Tag: public choice

Blocking Obamacare Exchanges Is Only Risky for Obamacare Profiteers

USA Today reports that groups like the American Legislative Exchange Council and the Cato Institute have had much success in discouraging states from creating Obamacare’s health insurance “exchanges.” Even the Heritage Foundation, which once counseled states to establish “defensive” Obamacare exchanges, now counsels states to refuse to create them and to send all exchange-related grants back to Washington.

In response, Obamacare contractor and self-described conservative Republican Cheryl Smith sniffs:

When you work at a think-tank, it’s really easy to come up with these really high-risk plans.

Except, there is no risk to states. The only risks to this strategy are that health insurance companies won’t get half a trillion dollars in taxpayer subsidies, and that certain Obamacare contractors won’t get any more of those lucrative exchange contracts.

J.P. Morgan and Yahoo: Market Successes

Investment giant J.P. Morgan made a bad trade that cost its owners $2 billion. The responsible parties are losing their jobs. Yahoo’s CEO evidently misled people about his qualifications. As a result, he lost his job.

If you want to know why these are market successes, consider: Medicare and Medicaid lose at least 35 times as much per year to fraud and other improper payments, and Medicare wastes even more on medical care that does nothing to make patients healthier or happier. This happens year after year after year.

Now ask yourself: when was the last time someone got fired over those losses? And yet the politicians’ first reaction to the J.P. Morgan trade was greater oversight by the political system, which tolerates much greater losses than the market system that is currently disciplining J.P. Morgan.

Here’s hoping the Yahoo incident inspires some politician to crack down on people who embellish their resumes.

On Breach of Decorum and Government Growth

Last week, the Center for Democracy and Technology changed its position on CISPA, the Cyber Intelligence Sharing and Protection Act, two times in short succession, easing the way for House passage of a bill profoundly threatening to privacy.

Declan McCullagh of C|Net wrote a story about it called “Advocacy Group Flip-Flops Twice Over CISPA Surveillance Bill.” In it, he quoted me saying: “A lot of people in Washington, D.C. think that working with CDT means working for good values like privacy. But CDT’s number one goal is having a seat at the table. And CDT will negotiate away privacy toward that end.”

That comment netted some interesting reactions. Some were gleeful about this “emperor-has-no-clothes” moment for CDT. To others, I was inappropriately “insulting” to the good people at CDT. This makes the whole thing worthy of further exploration. How could I say something mean like that about an organization whose staff spend so much time working in good faith on improving privacy protections? Some folks there absolutely do. This does not overcome the institutional role CDT often plays, which I have not found so creditable. (More on that below. Far below…)

First, though, let me illustrate how CDT helped smooth the way for passage of the bill:

Congress is nothing if not ignorant about cybersecurity. It has no idea what to do about the myriad problems that exist in securing computers, networks, and data. So its leaders have fixed on “information sharing” as a panacea.

Because the nature and scope of the problems are unknown, the laws that stand in the way of relevant information sharing are unknown. The solution? Scythe down as much law as possible. (What’s actually needed, most likely, is a narrow amendment to ECPA. Nothing of the sort is yet in the offing.) But this creates a privacy problem: an “information sharing” bill could facilitate promiscuous sharing of personal information with government agencies, including the NSA.

On the House floor last week, the leading Republican sponsor of CISPA, Mike Rogers (R-MI), spoke endlessly about privacy and civil liberties, the negotiations, and the process he had undertaken to try to resolve problems in the privacy area. At the close of debate on the rule that would govern debate on the bill, he said:

The amendments that are following here are months of negotiation and work with many organizations—privacy groups. We have worked language with the Center for Democracy and Technology, and they just the other day said they applauded our progress on where we’re going with privacy and civil liberties. So we have included a lot of folks.

You see, just days before, CDT had issued a blog post saying that it would “not oppose the process moving forward in the House.” The full text of that sentence is actually quite precious because it shows how little CDT got in exchange for publicly withdrawing opposition to the bill. Along with citing “good progress,” CDT president and CEO Leslie Harris wrote:

Recognizing the importance of the cybersecurity issue, in deference to the good faith efforts made by Chairman Rogers and Ranking Member Ruppersberger, and on the understanding that amendments will be considered by the House to address our concerns, we will not oppose the process moving forward in the House.

