Tag: government failure

Vermont Official Foresaw Collapse of ObamaCare Co-Ops

The Daily Caller has an excellent article recounting that it wasn’t just opponents who saw trouble ahead for ObamaCare’s health-insurance cooperatives, of which more than a dozen have now collapsed. 

Susan L. Donegan was commissioner for Vermont’s Division of Insurance in 2013 when she refused to issue a license to the proposed Vermont Health CO-OP, saying it failed to meet state standards. Her action barred the Obamacare non-profit from selling health insurance in the state…

Today, she looks like a prescient state official who likely saved thousands of Vermonters from buying their health insurance from a doomed insurer.

That’s because 13 of the 24 co-ops set up under Obamacare have collapsed, costing the federal treasury $1.3 billion. More than 800,000 co-op customers now find themselves without health insurance coverage and are scrambling to find new policies due to the co-op failures. 

Turns out that some of the biggest problems she identified two years ago in her state also doomed co-ops across the country…

Denying a license to the health co-op was not an easy decision for Donegan, who first joined Democratic Gov. Peter Shumlin’s administration as a deputy insurance commissioner in 2010.

First, she already knew when the co-op’s application arrived at her her office that federal officials in Washington, D.C., had pre-approved the co-op’s plan and allocated to it $33 million in taxpayer funds.

Second, she knew the co-ops were an important part of President Obama’s signature health reform effort. Obama is extremely popular in Vermont, having garnered 67 percent of the vote in his 2008 and 2012 campaigns…

Donegan sensed trouble as soon as she read the co-op’s application. There were optimistic and questionable forecasts, a board filled with friends, sweetheart deals, high salaries, deep conflicts of interest and a staff with little business expertise.

The failure of more than a dozen other ObamaCare co-ops suggests these problems were not limited to Vermont’s proposed co-op. Yet regulators in those states, not to mention CMS, nevertheless approved them.

One might even say the rule is that government regulators either were unable to spot these co-ops’ looming insolvency, or worse, allowed political considerations to trump their judgment; and Vermont is the exception, where regulators both identified the problem and had the courage to pay the political cost of denying that carrier a license. Something to keep in mind when contemplating the costs and benefits of government regulation of insurance-carrier solvency.

Any count of failed ObamaCare co-ops should be sure to include Vermont’s.

H/T: Greg Scandlen.

“Health Care’s Future Is So Bright, I Gotta Wear Shades”

If you’ve ever wondered why a person would earn (and relish) titles like “ObamaCare’s single most relentless antagonist,” “ObamaCare’s fiercest critic,” “the man who could bring down ObamaCare,” et cetera, my latest article can help you understand.

Health Care’s Future Is So Bright, I Gotta Wear Shades” is slated to appear in the Willamette Law Review but is now available at SSRN.

From the introduction:

Futurists, investors, and health-law programs all try to catch a glimpse of the future of healthcare. Lucky for you, you’ve got me. I’m from the future. I’ve travelled back in time from the year 2045. And I am here to tell you, the future of healthcare reform is awesome.

When I presented these observations at the Willamette University College of Law symposium “21st Century Healthcare Reform: Can We Harmonize Access, Quality and Cost?”, I was tickled by how many people I saw using iPhones. I mean, iPhones! How quaint. Don’t get me wrong. We have iPhones in the future. Mostly they’re on display in museums; as historical relics, or a medium for sculptors. Hipsters—yes, we still have hipsters—who wouldn’t even know how to use an iPhone, will sometimes use them as fashion accessories. Other than that, iPhones can be found propping up the short legs of coffee tables.

I also noticed you’re still operating general hospitals in 2015. Again, how quaint.

It’s not often I get to cite MLK, Bono, Justin Bieber, the Terminator, Bill and Ted’s Excellent Adventure, two Back to the Future films, and Timbuk3, all in one law-journal article.

New Coke and the Iraq War

Donald Keough, who was president of Coca-Cola, has died at age 88. All the obituaries lead with his role in the New Coke debacle. On April 23, 1985, Coca-Cola replaced its amazingly successful product with a new formula, called New Coke. Some people liked the new flavor, but many did not. On July 11 the company reversed its decision and reintroduced the original formula, called for a time Coca-Cola Classic. Wikipedia reports, “ABC News’ Peter Jennings interrupted General Hospital to share the news with viewers.”

