Topic: Regulatory Studies

Don’t Ground “Uber in the Sky”

Last year, a company called Flytenow was poised to revolutionize air travel by allowing private pilots already going to a destination to share their costs with would-be travelers—kind of like a college rideshare bulletin board, but on the Internet. The service would pair pilots with potential passengers, for a small fee no greater than the cost of fuel. It’s been called “Uber in the sky.” But in December, Flytenow shut down after the U.S. Court of Appeals for the D.C. Circuit upheld the Federal Aviation Administration’s determination that the service must obtain the highest levels of licensing, akin to what major airlines and their pilots secure.

The FAA decided that these pilots were not simple private individuals sharing cost, but were “common carriers,” subject to heightened liability and expensive professional licensing. Common carriers—like buses, trains, and commercial airlines—have been treated specially in the law since medieval times, and they differ from Flytenow’s online bulletin board.

As Flytenow seeks review in the Supreme Court, Cato Institute, joined by TechFreedom, has filed an amicus brief in support.

First, “common carriage” is a term defined by common law, stretching back to way before the founding of the FAA—indeed hundreds of years before the Wright Brothers—and the FAA’s interpretation here directly contravenes that established meaning. One glaring consistency across the last 600 years of common law is that the carrier must hold itself out for indiscriminate public hire. Flytenow pilots, as a matter of right, can turn down any passenger for any reason (or no reason) and thus are by definition not common carriers. This alone is reason enough to reverse the court’s decision and overturn the FAA ruling.

But second, and more basically, the D.C. Circuit granted very broad deference to the FAA’s interpretation of what constitutes common carriage, despite that being a term defined at common law. Courts often defer to an agency’s expertise in a particular subject matter—which essentially means that the agency’s decision is usually upheld under some “deference” framework. But according to the Supreme Court’s ruling in Texas Gas Transmission Corp. v. Shell Oil Co. (1960), when an agency interprets the common law, a reviewing court shouldn’t simply defer to the agency’s interpretation.

HUD’s Latest Proposal Is Big on Good Intentions & Unintended Consequences

Even when government has good intentions, it manages to muddle things up.

The U.S. Housing and Urban Development Department (HUD) has been applauded for its latest revision to its largest housing assistance program, the Housing Choice Voucher program. The new-and-ostensibly-improved program will provide larger housing subsidies to individuals that decide to live in wealthier neighborhoods, and smaller subsidies to individuals who decide to live in poor neighborhoods. The adjustment has already been piloted in five locations, and would be widely expanded (although HUD demurs on how widely).

On the surface, it sounds like a clever solution to an age-old concern. HUD is worried that dense concentrations of urban poverty – the type that often occurs in inner cities and historically occurred as a result of government housing projects – trap generations of residents in cycles of perpetual poverty.

In fact, the housing voucher program was devised to target this precise problem by providing individuals with a ticket they could use to rent housing anywhere in the United States. But through the years, HUD realized that although the voucher program provided choices, voucher recipients weren’t making the choices that HUD wanted – namely, moving out of low-income neighborhoods. The revised program will create the incentives required to make the choice for voucher recipients more … straightforward, shall we say… and redistribute low-income families across geographies.

Of course, the analysts at HUD aren’t the only ones worried that lack of residential mobility further entrenches low-income residents in poverty. The idea is at least as old as the fall of public housing in the 1970’s. But when it gets down to brass tacks the academic literature on the topic is less-than-satisfying, as described by the Moving to Opportunity study and the follow-up analysis by Katz, Kling, and Liebman and Clampet-Lundquist. Raj Chetty’s most recent work was hailed as proof that moving to wealthier neighborhoods has positive long-term impacts on children, but even it leaves something to be desired.  

Meanwhile, the evidence that HUD cites to support its latest proposal is essentially meaningless. Rather than grapple with the real question – whether a change of neighborhood can lift a family out of poverty – HUD cites early evidence that giving the poor money to move to wealthier neighborhoods helps them move to wealthier neighborhoods. Surprising no one.

But the discussion of evidence ignores one of the more fundamental concerns – basic equity issues. First, seventy-five percent of Americans that qualify for housing assistance don’t receive it. And housing assistance is worth thousands of dollars annually to the lucky few who are selected, generally through a lottery or multi-year waitlist. Under the revised program, those that do receive assistance will be provided an even more oversized benefit (as compared with their ill-fated, voucherless peers) than they were before, assuming they decide to live in the wealthier neighborhood.

