Topic: Poverty & Social Welfare

Federal Subsidies Spur Massive Fraud

One of the problems with federal hand-out programs is that individuals take advantage of them and scam artists outright loot them. You see this in programs such as Medicaid, Medicare, school lunches, earned income tax credits, housing aid, student loans, and farm subsidies.

Daily Beast writer Evan Wright has the appalling story of Christopher Bathum, who looted addiction-treatment funds made available by the Obamacare law. The law required addiction-treatment funding by Medicare, Medicaid, and private insurance companies.

Addiction is, of course, a huge problem, but to me Wright’s article indicates that the wrong solution is throwing federal money and mandates at it. The costly Americans with Disabilities Act also played a role in Bathum’s scam.

Here are excerpts from Wright’s excellent story:

He’s a convicted sexual predator who targeted women in his care. Soon he’ll be tried for an alleged $176 million insurance fraud. He’s an exceptionally bad person, but as a businessman he was fairly typical of rehab operators in America’s $42 billion-a-year treatment industry.

His name is Christopher Bathum. Until his arrest in 2016 he ran Los Angeles-based Community Recovery, among the fastest growing rehab chains in the nation. Starting with a single treatment center in 2012, Bathum grew Community Recovery into two dozen facilities in California and Colorado, with 400 beds, medical clinics, a testing lab and a Hollywood art center and café, where patients could work and express themselves creatively.

… The most astounding aspect of Community Recovery was its price. It was free, sort of. Some were charged ten or twenty thousand dollars to enter. Many others were given scholarships. Though it turned out Community Recovery bought insurance policies for patients without telling them. To those desperate for help or a place to sleep, the details of how they got in hardly mattered. It was free enough.

The Affordable Care Act made sweeping changes to the recovery industry, which went into effect in 2012. After decades of denying coverage, insurance companies were required to pay for treatment, and at rates comparable to coverage for major illnesses. The net effect for addicts was that virtually anyone could get a policy, and it would cover up to about $3,000 per day for the first 30 days of treatment, or roughly $100,000 a month. To rehab owners, addicts, no matter how broke or hopeless, suddenly were gold mines, potentially worth up to $100,000 if they could wrangle them into treatment.

The recovery boom was on. Community Recovery was one of hundreds of new rehabs that opened in Southern California. So many popped up that the hundred-mile stretch of coastline from Orange County to Malibu was nicknamed “Rehab Riviera.” Similar booms took place in Florida and in the more ski-friendly parts of Utah. While Affordable Care made it possible to get treatment in any state, apparently many addicts when given the choice would rather try to get sober in scenic areas than in fly-over places like Pittsburgh or Omaha.

… Community Recovery was a luxury rehab for the people. Many patients lived in hilltop mansions with pools and spas. It abounded with fun activities—surfing, hiking, yoga, paintball fights, go-kart racing, zip-line adventures, and (pseudo) Native American healing sessions that Bathum led in smoke-filled teepees.

… In late 2015 LA Weekly reporter Hillel Aron published an astonishing exposé. It revealed that Bathum never finished college and faked his persona as a psychotherapist. Prior to running rehabs, Bathum had been a pool-cleaner. He had four felony convictions for committing fraud on eBay. He had a major drug problem, meth and heroin. A few weeks before Aron’s story ran, Bathum had overdosed in a Malibu motel while shooting drugs with patients. There was a photograph of Bathum being loaded into an ambulance during his overdose. Aron unearthed a lawsuit filed by a former patient from Seasons in Malibu who claimed Bathum offered her drugs in exchange for sex. Patients from Community Recovery stepped forward to say Bathum had sexually assaulted them. Some told their stories on 20/20. Bathum went on 20/20, too, and gave an absurd, seemingly methed-out interview in which he denied their allegations and claimed the photo him overdosing at the motel was a simple case of identity theft.

All of it should have led to the immediate shut-down of his rehab. Hundreds of patients remained in his care. Authorities did nothing.

