Archives: 07/2010

Your Health Insurance, Designed by Lobbyists

Christopher Weaver of Kaiser Health News has an excellent article in today’s Washington Post on the various government agencies that will now be deciding what health insurance coverage you must purchase, and how many of those decisions will ultimately fall to lobbyists and politicians:

For years, an obscure federal task force sifted through medical literature on colonoscopies, prostate-cancer screening and fluoride treatments, ferreting out the best evidence for doctors to use in caring for their patients. But now its recommendations have financial implications, raising the stakes for patients, doctors and others in the health-care industry.

Under the new health-care overhaul law, health insurers will be required to pay fully for services that get an A or B recommendation from the U.S. Preventive Services Task Force…[which] puts the group in the cross hairs of lobbyists and disease advocates eager to see their top priorities – routine screening for Alzheimer’s disease, diabetes or HIV, for example – become covered services.

And it’s not just the USPSTF that will be deciding what coverage you must purchase:

[P]lans must also cover a set of standard vaccines recommended by the Advisory Committee on Immunization Practices, as well as screening practices for children that have been developed by the Health Resources and Services Administration in conjunction the American Academy of Pediatrics. Health plans will also be required to cover additional preventative care for women recommended under new guidelines that the Department of Health and Human Services is expected to issue by August 2011.

The chairman of the USPSTF says the task force will try “to stay true to the methods and the evidence… the science needs to come first.”  A noble sentiment, but as my colleague Peter Van Doren likes to say, “When politics and science conflict, politics wins.”  Witness how industry lobbyists have killed or neutered every single government agency that has ever dared to produce useful comparative-effectiveness research.  (You’re next, Patient-Centered Outcomes Research Institute!)

When government agencies are making non-scientific value judgments–e.g., are these studies reliable enough to merit an A or B recommendation? what should be the thresholds for an A or B recommendation? will the benefits of mandating this coverage outweigh the costs?–politics does even better.  Witness Sen. Barbara Mikulski (D-Md) overruling a USPSTF recommendation when she “inserted an amendment in the [new] health-care law to explicitly cover regular mammograms for women between 40 and 50. “

Speaking of value judgments, the one flaw in Weaver’s article is that it inadvertently conveys a value judgment as if it were fact.  He writes that the mandate to purchase coverage for preventive services is “good news for patients” and that 88 million Americans “will benefit.”  Whether the mandate is good news for patients depends on whether patients value the added coverage more than the additional premiums they must pay.  (The administration estimates that premiums for affected consumers will rise an average of 1.5 percent.  One insurer puts the average cost at 3-4 percent of premiums.  Naturally, some consumers will face above-average costs.)  Whether the benefits outweigh the costs is ultimately a subjective determination. (The best way to find out, as it happens, is to let consumers make the decision themselves.)

GOP Spending Cap

Republicans on the Senate Appropriations Committee have announced support for caps on the discretionary spending portion of the federal budget. According to press reports, discretionary spending under the cap for fiscal year 2011 would be approximately $20 billion less than what the president has proposed.

Appropriators – often referred to as the “third party” in Washington – exist to do one thing: spend other people’s money. Getting appropriators to agree to place any sort of limit themselves is a plus.

However, it’s hard to get excited about spending $20 billion less than the president. As the following chart shows, discretionary outlays have soared in the past decade:

With three months still to go in the current budget year, the federal deficit has already hit the trillion dollar mark. By year’s end the government will have borrowed about $1.4 trillion. It’s like the entire discretionary budget – defense and hundreds of other activities – are all financed by borrowing from the next generation.

Republicans apparently want agitated voters to see this gesture as evidence that the party is serious about out-of-control spending and deficits. But capping spending at the already exorbitant levels that Republicans helped reach isn’t exactly a big reform. Instead, Republicans need to propose the elimination of entire agencies and major programs for them to be taken seriously as a party willing to confront the nation’s looming financial crisis.

Georgia on My Mind

Rick Hess has written recently about education policy in the republic of Georgia, describing it as “guaranteed to bring smiles to my friends at the Cato Institute.” Hess characterizes it as a “market-driven system,” and “a seemingly elegant market design,” that has been undermined by a lack of autonomy for schools, “incoherent governance,” and “the reluctance of state officials to keep their hands off the schools.”

