Feeds:
Posts
Comments

Posts Tagged ‘Third party payer’

The main problem with America’s health care system is government intervention (Medicare, Medicaid, the tax code’s healthcare exclusion, etc).

The main symptom of all that intervention is pervasive “third-party payer,” which is the term for a system where people buy goods and services with other people’s money.

And pervasive is no exaggeration. According to government data, nearly 90 percent of health care expenditures are paid for by someone other than the consumer.

And that means buyers are not sensitive to price. Which means sellers have little incentive to be efficient and keep prices under control.

The net effect is that the free market is not allowed to operate in most parts of the health care system. So it shouldn’t be a surprise that we have ever-rising costs and lots of bureaucracy.

Let’s look at an example.

One of my former colleagues, Michael Cannon, recently wrote about what happened when Obamacare mandated that birth control be covered by insurance (third-party payer) rather than being directly purchased by consumers.

The Affordable Care Act (ACA) dramatically expanded insurance coverage for prescription contraceptives such as “the pill.” From August 2012 through January 2014, the federal government phased in the ACA’s requirement that nearly all private health insurance plans must cover all Food and Drug Administration‐​approved prescription contraceptives with no cost‐​sharing. …As a result of these changes, the share of consumers who are sensitive to the price of contraceptives plummeted. …among women with large‐​employer coverage who use oral contraceptives, “the share experiencing out‐​of‐​pocket spending…declined from 94 percent in 2012 to 11 percent in 2017.” …The ACA’s reshaping of the market for oral contraceptives precisely coincided with a dramatic increase in prices for those items. …As the mandate began to take effect and as the ACA made oral contraceptives seem “free” to more purchasers, prices for hormones and oral contraceptives began to rise. …Once the mandate took full effect, prices began to rise rapidly. From May 2013 through May 2019, while real prices for non‐​prescription drugs and prescription drugs overall rose just 12 percent and 37 percent, respectively, prices for hormones and oral contraceptives rose 108 percent. …these data suggest that trying to make oral contraceptives “free” for insured consumers had the unintended consequence of making them far more expensive.

Here’s the chart, which is a powerful – and depressing – illustration of how government intervention leads to rising prices.

Notice how birth control costs (the orange line) begin to skyrocket as the Obamacare mandate took effect.

Another depressing thing to consider is that consumers get tricked into thinking that birth control is free.

In reality, of course, the higher costs get built in to the price of health insurance, which then means less take-home pay for the people who thought they were benefiting. But since they don’t understand that this is what’s happening, they decide their employers are too greedy or that compensation is stagnant.

Sigh.

Needless to say, the companies selling birth control lobbied to get their product automatically covered. After all, they knew they could raise prices (as shown in the chart) once customers started buying with other people’s money.

P.S. Several years ago, Sandra Fluke got her 15 minutes of fame by asserting that she had a right to third-party-financed birth control. That led to some clever jokes, including this cartoon, these images, this cartoon, and this video.

P.P.S. When markets are allowed to operate in healthcare, relative prices fall.

P.P.P.S. Government-created third-party payer is also generating higher costs and needless bureaucracy in higher education.

Read Full Post »

As part of National Education Week, I’ve looked at the deterioration of K-12 government schools and also explained why a market-based choice system would be a better alternative.

The good news is that we have a choice system for higher education. Students can choose from thousands of colleges and universities.

The bad news is that federal subsidies are making that system increasingly expensive and bureaucratic.

That’s today’s topic.

The underlying problem is “third-party payer,” which is a wonky term to describe what happens when students are buying education with money from somebody else. When this happens, they tend to not care about the price, which then makes it possible for colleges and universities to increase tuition so they become the real beneficiaries of the subsidies.

So nobody should be surprised that college costs are skyrocketing upwards, both in absolute terms and relative terms.

It’s a bubble, but one that probably won’t pop because of the ongoing stream of subsidies.

Jon Miltimore has a very good summary of the perverse incentives created by government.

Federal loans have made tuition far more expensive. Universities get paid up front—so whether students graduate, drop out, or default on the loan doesn’t matter. Departing students are easily replaced. Confident that students have access to cheap money (which can be expensive in the long run), colleges have no incentive to control or cut back the prices of housing, tuition, fees, and meals. …The best solution is to get the federal government out of the loan business altogether. If universities themselves offered loans, incentives would push them toward controlling costs and maximizing student success after graduation. Another option is income share agreements, which allow potential employers or independent organizations to pay tuition in exchange for a percentage of the students’ future earnings. …When markets seem to falter—recent, painful examples include the student loan bubble and housing crisis—the culprit is often government intervening in a way that warps incentives.

In a study for the Mercatus Center, Veronique de Rugy and Jack Salmon compile numbers and analyze studies.

The evidence broadly suggests that institutions of higher education are capturing need-based federal aid and responding to increased federal aid generosity by reducing institutional aid. …federal and state student aid funding expanding significantly over time, from just under $3 billion in 1970 to just under $160 billion in 2017. …Increased eligibility over time has led to a large and growing proportion of college students who receive federal financial aid. …there is a growing strand of economic literature examining the relationship between federal aid and tuition prices. …A study by Bradley Curs and Luciana Dar…finds that…institutions actually raise tuition levels and reduce their institutional aid when the state increases need-based awards. …A study by Stephanie Cellini and Claudia Goldin…finds that for comparable full-time nondegree programs in the same field over 2005–2009, institutions that are eligible for federal aid raised tuition by about 78 percent more than institutions that are ineligible. …Grey Gordon and Aaron Hedlund…develop a quantitative model for higher education to test explanations for the steep rise in college tuition between 1987 and 2010. …These results reveal that increased federal aid is responsible for more than doubling the cost of tuition over a 23-year period.

Here’s a chart from the study showing the explosion of federal subsidies.

By the way, Paul Krugman actually thinks taxpayers have been “starving” higher education.

Let’s get back to exploring the analysis of more sensible economists. Professor Antony Davies and James Harrigan make two key points in their FEE column.

First, subsidies are producing consumers who don’t make sensible education purchases.

…total student debt in the United States passed the $1.5 trillion mark. …the total has been growing at around $80 billion per year. …Around 11 percent of student debt is either delinquent or in default, which is more than four times the delinquency rates for credit cards and residential mortgages. …the problem with making college “free…” that a student must repay a college loan gives him tremendous incentive to at least consider what jobs he could obtain with the college education he must pay for after graduation. A student who is unencumbered by the need to repay a college loan faces little cost when choosing to major in something with little to no future value. …It’s well worth taking out tens of thousands of dollars in loans to pay for a degree that increases a student’s expected lifetime earnings by millions of dollars. But taking out tens of thousands in loans to pay for a degree that increases a student’s expected lifetime earnings by the same tens of thousands or less is, financially, a terrible investment.

Here’s a chart from their article, which looks at the value of various majors.

Second, the problems are caused by bad government policy.

We are in the midst of a college loan bubble for almost all of the same reasons that, a decade ago, we found ourselves in the midst of a housing loan bubble. …In both bubbles, the government interfered in markets in two critical ways. First, the government stepped in as a lender. Second, it shielded private lenders from the consequences of making bad loans. …Making college “free” will simply double-down on the very problem we already face. With “free” college, not only will colleges not have to care whether students can repay their loans, but the students themselves will also not have to care. Meanwhile, taxpayers will be on the hook for the numerous imprudent decisions by both colleges and students. It will bring about the worst of all possible worlds.

Victor Davis Hanson of the Hoover Institution used to be a Classics Professor at California State University. So he’s well positioned to provide a then-now comparison.

Here’s what he experienced in his early years.

Overwhelmingly liberal and often hippish in appearance, American faculty of the early 1970s still only rarely indoctrinated students or bullied them to mimic their own progressivism. Rather, in both the humanities and sciences, students were taught the inductive method of evaluating evidence… As an undergraduate and graduate student at hotbeds of prior 1960s protests at UC Santa Cruz and Stanford, I don’t think I had a single conservative professor. Yet there were few faculty members, in Western Civilization, history, classics, or mandatory general education science and math classes, who either sought to indoctrinate us with their liberal world view or punished us for remaining conservative. …Administrators in the 1960s and 1970s were relatively few. Most faculty saw administration as a temporary if necessary evil that took precious time away from teaching and research and so were admired for putting up with it. …Professors taught large loads—four or five classes a semester for California State University faculty. …The result was that both college tuition and room and board stayed relatively inexpensive.

And here’s what it’s become.

What went wrong? …Politics increasingly infected courses as competence eroded—logical for faculty and students since the former required far less of the latter. Across the curriculum, race, class, and gender studies found their way into art, music, literature, philosophy and history classes. Deduction now replaced the old empiricism. Grades inflated… Universities emulated the ethos of loan sharks and shake-down businesses. The con was as simple as it was insidiously brilliant. Academic lobbyists pressed the government for billions in guaranteed student loans… The federal government-backed student loans. That guarantee greenlighted cash-flush universities to pay inter alia for diversity czars, assistant provosts of “inclusion,” and armies of woke aides and facilitators, to reduce teaching loads, and to open more race/class/gender “centers” on campus—by jacking up college costs higher than the rate of inflation. Student debt soared. …A new generation owes $1.5 trillion in student debt… One’s 20s are now redefined as the lost decade, as marriage, child-rearing, and home buying are put off, to the extent they still occur, into one’s 30s. …The result was reduced teaching, a bonanza of release time, administrative bloat, Club Med dorms, gyms, and student unions, and epidemics of highly paid but non-teaching careerist advisors, and counselors.

So what’s his solution?

Universities should be held responsible for repaying a large percentage of the loans they issued and yet in advance knew well could not and would not be repaid. The government should get out of the campus loan insurance business.

Amen.

As I said at the end of this recent TV interview, colleges and universities need to have some skin in the game.

Daniel Kowalski explains for FEE that government policy is causing ever-higher costs.

