A Not So Happy Anniversary for the “Massachusetts Model”

Posted by Michael D. Tanner

Three years ago yesterday, then-Governor Mitt Romney signed into law the most far reaching state health care reform plan to date.  At the time, we warned that the plan, with its individual and employer mandates, new regulatory bureaucracy (the Connector), and middle-class subsidies would result in “a slow but steady spiral downward toward a government-run health care system.” Sadly, three years later, those predictions appear to be coming true.

  • While the state has reduced the number of residents without health insurance, some 200,000 people remain uninsured. Moreover, the increase in the number of insured is primarily due to the state’s generous subsidies, not the celebrated individual mandate.
  • Health care costs continue to rise much faster than the nationally. Since the program became law, total state health care spending has increased by 23 percent. Insurance premiums have been increasing by 10-12 percent per year, nearly double the national average.
  • New regulation and bureaucracy is limiting consumer choice and adding to costs.
  • Program costs have skyrocketed. Despite tax increases, the program faces huge deficits in the future. As a result, the state is considering caps on insurance premiums, cuts in reimbursements to providers, and even the possibility of a “global budget” on health care spending.
  • A shortage of providers, combined with increased demand, is increasing waiting times to see a physician, especially primary care providers.

With the “Massachusetts model” being frequently cited as a blueprint for state or national health care reform, it is important to recognize that giving the government greater control over our health care system will have grave consequences for taxpayers, providers, and health care consumers. That is the lesson of the Massachusetts model.

Week in Review: ‘Saving’ the World, Government Control and Drug Decriminalization

Posted by Chris Moody

G-20 Summit Agrees to International Spending Plan

g-2The Washington Post reports, “Leaders from more than 20 major nations including the United States decided Thursday to make available an additional $1 trillion for the world economy through the International Monetary Fund and other institutions as part of a broad package of measures to overcome the global financial crisis.”

Cato scholars Richard W. Rahn, Daniel J. Ikenson and Ian Vásquez commented on the London-based meeting:

Rahn: “President Obama of the U.S. and Prime Minister Brown of the U.K. will be pressing for more so-called stimulus spending by other nations, despite the fact that the historical evidence shows that big increases in government spending are more likely to be damaging and slow down recovery than they are to promote vigorous economic expansion and job creation.”

Vásquez: “The push by some countries for massive increases in spending to address the global financial crisis smacks of political and bureaucratic opportunism. A prime example is Washington’s call to substantially increase the resources of the International Financial Institutions… There is no reason to think that massive increases of the IFIs’ funds will not worsen, rather than improve, their record or the accountability of the aid agencies and borrower governments.”

Ikenson: “Certainly it is crucial to avoid protectionist policies that clog the arteries of economic recovery and help nobody but politicians. But it is also important to keep things in perspective: the world is not on the brink of a global trade war, as some have suggested.”

Ikenson appeared on CNBC this week to push for a reduction of trade barriers in international markets.

With fears mounting over a global shift toward protectionism, Cato senior fellow Tom Palmer and the Atlas Economic Research Foundation are circulating a petition against restrictive trade measures.

Obama Administration Forces Out GM CEO

rick-wagonerPresident Obama took an unprecedented step toward greater control of a private corporation after forcing General Motors CEO  Rick Wagoner to leave the company. The New York Post reports “the administration threatened to withhold bailout money from the company if he didn’t.”

Writing for the Washington Post, trade analyst Dan Ikenson explained why the government is responsible for any GM failure from now on:

President Obama’s newly discovered prudence with taxpayer money and his tough-love approach to GM and Chrysler would both have more credibility if he hadn’t demanded Rick Wagoner’s resignation, as well. By imposing operational conditions normally reserved for boards of directors, the administration is now bound to the infamous “Pottery Barn” rule: you break it, you buy it. If things go further south, the government is now complicit.

Wagoner’s replacement, Fritz Henderson, said Tuesday that after receiving billions of taxpayer dollars, the company is considering bankruptcy as an option. Cato scholars recommended bankruptcy months ago:

Dan Ikenson, November 21, 2008: “Bailing out Detroit is unnecessary. After all, this is why we have the bankruptcy process. If companies in Chapter 11 can be salvaged, a bankruptcy judge will help them find the way. In the case of the Big Three, a bankruptcy process would almost certainly require them to dissolve their current union contracts. Revamping their labor structures is the single most important change that GM, Ford, and Chrysler could make — and yet it is the one change that many pro-bailout Democrats wish to ignore.”

