Archives: 12/2014

Senate Leaders Demand Treasury, HHS Inform Consumers About Risks Of HealthCare.gov Coverage

The Obama administration is boasting that 2.5 million Americans have selected health insurance plans for 2015 through the Exchanges it operates in 36 states under the Patient Protection and Affordable Care Act, and that they are well on their way to enrolling 9.1 million Americans in Exchange coverage next year. But there’s a problem. The administration is not warning ObamaCare enrollees about significant risks associated with their coverage. By mid-2015, 5 million HealthCare.gov enrollees could see their tax liabilities increase by thousands of dollars. Their premiums could increase by 300 percent or more. Their health plans could be cancelled without any replacement plans available. Today, the U.S. Senate leadership – incoming Majority Leader Mitch McConnell (R-KY), Majority Whip John Cornyn (R-TX), Conference Chairman John Thune (R-SD), Policy Committee Chairman John Barrasso (R-WY), and Conference Vice Chairman Roy Blunt (R-MO) – wrote Treasury Secretary Jacob J. Lew and Health and Human Services Secretary Sylvia M. Burwell to demand the administration inform consumers about those risks.

First, some background.

  • The PPACA directs states to establish health-insurance Exchanges and requires the federal government to establish Exchanges in states that fail to do so.
  • The statute authorizes subsidies (nominally, “tax credits”) to certain taxpayers who purchase Exchange coverage. Those subsidies transfer much of the cost of ObamaCare’s many regulations and  mandates from the premium payer to the taxpayer. For the average recipient, Exchange subsidies cover 76 percent of their premium.
  • But there’s a catch. The law only authorizes those subsidies “through an Exchange established by the State.” The PPACA nowhere authorizes subsidies through federally established Exchanges. This makes the law’s Exchanges operate like its Medicaid expansion: if states cooperate with implementation, their residents get subsidies; if not, their residents get no subsidies.
  • Confounding expectations, 36 states refused or otherwise failed to establish Exchanges. This should have meant that Exchange subsidies would not be available in two-thirds of the country, and that many more Americans would face the full cost of the PPACA’s very expensive coverage.
  • Yet the Obama administration unilaterally decided to offer Exchange subsidies through federal Exchanges despite the lack of any statutory authorization. Because those (illegal) subsidies trigger (illegal) penalties against both individuals and employers under the PPACA’s mandates, the administration soon found itself in court.
  • Two federal courts have found the subsidies the administration is issuing to 5 million enrollees through HealthCare.gov are illegal. The Supreme Court has agreed to resolve the issue. It has granted certiorari in King v. Burwell. Oral arguments will likely occur in February or March, with a ruling due by June.
  • If the Supreme Court agrees with those lower courts that the subsidies the administration is issuing through HealthCare.gov are illegal, the repercussions for enrollees could be significant. Their subsidies would disappear. The PPACA would require them to repay the IRS whatever subsidies they already received in 2015 and 2014, which could top $10,000 for many enrollees near the poverty level. Their insurance payments would quadruple, on average. Households near the poverty level would see even larger increases. Their plans could be cancelled, and they may not be able to find replacement coverage.
  • The Obama administration knows it is exposing HealthCare.gov enrollees to these risks. But it is not telling them.

Senator Coburn’s Final Report

One the best U.S. senators of recent decades is leaving. No one has spotlighted the ongoing waste in federal spending more than Tom Coburn of Oklahoma. In his farewell address, he advised his colleagues: “Your whole goal is to protect the United States of America, its Constitution and its liberties … it’s not to provide benefits for your state.” As if to underline Coburn’s point, the Washington Post yesterday described how Senator Roger Wicker helped pour $349 million down the drain on an unused NASA facility in his home state of Mississippi.

One of Coburn’s strategies has been to use his expert staff to write investigative reports on federal activities. The huge collection of reports his staff has produced is remarkable. Each one is a big fat indictment of malfunctioning government.

