Archive for the ‘Health, Welfare & Entitlements’ Category
McArdle on Whether Health Insurance Affects Health
I’ve blogged previously about the tempest that Ezra Klein stirred up in the teapot of the health care debate when he suggested that Sen. Joe Lieberman “seems willing to cause the deaths of hundreds of thousands of people” by holding up ObamaCare.
In the latest issue of The Atlantic magazine, Megan McArdle notes that the economic literature doesn’t quite support Klein’s assumption that covering the uninsured would save lives:
Quite possibly, lack of health insurance has no more impact on your health than lack of flood insurance…
Government insurance should have some effect, but if that effect is not large enough to be unequivocally evident in the data we have, it must be small…
[W]e should have had a better handle on the case for expanded coverage—and, more important, the evidence behind it—before we embarked on a year-long debate that divided our house against itself. Certainly, we should have had it before Congress voted on the largest entitlement expansion in 40 years. Unfortunately, most of us forgot to ask a fundamental question, because we were certain we already knew the answer.
Filed under: Cato Publications; Health, Welfare & Entitlements
Healthcare Fraud Summit
U.S. Department of Health and Human Services Secretary Kathleen Sebelius and Attorney General Eric Holder recently convened a “National Summit on Health Care Fraud.” The two-hour event can be viewed at C-SPAN’s website.
There was a lot of talk about protecting taxpayers, and it was clear that HHS is putting a great amount of resources into the problem. The federal lawyers and accountants speaking at the event who are tasked with rooting out abuse seem to a very dedicated and intelligent group. But this is one of the sad things about complex big government programs—they need intelligent people to administrate them, and that saps the private economy of intellectual resources.
HHS Secretary Sebelius mentioned that funding for anti-fraud measures would go up 80 percent under the president’s new budget. HHS intends to spend money on technology that would do a better job of sifting through the data to detect potential fraud and abuse. But that’s the Catch 22: more taxpayer money has to be spent to “save” taxpayer money.
On Thursday, the head of the House Energy and Commerce Committee, John Dingell (D-MI) had a telling exchange with Sebelius. From Nextgov.com:
“I have wrestled with a number of department agencies over the past [about] their adequacy . . . to upgrade these matters,” Dingell said. “They’ve had good motivation, noble intentions, but the implementation was also lacking, causing substantial waste and confusion.”
When he asked Sebelius whether the $110 million would be a one-time investment, she said, “This is a multiyear strategy to actually build a 21st century information and data system.”
“Should we anticipate that you will be coming back up here to continue to move toward adequate resources to sustain this project over the years?” Dingell asked.
Sebelius said she would see the project through and later added the department has a new information officer, who is not directly connected to CMS, who is assisting with project supervision. She assured Dingell that HHS would provide proper oversight of vendors and federal employees working on the project.
Dingell’s candor is refreshing, and it serves as a reminder that government officials always promise to “fix” problems if they just get new technology and more money. Instead, the “fix” often ends up getting bogged down in bureaucracy and cost overruns due to poor oversight of contractors.
The fundamental problem with giant government healthcare programs is simple: when you have a giant pot of honey, you attract ants. And when that honey is guarded by someone who didn’t pay for the honey, there’s little incentive for that person to guard it as it were their own.
This difference in incentives was evident when the CEO of a private insurer spoke at the summit. The CEO, James Roosevelt of Tufts Health Plan, pointed out that the chief priority for Medicare/Medicaid is to pay claims as quickly as possible. Public programs lack the capabilities of their private sector counterparts to not only stop improper payments from being made, but also detecting such payments after the fact. Moreover, private insurers aren’t encumbered by the massive bureaucracy and congressional meddling that inhibits the government’s ability to adapt and react to ever evolving fraud schemes.
See this essay for more on fraud and abuse in government programs. See here for recent examples of fraud and abuse in government healthcare programs.
Filed under: Health, Welfare & Entitlements; Tax and Budget Policy
Senate Health Bill May Violate First Amendment
Today, the Cato Institute released “Scientific Misconduct: The Manipulation of Evidence for Political Advocacy in Health Care and Climate Policy,” by George Avery of Purdue University.
