January 30, 2020 10:07AM

Cato, Buckeye File Amicus Brief in Assn. for Community Affiliated Plans v. Treasury

This week, the Cato Institute, the Buckeye Institute, and I filed an amicus curiae brief in the case Association for Community Affiliated Plans v. Treasury. The plaintiffs in the case are challenging the Trump administration’s August 2, 2018 final rule that allows greater consumer protections in short‐​term limited duration insurance (STLDI) plans. On July 19, 2019, The U.S. District Court for the District of Columbia ruled against the plaintiffs. The plaintiffs have appealed the district‐​court ruling to the U.S. Court of Appeals for the D.C. Circuit. Oral arguments will take place March 20, 2020.

Congress has exempted STLDI from the statutory requirements otherwise applicable to individual health insurance plans. Since Congress has never defined the term or duration of STLDI, the Departments of Health and Human Services, Labor, and Treasury have filled that gap. Since 1997, with limited exception, these agencies have consistently defined STLDI as having, among other things, an expiration date that is “within 12 months of the date the contract becomes effective.”

The sole exception occurred between December 30, 2016 and 2018, when the Departments limited the maximum term to less than three months. As the National Association of Insurance Commissioners warned in 2016, that cramped three‐​month limit would strip health insurance coverage from consumers after they fell ill, leaving them with a period of up to a year during which they faced expensive medical bills with no health insurance coverage.

That’s exactly what happened to 61‐​year‐​old Arizona resident Jeanne Balvin, who found Affordable Care Act (ACA) coverage unaffordable and instead purchased an STLDI plan for one third of the cost of an ACA plan. Balvin’s STLDI plan provided excellent coverage for her emergency surgery and hospitalization; she paid far less than she would have with an ACA plan. But then, the three‐​month limit cancelled her STLDI plan, thereby stripping her of coverage that could have and would have covered two subsequent hospitalizations. The three‐​month limit left Balvin uninsured with a preexisting condition and $97,000 in unpaid medical bills.

In 2018, the Departments rescinded the three‐​month limit and reverted to the prior 12‐​month limit. The Departments also allowed STLDI issuers to renew the initial contract up to a total of 36 months and to offer renewal guarantees that would allow enrollees to keep purchasing STLDI plans at healthy‐​person premiums, even after they get sick.

The plaintiffs in ACAP v. Treasury are primarily private insurance companies who sell ACA‐​compliant plans. They are asking the courts to reinstate the three‐​month limit because they fear that otherwise, their customers would find STLDI plans more attractive than their ACA‐​compliant plans. I am not making this up. They are literally asking the court to reinstate the three‐​month limit and inflict real harm on patients like Jeanne Balvin in order to pad their bottom lines.

The Cato Institute, the Buckeye Institute, and I support the district court’s proper decision that the Departments acted within the scope of their statutory authority in reinstating the 12‐​month maximum term for STLDI plans.

For more information, read:

January 29, 2020 1:08PM

Must We Fight over What Children Will Learn?

Cato Institute Public Schooling Battle Map

In 2005, the Dover Area School District in Dover, Pennsylvania, was experiencing what might be called a civil war. As ABC News reported, “Dover was at war with itself”:

Townspeople would attack each other in ways they never had before….ABC News went to Dover to tell the story, but found that a lot of people were not talking — not to us and not really to each other. Depending on which side they were on, some people had come to believe that anyone who disagreed with their views was either ignorant or quite possibly evil, and that explaining themselves only gave their enemies more ammunition.

What caused this misery? The public schools, the very institutions that “father of the common school” Horace Mann said would create harmony, fostering “a general acquaintanceship…between the children of the same neighborhood….[Where] the affinities of a common nature should unite them together so as to give the advantages of pre‐​occupancy and a stable possession of fraternal feelings….”

Specifically at issue was the teaching of the development of life on Earth, a topic that inescapably implicates deep‐​seated religious beliefs, and that for many requires either that only creationism or evolution be taught. As ABC News explained, “The argument in Dover is of a special kind, where to let the other side win a little is to lose your own cause entirely.”

Public schooling—in which diverse people are required to pay for a single system of government‐​run schools—inherently sets up such “special” conflicts. When two things cannot be simultaneously taught as true, or different values dictate different polices, one side must win, and the other lose.

Alas, such conflicts, while not always as destructive as Dover’s, are not particularly rare. In 2005—the same year as the Dover battle—Cato’s Center for Educational Freedom began collecting examples of conflicts like Dover’s, pitting diverse values, or other intensely personal matters such as racial identity or culture, against each other. The intent was to illustrate that assuming public schooling will create harmony is dangerous, even if it is widely accepted. Indeed, it makes little logical sense: as we’ve learned from history, people do not happily sacrifice the things that make them who they are.