Student loans did not exist in their present form until the federal government passed the Higher Education Act of 1965, which had taxpayers guaranteeing loans made by private lenders to students. While the program might have had good intentions, it has had unforeseen harmful consequences. …Secured financing of student loans resulted in a surge of students applying for college. This increase in demand was, in turn, met with an increase in price because university administrators would charge more if people were willing to pay it… According to Forbes, the average price of tuition has increased eight times faster than wages since the 1980s. …The government’s backing of student loans has caused the price of higher education to artificially rise…the current system of student loan financing needs to be reformed. Schools should not be given a blank check, and the government-guaranteed loans should only cover a partial amount of tuition. Schools should also be responsible for directly lending a portion of student loans so that it’s in their financial interest to make sure graduates enter the job market with the skills and requirements needed to get a well-paying job. If a student fails to pay back their loan, then the college or university should also share in the taxpayer’s loss.

All this government-fueled debt has real consequences. Three economists from the Federal Reserve found it hinders home ownership.

To estimate the effect of the increased student loan debt on homeownership, we tracked student loan and mortgage borrowing for individuals who were between 24 and 32 years old in 2005. Using these data, we constructed a model to estimate the impact of increased student loan borrowing on the likelihood of students becoming homeowners during this period of their lives. We found that a $1,000 increase in student loan debt (accumulated during the prime college-going years and measured in 2014 dollars) causes a 1 to 2 percentage point drop in the homeownership rate for student loan borrowers during their late 20s and early 30s. …According to our calculations, the increase in student loan debt between 2005 and 2014 reduced the homeownership rate among young adults by 2 percentage points. The homeownership rate for this group fell 9 percentage points over this period (figure 2), implying that a little over 20 percent of the overall decline in homeownership among the young can be attributed to the rise in student loan debt.

For those interested, here are some of their empirical findings.

By the way, I discussed the negative interaction of student debt and housing in the second half of this TV interview.

Professor Richard Vedder explains for the Wall Street Journal that this subsidized system has resulted in an environment in which neither students nor faculty work very hard.

One reason college is so costly and so little real learning occurs is that collegiate resources are vastly underused. Students don’t study much, professors teach little, few people read most of the obscure papers the professors write, and even the buildings are empty most of the time. …Surveys of student work habits find that the average amount of time spent in class and otherwise studying is about 27 hours a week. The typical student takes classes only 32 weeks a year, so he spends fewer than 900 hours annually on academics—less time than a typical eighth-grader… As economists Philip Babcock and Mindy Marks have demonstrated, students in the middle of the 20th century spent nearly 50% more time—around 40 hours weekly—studying. They now lack incentives to work very hard, since the average grade today—a B or B-plus—is much higher than in 1960… Sociologists Richard Arum and Josipa Roksa have demonstrated, using the Collegiate Learning Assessment, that the typical college senior has only marginally better critical reasoning and writing skills than a freshman. Federal Adult Literacy Survey data, admittedly somewhat outdated, shows declining literacy among college grads in the late 20th and early 21st centuries. …the typical professor is in class around one-third fewer hours than his 1965 counterpart. …The litany of underused resources goes on. In 1970 at a typical university there were perhaps two professors for each administrator. Today, there are usually more nonteaching administrators than professors.

Unfortunately, many politicians respond to these government-caused problems by proposing even more government.

That’s what Hillary Clinton did in 2016 and it’s what politicians – most notably Elizabeth Warren and Bernie Sanders – are doing for 2020.

But that will make a bad situation even worse.

Paul Boyce, writing for FEE, explains that free college will lower standards and make college degrees relatively meaningless.

…college enrollment rates reached more than 40 percent in 2017. Of those, nearly one in three (31 percent) drop out entirely. Why should the average taxpayer subsidize this? …If college is free, it is likely that this rate will increase further. Students won’t have any skin in the game because they won’t be picking the tab up at the end. This effects efficient decisionmaking. In France, for example, the dropout rate is as high as 50 percent. …Government has a track record of underfunding. …This is demonstrated in France, which runs a “free” system. Its universities are heavily underfunded and unable to satisfy student enrollment. …As college enrollment has increased, standards have fallen to accommodate for this. …it defeats the goal of creating a well-educated workforce. …it dilutes the importance and value of a degree. …Undergraduate degrees will become the norm, and the financial return will become negligible.

And the experience of other nations isn’t a cause for optimism.

Andrew Hammel, an American who taught for many years at a German university, is not overly impressed by that nation’s free-tuition regime.

…in their early teen years, the brightest German students are sent to the most prestigious form of German high school, the Gymnasium. Currently, over 50 percent of German students earn this privilege (this number has jumped in the last 30 years, prompting charges of grade inflation). Gymnasium graduates with reasonable grades are guaranteed a place in a German university; there is no entrance exam. 95 percent of German students attend public universities, where they are charged fees, but not formal tuition. All professors at public universities are civil servants. …Supporters of the tuition-free system note that 65 percent of Germans say university should be tuition-free, “even if this means the quality of education is slightly worse.” …The system also gives students extra freedom: you can study art history or sociology, knowing that you won’t be hounded by creditors if you later find only spotty employment. …one-third of all students who enroll in German universities never finish. A recent OECD study found that only 28.6 percent of Germans aged between 25 and 64 had a tertiary education degree… German universities punch below their weight in international rankings… Gather any group of German professors, and talk will immediately turn to the burgeoning bureaucracy which distracts them from teaching and research. …Americans who teach ordinary classes in Germany find average German students somewhat less motivated than their dues-paying American counterparts. The top third of motivated students would succeed anywhere, and the bottom third, as we have seen, drop out.

I’ll close with an observation about inefficiency in higher education.

Here’s a chart I shared a few years ago. I’m sure the problem is even worse today.

The bottom line is that student debt, administrative bloat, and expensive tuition are all predictable consequences of federal subsidies.

P.S. If you’re worried about political correctness in higher education (and you have the appropriate subscriptions), I recommend this column in the Wall Street Journal and this George Will column in the Washington Post.

P.P.S. Here’s a video interview with Richard Vedder about high costs and inefficiency in higher education. And I also recommend this video explanation by Professor Daniel Lin.

P.P.P.S. It also turns that all these subsidies have a negative correlation with private-sector employment.

Read Full Post »

In addition to speaking on tax competition at the European Resource Bank in Moldova, I also appeared on a panel about healthcare.

I used the opportunity to explain how government-created “third-party payer” has crippled market forces in the United States and produced inefficiency and needlessly high costs.

There are two visuals from my presentation I want to highlight.

First, I took Milton Friedman’s explanation of the how people care about cost and quality depending on whether they’re spendingf their own money and whether they’re buying for themselves, and I then showed how it applies to America’s healthcare system.

Ideally, purchases are made in quadrant 1. Thanks to government distortions, however, most health spending in America occurs in quadrants 2, 3, and 4.

When purchases occur in quadrant 1, buyers and sellers directly interact and there are incentives on both sides to get the most value.

That’s not the case, though, with purchases in the other quadrants.

I illustrated the problem with a slide that looks at the layers that exist between health consumers and health providers.

I also shared data on how third-party payer causes higher prices in every sector where it exists and also pointed out that we see falling prices in the few parts of the healthcare sector where people actually buy with their own money.

But that’s old news.

Let look at some new information.

Doctor Scott Atlas, in a column for today’s Wall Street Journal, concisely explains the problem of government-created third-party payer.

In an effort to bring down the costs of medical care, the Trump administration wants to make prices visible to patients, and it’s moving aggressively to make that happen. …A new executive order will require providers paid by Medicare to post prices for a range of procedures. Meanwhile, the Centers for Medicare and Medicaid Services recently finalized its mandate requiring pharmaceutical manufacturers to disclose the list price of prescription drugs in direct-to-consumer television advertisements. …Yet these moves won’t be enough to bring down prices. Transparency, though essential, is not sufficient. Nor does it always need to be legislated. Laws aren’t required to force sellers of food, computers or clothing to post prices. That information is driven by consumers who actively seek value for their money. …But patients typically don’t even ask about prices, because they figure “it’s all covered by insurance.” The harmful U.S. model is unfortunately that insurance should minimize any out-of-pocket payment. Health care may be the only good or service in America that is bought and used without knowing its cost. Unfortunately, the Affordable Care Act instilled even broader coverage requirements and added counterproductive subsidies that encouraged more-widespread adoption of bloated insurance, reinforcing a model of coverage that prevents patients from caring about prices.

How do we fix the problem?

Dr. Atlas says people need to have control over their healthcare dollars.

To bring prices down, …patients must have stronger incentives to consider price. …But as long as insurance minimizes the patient’s share of cost, the patient won’t bother price shopping. For price-transparency to have the most impact, it must increase visibility of the only price relevant to patients—out-of-pocket costs at the time of purchase. Cheaper insurance policies with higher deductibles, coupled with large, liberalized-use, permanently owned health savings accounts, are also important to motivate consideration of price. …We can make medical care more affordable without moving to a single-payer system. Centralized models uniformly regulate costs by restricting health-care use, generating lengthy delays for needed care, limiting access to important drugs and technology, and ultimately resulting in worse disease outcomes. The better path will involve reducing the cost of medical care itself by creating the conditions that bring down prices in every other area of the economy: incentivizing empowered consumers and increasing the supply of medical care to stimulate competition among providers.

Amen.

That means reforming Medicare and Medicaid, where the government directly creates third-party payer.

And it means reforming the tax code, where the government indirectly creates third-party payer with a big preference for over-insurance.

At the risk of upsetting some people, it even means defending the “Cadillac tax,” a provision of Obamacare.

And even agreeing with the Washington Post, which opined today in favor of that provision.

Consider the House supermajority, made up of Democrats and Republicans favoring repeal of the excise tax on high-cost health insurance plans, which would otherwise take effect in 2022. …the bill is backed by a potent lobbying coalition including insurance companies, labor unions — and even ExxonMobil. …Known as the “Cadillac tax” because it applies to especially generous “Cadillac” health plans, the tax equals 40 percent of the value of private-sector health benefits exceeding $11,200 for single coverage and $30,150 for family coverage in 2022. Albeit indirectly, the tax chips away at one of the largest subsidies in the health-insurance system, the tax exclusion for employer-paid health insurance… A wide consensus of economists identifies the tax exclusion as a major source of distortion in the U.S. system, building a higher floor under costs… The Cadillac tax would curb these tendencies… killing the Cadillac tax… The United States’ already out-of-whack health-care system will become more so, and bipartisan profligacy and pandering will have triumphed again.

