Epstein on Health Disparities

At the Health Affairs blog, Cato adjunct scholar Richard A. Epstein critiques the usual remedies for eliminating racial, income-based, and other disparities in health outcomes:

[T]he only way to eliminate disparities in health outcomes is to equalize services outside the health care area. Health depends on the education we have, the food we eat, the cars we drive, and the friends we make. Equalization in all these areas sends us once again down an egalitarian sinkhole…

The great failing of [the mandate-and-subsidize] approach is that it takes as given the huge regulatory apparatus that now places a hammerlock on the sensible provision of health care. Better it be started at the other side of the problem, by asking which of our myriad forms of regulation are justified on efficiency grounds. Our state-based medical licensing system imposes sharp restriction on the free flow of labor across state lines. The Health Insurance Portability and Accountability Act (HIPAA) imposes numerous restrictions on the use and transfer of information that drive up the cost of medical care in the name of the protection of patient privacy. A costly and unreliable medical malpractice system leads to the closure of desperately needed facilities that serve marginal communities. Medicare offers huge subsidies for affluent seniors on the backs of people with a fraction of those affluent seniors’ come. Most importantly, perhaps, constant barriers are thrown in the path of nonmedical firms entering the market to supply health care. Why not let people pay for their own health care at a Walgreens clinic instead of waiting in an emergency room, which is the worst place to provide medical care for indigent patients?

The first order of business in my view is to resist any plea for a direct attack on disparities in health care. Put any consideration of new schemes of redistribution last. Put first a relentless reexamination of every single regulatory structure now in place, in the hope that it could be either shrunk or dismantled.

Supreme Court Hears Second Amendment Case Today

This morning the Supreme Court will be hearing oral arguments in the landmark Second Amendment case, DC v. Heller. People started getting in line last night. (HT: Volokh Conspiracy). Here’s the story from today’s Washington Post. An audio of the argument will be released around 11:30 am EST for those of us who could not attend the live event. The attorneys who present the arguments must be prepared for three scenarios. Scenario I is a “cold bench” – which means few questions. In that scenario, the attorney must be ready to speak persuasively for about 30 minutes. Scenario II is the “hot bench” – which means lots of questions. In that scenario, the attorney must be ready for a barrage of questions and just hope that he/she can make a strong opening and closing without interruption. Scenario III is somewhere in between the two extremes. Everyone expects a hot bench today. Should be very interesting.

For additional background, go here and here.

Large Health Savings Accounts, Unveiled

This week, the journal Forum for Health Economics & Policy publishes a paper of mine on “large” health savings accounts, a novel proposal to reduce government control over the U.S. health care sector. 

Government exempts employer-sponsored insurance (ESI) from income and payroll taxes, which seems like a tax cut.  But it operates more like a tax increase because it strips workers of control over their earnings.  Oh, and it drives up health insurance premiums too.

Large HSAs would replace the tax exclusion for ESI with an exclusion for money contributed to a Large HSA, which the worker would own.  The same tax exclusion would be available to all workers, regardless of where or whether they purchase health insurance.

Altering the tax exclusion that way would force employers to shift the money they now use to purchase health benefits – on average almost $4,000 for individuals and $9,000 for families – into workers’ cash wages.  Individuals could then contribute, say, up to $8,000 annually to a Large HSA.  Families could contribute up to $16,000. 

Workers could use those funds to purchase medical care and health insurance, from any source, tax-free.  For example, they could hand the money right back to their employer and stay on the company plan.  Anything the worker doesn’t spend grows tax-free.

Large HSAs have a number of advantages over other tax-based health care reform proposals, including Sen. John McCain’s proposal to provide tax credits for health insurance.  Large HSAs would eliminate the tax code’s influence over consumers’ health care decisions to a greater extent, and with fewer economic and political downsides, than Sen. McCain’s tax-credit. 