The Tyranny of Free Parking

Should big-city governments be giving valuable city property to its wealthy residents for a pittance? The answer to that is not dependent upon political party or ideology, it would seem, yet it remains the standard practice nearly everywhere.

The property in question consists of the parking lanes in neighborhoods and main thoroughfares, and the cost of this giveaway is immense: Besides the loss in foregone revenue it adds greatly to traffic congestion, depresses demand for businesses in those areas, and contributes to pollution.

None of these are apparently sufficient to convince the supporters of these types of regulations who tend to be in charge of big cities like Washington, DC, where I live, to change this policy, so let me add another reason to do away with this: Giving away street parking is incredibly regressive. (for context, DC charged $25 a year for a neighborhood parking permit when off-street parking spaces go for $3,000 a year)

As I discussed in my recent Regulation Magazine piece and Cato Podcast, supporters of these types of regulations often justify nearly free street parking in these places as a necessary giveaway to help poor people who live in the neighborhood. The problem is that few poor people live in these neighborhoods and those who do usually do without an automobile. For instance, of the dozen cars parked on my street last night were three Mercedes, two BMWs, three Lexuses, and a Jaguar. Not the typical cars of the underprivileged trying to eke out a living.

Could an Independent Candidate Still Make It onto the Ballot in November?

As we enter the summer of Crump (or Trinton, take your pick), many Americans are unsatisfied with the two-party oligopoly that has produced the two most unpopular presidential candidates in modern memory. While some of these will nevertheless hold their noses and pick whomever they see as the “lesser evil,” others can’t fathom pulling that proverbial lever. Of these, some are gravitating toward Gov. Gary Johnson and look forward to becoming part of what will likely be the best showing for a Libertarian Party candidate. Still, others are less enamored with Johnson so, like Bill Kristol at his rolodex, are hoping for an as-yet unnanounced candidate of whatever ideological stripe.

Not to rain on anybody’s parade, but as a lawyer – or at least someone who plays a lawyer on TV – I have to ask the question of whether this is even legally possible (forget the political and financial practicalities). During the primary season, when Donald Trump was lumbering towards the GOP nomination, we heard nervous #NeverTrumpers discussing ballot-access deadlines in Texas and elsewhere.

And indeed, the Lone Star State’s deadline for an independent candidate to collect and file the requisite signatures – 79,939 for those counting at home – came and went on May 9. We’re now past seven other states’ deadlines, with a further six being hit this week. These 13 states account for 178 of the 538 electoral votes, and include red, blue, and purple states. (There are separate, generally earlier deadlines for so-called “minor” parties, but I’ll stick to analyzing the rules for independent candidates because the logistics of having a theoretical white knight “take over” an existing third party with already-qualified ballot access are even more complicated.)

More Unconstitutional Executive Branch Actions

Imagine that your company’s board chairman, against the wishes of the board of directors and in contravention of the corporate charter, hires an interim CEO. Despite that illegal action, the interim CEO disciplines you in some manner. Would that discipline be any more legitimate if, two years later, the board finally agrees to hire the CEO, who then retroactively approved his own previous actions?

This is what’s happened at the highest levels of government. When Congress created the Consumer Financial Protection Bureau (CFPB) as part of the larger Dodd-Frank financial reform, it specified that the director was to be appointed by the president “by and with the advice and consent of the Senate.” This placed what’s called an Appointments Clause limitation on the director’s position. Four years ago, President Obama named Richard Cordray the CFPB director—after Elizabeth Warren’s expected appointment met significant political resistance—during what the president erroneously believed was a Senate recess. (You’ll recall that the Supreme Court unanimously invalidated the National Labor Relations Board appointments Obama made at the same time.)

ADA’s Assault on the Web: Your Turn, Congress

The Economist reports on a phenomenon I’ve been covering all year, how lawyers are beginning to churn out assembly-line complaints against businesses over their websites’ lack of Americans with Disabilities Act, or ADA, accessibility:

[Texas attorney Omar Weaver] Rosales says extending ADA rules to websites will allow him to begin suing companies that use color combinations problematic for the color-blind and layouts that are confusing for people with a limited field of vision.

