Hillaryeconomics: Swelling the State

30 Sunday Oct 2016

Tags

Affordable Care Act, Anthony Weiner, Bill Clinton, Buffet Rule, Carried Interest Rule, Clinton Foundation, Daniel J. Mitchell, Exit Tax, Hillary Clinton, Hugo Chavez, Infrastructure bank, Joseph Stiglitz, Minimum Wage, Paid Family Leave, Peter Suderman, Public Option, Redistribution, Solyndra, Venezuela

Who cares about Hillary Clinton’s economic plan while her campaign quivers in the shadow of Weiner’s hard drive? Despite all the hubbub over Mrs. Clinton’s sloppy security practices, and her lies and destruction of evidence regarding those practices, it’s a good idea to remind ourselves of some of the frontrunner’s policy proposals and the general philosophy that informs them. Daniel J. Mitchell must have been feeling jovial when he took a crack at deciphering Hillary Clinton’s economic plan. He offered translations of each of 42 Hillary catch-phrases, but the translations were identical:

“Notwithstanding all the previous failures of government, both in America and elsewhere in the world, I’m going to make American more like Greece and Venezuela by using coercion to impose more spending, taxes, and regulation.“

Mitchell highlights two general themes at the start: one is the left’s constant misuse of the term “investment’ to describe spending on almost any government initiative; the other is the still fashionable Keynesian theory that a low-productivity government can make the economy grow by a multiple of any claim on resources it deigns to make.

I’ll try to do Mitchell one better. Here’s a run-down of the catch-phrases he cites along with my own interpretations:

“…support advanced manufacturing” — because the government is adept at picking winners with taxpayer money, like Solyndra. Does “advanced manufacturing” involve politically-favored outputs, as opposed to market-favored outputs? Does it involve robots, or workers? Is it somehow preferable to “advanced services”?
“a lot of urgent and important work to do” — there oughtta’ be more laws;
“go out and make that happen” — we must impose the heavy hand of the state;
“enormous capacity for clean energy production” — …if only we can provide our cronies with enough subsidies on your dime;
“if we do it together” — …kumbaya; we’ll wreck the private economy together;
“things that your government could do” — like, wreck everything;
“I will have your back every single day” — …with a sharp knife, in case it’s in my interest to betray you;
“make our economy work for everyone” — we’ll redistribute your wealth;
“restore fairness to our economy” — be prepared to share your success;
“go to bat for working families” — …by punishing your employer; but look, we have freebies!
“pass the biggest investment” — mandatory campaign promise;
“modernizing our roads, our bridges” — shovel-ready” projects;
“help cities like Detroit and Flint” — redistribute resources to poorly-governed communities and impose federal oversight;
“repair schools and failing water systems” — because local needs and the federal government are a perfect match;
“we should be ambitious” — about government domination;
“connect every household in America to broadband” — even if they don’t want it, and even if they’ve chosen to live in the badlands; at your cost, of course;
“build a cleaner, more resilient power grid” — reduce carbon emissions by inflating your utility bill; dismantle markets and direct energy resources centrally;
“creating an infrastructure bank” — we need another big federal agency, extending control and conjuring opportunities for cronyism and graft;
“we’re going to invest $10 billion” — Whew! I thought you were going to say $100 billion. But… can you define “investment”?
“bring business, government, and communities together” — …we’ll be as one at the federal level;
“fight to make college tuition-free” — so that even the least qualified have a strong incentive to enroll, on your dime;
“liberate millions of people who already have student debt” — because meeting the terms of a contract is a form of enslavement;
“support high-quality union training programs” — with federal subsidies on your dime; non-union training programs would be so …exploitative;
“We will do more” — …cause we’re from the government, and we’re here to help!
“Investments at home” — Invest? Can you define that? Do you mean “spend”?
“we need to make it fairer” — … by redistributing your income to others;
“we will fight for a more progressive…tax code” — reduce those ugly private work incentives and quash the bourgeois tendency to save and invest in physical capital;
“pay a new exit tax” — don’t get the idea it’s YOUR company; you didn’t build that;
“Wall Street, corporations, and the super-rich, should finally pay their fair share” –because the highest corporate tax rate in the industrialized world is not high enough, and besides, we can pass the booty back to elites in myriad ways, as long as they give to the Clinton Foundation;
“I support the so-called ‘Buffett Rule'” — …to quench the thirst of class warriors;
“add a new tax on multi-millionaires” — we must tax wealth because a high income tax rate just isn’t enough to encourage capital flight;
“close the carried interest loophole” — cause we think that loophole actually exists, and hey, it sounds good to class warriors;
“I want to invest” — Invest? Can you define that? Do you mean “spend”?
“affordable childcare available to all Americans” — …so that no parent need pay any attention to price; but your tax credit will diminish if you earn extra income, so don’t earn too much, for God’s sake!
“Paid family leave” — …because it isn’t expensive enough to hire you already;
“Raising the federal minimum wage” — … so the least skilled will be jobless and dependent on the state;
“expanding Social Security” — …so what if it’s already insolvent? Oh, you must mean “expanding” payroll taxes!!
“strengthening unions” — …because we mean to kill the sharing economy, and it isn’t expensive enough to hire you already;
“improve the Affordable Care Act” — if it’s broke, break it more thoroughly;
“a public option health insurance plan” — …shhh… don’t say single payer!
“build a new future with clean energy” — in our judgement, your inflated utility bills will help all mankind; besides, we want to take control, and wreck something.