One downside of McCain’s tax credit proposal, as well as other reform proposals, is that they discriminate against the uninsurable.  A tax break for health insurance is only valuable if you can obtain health insurance.  Tying a tax break to insurance automatically excludes a lot of very sick people.  In contrast, Large HSAs offer the same tax break to the uninsurable, who arguably need it most.

To read more about Large HSAs, click here (free download).

Who Serves the Public Interest?

The Washington Post refers to Ralph Nader’s Public Citizen as “a public-interest group” in an article on costly federal regulations that the group is defending. So I wondered: Does the Post think federal regulation is always in the public interest? Or that groups that defend regulation are really acting “in the public interest”? What about groups that work to reduce the burden of government on consumers or taxpayers? Are they “public interest groups”? Certainly, as a member of the public, I don’t really see bigger, costlier government and more expensive products as being in my interest.

So I went to Nexis to investigate. Sure enough, in the past year the Post has used the phrase “public interest group[s]” 41 times. In every case (except one Associated Press story), the groups were on the political left. They demanded more spending or regulation by the federal government, actions that some but not all people would say are in the public interest.

I don’t always disagree with these “public interest groups.” For instance, one story quoted the Media Access Project. They almost always support more regulation of media companies, except when the question is regulation of obscenity or profanity. In this story MAP, “a public interest group,” applauded a court ruling striking down an FCC ruling that the use of profanity on a Fox News broadcast was indecent. Hear, hear. Now if only MAP would defend the rights of media companies to make their own decisions on non-obscene broadcasting.

But how about the National Taxpayers Union, which works to eliminate wasteful spending and reduce the burden of government? Was it a public interest group? Not in the Post. How about the Competitive Enterprise Institute, which works for competition and more choice for consumers? Not a public interest group.

The Post seems to have a very consistent but arguably wrong-headed view about just what is in the public’s interest.

McCain Joins Anti-Universal Coverage Club

It’s official.  From the CBS News story following Sen. John McCain’s appearance on 60 Minutes:

“Senator Clinton says that providing universal healthcare is quote ‘a moral responsibility.’ Do you agree?” [60 Minutes correspondent Scott] Pelley asked.

“Well, I think that’s one of the big differences we have about the role of government. If you think that the government should mandate anything to the American people than besides a safety net, and I don’t view it as a safety net. I view Medicare and Medicaid as a safety net,” McCain said. “But to mandate that all Americans are required to do something then that’s just not within the fundamental philosophy that I have about the role of government in America.”

I think that earns him membership in the club.

The Wall Street Journal, the Dollar and the Fed

Today’s Wall Street Journal editorial, “The Buck Stops Where?” is the latest in a long series of editorials and articles suggesting the Federal Reserve has been “reckless” to cut interest rates on bank reserves. This story relies heavily on some questionable arguments about the dollar’s exchange rate.

Here are some quotes from the editorial followed by my comments:

  1. “The flight from the dollar has made U.S.-based investments less attractive at a time when the U.S. financial system urgently needs to raise capital.”

    That is almost backwards. It now costs fewer Euros or yen to buy U.S. shares or build U.S. plants than it did a few months ago, which makes U.S. investments more attractive to foreigners, not less attractive. It is true, however, that if the dollar were expected to fall sharply in the future, then risk of exchange rate losses might discourage foreigners from buying dollar-denominated assets and also encourage U.S. investors to buy foreign securities.

  2. “If the dollar had merely retained its value against the euro, oil would be in the neighborhood of $70 a barrel. Dollar weakness explains a large part of the oil price surge.”

    The reason a lower dollar makes oil prices rise is that it makes oil cheaper than it would otherwise be in euro, so Europeans buy more oil than they otherwise would – bidding-up the price (at least in dollars). We can’t be sure what would have happened to oil prices if the Fed had kept interest rates on bank reserves high enough to maintain the dollar’s value against the euro, because higher U.S. interest rates would have had some adverse effects on the world economy (and therefore on industrial demand for energy). If the euro had been stabilized by cutting ECB interest rates, by contrast, the effect on oil prices would have been much different. The oil price is a ratio of barrels to dollars, which means it is partly real and partly monetary.

