Two Reasons Why an Individual Mandate Will Not Solve the Free-Rider Problem

The idea that government should compel people to purchase health insurance is gaining traction among Republicans and Democrats.  The idea is called an “individual mandate,” because it would require individuals to purchase coverage (as opposed to a mandate that requires employers to provide coverage to their workers).  Former Massachusetts Gov. Mitt Romney (R) put that idea into effect in the Bay State.  California Gov. Arnold Schwarzenegger proposes to do so in the Golden State.  A number of other states are considering it.

What makes the idea attractive is the fact that many people obtain health care but don’t pay for it.  Unless health care providers can (1) collect from, (2) avoid, or (3) deny care to those people (which in many cases is illegal), the costs must fall on someone else.  Thus, the reasoning goes, decreeing that everyone must obtain health insurance would solve that “free-rider” problem.

But there are two important reasons why it will not:

  1. There would still be people without health insurance.  Many will not obey the decree.  California mandates that all drivers must carry auto insurance, yet according to the Insurance Research Council, 25 percent of California motorists are uninsured.  In fact, the share of uninsured motorists is higher than the share of residents without health insurance (18 percent).  Even with a mandate, there will be uninsured people who free-ride at others’ expense.
  2. Free-riding by people with health insurance.  According to research by the Urban Institute’s Jack Hadley and John Holahan, people who have health coverage account for at least 30 percent of uncompensated care delivered to the non-elderly.  Since uncompensated care accounts for just 4 percent of health spending, a mandate could affect at most 2.8 percent of spending.

So an individual mandate could solve at most two-thirds of a very small problem, but chances are it would do even less good than that.

That small benefit must be balanced against the costs.  According to The New Republic’s Jonathan Cohn, who is generally sympathetic, “individual mandates … require substantial government intervention in the free market.”  Government must monitor yet one more aspect of the citizens’ lives.  It must define what qualifies as health insurance, which is an invitation to the sort of special-interest rent-seeking that has made health insurance unaffordable for so many.  It must tax some citizens to subsidize those who cannot afford coverage.  A final cost of such mandates is that rather than solve the much larger problem of moral hazard, they actually make that problem worse. 

An individual mandate would not fix our broken health care system.  It would simply pump more money into that system. 

What is interesting, then, is this.  Journalists and left-ish policy wonks explode when special interests try to line their own pockets by supporting, say, ineffective weapons systems.  But where is the outrage when this or that group seeks to do the same thing with ineffective health care proposals?

How Large are Federal Oil Subsidies?

Yesterday, I co-authored an op-ed with Peter Van Doren on the Democrats’ energy bill scheduled for a vote today in the House.  The bill is advertised as an exercise to eliminate the subsidies going to “Big Oil” and to use that money instead to subsidize renewable energy (the fact that “Big Oil” is also in the renewable energy business and will simply find that the federal checks are going to different corporate in-boxes has apparently not occurred to anyone, but I digress).  But did the Democrats wipe out all the subsidies, or did they leave some big subsidies behind?

A lot of people think that the Democrats left a lot of money on the table.  Today in the Christian Science Monitor, for example, economist Doug Koplow argues that the biggest subsidy left untouched by Pelosi & Co. relates to the military protection of oil producing facilities and shipping lanes abroad, a mission which costs the taxpayer at least $19 billion a year. 

While the Ds certainly were less than thorough in their anti-oil-subsidy crusade, I’m not so sure that the subsidies are anywhere near as large as many people think.

Quantifying the national security costs associated with ensuring the safe and reliable delivery of foreign oil is difficult.  The Congressional Research Service estimated in 1997 that those costs may be anywhere between $0.5-65 billion, or 1.5 cents to 30 cents per gallon for motor fuel from the Persian Gulf.  Agreement about the extent of the military’s “oil mission” is difficult because military and foreign policy expenditures are generally tasked with multiple missions and objectives, and oil security is simply one mission of many.  Analysts disagree about how to divide those missions into budgetary terms. 

Debate about the size of the U.S. military’s oil mission and related foreign policy expenses, however, is not particularly relevant to a discussion about whether and to what extent oil companies are subsidized by this kind of thing.  From an economic perspective, the key question is whether an elimination of U.S. military and foreign aid expenditures dedicated to “the oil mission” would result in (a) greater corporate expenditures to secure oil from abroad, and/or (b) an increase in the price of oil, and, if so, how much?  That is the true measure of the subsidy if it indeed exists.  That’s because, if the oil mission provides no value to multinational oil companies or oil consumers - as I maintain - than it is not a subsidy.  Measuring the subsidy by the amount of money government spends on the oil mission is at best a measure of how much politicians believe the national security externalities might be.  Political assessments may or may not be accurate.            

