Five Questions I Will Use to Evaluate the Phantom Senate Health Care Bill

Rumor has it that tomorrow is the day Senate Republican leaders will unveil the health care bill they have been busily assembling behind closed doors. So few details have emerged, President Trump could maybe learn something from Senate Majority Leader Mitch McConnell about how to prevent leaks. Even GOP senators are complaining they haven’t been allowed to see the bill.

Here are five questions I will be asking about the Senate health care bill if and when it sees the light of day.

  1. Would it repeal the parts of ObamaCare—specifically, community rating—that preclude secure access to health care for the sick by causing coverage to become worse for the sick and the Exchanges to collapse?
  2. Would it make health care more affordable, or just throw subsidies at unaffordable care?
  3. Would it actually sunset the Medicaid expansion, or keep the expansion alive long enough for a future Democratic Congress to rescue it?
  4. Tax cuts are almost irrelevant—how much of ObamaCare’s spending would it repeal?
  5. If it leaves major elements of ObamaCare in place, would it lead voters to blame the ongoing failure of those provisions on (supposed) free-market reforms?

Depending on how Senate Republicans—or at least, the select few who get to write major legislation—answer those questions, the bill could be a step in the right direction. Or it could be ObamaCare-lite.

Devolving Highway Funding

The Trump administration’s recent proposal on infrastructure stressed federalism. It said that the “federal government now acts as a complicated, costly middleman between the collection of revenue and the expenditure of those funds by states and localities. Put simply, the administration will be exploring whether this arrangement still makes sense, or whether transferring additional [infrastructure] responsibilities to the states is appropriate.”

Indeed, the federal-middleman arrangement does not make sense. With regard to highways, federal funds go not just to the 47,000-mile interstate highway system (IHS), but also to the vast 3.9 million mile “federal-aid highway system.” But there are few advantages in federal funding over state funding for most the nation’s highways, which are owned by the states and mainly serve state-local needs.

As such, there have been many proposals to devolve at least the non-IHS activities to the states. In such “turnback” proposals, the federal government would cut its highway spending and its gas tax, and allow states to fill the void.

The turnback idea has been around awhile. A major 1987 study by the Advisory Commission on Intergovernmental Relations (ACIR) proposed devolving highway funding except for IHS funding to the states. The ACIR was led by a bipartisan mix of federal, state, and local elected officials, and was known for its top-notch staff experts.

Thirty years later, the ACIR report contains sound advice for today’s policymakers. Here are some excerpts:

The Commission concludes that a devolution of non-Interstate highway responsibilities and revenue sources to the states is a worthwhile goal and an appropriate step toward restoring a better balance of authority and accountability in the federal system (page 2).

It is the sense of the Commission that the Congress should move toward the goal of repealing all highway and bridge programs that are financed from the federal Highway Trust Fund, except for: (1) the Interstate highway system, (2) the portion of the bridge program that serves the Interstate system, (3) the emergency relief highway program, and (4) the federal lands highway program. The Commission urges that the Congress simultaneously relinquish an adequate share of the federal excise tax on gasoline—about 7 cents of the federal tax on motor fuel plus an additional 1 cent for a grant based on lane mileage—to finance the above programs (page 2). [Note: the federal gas tax at the time was just 9.1 cents per gallon].

With state and local governments freed from federal requirements, some of which are unsuitable and expensive, turnbacks offer the possibility of more flexible, more efficient, and more responsive financing of those roads that are of predominantly state or local concern. Investment in highways could be matched more closely to travel demand and to the benefits received by the communities served by those roads (page 3).

Highway turnbacks potentially can add both certainty and flexibility—as well as efficiency and accountability—to the financing of the nation’s transportation infrastructure as well as to the design and operation of both new and modernized roads (page 4).

In time, federal requirements and sanctions have accumulated, which have limited state and local governments’ flexibility in road construction and operation, have restricted these governments’ ability to address specific transportation needs, and have probably increased the cost and time needed for road improvements … The design standards required for receiving federal road grants may often be higher than those actually employed for roads built with state or local funds alone. The result can be that some federally subsidized highways are “gold-plated,” that is, built more lavishly than would be the case if state and local governments made the tradeoffs involved in highway plans and financed their choices by taxes levied on their own constituents (page 11).

[Federal highway regulations] may intrude the most broadly upon the choices of state-local governments and citizens. Examples include the rule that federally aided projects be preceded by an environmental analysis and the Davis-Bacon requirement to pay union wage rates, or the equivalent. The Federal Highway Administration has estimated that the Davis-Bacon requirement added between $293 and $586 million to road costs in FY 1986 (page 12).