The experience was generally regarded as one of the biggest stumbles by a major corporation in memory. But what struck me at the time, and what I’m reminded of now, is how fast the company realized its error and reversed it – less than 11 weeks.

How well do governments do at realizing their errors and reversing them? The obvious comparison at the time was the Vietnam War. It took the U.S. government about 14 years, from 1961 to 1975, to realize and reverse that mistake.

Today we might think of the Iraq War. The United States invaded Iraq in March 2003, based on mistaken intelligence reports, a hazy sense that somehow Saddam Hussein was involved in al Qaeda’s 9/11 attacks, and deeply flawed assumptions about the ease of the undertaking. The war officially ended in December 2011, though of course we still have 3,000 troops there and are contemplating further involvement in response to the ISIS insurgency. Taking the official end of the war, the U.S. government continued that mistake for about 8 years and 9 months.

What about other government failures? How fast were they reversed? Let’s consider:

Alcohol prohibition – 13 years

Marijuana prohibition – approximately 84 years and counting

War on drugs – 44 years or 101 years and counting

The Pruitt-Igoe housing project – 18 years

Airline price and entry regulation – 47 years

Soviet communism – 74 years

And that’s without even counting the mistaken programs that aren’t yet widely agreed to be failures, from the Federal Reserve to the welfare state

Incentives are different in business and government. Some critics of capitalism suggest that democratic government is more responsive than corporations are. But voting is a flawed way to register dissatisfaction. When businesses make mistakes, they tend to lose customers. And they know that very quickly. Because business owners have their own money at stake, they have a strong incentive to correct mistakes promptly. Government officials run little risk of losing their jobs for failure. Indeed, government officials who fail to solve a problem – poverty, homelessness, dropout rates – may be rewarded with more money and staff. No wonder government failures last so long.

A diamond is forever? Government failure is forever. 

Government Failure: More from Paul Light

NYU’s Paul Light provides thoughts on government failure in the Wall Street Journal today.

Congress returned to its investigation of the General Motors faulty ignition switch Tuesday with a blistering Senate hearing on the National Highway Traffic Safety Administration’s failure to act. As the House Energy and Commerce Committee concluded on the same day, the agency had more than enough information in 2007 to prevent further tragedy, but gave GM a pass.

Lest anyone think that the neglect was an aberration in an otherwise invulnerable government, the cascade of highly visible failures has been accelerating since the mid-1980s. According to my list of management failures that made the national news over the past quarter-century, the federal government produced an average of 1.5 failures per year from 1986 to 1993, two per year from 1993 to 2001, and three per year from 2001 to today.

Light’s views build on his recent study on the subject, which I discussed in this blog. Light says some nice things about the bureaucracy, which I have not quoted here. But he has documented a long list of failures:

With more aggressive oversight and stronger policy, for example, the Occupational Health and Safety Administration could have prevented the fertilizer plant explosion in West, Texas, last year that killed 13 people. With more effective monitoring of at least two of its watchlists, the intelligence community could have warned the Boston police that there was a potential terrorist duo in the city before the Boston Marathon bombing. With a bit of late-night reading of its own internal reports, the Department of Veterans Affairs could have discovered the VA’s wait-list scandal well before it hit the news. And so it goes, from the flu-vaccine shortages, to the Columbia shuttle disaster, the financial meltdown, the Gulf of Mexico oil spill and the healthcare.gov disaster.

I think a key reason why the federal government is failing more than ever is because it is larger than ever. Light suggests other reasons for the government’s poor performance. Either way, this is an important discussion to have, and I am glad Light is out front documenting the failures and asking some fundamental questions.

ObamaCare’s False Promise of Cost Savings: ACO Edition

One of ObamaCare’s selling points was that it would supposedly reduce costs through such innovations as “accountable care organizations” or ACOs. I have explained how ACOs are an innovation with many benefits, how markets developed ACOs decades before the government’s central planners caught on, and have predicted that ObamaCare’s centrally planned ACO program would fail to deliver on the promised savings. The reason is simple, and explained by industry expert Robert Laszewski:

Here’s a flash for the policy wonks pushing ACOs. They only work if the provider gets paid less for the same patient population. Why would they be dumb enough to voluntarily accept that outcome?

