In a recent Philadelphia Inquirer opinion piece White House economic advisor Peter Navarro hailed the christening of a new transport ship in the nearby Philly Shipyard as evidence of the “United States commercial shipbuilding industry’s rebirth.” As is typical of Navarro’s pronouncements, the reality is almost the exact opposite. In fact, a closer examination of the ship’s construction reveals it to be symptomatic not of a rebirth, but of the industry’s long downward slide. Named after the late Senator Daniel K. Inouye of Hawaii, Navarro describes the 850-foot Aloha-class vessel as “massive” and notes that it is “the largest container ship ever built in the United States.” This, however, is somewhat akin to the tallest Liliputian. Although perhaps remarkble in a domestic context, by international standards the ship is a relative pipsqueak. Triple‑E class ships produced by Daewoo Shipbuilding & Marine Engineering for Maersk Line, for example, are over 1,300 feet in length. While the Inouye’s cargo capacity is listed at 3,600 TEUs (twenty-foot equivalent units, roughly equivalent to a standardized shipping container), the Triple‑E class can handle 18,000. The only thing truly massive about the Inouye is its cost. The price tag for this vessel and another Aloha-class ship also under construction at the Philly Shipyard is $418 million, or $209 million each. The Triple‑E vessels, purchased by Maersk Line, meanwhile, each cost $190 million. The South Korean-built ships, in other words, offer five times the cargo capacity for nearly $20 million dollars less. But the story gets worse. The Wall Street Journal reports that after the Philly Shipyard completes work on “two small ships”—a reference to the Inouye and its sister vessel—it has no more orders lined up. The shipyard is already laying off 20 percent of its workforce and the dearth of future work has prompted speculation of a possible shutdown. Sadly, the Philly Shipyard’s travails are hardly atypical of the U.S. shipbuilding industry, and even Navarro admits that the sector has seen its workforce decline from 180,000 in 1980 to 94,000 today. And yet we are to believe that the Inouye’s construction heralds the pangs of an alleged rebirth? At least credit the White House advisor for assigning proper blame for this sad state of affairs (which he misguidedly presents as credit). The Inouye, Navarro says, is in large part the result of a protectionist law called the Jones Act. He’s not wrong. Formally known as the Merchant Marine Act of 1920, the law mandates that ships transporting merchandise between two domestic ports be U.S.-built, U.S.-owned, U.S.-flagged, and U.S.-crewed. The result is that instead of purchasing cheaper foreign-built ships, Americans are faced with enormous prices for relatively small ships. The cost of transportation, in turn, is higher than what it would otherwise be while the number of Jones Act-compliant vessels has gone down, along with jobs for mariners and shipbuilders. Those ships that remain, meanwhile, are far older than the foreign counterparts—no surprise given the cost deterrent to buying new ships. While the Inouye is brand new, the average Jones Act containership is 30 years old. The international average is 11.5. Consistent with other protectionist misadventures, the Jones Act’s list of victims includes those it was meant to help. Rather than recommitting to the Jones Act and other failed forms of maritime protectionism as Navarro is so eager to do, the United States should instead be aggressively seeking this law’s repeal. An increasingly untenable status quo demands nothing less. Learn more about Cato’s Project on Jones Act Reform.

The Trump administration has announced it is suspending so-called “risk adjustment” payments to insurers who participate in ObamaCare’s Exchanges, and cutting spending on so-called “navigators,” who help (few) people enroll in ObamaCare plans. 

The Washington Post’s Catherine Rampell and other ObamaCare supporters are calling these steps sabotage. In fact, what these steps will do is make the costs of ObamaCare’s supposedly popular preexisting-conditions provisions more transparent.

Risk-Adjustment (Bailout) Payments to Insurers

ObamaCare’s so-called “risk adjustment” program exists to funnel money to insurers who enroll lots of sick people who cost more in claims than they pay in premiums. Without it, insurers probably wouldn’t participate in ObamaCare. We may therefore confidently describe the risk-adjustment program as a bailout designed to rescue insurers from the costs of ObamaCare’s preexisting-conditions provisions. 

The risk-adjustment program does a better job of protecting insurance companies than sick patients. Those preexisting-conditions provisions literally punish insurers for offering coverage that the sick find attractive. They therefore create powerful financial incentives for insurers to make their offerings unattractive to the sick.

