Topic: Regulatory Studies

Halbig v. Burwell Winners Outnumber Losers by More than Ten to One

Today at DarwinsFool.com, I released estimates of the impact of a potential ruling for the plaintiffs in Halbig v. Burwell, one of four cases currently before federal courts claiming that the subsidies and taxes the IRS is implementing in the 36 states with health-insurance Exchanges established by the federal government are illegal. The Patient Protection and Affordable Care Act repeatedly says those taxes and subsidies are authorized only “through an Exchange established by the State.”

Left-leaning groups and media outlets that defend the IRS are attempting to portray a potential ruling for the Halbig plaintiffs as catastrophic, because it would put an end to the subsidies roughly 5 million individuals enrolled in federal Exchanges are currently receiving. As I explain in detail, those commenters ignore three crucial facts. One, a victory for the Halbig plaintiffs would increase no one’s premiums. It would merely stop the IRS from unlawfully shifting the cost of those overly expensive PPACA premiums from enrollees to taxpayers. Two, if federal-Exchange enrollees lose subsidies, it is because the courts will have found those subsidies are, and always were, illegal. And three, if the Halbig plaintiffs prevail, the winners in the 36 states with federal Exchanges would outnumber the losers by more than ten to one.

As I explain at Darwin’s Fool, here is what the IRS’s defenders don’t want you to know about the impact of a potential Halbig victory.

  • A Halbig victory would free more than 8.3 million individuals from the PPACA’s individual mandate. That’s how many people in those 36 states the IRS is currently subjecting to the individual-mandate tax without statutory authorization.
  • In the 36 states with federal Exchanges, a Halbig victory would free 250,000 firms and 57 million employees from the PPACA’s employer mandate. That’s how many people the IRS is unlawfully subjecting to the employer mandate.
  • The number of winners under a Halbig victory is therefore more than ten times larger than the 5 million people who would lose an illegal subsidy.
  • Those 5 million people are “losers” not because they were deprived of an illegal subsidy. Regardless of one’s position on the PPACA, we can all agree that courts should put an end to illegal government spending whenever they can. Those people are “losers” because the Obama administration recklessly induced them to purchase overly expensive Exchange coverage with the promise of billions of dollars in subsidies that it has has no authority to offer, and that could disappear with a single court ruling.

I also provide state-level estimates of the number of firms and individuals Halbig would free from these mandates. For example:

  • A Halbig victory would free nearly 1 million Floridians from the individual mandate, and more than 16,000 firms and 5.1 million Floridians from the employer mandate.
  • It would free more than 1.5 million Texans from the individual mandate, and free more than 24,000 firms and nearly 7 million Texans from the employer mandate.
  • A Halbig victory would also enable the 14 states (plus D.C.) that established Exchanges to exempt residents and employers from those mandates by switching to a federal Exchange, as well as create political and economic incentives for states to make the switch.
  • If the Halbig plaintiffs prevail, the 14 establishing states (plus D.C.) could cumulatively exempt 3.8 million residents from the individual mandate and exempt 123,000 firms and nearly 29 million residents from the employer mandate.
  • California, for example, could exempt 1.7 million residents from the individual mandate, and exempt 32,000 firms and 9.4 million workers from the employer mandate.
  • Though those states would lose Exchange subsidies if they switched to a federal Exchange, the much larger number of firms and residents who would benefit could still pressure state officials to make the switch.
  • These states could also experience economic pressure to switch to a federal Exchange, because the employer mandate (which increases the cost of doing business) will be operative in their states but not in states that opt for a federal Exchange. Establishing states could therefore lose jobs to federal-Exchange states, unless they become federal-Exchange states themselves.

Click here for state-by-state data on the impact (or potential impact) of a Halbig ruling.

Halbig v. Burwell Would End The Disruption

The U.S. Court of Appeals for the D.C. Circuit could issue a ruling today in Halbig v. Burwell, one of four lawsuits challenging an Internal Revenue Service rule that effectively implements the Patient Protection and Affordable Care Act’s exchange subsidies where the statute does not permit: in exchanges that were not “established by the State” – i.e., federal exchanges. 

Tim JostNorman OrnsteinAvalere Healththe Urban Institute, the Robert Wood Johnson Foundation, and others who support the Obama administration’s position (we cannot say they support PPACA) predict much disruption if the courts rule against the administration. 

Over at DarwinsFool.com, I have a new post explaining how Halbig would put an end to the disruption, which is much greater than they recognize:

In 2011, the Obama administration issued an IRS rule in which it unilaterally decided to tax, borrow, and spend billions of dollars. Treasury and IRS officials apparently knew they did not have statutory authority to do it. They did it anyway.

