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Posts Tagged ‘Obamacare’

In the grand scheme of things, the most important development in health policy is the pending Supreme Court case revolving around whether subsidies can be provided to people obtaining health insurance from the federal exchange, even though the law explicitly says handouts are only available to people getting policies via state exchanges.

If the Court rules correctly (unlike, ahem, the last time the Justices dealt with Obamacare), it will then be very important that congressional reformers use the resulting mess to unwind as much of the law as possible.

That will be a challenge because statists already are arguing that the “only” solution is to re-write the law so that subsidies are also available via the federal government. For what it’s worth, my colleague Michael Cannon outlines the right strategy in Cato’s newly released Policy Priorities for the 114th Congress.

But let’s set aside that issue because we have a great opportunity to review another example of how government-run healthcare is a miserable failure.

Our topic for today is government-dictated electronic health records (EHRs). Dr. Jeffrey Singer is on the front lines of this issue. As a physician in Arizona, he deals with the real-world impact of this particular mandate.

And he’s so unhappy that he wrote a column on the topic for the Wall Street Journal.

Starting this year, physicians like myself who treat Medicare patients must adopt electronic health records, known as EHRs, which are digital versions of a patient’s paper charts. …I am an unwilling participant in this program. In my experience, EHRs harm patients more than they help.

By way of background, he explains that EHRs were part of Obama’s failed “stimulus” legislation and they were imposed on the theory that supposed experts could then use the resulting data to make the system more efficient and effective.

The federal government mandated in the 2009 stimulus bill that all medical providers that accept Medicare adopt the records by 2015. Bureaucrats and politicians argued that EHRs would facilitate “evidence-based medicine,” thereby improving the quality of care for patients.

But Dr. Singer says the real-world impact is to make medical care less effective and more expensive.

Electronic health records are contributing to two major problems: lower quality of care and higher costs. The former is evident in the attention-dividing nature of electronic health records. They force me to physically turn my attention away from patients and toward a computer screen—a shift from individual care to IT compliance.The problem is so widespread that the American Medical Association—a prominent supporter of the electronic-health-record program—felt compelled to defend EHRs in a 2013 report, implying that any negative experiences were the fault of bedside manner rather than the program. Apparently our poor bedside manner is a national crisis, judging by how my fellow physicians feel about the EHR program. A 2014 survey by the industry group Medical Economics discovered that 67% of doctors are “dissatisfied with [EHR] functionality.” Three of four physicians said electronic health records “do not save them time,” according to Deloitte. Doctors reported spending—or more accurately, wasting—an average of 48 minutes each day dealing with this system.

Here’s what he wrote about costs.

The Deloitte survey also found that three of four physicians think electronic health records “increase costs.” There are three reasons. First, physicians can no longer see as many patients as they once did. Doctors must then charge higher prices for the fewer patients they see. This is also true for EHRs’ high implementation costs—the second culprit. A November report from the Agency for Healthcare Research and Quality found that the average five-physician primary-care practice would spend $162,000 to implement the system, followed by $85,000 in first-year maintenance costs. Like any business, physicians pass these costs along to their customers—patients. Then there’s the third cause: Small private practices often find it difficult to pay such sums, so they increasingly turn to hospitals for relief. In recent years, hospitals have purchased swaths of independent and physician-owned practices, which accounted for two-thirds of medical practices a decade ago but only half today. Two studies in the Journal of the American Medical Association and one in Health Affairs published in 2014 found that, in the words of the latter, this “vertical integration” leads to “higher hospital prices and spending.”

Last but not least, Dr. Singer explains that electronic health records don’t reduce errors or increase efficiency, notwithstanding the claims of advocates.

The EHR system assumes that the patient in front of me is the “average patient.” When I’m in the treatment room, I must fill out a template to demonstrate to the federal government that I made “meaningful use” of the system. This rigidity inhibits my ability to tailor my questions and treatment to my patient’s actual medical needs. It promotes tunnel vision in which physicians become so focused on complying with the EHR work sheet that they surrender a degree of critical thinking and medical investigation. Not surprisingly, a recent study in Perspectives in Health Information Management found that electronic health records encourage errors that can “endanger patient safety or decrease the quality of care.” America saw a real-life example during the recent Ebola crisis, when “patient zero” in Dallas, Thomas Eric Duncan, received a delayed diagnosis due in part to problems with EHRs.

Wow, not exactly an uplifting read.

Indeed, Dr. Singer’s perspective is so depressing that I hope he’s at least partially wrong. Maybe after a couple of years, and with a bit of luck, doctors will adapt and we’ll get some benefits in exchange for the $20 billion-plus of taxpayer money that has been plowed into this project (not to mention all the time and expense imposed on the medical profession).

But the big-picture lesson to be learned is that planners, politicians, and bureaucrats in Washington should not be in charge of the healthcare system.

Which brings us to the real challenge of how to put the toothpaste back in the tube.

Government intervention is so pervasive in the healthcare sector that – with a few rare exceptions – normal market forces have been crippled.

As such, we have a system that produces higher and higher costs accompanied by ever-rising levels of inefficiency.

Amazingly, the statists then argue that more government is the only solution to this government-caused mess. Sort of Mitchell’s Law on steroids.

But that path leads to single-payer healthcare, and the horror stories from the U.K. should be enough to show any sensible person that’s a bad outcome.

The only real solution is to restore a free market. That means not only repealing Obamacare, but also addressing all the other programs and policies which have caused the third-party payer crisis.

P.S. Just like yesterday, I want to finish a grim column with something uplifting.

Here’s a sign that will irk statists driving through one part of Pennsylvania.