Avery points to a troubling provision of the Senate-passed health care bill that Democrats are trying to get through the House:
In a section creating a new Patient-Centered Outcomes Research Institute to conduct comparative-effectiveness research, the bill allows the withholding of funding to any institution where a researcher publishes findings not “within the bounds of and entirely consistent with the evidence,” a vague authorization that creates a tremendous tool that can be used to ensure self-censorship and conformity with bureaucratic preferences….As AcademyHealth notes, “Such language to restrict scientific freedom is unprecedented and likely unconstitutional.”
He warns that government bureaucrats aren’t likely to let that power go unused.
In July 2007, AcademyHealth, a professional association of health services and health policy researchers, published results of a study of sponsor restrictions on the publication of research results. Surprisingly, the results revealed that more than three times as many researchers had experienced problems with government funders related to prior review, editing, approval, and dissemination of research results. In addition, a higher percentage of respondents had turned down government sponsorship opportunities due to restrictions than had done the same with industrial funding. Much of the problem was linked to an “increasing government custom and culture of controlling the flow of even non-classified information.”
Avery observes that such power enables bureaucrats to engage in “data manipulation to cover inconvenient findings,” much as the scientists at the Climate Research Unit at the University of East Anglia appear to have done. Indeed, he points to evidence of U.S. Environmental Protection Agency officials suppressing an, ahem, inconvenient internal debate.
Filed under: Cato Publications; Energy and Environment; General; Health, Welfare & Entitlements
Political Alchemy, Part I: Turning Spending Increases into Tax Cuts
Politicians in Washington have come up with something far more impressive than turning lead into gold or water into wine. Using self-serving budget rules, they can increase the burden of government spending and say they are cutting taxes instead.
This bit of legerdemain is made possible, thanks to the convolutions of the personal income tax, by adopting or expanding refundable tax credits. But in this case, “refundable” does not mean the government is returning money to taxpayers. Instead, it means that money is being redistributed to people who do not earn enough to be subject to the income tax.
This is hardly a trivial issue. According to the Congressional Budget Office, the amount of income redistribution being laundered through the tax code is now so large that the bottom 40 percent of the population has a negative “effective” income tax rate. In simple terms (though perhaps with profound political implications), the income tax is a revenue generator for a big share of the population.
And the problem is going to get worse if the President’s budget is approved. Buried in the fine print, on pages 188-189 of the Analytical Perspective of the Budget, you will see that the President is proposing to increase this hidden form of spending by more than $152 billion over the next 10 years.
It is worth noting that proponents argue that it is OK to classify this new spending as tax cuts because it somehow offsets other tax payments, especially the payroll tax. I’m sympathetic to lower taxes on everybody, including the poor, but surely it is better to be honest and simply cut the taxes that people pay. The current methodology, by contrast, is open to abuse. Heck, I’m surprised politicians don’t classify other forms of spending as tax cuts. Maybe corporate welfare can be reclassified as a corporate tax cut. (I better stop lest I give the political class any ideas.)
Defenders also assert that some so-called refundable tax credits, particularly the earned income tax credit, are designed to encourage work. That is partly true, but credits like the EITC are withdrawn as income climbs, and this means poor people face punitive marginal tax rates, so the overall effect on hours worked may be negligible.
The right approach, of course, is to get the federal government out of the racket of redistributing income.
Filed under: Health, Welfare & Entitlements; Tax and Budget Policy
‘Father of HSAs’ John Goodman Plays Host to ‘Father of the Individual Mandate’ Mitt Romney
"Father of the Individual Mandate" Mitt Romney
The former nickname came from National Journal or The Wall Street Journal, I’m not sure which. The latter nickname comes from Institute for Health Freedom president Sue Blevins.
See here for details on an upcoming event in Dallas where Goodman’s National Center for Policy Analysis will play host to Romney.