  3. “Exports in goods are being more than offset by the rising cost of oil imports.”

    Actually, the U.S. current account deficit in fourth quarter was down 12.7% from a year before. Incidentally, purchases of U.S. government securities by foreign central banks were reduced by $148.8 billion last year, while private foreign investments in Treasuries rose by $202.1 billion.

  4. “Import prices have surged nearly 14% in the last year.”

    Import prices were up by 13.6% in the 12 months ending in February only because the price of petroleum imports was up by 60.9%. The price of all other imports was up 4.5%. While it makes some sense to blame rising import prices on dollar weakness, it does not make sense to suggest that petroleum prices are uniquely affected by the dollar, unlike most other imports.

    There is also some reverse causality–with rising oil prices contributing to a lower dollar and not just the other way around. Rising commodity prices lift the exchange rates of commodity-exporting countries like Canada and Australia, which shows up as a drop in the trade-weighted U.S. dollar.

David Malpass of Bear Stearns is an excellent economist who has supported a strong dollar in several Journal op eds. But Malpass does not argue, as the editorial page does, that a weaker exchange rate is necessarily inflationary. Indeed, one of the graphs in David’s December 6 forecast was aptly titled, “Trade-weighted dollar not well-connected to CPI inflation.” Even using 3-year trends, there’s virtually no connection.

On March 14, the Journal’s “Ahead of the Tape” column argued that the Fed is wrong to focus on core inflation, because “inflation is on the rise and energy and food have a lot to do with it.”

Should the Fed raise interest rates when world oil prices go up and lower interest rates when oil prices fall?

That is, after all, what it means to say the Fed should base policy on “headline” inflation, including energy prices (and the impact of ethanol subsidies on food prices).

While he was an academic researcher, Ben Bernanke showed that central bank reactions to oil prices have caused or aggravated virtually every postwar recession.

Recessions eventually cause oil prices to fall and central banks to ease aggressively – years after the recession is over (as in 2003-2004), as I noted in “Interest Rates and Dollar Fundamentals” (WSJ Nov. 15, 2007)

What is different this time is mainly a matter of timing – the Fed easing before recession rather than long after. What also appears different, so far, is that the Fed is acting alone, which largely explains the euro’s recent strength. Yet the ECB has always followed the Fed, after many months, and probably will again.

The Fed may be at risk of overdoing it, but making that case requires looking at some historical variables (or a model, like John Taylor’s) that have a decent track record for predicting inflation.

The trade-weighted dollar has been falling since February 2002, and the price of gold has risen nearly as long. If exchange rates or gold prices could generate reliable forecasts of inflation, then we should have seen escalating inflation for the past six years.

Boiling the Voter-ID Teapot

Last week, former Federal Election Commissioner Hans A. von Spakovsky published a Heritage Foundation Legal Memorandum entitled Stolen Identities, Stolen Votes: A Case Study in Voter Impersonation. Contrary to claims made by prominent newspapers and attorneys, he argues, in-person voting fraud is a real problem.

The evidence he provides is a vote fraud ring that began operating in 1968 and that was broken up more than 25 years ago in 1982. Impersonation fraud can be committed at polling places, and a voter-ID requirement would make it a little harder, but a quarter-century-old case is hardly evidence of a significant problem.

How states secure their voting processes should turn on how they structure their voting processes. States might choose a voter ID requirement if they can do so in a way that balances security against access, convenience, and privacy. Absentee balloting is generally a far greater threat to the security of elections than weak or non-existent ID requirements at polling places.

The thing that matters most is avoiding a uniform national voter ID requirement. I wrote about this in my TechKnowledge piece Voter ID: A Tempest in a Teapot That Could Burn Us All: “To ensure that American voters enjoy their franchise in a free country, clumsy voter ID rules should be avoided. A national voter ID system should be taken off the table entirely.”