Now take the IQ test for criminals and liberals and decide whether this means more crime or less crime.

If you’re having trouble with the answer, here’s a hint from Chuck Asay.

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Way back in 2010, immediately after Obamacare was rammed down our throats, I put together four guiding principles for a counter-offensive.

One of my goals was to help people understand that the problem was far greater than Obamacare. Indeed, the so-called Affordable Care Act was merely another step on a long (and very bad) journey to healthcare statism.

The way to think of Obamacare is that we are shifting from a healthcare system 68 percent controlled/directed by government to one that (when all the bad policies are phased in) is 79 percent controlled/directed by government. Those numbers are just vague estimates, to be sure, but they underscore why Obamacare is just a continuation of a terrible trend, not a profound paradigm shift.

Two years ago, I elaborated on this thesis and even put together a couple of charts to emphasize the point.

Obamacare was enacted in 2010, and it was perceived to be a paradigm-shifting change in the healthcare system, even though it was just another layer of bad policy on top of lots of other bad policy. Immediately after the legislation was approved, I offered a rough estimate that we went from a system that was 68 percent dictated by government to one that was 79 percent dictated by government. …all of the same problems still exist, but now they’re exacerbated by the mistakes in Obamacare.

My numbers were just vague approximations, of course, but I think the basic premise was spot on.

And my theory is still accurate. But you don’t have to believe me.

Writing for the Washington Examiner, Philip Klein makes the critical point that repealing Obamacare wouldn’t result in a free-market system.

Instead, we’d be stuck with the pre-Obamacare system that was decrepit because of already-existing programs, mandates, regulations, and other forms of intervention.

…repeal is not enough. Even if simple repeal were politically obtainable, Americans would still be left with a broken healthcare system. Government regulations would still be stifling competition and individual choice and government healthcare programs would still be driving the nation’s unsustainable long-term debt problem. If Republicans achieved repeal without agreeing on a way to reform healthcare along free market lines, it’s inevitable that Democrats would eventually lead another overhaul of the system that would grant even more power to the federal government.

Philip is totally correct.

Before Obamacare, we had a system that didn’t work very well because of government. But in a horrifying example of Mitchell’s Law, many people decided that more government was the solution to the problems already caused by government.

Hence, we got so mis-named Affordable Care Act.

But if Obamacare is repealed, we’ll simply be back in the same unstable situation. And Philip is right that the statists will then simply argued for a different type of government expansion. Probably single payer, notwithstanding all the horror stories from places such as the United Kingdom.

Some may argue at this point that it doesn’t really matter because Obama is in the White House with a veto pen, so critics have a couple of years to figure out their next step.

Maybe, but it’s also possible that the Supreme Court will (for a change of pace) make the right ruling on a key Obamacare case later this year. And this would probably force policy makers to re-open the law.

…a Supreme Court decision expected by late June could invalidate Obamacare subsidies for millions of Americans. If Republicans don’t have an alternative ready, congressional leaders will be under tremendous pressure to pass a simple “fix” that would allow the subsidies to continue to flow, thus further entrenching Obamacare before a Republican president theoretically is able to act in 2017. For these reasons and many others it’s important for Republicans to unite around an alternative to Obamacare.

Philip (who has an entire book on this issue) then proceeds to categorize Obamacare critics as being in three different camps on the issue of how to proceed.

The first approach comes from those who believe that fully repealing Obamacare is probably unrealistic, but who still see an opening to reform the overall healthcare system in a more market-oriented direction. I call this the Reform School. The second approach comes from a crowd that believes full repeal is a necessity, but can only occur if opponents of the law create a market-friendly alternative with enough financial assistance to make health insurance widely available to those Americans who want to purchase it. I call this the Replace School. And finally, there is a third approach, which advocates repealing the law, returning to pre-Obamacare levels of taxes and spending, and then using that clean slate as the basis to overhaul the system in a free market manner to bring down costs. I call this the Restart School.

Since I focus on fiscal policy issues rather than healthcare, I don’t know if there are substantive – or merely strategic – differences among these three groups.

But I will say (assuming you actually want to solve the problem) that at some point you have to deal with the government programs and interventions that have given us a third-party payer crisis.

So I will reiterate what I wrote back in 2010 as part of my proposed counter-offensive.

The only way to fix healthcare is to restore the free market. That means going back to a system where people pay out-of-pocket for most healthcare and use insurance to protect against genuine risk and catastrophic expenses. The time has come to reduce the size and scope of government. …Change Medicare into a system based on personal health accounts and shift all means-tested spending to the states. …the flat tax is ideal from a healthcare perspective since it gets rid of the healthcare exclusion in the tax code as part of a shift to a tax system with low rates and no double taxation.

This video, narrated by Julie Borowski for the Center for Freedom and Prosperity, looks at the Obamacare/third-party payer issue.

And if you want to examine some of the component issues of healthcare reform, we have videos on Medicaid, Medicare, and tax reform.

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One of the good things about working at the Cato Institute is that there’s never any pressure to put your thumb on the scale to help any political party.

Our loyalties are to libertarian principles, many of which are reflected in the Constitution, so we’re free to criticize or praise politicians based on their ideas rather than their partisan affiliation.

That’s why we criticized President Bush’s pro-centralization No Child Left Behind education scheme just as much as President Obama’s pro-centralization Common Core education scheme.

It’s also why I criticized Bush for being a big spender like Obama (indeed, Bush was a bigger spender, even for domestic programs!).

I’m giving this background because today I’m going to say something nice about Obamacare.

Not because I like the overall law, but because honesty is the best policy.