It should be an interesting event. With all 40 Republican members of the U.S. Senate, including moderates like Sen. Olympia Snowe (R-ME), voting to declare an individual mandate unconstitutional…with 35 states moving legislation to block an individual mandate…with the Heritage Foundation rebuking an individual mandate…and with Virginia’s Democratically controlled Senate approving legislation to block an individual mandate…well, Romney may have a tough road to hoe with the conservatives who typically attend NPCA events.
Filed under: Cato Publications; General; Health, Welfare & Entitlements
How to Tell When ObamaCare Is Dead
Democrats have lots of ambitions. One of them is their health care overhaul, which included a lot of “pay-fors” — i.e., spending cuts that would pay for ObamaCare’s new entitlements. But they also want a jobs bill, a “doc fix,” and other things that require new government spending. Those also require pay-fors — unless Democrats are willing to expand further a $1-trillion-plus deficit — and pay-fors are a scarce commodity.
Today, CongressDaily’s Anna Edney reports:
Some, though, are skeptical Democrats would use any of the pay-fors because that would mean officially declaring the reform effort dead.
“I don’t expect any effort to dismantle the reform bill until there’s no pulse,” one lobbyist said.
Right now, ObamaCare is mostly dead. And as we all know, “There’s a big difference between mostly dead and all dead…Mostly dead is slightly alive.”
A good way to tell when ObamaCare is all dead is when Democrats start picking at the carcass for pay-fors.
Filed under: Cato Publications; General; Health, Welfare & Entitlements
How to Reform Health Care? ‘Let Them Have Choice’
This is big.
The federal tax code creates a large tax preference for employer-sponsored health insurance. As a result, 61 percent of non-elderly Americans obtain health insurance through an employer. That tax preference creates all sorts of problems. It encourages more comprehensive health insurance and wasteful health care spending. It deprives many workers of their health coverage at the moment they need it most: when they get sick and can no longer work. And it denies workers the benefits of being able to choose their health plan. Eighty percent of those who work for an employer that offers health benefits have at most two health-plan choices, which are typically both run by the same insurer.
To date, no one had really quantified the damage done by denying workers the ability to choose their own health insurance. The only guesstimate of which I had been aware was by Mark Pauly, Allison Percy, and Bradley Herring, who “infer[red] that the true value of the welfare loss may actually be in the neighborhood of 5–10 percent,” which was enough to negate any advantage that employer-sponsored insurance offers by virtue of its lower administrative costs.
A new working paper titled, “Let them Have Choice: Gains from Shifting Away from Employer-Sponsored Health Insurance and Toward an Individual Exchange,” by Leemore Dafny, Katherine Ho, and Mauricio Varela, offers a more precise estimate of how much workers suffer because the federal tax code denies them their choice of health plan — and how much they would gain if they had greater choice. (The authors have a shorter paper explaining their results here.) They write:
We estimate the median welfare gain from expanding choice amounts to roughly 20 percent of premiums. For the vast majority of employee groups and alternative model specifications, the gains from choice are likely to outweigh potential premium increases associated with a transition from large group to individual pricing.
Dafny, Ho, and Varela’s results provide a huge boost to free-market health care reforms.
Filed under: Cato Publications; Health, Welfare & Entitlements
Obama Admits CBO Cost Estimates of ObamaCare Are Incomplete
Yesterday — day #224 of the ObamaCare Cost-Estimate Watch — President Obama told House Republicans:
You can’t structure a bill where suddenly 30 million people have coverage and it costs nothing.
And just like that, the president admitted that the official Congressional Budget Office estimates of his health care plan do not reflect its full costs.
Both the House and Senate versions of ObamaCare would cover millions of uninsured Americans by requiring them to purchase private health insurance. As President Obama notes, even if you force people to spend their own money on health insurance, it still costs something to cover them. And if the government partly subsidizes those premiums, the remaining mandatory premium is still part of the cost of covering them.
Yet Democrats have systematically blocked the CBO from including those costs in its official cost projections. The Senate bill’s estimated price tag of $940 billion, for example, includes only the costs that bill would impose on the federal government. By my count, that’s only 40 percent of total costs. By Mr. Obama’s admission, that’s not the full cost of the bill.