The risk-adjustment program is supposed to counteract those incentives. Anecdotal evidence and empirical research both show it’s not working. The risk-adjustment program is failing to counteract the perverse incentives that ObamaCare itself creates. ObamaCare coverage is therefore getting worse for many sick patients. Don’t worry, the insurance companies come out okay. Insurers can mitigate whatever losses the bailouts don’t cover with even more restrictive benefit designs to keep the sick away. Sick patients fare less well.

Reducing or eliminating spending on the risk-adjustment program would reveal more of the harms of the preexisting-conditions provisions. More of the cost would fall on insurers, who would respond by offering even more restrictive coverage, or exiting the market. More such transparency might finally push Congress to repeal those provisions and put health care for the sick on a more stable footing. 

In February, a federal district court in New Mexico ordered the Centers for Medicare & Medicaid Services to cease using its methodology for making risk-adjustment payments until the agency adequately explains that methodology. On July 7, the agency announced it will not make any risk-adjustment payments until the issue is resolved.

The insurers will eventually get their bailouts. But the delay will cost them money and add uncertainty to the process. Those effects in turn may lead insurers to take even greater steps to protect themselves from the costs of the preexisting-conditions provisions—thereby making those costs more transparent.

Cutting Navigator Spending

ObamaCare authorizes CMS to make grants to “navigators”—i.e., groups who are supposed to help people enroll in ObamaCare plans. They are a waste of taxpayer money, and likewise hide the costs of ObamaCare’s preexisting-conditions provisions.

According to CMS, navigators received $63 million for plan year 2017 and $36 million for plan year 2018. In both years, they signed up less than 1 percent of ObamaCare enrollees. “During grant year 2016–2017,” CMS reports, “seventeen of those Navigators enrolled fewer than 100 people at an average cost of $5,000 per enrollee.” That’s more than the cost of the health insurance, in many cases. The Wall Street Journal reports, “One grantee took in $200,000 to enroll a grand total of one person. The top 10 most expensive navigators collected $2.77 million to sign up 314 people.” The Las Vegas Review-Journal editorializes, accurately, “the navigator scheme is a make-work government jobs program rife with corruption and highly susceptible to scam artists. It’s a slush fund for progressive constituent groups.”

The navigator program also hides the cost of ObamaCare’s preexisting-conditions provisions. Since the sick will reliably enroll in ObamaCare even without navigators, those whom navigators end up enrolling are going to be disproportionately healthy. Thus navigators are also helping to hide the costs of those provisions by spreading the costs across more (healthy) people. Cutting spending on navigators will likewise reveal more of the costs of those provisions.

The Trump administration announced it is cutting spending on navigators to $10 million for plan year 2019. It should eliminate the program entirely. The less the federal government spends on navigators, the more transparent ObamaCare’s costs will be.

* * * 

When ObamaCare supporters complain about such steps, they are describing transparency as sabotage. Think about what that means.

In the 1980s, there was concern regarding the endangered sea otter population in California, so Congress passed a law by which a group of otters would be relocated to an island off the coast where they might flourish. Congress was concerned, however, that the relocated otters might cause problems for the fishermen who made their living in those same waters, and so the legislation mandated that the agency in charge set up a management zone which would prevent the otters from damaging the fisheries. It also gave legal protection to well-meaning fishermen who accidentally caused the death of a sea otter—an accident which would otherwise have grave consequences under the Endangered Species Act.

The otters flourished, the fisheries were protected, and everything worked well enough for the next few decades—until some environmental groups convinced the federal government to remove the fisheries’ protections. Congress had balanced the interests at stake when crafting the legislation, but now the feds considered that balance inconvenient. The agency rescinded the fisheries’ regulation, yet left the otters in their new home. A number of groups that depend on the fisheries were nonplussed by this change, and filed a lawsuit.

Under existing Supreme Court precedent, when agencies interpret the statutes for which they are responsible, courts grant them what is known as Chevron deference. This framework has two steps: first, the court asks whether the language of the statute is ambiguous; if it is, the court then asks whether the agency’s interpretation is anything but “arbitrary and capricious.” In other words, the agency doesn’t have to be right, but it can’t be crazy. But this framework is predicated on a text that the court can examine to judge the clarity or lack thereof. Here the statute says nothing about the circumstances whereby the fisheries protection can be rescinded; it says only that the agency must issue it.