Regular readers know that our healthcare system is screwed up by bad government policy. More specifically, spending programs such as Medicare and Medicaid, combined with tax preferences and regulations that encourage over-insurance, have created a giant third-party payer problem.

Only 11 percent of health care spending in America is directly financed by consumers. The rest is paid for by taxpayers, insurance companies, and other third parties.

This has eviscerated the normal working of a competitive market. When people are spending their own money, they are careful and prudent. When they spend other people’s money, however, they are not overly concerned about cost.

As a result, we have a needlessly expensive system. And because third-party payer requires lots of administration and paper work, bad government policies also have caused absurd levels of inefficiency.

Well, there’s one small piece of Obamacare that actually is helping to mitigate this problem. The law includes a so-called Cadillac tax that caps the special tax preference for fringe benefits (if your employer provides you a health insurance policy as part of your compensation, that type of income isn’t taxed, unlike your cash wages).

And that reform is having a positive impact. Here are some passages from a Bloomberg story.

Large employers are increasingly putting an end to their most generous health-care coverage as a tax on “Cadillac” insurance plans looms closer under Obamacare. Employees including bankers at JPMorgan Chase & Co. (JPM) and college professors at Harvard University are seeing a range of moves to shift more costs to workers. …The tax takes effect in 2018, and employers are already laying the groundwork to make sure they don’t have to pay the 40 percent surcharge on health-insurance spending that exceeds $27,500 for a family or $10,200 for an individual. Once envisioned as a tool to slow the nation’s growing health-care tab, the tax has in practice meant higher out-of-pocket health-care costs for workers.

The last sentence in the excerpt, by the way, is economically illiterate.

The Cadillac tax will restrain health spending because it means higher out-of-pocket costs for consumers. They are going to have more authority and responsibility of how to spend their own money.

Think of this analogy. Will you eat more if I give you $25 to buy a meal or if I give you a pre-paid voucher for a $25 all-you-can-eat buffet?

If you’re a normal person, you’ll take the $25 cash, buy a meal for less than that amount, and save the extra money for something else.

But if you’re given a pre-paid voucher for the buffet, you’ll pig out because there’s no additional cost for consuming more items.

And the Bloomberg story includes evidence that giving consumers more control over their income is having the predicted positive effect.

The tax on Cadillac plans — named after the luxury vehicle to denote their lavishness — is one reason the growth in health-care premiums has slowed since the Patient Protection and Affordable Care Act took effect in 2010. …The tax “is having the effect that was intended, which is the cost of these plans are being reduced,” Christopher Condeluci, a former Senate Republican aide who helped design it, said in a phone interview. …Premium increases for employer-provided health insurance, which covers about 48 percent of Americans, “slowed markedly” in 31 states since 2010, the year the Affordable Care Act became law, the New York-based Commonwealth Fund reported today. Nationally, premium growth fell by about a percentage point after the law, to 4.1 percent a year on average, the report said.

By the way, I should hasten to add that I’m not happy about the way the Cadillac tax was adopted, for a major reason and a minor reason.

The major reason is that it was part of a law that is otherwise a very expensive disaster.

The minor reason is that, for reasons of both good tax policy and good health policy, I want to eliminate loopholes and tax preferences only if we can use every penny of revenue to finance lower tax rates.

And that’s exactly what you get with a flat tax, which is a system where you don’t even need a Cadillac tax because there’s no healthcare exclusion.

Under Obamacare, by contrast, the Cadillac tax limits the healthcare exclusion, but politicians used the money to finance bigger government.

Now let’s say something bad about Obamacare.

John Goodman of the Independent Institute has a column in today’s Wall Street Journal. He points out that the law is hurting many of the people it was supposed to help.

…the law is already hurting some of the people it was intended to help. By this time next year, we may find that many workers who earn within a few dollars of the minimum wage have less income and less insurance coverage (as a group) than they did before the mandate began to take effect.

How does John justify these assertions?

Because he did some real-world research, surveying 136 fast-food restaurants with 3,500 employees.

The results are not encouraging, at least for the workers.

Before 2014 about half the employees were “full time” as defined by ObamaCare; that is, they worked 30 hours or more a week. The potential cost to the employers of providing mandated health insurance to their full-time staff would have been about $7 million a year. But by the time the employers took advantage of all their legal options they were able to reduce their cost to less than 1% of that amount. The first step was to make all hourly workers part time. …workers in the survey whose hours were reduced to part time…can get subsidized insurance through an exchange, but they will be asked to pay up to 9.5% of their income for what is unattractive coverage. Some of them previously had mini-med plans, but this kind of insurance is no longer available to them. …Those few remaining full-time employees will get mini-med insurance for themselves, but they are unlikely to be able to afford coverage for any dependents they have. They will not get an ObamaCare bronze plan unless they fork over about one-tenth of their take-home pay, and they won’t be able to get bronze coverage for other family members unless they forfeit more than half their income. Out of 3,500 employees, only one that we know of got the kind of insurance that the architects of the Affordable Care Act wanted everyone to have.

One out of 3,500? Sounds like the typical success rate for a government program.

But we shouldn’t joke. It’s not funny that low-income workers are being hurt. Just like it’s not funny that young adults, retirees, and kids are being disadvantaged by Obamacare as well (on the other hand, it is somewhat amusing that politicians, IRS agents, and Harvard professors are upset about the law).

The bottom line is that an overwhelming percentage of Obamacare provisions make the healthcare system more expensive and less effective.

Yes, there are some positive effects of the Cadillac tax, but those are easily offset by all the features of the law that increase the size and scope of government.