Now that the President of the United States has acknowledged that the CBO’s cost estimates are incomplete, could we maybe get a complete cost estimate? Maybe just for the Senate bill?
Filed under: Cato Publications; Health, Welfare & Entitlements
Can Unemployment Benefits Create Jobs?
At the Center on Budget and Policy Priorities, sociologist Michael Leachman claims “some of the most effective job-creation and job protection measures” in last year’s American Recovery and Reinvestment Act are excluded from the job figures to be released on recovery.gov on January 30. He explains that, “Most of ARRA’s distributed dollars to date have gone directly to individuals (including greater jobless benefits and food stamps) and states (including greater federal support for Medicaid). Although these dollars are likely protecting or creating hundreds of thousands of jobs, none of the aid for individuals or the Medicaid support are [sic] reflected in the January 30 jobs data release.”
In particular, Leachman claims Recovery Act funds to extend unemployment benefits from 26 to 79 weeks (and to 99 weeks since November) “produces and sustains jobs.” For proof, he cites estimates from Mark Zandi of Economy.com “that every dollar spent on extending unemployment insurance benefits produces $1.61 in economic activity.”
This analysis runs into two big problems. The first is that it assumes that the amount of time people spend on unemployment insurance is unrelated to how long the government offers to keep paying benefits. The second is that it assumes that the assumptions about “fiscal multipliers” built into Economy.com econometric model are actually evidence rather than just assumptions.
On the first point, page 75 of the 2007 OECD Employment Outlook explains: “It is well established that generous unemployment benefits can increase the duration of unemployment spells and the overall level of unemployment… This could have a negative impact on productivity through inefficient use of resources and depreciation of human capital during long spells of unemployment. In addition, by reducing the opportunity cost of unemployment, generous unemployment benefits may lead existing employees to reduce their work effort, thereby lowering productivity (see e.g. Shapiro and Stiglitz, 1984; Albrecht and Vroman, 1996).”
As I recently noted, the overwhelming evidence that extended unemployment benefits raise the duration and rate of unemployment comes from economists in the Obama administration, Larry Summers and Treasury economist Alan Krueger, as well as many others such as Lawrence Katz of Harvard and Bruce Meyer of the University of Chicago.
Contrary to Leachman, bribing people to stay on the dole for an extra 53-73 weeks leaves them with less money to spend, not more. It also looks bad on resumes, and may cause lasting damage to future job prospects.
Filed under: Finance, Banking & Monetary Policy; Government and Politics; Health, Welfare & Entitlements; Tax and Budget Policy
Groopman on How Behavioral Economics Undermines the Case for Central Planning
In The New York Review of Books, oncologist and author Jerome Groopman delivers a stunning rebuke to those in the Obama administration (read: OMB director Peter Orszag) who think the federal government can improve health care quality by telling doctors how to practice medicine:
in the Senate health care bill…Doctors and hospitals that follow “best practices,” as defined by government-approved standards, are to receive more money and favorable public assessments. Those who deviate from federal standards would suffer financial loss and would be designated as providers of poor care…
Over the past decade, federal “choice architects”—i.e., doctors and other experts acting for the government and making use of research on comparative effectiveness—have repeatedly identified “best practices,” only to have them shown to be ineffective or even deleterious.
For example, Medicare specified that it was a “best practice” to tightly control blood sugar levels in critically ill patients in intensive care. That measure of quality was not only shown to be wrong but resulted in a higher likelihood of death when compared to measures allowing a more flexible treatment and higher blood sugar. Similarly, government officials directed that normal blood sugar levels should be maintained in ambulatory diabetics with cardiovascular disease. Studies in Canada and the United States showed that this “best practice” was misconceived. There were more deaths when doctors obeyed this rule than when patients received what the government had designated as subpar treatment (in which sugar levels were allowed to vary).