The impact of that IRS rule has been enormous. Insurers chose to participate in the PPACA’s Exchanges who otherwise would not have. Employers have reconfigured their health insurance benefits, eliminated jobs, and/or cut hours for perhaps millions of employees, including teaching assistants and restaurant workers, to comply with a mandate from which they are, by law, exempt. Millions of Americans are already paying penalties under, or have purchased coverage to comply with, an individual mandate from which they are, by law, exempt. Nearly 5 million Americans agreed to enroll in Exchange coverage with the promise of subsidies the Obama administration has no authority to offer to them, that could vanish with one court ruling or by regulatory fiat. With every unauthorized subsidy that flows from the IRS to private insurance companies, the federal debt rises above the level authorized by law, imposing an unauthorized tax burden on current and future generations.

The IRS rule has had a sweeping impact on the political process as well. It denied states—denied voters—the use of a policy lever Congress granted to them: the ability to veto the PPACA’s subsidies, employer mandate, and individual mandate. In effect, the rule disenfranchised voters in the 36 states that exercised those vetoes. Had the administration followed the law, those 36 vetoes would have led to changes in the PPACA, and possibly changes in Congress. Instead, the IRS rule altered the outcome of congressional votes and, likely, of congressional elections. Americans voted in 2012 as if there were not a gaping hole in the PPACA that would expose its full cost and destabilize its regulatory scheme. The IRS rule is still influencing congressional elections today. Potential candidates are deciding whether to enter the 2014 congressional races as if that gaping hole does not exist; as if the law Congress enacted were more popular and successful than it actually is…

The purpose of Halbig is to end the massive economic and political disruption caused by the president’s decision to ignore the clear statutory language he is sworn to uphold.

Read the whole thing.

Google Ventures Chief: Uber’s Long-Term Market Value Could Be at Least $200 Billion

Last month Uber, the San Francisco-based transportation technology company that connects drivers and passengers via its app, raised $1.2 billion in a funding round valuing it at $18.2 billion, making it worth about the same as Hertz Global Holdings Inc. and Avis Budget Group Inc. combined. In a recent Bloomberg interview Bill Maris, the managing partner of Uber investor Google Ventures, said that Uber’s long-term market value could be “$200 billion or more,” about the market value of Toyota.

Maris not only expressed confidence in Uber’s management, he also said that the company could become a large logistics company.

From Bloomberg:

“I am confident in Travis and his team,” Maris told Bloomberg News in an interview at Fortune’s Brainstorm Tech conference in Aspen, Colorado. “His vision is huge and he has showed he can execute,” Maris said of Uber’s co-founder Travis Kalanick.

As Uber disrupts the transportation market around the world, it’s also experimenting with delivery services and could become a huge logistics company with a market value of $200 billion or more, said Maris.

“It’s an incredibly creative team – their growth shows they are clearly onto something,” he said of Uber. But Maris also warned that, like any startup, “it could also go down to zero.”

Uber board member and investor Bill Gurley has said that the company’s market opportunity is between $450 billion and $1.35 trillion per year and that Uber could be considered an alternative to private car ownership. Indeed, Uber CEO Travis Kalanick said in an interview with The Wall Street Journal that the company’s vision is “Basically make car ownership a thing of the past.”

While Uber is certainly innovative it is a long way from making “car ownership a thing of the past” or becoming a large-scale logistics company. That said, it is clear that some investors foresee huge growth in Uber despite the regulatory barriers it has been facing. The technology that allows Uber and other so-called “sharing economy” companies to work is not going anywhere, and when one considers Uber’s growth since it launched in 2009 (it’s now operating in about 150 cities in 41 countries) it is not hard to see why Maris believes the company’s long-term market value could be at least $200 billion.

Paul Light on Government Failure

Paul Light of Brookings and NYU is a top expert on the federal bureaucracy. He has a new study on federal government failures over the 2001 to 2014 period.

Light’s paper is useful. He identifies 41 major federal failures, examines the reports completed on each, and classifies the types of mistakes that took place. From the 9/11 terrorist attacks to the recent veterans health care scandal, Light points to failures in both “operations” and “oversight.”

Certainly, government operations and oversight fail frequently. But I look at many of Light’s 41 events and see more fundamental failures than he does. Federal policies, for example, often distort the economy in ways that are bound to cause problems. Federal interventions based on coercion are generally worse than solutions developed in the private, voluntary sphere of society.  

Light classifies the 2008 financial collapse as a failure of federal “oversight.” He says, “after years of risky investments and with little regulation, the banking system collapsed under the weight of toxic assets created by risky mortgage loans, poorly understood financial instruments, and a credit crisis that froze the economy.”