Bonus: “wage equality once and for all” — because it should be illegal for employers to pay based on occupational risk, demands for paid leave and flexible hours, skill differentials and available supplies.

Lest you think my interpretation of that bonus quotation is unfair, remember: the so-called gender wage gap is almost entirely explained by the factors I’ve listed.

Hillary Clinton’s economic view is straight out of the statist theater of the absurd. Joseph Stiglitz, one of Hillary’s economic advisors, in 2007 endorsed Venezuelan socialism under Hugo Chavez, which proved to be disastrous. Was she forced to the left by Bernie Sanders? To some extent, perhaps. But Peter Suderman notes that Clinton’s current policy agenda constitutes a thorough rejection of Bill Clinton’s economic policies. The irony!

Mobility, Safety Nets & Sticky Webs

23 Thursday Jun 2016

Posted by Nuetzel in Big Government, Welfare State

≈ Leave a comment

Tags

Affordable Care Act, Andrei Schleifer, Basic Income Guarantee, Christopher Jencks, Curley Effect, David Henderson, Dependent Class, Don Boudreaux, Earned Income Tax Credit, Edward Glaeser, Employment Incentives, Extreme Poverty, Henry Hazlitt, Kathryn Edin, Labor Force Participation, Luke Shaefer, Marginal Revolution, Medicaid expansion, Michael Tanner, Milton Friedman, Mises Wire, Obamacare, Social Safety Net, Tyler Cowan, Universal Basic Income, Veronique de Rugy, War on Poverty, Welfare State, work incentives

We’re unlikely to reduce the share of the U.S. population living in economic dependency under the current policy regime. So many aspects of tax law, regulation and aid programs are designed as if to perpetuate or perhaps even worsen the situation. I’ve discussed this topic before on Sacred Cow Chips in “Degrees of Poverty and the Social Safety Trap“, and “Minority Politics and the Redistributionist Honey Trap“.

Many supporters of aggressive anti-poverty efforts take umbrage at any suggestion that government aid might discourage the poor from engaging in productive activities. They imagine an implication that the poor are “lazy”, perfidious or otherwise undeserving of assistance. Whether that is a misunderstanding or merely rhetorical bite-back, the fact is that it is rational to respond to incentives and there is no shame in doing so. Unfortunately, many assistance programs contain incentive traps or income “cliffs” that discourage work effort. This applies to food stamps, rent subsidies, Obamacare subsidies, and many more of the 120+ federal aid programs and other state and local programs.