The U.S. Court of Appeals for the Ninth Circuit didn’t care about the legal niceties. It declared that Chevron applies not only to unclear congressional commands, but to congressional silence. If the statute doesn’t say the agency can’t  do something, they court will defer to the agency’ judgement as long as it is a “reasonable policy choice.” The plaintiffs have now filed a petition asking the Supreme Court to take up their case and reject the extension of Chevron from mere ambiguity to silence.

The Cato Institute, joined by the Goldwater Institute and Cause of Action Institute, filed a brief in support of the petition. We argue that Congress alone has authority to authorize federal action. If there is no express grant of authority, then the agency is by definition not empowered to act. Allowing agencies to make up their own rules anytime Congress has neglected to preempt them would run afoul of the principles of “nondelegation,” a constitutional doctrine that holds that it is Congress that legislates, not the executive branch.

We urge the Court to take up California Sea Urchin Commission v. Combs and put a stop to this perfunctory rubber-stamping of the unaccountable administrative state.

Is an “excessive” fine constitutional if it’s levied against someone other than a human being? According to the Colorado Department of Labor and Employment, yes it is.

Mrs. Soon Pak manages Dami Hospitality, LLC, a company that runs hotels and motels in Colorado. Pak is a Korean immigrant with minimal proficiency in English. She relies on third-party professionals to assist her in maintaining compliance with the myriad of regulations that even native English speakers struggle to understand. Between 2006 and 2014, Dami’s insurance agent failed to renew the company’s worker’s compensation insurance, despite assuring Pak that Dami maintained full coverage.

In 2014, the Labor Department gave notice that Dami’s policy had lapsed, and Pak immediately secured coverage. A few weeks later, the Department imposed a fine of $841,200, including daily penalties the Department had allowed to accumulate for a full eight years before finally giving notice to the company. Put simply, the Department assessed nearly a million-dollar fine against a small corporation—which grosses less than a quarter of the total fine—for a violation that was solved immediately after notice was received, with no actual harm done to anyone. This fine is clearly excessive compared to Dami’s violation. To frame it in the worker’s comp context, if an employee is killed on a job, his dependent receives $250,000. That means the Department considers the results of Dami’s lazy insurance agent to be worse than three workplace fatalities.

We disagree. Unwilling to acquiesce to an attempt to justify excessive fines, Cato and the Independence Institute filed an amicus brief in support of Dami before the Colorado Supreme Court, to which the state had taken the case after the Colorado Court of Appeals set aside the fine as unconstitutionally excessive under the Eighth Amendment.

The Department argues that corporations have no Eighth Amendment protection, but this provision an absolute limit on what the government can do. There is no loophole that empowers a government bureau to impose excessive fines on selected defendants due to their organizational structure.

Regardless of who it is assessed against, no government has the lawful power to impose an excessive fine. By arguing that the Excessive Fines Clause can never apply to corporations, the Department is literally claiming the power to fine corporations excessively. The result would be contrary to our constitutional heritage, which comes from historical experience that governments with the power to impose excessive fines harm both people and the rule of law. Imposing an admittedly excessive fine would be a danger to the rule of law, ratifying the state’s ability to ruin persons who do not deserve to be ruined, by definition. The danger of such excessive power does not vanish because their targets have chosen to associate in a corporation. Any fine that is “excessive” necessarily exceeds the powers the people granted to a government bound by the law.

Any day now, the Trump administration will release a final rule allowing greater consumer protections in so-called “short-term, limited duration insurance,” a category of health insurance Congress exempts from federal health insurance regulations, including ObamaCare regulations. In comments I filed on the proposed version of the Trump administration’s rule and an accompanying Wall Street Journal oped, I explained some but not all of the benefits of allowing these consumer protections. What follows is updated and new information about the benefits of allowing those consumer protections.

Introduction

In 2016, the Obama administration arbitrarily prohibited certain consumer protections in short-term plans. First, it exposed sick consumers to underwriting and loss of coverage by shortening the maximum duration of short-term plans from 12 months to 3 months. Second, it prohibited “renewal guarantees” that would protect consumers who develop expensive illnesses from ever facing underwriting or losing their coverage.