Daniel J. Mitchell, November 13, 2008:  ”Advocates oftentimes admit that bailouts are not good policy, but they invariably argue that short-term considerations should trump long-term sensible policy. Their biggest assertion is that a bailout is necessary to prevent bankruptcy, and that avoiding this result is critical to prevent catastrophe. But Chapter 11 protection may be precisely what is needed to put American auto companies back on the path to profitability. Bankruptcy laws specifically are designed to give companies an opportunity — under court supervision — to reduce costs and streamline operations.”

Dan Ikenson, December 5, 2008: “The best solution is to allow the bankruptcy process to work. It will be needed. There are going to be jobs lost, but there is really nothing policymakers can do about that without exacerbating problems elsewhere. The numbers won’t be as dire as the Big Three have been projecting.”

Cato Links

  • As the North Atlantic Treaty Organization celebrates its 60th birthday, there are signs of mounting trouble within the alliance and increasing reasons to doubt the organization’s relevance regarding the foreign policy challenges of the 21st century. In a new study, Cato scholar Ted Galen Carpenter argues that NATO’s time is up.
  • Should immigration agents target businesses knowingly hiring illegal immigrants? Cato scholar Jim Harper weighs in on a Fox News debate.

McAuliffe-nomics

Posted by David Boaz

Good news for Virginia taxpayers! Turns out that gubernatorial candidate Terry McAuliffe, longtime Democratic fundraiser and former national chairman, understands the power of tax cuts. At a forum on Wednesday, he said that $1.25 million in tax cuts could generate $80 million in economic activity. I’m not sure even Art Laffer or Christina Romer would claim that much return on tax cuts. But here’s McAuliffe:

At George Mason University yesterday, McAuliffe said Virginia’s appeal to Hollywood filmmakers could improve the state’s economic picture. McAuliffe said he became familiar with the potency of the film industry while serving as chairman of the Democratic National Committee.

During a roundtable discussion with local filmmakers and producers at George Mason, he unveiled a proposal to offer additional tax incentives and other benefits to film crews making movies in Virginia. He said the state has been losing out to such states as North Carolina and Georgia, which offer greater benefits and have seen their film industries flourish.

He pointed to the HBO miniseries “John Adams,” about the nation’s second president, as an example of a film project that had benefited the state. The miniseries, filmed partly in Williamsburg and at the College of William and Mary, cost Virginia $1.25 million in tax breaks, but it boosted the local economy by $80 million and created 3,500 jobs, he said.

Unless . . . wait a minute. Could it be that McAuliffe only favors targeted tax cuts, tax cuts that would direct economic activity in a particular direction, tax cuts that would in fact help his Hollywood fundraising friends? Hard to say. He’s not calling for tax increases during his gubernatorial campaign, but of course he helped President Clinton raise taxes and he supports President Obama’s tax-spend-and-borrow policies. According to this liberal blogger, McAuliffe tells liberals privately that he can’t run for governor of Virginia on a tax-increase platform . . . if you get my drift.

But hey, if a $1.25 million tax break can generate $80 million of economic activity, what could a $125 million tax break do for Virginia?

Democrats Agree on Health Plan Outline: Be Afraid, Be Very Afraid

Posted by Michael D. Tanner

The New York Times reports that key congressional Democrats have agreed on the basic provisions for a health care reform bill.  And while many details remain to be negotiated, the broad outline provides a dog’s breakfast of bad ideas that will lead to higher taxes, fewer choices, and poorer quality care.

Among the items that are expected to be included in the final bill:

