Carolina-based Companion Global Healthcare added three Singapore hospitals to its network. The deal now allows Americans access to medical and surgical services at ParkwayHealth operated hospitals at pre-negotiated, in-network rates lower than those of U.S. hospitals…

David Williams, consultant and cofounder of MedPharma Partners LLC[, notes,] “It may be a bit of a wake-up call to the local hospitals in South Carolina, putting them on notice that they are facing a broader set of competitors.”

More than one million members of Blue Cross Blue Shield and BlueChoice HealthPlan of South Carolina now have access to the three Singapore hospitals—Mount Elizabeth, Gleneagles, and East Shore—at preferred network rates. The hospitals are accredited by the Joint Commission International, the affiliate of The Joint Commission.

Competition is healthy.  (You know what?  That’s catchy.)

Cato scholars have increasingly been evaluating the respective policies of John McCain, Hillary Clinton, and Barack Obama. The trade shop understandably prefers McCain (see my colleague Sallie James’s new paper), as does, cautiously, our director of health and welfare studies, Michael Tanner. The foreign policy shop, meanwhile, doesn’t like McCain because he is ”wedded to perpetual war” and generally given to neoconservative tendencies.

On judges, I’ll go with the trade and health care folks: While John McCain’s views on  the First Amendment are unacceptable to freedom-lovers of any stripe, he has at least promised to nominate Supreme Court justices in the mold of John Roberts and Sam Alito (who have ruled against campaign finance restrictions). Obama and Clinton, meanwhile, are in the John Paul Stevens camp of relying on empathy, international opinion, and “my own experience” as a basis for constitutional interpretation.

Indeed, while defending his vote against Chief Justice Roberts’s confirmation, Obama explained that his standard for a justice must be “one’s deepest values, one’s core concerns, one’s broader perspectives on how the world works, and the depth and breadth of one’s empathy.”

As Jonah Goldberg says in a devastating column, “Now that is a pure expression of the principle of judicial fiat.”

Supreme Court justices take an oath to “administer justice without respect to persons, and do equal right to the poor and to the rich, and that I will faithfully and impartially discharge and perform all the duties incumbent on me as a justice of the Supreme Court of the United States under the Constitution and laws of the United States, so help me God.” Any contention that justices must tilt toward any particular type of party — the downtrodden (or privileged), the politically unpopular (or popular), the ethnic minority (or majority) — is an argument for judicial dictatorship instead of the rule of law.

As Roberts said when Senator Richard Durbin (D-IL) asked him whether he would be “for the little guy,” if the law says the little guy wins, then the little guy should win — and if the law says the big guy wins, then it would be a miscarriage of justice to rule for the little guy. And those who don’t like that result should complain to their elected officials and get the law changed.

Economists Jonathan Klick and Thomas Stratmann find that it does.  In the latest issue of the Journal of Law and Economics, they write:

In the face of rising rates of diabetes, many states have passed laws requiring health insurance plans to cover medical treatments for the disease. Although supporters of the mandates expect them to improve the health of diabetics, the mandates have the potential to generate a moral hazard to the extent that medical treatments might displace individual behavioral improvements. Another possibility is that the mandates do little to improve insurance coverage for most individuals, as previous research on benefit mandates has suggested that mandates often duplicate what plans already cover. To examine the effects of these mandates, we employ a triple-differences methodology comparing the change in the gap in body mass index (BMI) between diabetics and nondiabetics in mandate and nonmandate states. We find that mandates do generate a moral hazard problem, with diabetics exhibiting higher BMIs after the adoption of these mandates.

Every so often, a politician commits the horrible mistake of saying what he really thinks. This happened at the Democratic debate. Barack Obama has a very punitive proposal to nearly double the capital gains rate. When asked by one of the moderators whether this makes sense, especially given the historical evidence of big “Laffer-Curve” effects, Senator Obama dismissed concerns about falling revenue, arguing that a high rate was justified by “fairness.” In other words, Senator Obama is so fixated on punishing success that he is even willing to reduce the amount of tax revenue flowing to Washington that he and his buddies can redistribute. This position is so radical that my Cato colleague Sallie James was distracted from her work on the free trade agreement with Colombia (I’m not a foreign policy person, but that’s apparently a country bordering Nepal and Mauritania) and demanded that I say something about the issue. But let’s first look at what Senator Obama actually said: 

MR. GIBSON: And in each instance, when the rate dropped, revenues from the tax increased. The government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

SENATOR OBAMA: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.

The Senator then proceeded to bash evil rich (sorry for the redundancy) people, so the moderator asked the question again:

MR. GIBSON: But history shows that when you drop the capital gains tax, the revenues go up.

SENATOR OBAMA: Well, that might happen or it might not. It depends on what’s happening on Wall Street and how business is going.

This exchange is particularly revealing since Senator Obama actually admitted that a tax rate increase might lose revenue, but he held firm to his position that the capital gains rate should be increased from 15 percent to 28 percent. This reminds me of a conversation I had years ago with an economics professor from an Ivy League university. He told me that he once asked his left-wing colleagues whether they would support lower tax rates if they knew that tax revenues would rise. Most of them, he said, shared Obama’s viewpoint that punishing success was more important to the statist ideology than increasing revenue for government.

Las Vegans have been a little jumpy — and rightfully so — since public health officials revealed that a number of endoscopy clinics re-used syringes and medication vials, thereby infecting at least seven patients with hepatitis-C. 

Nevada’s physician-licensing board has proved largely inept in this matter, and a little too cozy with the profession it’s supposed to regulate.  Nevertheless, some want to give the licensing board more power.

Here’s an interview I did on Las Vegas 1’s Face to Face with Jon Ralston.  I argued that licensing laws don’t add much in the way of patient protection, and instead block innovations that would improve patient safety.  (The first interviewee provides lots of good information about the crisis, but if you want to skip to my interview, it begins about 12 minutes into the program.)