Per Enrollee Costs for Medicaid Expansion Population 49 Percent Higher in 2015 than Anticipated

The 2015 Medicaid actuarial report came out last week, and with it another entry in the series of upward revisions to how much Medicaid would spend on the adults made newly eligible by the ACA’s Medicaid expansion. In 2015, per enrollee costs for the adults made newly eligible by the ACA’s Medicaid expansion were estimated to be 49 percent higher than the previous projection. 

This is not the first upward revision. In last year’s report, In earlier estimates these newly eligible adults were projected to have average benefit costs one percent lower than adults that were already eligible, but in last year’s report this expansion population was instead estimated to have average expenditures 19 percent higher. So per enrollee costs, previously estimated to be $4,636 in 2014, were revised up to $5,517.

Even after that correction, last year’s report projected that per enrollee costs would fall significantly in the second year of the expansion because they estimated that the effects of pent-up demand and adverse selection would be much less of a factor. In that report, actuaries estimated that per enrollee costs for this group would fall significantly, from $5,571 in 2014 to $4,281 in 2015. Instead, the new report estimates that per enrollee costs actually climbed to $6,366 in 2015, as pointed out by Brian Blase at The Apothecary

Figure 1

Per Enrollee Costs for Newly Eligible Adults, by Year of Report

Source: 2013, 2014, and 2015 Medicaid Actuarial Reports.

Indians, Free Markets, and Property Rights

In a Wall Street Journal oped today, Naomi Schaefer Riley discusses federal policies toward American Indians:

There are almost no private businesses or entrepreneurs on Indian reservations because there are no property rights. Reservation land is held in trust by the federal government and most is also owned communally by the tribe. It’s almost impossible for tribe members to get a mortgage, let alone borrow against their property to start a business. The Bureau of Indian Affairs regulates just about every aspect of commerce on reservations.

Instead of giving Indians more control over their own land—allowing them to develop natural resources or use land as collateral to start businesses—the federal government has offered them what you might call a loophole economy. Washington carves out a sector of the economy, giving tribes a regulatory or tax advantage over non-Indians. But within a few years the government takes it away, in many cases leaving Indian tribes as impoverished and more disheartened than they were before.

I explored the same themes in a 2012 essay at DownsizingGovernment. My essay traces the history of Indian policies back to our nation’s founding and concludes:

American Indians and Alaskan Natives have a unique history and a special relationship with the federal government. However, subsidies and regulatory preferences are not a good way to create broad-based and durable economic growth for these peoples. Subsidies are also inconsistent with the movement toward Indian self-determination. A better way to generate a lasting rise in Indian prosperity is to make institutional reforms to property rights and tribal governance on reservations.

The problem is that Washington is a massive screw-up these days in so many ways. There is so much to repeal and reform, but members of Congress don’t seem to have the time, patience, or incentive to fix the failures that they have created, including the failures of Indian policies.

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Sales Tax Holidays Make for Terrible Tax Policy

This weekend Virginia and Maryland begin a sales tax holiday for the worthy-sounding goal of helping to reduce the cost for parents shopping for school clothes and supplies for their children. But a sales tax holiday makes for terrible tax policy.

The problem is that most of it is inevitably captured by the merchants, who anticipate increased demand for their goods during the holiday and respond by keeping prices higher than they otherwise would be. As a result it utterly fails to achieve its ostensible purpose. 

It’s easy to see that this is true if we considered doing the opposite and had a short term sales-tax spike. With a short-run sales tax spike people would do their best to evade the tax–either by delaying their shopping until the tax expired or shopping elsewhere. Stores would be forced to eat most of the tax if they wanted to keep their customers coming to the store during the spike. If the increase were permanent no such evasion would be possible and stores would fully pass the tax to the customer. In the long run such evasion would be difficult or impossible so prices would rise enough to pass the tax along to the customer.

A sales tax holiday, and the attendant publicity that comes with it, pushes shoppers to hit the stores during that period. Savvy store owners respond by holding more sales before and after the holiday, knowing that the holiday makes makes such sales unnecessary. Studies on tax holidays confirm this behavior. 

Sales tax holidays not only fail to save shoppers any money but they also allow politicians to pretend they are doing a tax favor for their constituents, and help convince a few voters that their state’s tax code isn’t all that bad after all. The reality is otherwise. 