Here’s a new example from a research abstract posted at Marginal Revolution: The Medicaid expansion had very negative effects on labor force participation. The funding for Medicaid expansion at the state level was authorized by the Affordable Care Act (ACA) — aka Obamacare, but only about half the states went along with it. From the abstract:

“I find a significant negative relationship between Medicaid expansion and labor force participation, in which expanding Medicaid is associated with 1.5 to 3 percentage point drop in labor force participation.“

The direction of impact is hardly unique, and as Tyler Cowen notes at the link:

“Work is good for most people, and it is even better for their future selves, and their future children too.“

The negative impact of Obamacare is more massive than the estimate above might suggest. Veronique de Rugy at Reason.com discusses how “Federal Programs Keep People Poor“. While most of her article is about the negative impact of high marginal tax rates on the employment prospects of the poor, she also recalls an ugly CBO estimate of the ACA’s impact:

“In 2014, the Congressional Budget Office—Congress’ official fiscal scorekeeper—revised its original estimate to report that because of the law, by 2024 the equivalent of 2.5 million Americans who were otherwise willing and able to work will have exited the labor force.“

There are several different channels through which the negative effects of the ACA operate: Small employers are incented to limit their hiring and the hours of employees, and federal subsidies (and sometimes state benefits) are available to individuals only so long as they remain below certain income thresholds. Again, this is typical of many government aid programs (the Earned Income Tax Credit (EITC) being an exception). More from de Rugy:

“When the government takes away a person’s benefits as his income goes up, it has the same effect as a direct tax. And remember, when you tax something, you usually get less of it. That means these programs can actually hinder income mobility: In order to continue receiving their government cash, individuals are forced to limit the amount they earn. Thus, they have an incentive not to try to climb the income ladder by putting in extra hours or signing up for job training and educational programs.“

Mises Wire recently carried a reprint of an essay by the great Henry Hazlitt, “How To Cure Poverty“. The gist of Hazlitt’s argument is that government largess simply cannot create wealth for society, but only diminish it. The mere process of redistributing the current “pie” consumes resources, but that is minor compared to the future reduction in the size of the pie brought on by the terrible incentives inherent in income taxation and many government benefit programs:

“The problem of curing poverty is difficult and two-sided. It is to mitigate the penalties of misfortune and failure without undermining the incentives to effort and success. … The way to cure poverty is … through … the adoption of a system of private property, freer trade, free markets, and free enterprise. It was largely because we adopted this system more fully than any other country that we became the most productive and hence the richest nation on the face of the globe. Through this system more has been done to wipe out poverty in the last two centuries than in all previous history.“

Harvard professors Edward Glaeser and Andrei Schleifer have written about “The Curley Effect: The Economics of Shaping the Electorate“, which posits that redistributive policies that are harmful to constituents can be rewarding to politicians. The paper deals with policies that encourage emigration of affluent voters away from cities, but which nevertheless reward politicians by increasing the proportion of their political base in the remaining constituency. It seems to apply very well to many major cities in the U.S. However, it certainly applies more broadly, across states and nations, when affluent people and their capital are mobile while the less affluent are not, especially when benefits are at stake. It’s no secret that promises of benefits are often attractive to voters in the short run, even if they are harmful and unsustainable in the long run.

The welfare state appears to have helped to sustain many of the poor at an improved standard of living after accounting for benefits, or it has prevented them from falling into “deep poverty”. However, it hasn’t succeeded in lifting the poor out of dependency on the state. Pre-benefit poverty rates are about the same as they were the late 1960s. In addition, Christopher Jencks observes that the “Very Poor” have in fact become poorer. That’s discussed in his review of “$2.00 a Day: Living on Almost Nothing in America” by Kathryn Edin and Luke Shaefer. Jencks presents statistics showing that those in the lowest two percentiles of the income distribution have suffered a fairly sharp decline in income since 1999. Many of these extremely poor individuals do not avail themselves of benefits for which they could qualify. In addition, the EITC requires earned income. A job loss is a wage loss and, if it goes on, a loss of EITC benefits. Unfortunately, work requirements are more difficult to meet in the presence of wage floors and other distortions imposed by heavy-handed regulation.

