Topic: Regulatory Studies

House GOP Leadership Gives ObamaCare-Forever Bill a Touch-Up Job

Responding to conservative protests that the American Health Care Act would immortalize ObamaCare rather than repeal it, the House Republican leadership has announced several amendments. (See my initial analysis of the bill here, and my analysis of the Congressional Budget Office score).

The amendments do not even come close to fixing the problems with this fatally flawed bill. Indeed, by expanding the AHCA’s tax-credit entitlement, it will make the bill resemble ObamaCare even more.

ObamaCare’s Medicaid Expansion                                 

Original AHCA provisions:

As introduced, the AHCA includes language that supposedly repeals ObamaCare’s expansion of Medicaid to able-bodied, childless adults. In fact, it would expand the Medicaid expansion and make it permanent.

The original bill would have allowed the 19 non-participating states to implement the expansion until 2020, allowed participating states to expand enrollment until 2020, and would have kept paying states the enhanced, 90 percent federal “match” for each expansion enrollee until that enrollee disenrolled. Expansion advocates in those 19 states hailed the bill for removing obstacles to those states implementing the expansion.

The bill thus would have repealed the Medicaid expansion in name only. By 2020, there would have been so many more Medicaid expansion states and enrollees, that Congress would rescind the repeal and keep the expansion in perpetuity.

Amendment:

The amendment would prevent the 19 states that have not implemented the expansion from doing so. This is a welcome change—but it is not nearly sufficient.

Even with this change, there would more Medicaid-expansion enrollees after “repeal” than before. The 31 expansion states could keep adding new enrollees to the expansion until 2020, and keep receiving the enhanced, 90 percent federal “match” for those enrollees after 2020. The AHCA would still reward state officials who did the wrong thing (expanding Medicaid) and punish state officials who did the right thing (refused to implement the expansion). The bill would still create increased pressure on Congress to rescind this “repeal” before 2020.

The amendment would allow states to impose work requirements for able-bodied Medicaid enrollees. Again, this is a welcome change, but not nearly sufficient.

Work requirements could reduce dependence on Medicaid, reduce Medicaid spending, and reduce pressure for Congress to preserve the expansion. Yet work requirements are only (politically) feasible for able-bodied adults. And the states where work requirements are most needed—the 31 states that have implemented the Medicaid expansion—are the least likely to impose a work requirement. Why would they? States that use work requirements to help Medicaid-expansion enrollees achieve financial independence would see only 10 percent of the savings. The other 90 percent goes to Washington. The amendment’s optional work requirements are a fig-leaf proposal that does little if anything to improve the AHCA.

Minimum Wages and Bad Use of Terminology

A news story today leads with the headline “Minimum-wage hikes could deepen shortage of health aides” (h/t David Boaz). The key section (reported on ABC News):

It’s a national problem advocates say could get worse in New York because of a phased-in, $15-an-hour minimum wage that will be statewide by 2021, pushing notoriously poorly paid health aides into other jobs, in retail or fast food, that don’t involve hours of training and the pressure of keeping someone else alive.

Contained within this story is some bad economic reasoning and terminology but also an interesting, but rarely discussed, effect of minimum wages.

First, the mistake. Take the headline. The basic economics of the minimum wage tells us the raising the statutory price of labor above some equilibrium will lead to a reduction in the quantity of labor demanded. But it also says there will be an increase in the quantity of labor supplied. Far from causing a “shortage” of health aides then, raising the minimum wage leads to a surplus of labor. Raising the pay rate increases the return to working in the industry relative to being on welfare, and presuming budgets are unchanged (the article explains that most home care is paid by government programs), the quantity demanded falls at the same time. The gap that arises is precisely the “unemployment effect.”

It’s not clear then why raising a minimum wage would lead to fewer people seeking to be home care or health aides. Assuming demand is fixed, it would lead to fewer people being health care aides or health care aides being less available (shorter working hours etc). Yet that is not what the article claims—it suggests supply of available workers is falling, despite the pay-off to the job increasing.

What’s the point that the article is getting at then? It can be the case that raising a minimum wage changes wage rate differentials between industries. The article states that the average home care wage is about $11 per hour, whereas a quick Google search suggests many low-paid retail and fast food jobs may pay less than that in certain regions. If a hypothetical fast food job would pay $9 per hour in a free market and a home care job $11 per hour, then raising the statutory minimum to $15 can eliminate the differential. This makes fast food jobs more attractive on the margin, particularly given the home care training, and could mean the relative supply of workers increases in these industries compared to home care.

DOJ Enters the Fray…Against the CFPB

There’s another installment in the ongoing saga of PHH v. CFPB, the legal case challenging the constitutionality of the newest federal agency, the Consumer Financial Protection Bureau. And this installment is a weird one. The Department of Justice has now joined in, filing a briefagainst the CFPB. Yes, the federal government is now effectively on opposing sides of this case.