Can’t say that this description has me cracking open the bubbly. To the problems Hess has already identified, we could add the fact that there is a national curriculum that even the nation’s voucherized schools must apparently use as the basis for their plan of instruction. The secondary system is also compromised by a central government test suite that determines admission to the nation’s universities. These tests, apparently having little to do with the national curriculum, have led to mass absenteeism among 11th and 12th graders – who cut most of their classes to study for them. The state also seems to require students to take 12 years of schooling before being eligible to enter college, even if they could (and wish to) pass the admissions test earlier.

We could also add to this the fact that a shadowy government agency can and does fire principles from supposedly autonomous voucher-funded schools. Even if it randomly selected the schools to be inspected and applied academic criteria in its decisions, such an agency would not be part of any “elegant market design.” As it happens, though, it does not use academic criteria in deciding whom to fire. According to a Georgian report Hess refers to, a principal could be fired for having playground trees that “are not balanced properly.” [So now we know what Adrian Monk is doing after his show wrapped….]

Georgia, it seems to me, has not yet taken a genuinely laissez-faire approach to education, but I wish them well and hope that they will eventually manage to ensure that all families have access to an unfettered education marketplace.

NB: Ray Charles’ interpretations of “Georgia on My Mind” are wonderful, but consider giving one of Jay McShann’s a listen if you’re into that sort of thing.

Justice Thomas, Pandora, and Stephen Colbert Walk into a Gun Store…

My sometime co-author Josh Blackman points out a parallel between Justice Thomas’s fascinating concurrence in McDonald v. Chicago – which extended the right to keep and bear arms to the states – and the “Keeping Pandora’s Box Sealed” article we published earlier this year.

Justice Thomas in McDonald v. Chicago:

With the inquiry appropriately narrowed, I believe this case presents an opportunity to reexamine, and begin the process of restoring, the meaning of the Fourteenth Amendment agreed upon by those who ratified it.

Blackman & Shapiro in Pandora’s Box:

The purpose of this article is to provide a roadmap to welcome the Privileges or Immunities Clause back into constitutional jurisprudence. The Slaughter-House Cases “sapped the [Privileges or Immunities Clause] of any meaning”  but the Supreme Court now has the opportunity correct this mistake.  Taking up Justice Thomas’s gauntlet, we “endeavor to understand what the framers of the Fourteenth Amendment thought” the Privileges or Immunities Clause meant, and seek to restore that original meaning.

Relatedly, for my attempt to explain the meaning of the right to keep and bear arms while talking to a crazy character and a humorless gun-control advocate, see my recent appearance on the Colbert Report.

You Can Laugh All You Want To, But I’ve Got My Philosophy

There’s an interesting back-and-forth between Dan Foster at National Review and Ezra Klein at the Washington Post over whether there’s a symmetry between libertarian (or conservative) preference for smaller government and progressive advocacy for a larger or more active one.  Ezra wants to maintain that the former is “philosophical”—one might use the more loaded “ideological”—in a way that the latter is not.  And his argument has some intuitive appeal, but I think ultimately misfires:

But like a lot of people, I actually don’t have an abstract preference for either bigger government or smaller government. If we made the Defense Department a lot smaller, or reformed the health-care system so that we were getting a deal more akin to European countries, or got the federal government out of farm subsidies, that would be fine with me, even as the government would shrink. A lot of conservatives believe, I think, that their philosophical preference for small government is counterbalanced by other people’s philosophical preference for big government. But that’s not true: Their philosophical preference for small government is counterbalanced by other people’s practical preference for larger government in certain areas where it seems to make sense.

Now, this much I take to be true: Ezra and other progressives, talk show rhetoric notwithstanding, don’t have some abstract desire to increase the size and power of government independently of particular functions they want government to serve.  But that doesn’t mean his contrast between his “practical preference” for larger government “where it seems to make sense” and the “philosophical preference for small goverment” will fly.  As long as we’re invoking philosophy, it may be useful to deploy the hoary distinction ethicists often make between teleological and deontological principles—very crudely, the distinction between principles that specify ends or goals, and principles that specify rules that constrain our pursuit of ends or goals.

In a teleological frame, the asymmetry Ezra is positing makes a certain amount of sense. Progressives’ desire for larger government is mostly instrumental, while libertarians and conservatives seem to treat smaller government as an end in itself. But I think this is somewhat misleading. You could also say that Ezra and I both favor a government exactly large enough to accomplish its legitimate functions, albeit with very different views of what those functions are. In part this difference is “practical”—or at any rate, empirical—on both sides: Neither of us, presumably, think the government should squander taxpayer money on ineffective programs, but we have different background views about the relative effectiveness of government and civil society at achieving worthy aims.