… Bathum’s rehabs operated under a perverse legal loophole: he ran them as unlicensed “sober living homes.” As such, they were protected by the Americans with Disabilities Act, which included an obscure provision that gave recovering addicts status as a protected class. Their inclusion as a protected class was done to prevent neighborhoods from discriminating against recovering addicts who wanted to live together in “sober living homes.” Such homes were defined as places where no medical treatment or therapy could be offered. But since the Americans with Disabilities Act prevents state agencies from inspecting sober living homes, it’s nearly impossible to know what’s going on inside them.

… His behavior was outrageous, yet Bathum exemplified a unregulated industry. The Affordable Care Act poured money into an already broken system. Industry revenues jumped from slightly more than $20 billion to about $42 billion today.


More Breakfast Science to Sink Your Teeth Into

A newly-published study on 5,000 British children reveals that those from higher socioeconomic groups or from white backgrounds perform more exercise than do children from lower socioeconomic groups or from certain ethnic backgrounds including Indian, Pakistani, Bangladeshi and Black Caribbean/African. The amount of exercise correlated inversely with levels of overweight and obesity (i.e., the more exercise a child took, the slimmer they were likely to be).

Not mentioned by the authors of the study is that their data also correlate inversely with the consumption of breakfast (children from lower socioeconomic groups tend to skip breakfast more than do children from higher socioeconomic groups).

The cereal companies like to claim that the association of breakfast-skipping with overweight and obesity means that eating breakfast makes a person slim. That is a false claim. Indeed, experiments show repeatedly that eating breakfast increases the numbers of calories a person ingests.

Socioeconomic status is the great determinant of weight in children, and children from higher socioeconomic groups tend to take more exercise and eat healthier food and lead more ordered lives (which includes eating breakfast), while children from lower socioeconomic groups tend to take less exercise, eat unhealthier food, and lead more chaotic lives (which promotes breakfast-skipping). The association of breakfast-skipping with overweight and obesity, therefore, is only an association, and children from higher socioeconomic groups are slimmer despite their ingestion of breakfast, and children from lower socioeconomic groups are larger despite skipping breakfast.

The cereal companies exploit this paradox to promote the consumption of an unhealthy meal. Which is regrettable.

It’s the Demographics, Stupid: The Employment Rate Is Better Now Than Its Pre-Crisis Peak

Today’s jobs numbers surprised on the upside. The unemployment rate fell to 3.6 percent and 263,000 jobs were created in April, exceeding analysts’ expectations.

Yet one indicator looks as if it still lags its pre-crisis peak: the employment-to-population ratio.

The headline rate for all aged 16+ topped out at 63.4 percent in December 2006. Today, it stands at just 60.6 percent (a 2.8 percent point decline). To translate that difference to hard numbers: if the employment rate of 2006 was replicated today, 7.4 million more people would be in work.

Should this be a matter of great concern? No. For there’s a simple explanation: demographics.

A structural decline in that ratio is what we would expect from an aging population. If one adjusts for the demographic change we have seen, the employment rate is already performing better today than at the height of the pre-crash boom.

Consider Figure 1 below. The employment rate for prime age adults has near enough fully recovered. The rate for those over 55 actually peaked a couple of months ago but is still 3.8 percentage points higher than in December 2006. It’s only the youth employment-to-population ratio (16-24 year olds) that falls significantly below its pre-crash summit.

Employment to Population Ratio

Yet the employment rate overall has remained subdued. That’s because a greater proportion of people today are in the older age groups. The elderly are much less likely to work. The Bureau of Labor Statistics (BLS) data shows those aged 50-54 have an employment rate of 77.9 percent. But this falls to 70.8 percent for those aged 55-59, to 56.6 percent for those aged 60-64 and then to just 32.9 percent for those aged 65-69.

So as an increasing share of the population has become old (the proportion of the total population over 55 has increased from 29.6 percent to 36.6 percent since 2006), we’d fully expect the headline employment rate to structurally fall, even if the proportion of that elderly population working rises somewhat.

To see how today’s employment rate truly compares with December 2006, we can make a simple calculation: estimating what the 2006 employment rate would have been if the economy back then faced today’s population structure. We can do this by applying today’s age group population data against the 2006 employment rates (the likelihood of being employed in the pre-crash economy).*

This calculation shows an employment rate in December 2006, adjusted to today’s population structure, of 60.5 percent. The actual employment rate today is 60.6 percent. Once one accounts for aging then, the employment rate today is stronger than its pre-financial crisis peak.