Trump Is Against Legal Immigration Too

When I criticize Donald Trump’s immigration policy proposals, the most common response is some variant of “Trump is against ILLEGAL immigration, not LEGAL immigration.  Get your facts straight.”  Although Trump makes contradictory statements on many topics, allowing virtually any supporter to find a quote in support of his or her preferred policy position, Trump has been mostly consistent on legal immigration: He wants to cut it.

Here are Trump’s anti-legal immigration positions, in bold, pulled from his position paper:

1.      Immigration moderation.  Trump calls for a “pause” on the issuance of any new green cards to workers abroad so that “employers will have to hire from the domestic pool of unemployed immigrant and native workers.”  Trump’s position paper is unclear on this point because immigrants on employment-based green cards are not the only green card holders who work in the United States – a majority of green card holders who enter through family categories work too.  In 2014, 61 percent of family-based immigrants came from abroad.  If Trump wanted to be sure that none of them would work in the United States then he would support cutting those 61 percent of family-based green cards, which are equal to 38.7 percent of all green cards issued in 2014. 

Trump’s policy statement could also mean that he only wants to restrict the issuance of employment-based green cards, a smaller numerical restriction but one that would cause more economic damage.  Of the 151,596 employment-based green cards issued in 2014, 86 percent went to folks already in the U.S. legally on other visas.  Those 14 percent of green cards that Trump would deny to workers abroad would likely just be reallocated to migrant workers already in the United States.  However, Trump’s proposed changes to the H-1B visa program (explained below) would greatly damage or destroy the feeder system that sends migrants to the employment-based green card. 

Thus, if Trump’s policy is adopted then the employment-based green cards may not decrease in number for a few years as those already on H-1Bs adjust their status.  After those years pass and as the number of H-1Bs fall and aren’t replaced by new ones because of the onerous restrictions, the number of new employment-based green cards will steadily drop and could hit zero.  If that happens then the total number of all green cards issued annually will drop by 14.9 percent. 

If employment-based green cards from abroad are cut off and those slots remain unfilled then this reform might only cut the number of all green cards by 2.2 percent.  If Trump’s plans produce the worst case scenario and exclude most family-based green cards and result in the end of the employment-based green card program, then it could end up cutting the number of all green cards issued annually by 53.7 percent – depending on how long he continues this policy.  Verdict: Anti-legal immigration.           

2.      Increase prevailing wage for H-1Bs.  This policy proposal will reduce the number of legal skilled temporary migrant workers.  Just over 124,000 H-1Bs were approved in 2014 for initial employment in the United States, 85,000 of them for employment in firms and the rest in non-profit research institutions, with an average salary of $75,000.  If the minimum salary for H-1B visas was bumped up to $100,000 then the number of H-1Bs hired by private firms would decrease while they’d also shrink for research institutions – if this new wage regulation would apply to them. 

For initial H-1B employment, the 75th percentile for compensation is $81,000.  Even including all of the petitions for high wage workers that are rejected each year, this reform would significantly shrink the number of H-1B visas issued at an enormous economic cost.  Combined with additional rules and regulations, this reform would reduce the H-1B program to a shadow of itself.  Verdict: Anti-legal immigration. 

3.      Requirement to hire American workers first.  This policy would increase the regulatory cost for American firms hiring skilled foreign workers in specialty occupations.  Congress considered just such a policy for the H-1B visa in 1990 and rejected it because the regulatory costs would be so high.  Higher regulatory costs mean fewer migrants.  Verdict: Anti-legal immigration.

4.      Refugee program for American children.  This policy would raise the standards for refugees and asylum seekers in order, according to Trump’s position paper, to cut down on abuse and fraud.  However, higher standards won’t reduce actual oppression by foreign governments so this proposal will likely just result in more fraud and many people who meet the criteria being sent back to oppressive regimes. 