Seeing this stream of high-quality and fun-to-read reports over the years has made wonder what the staffs of the other 99 senators do with their time. Every senator ought to be using his taxpayer-funded staff to try to save taxpayer money. Every senator ought to be digging into the giant $3.6 trillion spending empire that they have collectively created and trying to cut out some of the fat.

Coburn’s final report released last week is another impressive document. Coming in at 320 pages, Tax Decoder digs through the massive federal tax code and highlights hundreds of special deals, carve-outs, and illogical breaks. Tax Decoder’s findings are too voluminous to summarize here, and even seasoned tax wonks will find interesting stuff that they did not know.

Consider the chapter on nonprofit organizations, which spans 42 pages and is buttressed by 462 endnotes. This part of the tax code is a complex mess rife with abuse. Coburn’s staff found that Lady Gaga’s charity raised $2.6 million and handed out just $5,000 one year in benefits, while spending the rest on salaries, promotions, and parties. The Kanye West Foundation spent $572,383 one year, but not a dime on charity.The Cancer Fund for America raised $80 million, but handed out just $890,000 to cancer patients.

While the GAO—an arm of Congress—investigates federal activities, its reports are usually dry and timid. The agency’s role is not to upset its political masters. Similarly, most members of Congress don’t want to upset their colleagues, and so they shy away from criticizing wasteful spending directed to any state, not just their own. It’s easier for them to follow the herd, play the game, grab benefits, and hopefully cruise to safe reelection. Many outside groups and reporters do a great job investigating the government, but senators are in a uniquely powerful and privileged position to lead the charge. 

That’s why Senator Coburn and his staff filled a void with their reports. They uncovered idiocy in the budget, and they informed the public with the juicy details. Many members of Congress say that the government spends too much, but they shy away from specifics. But now that Tom Coburn is going, which members are willing to step up to the plate?   

Obama’s Historic Move toward Cuba

President Obama’s announcement to overhaul U.S. policy toward Cuba is historic. Given the ossified status of the relationship between both nations—frozen in time for decades despite the fall of the Berlin Wall and the end of the Cold War—Washington’s engagement is significant and welcome.

Obama’s announced measures—a spy swap, loosening of travel and economic restrictions, and launching of discussions to re-establish full diplomatic relations—go as far as the president can go without congressional authorization. Since the passing of the Helms-Burton Act in 1996, the lifting of the most important economic sanctions, particularly the trade embargo and travel ban, requires the approval of Congress. Unlike previous ad hoc measures toward Cuba, the economic measures announced by the president represent meaningful policy change, and they seem to closely follow the recommendations put forward by the Cuba Study Group in a white paper last year.

As part of the deal, Cuba released U.S. contractor Alan Gross after five years of imprisonment. Gross was arrested while working to expand Internet access for Havana’s Jewish community, an act that the Cuban authorities deemed to be “undermining the state.”

The president’s move should be uncontroversial. U.S. policy toward Cuba has been a blatant failure. It has not brought about democracy to the island and instead provided Havana with an excuse to portray itself as the victim of U.S. aggression. It has also served as the scapegoat for the dilapidated state of Cuba’s economy. Moreover, according to government reports, the embargo has also become somewhat of a U.S. security liability itself.

As for the economic measures, they are significant in symbolism, yet limited in their likely impact as long as Cuba retains its failed communist economic system. The 114th Congress should pick up where the president left off and move to fully end the trade embargo and lift the travel ban on Cuba.

 

Congress Sacrifices U.S. Security with New Sanctions Against Russia

In the midst of negotiations to avoid another government shutdown, Congress rammed through new sanctions against Russia as part of the misnamed “Ukraine Freedom Support Act of 2014.”

Congress appears determined to turn an adversary into an enemy and encourage retaliation against more significant American interests. Observed my colleague Emma Ashford: “the provisions in this bill will make it all the more difficult to find a negotiated settlement to the Ukraine crisis, or to find a way to salvage any form of productive U.S.-Russia relationship.”

Last year, the corrupt but elected Viktor Yanukovich was ousted by protests backed by rabid and sometimes violent nationalists. The United States and Europe flaunted their support for the opposition. Indeed, American officials openly discussed who should take power after his ouster.