But it was government policies—such as Federal Reserve interest rate policies and federal housing subsidies—that incentivized the bad behavior on Wall Street. Federal oversight may have been poor, but the main problem was that government-created distortions cascaded and undermined markets.

On Hurricane Katrina, Light notes that the federal emergency response was a failure in operations, and it is true that FEMA officials were mired in confusion and indecision when the storm hit. However, it was decades of misguided policies that encouraged many people to live in low-lying and dangerous areas in New Orleans in the first place, which made the disaster much worse.

After an initial coding of failures between “operations” and “oversight,” Light does proceed to look more deeply into why the government failed in each of the events. He finds multiple causes behind all of the failures, with the most common factor being poorly designed policies.

Still, there are deeper reasons why the government fails than the potentially fixable problems that Light identifies. Superficially, the veterans health care scandal is just a failure of “operations,” but the fundamental problem is the federal attempt to centrally plan an industry rather than relying on markets.

Light’s study is a thoughtful piece that will hopefully generate a broader discussion about government failure. The 15 factors in this recent testimony are my initial stab at identifying some of the more fundamental reasons for government failure.

Bulgaria Wins Balkan Prize

Every country aims to lower inflation, unemployment, and lending rates, while increasing gross domestic product (GDP) per capita. Through a simple sum of the former three rates, minus year-on-year per capita GDP growth, I constructed a misery index that comprehensively ranks 89 countries based on misery. The table below is a sub-ranking of all Balkan states presented in the full index.

 

All of the Balkan states in my index suffer from high unemployment and relatively high levels of misery.

That said, the least miserable Balkan country is Bulgaria. For all of its problems, including a recent bank run, the country’s currency board system - which I, as President Stoyanov’s adviser, helped design and install in 1997 - provides monetary and fiscal discipline, and produces positive results in a region plagued with problems. 

UberX Launches in South Carolina

Yesterday Uber launched its ridesharing service, UberX, in four cities in South Carolina, offering residents of Charleston, Greenville, Columbia, and Myrtle Beach five free UberX rides each until July 24th. Unfortunately, the San Francisco-based technology company’s move into South Carolina could lead to conflicts with Palmetto State regulators.

According to reporting from Charleston’s newspaper, The Post and Courier, the executive director of the SC Office of Regulatory Staff believes that the main issue is whether the Uber business model would fall under the jurisdiction of the Public Service Commission’s regulatory authority. The Post and Courier mentioned that a taxi company in Charleston has developed its own smartphone app to compete with Uber. However, instead of just trying to offer a better rival service, the company, Yellow Cab of Charleston, is one of several taxi companies in South Carolina that are reportedly discussing calling for legislative action against Uber.

Uber and Lyft, another ridesharing company, have run afoul of regulators in numerous jurisdictions, including Virginia, Pittsburgh, and Ann Arbor, MI.

Lyft, which does not currently operate in South Carolina, announced this week that it would begin operating in New York City despite not having permission from the city’s Taxi and Limo Commission (TLC). Uber is now licensed by the TLC, although like Lyft it did not have TLC approval when it launched in NYC.

Companies in the so-called “sharing economy” do not fit well into existing regulatory frameworks. While Uber and Lyft are competitors to traditional taxi services, they are not taxi companies. Rather, they are technology companies that reduce the transaction costs of a familiar task (giving rides for money). It should not be surprising that existing regulations cannot keep up with such changes in technology.

It remains to be seen how regulators and taxi companies respond to Uber’s expansion into South Carolina. Regulators and lawmakers should consider removing already existing regulations in order to allow for Uber and taxis to compete in a fair and free market. Unfortunately, the history of Uber’s expansion is full of examples of regulators favoring out-of-date legislation over the necessary pro-consumer reforms. 

Google Co-Founders Sergey Brin & Larry Page: Health Care Regulation Is Blocking Innovation

At a forum sponsored by Khosla Ventures, Google co-founders Sergey Brin and Larry Page discussed the burden of health care regulations in the United States. When asked, “Can you imagine Google becoming a health company?”, Brin responded:

Health is just so heavily regulated, it’s just a painful business to be in. It’s just not necessarily how I want to spend my time. Even though we do have some health projects, and we’ll be doing that to a certain extent. But I think the regulatory burden in the U.S. is so high that I think it would dissuade a lot of entrepreneurs.

Page agreed:

I am really excited about the possibility of data also to improve health. But I think that’s what Sergey’s saying. It’s so heavily regulated, it’s a difficult area…I do worry, you know, we kind of regulate ourselves out of some really great possibilities.

But surely, the United States does not have government-run health care.

The discussion begins at about 29:00.