To be sure, if the termination of the American “oil mission” implied the termination of all military, police, and court services in the region, petroleum extraction investments would become more risky, extraction of oil might decrease, and prices would increase.  But remember that oil companies in the Middle-East are creatures of government.  So the question is really whether Middle-East governments would produce less oil because the United States ended its oil-related military mission and foreign aid.  Or would oil producing states provide – or pay others to provide – military services to replace those previously provided by the United States?           

I strongly suspect that a cessation of U.S. security assistance would be replaced by security expenditures from other parties.  First, oil producers will provide for their own security needs as long as the cost of doing so results in greater profits than equivalent investments could yield.  Because Middle-Eastern governments typically have nothing of value to trade except oil, they must secure and sell oil to remain viable.  Second, given that their economies are so heavily dependent upon oil revenues, Middle-Eastern governments have even more incentive than we do to worry about the security of production facilities, ports, and sea lanes.  

In short, whatever security our presence provides (and many analysts think that our presence actually reduces security) could be provided by other parties were the United States to withdraw.  The fact that Saudi Arabia and Kuwait paid for 55 percent of the cost of Operation Desert Storm suggests that keeping the Straits of Hormuz free of trouble is certainly within their means.  The same argument applies to Al Qaeda threats to oil production facilities.           

If oil regimes paid for their own military protection and the protection of their own shipping lanes, would U.S. Middle-East military expenditures really go down?  The answer might very well be “no” for two very different reasons.  First, the U.S. Middle-East military presence stems from our implicit commitment to defend Israel as well as the region from Islamic fundamentalism, and those missions would not likely end simply because Arab oil regimes paid for their own economic security needs.  Second, bureaucratic and congressional inertia might leave military expenditures constant regardless of Israeli or petroleum defense needs.              

Thus, U.S. ”oil mission” should not be viewed as a subsidy that lowers oil prices below what they otherwise would be.  Instead, the expenditures are a taxpayer-financed gift to oil regimes and the Israeli government that has little, if any, effect on oil prices or corporate profits.  Now, I’d be happy to see the oil mission go, but “Big Oil” won’t be any poorer for it.

More on Bush’s Surveillance Flip-Flop

Based on the DOJ briefing regarding the NSA surveillance about-face, it appears that the Foreign Intelligence Surveillance Court (FISC) is not approving surveillance on a program-wide basis.  Instead, it is issuing individualized surveillance orders against particularized targets.  It remains unclear, though, how exactly the FISA orders have changed to permit more “speed and agility” and, because so much is taking place within the dark, all suggestions are pure, unadulterated guess-work.

One compelling theory is Orin Kerr’s:  namely, that the FISA court is issuing anticipatory warrants (warrants based on a finding that there is probable cause to search when a future triggering condition appears.)  As Kerr notes, that’s consistent the one bit of evidence we can glean:  that the FISA court is limiting the approval orders to a 90 day period, rather than the full statutory one year period permitted under FISA.  Shorter review is consistent with ensuring that the triggering condition for the search and the probable cause requirement mesh.  It also helps explain the timing, since the Supreme Court approved anticipatory warrants in United States v. Grubbs last term.  (For more on Grubbs, read Professor David Moran’s article on last term’s Fourth Amendment cases, The End of the Exclusionary Rule, Among Other Things, in the latest Cato Supreme Court Review.)

Kerr’s theory, however, doesn’t explain one part of the puzzle:  multiple sources’ statements to the Washington Post that the orders touch on ”programmatic” issues.  What might this mean, if FISC is approving orders on a case-by-case, rather than program-level, basis?

One possibility is that DOJ has adopted a streamlined internal approval process for emergency FISA applications within the executive branch, and that FISC has approved it.  FISA imposes some internal pre-approval requirements for emergency applications–including review by the AG and a cabinet level official with foreign affairs responsibility.  In February testimony last year, Gonzales complained at length that this statutory approval process had become overly cumbersome:

To be sure, FISA allows the government to begin electronic surveillance without a court order for up to 72 hours in emergency situations or circumstances. 

But before that emergency provision can be used, the attorney general must make a determination that all of the requirements of the FISA statute are met in advance. 

This requirement can be cumbersome and burdensome.  Intelligence officials at NSA first have to assess that they have identified a legitimate target. After that, lawyers at NSA have to review the request to make sure it meets all the requirements of the statute. And then lawyers at the Justice Department must also review the request and reach the same judgment or insist on additional information before processing the emergency application.  Finally I, as attorney general, must review the request and make the determination that all of the requirements of FISA are met.  

But even this is not the end of the story. 