The federal restriction on state and local road choices occurs not solely because federal standards are high, but because they tend to be inflexible, inappropriate to circumstances that vary from place to place, and more responsive to national interest groups than to the users of specific highways (page 13).

There is “fiscal equivalence” when the same political community—the same jurisdiction—finances a governmental program, is responsible for its operation, and receives the benefits of that program … The tie between taxing and spending promotes efficiency and careful choices, whether spending levels are high or low. Because various areas’ highway needs and preferences are so different, a nationally uniform program cannot tailor taxing and spending to each other, as state and local programs can (page 22).

With the Interstate system used for long-distance travel, most of the benefits of other federally aided roads are contained within state boundaries. These non-Interstate, federally aided roads should be considered for turnback. Absent federal funding, there is reason to believe that state-local responsibility for the devolved highways would not impair nationwide mobility or interstate commerce. Devolution would move toward “fiscal equivalence.” The same jurisdiction that finances a set of roads will benefit from them. Thus highway spending and highway services would be more closely linked than is presently the case. Efficiency would be enhanced as would political, fiscal, and program accountability (page 48).

The diverse goals and constituencies served by the federal highway program has led to a complex operation and has engendered controversy over the program’s procedures and allocation formulas … Devolution … would sharpen goals and priorities (page 48).

The ACIR report (“Devolving Selected Federal-Aid Highway Programs and Revenue Bases: A Critical Appraisal”) is here.

Towards a Private Flood Insurance Market

The federal-government-managed National Flood Insurance Program (NFIP) is $25 billion in debt, stokes moral hazard, and entails a regressive wealth transfer that favors coastal areas. The NFIP is set to expire at the end of September, offering policymakers an important chance to rethink the program. The House Financial Services Committee is considering the Flood Insurance Market Parity and Modernization Act Wednesday, the current version of the bill takes important steps in moving the U.S. towards a private flood insurance market. Private insurance would improve upon the NFIP by ending transfers from the general taxpayers to the wealthy and the coasts and by limiting moral hazard.

Private insurance functions as a market-driven regulator of risk. Private insurers devise premium payments to accurately reflect risk, forcing economic agents to internalize the risk they choose to assume. For instance auto insurance premiums depend both on a driver’s performance as well as other factors that correlate with risk, such as age or area of the country.

The enactment of the NFIP in 1968 reflected a belief that a centrally planned insurance program could better fulfill the regulatory function of insurance than the private market. Government-managed insurance could, it was held at the time, “limit future flood damages without hampering future economic development” and “prompt an adjustment in land use to reduce individual and public losses from floods,” reported a Housing and Urban Development study integral to the program’s design.

However, the NFIP’s fifty-year record shows why the reasoning behind the creation of the program was misguided. The NFIP is beset by many design flaws, especially in terms of how premiums are priced. About 20% of all NFIP policies are explicitly subsidized and receive a 60-65% discount off the NFIP’s typical rate. These subsidies are in no way a subsidy to poor homeowners but instead relate to the age of a property. They turn out to be wildly regressive.

Even the 80% of the NFIP’s so-called “full risk” properties are not priced accurately. For instance, despite their name the full risk rates do not include a loading charge to cover losses in especially bad years, so even these insurance policies are money-losers in the long run.

Supreme Court Will Revisit Political Gerrymandering

It comes as no surprise that the Supreme Court has agreed to hear the case of Gill v. Whitford, in which a district court struck down the Wisconsin legislature’s partisan gerrymander. Conservative justices want to hear the case as a way to correct an error, while liberals see it as their last best chance to tee up a landmark constitutional case on redistricting while Anthony Kennedy is still on the Court. Within hours, however, the grant of review was followed by a kicker – an order staying the court order below, over dissents from the four liberals – that calls in question whether the momentum is really with those hoping to change Kennedy’s mind.

Last time around, in 2004’s Vieth v. Jubelirer, the Court foreshadowed this day. Four Justices led by Scalia declared that for all the evils of political gamesmanship in drawing district lines – a practice already familiar before the American revolution – there was and is no appropriately “justiciable” way for the Court to correct things; it would be pulled into a morass of subjective and manipulable standards that could not be applied in a practical and consistent way and would cost it dearly in political legitimacy. Justice Anthony Kennedy, in a separate concurrence, agreed in dismissing the Pennsylvania case at hand, and said the Court was “correct to refrain from directing this substantial intrusion into the Nation’s political life” that would “commit federal and state courts to unprecedented intervention in the American political process.” But he left the door open to some future method of judicial relief “if some limited and precise rationale were found to correct an established violation of the Constitution.”