P.S. Since I mentioned that third-party payer has messed up our healthcare system and caused prices to rise, I should point out that there are a few sectors where consumers are still in charge. And in those areas, such as cosmetic surgery and abortion, prices are falling in relative terms.

P.P.S. The folks at Reason TV put together a must-watch video on how a hospital can be more efficient and affordable in the absence of third-party payer.

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Four years ago, I put together some New Year’s Day Resolutions for the GOP.

Three years ago, I made some policy predictions for the new year.

But since I obviously don’t control Republicans and since I freely admit that economists are lousy forecasters, let’s do something more practical to start 2015.

Let’s simply look at three very important things that may happen this year and what they might mean.

1. Will the Republican Senate support genuine entitlement reform?

One of the best things to happen in recent years is that House Republicans embraced genuine entitlement reform. For the past four years, they have approved budget resolutions that assumed well-designed structural changes to both Medicare and Medicaid.

There were no real changes in policy, of course, because the Senate was controlled by Harry Reid. And I’m not expecting any meaningful reforms in 2015 or 2016 because Obama has a veto pen.

But if the Republican-controlled Senate later this year approves a budget resolution with the right kind of Medicare and Medicaid reform, that would send a very positive signal.

It would mean that they are willing to explicitly embrace the types of policies that are desperately needed to avert long-run fiscal crisis in America.

I don’t even care if the House and Senate have a conference committee and proceed with actual legislation. As I noted above, Obama would use his veto pen to block anything good from becoming law anyhow.

My bottom line is simple. If GOPers in both the House and Senate officially embrace the right kind of entitlement reform, then all that’s needed is a decent President after the 2016 elections (which, of course, presents an entirely different challenge).

2. Will there be another fiscal crisis in Greece (and perhaps elsewhere in Europe)?

The European fiscal crisis has not gone away. Yes, a few governments have actually been forced to cut spending, but they’ve also raised taxes and hindered the ability of the private sector to generate economic recovery.

And the spending cuts in most cases haven’t been sufficient to balance budgets, so debt continues to grow (in some cases, there have been dramatic increases in general government net liabilities).

Sounds like a recipe for further crisis, right? Yes and no.

Yes, there should be more crisis because debt levels today are higher than they were five years ago. But no, there hasn’t been more crisis because direct bailouts (by the IMF) and indirect bailouts (by the ECB) have propped up the fiscal regimes of various European nations.

At some point, though, won’t this house of cards collapse? Perhaps triggered by election victories for anti-establishment parties (such as Syriza in Greece or Podemos in Spain)?

While I’m leery of making predictions, at some point I assume there will be an implosion.

What happens after that will be very interesting. Will it trigger bad policies, such as centralized, European-wide fiscal decision-making? Or departures from the euro, which would enable nations to replace misguided debt-financed government spending with misguided monetary policy-financed government spending?

Or might turmoil lead to good policy, which both politicians and voters sobering up and realizing that there must be limits on the overall burden of government spending?

3. If the Supreme Court rules correctly in King v. Burwell, will federal and state lawmakers react correctly?

The Supreme Court has agreed to decide a very important case about whether Obamacare subsidies are available to people who get policies from a federal exchange.

Since the law explicitly states that subsidies are only available through state exchanges (as one of the law’s designers openly admitted), it seems like this should be a slam-dunk decision.

But given what happened back in 2012, when Chief Justice Roberts put politics above the Constitution, it’s anybody’s guess what will happen with King v Burwell.

Just for the sake of argument, however, let’s assume the Supreme Court decides the case correctly. That would mean a quick end to Obamacare subsidies in the dozens of states that refused to set up exchanges.

Sounds like a victory, right?

I surely hope so, but I’m worried that politicians in Washington might then decide to amend the law to officially extend subsidies to policies purchased through a federal exchange. Or politicians in state capitals may decide to set up exchanges so that their citizens can stay attached to the public teat.

In other words, a proper decision by the Supreme Court would only be a good outcome if national and state lawmakers used it as a springboard to push for repeal of the remaining parts of Obamacare.

If, on the other hand, a good decision leads to bad changes, then there will be zero progress. Indeed, it would be a big psychological defeat since it would represent a triumph of handouts over reform.

I guess I’m vaguely optimistic that good things will happen simply because we’ve already seen lots of states turn down “free” federal money to expand Medicaid.

P.S. Let’s close with some unexpected praise for Thomas Piketty. I’m generally not a fan of Monsieur Piketty since his policies would cripple growth (hurting poor people, along with everyone else).

But let’s now look at what France 24 is reporting.

France’s influential economist Thomas Piketty, author of “Capital in the 21st Century”, on Thursday refused to accept the country’s highest award, the Legion d’honneur… “I refuse this nomination because I do not think it is the government’s role to decide who is honourable,” Piketty told AFP.

It’s quite possible, perhaps even likely, that Piketty is merely posturing. But I heartily applaud his statement about the role of government.

Just as I applauded President Hollande when he did something right, even if it was only for political reasons.

But let’s not lose sight of the fact that Piketty is still a crank. His supposedly path-breaking research is based on a theory that is so nonsensical that it has the support of only about 3 percent of economists.

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Exactly one year ago, we looked at the best and worst policy developments of 2013.

Now it’s time for a look back at 2014 to see what’s worth celebrating and what are reasons for despair.

Here’s the good news for 2014.

1. Gridlock – I’ve been arguing for nearly three years that divided government is producing better economic performance. To be sure, it would have been difficult for the economy to move in the wrong direction after the stagnation of Obama’s first two years, but heading in the wrong direction at a slower pace is better than speeding toward European-style statism.

