An All-Too-Common Misunderstanding of How Health Insurance Markets Work

I receive lots of daily health-policy newsletters. This morning, one of them exhibited an all-too-common misunderstanding and bias about how health-insurance markets work.

The setting is the “Consumer Freedom Amendment” Sen. Ted Cruz (R-TX) has offered to the Senate GOP’s bill to rewrite ObamaCare. Contrary to what the Republican Party has pledged for seven yearsa pledge that presidential candidate Donald Trump even put in writingthe Senate bill would not repeal the health-insurance regulations that are behind ObamaCare’s rising premiums, race-to-the-bottom coverage, and collapsing insurance markets. The Cruz amendment would keep those regulations on the books, but allow consumers to purchase insurance that does not include all of ObamaCare’s hidden taxes and coverage mandates. In effect, it would separate the market. Currently healthy enrollees would opt for the lower-cost “Freedom Option” coverage, which would stay with them once they developed expensive illnesses. Currently sick enrollees would opt for ObamaCare-compliant plans. Premiums for ObamaCare-compliant plans would rise even more than they already have, essentially turning ObamaCare’s Exchanges into high-risk pools that would require lots of government subsidies to keep afloat.

Enter one of my daily newsletters, which matter-of-factly reported:

Of course, everyone paying into the system for those who most need care is the way insurance is fundamentally supposed to work.

Of course! I hear this sort of thing all the time. Now, there is a charitable interpretation that would render this particular phrasing just barely true, but I am fairly sure that interpretation is not what the author intended to convey. Instead, the sentence glosses over a distinction so crucial that entire insurance markets hang in the balance. And it does so in a way that presents the (legitimately disputed and controversial) pro-ObamaCare ideology as an of-course-this-is-fundamentally-true fact.

Fundamentally, insurance markets are a system of subsidies. People with the same ex ante (i.e., before-the-fact) risk of needing medical care pay into the system to subsidize the few in that group who will develop expensive medical needs. We know insurance is supposed to work this way, because of what happens when you try to pool together people with different ex ante health risks at the same premium: the system of subsidies collapses. (See: state-level experiments with community rating, ObamaCare’s CLASS Act, the child-only market under ObamaCare, U.S. territories under ObamaCare, and Exchanges in dozens of counties). Risk-based premiums, exclusions for preexisting conditions, and other measures that ObamaCare supporters hate are actually consumer protections. They exist to keep that system of subsidies stable, so it can keep doing the most good possible by subsidizing people who become sick.

The idea that everyone should pay the same premium regardless of risk arises because left-of-center folks want to cram additional, hidden subsidies into the insurance system. They want to do this rather than create explicit taxes and transfers because, as Jonathan Gruber taught us, there is not sufficient political support for explicit taxes and transfers. But again, when you force insurers to cover unlike risks at the same premium, insurance markets collapse. So ObamaCare throws tons of money at insurers—with everything from the individual mandate to risk-adjustment—in the hope of preventing a collapse. Sometimes it prevents a collapse. Sometimes, not so much.

The above sentence therefore amounts to saying, “Insurance is fundamentally supposed to work exactly like ObamaCare supporters want, with mandates and lots of government subsidies, not like its opponents say.”

That’s what the news tells me, anyway.

Should the Federal Government Give a Stamp of Approval to Art?

Broadway Journal reports that theater professionals are very concerned about the Trump administration’s no-doubt-idle threats to defund the National Endowment for the Arts:

“It’s important money for us,” said Jeffory Lawson, the managing director of the Chelsea-based Atlantic Theater Co. As with any lost funding, replacing those grants would be challenging, he said. And beyond dollars, the NEA confers a stamp of approval for a project, which is appealing to other donors. It’s “a highly competitive grant application,” he said, that’s reviewed and rated largely by theater professionals. “It’s not just a bureaucrat making a decision.” (The NEA claims that $9 in private donations follow every $1 it grants.)

I don’t know why people who prize their independence, and are very proud these days to be defying the government in their plays and public comments, are so eager for a “stamp of approval” from that very government. In fact, I’ve written about that problem before, such as in this 1995 speech to the Delaware Center for Contemporary Arts:

Government funding of anything involves government control. That insight, of course, is part of our folk wisdom: “He who pays the piper calls the tune.” “Who takes the king’s shilling sings the king’s song.”