Each emergency authorization must be followed by a detailed formal application to the FISA courts within three days. The government must prepare legal documents laying out all of the relevant facts and law and obtain the approval of a Cabinet-level officer as well as a certification from a senior official with mass security responsibility, such as the director of the FBI. 

Finally, a judge must review, consider and approve the application.  All of these steps take time. Al Qaida, however, does not wait.  … Just as we can’t demand that our soldiers bring lawyers onto the battlefield, let alone get the permission of the attorney general or a court before taking action, we can’t afford to impose layers of lawyers on top of career intelligence officers who are striving valiantly to provide a first line of defense by tracking secretive Al Qaida operatives in real time.  

In the briefing on the new FISA process, however, the administration noted that one change that made compliance with FISA possible was a change in executive branch “infrastructure”:

[O]ne thing that did change was – authorization earlier this year, last year, the National Security Division, which is a new agency in the Department of Justice, which will – be coordinating with the FISA Court on all kinds of matters including this one. So we’re now equipped in a way we weren’t before to handle this work.

One way to read this is that the new FISC order finds that new streamlined executive branch procedures for internal review of emergency applications accords with FISA.  Its hard, unfortunately, to guess exactly what such procedures might be, but it almost certainly includes eliminating duplicative layers of legal oversight within the executive.

NEJM Reviews Medicare Meets Mephistopheles

This week’s issue of the New England Journal of Medicine carries a review of the Cato Institute’s latest health care book, Medicare Meets Mephistopheles by Cato adjunct scholar David A. Hyman. Reviewer Peter Jacobson of the University of Michigan School of Public Health writes:

Hyman’s bracing critique reflects the fact that neither Medicare’s problems nor the ascendancy of market-based approaches to solving them can be ignored any longer.

Medicare Meets Mephistopheles provides a good starting point for free-market advocates who are serious about preventing the federal government from imposing price controls on prescription drugs, or otherwise stealing from future generations.

Goodbye Warrantless NSA Surveillance?

The DOJ announced today it has reached a double super-secret deal with the FISA court which allows it to bring the administration’s NSA surveillance program within the statutory FISA framework governing surveillance warrants. What deal, you ask? The DOJ’s letter to Senators Leahy and Specter provides few details, except to say that it is based on a FISA court order that establishes “innovative” and “complex” warrant procedures that allow the administration to act with “speed and agility.”

Absent further information, its hard to tell whether this is a good development, although as Marty Lederman notes, it is “difficult to imagine that the FISA court would roll over and approve an ‘innovative’ legal theory if it were dubious – especially not in this context, where DOJ has many incentives to get the FISA court on-board and where the congressional and public spotlight is shining so brightly.”

The administration’s about face underscores what I argued in this piece: that the administration’s claims that it was simply too cumbersome to comply with FISA held absolutely no water.

Lederman also notes that the threat of losses in ongoing multi-district litigation involving the state secrets privilege as well as the threat of congressional subpoenas, and possible litigation over executive privilege, may well have prompted the administration to give up its go it alone stance. I’ve previously argued that such threats had the potential to rein in the administration, without involving a winner-takes-all show down with the Supreme Court, here.

Less Redress, More Grievances

The first bill proposed in the U.S. Senate in the new session of Congress attacks freedom of speech.

Some organizations use direct mail and other means to urge the public to contact members of Congress on a variety of issues. Currently some of those groups do not have to disclose those efforts to prompt public input.

Sen. Joseph Lieberman (I-CT) is not happy with such freedom from regulation. He has proposed that such organizations should be forced to disclose these efforts if they spend more than $25,000 a quarter and do not have a dues-paying membership (see S1, Sec. 220).

According to CQ Today, Lieberman’s spokeswomen said, “There’s nothing in this measure that will stop, deter or inhibit anyone from petitioning the government.” If that were true, no one in Congress would support Lieberman’s proposal. Congress passes restrictions on First Amendment rights primarily to discourage political activity, thereby increasing the discretion of a member while decreasing their accountability.

This particular measure imposes new costs on the groups who exercise their First Amendment rights. It will also expose the groups and their supporters to abuse and attacks in the political arena. Both costs increase the price of petitioning the government for redress of grievances and thereby reduce its likelihood.

Is Lieberman’s bill constitutional? The U.S. Supreme Court has said that mandatory disclosure of activities tied to First Amendment rights (like say, “the right to petition the government for redress of grievances”) may be justified to prevent corruption (or its appearance) and to inform the public better about candidates or legislation. The groups give money to the U.S. Post Office or other direct mailers, not to members of Congress or other policymakers. Hence, quid-pro-quo corruption is not at issue here. The groups are also informing the public about issues and urging them to contact Congress. How any of this constitutes the “appearance of corruption” is anyone’s guess.