That’s just one of many examples Groopman offers of where government planners have gone awry. He concludes:
Ironically, the failure of experts to recognize when they overreach can be explained by insights from behavioral economics…
The care of patients is complex, and choices about treatments involve difficult tradeoffs. That the uncertainties can be erased by mandates from experts is a misconceived panacea, a “focusing illusion.”
Come to think of it, Groopman makes much the same case as I did in my article, “Pay-for-Performance: Is Medicare a Good Candidate?” (Yale J. Health P. Law & Ethics, Vol. 7, issue 1: Winter 2007): evidence-based medicine is essential, but variation in disease burden and patient preferences (read: values) makes it impossible for central planners to define quality accurately.
Filed under: Cato Publications; General; Health, Welfare & Entitlements
In Before the Ban
Travel along a two-block stretch of Central Avenue in Prince George’s County, and you’ll find a staggering 11 fast-food restaurants.
For community activist Arthur Turner and state Sen. David C. Harrington (D-Prince George’s), the strip is evidence of the proliferation of burger joints and Chinese takeouts in the county, especially in poorer, inner Capital Beltway communities.
Pointing to studies that rank Prince George’s residents among the least healthy in Maryland, Turner and Harrington want to limit new fast-food restaurants in the county, a far stricter approach than what has been enacted in such places as New York City and Montgomery County, which banned the use of trans fats in those establishments…
“Our county is inundated with unhealthy food choices,” Turner said. “In some areas, if someone wants a healthy choice, there are no options. We want healthy options in our community.”
Opponents of such efforts say that what people eat is a matter of personal choice and that it should be up to the free market to determine which restaurant goes where…
Turner said that his group identified Panera Bread and Chipotle as preferable alternatives to a fast-food burger restaurant and that he plans to seek similar compromises with other developers.
Given the weak correlation between dieting and long-term weight loss, and the very, very weak correlation between dieting and the marginal difference between Chipotle and McDonald’s, basically all that we have here are politicians and activists remaking the community to suit their personal tastes, as if Prince George’s County were just SimCity with slightly cooler graphics.
My prediction: This is a very good deal for any fast food restaurant that gets in before the ban.
Filed under: Health, Welfare & Entitlements; Regulatory Studies
ObamaCare Could Become Law at Any Time
The American people don’t want President Obama’s health care plan (see below). Massachusetts voters don’t want it.
The White House knows that the people don’t want it. In Ohio last week, President Obama said:
the process has been less than pretty. When you deal with 535 members of Congress, it’s going to be a somewhat ugly process…when you put it all together, it starts looking like just this monstrosity. And it makes people fearful. And it makes people afraid. And they start thinking, you know what, this looks like something that is going to cost me tax dollars and I already have insurance so why should I support this.
Yet Democrats still want ObamaCare to become law, and they are very close to making it happen. If Speaker Nancy Pelosi bribes enough House members to reach that magic number of 218 votes, she could hold the vote with as little as 24 hours’ notice. And ObamaCare would become law. Done and done. Comments from David Axelrod and other administration officials this weekend indicate that they haven’t given up on the Senate bill, and suggest that they are likely pressuring House Democrats to support it.
On ABC News’ This Week, Axelrod said, “People will never know what’s in that bill until we pass it.” He was right, though not in the sense that he meant it. As bad as the American people think this legislation is, they won’t really know until Nancy Pelosi bribes her way to 218 votes.