Defenders of arts funding seem blithely unaware of this danger when they praise the role of the national endowments as an imprimatur or seal of approval on artists and arts groups. Jane Alexander says, “The Federal role is small but very vital. We are a stimulus for leveraging state, local and private money. We are a linchpin for the puzzle of arts funding, a remarkably efficient way of stimulating private money.” Drama critic Robert Brustein asks, “How could the NEA be ‘privatized’ and still retain its purpose as a funding agency functioning as a stamp of approval for deserving art?”

In 1981, as conservative factions battled for control of the National Endowment for the Humanities, Richard Goldstein of the Village Voice explained the consequences this way:

The NEH has a ripple effect on university hiring and tenure, and on the kinds of research undertaken by scholars seeking support. Its chairman shapes the bounds of that support. In a broad sense, he sets standards that affect the tenor of textbooks and the content of curricula….Though no chairman of the NEH can single-handedly direct the course of American education, he can nurture the nascent trends and take advantage of informal opportunities to signal department heads and deans. He can “persuade” with the cudgel of federal funding out of sight but hardly out of mind.

I suggest that that is just the kind of power no government in a free society should have….

On NPR this morning, an activist complained …  saying, “My ancestors didn’t fight for the concept of official history in official museums.” But when you have official museums, or a National Endowment for the Arts serving as a “seal of approval” for artists, you get official history and official art—and citizens will fight over just which history and which art should have that imprimatur.

“Stamp of approval,” “ripple effect,” “ ‘persuade’ with the cudgel of federal funding”—all of this is asking the federal government to pick winners, not just in automobile or energy companies, but in art and literature. Is that really a model for independent artists?

 

I Was Wrong on The Every Student Succeeds Act

I was wrong. When the Every Student Succeeds Act passed in late 2015, I identified two ambiguities I thought were most ripe for exploitation to keep the federal boot hovering over public schools: the requirement that states have “challenging” curricular standards and that standardized tests be given “much greater” weight in accountability systems than non-academic measures.

Certainly, DC may still seize upon these words to extend control. But according to a Friday New York Times report, it is the law’s call for “ambitious” student performance goals—a term not defined in statute—that the Trump administration, which I thought would be highly deferential to states (wrong again!), is citing to reject state plans:

In the department’s letter to Delaware—which incited the most outrage from conservative observers—[Acting Assistant Secretary for Elementary and Secondary Education Jason] Botel took aim at the state’s plan to halve the number of students not meeting proficiency rates in the next decade. Such a goal would have resulted in only one-half to two thirds of some groups of students achieving proficiency, he noted.

The department deemed those long-term goals, as well as those for English-language learners, not ambitious, and directed the state to revise its plans to make them more so.

And so we remain pretty much where we were under the Obama administration in education, and where we are with every law that leaves it to regulatory agencies to fill in the meaning of crucial terms: with states, localities, and the people at the mercy of bureaucrats and secretaries. Government increasingly of men and not laws.

Alas, this bureaucratically dictatorial state of affairs is okay with some people in DC. In an exchange this weekend, a former Obama administration spokesman lauded the regulatory process as a “transparent” and “consistent” way to “fill in the blanks left by the law”:

Really? I sure can’t see how the regulatory process is “transparent” in any meaningful sense. Here is the web page to follow the ESSA regulatory process, and here is the “Notice of Final Regulation” for just one part of the ESSA. Read it all over. Now imagine every parent—with a full-time job, soccer practices to get the kids to, maybe even a desire for some leisure time—trying to read and influence every regulation for ESSA.

Done imagining? The painful reality, of course, is that making law by regulation is even more beyond the ability of an average American to follow and influence than the writing of actual laws. The ESSA itself is almost 400 single-spaced pages long.

Loads of atrocious problems are at work here—no apparent concern for whether the governed can know and understand the laws governing them; legislators sloughing off their responsibilities to bureaucrats—but underlying it all has been widespread disregard for the Constitution and its clear delegation of only specific, enumerated powers to the federal government, none of which mention education.

I was wrong about the specific opening by which the ESSA might be used to maintain federal control over the nation’s public schools. But in stating that federal control is itself unconstitutional, and rule by bureaucrats especially egregious, I remain clearly in the right.

Goats Are Doing Our Job, Says Union

Great moments in public employee unionism, as recorded in the Battle Creek (Mich.) Enquirer

A battle is brewing at Western Michigan University this summer between a group of hungry goats and a labor union.

The 400-member American Federation of State, County and Municipal Employees has filed a grievance contending that the work the goats are doing in a wooded lot is taking away jobs from laid-off union workers.