But flipping explicitly into a deontological frame, we can see another difference—and here I think there is a real symmetry. You could say that where we differ is in how much weight we give the citizen’s prima facie claim against coercive interference. I think that claim ought to have quite a lot of weight, such that there are a relatively small number of public goods sufficiently vital to justify overriding the presumption against interference. Even assuming we agreed on the probable utilitarian benefit of some particular government program, I think it is fair to say Ezra gives a lot less presumptive weight to such claims. If you do not see anything seriously morally problematic about compelling people to contribute to projects and goals that (granting assumptions about efficacy, for the sake of argument) seem broadly worthy, you’ll be inclined to see government as an all-purpose mechanism for remedying a whole array of social problems. Which particular problems justify larger government will then be determined by “practical” considerations, but the background premise about the weight of the claim against compulsion is going to be exactly as “philosophical” for the progressive as for the libertarian or the conservative.

The Deadly Impact of the Death Tax

Australia got rid of its death tax in 1979. A couple of Aussie academics investigated whether the elimination of the tax had any impact on death rates. They found the ultimate example of supply-side economics, as reported in the abstract of their study.

In 1979, Australia abolished federal inheritance taxes. Using daily deaths data, we show that approximately 50 deaths were shifted from the week before the abolition to the week after. This amounts to over half of those who would have been eligible to pay the tax. Although we cannot rule out the possibility that our results are driven by misreporting, our results imply that over the very short run, the death rate may be highly elastic with respect to the inheritance tax rate.

It looks like this experiment is going to be repeated in the United States, but in the opposite direction. There was a rather unsettling article in the Wall Street Journal over the weekend. The story begins with a description of how the death tax rate dropped from 45 percent in 2009 to zero in 2010, and then notes the huge implications of a scheduled increase to 55 percent in 2011.

Congress, quite by accident, is incentivizing death. When the Senate allowed the estate tax to lapse at the end of last year, it encouraged wealthy people near death’s door to stay alive until Jan. 1 so they could spare their heirs a 45% tax hit. Now the situation has reversed: If Congress doesn’t change the law soon—and many experts think it won’t—the estate tax will come roaring back in 2011. …The math is ugly: On a $5 million estate, the tax consequence of dying a minute after midnight on Jan. 1, 2011 rather than two minutes earlier could be more than $2 million; on a $15 million estate, the difference could be about $8 million.

The story then features several anecdotes from successful people, along with observations from those who deal with wealthy taxpayers. The obvious lesson is that taxpayers don’t want the IRS to confiscate huge portions of what has been saved and invested over lifetimes of hard work.

“You don’t know whether to commit suicide or just go on living and working,” says Eugene Sukup, an outspoken critic of the estate tax and the founder of Sukup Manufacturing, a maker of grain bins that employs 450 people in Sheffield, Iowa. Born in Nebraska during the Dust Bowl, the 81-year-old Mr. Sukup is a National Guard veteran and high school graduate who founded his firm, which now owns more than 70 patents, with $15,000 in 1963. He says his estate taxes, which would be zero this year, could be more that $15 million if he were to die next year. …Estate planners and doctors caution against making life-and-death decisions based on money. Yet many people ignore that advice. Robert Teague, a pulmonologist who ran a chronic ventilator facility at a Houston hospital for two decades, found that money regularly figured in end-of-life decisions. “In about 10% of the cases I handled at any one time, financial considerations came into play,” he says. In 2009, more than a few dying people struggled to live into 2010 in hopes of preserving assets for their heirs. Clara Laub, a widow who helped her husband build a Fresno, Calif., grape farm from 20 acres into more than 900 acres worth several million dollars, was diagnosed with advanced cancer in October, 2009. Her daughter Debbie Jacobsen, who helps run the farm, says her mother struggled to live past December and died on New Year’s morning: “She made my son promise to tell her the date and time every day, even if we wouldn’t,” Mrs. Jacobsen says. …Mr. Aucutt, who has practiced estate-tax law for 35 years, expects to see “truly gruesome” cases toward the end of the year, given the huge difference between 2010 and 2011 rates.

The obvious question, of course, is whether politicians will allow the tax to be reinstated. The answer is almost certainly yes, but it’s also going to be interesting to see if they try to impose the tax retroactively on people who died this year.