A guaranteed national income has become a hot topic recently. Michael Tanner weighs in on “The Pros and Cons…” of such a program. There are many things to like about the idea inasmuch as it could sweep away many of the wasteful programs piled upon each other over the years. It is possible to construct a sliding-scale guarantee that would retain positive incentives for all, as Milton Friedman demonstrated years ago with his negative income tax concept. However, as Tanner points out, there are many details to work out, and the benefits of the switch would depend upon the incentive structure built into the guarantee. As a political plaything, it could still be dangerous to the health of the economy and an impediment to income mobility. Don Boudreaux has registered objections to a guaranteed income, one of which is based on strengthening the wrongheaded argument that we derive all rights from government. Even more interesting is David Henderson’s take on a basic income guarantee. He finds that the budgetary impact of a $10,000 guarantee would equate to a 30% increase in government spending, and that assumes that it replaces all other assistance programs! Henderson also discusses the public choice aspects of income guarantees, as well as moral objections, and he concludes that there are strong reasons to reject the idea on libertarian grounds.

The economy is riddled with too many subsidies, penalties and bad incentives that distort the behavior of various groups. The well-to-do often benefit from subsidies that are every bit as distortionary as those inherent in many public assistance programs. They should all be swept away to restore a dynamic economy with the potential to lift even more out of poverty. There could be a role for a guaranteed income on the grounds that it is better than what we’ve got. But we should recall the words of Hazlitt, who reminded us that we’ve come so far on the strength of property rights, private initiative, and free trade. Left unfettered, those things can take us much farther than the ugly pairing of beneficence and coercion of the government behemoth.

Health Care Devolution and Monopoly

02 Thursday Jun 2016

Posted by Nuetzel in Health Care, monopoly, Obamacare

≈ Leave a comment

Tags

Accountable Care Organizations, Adverse Risk Pools, Affordable Care Act, Bend the Cost Curve, Bronze Plan, Death Spiral, ER Utlization, Health Care Monopolization, Insurer Attrition, Insurer Consolidation, Non-Profit Monopoly, Obamacare, Provider Consolidation, Risk corridors, Subsidies, United Health Care

Risk Pool

Obamacare and its boosters are trying to come to grips with several new blows. Last month, United Health Care (UHC) announced that it would not participate in the Obamacare exchanges in the 2017 plan year. The announcement offers confirmation that the Affordable Care Act (ACA) is plagued by adverse selection on the exchanges it authorized, and the spiral will only get worse. This is emphasized in “Five Things ACA Supporters Don’t Want You To Know“: other carriers are struggling and will be forced to accept UHC’s adverse risk pool; premiums must increase; more carriers will bail out; and quality of coverage will continue to decline because the ACA effectively punishes more comprehensive coverage.

Those insurers would have bailed sooner if not for subsidies they’ve been receiving from the federal government on individuals with incomes up to various multiples of the poverty line. However, the funding of a portion of those subsidies was ruled unconstitutional in federal appeals court in May. A deposition from a senior IRS official indicates that the Obama Administration was warned in early 2014 that it had no authority to make the payments, advice that it summarily dismissed. That’s on top of new lawsuits by insurers who say they were shorted by a wide margin on “risk corridor” payments owed to them by the federal government under Obamacare. The risk corridors, which supposedly cover a portion of aggregate losses on health exchange business, will expire after this year, just one the reasons to expect large premium hikes for next year.