I suspect the traditional justifications for mandatory disclosure do not matter much here. No one seriously believes these direct mail campaigns corrupt politics. Members of Congress no doubt believe that these direct mail groups have more influence than they should have. In particular, members of the new majority running the Senate may believe the direct mail efforts to foster contacts with Congress give “undue influence” to their conservative opponents. Hence, Sen. Lieberman comes up with a bill to throw some sand in the gears of the conservative political machine.

If you ever doubt why the First Amendment exists, consider this: the first thing mild-mannered Joe Lieberman did when a new majority took control of the Senate was to attack the constitutional rights of those who disagree with him.

It’s Not Just About Nifong, Part II

Durham County district attorney Mike Nifong is now off the case, but his departure provides me with another opportunity to argue that the Duke University case is not just about Nifong.  (Dorothy Rabinowitz and Randy Barnett have made interesting and related points in recent days, for those interested in reading more).

Let’s assume that the North Carolina Attorney General’s office reviews the entire matter and then dismisses all of the charges against the Duke students.  Some will say that the system “worked!”  That is, prosecutorial overreaching was exposed and an injustice was averted … so let’s punish Nifong, close this case file, and … move on.  I disagree with that.  And, in defense of my view, I will introduce you to another prosecutor by the name of Tom Lock, district attorney in Johnston County, North Carolina.

Lock is responsible for jailing an innocent man for four years.  It is a long and twisted story, but I’ll give you the highlights.

Three men get together to rob a small business in Johnston County.

Keith Riddick planned the job and was the getaway driver.  Kendrick Henderson and Terrance Deloach went inside and brandished handguns.  Deloach then shot a woman twice at point blank range (she miraculously survived).  The men make their escape with petty cash.

Henderson left a fingerprint behind and was quickly apprehended. He tells the police that his accomplices were Keith Riddick and Riddick’s cousin from New York … first name “Terrance” … last name unknown. 

The police pick up a young man by the name of Terrance Garner, not Terrance Deloach. 

Garner declares his innocence, but the authorities believe they have their man.  From this point forward, the authorities seem utterly impervious to reason.

For example, when Henderson learns the police have the wrong man, he speaks up and tells them so.  His conscience bothers him so much that he disregards his attorney’s advice and testifies on Garner’s behalf–“He had nothing to do with the crime!”  DA Tom Lock calls Henderson a liar in front of the jury. 

To nail Garner, Lock made a deal with Riddick.  The deal is simple: If Riddick provides testimony against Garner (“cooperation”) he will get less jail time.  Riddick fails a polygraph shortly before the trial, but Lock uses him anyway.  From Riddick’s point of view, he gets leniency and does not have to “snitch” on his relative, Terrance Deloach.

Garner is convicted and is sentenced to 30-40 years in prison.

But wait.  Police in a nearby county go out of their way to follow up on the old “Terrance from NY” lead.  They arrest Terrance Deloach and get a confession to the robbery and the shooting.  Deloach is Riddick’s cousin and he has spent time in NY.  In fact, he spent time in a NY prison for shooting a person there.  Garner, in contrast, has no history of violence–just a drug possession arrest.

At first, DA Lock holds a press conference in which he confesses his mistake.  After all, why would this guy Deloach confess if he was not involved? 

Now things get mysterious.  After one night in the Johnston County jail, Deloach recants his confession.  DA Lock reverses course the next day and says his original case against Garner was solid after all. 

Garner’s attorneys move for a new trial.  A new jury ought to hear about Deloach and his written confession to the crime.  A new jury ought to know that Riddick gave perjured testimony where he denied having a cousin from NY named “Terrance.”  DA Lock fights this legal motion and prevails. Garner’s appeals go nowhere in the N.C. court system.  He starts serving his long jail sentence.

Summary of the case:

  • Riddick, the planner and perjurer, gets four years.
  • Henderson, who told the truth about Deloach, gets 11 years.
  • Garner, a totally innocent man, gets 30-40 years.
  • Deloach, the attempted murderer, goes free.

However, a terrific Frontline documentary brings new scrutiny to the forgotten case.  The film is so powerful that the system just cannot withstand the spotlight.  About one month after the documentary airs, a court sets aside Garner’s conviction and he is freed.

Frontline really helped Terrance Garner.  And the national media attention has really helped the accused Duke University students.  Without such intense scrutiny, Nifong would still be on the case, and it is doubtful that the North Carolina Bar Association would have launched an ethics investigation.  But what about all the other cases that do not get such intense scrutiny?  Something to think about.