The same calculation limited to just those aged 20+ gives an even stronger result. The actual employment rate today is 62.8 percent, much higher than the estimated rate of 62.2 percent in 2006 if today’s population structure is applied.

The US labor market, on employment rates at least, appears to be performing better now than prior to the crash.


*The age groupings used for this overall calculation are non-seasonally adjusted data provided by BLS for ages 16-17, 18-19, 20-24, 25-34, 35-39, 40-44, 45-49, 50-54, 55-59, 60-64, 65-69, 70-74, 75+.

Be Skeptical of Income and Wealth Claims

As the 2020 presidential election campaign heats up, get ready for a torrent of claims about incomes, wealth, and inequality. The rich are grabbing all the wealth! The working class is struggling! The middle class never had it so good!

In my op-ed yesterday in The Hill, I noted that politicians and pundits are often sloppy or untruthful with data when making such claims. But a different issue is that there are pessimistic and optimistic versions of most income and wealth statistics.

Economist Joseph Stiglitz opted for the pessimistic in his recent New York Times op-ed: “Some 90 percent have seen their incomes stagnate or decline in the past 30 years.” That sounds really bad. Stiglitz provided no source for his claim, but shouldn’t we just trust him as a Nobel prizewinner?  

Well, no, because a lot of other data sharply conflicts with his unsourced claim.

recent study by Stephen Rose of the Urban Institute illustrates the wide variation in incomes data, as shown in the table. He compared six scholarly estimates of U.S. real median income growth between 1979 and 2014. The results span a huge range—from an 8 percent decrease to a 51 percent increase in a recent CBO study. Four of the six indicate solid middle-class income gains.


John Early, Ryan Bourne, and I discussed income and wealth issues at a Capitol Hill forum on Monday, which you may view here.

Punishing Housing Providers for Racial Imbalances They Didn’t Cause Will Only Lead to More Racial Bias

The federal Fair Housing Act (“FHA”) makes it unlawful to discriminate based on race (among other categories) in the sale, rental, and financing of housing. Four years ago, in a case called Texas Department of Housing v. Inclusive Communities Project, the Supreme Court determined that the FHA allows certain claims based on “disparate impact”—meaning that tenants don’t need to prove discriminatory intent behind housing policies, only an adverse effect on members of their protected class, even if it was the unintended result of an otherwise neutral policy.

Enter Waples Mobile Home Park in Fairfax County, Virginia. Waples rents primarily to Hispanic tenants, but, to avoid violating federal immigration policy, it requires all community residents to provide their social security numbers or otherwise show proof of legal immigration status. Several current and former tenants filed an FHA complaint against Waples, alleging that this policy has a racially disparate impact. Why? Because most undocumented people in Fairfax County are Hispanic.

Although the trial court threw out the lawsuit, the U.S. Court of Appeals for the Fourth Circuit resurrected it. According to the court, a mere showing of statistical disparity is enough to establish a valid claim. But, as the Supreme Court in Inclusive Communities emphasized, “[w]ithout adequate safeguards … disparate-impact liability might cause race to be used and considered in a pervasive way and ‘would almost inexorably lead’ governmental or private entities to use ‘numerical quotas,’ and serious constitutional questions then could arise.” One of those important safeguards, called the “robust causality” requirement, makes sure that housing providers aren’t punished for racial imbalances they didn’t cause. 

Waples is not, and cannot, be responsible the geographic distribution of undocumented individuals within the United States. It simply isn’t the park’s fault that most undocumented people in Fairfax County happen to be Hispanic. Its policy of requiring tenants to provide proof of immigration status thus could not have “caused” a disparate impact. Allowing FHA claims based on this sort of coincidence would destroy the Inclusive Communities safeguards and shift the burden to housing providers to prove the absence of discrimination. Doing so will only undermine the core purpose of the FHA—to decrease racial bias in housing decisions—by encouraging more race-based decision-making among housing providers for fear of being sued. 