As insurers drop out of the Obamacare exchanges, consumers will be forced to deal with a less competitive landscape. About half of the so-called coops on the exchanges had failed by the end of last year. A consequence of this attrition is that the range of coverage available to consumers will shrink:

“One BlueCross BlueShield subsidiary in Virginia has already filed plans to get out of the bronze plan, according to Inside Health Policy, and other insurers will follow suit if BCBS succeeds. That will destabilize the markets further, as one analyst told Leslie Small at Fierce Health Payer, because most of the younger and healthier participants in these risk pools have chosen bronze plans – and would likely bail out rather than pay higher premiums for insurance that they hardly ever use.“

Obamacare also fosters monopolization in the delivery of medical care. A pernicious effect is that local health-care markets are increasingly dominated by a single so-called “non-profit” hospital organization:

“Researchers at Johns Hopkins and Washington and Lee Universities report that seven of America’s 10 most profitable hospitals are officially not for profit. … That status entitles them to huge state and federal tax breaks — whose value has doubled in recent years — for ‘charity care and community benefit.’ … A for-profit outlet will pay taxes and returns to investors. Nonprofits wind up paying huge sums to executives — and plowing cash into gaining more market share.“

Non-profit status does not preclude monopolistic behavior. These institutions possess:

“… enormous leverage when setting prices and negotiating reimbursement from private insurers — whose hands are tied because they need those hospitals to be part of their network to attract paying customers. … As Dr. Marty Makary of Johns Hopkins wrote in The Wall Street Journal back in 2014: ‘When you’re the only game in town, you call the shots.’“

It’s no coincidence that Obamacare rewards consolidation of health care providers through so-called Accountable Care Organizations (ACOs). That’s helped to drive the disappearance of independent physician practices in recent years. Those physicians are Increasingly employed by hospitals at which they can meet standardized quality measures more easily. The medical establishment maintains that ACOs will “bend the cost curve”… someday. But in the meantime, it’s not happening: the quality measures don’t provide good measures of health outcomes, and they inhibit innovation.

“For one thing, outcomes themselves are not easy to measure. An 80-year-old goes to the doctor with back pain. What is the best outcome? No pain? That’s probably impossible to achieve with even the highest quality care. Less pain? Maybe. But what does that mean and how do you measure it from patient to patient?

Then there is the matter of adjusting those scores for the severity of the disease and the social and economic status of the patient. This matters because low-income patients often struggle to manage their follow-up care or may be unable to afford medications. Such ‘risk adjustment’ is even harder to do with older adults with multiple chronic conditions.“

Even worse, while Obamacare seeks to broaden the market for health care to include those for whom good health coverage is otherwise out of reach, there is evidence that it is not truly improving access to health care. First, the kinds of policies that have been mandated provide relatively “thin” coverage, with high deductibles and copayment rates. Even when subsidized on the exchanges, many of the insured find actual health care payments to be prohibitive. Little wonder that emergency room utilization (where care must be provided regardless of ability to pay) has climbed under Obamacare, contrary to the early assertions of proponents. Second, many of the newly insured are covered by Medicaid, but low physician reimbursement rates have diminished the number of physicians willing to serve that market. Finally, while Obamacare increases the demand for provider services, it does not bring forth its own supply. A provider shortage is expected to continue to grow more severe over the next ten years.

The dual markets for health coverage and health care itself are becoming less competitive under Obamacare. The central planning inherent in the law effectively tossed the most potent forces available for reducing health care costs and expanding coverage: market competition and innovation. Higher prices represent only one avenue for the release of pressures created by mandates; shortfalls in access and the quality of care are others. While the medical establishment and regulators insist that safeguards are in place, it’s a safe bet that monopoly and central planning will have their usual dire effects.

What Does Government Give Your Gig?