Let’s close with a bit of dark humor.

One of my many frustrations is that people blame the free market for the various government-caused problems in healthcare. Here’s a way of visualizing it.

Government intervenes, which causes problems, and those problems are then used as an excuse for additional intervention. Sort of a turbo-charged version of Mitchell’s Law.

Ultimately, this process may lead politicians to adopt something really crazy, such as “Medicare for All.”

Read Full Post »

I’m not as eloquent on the issue as Professor Daniel Lin, but I recently explained on Fox Business that government subsidies for higher education have enabled big increases in tuition, an outcome that has been good for bureaucrats and bad for students.

In effect, this is simply a story of “third-party payer,” which happens when consumers get to buy something with other people’s money.

Sellers respond by increasing prices since they know that consumers won’t care as much about price.

Indeed, this is the main problem plaguing America’s health sector.

Simply stated, government subsidies are a recipe for higher costs and inefficiency, regardless of the product or sector.

We definitely see the bad consequences in higher education. Mitch Daniels, the head of Purdue University, correctly identifies the problem of third-party payer in a column for the Washington Post.

…let’s design an economic sector guaranteed to cost too much. …we will sell a product deemed a necessity, with little or no option for the customer to avoid us altogether. Next, we will arrange to get paid for inputs, not outputs — how much we do, not how well we do it. We will make certain that actual results are difficult or impossible to measure with confidence. And we’ll layer on a pile of complex federal regulations to run up administrative costs. Then, and here’s the clincher, we will persuade the marketplace to flood our economic Eden with payments not from the user but from some third party. This will assure that the customer, insulated from true costs, will behave irrationally, often overconsuming and abandoning the consumerist judgment he practices at the grocery store or while Internet shopping. Presto! Guaranteed excessive spending, much of it staying in the pockets of the lucky producers. You say, “Oh, sure, this is American health care.” …Your answer is correct but incomplete. It worked so well in health care, we decided to repeat the formula with higher education. …by evading accountability for quality, regulating it heavily, and opening a hydrant of public subsidies in the form of government grants and loans, we have constructed another system of guaranteed overruns. It is the opposite of an accident that the only three pricing categories that have outpaced health care over recent decades are college tuition, room and board, and books.

Amen.

Daniels has done a great job controlling costs at Purdue, but I’m even more impressed that he is willing to look at the problems for our entire system of higher education (as such, I’ll forgive him for being the Budget Director during the big-spending Bush Administration).

I especially like his solution, which in part would require colleges to repay taxpayers if there are loan defaults, thus ensuring that they have some skin in the game.

…a promising movement is advancing in education to put some of the risk of lousy results — students who do not graduate or who graduate without having learned enough to earn their way in the world — on the institutions that “educated” them. It is about time. This game has been skinless far too long. …even a small degree of risk-sharing in higher education would cause significant behavior change. …Even a small charge, plus the embarrassment of its public announcement, would probably jar many schools from their complacent ruts.

By the way, some people (including Paul Krugman) claim higher tuition is caused by budget cuts. Preston Cooper shared some of his research on this issue in the Wall Street Journal.

A typical student in an American public college pays thousands of dollars more in tuition than just a decade ago. Students and parents are worried and frustrated, and many point the finger at state legislators… Hillary Clinton blamed “state disinvestment” in higher education for soaring tuition and declared her support for “free college.”While the “disinvestment” narrative is simple and appealing, it collapses under scrutiny. …Tuition goes up no matter what state legislators do. Public colleges, with state boundaries insulating them from competition, and generous federal student aid programs at their disposal, charge as much as they can get away with. Changes in state funding are largely irrelevant.

He’s right about federal aid enabling higher tuition. Academic scholars have found a very clear link.

Now let’s focus on the problem of ever-expanding bureaucracy.

David Frum points out in the Atlantic that college bureaucracies have done a marvelous job of….drum roll…advancing the interests of college bureaucracies.

One of the most famous essays on bureaucracy ever written was built upon a deceptively simple observation. Between 1914 and 1928, the number of ships in the British Navy declined by 67 percent. The ranks of officers and men shrank by 31 percent. But the number of Admiralty officials administering the shrunken force rose by 78 percent. …Here was the origin of Parkinson’s famous laws of bureaucracy, including “work expands to fill the time available” and “officials make work for each other.” …Why does college education cost so much? The Parkinson of American academia is Ralph Westfall, a professor at California Polytechnic University in Pomona. He computed in 2011 that over the 33 years from 1975 to 2008, the number of full-time faculty in the California state university system had barely increased at all: up from 11,614 to 12,019. Over the same period, the number of administrators had multiplied like little mushrooms: 3,000 had become 12,183. …with our universities. We’ve been thinking of them as institutions for teaching and learning—and wondering why we seem to be spending so much without achieving more. But if you think of them as institutions generating a perpetual cycle of employment in specialties for which there would otherwise be no demand at all? Why in that case, they are succeeding brilliantly.

George Will, in a column about political correctness and campus snowflakes, shares this factoid about bureaucracy in California’s higher-education system.

…between the 1997-1998 academic year and the Great Recession year of 2008-2009, while the University of California student population grew 33 percent and tenure-track faculty grew 25 percent, senior administrators grew 125 percent. “The ratio of senior managers to professors climbed from 1 to 2.1 to near-parity of 1 to 1.1,”

Writing for the Boston Globe, Professor Benjamin Ginsberg warned that higher tuition is feeding an ever-expanding bureaucracy

…over the last half-century, America’s universities have slowly been taken over by a burgeoning class of administrators and staffers who are less interested in training future entrepreneurs and thinkers as they are in turning institutions of learning into cash cows for a growing academic bureaucracy. …Every year, hosts of administrators and staffers are added to university payrolls, even as budget crises force schools to shrink their full-time faculties. There are armies of functionaries – vice presidents, associate vice presidents, assistant vice presidents, provosts, associate provosts, vice provosts, assistant provosts, deans, deanlets, and deanlings, each commanding staffers and assistants. In turn, the ranks of administrators have expanded at nearly twice the rate of the faculty, while administrative staffs have outgrown the academics by nearly a factor of five. No wonder college is so expensive!

Let’s close with this bit of satire from libertarian Reddit.

P.S. You won’t be surprised to learn that Hillary Clinton, when looking for solutions to a problem caused by government subsidies, recommended even more government subsidies.

Read Full Post »

America’s healthcare system is a mess, largely because government intervention (Medicare, Medicaid, Obamacare, and the tax code’s healthcare exclusion) have produced a system where consumers almost never directly pay for their medical services.

This “third-party payer” system basically means market forces are absent. Consumers have very little reason to focus on cost, after all, if taxpayers or insurance companies are picking up the tab for nearly 90 percent of expenses.

As a result, we get ever-higher prices.

But we also get a lot of featherbedding and inefficiency because providers want to take advantage of this system.

Athenahealth offered some sobering analysis on the system last year.

The number of physicians in the United States grew 150 percent between 1975 and 2010, roughly in keeping with population growth, while the number of healthcare administrators increased 3,200 percent for the same time period. Yes, that’s 3,200 percent in 35 years…the growing number of administrators is…driven by…ever-more-complex regulations. (To cite just a few industry-disrupting regulations, consider the Prospective Payment System of 1983; the Health Insurance Portability & Accountability Act of 1996; and the Health Information Technology for Economic and Clinical Act of 2009.) Critics say the army of administrators does little to relieve the documentation burden on clinicians, while creating layers of high-salaried bureaucratic bloat in healthcare organizations.

And here’s the chart that succinctly captures so much of what is wrong with America’s government-distorted healthcare regime.

By the way, the chart implies that the rising number of administrators is driven by additional regulations from Washington. I certainly won’t disagree with the notion that more red tape is counterproductive, but I suspect that third-party payer is the primary cause of the problem.

Third-party payer is what causes prices to climb, and then the government and insurance companies respond with various cost-control measures that require lots of paperwork and monitoring. Hence, more administrators.

In other words, third-party payer is the problem and regulations and administrators are both symptoms.

I’ll close by noting that I shared a version of this chart last year and warned that the numbers might be exaggerated. But there’s no question about the trend of more bureaucracy, red tape, and inefficiency.

P.S. Because it’s so important to fix the third-party payer problem, I’ve actually defended one small provision of Obamacare.

P.P.S. Here’s how genuine free markets result in lower costs for healthcare.

Read Full Post »

There’s a problem in California. No, I’m not referring to the punitive tax laws. Nor am I talking about the massive unfunded liabilities for bureaucrat pension.

Those are big problems, to be sure, but today’s topic is the state’s government-created housing crisis. The population keeps expanding, but local governments use zoning laws to restrict development of new homes and apartments.

And guess what happens when supply is constrained and demand keeps climbing? Even a remedial student in Economics 101 will probably understand that this is a recipe for ever-rising prices.

The solution, of course, is to expand the housing stock. Build more homes, apartments, and condos.

But local governments don’t like that option because existing homeowners (who vote) benefit from scarcity-induced increases in home values. And environmentalists also don’t like any development because of ideology.

Moreover, why fix the problem when politicians in Washington are willing to promote crackpot ideas. And that’s a very apt description of Senator Kamala Harris’ scheme to subsidize rental payments.

Why is this a crackpot idea? Because prices go up in every sector of the economy that is subsidized. This is why health care keeps getting more expensive. It’s why higher education keeps getting more expensive.

And if Washington politicians decide to subsidize rent, the same thing will happen.

Writing for National Review, Jibran Khan explains why Harris has the wrong solution for the wrong problem. He starts by explaining why there’s a housing shortage.