Not the Only Thing There’s Just Too Little Of

Last night at the Democratic National Convention, many speakers made impassioned pleas for “common sense” gun reform. That might sound like a good idea but, like most public policy, gun policy is hard

As I wrote at the Washington Post website in December, using “common sense” to describe new gun policy is a “convenient piece of jargon that conveys level-headedness, non-partisanship, and empathy” without tackling the issues that drive gun crimes and gun deaths:

The United States contains an estimated 270 million to 310 million firearms. All gun crimes and gun deaths are overwhelmingly perpetrated with handguns, yet barely one quarter of Americans favor a handgun ban that would be required to lower that number significantly. So-called “assault weapons” and “high-capacity” magazines are easy political targets because they sound scary to people unfamiliar with firearms. However, restricting either or both would likely have no measurable effect on gun crime rates.

This week, the Washington Post published more information that should inform the push for more gun laws: less than 20 percent of all gun crimes are committed with legally owned firearms. This means that the overwhelming majority are committed with illegal weapons and/or by people who are not legally permitted to own guns. If lowering gun crime is the intended outcome of new legislation, most of the current proposals ignore 80 percent of the gun crime that happens in our country.

This is not to say there are no ways to improve our laws to reduce gun crime. But, with apologies to Burt Bacharach, what the policy world needs now are evidence-based solutions to our gun violence problem, not new laws that have no measurable effect on reducing gun crime.

No One Knows How Long Legal Immigrants Will Have to Wait

Immigrants are commonly told to “get in line” if they want to stay in the United States. This call is disingenuous for many reasons. Many immigrants have no line to get into. And even they do, we are asking them to join lines when no one knows how long they are. In many cases, we could be asking many immigrants to join a line the end of which they will never live to see.

We don’t know much about who are in these lines, but here’s what we do: Thousands of immigrants come to the United States each year on temporary work visas. While working in temporary status, some of their employers petition on their behalf to obtain green cards for them to stay permanently. If the employer has jumped through all the appropriate hoops, the worker can then apply for a visa, if—and this is a big if—the limit on visas that year has not been reached.

This is where the line—and the waiting—starts. For lawmakers trying to fix the immigration system, figuring out how many people are at this point in the process is critical. But even they don’t know.

We do have a good idea how many people are waiting overseas. The State Department keeps track of those numbers and publishes them annually, and we’re quickly approaching 5 million immigrants waiting abroad, which is an astounding number on its own. But for immigrants already in the United States, the Department of Homeland Security doesn’t keep track—or doesn’t publish—the number of applicants who are prevented from receiving a green card due to the limits.

The State Department publishes a monthly visa bulletin that tells people in either line—here or abroad—whether they can apply for a green card. It lists a date, as seen below, next to a visa category. (Essentially, 1st (EB-1) refers to workers with a PhD or its equivalent, 2nd (EB-2) to Master’s, 3rd (EB-3) to Bachelor’s, and “other” to non-college grads.) If your employer’s petition was filed after the date listed, you cannot apply for a green card yet:

Figure 1: Visa Bulletin—Application Final Action Dates for Employment-Based Preferences

Source: State Department

These dates can sometimes create the misleading impression that immigrants from India, for example, will have “only” twelve years to wait for a green card. But that’s not right. That’s just how long immigrants who are currently receiving their green cards today have been waiting. We simply don’t know how many people applied since October 2004, so we don’t know how long these immigrants will have to wait.

Basel’s Liquidity Coverage Ratio: Redux

Last summer I contributed a post about the Liquidity Coverage Ratio (LCR), a new regulation that is part of the latest international Basel Accords (Basel III) and that is being imposed on U.S. banks and other financial institutions. As I explained in that post, the LCR requires banks to hold “high quality liquid assets” (HQLA) sufficient to cover potential net cash outflows over 30 days. Both George Selgin and I have pointed out that the LCR probably contributes to the continuing desire of banks to maintain such a high level of reserves.

Two economists who have severely criticized the LCR are Gary Gorton, noted for his work on bank panics, and his co-author, Tyler Muir. Earlier this year they published online a short version of a much longer unpublished paper that scrutinizes the potential impact of the LCR. Whereas my post, appropriately entitled “Reserve Requirements Basel Style,” compared the LCR to the traditional but now largely abandoned reserve requirements imposed on banks, Gorton and Muir compare it to the bond-collateral (or bond-deposit) requirement of the national banking era, prevailing from the Civil War until creation of the Federal Reserve. They conclude that the LCR will cause the same sorts of problems that, ironically, the Fed was supposed to solve.

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