Last year, President Trump urged the Department of Health and Human Services to allow short-term plans to last 12 months and to allow consumers to bridge together consecutive short-term plans with “renewal guarantees” that protect them from being re-underwritten after they get sick. With ObamaCare premiums soaring and the consulting firm Avalere warning of “substantial increases” in ObamaCare premiums for 2019, these consumer protections would mean “consumers could purchase health-insurance protection for 90% less than the cost of the average ObamaCare plan.” Renewal guarantees would keep people with expensive conditions out of ObamaCare plans, thereby improving ObamaCare’s pools and reducing the cost of ObamaCare. Along the way, allowing these consumer protections would “increas[e] transparency in government and provid[e] voters and policymakers with better information about the cost of the ACA.”

Thirty-five senators sent a letter to the Trump administration citing my regulatory comments and urging the administration to implement both changes. But there’s more.

Critics Agree: Expanding Short-Term Plans Would Cover More Americans

The American Action Forum has a roundup of economic projections of the impact of allowing these consumer protections. Every organization that has modeled these changes, including those that oppose them, has found they would increase the number of Americans with health insurance.

• Congressional Budget Office: 1 million additional insured by 2023
• Urban Institute: 1.7 million additional insured in 2019
• Commonwealth Fund: as many as 2.2 million additional insured by 2020
• Center for Health and Economy: 2.3 million additional insured by 2020

These projections indicate that expanding short-term plans would produce significant social-welfare gains. The Urban Institute, for example, projects 2.2 million consumers would leave ObamaCare plans for short-term plans because they would “prefer STLD to ACA-compliant plans.” This suggests a large increase in consumer welfare. Similar welfare gains would result from as many as 1.7 million previously uninsured Americans enrolling in short-term plans with the proposed consumer protections.

Protecting Conscience Rights

An often-overlooked benefit of allowing these consumer protections in short-term plans is that they would free consumers to avoid coverage they do not want, including coverage that may violate their religious convictions.

ObamaCare requires all health insurance plans to cover all FDA-approved forms of birth control. This requirement forces devout Catholics and others to choose between going without health insurance or paying to support a practice they believe is an offense against God. The Trump administration has taken steps that protect conscience rights for some employers. But these changes do not protect all employers, much less all consumers.

Since short-term plans are exempt from ObamaCare’s contraceptives mandate, allowing them to offer 12-month terms and renewal guarantees would give Catholics and others full freedom to purchase secure health insurance without violating their religious beliefs. 

As Susan Marquis and colleagues noted prior to the creation of ObamaCare, “Purchasers derive value from having the range of choices that the individual market offers.” The range of health insurance choices would expand, and consumer welfare would increase not captured by premium reductions, if the Trump administration allows short-term plans to offer consumers a wider range of secure coverage options.

Improving ObamaCare’s Risk Pools

Finally, renewal guarantees would improve ObamaCare’s risk pools by keeping potentially millions of expensive patients out of ObamaCare plans.

There is a sizeable if underappreciated literature showing that renewal guarantees keep premiums low, and therefore provide secure coverage, to patients after they develop expensive medical conditions. In “Incentive-Compatible Guaranteed Renewable Health Insurance Premiums” (Journal of Health Economics, 2006), Bradley Herring and Mark Pauly explain the concept of renewal guarantees: 

A person initially in good health who develops a chronic illness may expect to have above-average expenses in subsequent years. If the annual insurance premium is set proportional to expected expense in each year, someone who contracts a multi-year condition would face a substantial and unexpected jump in premiums—something public policy finds undesirable and something which a risk-averse person would prefer to avoid. A potential solution to this problem is for the insurance policy purchased when the individual is still in good health to contain a guaranteed renewability (GR) provision which stipulates that no insured’s future premium for the given policy will increase more than any other insured’s premium increases. Thus, people who unexpectedly become high-risk will pay the same premium as those who remain low-risk.

In “Guaranteed Renewability in Insurance” (Journal of Risk and Uncertainty, 1995), Mark Pauly, Howard Kunreuther, and Richard Hirth explain, “Effectively, [with a renewal guarantee,] the consumers initially prepay enough premiums to cover the excess losses of everyone who becomes a high risk.” See also John Cochrane, “Time-Consistent Health Insurance” (Journal of Political Economy, 1995).