Harris’s subsidy won’t improve the situation, and could even make things worse by drawing attention away from actual solutions. The Bay Area’s rent crisis is driven by a drastic shortage in housing. Strict rent control in San Francisco and “NIMBY” (not in my backyard) zoning policies have ensured that the area constructs only a fraction of the housing it needs. The San Francisco metro area added 373,000 new jobs between 2012 and 2017, but it allowed the construction of only 58,000 new units of housing. …Per Lawrence Yun, an economist who studies housing trends, the norm is for one housing unit to be built for every two jobs created. In the San Francisco area, there is less than one unit built for every six jobs created. …under Harris’s proposal, the currently homeless would remain homeless, while renters would receive some very short-term relief at the cost of other taxpayers.

He then explains why a subsidy will lead to higher rents, and a windfall for landlords.

Why would the relief be short-term? Because as landlords become aware that renters are receiving a subsidy, they will simply raise rents by the amount of the subsidy. The cost will be the same for the renters — who today are lining up for a chance to rent, showing that they are willing to pay it. In the end, then, this would be an effective subsidy for landlords, not renters.

Which, as mentioned above, is exactly what’s happened in other sectors that have received subsidies.

It’s not just libertarians who understand that Harris will make a bad situation worse.

Matt Yglesias is hardly a small-government zealot. He’s accused me, for example, of being insane and irrational because of my libertarian views. But we both agree that the real problem in California is government rules that limit development.

And I assume he also would agree that Harris’ plan will wind up enriching landlords rather than helping renters.

So why, then, is Harris proposing such a destructive policy?

There are three possible answers.

  1. She’s ignorant, and her staff is ignorant. Simply stated, there’s no understanding of indirect effects. Bastiat would be very disappointed.
  2. She’s malicious. In other words, she’s smart enough to realize the policy is bad, but she doesn’t care. Call this the Venezuela approach.
  3. She’s ambitious. In this scenario, she has no intention of pushing a bad idea, but she thinks it’s a good way of getting votes from renters.

I assume #3 is the right answer.

Regardless of her motives, she’s doing the wrong thing.

I’ve shared this chart on many occasions because it does a great job of showing that subsidized sectors are characterized by rising prices.

Give politicians enough leeway and maybe the entire economy can be dysfunctional!

P.S. I’m not being partisan. Republicans are quite capable of supporting very stupid policies in exchange for votes or campaign contributions. Just look at the GOPers who support the Export-Import Bank, Fannie-Freddie subsidies, or ethanol handouts.

P.P.S. Needless to say, I also object to the Harris scheme because it would make the tax code an even bigger mess. I realize it’s unlikely that I’ll ever see a simple and fair flat tax, but is it too much to ask for politicians not to make the system even worse?

Read Full Post »

Right after Obamacare was enacted in 2010, I wrote a column suggesting four principles that should guide and motivate supporters of free markets and limited government.

As part of that article, I pointed out that Obamacare wasn’t a dramatic change. Instead, it was just another layer of government imposed on a health system that already was burdened by a huge amount of intervention.

The way to think of Obamacare is that we are shifting from a healthcare system 68 percent controlled/directed by government to one that…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.

Later that year, the Center for Freedom and Prosperity released a video that elaborated, pointing out that Obamacare simply made a system dominated by government into a system even more controlled by government.

With predictable bad results.

That video included two charts based on my back-of-the envelope calculation, and I shared them in a 2013 column that further discussed the incremental damage of Obamacare.

Our healthcare system as a mess before Obamacare. Normal market forces were crippled by government programs such as Medicare and Medicaid and also undermined by government intervention in the tax code that resulted in pervasive over-insurance that exacerbated the third-party payer problem. These various forms of intervention led to all sorts of problems, such as rising prices and indecipherable complexity…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. …Not surprisingly, all of the same problems still exist, but now they’re exacerbated by the mistakes in Obamacare.

In other words, we’re not going to fix the healthcare system by merely repealing Obamacare.

Yes, that’s a necessary step, but much more needs to happen.

Which is why I’m very happy that Prager University has a new video pointing out that health insurance doesn’t work nearly as well as car insurance and homeowners insurance. Why? Because it’s become an inefficient form of pre-paid health care rather than protection against large and unexpected expenses.

Amen. I’ve made a similar case on several occasions.

Though I wish the video went even further by explaining how the healthcare exclusion in the tax code encourages over-insurance.

And here’s a video from the Foundation for Economic Education that also explains how government intervention is distorting the health market.

Here’s the most important factoid from the video, which comes from the accompanying FEE article.

According to the Consumer Price Index and Medical-care price index from 1935 to 2009, the health care spending crisis didn’t start until the mid 1960s, around the same time when Medicare and Medicaid were signed into law, and at the same time that we began requiring doctors to go through all sorts of expensive licensing procedures beyond medical school. Since then, health care spending has doubled, even adjusted for inflation.

But let’s keep everything in perspective. Our system is needlessly expensive and inefficient because of government, but it still manages to deliver some decent outcomes.

Here is some very interesting analysis from the Adam Smith Institute in London.

US healthcare is famous for…poor outcomes. …their overall outcome on the most important variable—overall life expectancy—is fairly poor.

I get this factoid thrown in my face repeatedly when speaking overseas, so I was delighted to find out that it has nothing to do with the quality of our healthcare.

…consider the main two ingredients that go into health outcomes. One is health, and the other is treatment. If latent health is the same across the Western world, we can presume that any differences come from differences in treatment. But this is simply not the case. Obesity is far higher in the USA than in any other major developed country. Obviously it is a public health problem, but it’s unrealistic to blame it on the US system of paying for doctors, administrators, hospitals, equipment and drugs. In fact in the US case it’s not even obesity, or indeed their greater pre-existing disease burden, that is doing most of the work in dragging their life expectancy down; it’s accidental and violent deaths. It is tragic that the US is so dangerous, but it’s not the fault of the healthcare system; indeed, it’s an extra burden that US healthcare spending must bear.

Indeed, it turns out that the American system produces very good results on life expectancy once you adjust for these behavioral factors.

…simply normalising for violent and accidental death puts the USA right to the top of the life expectancy rankings.

And here’s the relevant chart from the article.

By the way, health spending in the United States would probably be high compared to other nations even if we removed all government intervention and changed our risky behaviors.

But only because richer nations can afford – even demand – new technology, cutting-edge research, and new treatments. In his Bloomberg column, Professor Tyler Cowen discusses some of these factors

…viewed through the lens of consumption behavior, American health-care spending is typical of this nation’s habits and mores. Relative to GDP, Americans consume a lot more than Europeans, and our health-care spending is another example of that tendency. …Consumption in the U.S., per capita, measures about 50 percent higher than in the European Union. American individuals command more resources than people in countries such as Norway or Luxembourg, which have higher per capita GDP. The same American consumption advantage is evident if you look at dwelling space per person or the number of appliances in a typical home. …To put it most simply, we Americans spend a lot on health care because we spend a lot period.

Tyler includes a graph mapping healthcare expenditures with overall consumption. The basic takeaway is that what makes America an outlier is our ability to consume, with healthcare being an example.

So what’s all this mean for policy?

Peter Suderman offers some very sage advice in a column for the New York Times.

…when it comes to health care, Republicans don’t know what they want, much less how to get it. …Democrats, on the other hand, share a distinct vision of robust universal coverage guaranteed by the government and paid for by a combination of delivery-system efficiencies and higher taxes. What Republicans need, then, is a set of guiding principles — a health care vision that should work from the ground up, that imagines a more affordable and more effective system.

Peter then suggests some principles.

…it would mean giving up on comprehensive universal coverage. Otherwise, Republicans will just end up bargaining on the terms set by Democrats, as they are now. …a second principle: unification, not fragmentation. …employer-provided coverage…is subsidized implicitly through the tax code, which does not tax health benefits provided by employers as income. This tax break is the original sin of the United States health care system. Worth more than $250 billion annually, it has enormously distorted the market, creating an incentive for employers to provide ever-more-generous insurance while insulating individuals from the true cost of care. …the third principle comes in: Health coverage is not the same as health care. Instead, it is a financial product, a backstop against financial ruin. Health care policy should treat it as one. …For noncatastrophic, nonemergency medical expenses, Republicans ought to promote affordability rather than subsidies. …encourage supply-side innovations in addition to demand-side reforms. The tangle of regulations governing health care can make it difficult for providers to respond to market signals and innovate. Doctor-owned hospitals are restricted by law, for example, and certificate-of-need requirements force medical providers to obtain licenses in a process that effectively requires them to ask permission from competitors to expand.

In other words, we wind up this column where we started.

Americans get good health care, but it’s needlessly expensive and inefficient as I explained in Part I and Part II of a recent series. If we can somehow unravel, or even bypass, all the bad government policy that currently exists, we could have a much better system.

How much better? Well, check out this Reason video on a free-market health center in Oklahoma, which recently was featured in a story in Time. Based on my personal experiences, that’s a big step in the right direction.

Read Full Post »

Back in 2015, I basically applauded the Congressional Budget Office for its analysis of what would happen if Obamacare was repealed. The agency’s number crunchers didn’t get it exactly right, but they actually took important steps and produced numbers showing how the law was hurting taxpayers and the economy.

Now we have a new set of Obamacare numbers from CBO based on the partial repeal bill approved by the House of Representatives. The good news is that the bureaucrats show substantial fiscal benefits. There would be a significant reduction in the burden of spending and taxation.

But the CBO did not show very favorable numbers in other areas, most notably when it said that 23 million additional people would be uninsured if the legislation was enacted.

Part of the problem is that Republicans aren’t actually repealing Obamacare. Many of the regulations that drive up the cost of health insurance are left in place.

My colleague at Cato, Michael Cannon, explains why this is a big mistake.

Rather than do what their supporters sent them to Washington to do – repeal ObamaCare and replace it with free-market reforms – House Republicans are pushing a bill that will increase health-insurance premiums, make health insurance worse for the sick… ObamaCare’s core provisions are the “community rating” price controls and other regulations that (supposedly) end discrimination against patients with preexisting conditions. …Community rating is the reason former president Bill Clinton called ObamaCare “the craziest thing in the world” where Americans “wind up with their premiums doubled and their coverage cut in half.” Community rating is why women age 55 to 64 have seen the highest premium increases under ObamaCare. It is the principal reason ObamaCare has caused overall premiums to double in just four years. Community rating literally penalizes quality coverage for the sick… ObamaCare is community rating. The AHCA does not repeal community rating. Therefore, the AHCA does not repeal ObamaCare.