28 Saturday May 2016

Posted by Nuetzel in Labor Markets, Obamacare

≈ Leave a comment

Tags

ACA, Affordable Care Act, Bending the Cost Curve, Contractor or Employee, Employee Status, Employer Mandate, Federal Health Care Exchange, Health Care Tax Credit, High Deductible, Individual Mandate, Labor Market Distortions, Obamacare, Obamacare Subsidies, United Health Care

An “employee” is different than a “contractor”, but those designations are often not very different in terms of job function. Are they different enough that large government subsidies and penalties should depend on the distinction? Economist John C. Goodman explains why that question deserves a resounding “NO”!

Here’s an example: consider two individuals who perform the same job function and earn an identical wage of $13 per hour. One is an employee and the other is an independent worker under contract to the same company. The employee faces a high premium on the minimum health insurance policy mandated by Obamacare, which can carry a deductible of over $13,000 for a young, healthy family. The employee can pay the premium using pre-tax dollars, which provides some savings. The taxes saved are a subsidy, but an employee refusing coverage must pay a tax penalty under Obamacare. The contractor, on the other hand, might well qualify for subsidies on the Obamacare exchange, saving about 95% of the cost of the policy. Both individuals are subsidized, but the contractor gets considerably more in this case.

Now consider two individuals who earn $40 per hour, again an employee and a contractor. They are in a relatively high tax bracket. The contractor earns too much to qualify for Obamacare subsidies on the exchange but faces a tax penalty without coverage. The employee gets health coverage, albeit with a high deductible, paying pre-tax dollars at a significant discount. This time, the employee gets a big subsidy.

So essentially identical individuals are treated much differently. As Goodman says, that is terrible policy. Today, the distinction between employees and contractors is increasingly flimsy in terms of the services performed, and it is often a matter of convenience for employers and employees alike. Moreover:

“… even though the main purpose of the health reform was to insure the uninsured, the law in many ways encourages a great many people to be uninsured – the fine is often much less than the cost of very unattractive insurance. … current policy encourages everyone to game the system: Stay uninsured when healthy and then rearrange your work relationships if you get sick.“

As Goodman notes, health coverage isn’t the only area in which this antiquated definition of the work relationship matters. His solution is to do away with the distinction between employees and non-employee workers altogether, eliminate the deductibility of health premiums for employees, end the Obamacare exchange subsidies, and instead provide a straight tax credit to every individual for the purchase of private health coverage. Loath as I am to admit any role for government in providing subsidies to other than the destitute, Goodman’s idea would at least level the subsidies without arbitrary distinctions and gaming of the system.

Similar considerations apply to arbitrary rules governing the distinction between full-time and part-time workers. The Obamacare employer mandate includes requirements on both the number of “employees” at a firm and an employee’s hours worked. Incentives are such that a change in the number of hour per week can dramatically alter the obligations of an employer and the government benefits available to workers (not to mention penalties to both), distorting economic outcomes in the productive sector of the economy. Limit the number of employees on your payroll and limit their hours if you want to avoid obligations. The negative impact on growth is particularly damaging to the self-sufficiency of low-income individuals. Again, government should remain neutral and stay out of regulating private labor transactions.

Obamacare is a mess on its own terms. Recall that it was to allow Americans with health insurance coverage to “keep their plans” if they chose to; it was to “bend the cost curve” in health care and insurance costs; and it was to provide coverage for the uninsured. Instead, Obamacare has disrupted insurance coverage for millions of Americans; created incentives for employers to reduce hours and employees; led to higher health care and insurance costs, created an adverse selection problem on the health care exchanges that threatens their sustainability; and more than 30 million Americans remain uninsured. The crucial role assigned by Obamacare to the formal relationship of workers to their hiring organizations has created perverse results.

Government should remain neutral in defining economic relationships. Allowing private actors to make their own informal arrangements or formal contracts is preferable both in terms of efficiency and fairness. Only they know the true economic realities “on the ground”. The distortions imposed by detached external rulemakers governing the assignment of benefits are damaging and make adjustment to those realities more costly for everyone.