Filed under: Cato Publications; General; Health, Welfare & Entitlements
Pinocchio Rove Strikes Again
George Bush ranks as one of America’s most fiscally irresponsible presidents. He increased overall spending from $1.8 trillion to $3.5 trillion and most of that new spending was used to create or expand domestic programs (no-bureaucrat-left-behind education spending, pork-filled highway bills, sleazy Wall Street bailouts, corrupt farm spending, new Medicare entitlements, etc.) that are not legitimate functions of the federal government. So it is galling to see his former senior adviser writing columns complaining about Barack Obama being a big spender. Many of the criticisms about the Obama Administration in his latest WSJ column are correct, to be sure, but Karl Rove has zero moral authority to make those arguments. Moreover, Rove once again engages in sloppy or dishonest (you choose) analysis by blaming Obama for some of Bush’s mistakes. In the excerpt below, he blames Obama for any of the Fiscal Year 2009 debt that was incurred after January 20 of last year. But as I’ve already explained, 96 percent of the spending in FY2009 is the result of Bush’s policies:
Consider that from Jan. 20, 2001, to Jan. 20, 2009, the debt held by the public grew $3 trillion under Mr. Bush—to $6.3 trillion from $3.3 trillion at a time when the national economy grew as well. By comparison, from the day Mr. Obama took office last year to the end of the current fiscal year, according to the Office of Management and Budget, the debt held by the public will grow by $3.3 trillion. In 20 months, Mr. Obama will add as much debt as Mr. Bush ran up in eight years. …Mr. Bush’s deficits ran an average of 3.2% of GDP, slightly above the post World War II average of 2.7%. Mr. Obama’s plan calls for deficits that will average 4.2% over the next decade. Team Obama has been on history’s biggest spending spree, which has included a $787 billion stimulus, a $30 billion expansion of a child health-care program, and a $410 billion federal spending bill that increased nondefense discretionary spending 10% for the last half of fiscal year 2009. Mr. Obama also hiked nondefense discretionary spending another 12% for fiscal year 2010.
Correction: In an earlier post on one of Rove’s columns, I incorrectly claimed that Bush never vetoed a bill because it spent too much.That was wrong. He did veto a handful of bills once Democrats took control of Congress.
Filed under: Government and Politics; Health, Welfare & Entitlements; Tax and Budget Policy
Trouble in Massachusetts
Yesterday, Cato released a new study, “The Massachusetts Health Plan: Much Pain, Little Gain,” which showed that official estimates overstate the gains in health insurance coverage resulting from a 2006 Massachusetts law by at least 45 percent. The study also finds: supporters understate the law’s cost by nearly 60 percent; government programs are crowding out private insurance; self-reported health improved for some but fell for others; and young adults are responding to the law by avoiding Massachusetts.
Given that the Massachusetts health plan bears a “remarkable resemblance” to the Obama plan, the study should serve as a warning sign to members of Congress, says Michael Cannon, director of health policy studies.
The study has received coverage in Investor’s Business Daily, The Wall Street Journal, The Washington Post, Detroit News, The Washington Times, the Reason Foundation and the Pioneer Institute.
The Snowe Non-Option
Jonathan Chait thinks that if Scott Brown becomes the 41st vote against President Obama’s health plan, supporters could “Go back to Olympia Snowe” to secure the necessary 60th vote. After all, “Her substantive demands have been met.”
Perhaps Chait forgets that Sen. Snowe (R-ME) — along with Sen. Susan Collins (R-ME), and every other Senate Republican — voted to declare an individual mandate unconstitutional. During the floor debate, Sen. John Ensign (R-NV) took the unusual step of raising a constitutional point of order against the bill’s individual mandate. According to the presiding officer:
The question is on agreeing to the constitutional point of order made by the Senator from Nevada, Mr. ENSIGN, that the amendment violates Article I, Section 8 of the Constitution, and the Fifth Amendment.
Snowe’s “aye” vote makes it hard for her to support any bill that includes an individual mandate. If she were to vote for an individual mandate after declaring that such a law would violate the Constitution, Snowe could reasonably be accused of violating the oath she swore to the Constitution upon joining the Senate.
Yet Democrats are unlikely to support any bill that does not include an individual mandate. As President Obama told a joint session of Congress, his plan “only works” if lawmakers force everyone to purchase government-designed health insurance.
Filed under: Cato Publications; General; Government and Politics; Health, Welfare & Entitlements; Law and Civil Liberties
Obama’s Other Massachusetts Problem
Even if Democrat Martha Coakley wins 50 percent of the vote in the race to fill the late Sen. Ted Kennedy’s (ahem) term, there are other numbers emanating from Massachusetts that present a problem for President Obama’s health plan.