  • An Individual Mandate. Every American will be required to buy an insurance policy that meets certain government requirements.  Even individuals who are currently insured — and happy with their insurance — will have to switch to insurance that meets the government’s definition of acceptable insurance, even if that insurance is more expensive or contains benefits that they do not want or need.  Get ready for the lobbying frenzy as every special interest group in Washington, both providers and disease constituencies, demand to be included.
  • An Employer Mandate. At a time of rising unemployment, the government will raise the cost of hiring workers by requiring all employers to provide health insurance to their workers or pay a fee (tax) to subsidize government coverage.
  • A Government-Run Plan, competing with private insurance.  Because such a plan is subsidized by taxpayers, it will have an unfair advantage, allowing it to squeeze out private insurance.  In addition, because government insurance plans traditionally under-reimburse providers, such costs are shifted to private insurance plans, driving up their premiums and making them even less competitive. The actuarial firm Lewin Associates estimates that, depending on how premiums, benefits, reimbursement rates, and subsidies were structured, as many as 118.5 million would shift from private to public coverage.   That would mean a nearly 60 percent reduction in the number of Americans with private insurance.  It is unlikely that any significant private insurance market could continue to exist under such circumstances, putting us on the road to a single-payer system.
  • Massive New Subsidies. This includes not just subsidies to help low-income people buy insurance, but expansions of government programs such as Medicaid and Medicare.
  • Government Playing Doctor.   Democrats agree that one goal of their reform plan is to push for “less use of aggressive treatments that raise costs but do not result in better outcomes.”  While no mechanism has yet been spelled out, it seems likely that the plan will use government-sponsored comparative effectiveness research to impose cost-effectiveness guidelines on medical care, initially in government programs, but eventually extending such restrictions to private insurance.

Given the problems facing our health care system-high costs, uneven quality, millions of Americans without health insurance–it seems that things couldn’t get any worse.   But a bill based on these ideas, will almost certainly make things much, much worse.

Or maybe it’s all just a massive April Fool’s joke.

New York’s ‘Not Austere’ Budget

Posted by Tad DeHaven

“Not Austere” is how the New York Times is describing the state’s $131.8 billion budget for 2009-2010.  As a colleague pointed out to me, “how bad does a budget have to be for the New York Times to call it ‘not austere’?”  Apparently, pretty bad.

In addition to an estimated $7 billion in tax and fee increases, total state spending would increase almost 9% when federal “stimulus” money is included.  Supporters dismiss the inclusion of bailout money in the totals, but for those who think the “temporary” federal bailout money won’t foster otherwise higher state spending going forward, I’ve got a lot for sale in Poughkeepsie.

The Albany Times-Union reported that Gov. Paterson cited public employee labor contracts as a reason for the budget increase.  Once again, the needs of the productive class (i.e., taxpayers) take a back seat to the bureaucratic class living at their expense.  Of course, New York’s policymakers were also able to find money for critical expenditures on “gun clubs, churches, a yoga foundation and the Wantagh American Legion Pipe Band, among thousands of other projects.”

The biggest tax increase is a surcharge on personal income taxes paid by “the wealthy” that is supposed to net state coffers $4 billion.  (Note to New York personal income tax payers: New Hampshire doesn’t have one.)  But other tax increases will hit all walks of New York life including an increased assessment on utilities, a motor vehicle registration fee increase of 25 percent, an increase in driver’s license fees of 25 percent, increased taxes on beer and wine, a tax increase on auto rentals of 1 percent, and possibly the most insulting — a new $100 fee on tax preparers (guess who’s going to ultimately pay that one?).

Here’s A “Toxic Asset” for You…

Posted by Neal McCluskey

The Obama administration seems obsessed with making American taxpayers eat toxic assets. And I’m not talking about bad paper, derivatives, or any other inscrutable financial stinkers. I’m talking about good ol’ American public schooling.

Truth be told, after listening to the president’s presser last night, even I started to think that the key to American economic success is “investing” in education. After all, once you’ve heard something for about the twentieth time, you start to believe it. I mean, that’s how propaganda works, right? But somehow my mind refused to give in, and it forced me to remember:

We’ve been “investing” in government schools for decades, and have been reaping nothing but AIG-like results!

I actually laid out the startlingly awful returns we’ve gotten for our education dollars in several blog entries last month, but thought I’d revisit the basic, revolting facts one more time. I want it to be absolutely clear that lavishing more money on education isn’t change, nor, given what we get for the money, could it possibly be the key to long-term economic success.

So what have we invested? Let’s start with total outlays for elementary through post-secondary education, taken from table 26 of the latest Digest of Education Statistics. In 1969 we spent a total of $347 billion in inflation-adjusted dollars. In 2007, we spent $981 billion, a 183 percent increase.

How about public k-12 spending on a per-pupil basis? Again using Digest data (table 181) – which understates total expenditures by excluding such things as “state administration expenditures” – we can see that we’ve been spending increasingly sizable amounts. After adjusting for inflation, in 1969 we spent $5,161 per child. By 2005, that number had more than doubled, hitting $11,643. And what has that “investment” yielded?