Borkians Preserve Federal Obamacare Subsidies

29 Monday Jun 2015

Posted by Nuetzel in Obamacare

≈ Leave a comment

Tags

ACA, Administrative State, Affordable Care Act, Chief Justice Roberts, Damon Root, Ilya Shapiro, Judicial Activism, Judicial Restraint, King vs. Burwell, Obamacare, Randy Barnett, Robert Bork, Robert Laszlewski, SCOTUS, SCOTUSblog, Tyler Cowen

I have mixed feelings about the Supreme Court’s King vs. Burwell decision upholding federal subsidies for health insurance purchased in states that did not establish their own exchanges. My biggest concerns are that the decision gives a pass to the unchecked exercise of executive fiat as well as congressional carelessness (“lassitude”, to use Justice Scalia’s term), and the smearing of the separation of legislative and judicial powers. I admit that I was eager to see the exchanges unravel under the weight of their own lousy economics. However, the economics remain lousy even with the ruling, which will become more evident as major subsidies to health insurers expire over the next 18 months. It will be interesting to watch as the process of escalating premia plays out. I’m relieved that the Obamacare opposition in Congress (primarily Republicans) is now off the hook. These legislators never coalesced around an alternative and would have received a good portion of the blame for any further disruptions in the insurance “market” had the decision gone the other way. Probably their best approach would have been to extend the subsidies to all exchanges, at least for the remainder of Obama’s term. As Tyler Cowen notes, an extension would have occurred:

“… only after a lot of political stupidity and also painful media coverage. So on net I take this to be good news, although arguably it is bad news that it is good news.“

On the merits of health care policy, given the failure to put forward a better plan, what would have been gained over the next 18 months from a ruling for the plaintiffs? Not much.

Cowen links to a Robert Laszlewski post emphasizing the fragile economic and political condition of Obamacare:

“Obamacare has only enrolled about 40% of the subsidy eligible market in two years worth of open enrollments. That level of consumer support does not make Obamacare either financially sustainable or politically sustainable. The surveys say the 40% who have enrolled like their plans. Of course they do, they are the poorest with the biggest subsidies and the lowest deductibles. The working and middle-class have most often not signed up for Obamacare because it costs too much and delivers too little.

That Obamacare is not financially sustainable is evidenced by the first wave of big 2016 rate increases by so many large market share insurers. The next wave of rate increases a year from now will also be large and will be in the middle of the 2016 election.“

The SCOTUS decision flies in the face of the roles and responsibilities assigned to the branches of government by the Constitution. The implication of the ruling is that a law means whatever the executive branch says it means, even when it says the opposite unambiguously. This goes too far in granting executive power to “reimagine” legislation, and the Left may well come to regret it as a precedent. Executive rulings in implementing laws is nothing new, but one hopes for the courts to keep a tight rein on this discretion in an era when the regulatory environment is growing increasingly complex.

A Randy Barnett post at SCOTUSblog quotes Chief Justice Roberts’ opinion:

“Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.“

Improve health care markets? Not destroy them? Wait… I’m confused! But seriously, at this point in the process, Justice Roberts must be confused about actual outcomes. An objective assessment of Obamacare would include an accounting for the many individuals whose policies were cancelled against their wishes, premium escalation, and the fact that the ACA has fallen well short of expectations for reducing the number of uninsured; the law has certainly not improved markets. Barnett describes Roberts’ apparent philosophy on this point thusly:

“... the Chief Justice seems to be telling us that he is once again putting a thumb on the scale for the government here as he did in his solo opinion in NFIB. Rather than assessing the constitutionality of the law as written – or enforcing it according to its terms – the court will rewrite the law to suit the government.”

This is not merely “legislative deference”, it is legislative rescue and a rewriting of the law. And Barnett points out that the Courts should provide a check on bad legislation, not serve as enablers.