So far in 2010, an estimated 25,000 taxpayers have died whose estates are affected by current law, according to the nonpartisan Tax Policy Center. That group includes least two billionaires, real-estate magnate Walter Shorenstein and energy titan Dan Duncan. …”Enough very wealthy people have died whose estates have the means to challenge a retroactive tax, and that could tie the issue up in the courts for years,” says tax-law professor Michael Graetz of Columbia University.

It should go without saying, by the way, that the correct rate for the death tax is zero. It’s also worth noting that this is an issue that shows that incentives do matter.

Don’t Look Around, Get the For-Profits!

Yesterday, I brought you up to date on the under-the-radar advance of federal K-12 education control. But that’s not the only education sector under largely silent assault. Most people are also probably unaware of the siege of for-profit colleges and universities, a group loathed because, well, they dare to be honest about trying to make a profit, and they do it in an industry utterly dependent on federal cash.

The complaint – which you might have heard before – is that for-profit enrollment is growing very fast; the schools are more expensive than taxpayer-subsidized public institutions or non-profit private schools; and for-profit students often struggle to graduate and pay back their mainly federal student loans. This story on NPR’s Marketplace is somewhat representative of the coverage afforded these schools, with its focus on a former for-profit employee accusing one school – but by implication the whole sector – of deceiving students about their employment and earning prospects after they’ve completed the school’s pricey program. Here’s the pretty standard stuff:

Garnett knows a lot about the value of education. She worked as director of graduate placement at for-profit Allied College in St. Louis. It’s now called Anthem College. Here’s a clip from one of its promotional videos.

Allied College video: We can help you break into that career you’ve always dreamed of, and your future starts right now!

It was Garnett’s job to help students start those careers as pharmacy technicians or dental assistants.

Garnett: We sent resumes on their behalf, we called potential employers on their behalf, we called the graduates every week, sometimes every day, to say “have you followed up on this, have you talked to anyone, what have you been doing?”

All that effort paid off. Garnett says more than 70 percent of graduates found the kinds of jobs they went to school for. But she says a lot of those jobs paid just $8 to $10 an hour. And the students often took on a lot of debt.

Garnett: A lot of it would depend on what program the student was in, how hard they were willing to work, the effort that they were willing to put in. But just being honest, if you’re making $10 an hour and you have $15,000 in student loans, that would be pretty difficult to pay back, for anyone.

You get the picture: The for-profit school deceived students so it could rake in cash for it’s owners. Well it’s stories like this – as well as some truly alarming statistics about for-profit costs and graduation rates – that are driving a series of Capitol Hill floggings of proprietary schools, as well as a drive to tighten regulation of the schools:

The law says career training and vocational programs have to prepare students for quote “gainful employment in a recognized occupation.” Otherwise, the programs aren’t eligible for federal student aid. But until now, no one’s defined what gainful employment means. The Department of Education is drawing up new rules meant to protect students from taking on more debt than they can expect to pay off….

New regulations could force some programs to lower their tuition or even go out of business. But the gainful employment rule doesn’t apply to traditional four-year colleges or liberal arts programs….because career colleges and vocational programs exist to train people for jobs. There may be other reasons people go to Vassar or UCLA.

Clearly, the intent is to implement regulations that will have a disparate impact on for-profit schools. Sure, some people go to UCLA or Vassar to study, say, art history, but many go to study business, or engineering, or education, or something else with a job as a final goal.

Thankfully, Marketplace had the integrity to bring in a somewhat balancing voice, one that summarized what I argue in a much more detailed way in a new op-ed defending – sort of – for-profit higher ed. Quite simply, for-profits do have lots of problems, but so do publics and non-profit privates:

Sara Goldrick-Rab teaches education policy at the University of Wisconsin, Madison. She says nonprofit colleges and public universities deserve a closer look too. Plenty of students graduate from those schools with piles of debt and slim job prospects.

Sara Goldrick-Rab: The fact is that when you talk to students these days, no matter where they are, their main focus is on getting a job – and its on getting a good-paying job. And that’s what they tell you that they’re there to do.

What Goldrick-Rab probably wouldn’t say – after all, she has publicly (and wrongly) heckled me for saying it – is that government aid likely deserves much of the blame for the overconsumption and skyrocketing prices of higher ed. By making students insensitive to costs, aid allows schools – all schools – to raise prices with impunity, and distorts students’ perceptions of the value of higher ed.

So are there problems in for-profit higher education? Absolutely! But they are the same problems we have throughout government-dominated academia. The only difference is that the for-profits are at least honest about grabbing every dollar they can get.