A spokeswoman said the university had brought in a crew of the nimble-footed ruminants “to clear undergrowth in a woodlot, much of it poison ivy and other vegetation that is a problem for humans to remove….Not wanting to use chemicals, either, we chose the goat solution to stay environmentally friendly.”

The goats are already ahead of schedule in their task of clearing 15 acres before the fall semester – unless the National Labor Relations Board gets mad and decides to charge in.

Will CNN Face Regulatory Retaliation?

A year ago in this space I discussed one of the more disturbing things then-candidate Donald Trump was saying on the campaign trail, his threats against the business interests of Washington Post owner Jeff Bezos, whose paper has been consistently critical of Trump. Trump mentioned tax and antitrust as issues on which Amazon, the company founded by Bezos, might find its status under review. I quoted Wall Street Journal columnist Holman Jenkins: “Mr. Trump knows U.S. political culture well enough to know that gleefully, uninhibitedly threatening to use government’s law-enforcement powers to attack news reporters and political opponents just isn’t done. Maybe he thinks he can get away with it.” 

Mr. Trump is now fighting a very public grudge match against cable network CNN, which as it happens is one of the enterprises affected by the pending AT&T-Time Warner merger. (Time Warner is CNN’s parent company.)  During the campaign, Trump criticized the merger, but in March he nominated to head the Department of Justice’s antitrust division Makan Delrahim, a veteran antitrust lawyer who seemed to take a more benign view. “The sheer size of it, and the fact that it’s media, I think will get a lot of attention,” Delrahim had said in an interview on Canadian TV in October, before the election. “However, I don’t see this as a major antitrust problem.”

On North Korea, Diplomacy Is the Sensible Option

The Trump administration’s approach to North Korea’s nuclear weapons and ballistic missile development has been almost exclusively an emphasis on military confrontation. The latest eruption of escalatory actions and rhetoric is in keeping with the norm.

Following Pyongyang’s successful testing of an inter-continental ballistic missile (ICBM) this week, Trump referenced “some pretty severe things that we are thinking about” in response. Gen. Vincent K. Brooks, commander of U.S. forces in South Korean, warned ominously that “it would be a grave mistake for anyone” to doubt our willingness to use military force in response to North Korean “provocation.” UN Ambassador Nikki Haley said in a statement that we will use “our considerable military forces…if we must, but we prefer not to have to go in that direction.” Finally, U.S. and South Korean forces “fired a barrage of guided-missiles into the ocean” off the east coast of the Korean Peninsula, as a show of force.

Many Americans believe the hardline approach to North Korea is wise because peaceful negotiations, in Eli Lake’s words, have been used by Pyongyang “to buy time and extract concessions from the West.” Diplomacy doesn’t work on the intransigent North Korea, we’re told.

But that conflicts with the historical record. According to Stanford University’s Siegfried S. Hecker, the record from the Bill Clinton and George W. Bush administrations shows that “Pyongyang was willing to slow its drive for nuclear weapons” but “only when it believed the fundamental relationship with the United States was improving, but not when the regime was threatened.”

This is a crucial point. For decades, Washington’s general approach has involved economic sanctions, military encirclement, and regular threats of preventive war. In this environment, and without good faith overtures from Washington, North Korea is going to continue to insist on having the ability to deter invasion or attack by the United States or its allies.

There Is No Evidence of an Illegal Immigrant Crime Wave: Why the “Elusive Crime Wave Data Shows Frightening Toll of Illegal Immigrant Criminals” Is Flawed

The House of Representatives recently passed the No Sanctuary for Criminals Act (H.R. 3003) and Kate’s Law (H.R. 3004) to tighten immigration enforcement in response to the fear that illegal immigrants are especially likely to commit violent or property crimes.  Both laws stem from the tragic 2015 murder of Kate Steinle by an illegal immigrant named Juan Francisco Lopez-Sanchez after he had been deported multiple times. 

Debates on the House floor over both bills veered into the social science of immigrant criminality.  The majority of research finds that immigrants are less likely to be incarcerated than natives and that increases in their population in local areas are correlated with lower crime rates – even for illegal immigrants.

Despite that wealth of empirical evidence, a two-year-old Fox News piece entitled “Elusive Crime Wave Data Shows Frightening Toll of Illegal Immigrant Criminals” by investigative reporter Malia Zimmerman was offered as evidence of illegal immigrant criminality.  Ms. Zimmerman’s piece makes many factual errors that have misinformed the public debate over Kate’s Law and the No Sanctuary for Criminals Act.  Below, I quote from Ms. Zimmerman’s piece and then respond by describing her errors and what the actual facts are.