It would be ideal if Republicans fully repealed Obamacare.

Heck, they should also address the other programs and policies that have messed up America’s healthcare system and caused a third-party payer crisis.

That means further reforms to Medicaid, as well as Medicare and the tax code’s exclusion of fringe benefits.

But maybe that’s hoping for too much since many Republicans are squeamish about supporting even a watered-down proposal to modify Obamacare.

That being said, there are some reasonable complaints that CBO overstated the impact of the GOP bill.

Doug Badger and Grace Marie Turner, for instance, were not impressed by CBO’s methodology.

The Congressional Budget Office (CBO) launched its latest mistaken Obamacare-related estimate this week, predicting that a House-passed bill to repeal and replace the embattled law would lead to 23 million more uninsured people by 2026. …the agency’s errors are not only massive – one of their predictions of 2016 exchange-based enrollment missed by 140%… Undaunted by failure and unschooled by experience, CBO soldiers on, fearlessly predicting that millions will flock to the exchanges any day now.  …CBO measures the House-passed bill against this imaginary baseline and finds it wanting. …One reason CBO gets it so wrong so consistently is its fervent belief that the individual mandate has motivated millions to enroll in coverage.  …CBO’s belief in the power of the individual mandate is misplaced. …The IRS reports that in the 2015 tax year, 6.5 million uninsured filers paid the tax penalty, 12.7 million got an exemption and additional 4.2 million people simply ignored the penalty.  They left line 61 on their form 1040 blank, refusing to tell the government whether or not they had insurance.  …In all, that is a total of 23.4 million uninsured people – out of an estimated 28.8 million uninsured – who either paid, avoided or ignored the penalty.  That hardly suggests that the mandate has worked.

The Wall Street Journal also was quite critical of the CBO analysis.

…the budget scorekeepers claim the House bill could degrade the quality of insurance. This editorializing could use some scrutiny. Without government supervision of insurance minutiae and a mandate to buy coverage or pay a penalty, CBO asserts, “a few million” people will turn to insurance that falls short of the “widely accepted definition” of “a comprehensive major medical policy.” They might select certain forms of coverage that Obama Care banned, like “mini-med” plans with low costs and low benefits. Or they might select indemnity plans that pay a fixed-dollar amount per day for illness or hospitalization, or dental-only or vision-only single-service plans. CBO decided to classify these people as “uninsured,” though without identifying who accepts ObamaCare’s definition of standardized health benefits and why they deserve to substitute their judgment for the choices of individual consumers. …But the strangest part of CBO’s preoccupation with “high-cost medical events” is that the analysts never once mention catastrophic coverage—not once. These types of plans didn’t cover routine medical expenses but they did protect consumers against, well, a high-cost medical event like an accident or the diagnosis of a serious illness. Those plans answered what most people want most out of insurance—financial security and a guarantee that they won’t be bankrupted by cancer or a distracted bus driver. …under the House reform Americans won’t have any problem insuring against a bad health event, even if CBO won’t admit it. …CBO has become a fear factory because it prefers having government decide for everybody.

Drawing on his first-hand knowledge, Dr. Marc Siegel wrote on the issue for Fox News.

…23 million…will lose their health insurance by 2026 if the American Health Care Act, the bill the House passed to replace ObamaCare, is passed in the Senate and signed by President Trump. This number is concerning — until you look at it and the CBO’s handling of the health care bills more closely. …First, the CBO was wildly inaccurate when it came to ObamaCare, predicting that 23 million people would be getting policies via the exchanges by 2016. The actual number ended up being only 10.4 million… Second, many who chose to buy insurance on the exchanges did so only because they wanted to avoid paying the penalty, not because they needed or wanted the insurance. Many didn’t buy insurance until they got sick.

The Oklahoman panned the CBO’s calculations.

IN the real world, people who don’t have insurance coverage cannot lose it. Yet…the CBO estimates 14 million fewer people will have coverage in 2018 if the House bill is enacted than would be the case if the ACA is left intact, and 23 million fewer by 2026. …In 2016, there were roughly 10 million people obtaining insurance through an Obamacare exchange. The CBO estimated that number would suddenly surge to 18 million by 2018 if the law was left intact, but that far fewer people would be covered if the House reforms became law. Put simply, the CBO estimated that millions of people who don’t have insurance through an exchange today would “lose” coverage they would otherwise obtain next year. That’s doubtful. …At one point, the office estimated 22 million people would receive insurance through an Obamacare exchange by 2016. As already noted, the actual figure was less than half that. One major reason for the CBO being so far off the mark is that federal forecasters believed Obamacare’s individual mandate would cause people to buy insurance, regardless of cost. That hasn’t proven true. …In a nutshell, the CBO predicts reform would cause millions to lose coverage they don’t now have, and that millions more would eagerly reject the coverage they do have because it’s such a bad deal. Those aren’t conclusions that bolster the case for Obamacare.

And here are passages from another WSJ editorial.

CBO says 14 million fewer people on net would be insured in 2018 relative to the ObamaCare status quo, rising to 23 million in 2026. The political left has defined this as “losing coverage.” But 14 million would roll off Medicaid as the program shifted to block grants, which is a mere 17% drop in enrollment after the ObamaCare expansion. The safety net would work better if it prioritized the poor and disabled with a somewhat lower number of able-bodied, working-age adults. The balance of beneficiaries “losing coverage” would not enroll in insurance, CBO says, “because the penalty for not having insurance would be eliminated.” In other words, without the threat of government to buy insurance or else pay a penalty, some people will conclude that ObamaCare coverage isn’t worth the price even with subsidies. …CBO’s projections about ObamaCare enrollment…were consistently too high and discredited by reality year after year. CBO is also generally wrong in the opposite direction about market-based reforms, such as the 2003 Medicare drug benefit whose costs the CBO badly overestimated.

Here are excerpts from Seth Chandler’s Forbes column.

My complaints about the CBO largely revolve around its dogged refusal to adjust its computations to the ever-more-apparent failings of the Affordable Care Act. When the CBO says that 23 million fewer people will have insurance coverage under the AHCA than under the ACA — a statistic that politics have converted into a mantra —  that figure is predicated on an ACA that no longer exists. It is based on the continuing assumption that the ACA will have 18 million people enrolled on its exchanges in 2018 and that this situation will persist until 2026. I know no one on any side of the political spectrum who believes this to be true. The ACA has about 11 million people currently enrolled on its exchanges in 2017 and, with premiums going up, some insurers withdrawing from various markets, and the executive branch fuzzing up whether the individual mandate will actually be enforced. The consensus is that ACA enrollment will stay the same or go down, not increase 60%.

And here’s some of what Drew Gonshorowski wrote for the Daily Signal.

…reducing premium levels by rolling back regulations could actually have the effect of making plans more desirable for individuals looking to pay less. The CBO lacks any real discussion of these positive effects. …The CBO’s score on Medicaid…reflects that it assumes more states would likely have expanded in the future under the Affordable Care Act. Thus, its projection that 14 million fewer people would be insured due to not having Medicaid under the American Health Care Act might be overstated… CBO…assumes the Affordable Care Act will enroll 7 to 8 million more people in the individual market, when in reality it does not appear this will be the case

Last but not least, my former colleague Robert Moffit expressed concerns in a column for USA Today. The part that caught my eye was that CBO has a less-than-stellar track record on Obamacare projections.

The GOP should be skeptical of CBO’s coverage estimates. It has been an abysmal performance. For example, CBO projected initially that 21 million persons would enroll in exchange plans in 2016. The actual enrollment: 11.5 million.

The bottom line is that CBO overstated the benefits of Obamacare, at least as measured by the number of people who would sign up for the program.

The bureaucrats were way off.

Yet CBO continues to use those inaccurate numbers, creating a make-believe baseline that is then used to estimate a large number of uninsured people if the Republican bill is enacted.

This is sort of like the “baseline math” that is used to measure supposed spending cuts when the budget actually is getting bigger.

P.S. You may be wondering why Republicans don’t fully repeal Obamacare so that they can get credit for falling premiums. Part of the problem is that they are using “reconciliation” legislation that supposedly is limited to fiscal matters. In other words, you can’t repeal red tape and regulation. At least according to some observers. I think that’s silly since such interventions drive up the cost of health care, which obviously has an impact on the budget. Also, Republicans are a bit squeamish about reducing subsidies for various groups, whether explicit (like the Medicaid expansion) or implicit (like community rating). In other words, the Second Theorem of Government applies.

Read Full Post »

Donald Trump wants the federal government to subsidize child care. If enacted, this policy is sure to increase costs and lead to inefficiency, just as similar types of intervention have caused problems in both healthcare and higher education.

While Trump’s proposal is misguided, it hasn’t generated much surprise because politicians routinely try to buy votes with other people’s money.

I was surprised, however, when the normally market-friendly American Enterprise Institute began to publish articles starting a few years ago in support of government policies on the related issue of paid family leave. I was even more surprised when I saw that AEI teamed up with the left-leaning Brookings Institution on a joint “Project on Paid Parental Leave.”

This is not an April Fool’s joke.

And I’m not the only one who is perplexed that someone at AEI is pushing one of Hillary Clinton’s favorite policies. In a comment on one of the AEI articles, a reader asks a very pointed question.

…why, exactly, a purported conservative think-tank would like to impose a one-size-fits-all, top-down national policy upon all businesses in all states, regardless of cost, on the flimsy argument that ‘It’s a good thing.’

Aparna Mathur, AEI’s Co-Directors of the Project, has an article responding to the question of whether intervention from Washington can be considered pro-freedom or pro-market.

To her credit, she basically admits that the answer is no.

I see your point that encouraging a federal paid family leave plan goes against the idea of limited government. …we don’t think markets are the end-all solution here… If we don’t intervene, then that’s how it’s going to continue. …I also agree with your point that this will be a burden on businesses. …we have to be open to the idea that in some areas, markets fail or may under-provide a benefit. And in those cases, for the larger good of society…, we need to accept some sharing of costs.