Indeed, the fact that policy stopped getting worse even boosted America’s relative competitiveness, so there’s a lot to be thankful for when politicians disagree with each other and can’t enact new laws.

David Harsanyi explains the glory of gridlock for The Federalist.

Gross domestic product grew by a healthy 5 percent in the third quarter, the strongest growth we’ve seen since 2003. Consumer spending looks like it’s going to be strong in 2015, unemployment numbers have looked good, buying power is up and the stock market closed at 18,000 for the first time ever. All good things. So what happened? …the predominant agenda of Washington was doing nothing. It was only when the tinkering and superfluous stimulus spending wound down that fortunes began to turn around. …spending as a percent of GDP has gone down. In 2009, 125 bills were enacted into law. In 2010, 258. After that, Congress, year by year, became one of the least productive in history. And the more unproductive Washington became, the more the economy began to improve. …Gridlock has caused an odd, but pervasive, stability in Washington. Spending has been static. No jarring reforms have passed — no cap-and-trade, which would have artificially spiked energy prices and undercut the growth we’re now experiencing. The inadvertent, but reigning, policy over the past four years has been, do no harm.

Amen. Though I should hasten to add that while gridlock has been helpful in the short run (stopping Obama from achieving his dream of becoming a second FDR), at some point we will need unified government in order to adopt much-needed tax reform and entitlement reform.

The key question is whether we will ever get good politicians controlling both ends of Pennsylvania Avenue.

2. Restrained Spending – This is the most under-reported and under-celebrated news of the past few years, not just 2014.

Allow me to cite one of my favorite people.

In fiscal year 2009, the federal government spent about $3.52 trillion. In fiscal year 2014 (which ended on September 30), the federal government spent about $3.50 trillion. In other words, there’s been no growth in nominal government spending over the past five years. It hasn’t received nearly as much attention as it deserves, but there’s been a spending freeze in Washington. …the fiscal restraint over the past five years has resulted in a bigger drop in the relative size of government in America than what Switzerland achieved over the past ten years thanks to the “debt brake.” …The bottom line is that the past five years have been a victory for advocates of limited government.

And this spending restraint is producing economic dividends, though Paul Krugman somehow wants people to believe that Keynesian economics deserves the credit.

3. Limits on Unemployment Benefits – Although the labor force participation rate is still disturbingly low, the unemployment rate has declined and job creation numbers have improved.

The aforementioned policies surely deserve some of the credit, but it’s also worth noting that Congress wisely put a stop to the initiative-sapping policy of endlessly extending unemployment benefits. Such policies sound compassionate, but they basically pay people not to work and cause more joblessness.

Phil Kerpen of American Commitment elaborates, citing recent research from the New York Fed.

According to empirical research by the Federal Reserve Bank of New York: “most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility.” Those benefits finally ended at the end of 2013, triggering a sharp rise in hiring… Specifically, they found that the average extended unemployment benefits duration of 82.5 weeks for four years had the impact of raising the unemployment rate from 5 percent to 8.6 percent. …Good intentions are not enough in public policy.  It might seem kind and compassionate to spend billions of taxpayer dollars on “emergency” unemployment benefits forever, but the effect is to keep millions of people unemployed.  Results matter.

Phil’s right. If you pay people not to work, you’re going to get foolish results.

But the three above stories are not the only rays of sunshine in 2014. Honorable mention goes to North Carolina and Kansas for implementing pro-growth tax reforms.

I’m also pleased that GOPers passed the first half of my test and told the Democrat appointee at the Congressional Budget Office that he would be replaced. Now the question is whether they appoint someone who will make the long-overdue changes that are needed to get better and more accurate assessments of fiscal policy. That didn’t happen when the GOP had control between 1995 and 2007, so victory is far from assured.

And another honorable mention is that Congress has not expanded the IMF’s bailout authority.

Now let’s look at the three worst policy developments of 2014.

1. Obamacare Subsidies – Yes, Obamacare has been a giant albatross for the President and his party. Yes, the law has helped more and more people realize that big government isn’t a good idea. Those are positive developments.

Nonetheless, 2014 was the year when the subsidies began to flow. And once handouts begin, politicians get very squeamish about taking them away.

This is why I wrote back in 2012 that Obamacare may have been a victory (in the long run) for the left, even though it caused dozens of Democrats to lose their seats in the House and Senate.

I think the left made a clever calculation that losses in the last cycle would be an acceptable price to get more people dependent on the federal government. And once people have to rely on government for something like healthcare, they are more likely to vote for the party that promises to make government bigger. …This is why Obamacare – and the rest of the entitlement state – is so worrisome. If more and more Americans decide to ride in the wagon of government dependency, it will be less and less likely that those people will vote for candidates who want to restrain government.

Simply stated, when more and more people get hooked on the heroin of government dependency, I fear you get the result portrayed in this set of cartoons.

2. Continuing Erosion of Tax Competition – Regular readers know that I view jurisdictional competition as a very valuable constraint on the greed of the political class.

Simply stated, politicians will be less likely to impose punitive tax policies if the geese with the golden eggs can fly away. That’s why I cheer when taxpayers escape high-tax jurisdictions, whether we’re looking at New Jersey and California, or France and the United States.

But this also helps to explain why governments, either unilaterally or multilaterally, are trying to prevent taxpayers from shifting economic activity to low-tax jurisdictions.

And 2014 was not a good year for taxpayers. We saw further implementation of FATCA, ongoing efforts by the OECD to raise the tax burden on the business community, and even efforts by the United Nations to further erode tax competition.