Turns out, health care providers are not that dumb. They have threatened to bolt ObamaCare’s ACO program in the past, and are doing so again [$] if Medicare tries to cut their pay:

One of CMS’ highest profile health care delivery reform initiatives is on rocky ground as most of the Pioneer ACOs are threatening to drop out of the demonstration if CMS makes them start meeting quality measures instead of merely requiring that they report the measures, according to a letter [$] obtained by Inside Health Policy…The Pioneer ACOs were supposed to be the few shining examples of organizations that could handle outcomes-based pay…

CMS often touts the high level of participation in ACOs, and it would seem that CMS has too much at stake to ignore the Pioneers’ requests and let the demo implode, a health care consultant says. However, it’s difficult to believe that this is the first time that the ACOs have brought these concerns to CMS – some innovation center officials come from the very organizations in the Pioneer demo – all of which indicates that negotiations have not gone well with the agency, the sources say. CMS could make changes to the quality metrics without announcing them in the Federal Register because the Pioneer ACOs are a demonstration, but the cat is out of the bag now, the sources note.

The Pioneer ACOs account for a little more than 30 of the some 250 ACOs in Medicare, and the Pioneers are supposed to be the most advanced, integrated systems of them all.

And thus ObamaCare’s false promise of cost savings comes into sharper focus. File this one under “markets are smart, government is stupid.”

Democracy - Whatever That Is - and Education

Democracy is inherently good, and since public schools are democratically controlled they, too, are inherently good. Right?

You’d think so from the way many people invoke “democracy” when championing government schools, but thanks to a recent blog post from the Fordham Institute’s Mike Petrilli, we might have a rare opportunity to actually scrutinize that assumption. A few days ago, Petrilli questioned the value of local school boards in light of what seems to be frequent capture by teachers unions, and was immediately accused of attacking “democracy” by historian Diane Ravitch.

“Gosh, Mike,” Ravitch wrote in the comments section, “it sounds as though you have identified the real problem ‘reformers’ face: democracy.”

With that the battle was on, and it’s one I’m happy to join: A huge problem we face in education is, indeed, democracy.

Before I go further, the first thing that’s necessary to do is define “democracy.” Unfortunately, that’s something rarely done by those who wield the term like a rhetorical chainsaw, swinging it wildly at anyone who might question government schooling.  Typically, it seems the word is employed to just vaguely connote some sort of action by “the people” – whoever they are – as opposed to “elites,” or to indicate that popular voting is in some fashion used to make laws.

That said, the most basic definition of democracy – the one you probably learned in grade school –  follows these lines: “Control of an organization or group by the majority of its members.” You might also assume the word means representative democracy, where people vote for their representatives and majorities of reps make the laws, but usually the word’s use isn’t even that precise.

This lack of precision leads to numerous problems, and a big one was illustrated in an exchange between Bob Bowdon – of Cartel and ChoiceMedia.tv fame – and Rutgers University professor Bruce Baker. Bowdon had a Flypaper post pointing out numerous cases in which ”the people” enacted education policies disliked by teachers unions, and the unions, instead of accepting the “democratic” outcomes, headed to the courts to thwart the new laws. Baker would have none of this argument, in the comments section of Petrilli’s post calling Bowdon’s entry an “absurd and misinformed rant.” Why? Largely because Bowdon failed to acknowledge that courts in Georgia – where one of the legal actions cited by Bowdon occurred – were taking perfectly legitimate action in striking down a charter school law that violated the state’s constitution.

Of course, Baker isn’t talking about democracy, at least in any precise way (or the feel-good, “people rule” sense I think Ravitch meant to convey) but a constitutional republic with separation of powers. That’s a very different thing, with a very different goal, from simple majority rule. As The Federalist discusses with great insight, a constitutional republic with checks and balances is a system intended to minimize the threat government poses to individuals, while enabling it to do those things that government must do.  That does not at all seem to be the “democracy” Ravitch and company were lauding, and you can’t reasonably blame Bowdon for turning that against them. Live by the loaded, imprecise definition, die by the loaded, imprecise definition. Unfortunately, that makes it much harder to have a useful debate about education governance.

But why don’t we want pure democracy?

Aside from the towering logistical problems, uninhibited majority rule is an existential threat to individual liberty, the true foundation of American society. Should my ability to drum up support from 50.1 percent of voters be all that’s needed to have your house taken from you, your speech quashed, and your family imprisoned? Of course not, but pure democracy would not only allow that, it would give it complete legal sanction.