Russian President Vladimir Putin still was not justified in dismembering Ukraine, but America would have reacted badly had Moscow helped overthrow a Washington-friendly government in Mexico.

Ukraine’s fate is not a serious security interest for the United States. The conflict raises humanitarian concerns, but no different than those elsewhere around the globe.

Kiev’s status matters more to Europe, largely for economic reasons. If the European Union and its members want to confront Russia over Ukraine, they should do so—without Washington’s involvement.

Do Amnesties Increase Unlawful Immigration?

One popular argument against a legalization, or amnesty, of unlawful immigrants is that it will merely incentivize future unlawful immigration.  Unlawful immigrants will be more likely to break immigration laws because they will eventually be legalized anyway, so why bother to attempt to enter legally (ignoring the fact that almost none of them could have entered legally)?  This claim is taken at face value because the stock of unlawful immigration eventually increased in the decades after the 1986 Immigration Reform and Control Act (IRCA) that amnestied roughly 2.7 million.

However, that doesn’t prove that IRCA was responsible for the increase in the stock of unlawful immigrants.  The stock of unlawful immigrants may have been increasing at a steady rate prior to the amnesty and that rate may have just continued after the amnesty.  Measuring the flows of unlawful immigrants is the best way to gauge whether the 1986 Reagan amnesty incentivized further unlawful immigration.  If the flows increased after IRCA, then the amnesty likely incentivized more unlawful immigration.  The number of annual apprehensions of unlawful immigrants on the Southwest border is a good way to approximate for these cross-border flows.

It’s perfectly reasonable to think that an amnesty of unlawful immigrants could increase their numbers in the future.  There are at least two ways this could occur.  The first is through knowledge of an imminent amnesty.  If foreigners thought Congress was about to grant legal status to large numbers of unlawful immigrants, then some of those foreigners may rush the border on the chance that they would be included.  Legislators were aware of this problem, which was why IRCA did not apply to unlawful immigrants who entered on January 1st 1982 or after.  IRCA had been debated for years before passage and Congress did not want to grant amnesty to unlawful immigrants who entered merely because they heard of the amnesty.  To prevent such a rush, subsequent immigration reform bills have all had a cutoff date for legalization prior to Congressional debate on the matter. 

Even with the cutoff date, some recent unlawful immigrants would still be able to legalize due to fraud or administrative oversights.  An unlawful immigrant who rushes the border to take advantage of an imminent amnesty still has a greater chance of being legalized than he did before, so legalization might be the marginal benefit that convinces him to try.  This theory of a rush of unlawful immigrants prior to an imminent amnesty is not controversial.

The Economics of Uber’s Surge Pricing

The recent tragic siege in Sydney has, perhaps unexpectedly, put Uber’s surge pricing system back in the headlines. Some considered the fact that Uber would allow for surge pricing to take effect amid a hostage crisis to be outrageous and insensitive. Yet, surge pricing ensures that Uber drivers will be on the road at times of peak demand and that the passengers who want an Uber ride the most will get one. Uber’s surge pricing system might seem strange and at times extortionate, but it merely puts on display basic economic forces that are at play all the time which most of us never question, and it should not be abandoned at times of high demand or in emergencies.

It is important to remember that surge pricing automatically kicks in thanks to Uber’s price algorithm. There was no Uber employee who decided to impose surge pricing amid a hostage crisis. Uber claimed that it kept surge pricing in place in order to get drivers on the road amid the crisis. Uber has no control over when drivers decide to log into its app, it can only provide financial incentives. Without surge pricing in effect there may well have been fewer drivers willing to get passengers out of Sydney’s Central Business District (CBD), the site of the siege. Uber responded to criticism of its surge pricing by making trips from the CBD free while keeping the surge rate high. Uber also claimed that it was refunding fares for passengers who left the CBD and were charged while surge pricing was in effect. Despite these steps, it should not be forgotten that the criticism Uber initially faced for surge pricing in Sydney was misplaced. Those who did not want to pay Uber’s elevated fares had other means of public transportation by which to leave the CBD.