If you haven’t been following the story, I have a few posts that can bring you up to speed. At this point, a panel of judges has ruled against the CFPB, and a majority of them found that the CFPB’s structure is unconstitutional. (I find it difficult to see how anyone could find otherwise.) Part of the problem with the agency’s structure, as the court found, is that it has a single head who is removable only for cause. The director is not accountable to any elected official. To cure this problem, the court decided that the director should be removable by the president at will. This would make the agency more like a traditional executive agency—like the Department of Justice, for example—and less like existing independent agencies. Although it is important to note that even most independent agencies, like the Securities and Exchange Commission, are headed by a multi-member board and the chair of that board serves as chair at the will of the president. 

Now the federal appeals court in D.C. is rehearing the case en banc. That means that all 11 of the active judges on the court will hear the case and issue an opinion together. On Friday, the DOJ filed a friend of the court brief in support of PHH.

While it is extremely rare (although not unheard of) for one part of the government to file a brief in opposition to another part, it is not entirely surprising in this case. In ruling against the CFPB in the earlier hearing, the court handed the president a new bit of power. One of the reasons that our government has three co-equal branches is to allow them to serve as checks on one another. As Judge Kavanaugh noted in his opinion for the panel in the original hearing, quoting Justice Scalia “The purpose of the separation and equilibrium of powers in general, and of the unitary Executive in particular, was not merely to assure effective government but to preserve individual freedom.” Arguably, the government filing on both sides of a case is a sign the system is working as planned. 

CBO: Full Repeal Would Cover More People than House GOP’s ObamaCare-Lite Bill

A new Congressional Budget Office report projecting the effects of the House Republican leadership’s American Health Care Act weakens the case for the bill’s ObamaCare-lite approach, and strengthens the case for full repeal. The CBO projects that over the next two years, the AHCA would cause average premiums to rise 15 percent to 20 percent above ObamaCare’s already high premium levels. The report raises the prospect that insurance markets may collapse under the AHCA, just as they are collapsing under ObamaCare. It makes unreasonable assumptions about Medicaid spending; more reasonable assumptions could completely eliminate the bill’s projected deficit reduction. Finally, the CBO projects more people will lose coverage under the AHCA than under full repeal.

ObamaCare-Lite, ObamaCare-Forever

The AHCA purports to repeal and replace ObamaCare. In reality, it would do no such thing.

In a previous post, I wrote:

This bill is a train wreck waiting to happen.

The House leadership bill isn’t even a repeal bill. Not by a long shot. It would repeal far less of ObamaCare than the bill Republicans sent to President Obama one year ago…

[It] merely applies a new coat of paint to a building that Republicans themselves have already condemned…If this is the choice, it would be better if Congress simply did nothing.

The ACHA retains all the powers ObamaCare gives the federal government over private insurance, gives those powers a bipartisan imprimatur, and therefore gives them immortality. Its repeal of ObamaCare’s Medicaid expansion would likely never take effect. It fails to create real block grants in Medicaid, and preserves perverse incentives from both the “old” Medicaid program and the expansion. It would create an ongoing series of crises in the individual market, for which Republicans would take the blame and suffer at the polls, at the same time it would create pressure for more taxes and government spending. It’s hard to imagine what House Republicans were thinking.

Premiums and Market Stability

Full repeal, in particular repeal of ObamaCare’s health-insurance regulations, would cause premiums to fall for the vast majority of consumers in the individual market.

In contrast, the AHCA would increase premiums from their already high ObamaCare levels. “In 2018 and 2019…average premiums for single policyholders in the nongroup market would be 15 percent to 20 percent higher than under current law,” the CBO reported.

Premium increases of that magnitude could further destabilize ObamaCare’s health-insurance Exchanges. Adverse selection has already led to an exodus of insurers from the individual market. ObamaCare has driven every last insurer from the Exchange in 16 counties in Tennessee, leaving 43,000 residents with no health insurance options for 2018. In a thousand other counties around the country, the law has driven all but one insurer from the Exchange. Nearly 3 million people in those counties are just one carrier exit from being in the same position as those 43,000 Tennesseans.

The CBO posits that, nonetheless, “the nongroup market would probably be stable in most areas under either current law or the legislation.”

In most areas. Probably.

Supporters of the legislation note that the CBO projects the average premiums would then begin to fall after 2019. One reason is that the AHCA would end one of ObamaCare’s health-insurance regulations (actuarial-value requirements). Another is that the CBO predicts states would use the AHCA’s new Patient and State Stability Fund to subsidize high-cost enrollees.

There are reasons to doubt this prediction. First, it assumes the Exchanges survive the ensuing adverse selection and make it to 2020. Second, the Patient and State Stability Fund would not reduce premiums. Like ObamaCare’s reinsurance program, it would hide a portion of the full premium by shifting it to taxpayers. So even though the CBO reports that the portion of the premium that consumers see would fall 10 percent by 2026, it is not accurate to say premiums would fall. We don’t know if the full premium would fall or rise after 2019, because the CBO isn’t telling us.