What the Data Say About Equal Pay Day

This week saw the passing of “Equal Pay Day,” which marks the culmination of the roughly three extra months that an average female employee had to work in 2019 to match the amount of money made by an average male worker in 2018. Many people see the pay gap as unjust, but is it really a result of rampant sexism in the workplace as the critics allege?

A survey unveiled on Tuesday by CNBC and Survey Monkey suggests that, actually, both men and women are equally pleased with their employment situations and the earnings gap can largely be explained by women being more likely on average to choose part-time work.

“Men have a Workplace Happiness Index score of 72 and women a score of 70, close enough to lack a statistically meaningful difference,” according to the newly released data. That fits with earlier polling that was conducted by Cato’s Dr. Emily Ekins, which found that in the United States, the vast majority of women “believe their own employers treat men and women equally.” Fully 86 percent of women polled believed that their employer pays women equally.

There is still a pay gap between men and women who work full-time, but that may be partly due to men and women opting to work in different fields. Dangerous jobs in fields like mining and fishing, for example, tend to attract men. Those jobs also tend to be relatively well-remunerated. (As advisory board member Mark Perry points out, the gender gap in workplace deaths far exceeds the gap in pay).

Even so, among full-time workers, the “pay gap” is rapidly narrowing. Data from the OECD shows that the gender wage gap in median earnings of full-time employees is declining in practically all countries for which there are data. In the United States, highlighted in blue in the graph below, the wage gap has fallen dramatically since the 1970s. In 1975, the U.S. gender wage gap was 38 percent. By 2015, it had shrunk to 18 percent.

That 18 percentage point difference does not take into account important characteristics like “age, education, years of experience, job title, employer, and location,” according to my Cato colleague Vanessa Calder. A recent study, which controlled for those characteristics, concluded that the U.S. gender pay gap is only around five percent, meaning that Equal Pay Day should actually be in January.

Of course, if any of that small remaining five percent gap is the result of sexist discrimination—rather than additional mitigating factors that the study failed to control for—then that is unacceptable. We should denounce all forms of inequitable treatment, wherever it persists. We should also take a clear-eyed view of the data and recognize the remarkable gains women have made in the workplace—and how labor market participation has transformed women’s lives for the better.

The FAMILY Act Costs More than Expected

A new report suggests that the Democrats’ FAMILY Act paid leave proposal is substantially more costly than previously estimated. The difference is meaningful: using more realistic assumptions, the cost of national paid leave is 7-fold greater than previous estimates, and taxpayers would be picking up the tab.

The American Action Forum analysis uses data from Cato’s paid family leave poll to estimate the cost of the FAMILY Act. Previously, assumptions used to model the cost of the program relied on the use of national unpaid leave benefit take-up rates (FMLA), or lesser-known, less generous, state paid leave program take-up rates. Unfortunately, neither are good proxies for the likely use of a paid, nationally-known, and more generous FAMILY Act-like program.

The nationally representative Cato paid leave poll asked directly about respondent’s intended use of a FAMILY Act-like benefit. The take-up rate and benefit use duration for the FAMILY Act were substantially higher than previous estimates that relied on take-up rates for unpaid leave or lesser-known and less generous state programs.

Figure 1: Three Estimates of the Cost of the FAMILY Act 

 Estimates of FAMILY Act Cost

Using more realistic use assumptions, the FAMILY Act would cost 7-fold as much as previously estimated (Figure 1) and require a 2.85 percent payroll tax on workers. For an average worker, that means paid leave would cost $1,440 per year. This is substantially more expensive than previously claimed: elsewhere, advocates assert that the FAMILY Act would require a 0.2 percent payroll tax on workers, at a cost of $75-95 annually.  

Accurately forecasting the cost of paid leave is critical, because Americans are price-sensitive. For example, when costs aren’t mentioned, 74 percent of Americans say they support national paid leave policy. But if paid leave costs workers $1,200 per year, a majority of Americans oppose paid leave. 

It seems likely the FAMILY Act will cost substantially more than advocates claim, either because estimates use erroneous assumptions or because the policy grows substantially over time, as paid leave policies have elsewhere in the world. Either way, taxpayers deserve accurate information about the cost of paid leave before policymakers ask them to sign on the dotted line.