Here’s an example, from the Wall Street Journal, of politicians treating taxpayers like captive serfs.

Japan could become the latest country to consider taxing wealthy individuals who move abroad to take advantage of lower rates. The government and ruling party lawmakers are considering an “exit tax”… Such a rule would prevent wealthy individuals moving to a location where taxes are low–such as Singapore or Hong Kong… some expats in Tokyo are concerned the rule could make companies think twice about sending senior professionals to Japan or make Japanese entrepreneurs more reluctant to go abroad.

My reaction, for what it’s worth, is that Japan should reduce tax rates if it wants to keep people (and their money) from emigrating.

3. Repeating the Mistakes that Caused the Housing Crisis – A corrupt system of subsidies for Fannie Mae and Freddie Mac, combined with other misguided policies from Washington, backfired with a housing bubble and financial crisis in 2008.

Inexplicably, the crowd in Washington has learned nothing from that disaster. New regulations are being proposed to once again provide big subsidies that will destabilize the housing market.

Peter Wallison of the American Enterprise Institute warns that politicians are planting the seeds for another mess.

New standards were supposed to raise the quality of the “prime” mortgages that get packaged and sold to investors; instead, they will have the opposite effect. …the standards have been watered down. …The regulators believe that lower underwriting standards promote homeownership and make mortgages and homes more affordable. The facts, however, show that the opposite is true. …low underwriting standards — especially low down payments — drive housing prices up, making them less affordable for low- and moderate-income buyers, while also inducing would-be homeowners to take more risk. That’s why homes were more affordable before the 1990s than they are today. … The losers, as we saw in the financial crisis, are borrowers of modest means who are lured into financing arrangements they can’t afford. When the result is foreclosure and eviction, one of the central goals of homeownership — building equity — is undone.

Gee, it’s almost as if Chuck Asay had perfect foresight when drawing this cartoon.

Let’s end today’s post with a few dishonorable mentions.

In addition to the three developments we just discussed, I’m also very worried about the ever-growing red tape burden. This is a hidden tax that undermines economic efficiency and enables cronyism.

I continue to be irked that my tax dollars are being used to subsidize a very left-wing international bureaucracy in Paris.

And it’s very sad that one of the big success stories of economic liberalization is now being undermined.

P.S. This is the feel-good story of the year.

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A couple of days ago, I wrote that Republicans should not be intimidated if the White House threatens a government shutdown.

Simply stated, prior shutdowns have yielded meaningful policy victories without causing measurable political damage.

This isn’t to say that the goal of any fiscal fight is a shutdown. Instead, my point is simply that Republicans shouldn’t strengthen the bargaining position of the White House by announcing that they will do whatever it takes to avoid a government shutdown.

This shouldn’t be a controversial assertion.

For instance, Obama could threaten that he won’t sign a spending bill unless Republicans agree to a top tax rate of 90 percent.* Do Republicans acquiesce to that demand?

Or what if the President says he will veto spending legislation if it doesn’t include nationalization of the oil industry. Or expanded Obamacare. Should the GOP say yes?

Based on the no-shutdown-for-any-reason rule, Republicans would have to surrender to these hypothetical demands. I’ve called this the “French Army” approach to budget policy since Obama always wins.

But that won’t happen. I’m guessing 90 percent-plus of GOP politicians and GOP-friendly pundits would agree that a line should be drawn in the sand based on the extreme examples I provided, even if it means a shutdown of the government because Obama vetoes a spending bill that doesn’t include those provisions.

In other words, Republicans presumably don’t actually believe in the no-shutdown-for-any-reason rule. Instead, they are simply signalling that they don’t think it makes sense to have a shutdown fight based on the fights that are likely to occur in the near future.

But that creates a problem for the GOP. In the short run, it means the White House gets to unilaterally grant amnesty to certain illegal aliens. More important (at least from my perspective as a fiscal policy wonk), it gives Obama the upper hand in battles that may take place next year over issues such as spending caps and Obamacare funding.

To their credit, Republican leaders recognize the problem, so they’re searching for a strategy that would achieve their objectives without a government-wide shutdown.**

A story in Politico lays out their most recent maneuvering.

Republican leaders have intensified their planning to prevent a government funding showdown, weighing legislative options that would redirect GOP anger at Barack Obama’s expected action on immigration and stave off a political disaster, according to sources involved with the sessions. …Speaker John Boehner, Senate Minority Leader Mitch McConnell and their top aides and deputies are mulling several options that would give Capitol Hill Republicans the opportunity to vent their frustration with what they view as an unconstitutional power grab by the White House — without jeopardizing the government financing bill. The options include…passing two separate funding bills — a short-term bill with tight restrictions on immigration enforcement agencies, and another that would fund the rest of the government until the fall.

I’m tempted to grouse about the reporter’s bizarre claim of “political disaster” for the GOP. After all, the recent mid-term elections were a huge victory for Republicans.

But let’s instead focus on the idea of having two spending bills, one that funds 99 percent of the government, presumably without controversy, and one that funds – with controversial restrictions – the relatively tiny parts of government that deal with immigration enforcement.

The story continues, pointing out that some sort of fight is inevitable.

…what exactly Republicans can do outside of the funding process to stop Obama remains an open question. Even if they had enough votes to pass a stand-alone bill, it would almost certainly be vetoed by Obama — and the GOP would likely lack the votes to overturn it.

So does this mean part of the immigration bureaucracy would be shut down for the rest of the fiscal year?

Presumably not, though it’s unclear whether Obama or Congress would have any incentive to compromise and strike a deal.