Researchers have found considerable evidence that, prior to ObamaCare, widespread renewal guarantees in the individual market worked as theory predicts: they provided secure, long-term insurance for those who develop expensive illnesses. In “Pooling Health Insurance Risks” (American Enterprise Institute, 1999), Pauly and Herring found that renewal guarantees make premiums affordable for high-cost patients: 

The overarching message from these data is that nongroup premiums do vary with risk, but not nearly as strongly as would be consistent with vigorous risk rating. Perhaps more important, they do not vary at all with risk as measured by chronic conditions…This is not to deny that some people pay very high premiums for their coverage, and that some of the people who do so are high risks. Apparently, however, many high risks do not pay higher-than-average nongroup premiums.

In “Individual Versus Job-Based Health Insurance: Weighing The Pros And Cons” (Health Affairs, 1999), Mark Pauly, Allison Percy, and Bradley Herring write:

In other words, there was substantial cross-subsidization of high-risk by low-risk persons in the individual insurance market in a period in which there was only minimal state regulation. Premiums do rise with risk, but the increase in premiums is only about 15 percent of the increase in risk. Premiums for individual insurance vary widely, but that variation is not very strongly related to the level of risk.

From an economic viewpoint, the main problem with risk rating is…that the occurrence of an extended illness may subject buyers to the risk that their premium may jump, potentially by several multiples. While a thousand-dollar jump in one’s annual premium may seem trivial compared with the high medical bills the insurance will cover, risk-averse persons would prefer to avoid it. There is a simple way to do so: Buy insurance when healthy but pay extra for guaranteed renewability or protection from cancellation.

The evidence indicates that even before the Health Insurance Portability and Accountability Act (HIPAA) became effective in 1997, the majority of individual policies contained this feature. The intent of guaranteed renewability can be circumvented (for example, by canceling all policies in a class), but it usually is not, for the obvious reason that sale of this feature requires that it be effective most of the time…In recent years some states have required guaranteed renewability, but it is apparent that this was a common feature of individual (not small-group) policies even before it was required. The presence of guaranteed renewability may account in part for the moderate increase in paid premiums with risk, noted earlier.

In “How Private Health Insurance Pools Risk” (NBER Reporter, 2005), Pauly writes:

Although there have been some anecdotes about insurers slipping out of their policy provision to renew coverage at group average premiums for high risks by canceling the coverage entirely, we conclude that on average guaranteed renewability works in practice as it should in theory and provides a substantial amount of protection against high premiums to those high risk individuals who bought insurance before their risk levels changed. The implication is that, although there are some anecdotes about individual insurers trying to avoid covering people who become high risk (for example, by canceling coverage for a whole class of purchasers), the data on actual premium-risk relationships strongly suggest that such attempts to limit risk pooling are the exception rather than the rule.

Indeed, Pauly concludes, guaranteed renewability does such a good job at protecting the sick from higher premiums, regulations that prohibit charging higher premiums to the sick (i.e., community rating) don’t change much:

We find that regulation modestly tempers the (already-small) relationship of premium to risk, and leads to a slight increase in the relative probability that high-risk people will obtain individual coverage. However, we also find that the increase in overall premiums from community rating slightly reduces the total number of people buying insurance. All of the effects of regulation are quite small, though. We conjecture that the reason for the minimal impact is that guaranteed renewability already accomplishes a large part of effective risk averaging (without the regulatory burden), so additional regulation has little left to change.

In “Consumer Decision Making in the Individual Health Insurance Market” (Health Affairs, 2006), Susan Marquis et al. find the lower premiums that renewal guarantees make available to the sick made the individual market “a source of long-term coverage for a large share of subscribers.” This occurs because enrollees who purchase coverage and then later become sick “are not placed in a new underwriting class.” The authors attribute this to renewal guarantees: “We also find that there is substantial pooling in the individual market and that it increases over time because people who become sick can continue coverage without new underwriting.” The authors also found that, despite underwriting, “a large number of people with health problems d[id] obtain coverage” in the individual market pre-ObamaCare. The authors conclude:

Our analysis confirms earlier studies’ findings that there is considerable risk pooling in the individual market and that high risks are not charged premiums that fully reflect their higher risk. Moreover, guaranteed renewal and underwriting only at initial enrollment appear to help promote pooling to some extent, and they protect subscribers from financial consequences associated with changes in their health status.