Cybersecurity is an important issue—nevermind whether the bill would actually help with it. The leadership of the House Intelligence Committee have acted in good faith. And amendments will evidently be forthcoming in the House. So go ahead and pass a bill not ready to become law, in light of “good progress.”

Then CDT got spun.

As McCullagh tells it:

The bill’s authors seized on CDT’s statement to argue that the anti-CISPA coalition was fragmenting, with an aide to House Intelligence Committee Chairman Mike Rogers (R-Mich.) sending reporters e-mail this morning, recalled a few minutes later, proclaiming: “CDT Drops Opposition to CISPA as Bill Moves to House Floor.” And the Information Technology Industry Council, which is unabashedly pro-CISPA, said it “applauds” the “agreement between CISPA sponsors and CDT.”

CDT quickly reversed itself, but the damage was done. Chairman Rogers could make an accurate but misleading floor statement omitting the fact that CDT had again reversed itself. This signaled to members of Congress and their staffs—who don’t pay close attention to subtle shifts in the views of organizations like CDT—that the privacy issues were under control. They could vote for CISPA without getting privacy blow-back. Despite furious efforts by groups like the Electronic Frontier Foundation and the ACLU, the bill passed 248 to 168.

Defenders of CDT will point out—accurately—that it argued laboriously for improvements to the bill. And with the bill’s passage inevitable, that was an essential benefit to the privacy side.

Well, yes and no. To get at that question, let’s talk about how groups represent the public’s interests in Washington, D.C. We’ll design a simplified representation game with the following cast of characters:

  • one powerful legislator, antagonistic to privacy, whose name is “S.R. Veillance”;
  • twenty privacy advocacy groups (Groups A through T); and
  • 20,000 people who rely on these advocacy groups to protect their privacy interests.

At the outset, the 20,000 people divide their privacy “chits”—that is, their donations and their willingness to act politically—equally among the groups. Based on their perceptions of the groups’ actions and relevance, the people re-assign their chits each legislative session.

Mr. Veillance has an anti-privacy bill he would like to get passed, but he knows it will meet resistance if he doesn’t get 2,500 privacy chits to signal that his bill isn’t that bad. If none of the groups give him any privacy chits, his legislation will not pass, so Mr. Veillance goes from group to group bargaining in good faith and signaling that he intends to do all he can to pass his bill. He will reward the groups that work with him by including such groups in future negotiations on future bills. He will penalize the groups that do not by excluding them from future negotiations.

What we have is a game somewhat like the prisoner’s dilemma in game theory. Though it is in the best interest of the society overall for the groups to cooperate and hold the line against a bill, individual groups can advantage themselves by “defecting” from the interests of all. These defectors will be at the table the next time an anti-privacy bill is negotiated.

Three groups—let’s say Group C, Group D, and Group T—defect from the pack. They make deals with Mr. Veillance to improve his bill, and in exchange they give him their privacy chits. He uses their 3,000 chits to signal to his colleagues that they can vote for the bill without fear of privacy-based repercussions.

At the end of the first round, Mr. Veillance has passed his anti-privacy legislation (though weakened, from his perspective). Groups C, D, and T did improve the bill, making it less privacy-invasive than it otherwise would have been, and they have also positioned themselves to be more relevant to future privacy debates because they will have a seat at the table. Hindsight makes the passage of the bill look inevitable, and CDT looks all the wiser for working with Sir Veillance while others futilely opposed the bill.

Thus, having defected, CDT is now able to get more of people’s privacy chits during the next legislative session, so they have more bargaining power and money than other privacy groups. That bargaining power is relevant, though, only if Mr. Veillance moves more bills in the future. To maintain its bargaining power and income, it is in the interest of CDT to see that legislation passes regularly. If anti-privacy legislation never passes, CDT’s unique role as a negotiator will not be valued and its ability to gather chits will diminish over time.

CDT plays a role in “improving” individual pieces of legislation to make them less privacy-invasive and it helps to ensure that improved—yet still privacy-invasive—legislation passes. Over the long run, to keep its seat at the table, CDT bargains away privacy.

This highly simplified representation game repeats itself across many issue-dimensions in every bill, and it involves many more, highly varied actors using widely differing influence “chits.” The power exchanges and signaling among parties ends up looking like a kaleidoscope rather than the linear story of an organization subtly putting its own goals ahead of the public interest.