On Wednesday, the Cato Institute will release “The Massachusetts Health Plan: Much Pain, Little Gain,” authored by Cato adjunct scholar Aaron Yelowitz and yours truly. Our study evaluates Massachusetts’ 2006 health law, which bears a “remarkable resemblance” to the president’s plan. We use the same methodology as previous work by the Urban Institute, but ours is the first study to evaluate the effects of the Massachusetts law using Current Population Survey data for 2008 (i.e., from the 2009 March supplement). Since I’m sure that supporters of the Massachusetts law and the Obama plan will dismiss anything from Cato as ideologically motivated hackery: Yelowitz’s empirical work is frequently cited by the Congressional Budget Office, and includes one article co-authored with MIT health economist (and Obama administration consultant) Jonathan Gruber, under whom Yelowitz studied.
Among our findings:
- Official estimates overstate the coverage gains under the Massachusetts law by roughly 50 percent.
- The actual coverage gains may be lower still, because uninsured Massachusetts residents appear to be concealing their lack of insurance rather than admit to breaking the law.
- Public programs crowded out private insurance among low-income children and adults.
- Self-reported health improved for some, but fell for others.
- Young adults appear to be avoiding Massachusetts as a result of the law.
- Leading estimates understate the cost of the Massachusetts law by at least one third.
When Obama campaigns for Martha Coakley, he is really campaigning for his health plan, which means he is really campaigning for the Massachusetts health plan.
He and Coakley should explain why they’re pursuing a health plan that’s not only increasingly unpopular, but also appears to have a rather high cost-benefit ratio.
(Cross-posted at Politico’s Health Care Arena.)
Filed under: Cato Publications; General; Health, Welfare & Entitlements
Reforming Previous Reforms, ad Infinitum
In the forthcoming issue of Cato Policy Report, Jeffrey Friedman describes the cumulative effects of regulations that led to the 2008 financial collapse:
So deposit insurance begat bank-capital regulations. Initially these were blunderbuss rules that required banks to spend the same levels of capital on all their investments and loans, regardless of risk. In 1988 the Basel accords took a more discriminating approach, distinguishing among different categories of asset according to their riskiness — riskiness as perceived by the regulators. The American regulators decided in 2001 that mortgage-backed bonds were among the least risky assets, so they required much lower levels of capital for these securities than for every alternative investment but Treasurys. And in 2006, Basel II applied that erroneous judgment to the capital regulations governing most of the rest of the world’s banks. The whole sequence leading to the financial crisis began, in 1933, with deposit insurance…
Deposit insurance, hence capital minima, hence the Basel rules, might all have been a mistake founded on the New Deal legislators’ and regulators’ ignorance of the fact that panics like the ones that had just gripped America were the unintended effects of previous regulations.
Friedman is talking about financial and housing regulation. But I was reminded of them when I heard President Obama tell congressional Democrats, “Today we are on the doorstep of accomplishing something that Washington has been talking about since Teddy Roosevelt was President, and that is reforming health care and health insurance here in America.” And his formal speech to Congress in September: “I am not the first President to take up this cause, but I am determined to be the last.”
But of course we’ve been “reforming” health care ever since Teddy Roosevelt, and those reforms have brought us to our present difficulties. The Flexner Report 100 years ago reduced the supply of doctors and drove up the price. Wage and price controls during another Roosevelt era led to the system of employer-provided insurance, again driving up costs. Medicare and Medicaid poured more third-party payments into the system and added layers of government bureaucracy. HMOs and other cost-containment measures were a response to a problem created by the absence of normal consumer pressure. Then we got HIPAA, Kennedy-Kassebaum, the Mental Health Parity Act, state mandated-coverage laws, and the Medicare Prescription Drug Benefit.
And here we are today, with a health care system that everyone agrees needs reform. Maybe it’s time to recognize that we’re just piling new regulations on top of old regulations, like some compulsory Rube Goldberg device, and to try instead free markets, in which consumers pay for what they want from providers, insurance companies, managed care organizations, and other entities that compete for their business by seeking to provide better care at lower prices. Otherwise, we can be sure that Barack Obama won’t be the last president to stand before Congress and declare that our health insurance system needs reform. Indeed, we can bet that if he signs the current bill, he himself will be back before Congress in a year or two asking for reforms to reform the reforms that were intended to reform the previous reforms.