The end product of that initial collection was the report “Why We Fight: How Public Schools Cause Social Conflict.” Later, as we continued to collect conflicts, we decided to put our growing database on the Web, in searchable map form, so that wonks, reporters, and members of the public could see the kinds of very personal battles being fought in public schools, and get a sense that neither side is absolutely “right” nor “wrong,” but all are following their beliefs about what is right. We also wanted people in districts experiencing conflicts, and reporters covering them, to be able to locate places that may have suffered similar conflicts, and perhaps learn how they were ameliorated.

Unfortunately, about nine months ago the application we had been using to generate Cato’s Public Schooling Battle Map was phased out, and ever since we have been working to replace it. But today, in the midst of National School Choice Week, we are ecstatic to report that the new Map is up and running! It is not perfect—we will be adding more features soon—but it is working once again.

The Map contains 2,267 conflicts in thousands of districts and every state. Often the battles are centered at the state level, where everything from sex education standards to history curricula may be determined, meaning no one in the state can escape the conflict. And while the districts on the Map represent only around 9 percent of all districts, they contain roughly 44 percent of the country’s total student population. This is likely a function of our primary information source being media reports, and media tending to be concentrated in places with more people. There are also doubtless some people unhappy with school policies or curricula who do not formally complain, or if they do no reporter hears about it. The Map, then, is at best a baseline of conflicts, not a comprehensive view.

What does this have to do with school choice? Choice is fundamentally different from public schooling; its basic structure is far more conducive to peace and equality. Rather than forcing diverse families and communities to control a single system to get what they want taught, choice enables everyone to seek out what they need and desire. Rather than forcing everyone into a political arena, it lets them peacefully coexist.

Hopefully the Map will reach many eyes, and help people realize that one side winning and the other losing, or maybe both having to sacrifice cherished parts of themselves, should not be the only possible outcomes when people disagree. Especially, we hope that reporters will use the Map, and write more articles like the too‐​rare ABC News piece with which this post started. Articles that focus not just on the two sides, like reporting on a boxing match, but that delve into the nature and underlying causes of the conflict. Maybe even articles that turn a spotlight directly on the zero‐​sum nature of public schooling. Because there is a more equal, more peaceful, way to structure an education system: school choice.

January 29, 2020 12:23PM

Federal Budget Outlook: Worse than CBO

The Congressional Budget Office has released new projections for federal spending and revenues through to 2030.

Federal budget policy is a disaster. The government will spend $4.6 trillion this year, raise $3.6 trillion in tax revenues, and fill the gap with $1 trillion in fresh borrowing. That is like a worker earning $36,000 in income but spending $46,000 and putting $10,000 on credit cards. Maybe he can get away with the excess spending for a while, but eventually his finances will crash.

The CBO’s baseline projections show spending rising faster than revenues in coming years, with the result that annual deficits by 2030 are expected to hit $1.74 trillion. Spending in 2030 at $7.49 trillion will be 30 percent higher than revenues of $5.75 trillion, as shown in the chart below.

Those projections are ugly, but they are optimistic if policymakers do not enact major reforms. One optimistic CBO assumption is that discretionary spending will decline as a share of GDP in coming years, which seems unlikely given that both parties these days push for higher spending. So I’ve included on the chart a “more likely” spending projection that assumes discretionary spending stays at today’s share of GDP.

On the revenue side, CBO includes the expiration of the GOP tax cuts after 2025, but it is likely that some or all of those cuts will be extended. Democrats may agree to extension in return for more low‐​income benefits. So the chart includes a “more likely” revenue line, which assumes the tax cuts are extended, which I roughly calculated by assuming revenues stay at the 2025 share of GDP.

The more likely spending line also includes my rough estimate of the higher interest costs created by higher spending and lower revenues.

Under the more likely scenario, the annual deficit by 2030 will be $2.37 trillion, up from $1.74 trillion under the CBO baseline. The more likely scenario has spending in 2030 at $7.79 trillion, which will be 44 percent higher than revenues that year of $5.42 trillion.

Our economy is growing and we are at peace, so federal deficits and debt should be falling. But deficits are soaring and debt is at record high levels for peacetime as a share of the economy. The outlook is particularly scary because neither party is even talking about spending reforms. We are marching into a fiscal crisis and our elected leaders seem to have no idea how to tackle it and do not even seem to care.

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January 28, 2020 2:29PM

ADA: Lawyers Sue Retailers for Not Putting Braille on Gift Cards

The Americans with Disabilities Act (ADA) reaches its 30th anniversary this year, which will touch off a year’s worth of coverage likely to be almost wholly celebratory in tone. Ten years ago, on the law’s reaching its 20th year, I took a less celebratory view that I think holds up well.