Damon Root offers an excellent clarification of Roberts’ thinking: the strand of conservative judicial philosophy calling for deference to legislative intent is often attributed to Robert Bork. This obviously conflicts with the notion that conservatives are judicial activists. I discussed judicial activism here a few months ago, including Randy Barnett’s assertion that the term seems to be invoked as a pejorative almost any time someone doesn’t like a court decision. If it means preserving the Constitution, then count me as an activist.

Ilya Shapiro sums up the “intent” of the legislation and the “deferential” position taken by the court in King vs. Burwell:

“Roberts explains his transmogrification by finding it ‘implausible that Congress meant the Act to operate in this manner,’ to deny subsidies to millions of people as part of legislation intended to expanded coverage. But it’s hardly implausible to think that legislation that still says that states ‘shall’ set up exchanges—the drafters forgot to fix this bit after lawyers pointed out that Congress can’t command states to do anything—would effectively give states an offer nobody thought they’d refuse. It was supposed to be a win-win: states rather than the federal government would run health care exchanges (yay federalism!) and all those who need subsidies to afford Obamacare policies would get them (yay universal healthcare!).

But a funny thing happened on the way to utopia, and only 14 states (plus D.C.) took that too-tempting offer, perhaps having been burned too many times before by the regulations that accompany any pots of “free” federal money. And that’s why we ended up with King v. Burwell: Obamacare the reality doesn’t accomplish Obamacare the dream.“

We’ll watch to see how badly Obamacare fares over the next two years. And we’ll hope that eventually Congress can fashion a new health care plan that creates more choice, reduces taxes, increases competition and reduces coercive rules and regulatory burdens.

More Unpleasant Obamacare Arithmetic

15 Monday Jun 2015

Posted by Nuetzel in Obamacare, Uncategorized

≈ Leave a comment

Tags

adverse selection, Affordable Care Act, Death Spiral, Expanded Medicaid eligibility, Forbes, Obamacare, Political Calculations, Reinsurance program, Risk corridors, Robert Laszewski

States with expanded Medicaid eligibility may be more vulnerable to adverse selection, hastening the death spiral of their Obamacare insurance exchanges relative to states without expanded Medicaid. This is because 1) the expanded, eligible Medicaid population is young, and 2) pricing (net of subsidies) and benefits on the exchanges encourage sicker individuals to purchase plans with richer benefits. The Political Calculations blog presents this case in “How Medicaid’s Expansion Tips the Scales Against Obamacare“:

“… we observe that the states that did not expand their Medicaid programs have a much larger share of their ACA-enrollment occurring in the lower-tier metal plans that would tend to be favored by healthier individuals. Meanwhile, in the states that expanded the enrollment of their Medicaid programs under the law, we find that a significantly larger portion of their ACA enrollments were in the plans that would be favored by less healthy individuals.

In fact, we see that in Medicaid expansion states, 13.2% of their ACA enrollment occurred in the highest-tier Gold and Platinum level plans, while non-Medicaid expansion states saw 7.7% of their enrollment for these highest tiers of health insurance coverage.

The seemingly small 5.5% difference between these two figures becomes exceptionally significant when you consider how extremely concentrated health care expenditures are in the United States, where just 5% of U.S. patients are responsible for generating 50% of all health care spending in the nation.“

It will be difficult to confirm this hypothesis using data on premium increases, or actual exchange failure, until the temporary risk corridors and transitional reinsurance program expire. However, this year, several of the states in which proposed premium increases are the largest have expanded Medicaid eligibility. Robert Laszewski has a good discussion about some the reasons for the large premium increases in Forbes. It’s early and there are signs that it will get worse.

As noted last week on this blog, Medicaid itself does not stack up well in terms of how highly it is valued by recipients and the moral hazard inherent in the program. Here we see an additional bug: expanded Medicaid appears to siphoning away younger potential enrollees from the exchanges in those states, worsening the problem of adverse selection, which will negatively affect their claims experience.