But while she admits the policy is statist, she nonetheless justifies it because there ostensibly is a market failure.

I’m temped to explain why this is nonsense. After all, the fact that we can’t have everything we want because of scarcity and trade-offs is one of the reasons market exist, not evidence of failure.

But I don’t need to explain because one of Ms. Mathur’s colleagues already has done the job. Here’s some of what Benjamin Zycher wrote on this topic.

There are no free lunches, and the mere fact that expanded paid leave in isolation would be very nice for some or many workers says little about the unavoidable tradeoffs.  Would a given worker or group of workers prefer more such leave combined with lower explicit wages, or with fewer other nonwage benefits, or with employer demands for higher productivity? …with respect to the new moms returning to work soon after giving birth: Was that not their choice?  Yes, in almost all cases, and it is not clear from Mathur’s discussion precisely why such costs ought to be “shared across society.” …Whatever “socializing the costs” comes to mean, it is inevitable that the proponents of such a policy, unconcerned with the expansion of government power, will demand that businesses give something up…  So much again, for the free-lunch atmospherics: Such increases in costs will reduce employment… Which brings us to the final assertion: “In some areas, markets fail or may underprovide a benefit.”  Wow.  What does “underprovide” mean?  …there are only two basic approaches to answering that question.  The first: the outcomes emerging from competitive markets, in this case the amount of paid leave employers offer to employees and the amount that employees are willing to accept as part of total compensation, including working conditions defined broadly.  Mathur simply rejects that outcome as too little.  The second: Political determination of the appropriate amount of paid leave, in which majorities impose their will on everyone regardless of individual preferences.  Why stop at paid leave?  Why not have voters determine wages, vacation policies, dress codes, and everything else?  And are voters really qualified to do so?

I especially like Zycher’s final point. The notion that 51 percent of people should be able to dictate the terms of contracts to both employers and employees is offensive.

Indeed, rejection of untrammeled majoritarianism was one of the main goals of America’s Founders when they put together the Constitution.

And since we’re on the topic of majoritarianism, Professor Don Boudreaux explains that favorable opinion polls for mandated parental leave are both irrelevant and misleading.

Of course that’s what the polls show – which is precisely why such polls are unreliable in cases such as this.  We need take no polls to discover that people generally prefer to get benefits at a cost to them of nothing.  Such ‘information’ is hardly newsworthy.  …I want, for example, a brand new Mercedes-Maybach S600, but because I’m unwilling to pay the hefty price for the benefit that owning such a car would give to me, the correct conclusion is that I do not really want such a car given its cost.

In other words, Boudreaux and Zycher both agree that there’s no free lunch. Paid leave, mandated by government, necessarily imposes a cost.

And what’s really ironic about this issue is that some honest female analysts acknowledge that women will bear a lot of the cost. Simply stated, employers will provide them lower cash wages to offset the liability that is created by the government intervention.

P.S. To the credit of AEI, it employs one of the nation’s best scholars on the faux issue of the gender pay gap (and you know it’s a fake issue because even Obama’s economic advisor dismissed the silly claim that markets deliberately overpay men).

P.P.S. While I wish Ms. Mathur’s support for intervention was just an April Fool’s joke, at least I can share some intentional humor to celebrate the day.

We know all about leftist hypocrites, and here’s another one to add to the list (h/t: Reddit).

Needless to say, I’m not expecting Michael Moore to sell one of his many homes to help the poor, either.

If you like April Fool’s Day humor, I shared some examples back in 2013.

Read Full Post »

I’m flabbergasted when people assert that America’s costly and inefficient healthcare system is proof that free markets don’t work.

In hopes of helping them understand what’s really going on, I try to explain to them that an unfettered market involves consumers and producers directly interacting with their own money in an open and competitive environment.

I then explain why that’s not a description of the U.S. system. Not even close. As I noted in Part I, consumers directly finance only 10.5 percent of their healthcare expenses. Everything else involves a third-party payer thanks to government interventions such as Medicare, Medicaid, the healthcare exclusion, the Veterans Administration, etc.

Obamacare then added another layer of intervention to the existing mess. By my rough calculations, that costly boondoggle took the country from having a system that was 68-percent controlled and dictated by government to a system where government dictates and controls 79 percent of the system.

This is very relevant because Republicans in Washington are now trying to “repeal and replace” Obamacare, but they’re confronting a very unpleasant reality. Undoing that legislation won’t create a stable, market-driven healthcare system. Instead, we’d only be back to where we were in 2010 – a system where government would still be the dominant player and market forces would be almost totally emasculated.

The only difference is that Republicans would then get blamed for everything that goes wrong in the world of healthcare rather than Obama and the Democrats (and you better believe that’s a big part of the decision-making process on Capitol Hill).

Yes, the GOP plan would save some money, which is laudable, but presumably the main goal is to have a sensible and sustainable healthcare system. And that’s not going to happen unless there’s some effort to somehow unravel the overall mess that’s been created by all the misguided government policies that have accumulated over many decades.

This isn’t a new or brilliant observation. Milton Friedman wrote about how government-controlled healthcare leads to higher costs and lower quality back in 1977, but I can’t find an online version of that article, so let’s look at what he said in a 1978 speech to the Mayo Institute.

I realize that many people won’t have 45 minutes of spare time to watch the entire video, so I’ll also provide some excerpts from a column Friedman wrote back in the early 1990s that makes the same points. He started by observing that bureaucratic systems have ever-rising costs combined with ever-declining output.

…a study by Max Gammon…comparing input and output in the British socialized hospital system…found that input had increased sharply, while output had actually fallen. He was led to enunciate what he called “the theory of bureaucratic displacement.” In his words, in “a bureaucratic system . . . increase in expenditure will be matched by fall in production. . . . Such systems will act rather like `black holes,’ in the economic universe, simultaneously sucking in resources, and shrinking in terms of `emitted production.'” …concern about the rising cost of medical care, and of proposals to do something about it — most involving a further move toward the complete socialization of medicine — reminded me of the Gammon study and led me to investigate whether his law applied to U.S. health care.

Friedman then noted how this bureaucratic rule operated in the United States after the healthcare exclusion was adopted during World War II.

Even a casual glance at figures on input and output in U.S. hospitals indicates that Gammon’s law has been in full operation for U.S. hospitals since the end of World War II… Before 1940, input and output both rose, input somewhat more than output, presumably because of the introduction of more sophisticated and expensive treatment. The cost of hospital care per resident of the U.S., adjusted for inflation, rose from 1929 to 1940 at the rate of 5% per year; the number of occupied beds, at 2.4% a year. Cost per patient day, adjusted for inflation, rose only modestly. The situation was very different after the war. From 1946 to 1989, the number of beds per 1,000 population fell by more than one-half; the occupancy rate, by one-eighth. In sharp contrast, input skyrocketed. Hospital personnel per occupied bed multiplied nearly seven-fold and cost per patient day, adjusted for inflation, an astounding 26-fold.

Friedman then explained that the adoption of Medicare and Medicaid hastened the erosion of market forces.

One major engine of these changes was the enactment of Medicare and Medicaid in 1965. A mild rise in input was turned into a meteoric rise; a mild fall in output, into a rapid decline. …The federal government’s assumption of responsibility for hospital and medical care for the elderly and the poor provided a fresh pool of money, and there was no shortage of takers. Personnel per occupied bed, which had already doubled from 1946 to 1965, more than tripled from that level after 1965. Cost per patient day, which had already more than tripled from 1946 to 1965, multiplied a further eight-fold after 1965. Growing costs, in turn, led to more regulation of hospitals, further increasing administrative expense.

Remember, Friedman wrote this article back in 1991. And the underlying problems have gotten worse since that time.

So what’s the bottom line? Friedman pointed out that the problem is too much government.

The U.S. medical system has become in large part a socialist enterprise. Why should we be any better at socialism than the Soviets?

And he explained that there’s only one genuine solution.

The inefficiency, high cost and inequitable character of our medical system can be fundamentally remedied in only one way: by moving in the other direction, toward re-privatizing medical care.

Some readers may be skeptical. Even though he cited lots of historical evidence, perhaps you’re thinking Friedman’s position is impractical.

So let’s fast forward to 2017 and look at some very concrete data assembled by Mark Perry of the American Enterprise Institute. He looks at medical costs over the past 18 years and compares what’s happened with prices for things that are covered by third-party payer (either government or government-distorted private insurance) and prices for cosmetic procedures that are financed directly by consumers.

As you can see, the relative price of health care generally declines when people are spending their own money and operating in a genuine free market. But when there’s third-party payer, relative prices rise.

Perry explains the issue very succinctly.

Cosmetic procedures, unlike most medical services, are not usually covered by insurance. Patients paying 100% out-of-pocket for elective cosmetic procedures are cost-conscious, and have strong incentives to shop around and compare prices at the dozens of competing providers in any large city. Providers operate in a very competitive market with transparent pricing and therefore have incentives to provide cosmetic procedures at competitive prices. Those providers are also less burdened and encumbered by the bureaucratic paperwork that is typically involved with the provision of most standard medical care with third-party payments. Because of the price transparency and market competition that characterizes the market for cosmetic procedures, the prices of most cosmetic procedures have fallen in real terms since 1998, and some non-surgical procedures have even fallen in nominal dollars before adjusting for price changes. In all cases, cosmetic procedures have increased in price by far less than the 100.5% increase in the price of medical care services between 1998 and 2016 and the 176.6% increase in hospital services.

In other words, a free market can work in healthcare. And it gives us falling prices and transparency rather than bureaucracy and inefficiency. Maybe when they’ve exhausted all other options, Republicans will decide to give freedom a try.

P.S. If you want to get a flavor for how competition and markets generate better results, watch this Reason TV video and read these stories from Maine and North Carolina.

Read Full Post »

As I wrote yesterday (and have pontificated about on many occasions), the main problem with America’s healthcare system is that various government interventions (Medicare, Medicaid, Obamacare, tax code’s healthcare exclusion, etc) have created a system where people – for all intents and purposes – buy healthcare with other people’s money.