Most people working in Washington, D.C., and almost assuredly everyone at CDT, have no awareness that they live under the collective action problem illustrated by this game. This is why government grows and privacy recedes.

In his article, McCullagh cites CDT founder Jerry Berman’s role in the 1994 passage of CALEA, the Communications Assistance to Law Enforcement Act. I took particular interest in CDT’s 2009 backing of the REAL ID revival bill, PASS ID. In 2006, CDT’s Jim Dempsey helped give privacy cover to the use of RFID in identification documents contrary to the principle that RFID is for products, not people. A comprehensive study of CDT’s institutional behavior to confirm or deny my theory of its behavior would be very complex and time-consuming.

But divide and conquer works well. My experience is that CDT is routinely the first defector from the privacy coalition despite the earnest good intentions of many individual CDTers. And it’s why I say, perhaps in breach of decorum, things like: “A lot of people in Washington, D.C. think that working with CDT means working for good values like privacy. But CDT’s number one goal is having a seat at the table. And CDT will negotiate away privacy toward that end.”

As Predicted, Obama Administration Backs Off Medicare Anti-Fraud Efforts

Medicare and Medicaid are rife with fraud. We’re talking 10 percent or more of total spending, which is two orders of magnitude more than what credit card companies tolerate.

In a recent article, I explained a couple of ways such fraud occurs:

For providers, Medicare is like an ATM: So long as they punch in the right numbers, out comes the cash. To get an idea of the potential for fraud, imagine 1.2 million providers punching 1,000 codes each into their own personal ATMs. Now imagine trying to monitor all those ATMs.

For example, if a medical-equipment supplier punches in a code for a power wheelchair, how can the government be sure the company didn’t actually provide a manual wheelchair and pocket the difference? About $400 million of the…fines paid by Columbia/HCA hospitals were for a similar practice, known as “upcoding.”…

Yet federal and state anti-fraud efforts remain uniformly lame. Medicare does almost nothing to detect or fight fraud until the fraudulent payments are already out the door, a strategy experts deride as “pay and chase.” Even then, Medicare reviews fewer than 5 percent of all claims filed.

I also explained why fraud is so rampant:

Efforts to prevent fraud typically fail because they impose costs on legitimate beneficiaries and providers, who, as voters and campaign donors respectively, have immense sway over politicians. At a recent congressional hearing, the Department of Health and Human Services’ deputy inspector general, Gerald T. Roy, recommended that Congress beef up efforts to prevent illegitimate providers and suppliers from enrolling in Medicare. But even if Congress took Roy’s advice, it would rescind the new requirements in a heartbeat when legitimate doctors — who are already threatening to leave Medicare over its low payment rates — threatened to bolt because of the additional administrative costs (paperwork, site visits, etc.)…

How could it be any other way? Anti-fraud efforts will always be inadequate when politicians spend other people’s money…[People] care less about health-care fraud, and have a lower tolerance for anti-fraud measures, than they would if they paid the fraud-laden premiums themselves.

In a word, government is stupid.

As if to prove the point, the Obama administration—despite its rhetoric about getting tough on fraud—is behaving pretty much as I predicted. In mid-November, the administration announced two anti-fraud efforts, one to prevent fraudulent claims for power wheelchairs and scooters, and another to eliminate “pay and chase” for some Medicare claims in some states. Not two months later, under “heavy provider opposition,” Medicare has delayed these demonstrations “until further notice.”

If you’re interested to see how this all turns out, follow @CMS.gov on Twitter and keep an eye out for #pmd_demonstration (the wheelchairs and scooters demonstration project; there’s no hashtag for the project to curb “pay and chase”).  HT: Peter Suderman.

Another Romneycare/Obamacare Similarity: Earning Their Sponsors Insurance-Company Love

I’ve been meaning to post this article from OpenSecrets.org that sheds light on the claim that either Obamacare or its twin, Romneycare, somehow “get tough” on insurance companies:

Health Insurance Industry Opens Check Books for Mitt Romney, Barack Obama

Research by the Center for Responsive Politics shows that President Barack Obama and his GOP rival Mitt Romney, the former governor of Massachusetts, are the only two presidential candidates to have raised more than $40,000 from the health insurance industry so far this election cycle…

Both men have favored health care policies that include an individual mandate for people to purchase private insurance plans. Romney did so as governor of Massachusetts, and Obama did so as part of the health care reform package he signed into law last year…

Such mandates are supported by the insurance industry, which stand to benefit from increased customers as well as from government subsidies that help enroll people who could not otherwise afford insurance.