In “Risk Pooling and Regulation: Policy And Reality in Today’s Individual Health Insurance Market” (Health Affairs, 2007), Pauly and Herring found that as a result of renewal guarantees:

Analysis of new data on the relationship between and premiums and coverage in the individual insurance market and health risk shows that actual premiums paid for individual insurance are much less than proportional to risk, and risk levels have a small effect on obtaining coverage. States limiting risk rating in individual insurance display lower premiums for high risks than other states, but such rate regulation leads to an increase in the total number of uninsured people. The effect on risk pooling is small because of the large amount of risk pooling in unregulated [i.e., guaranteed-renewable] individual insurance…

As the MEPS data show, the predicted high risks (above the median) had both high expected expenses (before the fact) and high actual expenses (after the fact); they were roughly four times higher compared with the bottom half. But the premiums that higher-risk people actually paid were only, on average, about 1.6 times those of lower-risk people…At least half of their higher expected expense appears to be pooled, even in the individual market…

Premiums were definitely far from proportional to risk, so there was a substantial amount of risk pooling present…Although in these data people of a given age and sex with chronic health conditions paid higher premiums than people without such conditions, individual insurance, through guaranteed renewability or some other device, pooled 84.5–88.5 percent of the risk…

Yet again in “Incentive-Compatible Guaranteed Renewable Health Insurance Premiums” (Journal of Health Economics, 2006), Herring and Pauly find “evidence that guaranteed renewability provisions appear to be effective in providing protection against reclassification risks in individual health insurance markets.”

Perhaps the strongest evidence that renewal guarantees will keep high-cost patients out of ObamaCare’s risk pools comes from “How Risky Is Individual Health Insurance?” (Health Affairs, 2008), in which Mark Pauly and Robert Lieberthal find that guaranteed-renewable, individual-market insurance often does a better job than employer-sponsored insurance of providing secure coverage to patients with high-cost illnesses. As the below graph shows, high-cost patients with guaranteed-renewable coverage are roughly half as likely to end up uninsured as high-cost patients with small-group coverage, and unlike employer-sponsored coverage, the risk of losing guaranteed-renewable coverage does not rise with health risk.

The more high-cost patients that renewal guarantees can keep from losing their non-ObamaCare plans–including, as I discuss in my regulatory comments and Wall Street Journal oped, those enrolled in employer plans–the fewer high-cost patients will enroll in ObamaCare plans and the more stable and less costly ObamaCare will be.

Conclusion 

Giving consumers the choice of purchasing renewal guarantees, either in conjunction with a short-term plan or as a standalone product protecting enrollees from re-underwriting in that market, would produce significant benefits well in excess of any costs. It would increase the number of Americans with health insurance, allow Americans to purchase insurance that respects their religious beliefs, and improve ObamaCare’s risk pools.

A fair reading of Food and Drug Administration Commissioner Scott Gottlieb’s “Sunday Tweetorial” on the opioid overdose crisis leaves one simultaneously encouraged and frustrated. 

First the encouraging news. The Commissioner admits that the so-called epidemic of opioid overdoses has “evolved” from one “mostly involving [diverted] prescription drugs to one that’s increasingly fueled by illicit substances being purchased online or off the street.” Most encouraging was this passage:

Even as lawful prescribing of opioids is declining, we’re seeing large increases in deaths from accidental drug overdoses as people turn to dangerous street drugs like heroin and synthetic opioids like fentanyl. Illegal online pharmacies, drug dealers and other bad actors are increasingly using the Internet to further their illicit distribution of opioids, where their risk of detection and the likelihood of repercussions are seen by criminals as significantly reduced.

As I have written here and here, the overdose crisis has always been primarily caused by non-medical users accessing drugs in a dangerous black market fueled by drug prohibition. As government interventions have made it more expensive and difficult to obtain diverted prescription opioids for non-medical use, the black market responds efficiently by filling the void with heroin, illicit fentanyl (there is a difference) and fentanyl analogs. So policies aimed at curtailing doctors’ prescriptions of opioids to patients only serve to drive up deaths from these more dangerous substitutes, while causing patients to suffer needlessly, sometimes desperately, in pain. Gottlieb validates my argument in his “tweetorial,” providing data from the Centers for Disease Control and Prevention and the Drug Enforcement Administration.