Filed under: Finance, Banking & Monetary Policy; Government and Politics; Health, Welfare & Entitlements; Regulatory Studies
America vs. Europe
The blogosphere has been buzzing with a debate on whether America or Europe is more prosperous. A partial list of contestants includes Jim Manzi, Paul Krugman, Matt Welch, Megan McArdle, Matthew Yglesias, and Tino (don’t know who he is, but his blog has lots of good info).
I’ve addressed this issue in the past, with detailed comparisons in my Cato study on the Nordic Model, as well as a paper for the Heritage Foundation looking at Fiscal Policy Lessons from Europe.
I’m frankly shocked when people claim Europe is as rich as the United States, for the simple reason that the data showing otherwise is so abundant. The following charts, both from presumably impeccable sources, should be more than enough to end the argument. The first one is from OECD data (see page 6), showing average individual consumption per capita. I compare America to the EU-15 (Western Europe), but then also add Norway and Switzerland to the mix to boost the European score.
Filed under: Foreign Policy and National Security; Government and Politics; Health, Welfare & Entitlements; International Economics and Development; Political Philosophy; Tax and Budget Policy
Health Care Bill to be Online for 72 Hours Before Final House Vote — Pelosi Is the Transparency Leader?
The Sunlight Foundation cites this tweet, and newspapers confirm, that the House leadership has promised to put the final health care bill online for 72 hours before a final vote.
“The move came after Rep. Scott Murphy, D-N.Y., urged colleagues to join him in asking House Speaker Nancy Pelosi, D-Calif., and House Democratic Leader Steny Hoyer, D-Md., for a three-day time-out before any floor vote,” reports the St. Louis Post-Dispatch.
Kudos to Representative Murphy for bringing this up. Congratulations to the Sunlight Foundation for organizing the closely related Read the Bill campaign, which is pressuring Congress to post bills online for 72 hours before debate begins.
Meanwhile, the Obama administration’s unfulfilled transparency promises are beginning to draw derision not only from political partisans but from the mainstream media. For example, the L.A. Times “Top of the Ticket” blog mocked the administration yesterday in a post called, “Joe Biden Update: He Meets on Transparency Today. But the Meeting is Closed.”
[T]oday’s Biden schedule highlight is a meeting with the chief of transparency for economic recovery. But, unfortunately, the transparency meeting is non-transparent, closed to the press… Which makes it — what? — secret openness? Open secrecy?
That post cites this one at a site called Media-ite, where columnist Tommy Christopher bemoans the president’s failure to see through his promise to put health care negotiations on C-SPAN.
Secret negotiations like the one between the pharmaceutical lobby, the White House, and the Senate Finance Committee are the Obama pledge’s raison d’etre. Hours of debate and information are nice, but the real value of transparency is in keeping everyone honest. By meeting with insurance and pharmaceutical industry leaders in private, the administration has shielded the parties most in need of being kept honest, the ones most likely to poison the process.
If you had asked people a year ago whether President Obama or Speaker Pelosi would be the leader in legislative transparency, I don’t think many would have bet on the latter. This is not to say that the process has been transparent enough — the production of the health care bill has been quite opaque compared to what’s possible and desirable. But Pelosi is the current leader on transparency, if only by substantial default.
Filed under: Health, Welfare & Entitlements; Telecom, Internet & Information Policy
White House, Unions Reach Deal on Taxing Insurance Coverage
The Washington Post reports that the White House has reached a tentative agreement with labor leaders to tax high-cost health insurance policies.
What did you think of the negotiations? You did watch them on C-SPAN, didn’t you?
At the Sunlight Foundation blog, I’ve joined in some discussion about whether a president could really force process reforms on Congress like requiring negotiations to be televised. (Short answer: It’s possible, not probable.)
But here’s a case where the White House declined to put its own negotiations on television as the president promised.
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