Regardless, some pundits like this potential strategy for the GOP. Ramesh Ponnuru, writing for Bloomberg, thinks it puts pressure on the Democrats.

Why not try to pass a funding bill that pays for all of the operations of the federal government except for Citizenship and Immigration Services, the agency in the Homeland Security Department that would carry out Obama’s order? They could then try to pass another bill that just funds that agency — but with a restriction saying no money can be used for the president’s amnesty. What would the Democrats do then? If they block a big funding bill that has nothing to do with immigration over the issue, it becomes hard to deny that they’re the ones shutting down the government to get their way. If they don’t block it, they’ll have no government shutdown to complain about — and the parties could move on to a more narrowly focused fight about the immigration budget.

And in a column for the Washington Examiner, Byron York also seems favorable toward the strategy.

…in January, with the GOP in control — and, presumably, Obama’s edict in hand — Republicans will work on crafting a new spending measure that funds the entire government, with the exception of the particular federal offices that will do the specific work of enforcing Obama’s order.

Byron assumes that Obama will sign the big bill that funds almost everything and then fight about the mini-bill funding the small part of the Department of Homeland Security that deals with immigration enforcement.

…the president will veto it. At that point, a shutdown battle could occur — but it would be a battle over shutting down the small part of the federal government tasked with enforcing the immigration order. Everything else would remain up and running.

So is this a successful approach, one that not only can derail Obama’s executive amnesty but also could be used for next year’s fiscal battles?

I’m not as confident as Ramesh and Byron for the simple reason that (if he asked me) I would tell Obama to veto the bill that funds 99 percent of the government and justify his actions by stating that he “won’t be blackmailed” by Congress.

Ramesh correctly points out in his column that the resulting shutdown won’t be the fault of Republicans, but will that be apparent to voters? Particularly in the midst of a battle when the establishment press will be acting as an echo chamber for White House talking points?

Maybe I’m wrong, but a government-wide shutdown seems like the most effective strategy for Obama. He won’t be asking my opinion, of course, but I’m sure he has plenty of advisers who would reach the same conclusion about how to proceed.

Which means that Republicans ultimately will have to decide whether they have any policy preferences that are sufficiently important that they’re willing to fight for them even if Obama forces a shutdown.

It’s a judgement call, and here are two examples to illustrate why you shouldn’t tilt at windmills and launch suicide missions, but also why you shouldn’t unilaterally disarm.

Example #1: The Department of Education should be abolished, a goal that theoretically could be largely achieved by not appropriating any funds when spending bills are put together in 2016, though it certainly would lead to a shutdown fight beginning about one month before the presidential election.

Example #2: The debt limit fight of 2011 produced some much-needed spending caps and sequester enforcement, but the White House is very opposed and may be so committed to undoing those policies and expanding the size of government that it forces a shutdown fight next year.

Looking at these options, even a curmudgeonly libertarian such as myself won’t be urging lawmakers to have the shutdown fight in Example #1.

However, I’m hoping that establishment GOPers will show a similar blend of principle and pragmatism by being willing to have the fight with Obama outlined in Example #2.

*Spending bills (known as appropriations bills inside the beltway) technically are not supposed to include the types of policy changes used in my examples, but Obama could say he won’t sign a spending bill if there isn’t accompanying legislation to accomplish one of more of the listed objectives. Or he could even demand that a spending bill include language stating that a certain amount of money should be dedicated to a particular bureaucracy for purposes of achieving a specific policy.

**One surreal part of this debate is that “shutdown” is a somewhat misleading term since most of the government (the military, air traffic control, etc) actually continues to operate.

P.S. I’ve already shared some amusing video, commentary, and cartoons about “Grubergate.”

Well the folks at American Commitment have put together a highlight video for your enjoyment.

And here are some Grubergate cartoons. We’ll start with one from Robert Gorrell.

Michael Ramirez is in fine form as usual.

Here’s one from Dana Summers.

Eric Allie has an amusing addition to our collection.

Henry Payne also gets in a good jab.

Last but not least, Chip Bok nicely captures the attitude of Washington DC.

These are all funny cartoons, but you know who’s laughing the hardest right now?

The answer is Jonathan Gruber, because he got about $6 million of our money as part of insider contracts from government.

In other words, I wasn’t kidding when I wrote that Obamacare is a get-rich-quick scheme for the political elite.

Just another example of how big government enables sleazy corruption.

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I’ve been fretting for a long time that poorly designed entitlement programs are going to turn America into a decrepit welfare state.

Medicare obviously is a big part of the problem, but the fraud-riddled Medicaid program may be even worse.

The program is a nightmare for both federal taxpayers and state taxpayers.

In an article for the Daily Caller, John Graham of the Independent Institute has some very grim analysis of the fiscal black hole otherwise known as Medicaid.

In 2014, total Medicaid spending is projected to grow 12.8 percent because Obamacare has added about 8 million dependents. A large minority of states have chosen to increase residents’ eligibility for Medicaid by expanding coverage to adults making up to 138 percent of the federal poverty level. Unfortunately, more states are likely to expand this welfare program. This is expected to result in a massive increase in the number of Medicaid dependents: From 73 million in 2013 to 93 million in 2024. Medicaid spending is expected to grow by 6.7 percent in 2015, and 8.6 percent in 2016. For 2016 to 2023, spending growth is projected to be 6.8 percent per year on average. This comprises a massive increase in welfare dependency and burden on taxpayers.

But the actual numbers may be worse than these projections.