Now for the frustrating news. Gottlieb next reminds us, “No controlled substances, including opioids, can be lawfully sold or offered to be sold online. There is no gray area here.” He provides evidence of rampant illegal internet marketing of prescription opioids, with 95 percent of internet pharmacy websites selling opioids without a prescription, often conducting transactions with cryptocurrencies, and shipping these orders “virtually anywhere in the US.” This is also the way illicit fentanyl is flooding the market.

Gottlieb states,

Senate investigators found hundreds of transactions in more than 40 states, adding up to more than $750 million worth of fentanyl by its street value, from just six online sellers, resulting in several deaths. People are increasingly going online to illegally buy drugs like Vicodin or Percocet, but we believe they are often unknowingly getting pressed fentanyl – sometimes at lethal doses – given the lower cost and greater profitability of fentanyl for drug trafficking organizations

So, Gottlieb provides more evidence that fighting the war on drugs is worse than a costly exercise in futility—it is the major cause of opioid overdose deaths in the US. But does he suggest a reassessment of America’s longest war? Does he cite the success Portugal has had in saving lives while reducing substance abuse since it decriminalized all drugs in 2001? Does he propose redirecting opioid policies away from the number of pills doctors prescribe and toward an emphasis on harm reduction?

No. Instead the Commissioner announces that the FDA is “increasing enforcement activities to crack down on the illegal sale of opioids, particularly drugs sold online and typically shipped through the mail.” This week the FDA is convening “internet stakeholders” to help find new ways to crack down on illegally operated internet sites. In other words, more of the same.

Therein lies the frustration. It seems as if Dr. Gottlieb understands what is really behind the overdose crisis and that the present approach is misguided and is exacerbating matters. But he has yet to muster the will to challenge the prevailing narrative reverberating around policymakers. Hopefully, he will take that next step sometime soon. Until he does, don’t expect the death rate to slow.

The U.S. Fifth Circuit Court of Appeals recently vacated an Obama-era rule that applied the “fiduciary rule” to Individual Retirement Account advisers, and struck the final blow to a regulation that has faced legal challenges since President Trump initiated a review of the rule last year. The Court determined that the rule constituted an overreach of the Department of Labor’s authority to regulate employee benefit plans.

Though the rule is now dead, its genesis is in a decades long fight over how financial advisers and brokers are regulated. Advisers who provide financial advice for a fee, but do not sell financial products, are required to recommend the “best” financial product to clients. But brokers who buy and sell stocks and bonds for investors are only required to recommend “suitable” products if their advice is “solely incidental” to their service as a broker. The Department of Labor’s rule would have elevated all professionals who work with retirement plans, including brokers, to the level of a fiduciary.

Supporters of the rule argue that brokers, and other financial professionals working for commissions, have a conflict of interest with their clients. For example, advising clients to purchase investments that yield higher fees and commissions may benefit the broker at the expense of their clients. The rule’s proponents contend that without it investors cannot be sure that their interests align with those of their broker. As the New York Times recently declared, “Retirement investors, you’re back on your own.”

However, in the current issue of Regulation I review a working paper that undermines this perception. In their December 2017 paper “The Misguided Beliefs of Financial Advisors,” economists Juhani T. Linnainmaa, Brian T. Melzer, and Allessandro Previtero analyze trading and portfolio information for advisers and clients in Canada who are not subject to fiduciary duty. If the “conflict-of-interest” perception of financial advisers is correct, the analysis would show systemic differences between advisers’ accounts and their clients’ accounts.

Instead, the authors found that the advisers personal investments are similar to their clients. Both groups of accounts have net returns that are about 3 percent less than the market. And the advisers actually have less diversified portfolios and pay more in fees for their accounts relative to their clients. In fact, the authors argue that advisers are not steering their clients wrong because of a conflict interest, but instead are simply misguided: contrary to the evidence, advisers believe that active management is a better strategy than passive management.

Perhaps investors should be worried about the advice they receive from financial advisers, but not because they are trying to dupe you. Requiring advisers to provide their clients with the “best” recommendations achieves nothing if the adviser’s own perceptions are misguided.