Meanwhile, back in the trenches, four law firms and associated clients over a period of about a week last fall launched a wave of more than 100 putative class actions charging that retailers are violating the ADA by marketing gift cards that do not include Braille versions. Earlier, the same four firms and their associated clients had filed hundreds of New York lawsuits alleging that websites fell short of accessibility to the disabled.

“The targets selected by plaintiffs in this new wave run the full gamut of retail establishments, including big box retailers, grocery stores, movie theaters, restaurants, clothing brands, and online gaming and other services,” reports one law firm. Typically, according to the Lawsuit Reform Alliance of New York (LRANY), “a successful plaintiff in [a local web accessibility] settlement will receive only $500 per case, but attorney’s fees average many times that amount, approximately $16,000 per case or more, depending on the law firm, the court and other factors, thereby giving plaintiff’s lawyers ample incentive to file as many cases as possible.” One attorney is said to have made about a million dollars a year this way over eight years.

Does the ADA really require Braille on gift cards as an accommodation? Who knows? The courts are unlikely to provide a firm answer any time soon, what with the Supreme Court speaking only very infrequently and generally on the subject. Last fall, in the Domino’s case, it ducked a chance to address the most pressing ADA issue of the past decade: the extent to which it requires redesign of websites.

And so the ADA continues making life miserable for businesses and other regulated parties both large and small (just this weekend San Jose Spotlight reported on the demise of a much‐​loved local coffee shop). As I wrote last year in this space:

Because ADA requirements are both obscure and voluminous and even compliance experts do not agree among themselves how much accommodation counts as enough, potential violations can be found at most businesses. While the ADA is a national law, much of the mass filing of accessibility complaints goes on under state laws that piggyback or expand on the federal version, often with added features enhancing damages or attorney’s fee entitlements.

Only Congress can clarify what this law means, and it consistently refuses to do that, no matter which party is in charge. You can read more about the ADA’s ongoing impacts here, here, here, here, and here [adapted from Overlawyered]

January 28, 2020 12:17PM

More Evidence that the CRA Doesn’t Always Help Low‐​Income Communities. But Proposed Changes Will Improve It

The Community Reinvestment Act is supposed to ensure that banks lend to low- and moderate-income households wherever they operate. But there are reasons to doubt its effectiveness.

In the Washington Post this summer, I reported findings (from a forthcoming paper with Andrew Forrester) that more than two-thirds of recent home mortgages in the District of Columbia for which banks can get CRA points went to high- rather than low-income borrowers. This is because current CRA regulations count loans to low-income borrowers and loans made in low-income census tracts (Figure 1a). D.C. has rapidly gentrified in recent years, as young professionals flocked into historically low-income neighborhoods, and many among these “gentrifiers” have bought homes. At present, CRA regulators take loans to gentrifiers into account when they evaluate banks, even though gentrifiers are not usually underserved borrowers.

Figure 1a: Loans to Low-Income Borrowers and in Low-Income Census Tracts Qualify for CRA Points

Note: LMI stands for low- and moderate-income, defined as a median family income below 80 percent of the median for the metropolitan statistical area. Yellow designates loans eligible for CRA credit (points).

Gentrification, as a rule, is a good thing for both new arrivals and historic residents. A recent paper from the Federal Reserve Bank of Philadelphia finds that gentrification benefits the original residents of low-income neighborhoods. While more-educated homeowners seem to gain most, even renters and the less-educated are better off as a result of the improved living conditions and increased opportunity that gentrification brings about. The impact of gentrification on migration by less-educated renters, arguably the most vulnerable group, to other neighborhoods is relatively small: 4 to 6 percentage points.

The Philly Fed paper uses data from the 100 largest metropolitan statistical areas (MSAs), which needless to say differ widely in their local zoning laws, economic policies, history of segregation and discrimination, and other traits important for our analysis. It may well be that particular MSAs have worse outcomes from gentrification, for example, because zoning restrictions make it difficult for housing supply to respond to higher demand, causing displaced renters to face greater cost pressures and longer commutes. That, however, is not a direct consequence of gentrification but of local housing policy.

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January 28, 2020 12:03PM

Winner and Loser States from Big Government

American government has become much larger and more centralized over the past century. That has created winner and loser states as taxpayer cash floods into Washington and is then dispersed through more than 2,300 federal spending programs.

In 2020, the federal government will vacuum $3.6 trillion from taxpayer wallets in the 50 states and borrow $1 trillion from global capital markets. Then it will turn on the leaf blower to scatter $4.6 trillion back across the 50 states, except for the cut the middleman in D.C. will keep for itself.

The Rockefeller Institute has released a report detailing these cash flows. The report calculates a “balance of payments” for each state in 2018, which is federal spending less federal taxes paid by individuals and businesses in each state. The winner states have a positive balance and the loser states a negative one. Federal spending includes four items: benefits (such as Social Security), state‐​local grants (such as Medicaid), procurement (such as fighter jets), and pay for federal workers.