So a constitutional republic, with its checks, balances, and enumerated powers, is infinitely preferable to pure democracy. However, it is a much harder concept to employ when you just want people to feel good about public schools, or angry about efforts to change them. “For crying out loud, they are democratic schools – schools controlled by the people – you evil 1-percenter!” (Cue foreboding tyranny-of-the-majority music.) And just because a form of governance is better than democracy doesn’t mean it works well.

Why does this superior form of government still largely fail? To really get into this question I recommend Cato’s Government Failure: A Primer in Public Choice, available free online! I’ll just briefly hit the main, inherent pathology of government that constantly leads to skewed results.

Ultimately, it comes down to concentrated benefits and diffuse costs: The people who get the greatest benefit from a policy will be the most motivated to participate in the politics of that policy, while the costs are usually highly diffuse, giving the people paying for it relatively little incentive to politick. In education, the greatest benefit is accrued by the school employees – the people whose very livelihoods come from the system – hence they exert hugely disproportionate power. They are also much easier to organize than parents or taxpayers.  

In light of this basic inequality of incentives, it is no surprise that teachers unions (and other education employee organizations) wield disproportionate influence. Teachers and administrators aren’t bad people, it’s simply that normal incentives give them much more reason to constantly engage in education politics than the average voter, taxpayer, or even parent, for whom there are many other major concerns than trying to influence the district, state, of federal government on education policy. 

To deal with the effects of concentrated benefits and diffuse costs in school districts, Petrilli suggests a couple of possible options: a move toward greater mayoral control of the schools, as exists in New York City, or having states control education. But these are fraught with at least as much peril as local control.

At the risk of violating an Italian corollary of Godwin’s Law, the mayoral control argument seems to come down to this: Mussolini made the trains run on time. Essentially, if you can put someone with dictatorial power in charge he won’t have to worry about special interests and can do what needs to be done. Plus, in the case of mayoral control there wouldn’t be real dictatorship – Il Duce could be voted out in four years.

Obviously, though, there’s a reason the term “dictator” doesn’t enjoy the same esteem as, say, ”chocolate,” or “Betty White” – people generally don’t like the way dictators turn out. Maybe you’ll get one who’s benevolent and wise – in which case you’ll just be troubled by your ultimately nonexistent freedom – but more likely you’ll get one who’s stupid, or cruel, or a combination of the two. And what do you do when the dictator imposes a bad reading curriculum on your kids, or closes a school that might have served them well? Just suffer.

But there’s the election – you can hold a mayor responsible then! Of course, that puts us right back in the concentrated benefits, diffuse costs problem, where the special interests are likely to be much more active in politicking than the average voter. And the problem isn’t just that: When the public votes for mayor, the vote is based not only on education policies, but also law enforcement, sanitation, sodium speakeasy crackdowns, and myriad other things. In other words, it is almost impossible to send an unambiguous message that the public is angry about education when so many issues affect who votes and why.

All these problems remain with state or federal control. There’s a reason the National Education Association, American Federation of Teachers, American Association of School Administrators, etc., have big headquarters in the Washington, DC, area, and their state affiliates run hefty operations in state capitals: they are wielding political power! And, like mayoral elections, voting in state or federal elections isn’t just about education, but taxation levels, wars, roads, bridges to nowhere, extramarital affairs, “do nothing” congresses, birth certificates, and so on.

At this point you might feel that democracy really is bad, and generally doomed to failure. And you’d be right, which is why government should be restricted to doing only those things that private individuals cannot do, and one of those things is not furnishing education. We know that private individuals can and do supply widespread education from our own history, in which education and literacy had very broad reach before government schools existed, and in which private schools often thrived – including a huge system of parochial schools – despite having to compete with “free” alternatives. Perhaps even more compelling, we can see it in the massive for-profit schooling industries that out-teach government schools in the poorest places in the world.

So what is the viable solution to our education governance problems? To end government control of education, setting both educators and parents free. Move to a system of universal school choice, in which funding is controlled by parents, educators have the autonomy to run their own schools, and all involved have equal power because free, voluntary exchange – not wielding political influence – is how business is done. Don’t make parents and taxpayers engage in endless, plodding, political warfare in which they’ll always be outgunned. Let them exercise immediate power by taking their kids – and the money to educate them – out of schools that do not satisfactorily serve them and put them into schools that do.

Thanks again to Mike Petrilli for daring to question “democracy,” and I hope it spurs a truly thoughtful, honest discussion about this absolutely crucial topic.

This Week in Government Failure

Over at Downsizing the Federal Government, we focused on the following issues this past week:

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