That set up a target for litigators and scholars to shoot for: can a formula be found that is “limited and precise” enough, and based on an “established” enough constitutional rationale, to convince Justice Kennedy? After all, the Court’s 1962 Baker v. Carr one-person-one-vote decision on districting had been an unprecedented intervention in the American political process, but also one that could be implemented by a simple formula yielding consistent outcomes and little need for ongoing supervision (take the number of people in a state and divide by the number of districts).  

Plaintiffs in the Wisconsin case are hoping that a newly devised index they call the “efficiency gap” can serve as an adequately objective measure of whether partisan gerrymandering has taken place, given the presence of evidence of such motivation. Even if courts accept this, it is another big jump to the confidence that they can provide consistent and predictable remedies unaffected by judges’ own political prejudices. 

The decision to stay or not stay a lower court order often provides a peek as to which side the Justices expect to prevail. And the five-member majority to stay the Wisconsin order – a majority including unsurprisingly Gorsuch, but more significantly Kennedy – suggests that at this point it is the conservative side’s case to lose. 

Whatever the Court’s disposition of the Wisconsin case, gerrymandering remains a distinctive political evil, an aid to incumbency that promotes the interests of a permanent political class, and a worthy target for efforts at reform. I’ve written more on that here and here

 

Disability Fraud

The federal government runs more than 2,300 subsidy programs, and they are all susceptible to fraud and other types of improper payments. The EITC program, for example, throws about $18 billion down the drain each year in such payments.

Perhaps the program that generates the most outrageous rip-offs is the $150 billion Social Security Disability (SSDI) program. From the Washington Post today:

Eric Conn, the fugitive attorney who pleaded guilty to orchestrating a scheme to defraud the federal government of $600 million, remains at large since he cut off his court-ordered GPS monitoring bracelet on June 2…Conn in March entered guilty pleas to defrauding the Social Security Administration via bribes he paid to a doctor and a judge to process and approve his clients’ disability claims. 

From 2006 to 2016, Conn processed 1,700 client applications for Social Security benefits with a potential of $550 million in lifetime benefits. Since the revelation of the allegations, the Social Security Administration has contacted many of Conn’s former clients with claims they owe as much as $100,000 for disability payments going back 10 years unless they can prove they have been disabled the entire time…

Conn’s fraud scheme was fueled by television advertisements that included a 3-D television ad from 2010 and one from 2009 in which Conn hired YouTube star “Obama Girl” and Bluegrass music legend Ralph Stanley to sing a version of “Man of Constant Sorrows” with new lyrics that refer to Conn as a “superhero without a cape” and to brag that Conn had “learned Spanish off of a tape.” In a rap video, Conn billed himself as Hispanic-friendly: “Even if you’re Latino, no need to worry cuz this gringo speaks the lingo.”

One greedy lawyer, a corrupt doctor and judge, some jingoism, and our government gets ransacked for $600 million. That’s not very comforting to taxpayers, is it?

In his study of SSDI for DownsizingGovernment.org, Tad Dehaven said, “SSDI is a classic example of a well-intentioned effort to provide modest support to truly needy people that has exploded into a massive entitlement that is driving up the federal deficit.” 

DeHaven proposed these SSDI reforms: 

  • Cut the program’s average benefit levels.
  • Impose stricter eligibility standards to discourage claims from people who should be working.
  • Create a longer delay for the initial receipt of benefits to discourage frivolous applications.
  • Reduce the large number of appeals for people initially denied benefits.
  • Ensure greater quality control and consistency of decisions by officials and judges.
  • Create a “taxpayer advocate” in the administrative law process to challenge dubious claims made by applicants and their lawyers.
  • Apply continuous disability reviews of people receiving benefits in a more vigorous manner.

His study is here

Minimum Wage: The Plural of Anecdote…

…is data, as the late UC-Berkeley political scientist Ray Wolfinger once said.

David Boaz used Wolfinger’s quote when emailing me this short note from the Economic Policy Journal’s website about the apparent harmful effects on employment of Washington state’s recent minimum wage increase. A snippet:

As we were seated, I couldn’t help but notice that there were no busboys in sight—waitresses and the manager were busy clearing and cleaning tables. There were no young people in sight either, only employees in their late-20s and up.