On a per capita basis, the biggest winner states are Virginia, Kentucky, Alaska, and New Mexico. The biggest loser states are Connecticut, Massachusetts, New Jersey, and New York. Those loser states have a large number of high‐​earning individuals who get hit hard under the federal income tax, which imposes higher rates on top incomes.

Figure 1 shows data from the Institute’s report. Taxes per capita are on the horizontal axis and spending per capita on the vertical axis. Each dot is a state. The figure excludes a portion of taxing and spending that could not be allocated by state.

States on the bottom right are the losers and those on the top left are winners. Connecticut is on the far right paying $14,004 in federal taxes per capita but receiving only $11,750 in federal spending. Connecticut would be better off in a decentralized United States with citizens paying their taxes to state and local governments rather than the federal government.



Every state is actually worse off than indicated in Figure 1 because federal borrowing in 2018 allowed for spending to be 22 percent larger than taxes. But borrowing is not a free lunch. It creates a cost that will hit residents of every state down the road — borrowing is just deferred taxes.

For Figure 2, I scaled up taxes to include both the current and deferred federal burdens. Connecticut residents paid $17,098 in current and deferred taxes per capita and received only $11,750 in spending. They are only getting back 69 cents in federal spending for every dollar of federal tax burden.

In the figure, the loser states from centralized government are below the line and the winner states above it. Actually, because centralization creates lower‐​quality government, residents of every state lose, as I discuss here.

The interesting political question is why do loser states such as Connecticut, Massachusetts, New Jersey, and New York stand for it? Politicians from those states should be pressing for a less progressive federal income tax and for devolution of government activities back to the states.

Research assistance from David Kemp.

January 28, 2020 10:49AM

Don’t Let Utopian Public Schooling Rhetoric Block School Choice

A little red schoolhouse

I recently read Democracy’s Schools: The Rise of Public Education in America by Johann Neem, which in its title delivers the bedrock myth of public schooling: that it is essential to building harmonious, well‐​informed, citizens of a democracy. And it’s not just in the title that Neem waxes poetic about the public schools. In his preface he briefly recounts his experience as an immigrant child in Bay Area, California public schools, concluding that “by democratizing access to the kind of liberal arts education that was once reserved for the few, the common schools prepare all young people to take part in the shared life of our democracy.” Neem echoes the rhetoric of Horace Mann, the “father of the common school,” who in the 1830s and 40s brought a missionary zeal to promoting largely uniform, free public schools in Massachusetts.

The problem is that once you delve into the reality of public schooling, it does not at all match the rhetoric. To the credit of Neem and many other historians, they do not duck the reality, even if they seem to ultimately let the rhetoric get the better of them. Neem’s book is focused on pre‐​Civil War education, so he may have a different view of later public schooling, but towards the end of the book he offers a sober take on the reality of common schooling:

Schools may have effectively taught the basics, the three ‘Rs and a bit more, but they were less effective at inspiring young people to be citizens and to engage in self‐​culture. Instead, students saw schooling as something to get through. While in some cases this led to actual violence between teachers and students, in most cases there was tacit agreement that teachers had the authority to demand students’ compliance, and that students, with the support or pressure of their parents, would have to perform. There is little evidence that students left school wanting more.

Public schools were not forging unified, enlightened citizens, as was the goal, but were largely just a mundane part of life. Which would be fine, except that taxpayer support of uniform public schooling is compelled on the grounds that it is so much more than what it actually is—it is essential for “democracy,” right?—and in that privileged position it has often been worse than just ineffectual at its professed purpose. It has imposed or reinforced inequality and injustice.

I won’t go over all the injustice in detail—you can see where I’ve discussed it in more depth—but remember that for much of its history public schooling often discriminated against minority religions, most notably Roman Catholics. It often either completely barred or segregated African Americans—not just in the South—and in some places Mexican and Asian Americans. It attacked the culturally unifying language of German immigrant communities. It now systematically treats religious Americans as second‐​class citizens. And it forces people with different values, cultures, and identities to fight to see which “equal” people win, and which lose.

School choice is fundamentally different from this. Based not on rhetoric about creating social and personal perfection, but on the reality of diverse human beings and communities, choice enables families to pursue the education that they want, that respects their cherished values and cultures, and that removes the threat that those with the most political power will impose their idea of “the good” on everyone.

No doubt believers in public schooling such as Neem are guided by good intentions—they truly seek the ideal of unity and enlightenment for all—but too often, especially if they oppose school choice, they may let their ideals overtake their understanding of reality. And sometimes, it may lead them to forget that liberty is the country’s truly bedrock value.