Romney, in fact, has received more than five times as much money from the health insurance industry than any other GOP presidential candidate, according to the Center’s research.

That should weigh on the minds of states that are considering whether to create the health insurance “exchanges” that will implement Obamacare’s individual mandate and subsidies for insurance companies.

Federalism and Med-Mal Reform

Thanks to star libertarian lawprof and Cato senior fellow Randy Barnett for pointing out something that has needed saying for a while: most proposals in the U.S. Congress to address medical malpractice law run into serious federalism problems.

Most medical malpractice suits go forward in state courts under state law. If the U.S. Congress wishes to impose a nationwide rule on these suits, such as by limiting damages for pain and suffering, it first needs to answer the question: under which of the federal government’s constitutionally prescribed powers is it acting? Even if it can identify such authority, it should also ask: is it a wise idea—consistent with what one might call a prudential federalism—to gather yet more power in Washington at the expense of the states?

Unfortunately, the backers of the current federal med-mal bill have chosen to rely on the Supreme Court’s very expansive “substantial effects” doctrine, which as Barnett explains:

allows Congress to regulate any economic activity in the country that can be said, in the aggregate, to have a “substantial effect” on interstate commerce. This doctrine was unknown before the 1940s, and goes far beyond the original power to regulate trade between states. This is how most of Congress’ regulatory power has been justified since then.

Although it is followed even by conservative justices, Justice Clarence Thomas has long criticized the Substantial Effects Doctrine on the ground that it exceeds the original meaning of the Constitution.

Let’s step back for a moment to review what’s not at issue here. First, this is not an argument over whether liability reform of some sort is a good idea: in fact Prof. Barnett “strongly support[s] reforming our malpractice laws to protect honest doctors from false claims and out-of-control state juries.” (So do I.)

Nor is this an argument over whether the federal government should simply leave the state courts alone as a general proposition, as some late-blooming friends of federalism on the left side of the aisle seem to suggest. Our constitutional scheme of government is entirely consistent with federal-level supervision of state courts when those courts behave in certain ways, as by violating litigants’ due process, impairing the obligation of contract, or abridging the privileges and immunities of citizens of other states, to name but a few. Article IV, Section 1 confers on Congress a broad charter to prescribe to states “by general Laws” how they are to accord full faith and credit to other states’ enactments. That’s not even counting Congress’s genuine interstate commerce power (as opposed to the on-steroids New Deal version) or various other powers.

But observe the pattern. Again and again, the Constitution contemplates federal supervision of state courts when they reach out to assert power over transactions and litigants outside their own boundaries. It has far less to say about intruding upon the authority of those courts over disputes that arose between their own residents and are unmistakably under their own law. That general game plan—oversee the interstate but mostly not the intrastate doings of state courts—comports well with the insight of public choice scholars who point out that states face an ongoing temptation to stack liability proceedings so as to enrich their own citizens at the expense of out-of-state litigants obliged to appear in their courts.

Where does this leave federal-level liability reform? It suggests a very real difference between areas like product liability and nationwide class actions—in which suits ordinarily cross state lines, and the majority of runaway verdicts are against out-of-state defendants—and more conventional kinds of tort litigation arising from car crashes, slip-and-falls, and medical misadventure, where cases are mostly filed against locally present defendants. As a rough rule of thumb, it’s worth presuming that most of the local suits do not externalize heavy costs across state lines and should accordingly be left alone by Congress unless it is itself vindicating some constitutional right or coordinating the functioning of some constitutionally authorized federal government activity.

That doesn’t mean federal policymakers are to be left with no role at all. For example, if Washington is paying for a large share of hospital stays, it may make sense as a cost containment measure for it to steer beneficiaries into lower-cost ways of resolving disputes over care quality, or even to ask beneficiaries as a condition of treatment to agree not to file certain suits at all. But that would require stepping back toward a more careful—and more Constitutionally appropriate—view of the federal role.