Uber surge pricing is ordinary supply and demand economics at work. Given that Uber drivers drive at their own convenience it should not be a surprise that they are more likely to get on the road and meet demand at busy times if they can expect higher-than-average earnings. Many of Uber’s rideshare drivers use Uber on a part-time basis. Unsurprisingly, drivers who work more than one job or who have worked a full week may be reluctant to drive on weekends or late into the evening. Uber wants to keep the number of “zeroes” (a term used to describe Uber users who open the app and see no available cars) to a minimum. But, when Uber brought surge prices down to 3x from 6x in east coast cities on New Years Eve in 2012 zeroes were “popping everywhere.”

What is great about a pricing system like Uber’s surge pricing is that it allows users who want an Uber ride the most to have it. Prices are a great way of communicating customer preferences. When you buy a coffee for $3.00, you are telling the market that you value the coffee more than you value $3.00. Likewise, someone who is willing to spend $100 getting home in the early hours of a busy Saturday is signaling that he values the ride home more than he values $100. Many people would not be willing to pay the $100, opting to wait for the surge to end or to find alternative transport home.

At this point some readers might be thinking: “Well yes, Matthew, but many Uber passengers are perhaps not in their most rational state of mind at 2am on a Saturday.” I don’t dispute that. Perhaps one of the best recent examples of someone regretting an Uber ride during surge pricing is the 26-year old Baltimore-based woman who spent $362.57 on an Uber ride home in the early hours of November 1 (her birthday) after “a few drinks.” While some might think this fare is extortionate, it is worth remembering that Uber requires that users first accept that surge pricing is in effect and then enter in the amount of the surge before they request a ride. Uber’s app also allows users to estimate a fare before requesting a ride. Uber does not have a responsibility to make sure that you make good decisions after “a few drinks” in the early hours of a busy Saturday. Once you have accepted that surge pricing is in effect and entered the amount of the surge in the app you have no one to blame but yourself when you wake up with less money in your checking account than you were expecting.

Of course, an argument could be made that surge pricing is reasonable during times of predictable high demand (such as New Year’s and rainy Saturday evenings) but not during a crisis like the one that recently occurred in Sydney. In July, Uber announced that in U.S. cities surge pricing would be capped during disasters. In the wake of the news from Sydney Uber may implement a similar policy in Australia.

Those who are complaining about Uber’s surge pricing system ought to consider the following: given that Uber drivers are setting their own schedules and respond predictably to financial incentives it might not be that strange that having an Uber car driven to your location, which is close to the site of a terrorist attack, can cost more than an ordinary Uber ride.

Do Businesses Have Rights?

The Washington Post reports:

As far as sales manager Brian Ward knows, Rep. Andy Harris has never shopped at Capitol Hill Bikes. But if the Maryland Republican congressman wanted to, he’d find a black and white picture of himself taped on the door with a message in bold type: NOT WELCOME.

To many in the District, Harris is a public enemy — the force behind language added to the massive federal government spending bill intended to block D.C. from legalizing marijuana despite local voters overwhelmingly approving it on the November ballot.

The move so infuriated District residents that someone has started a “Blacklist Andy Harris” tumblr asking local businesses not to serve Harris:

“My fellow Washingtonians, Rep. Andy Harris doesn’t give a d— about District residents or our rights, so let’s blacklist him! We can generate and distribute signs/stickers/posters with his face, words like “Persona non Grata” (or something similar), and ask local businesses to display them.”

I support these District of Columbia businesses’ right to refuse service to Representative Harris. Now I know there are people who would say to these small businesses, “Open a business to serve the public? You have an obligation to serve everyone.” But I say that Capitol Hill Bikes should be free to refuse service to Andy Harris, and Republicans and anti-drug activists should be free to refuse to patronize Capitol Hill Bikes. Every contract is an agreement voluntarily entered into on both sides, and no one should be forced to enter into contracts. Thus I support the right of D.C. businesses to refuse to serve those would-be customers who offend their conscience, just as I support the right (though not the rightness) of bakers, photographers, and innkeepers not to participate in gay weddings.