And as Milton Friedman wisely observed, that approach (known as “third-party payer”) undermines normal market incentives for lower costs. Indeed, it’s a green light for ever-higher costs, which is exactly what we see in the parts of the healthcare system where government programs or insurance companies pick up most of the tab.

For what it’s worth, I’m not overflowing with confidence that the new Obamacare-replacement proposal from Republicans will have much impact on the third-party payer crisis. And it probably doesn’t solve some of the Obamacare-specific warts in the system. If you want to get depressed about those issues, read what Michael Cannon, Philip Klein, and Christopher Jacobs have written about the new GOP plan.

But healthcare in America is also a fiscal issue. And if we’re just looking at the impact of the American Health Care Act on the burden of government spending and taxes, I’m a bit more cheerful.

The Congressional Budget Office released its official score on the impact of the legislation. Here’s the excerpt that warmed my heart.

Outlays would be reduced by $1.2 trillion over the period, and revenues would be reduced by $0.9 trillion. The largest savings would come from reductions in outlays for Medicaid and from the elimination of the Affordable Care Act’s (ACA’s) subsidies for nongroup health insurance. … parts of the legislation would repeal or delay many of the changes the ACA made to the Internal Revenue Code… Those with the largest budgetary effects include: • Repealing the surtax on certain high-income taxpayers’ net investment income; • Repealing the increase in the Hospital Insurance payroll tax rate for certain high-income taxpayers; • Repealing the annual fee on health insurance providers; and • Delaying when the excise tax imposed on some health insurance plans with high premiums would go into effect.

And fellow wonks will be interested in this table.

By the way, the “two cheers” in the title may be a bit too generous. After all, there should be full reform of Medicare and Medicaid. Though I suppose some of that can happen (at least Medicaid, hopefully) as part of the regular budget process.

It’s also unfortunate that Republicans are creating a new refundable tax credit (and when you see the term “refundable tax credit,” that generally is a sneaky euphemism for more government spending that is laundered through the tax code, sort of like the EITC) to replace some of the Obamacare subsidies that are being repealed.

So it’s far from ideal.

For those who want to see the glass as being half-full rather than half-empty, however, Ryan Ellis has a very upbeat assessment in a column for Forbes.

It’s a net spending cut of over $1.2 trillion and a net tax cut of nearly $900 billion over the next decade. …the score shows that the AHCA would be a large and permanent tax cut for families and employers….This should lower the tax revenue baseline considerably, perhaps even by half a percentage point of the economy.

I like starving the beast, so I agree this is a good thing.

And I also agree with Ryan that the resulting lower tax burden on dividends and capital gains is very positive. After all, double taxation is probably the most pernicious feature of the internal revenue code.

The most pro-growth tax cut in the bill is the elimination of the so-called “NIIT” or “net investment income tax.” It adds on a 3.8 percentage point surtax on savers and investors. By eliminating NIIT, the bill cuts the capital gains and dividends tax from 23.8 percent in 2017 to 20 percent in 2018 and beyond. …The contribution limit to HSAs is doubled, from nearly $7000 for families today to $14,000 starting in 2018.

But I’ll close with some sad news. If the legislation is approved, that probably means no more Obamacare-related humor. If this makes you sad, you can easily spend about 30 minutes enjoying Obamacare  cartoons, videos, and jokes by clicking here, here, here, here, here, herehere, here, here, here, here, here, here, here, here, here, here, here, here, and here.

Read Full Post »

I shared last year a matrix to illustrate Milton Friedman’s great insight about the superior results achieved by markets compared to government.

Incentives explain why markets work best. When you spend your own money on yourself (box 1), you try to maximize quality while minimizing cost. And that drives the businesses that are competing for your money to constantly seek more efficient ways of producing better products at better prices.

This system generates creative destruction, which sometimes can be painful, but the long-term result is that we are vastly richer.

Governments, by contrast, don’t worry about efficiency or cost (box 4).

Today, though, let’s  use Friedman’s matrix to understand the shortcomings of the US healthcare system. Way back in 2009, I opined that the most important chart in healthcare was the one showing that American consumers directly paid for less than 12 percent of health expenditures.

For all intents and purposes, instead of buying healthcare with their own money, they use other people’s money (box 2), a phenomenon known as third-party payer. And because most of their health expenses are financed by either government (thanks to Medicare, Medicaid, Obamacare, etc) or insurance companies (thanks to the tax code’s healthcare exclusion), consumers focus only on quality and don’t care much about cost.

That 2009 column was written before Obamacare’s enactment, so let’s see if anything has changed.

Well, we know healthcare has become more expensive. But do we know why?

The answer, at least in part, is that consumers are directly financing an even smaller percentage of their healthcare expenses. In other words, the distortions caused by third-party payer have become worse.

Here’s the most-recent data from the federal government’s Centers for Medicare and Medicaid Services (specifically the National Health Expenditures by type of service and source of funds, CY 1960-2015). Consumers are now paying only 10.5 percent of healthcare costs.

Now let’s consider the issue of efficiency.

Are we getting better healthcare for all the money that’s being spent?

That doesn’t seem to be the case. Here’s another chart from the archives. It compares per-capita health spending in various nations with average life expectancy.

As you can see, the United States is not getting more bang for the buck. And I very much doubt an updated version of those numbers would show anything different.

Heck, we even have more government spending on healthcare, per capita, than many nations with fully nationalized systems.

So if we’re not buying better health outcomes with all this money, what are we getting?

The blunt answer is bureaucracy and inefficiency. Here are some excerpts I shared years ago from a column by Robert Samuelson.

There are 9 times more clerical workers in health care than there are physicians, and twice as many clerical workers as registered nurses. This investment has not paid off in superior outcomes or better customer service, however. …Every analysis of medical care that has been done highlights the significant waste of resources in providing care. Consider a few examples: one study found that physicians spent on average of 142 hours annually interacting with health plans, at an estimated cost to practices of $68,274 per physician (Casalino et al., 2009). Another study found that 35 percent of nurses’ time in medical/surgical units of hospitals was spent on documentation (Hendrich et al., 2008).

Let’s close with a chart from a left-wing group that wants a single-payer system.

And this chart clearly makes a compelling case that the current approach in the United States is very wasteful.

For what it’s worth, I’m slightly skeptical about the veracity of the numbers. Why, for instance, would there be a sudden explosion of administrators starting about 1990?

But even if the data is overstated, I’m sure the numbers are still bad. We see the same thing in other areas of our economy where government-instigated third-party payer enables waste and featherbedding. Higher education is an especially shocking example.

The real issue is how to solve the problem. Our leftist friends think a single-payer healthcare system would solve the problem, but that would be akin to nationalizing grocery stores to deal with the inefficiencies created by food stamps and agriculture subsidies.

The real answer, as Julie Borowski explains in this video, is unraveling all the government interventions that caused the problem in the first place.

And if you want another video on the topic, here’s a Dutch expert making similar points. I also recommend this clever cartoon video that explains third-party payer. And this Reason video on how costs are lower when actual markets operate.

And if aren’t already numbed by lots of data, Mark Perry and Devon Herrick have more evidence of lower costs when third-party payer is reduced.

Read Full Post »

A couple of years ago, filled with disgust at the sleazy corruption of the federal Leviathan, I put forth a simple explanation for what happens in Washington, DC.

I call it the “First Theorem of Government,” and I think it accurately reflects the real purpose and operation of government. Except I probably should have added lobbyists and contractors. And it goes without saying (though I probably should have said it anyhow) that politicians are the main beneficiaries of this odious racket.

I think this theorem has stood the test of time. It works just as well when Republicans are in charge as it does when Democrats are in charge.

But it doesn’t describe everything.

For instance, Republicans have won landslide elections in recent years by promising that they will repeal Obamacare the moment they’re in charge. Well, now they control both Congress and the White House and their muscular rhetoric has magically transformed into anemic legislation.

This is very disappointing and perhaps I’ll share some of Michael Cannon’s work in future columns about the policy details, but today I want to focus on why GOP toughness has turned into mush.

In part, this is simply a reflection of the fact the rhetoric of politicians is always bolder than their legislation (I didn’t agree with 98 percent of what was said by Mario Cuomo, the former Governor of New York, but he was correct that “You campaign in poetry. You govern in prose.”)

But that’s just a small part of the problem. The real issue is that it’s relatively easy for GOP politicians to battle against proposed handouts and it’s very difficult to battle against existing handouts. That’s because government goodies are like a drug. Recipients quickly get hooked and they will fight much harder to preserve handouts than they will to get them in the first place.

And that’s the basic insight of the “Second Theorem of Government.”

Here’s a recent interview on FBN. The topic is the Republican reluctance to fully repeal Obamacare. I only got two soundbites, and they both occur in the first half of the discussion, but you can see why I was motivated to put forth the new theorem.

Simply stated, I’m disappointed, but I’m more resigned than agitated because this development was so sadly predictable.

And here are a couple of follow-up observations. I guess we’ll call them corollaries to the theorem.

  1. You break it, you buy it – Government intervention had screwed up the system well before Obamacare was enacted, but people now blame the 2010 law (and the Democrats who voted for it) for everything that goes wrong with healthcare. Republicans fear that all the blame will shift to them if their “Repeal and Replace” legislation is adopted.
  2. Follow the money – What’s partly driving GOP timidity is their desire not to anger many of the interest groups – such as state governments, hospitals, doctors, insurance companies, etc – who benefit from various Obamacare handouts. That’s what is motivating criticism for politicians such as Ohio’s John Kasich and Alaska’s Lisa Murkowski.
  3. Don’t throw the baby out with the bathwater – The “Cadillac Tax” is the one part of Obamacare that’s worth preserving because it will slowly cut back on the distorting tax preferences that lead to over-insurance and third-party payer. For what it’s worth, the GOP plan retains that provision, albeit postponed until 2025.
  4. The switch in time that saved…Obamacare – I’m still upset that Chief Justice John Roberts (aka, the reincarnation of the 1930s version of Justice Roberts) put politics above the Constitution by providing the decisive vote in the Supreme Court decision that upheld Obamacare. If the law had been blocked before the handouts began, we wouldn’t be in the current mess.