I waited for the manager to man the checkout register and couldn’t pass up a brief economic discussion. I commented that I’m from out of state (Idaho, where the minimum wage is the federally mandated $7.25/hr) and couldn’t help but notice the impact that Washington’s minimum wage ($11/hr) was having on his restaurant.

Well-intended proponents of higher minimum wages will likely dismiss this note using the far-more-common but very wrong misquotation that “the plural of anecdote isn’t data.” More sophisticated proponents will go further and cite David Card and Alan Kreuger’s 1994 American Economic Review paper on the apparent beneficial effects on employment of a minimum wage increase on fast-food restaurant employment in the Philadelphia metropolitan area in the early 1990s.

Thing is, there has been an awful lot more empirical research on the effects of minimum wage increases than this one paper by Card and Kreuger. The overwhelming balance of that research has found harmful employment effects, falling mainly on an especially disadvantaged population: young black males. In a review of this academic literature, economists David Neumark and William Wascher find:

Nearly two-thirds [of the 102 analyses they reviewed] give a relatively consistent (although by no means always statistically significant) indication of negative employment effects of minimum wages while only eight give a relatively consistent indication of positive employment effects. … [Further, of the 33 analyses we] view as providing the most credible evidence; 28 (85 percent) of these point to negative employment effects. Moreover, when researchers focus on the least-skilled groups most likely to be adversely affected by minimum wages, the evidence for disemployment effects seems especially strong. … We view the literature—when read broadly and critically—as largely solidifying the conventional view that minimum wages reduce employment among low-skilled workers.

The plural of anecdote, indeed.

For more on minimum wage research, see this Cato Policy Analysis by former U.S. deputy assistant labor secretary Mark Wilson. Or this brilliant little Cato Handbook on Policy chapter.

In Education, Democracy Is the Threat

When people hear “democracy,” they tend to get warm, fuzzy feelings. As the Century Foundation’s Richard Kahlenberg writes in an article that, among other things, portrays private school choice as a threat to democracy, “public education…was also meant to instill a love of liberal democracy: a respect for the separation of powers, for a free press and free religious exercise, and for the rights of political minorities.” The fundamental, ironic problem is that both democracy and democratically controlled public schooling are inherently at odds with the individual rights, and even separation of powers, that Kahlenberg says democracy and public schools are supposed to protect.

Let’s be clear what “democracy” means: the people collectively, rather than a single ruler or small group of rulers, make decisions for the group. We typically think of this as being done by voting, with the majority getting its way.

Certainly, it is preferable for all people to have a say in decisions that will be imposed on them than to have a dictator impose things unilaterally. But there is nothing about letting all people have a vote on imposition that protects freedom. Indeed, in a pure democracy, as long as the majority decides something, no individual rights are protected at all. The will of the majority is all that matters.

We’ve seen basic rights and equality under the law perpetually and unavoidably violated by democratically controlled public schooling. It cannot be otherwise: At its core, a single system of government schools—be it a district, state, or federal system—can never serve all, diverse people equally. It must make decisions about whose values, histories, and culture will and will not be taught, as well as what students can wear, what they can say, and what they can do, in order to function.

Public schooling since the days of Horace Mann has found it impossible to uphold religious freedom and equality. Mann himself was constantly assailed by people who felt that by trying to make public schools essentially lowest-common-denominator Protestant institutions, he was throwing out religion or making the schools de facto Unitarian (his denomination). Mann, in response, promised that the Protestant Bible would always be used in public schools. Indeed, Protestantism was often thought essential to being a good American, including supportive of democracy, which meant that if the public schools were to serve their civic purpose they could not treat religious minorities equally, especially Roman Catholics, who were suspected of taking their political orders from the Pope in Rome.

Today, after more than a century of even deadly conflict over religion, the public schools are no longer de facto Protestant, but instead may legally have no connection that could appear to be advancing religion, right down, often, to speeches by individual students at events such as graduation ceremonies or athletic contests. This inherently renders religious people second-class citizens—any values are fair game in public schools except for theirs—while also curbing basic expression rights.

Of course, the inherent inequality of public schooling is not restricted to religion. In a public school a teacher, committee, school board, or other government actor must decide what aspects of history will be taught or literature read. This requires that government elevate some peoples’ speech and perspectives, while deeming others’ essentially unworthy. As a result, we have perpetual battles that tear at the social fabric over which books—The Bluest Eye, The Adventures of Huckleberry Finn, The Absolutely True Diary of a Part-Time Indian—should or should not be read in class or over whose history should be taught, and the losers are rendered unequal under the law.