Dire Fears of Trump Deregulation

Four decades ago, the United States began a dramatic change in domestic policy, repealing swaths of economic regulation and abolishing whole agencies charged with managing sectors of the U.S. economy.

 

If you mention this “deregulation” today, most people think it refers to wild Reagan administration efforts to undo environmental, health, and safety protections. In fact, the deregulation movement predated Ronald Reagan’s presidency, had broad bipartisan support, and had little to do with health, safety, or environmental policy. Rather, deregulation targeted regulations that directed business operations in different sectors of the American economy: which airlines could service which routes, what railroads could charge what amounts for their services, how telephone service would be billed and what technologies would be used, how the power industry was organized, and much more.

 

For decades, policy researchers had compiled evidence that those regulations harmed consumers and stunted economic growth by suppressing competition and innovation. With America mired in the stagflation of the 1970s, policymakers decided to stop sheltering (some) U.S. businesses from the demands of consumers and the competition of upstart and foreign rivals.

 

That policy change now seems obviously virtuous, but at the time some commentators predicted it would unleash mayhem and disaster: a crippled economy, spiraling prices, “ruinous” competition, frightened consumers, plane crashes, hobbled communications, and other horribles. Fortunately, those frightful predictions did not obstruct reform. Today, the 1970s–1990s deregulations are broadly recognized as having yielded great benefits to consumers and contributed to the two decades of American prosperity that ended the 20th century. (For more on deregulation, see the spring issue of Regulation, celebrating the magazine’s 40th anniversary.)

 

Which brings us to current criticisms of Trump administration efforts to launch a new wave of deregulation. Like yesteryear, the critics are predicting mayhem and disaster. But their arguments aren’t convincing.

 

Consider, for instance, Northwestern University law professor Andrew Koppelman’s warning that “Trump’s ‘Libertarianism’ Endangers the Public.” (Credit Koppelman for using scare quotes to indicate that President Trump isn’t a libertarian.) Specifically, he worries about Trump’s recent order on regulation, which instructs agencies to (temporarily) keep the nation’s aggregate cost of regulatory compliance at its current level and to repeal two regulations for every new one adopted.

A Victory for Disability Rights and the Constitution

For months, we’ve been following the saga of a misguided agency regulation that would have deprived some of the most vulnerable Americans of their basic due process rights. In May of last year, the Obama administration proposed a rule designating everyone who uses a “representative payee” (usually a friend or relative) to aid in filing social security disability forms as “mentally defective.” The practical consequence of such a change is that those deemed “mentally defective” (itself a vague and insulting term from a bygone legal era) will automatically fail their federal background check if they attempt to buy a gun. This presumption of unfitness can only be overcome after a lengthy, years-long bureaucratic process to prove one’s own competency. 

We’ve written extensively on why this rule is prejudicial and unfair. During the rule’s “notice and comment” period, Cato’s Center for Constitutional Studies submitted its first-ever public regulatory comment, objecting to the rule on 10 different grounds. We pointed out that the rule is vastly overbroad, since those filers who use a “representative payee” include anyone the Social Security Agency believes “would be served thereby … regardless of the legal competency or incompetency of the individual.” Moreover, the rule is counterproductive even when applied to those who do suffer from a psychiatric disability, because those people are more likely to be the victims of violent crimes rather than the perpetrators. Finally, we explained that the rule violates constitutional due process; the burden of proof must fall on the government before it can deprive an individual of a constitutional right.

But despite these efforts, the Obama administration forged ahead, finalizing the rule two days before President Trump took office. This seemed to be the final chapter of the story. Now, however, we can report a much happier ending, thanks to a vital law called the Congressional Review Act (CRA).

The CRA was enacted in 1996 to preserve the legislature’s role in American policy-making when agencies try to unilaterally create sweeping national rules. The Act requires that agencies must submit every newly promulgated rule to Congress for review. Once a new rule has both been submitted to Congress and published in the Federal Register, Congress has a period of 60 legislative days—about six months of real time in practice—in which both houses can pass a disapproval resolution by simple majority vote (no Senate filibusters or parliamentary stall tactics are allowed). If such a resolution is passed by both houses and signed by the president, the rule in question is abolished, and no similar rule can be enacted in the future except by statute.

Please Stop the Tyranny

While the newest federal agency, the Consumer Financial Protection Bureau (CFPB), has been controversial for many reasons, its most troubling feature may simply be its unconstitutional structure. Its sole director reports to no one but himself, and, under the terms of Dodd-Frank, can be removed by the president only for cause. And it receives its funding not through Congress, but through the Federal Reserve. Not even the Fed has the authority to challenge its spending, however. Instead, the law says the Fed “shall” give the CFPB the funds it requests, up to 12 percent of the Fed’s total operating expenses. As of 2015, that meant the CFPB could demand up to $443 million in one year.