While as I noted in January the Obama administration has declined to issue long-anticipated regulations prescribing web accessibility, its Department of Justice has taken the less visible route of supporting private lawsuits intended to accomplish many of the same goals, including (to quote The Economist again):

ObamaCare: Not Promoting Quality Care As Planned

At The Health Care Blog, Jeff Goldsmith and Bruce Henderson of Navigant Healthcare offer a grim assessment of ObamaCare’s performance that is worth quoting at length:

The historic health reform law passed by Congress and signed by President Obama in March, 2010 was widely expected to catalyze a shift in healthcare payment from “volume to value” through multiple policy changes. The Affordable Care Act’s new health exchanges were going to double or triple the individual health insurance market, channeling tens of millions of new lives into new “narrow network” insurance products expected to evolve rapidly into full risk contracts.

In addition, the Medicare Accountable Care Organization (ACO) program created by ACA would succeed in reducing costs and quickly scale up to cover the entire non-Medicare Advantage population of beneficiaries (currently about 70% of current enrollees) and transition provider payment from one-sided to global/population based risk. Finally, seeking to avoid the looming “Cadillac tax” created by ACA, larger employers would convert their group health plans to defined contribution models to cap their health cost liability, and channel tens of millions of their employees into private exchanges which would, in turn, push them into at-risk narrow networks organized around specific provider systems. 

Three Surprising Developments
Well, guess what? It is entirely possible that none of these things may actually come to pass or at least not to the degree and pace predicted. At the end of 2015, a grand total of 8.8 million people had actually paid the premiums for public exchange products, far short of the expected 21 million lives for 2016. As few as half this number may have been previously uninsured. It remains to be seen how many of the 12.7 million who enrolled in 2016’s enrollment cycle will actually pay their premiums, but the likely answer is around ten million. Public exchange enrollment has been a disappointment thus far, largely because the plans have been unattractive to those not eligible for federal subsidy. 

Moreover, even though insurers obtained deep discounts from frightened providers for the new narrow network exchange products (70% of exchange products were narrow networks), the discounts weren’t deep enough to cover the higher costs of the expensive new enrollees who signed up. Both newly launched CO-OP plans created by ACA and experienced large carriers like United and Anthem were swamped in poor insurance risks, and lost hundreds of millions on their exchange lives. As for the shifting of risk, it looks like 90% plus of these new contracts were one-sided risk only, shadowing and paying providers on the basis of fee-for-service, with bonuses for those who cut costs below spending targets. Only 10% actually penalized providers for overspending their targets.

The Medicare Accountable Care Organization/Medicare Shared Savings Program, advertised as a bold departure from conventional Medicare payment policy, has been the biggest disappointment among the raft of CMS Innovation Center initiatives. ACO/MSSP enrollment appears to have topped out at 8.3 million of Medicare’s 55 million beneficiaries. The first wave, the Pioneer ACOs, lost three-fourths of their 32 original participating organizations, including successful managed care players like HealthCare Partners, Sharp Healthcare, and Presbyterian Healthcare of New Mexico and others. The second, much larger wave of regular MSSP ACO participants lost one third of their renewal cohort. Only about one-quarter of ACO/MSSP participants generated bonuses, and those bonuses were highly concentrated in a relative handful of successful participants. 

Of the 477 Medicare ACO’s, a grand total of 52, or 11%, have downside risk, crudely analogous to capitation. As of last fall, CMS acknowledged that factoring in the 40% of ACO/MSSP members who exceeded their spending targets and the costs of the bonuses paid to the ACOs who met them, the ACO/MSSP programs have yet to generate black ink for the federal budget. And this does not count the billions care systems have spent in setting up and running their ACOs. It is extremely unlikely that the Medicare ACO program will be made mandatory, or voluntarily grow to replace DRGs and the Medicare Part B fee schedule. 

And the Cadillac Tax, that 40% tax imposed by ACA on high cost employee benefit plans, a potentially transformative event in the large group health insurance market, which was scheduled to be levied in 2018, was “postponed” for two years (to 2020) by an overwhelming Congressional vote. In the Senate, a 90-10 bipartisan majority actually voted to kill the tax outright, strongly suggesting that strong opposition from unions and large employers will prevent the tax from ever being levied. Presumptive Democratic nominee Hillary Clinton has announced her support for killing the tax. So the expected transformative event in the large group market has proven too heavy a lift for the political system. 

As a result, the enrollment of large group workers in private health exchanges, the intended off-ramp for employers with Cadillac tax problems, has arrested at about 8 million, one-fifth of a recent forecast of 40 million lives by 2018. Thus, the conversion of the enormous large group market members to narrow network products seems unlikely to happen. As a recent New York Times investigation revealed, the reports of the demise of traditional group health insurance coverage (based on broad network PPO models) have been greatly exaggerated.