…official estimates often low-ball actual experience. This is because it is hard to grapple with how clever states are at leveraging federal dollars. …The incentive lies in Medicaid’s perverse financing merry-go-round. In a rich state like California, for example, the federal government (pre-Obamacare) spent 50 cents on the dollar for adult dependents. So, if California spent 50 cents, it automatically drew 50 cents from the U.S. Treasury. And most states had a bigger multiplier. Which state politician can resist a deal like that? …The situation will deteriorate because Obamacare’s Medicaid expansion significantly increases states’ perverse incentives to game Medicaid financing. …Newly eligible Medicaid beneficiaries will be fully financed by the federal government for 2014 through 2016. Then, it slides down until the federal government funds 90 percent of their costs starting in 2020, with the states footing 10 percent. Recall the cunning with which states developed ways to abuse federal taxpayers when they could only double their money from Uncle Sam. The new normal is that they will be able to get nine times their money!

By the way, these numbers would be even worse if it wasn’t for the fact that many states refused the lure of “free” federal money to expand Medicaid.

So what’s the solution? Graham suggests federalism is the answer.

A reform in the right direction would be to get rid of the federal match in favor of a block grant, based on a simple measurement of the population in each state, and precisely define a limited federal commitment.

He’s exactly right, at least in the short run.

Let’s copy the success of welfare reform and turn over a fixed amount of money – along with concomitant authority and responsibility – to state governments and let them figure out the best way of delivering health care to lower-income populations.

In the long run, of course, I’d like to phase out the block grant so that states are responsible for both collecting the money and providing the services.

But before we get to the point of adopting health care policies for an ideal libertarian society, we first have to stop the bleeding (or, to be more accurate, hemorrhaging) and stabilize the program.

And that’s why I fully agree that the federalism approach, in the form of block grants, is the right policy.

Here’s my video on the topic.

And since I’m sharing videos, I can’t resist commenting on the latest “Gruber-gate” scandal. The MIT professor and Obamacare insider (he got $400,000 of taxpayer money to help design the plan) has become an embarrassment for the left because he has been caught on tape saying that the legislation relied on deception. He even said that proponents of Obamacare took advantage of the “stupidity” of American voters.

You can watch the most well-know example by clicking here. But he also denigrated supposedly “stupid” Americans in this video.

I want to defend one small component of Gruber’s statement.

But I want to be completely clear that I’m not defending his elitist disdain for ordinary Americans. Indeed, I don’t think voters are stupid. Instead, to the extent they’re uninformed, it’s the result of serial dishonesty from Washington or because they’ve decided it’s not worth their time to pay attention to the crowd in DC (the “rational ignorance” hypothesis).

The part of Gruber’s statement that has merit is that he’s talking about the fact that there’s a big loophole in the tax code for fringe benefits. To be more specific, tens of millions of Americans get part of their compensation in the form of fringe benefits such as health insurance. Yet while workers are taxed on their “cash” income, they are not taxed on their “fringe benefit” income (a policy sometimes called the “healthcare exclusion”).

And this has created, over time, a very inefficient system of over-insurance.

To understand why this system doesn’t make sense, just think about your homeowner’s insurance or auto insurance. Those policies, unlike health insurance, work reasonably well and costs remain relatively stable. Why is there a big difference?

The difference is that employee income that is diverted to health insurance avoids both income tax and payroll tax, so there is a significant monetary incentive for gold-plated plans. And these plans often include insurance coverage for ordinary medical expenses, which contributes to the problem of third-party payer.

No wonder health insurance is so costly. After all, imagine what would happen to the price of your homeowner’s insurance if it had to cover the cost of a new couch? Or repainting the hallway? Or what about the cost of your auto policy if it covered the cost to fill up with gas or get an oil change?

We instinctively recognize that this would be insanely inefficient and expensive, yet that’s how our health insurance system operates thanks to a giant tax preference.

So Gruber was right to say it’s a problem. And I’ve even said that addressing the exclusion is a very tiny silver lining in the awful dark cloud of Obamacare.

But now that I’ve bent over backwards to say something nice, now let me point out that Gruber (and Obama and other statists) didn’t have the right solution. Yes, they wanted to cut back on the tax exclusion, but only because they wanted to use the money for other purposes (such as subsidies that also exacerbate the third-party payer problem).

The right approach, by contrast, is to phase out the healthcare exclusion and use every penny of revenue to “pay for” lower tax rates. That way you get a win-win situation for the economy. A more rational, market-based healthcare system and a less punitive tax code for productive behavior.

Now that we’ve addressed a serious point, let’s laugh about the fact that Gruber’s comments have created a big headache for the White House. We’ll start with this Steve Kelley cartoon.

And here’s Gary Varvel’s take on the honesty of the Obama White House on the topic of health care.

Last but not least, Lisa Benson optimistically suggests that the serial dishonesty of Obamacare supporters may be undone by the Supreme Court.

Which would be poetic justice, since Professor Gruber also was caught on tape – over and over again – stating that Obamacare only allowed subsidies for people getting insurance policies through state-based exchanges.

And now the Supreme Court will decide whether those subsidies, notwithstanding statutory language, can be provided via the federal exchange.

Though I’m not holding my breath since certain Justices on the Court already have demonstrated that they’re willing to put politics above the law.

P.S. Just in case I wasn’t sufficiently clear, good tax reform also is good health reform. That was one of the points I made in my tax reform speech at the Heritage Foundation and I suspect I’ll continue making that argument until we win or I’m dead (and I don’t want to take odds on which happens first).

P.P.S. On a more upbeat note, the House of Representatives approved budgets in 2011, 2012, 2013, and 2014 that assume Medicaid gets block-granted to the states. So that reform may actually happen while I’m still breathing.

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