Other than massive bloat, bupkus! Looking at National Assessment of Educational Progress long-term trend scores for 17-year-olds – essentially, our schools’ final products – we see almost complete academic stagnation. In mathematics, the average scale score was 304 (out of 500) in 1973, and only a measly 3 points higher in 2004! That’s a one percent increase in math outcomes for a roughly 100 percent increase in funding! And that actually beats the “return” in reading, where 17-year-olds were at 285 in 1971 and, yup, 285 in 2004!

How about higher education? Here we don’t have very good outcome measures and it is difficult to break down overall per-pupil expenditures. What we do have, however, suggests another bad investment.

To get a feel for expenditures, we can examine the State Higher Education Executive Officers report (figure A) showing that total revenue collected per full-time-equivalent student at public institutions, adjusted for inflation, grew from $8,463 in 1983 to $11,037 in 2008, a 30 percent increase. We can also look at aid per student, most of which came through government. According to data from the College Board (table 3), in 1983 the average full-time-equivalent student received $3,769 in inflation-adjusted aid. In 2007 she got $10,392, a 176 percent increase.

What are the returns on these investments? Again, lots of bloat, but from what we can tell, relatively little of educational value. Graduation rates, for one thing, seem to be falling.

According to the Population Studies Center, within eight years of graduating high school, 51.1 percent of students in the high school class of 1972 had finished college degrees. In contrast, only 45.3 percent of 1992’s high school class had done the same. And grads seem to be getting less well educated; according to the National Assessment of Adult Literacy, between 1992 and 2003 literacy levels dropped for both Americans whose education maxed out at a bachelor’s degree and those with graduate degrees. Whether it was graduates’ ability to read prose, documents, or handle math, scores went down while costs went up.

So all told, what do we have to show for our education investment? Pretty much just empty bank accounts. And yet, some politicians just can’t seem to get enough of those toxic assets!

Let’s Be Fiscally Responsible, Starting Tomorrow

Posted by Daniel Griswold

In his famous book, Confessions, the 5th-century theologian Augustine wrote that he used to pray before his conversion, “Lord, make me chaste, but not just yet.”

That quote came to mind as I read the news a moment ago that President Obama plans to sign the $410 billion catch-all appropriations bill even though it contains 8,500 “earmarks” that will cost taxpayers nearly $8 billion.

Recall that as a candidate, Obama said he and Democratic leaders in Congress would change the “business as usual” practice of stuffing spending bills with pet projects. Those earmarks, submitted by individual members to fund obscure projects in their own districts and states, typically become law without any debate or transparency.

Saying he would sign the “imperfect bill,” President Obama offered guidelines to curb earmarks … in the future. “The future demands that we operate in a different way than we have in the past,” he said. “So let there be no doubt: this piece of legislation must mark an end to the old way of doing business and the beginning of a new era of responsibility and accountability.”

Lord, make us fiscally responsible, but not just yet.

Corruption Rewarded in Government

Posted by Chris Edwards

In Downsizing the Federal Government, I discussed some of the corruption surrounding former Senator Ted Stevens:

Another example of abuse engineered by Senator Stevens involves Alaska Native Corporations. Because of rule changes slipped in by Stevens, these shadowy businesses based in his state are allowed to circumvent normal federal procurement rules and win no-bid contracts. The result of such loopholes is that taxpayers do not get value for their money. For example, in 2002 a half billion dollar contract for scanning machines at U.S. border crossings was given to a native corporation with little experience in the technology, instead of established leaders in the field who were not allowed to bid.

The Washington Post did a good job of bringing the scandal of ANCs to light a few years ago. Did the spotlight on ANCs and connections to disgraced Senator Stevens convince Congress to move ahead with reforms? Hardly. From Government Executive today:

In fiscal 2008, companies owned by Alaskan regional and tribal corporations earned a record $5 billion in federal contracts, nearly 10 times the $506 million they earned in fiscal 2000 … ANCs earned two-thirds of the $24 billion they accumulated in prime contracts since fiscal 2000 through the Small Business Administration’s 8(a) Business Development program … Federal acquisition specialists said the data shows that the program, which was designed to help small and disadvantaged companies, has been undermined by a system that rewards companies that earn hundreds of millions in annual revenue.

In the story, Steven Schooner, of George Washington University, summed up the scam well: “The ANC program, as currently implemented, is a blunt instrument that distorts the procurement system, injects well-founded cynicism into the process, and reinforces the belief that government procurement is more about allocating political spoils than ensuring that the government receives value for taxpayer money.”

President Obama has promised procurement reform. He could start be eliminating ANCs and other forms of procurement favoritism.