For these reasons (as well as other corollaries to my theorem), I’m not brimming with optimism that we’ll get real Obamacare repeal this year. Or even substantive Obamacare reform.

P.S. Now you know what I speculated many years ago that Obamacare would be a long-run victory for the left even though Democrats lost many elections because of it. I sometimes hate when I’m right.

Read Full Post »

The United States is going to become another Greece, and it’s largely because of poorly designed entitlement programs. As the old saying goes, demography is destiny.

Let’s look at just one piece of that puzzle. James Capretta of the American Enterprise Institute has a very sobering summary of how Medicaid has metastasized into one of the largest and fastest-growing entitlement programs.

You should read the entire article, but if you’re pressed for time, I’m going to share two grim charts that tell you what you need to know.

First, we have a look at how the burden of Medicaid spending, measured as a share of national output, has increased over time.

What makes this chart particularly depressing is that Medicaid was never supposed to become a massive entitlement program.

It was basically created so the crowd in Washington could buy a few votes. Yet the moment politicians decided that it was the federal government had a role in subsidizing health care for the indigent, it was just a matter of time before the program was expanded to new groups of potential voters.

And every time the program was expanded, that increased the burden of spending and further undermined market forces in the health sector.

This is why entitlement programs are so injurious to a nation.

But Medicaid isn’t just a problem because of its adverse fiscal and economic impact.

The program also is exacerbating the redistribution culture in the United States as more and more people get trapped in the web of dependency.

Which brings us to our second chart from Capretta’s article. Here’s a look at the share of the population being subsidized by Medicaid.

As a fiscal wonk, I realize I should care more about the budget numbers, but I actually find this second graph more depressing. In my lifetime, we’ve gone from a nation where the federal government had no role in the provision of low-income healthcare, and now nearly one out of every five Americans is on the federal teat.

Even though we’re far richer than we were in the mid-1960s when the program was created, which presumably should have meant less supposed need for federal subsidies.

For further background on the issue, here’s a video I narrated for the Center for Freedom and Prosperity.

I urge you to pay close attention to the discussion that starts at 1:48. I explain that programs with both federal and state spending create perverse incentives for even more spending. This is mostly because politicians in either Washington or state capitals can expand eligibility and take full credit for new handouts while only being responsible for a portion of the costs. But it also happens because the federal match gives states big incentives to manipulate the system to get more transfers.

P.S. All of which explains why I think Medicaid reform should be the first priority when looking at how to fix the entitlements mess, even before Medicare reform and Social Security reform.

P.P.S. I’m not overflowing with optimism that Trump will tackle the issue, but there is a feasible scenario for him fixing the program.

P.P.P.S. Regardless, one would hope all politicians would agree that it’s time to tackle rampant Medicaid fraud.

Read Full Post »

One of the many frustrations of working in Washington is that politicians, when dealing with a problem created by government intervention, routinely propose that the solution is to give even more power to government. And since they are either unwilling or unable to connect the dots, they don’t care that their “solutions” will make matters worse. I’ve referred to this unfortunate pattern as “Mitchell’s Law.”

Of course, this concept isn’t new to me. It’s been around for a long time. I just like the phrase, “Bad government policy begets more bad government policy.”

Other people also have been publicizing this concept. I especially like what Chuck Blahous of the Mercatus Center recently wrote about the 5-step Washington tradition of “doubling down” on policy mistakes. The final step could be called the lather-rinse-repeat cycle of government failure.

Chuck also cites some very powerful (and very depressing) examples from healthcare policy.

He starts with the tax code’s healthcare exclusion.

With the best of intentions the federal government has long exempted worker compensation in the form of health benefits from income taxation.  There is wide consensus among economists that the results of this policy have been highly deleterious.  As I have written previously, this tax exclusion “depresses wages, it drives up health spending, it’s regressive, and it makes it harder for people with enduring health conditions to change jobs or enter the individual insurance market.”  Lawmakers have reacted not by scaling back the flawed policy that fuels these problems, but rather by trying to shield Americans from the resulting health care cost increases.

I fully agree.

He then points out that Medicare, Medicaid, and other spending programs have a similar impact.

The federal government has enacted programs such as Medicare and Medicaid to protect vulnerable seniors and poor Americans from ruinous health care costs.  …it is firmly established that creating these programs pushed up national health spending, driving health costs higher for Americans as a whole.  Consumer displeasure over these health cost increases subsequently became a rationale for still more government health spending, rather than reducing government’s contribution to the problem.  Examples of this doubling down include the health exchange subsidies established under the Affordable Care Act (ACA), as well as its further expansion of Medicaid.

I fully agree.

Chuck also shows how government involvement has created the same unhealthy dynamic in other areas, writing about college costs, Social Security, and Obamacare.

The moral of the story, as displayed by this poster, is that more government is the problem instead of the solution. Which is something Bastiat warned us about back in the 1800s.

Read Full Post »

Way back in 2009, some folks on the left shared a chart showing that national expenditures on healthcare compared to life expectancy.

This comparison was not favorable to the United States, which easily spent the most money but didn’t have concomitantly impressive life expectancy.

At the very least, people looking at the chart were supposed to conclude that other nations had better healthcare systems.

And since the chart circulated while Obamacare was being debated, supporters of that initiative clearly wanted people to believe that the U.S. somehow could get better results at lower cost if the government played a bigger role in the healthcare sector.

There were all sorts of reasons to think that chart was misleading (higher average incomes in the United States, more obesity in the United States, different demographics in the United States, etc), but my main gripe was that the chart was being used to advance the cause of bigger government when it actually showed – at least in part – the consequences of government intervention.

The real problem, I argued, was third-party payer. Thanks to programs such as Medicare and Medicaid, government already was paying for nearly 50 percent of all heath spending in the United States (indeed, the U.S. has more government spending for health programs than some nations with single-payer systems!).

But that’s just party of the story. Thanks to a loophole in the tax code for fringe benefits (a.k.a., the healthcare exclusion), there’s a huge incentive for both employers and employees to provide compensation in the form of very generous health insurance policies. And this means a big chunk of health spending is paid by insurance companies.

The combination of these direct and indirect government policies is that consumers pay very little for their healthcare. Or, to be more precise, they may pay a lot in terms of taxes and foregone cash compensation, but their direct out-of-pocket expenditures are relatively modest.

And this is why I said the national health spending vs life expectancy chart was far less important than a chart I put together showing the relentless expansion of third-party payer. And the reason this chart is so important is that it helps to explain why healthcare costs are so high and why there’s so much inefficiency in the health sector.

Simply stated, doctors, hospitals, and other providers have very little market-based incentive to control costs and be efficient because they know that the overwhelming majority of consumers won’t care because they are buying care with other people’s money.

To get this point across, I sometimes ask audiences how their behavior would change if I told them I would pay 89 percent of their dinner bill on Friday night. Would they be more likely to eat at McDonald’s or a fancy steakhouse? The answer is obvious (or should be obvious) since they are in box 2 of Milton Friedman’s matrix.

So why, then, would anybody think that Obamacare – a program that was designed to expand third-party payer – was going to control costs?

Though I guess it doesn’t matter what anybody thought at the time. The sad reality is that Obamacare was enacted. The President famously promised healthcare would be more affordable under his new system, both for consumers and for taxpayers.

So what happened?

Well, the law’s clearly been bad news for taxpayers.

But let’s focus today on households, which have borne the brunt of the President’s bad policies. The Wall Street Journal had a report a few days ago about what’s been happening to the spending patterns of middle-class households.

The numbers are rather grim, at least for those who thought Obamacare would control health costs.

A June Brookings Institution study found middle-income households now devote the largest share of their spending to health care, 8.9%… By 2014, middle-income households’ health-care spending was 25% higher than what they were spending before the recession that began in 2007, even as spending fell for other “basic needs” such as food, housing, clothing and transportation, according to an analysis for The Wall Street Journal by Brookings senior fellow Diane Schanzenbach. …Workers aren’t the only ones feeling the pain of rising health-care costs. Employers still typically pay roughly 80% of individual health-insurance premiums… In 2015, 8% of Americans’ household spending went toward health care, up from 5.8% in 2007, according to the Labor Department.

Here’s a chart from the story. It looks at data from 2007-2014, so it surely wouldn’t be fair to say Obamacare caused all the increase. But it would be fair to say that the law hasn’t delivered on the empty promise of lower costs.

Let’s close with a few important observations.

First, there’s a very strong case to repeal Obamacare, but nobody should be under the illusion that this will solve the myriad problems in the health sector. It would be a good start, but never forget that the third-party payer problem existed before Obamacare.

Second, undoing third-party payer will be like putting toothpaste back in a tube. Even though there are some powerful examples of how healthcare costs are constrained when genuine market forces are allowed to operate, consumers will be very worried about shifting to a system where they pay directly for a greater share of their healthcare costs.

Third, there’s one part of Obamacare that shouldn’t be repealed. The so-called Cadillac Tax may not be the right way to deal with the distorting impact of the healthcare exclusion, but it’s better than nothing.

Actually, we could add one final observation since the Obama era will soon be ending. When historians write about his presidency, will his main legacy be the Obamacare failure? Or will they focus more on the failed stimulus? Or maybe the economic stagnation that was caused by his policies?

Read Full Post »

“So many bad ideas, so little time.”

That’s my attitude about Hillary Clinton. She proposes misguided policies at such a rapid rate that I feel like I’m having to spend too much of each day trying to correct all the economic mistakes that emanate from her and her campaign.

For the fifth time over the last seven days (see other examples here, here, here, and here), I feel obliged to do it again.

Our topic is her proposal to increase handouts, subsidies, and bailouts for colleges and universities.

Here’s a brief interview I just did on the topic. Our discussion had to be abruptly ended because of what the industry calls a “hard break,” but I got out my main points that 1) subsidies benefit college bureaucracies rather than students and 2) that Hillary’s ostensible reforms will make things worse.

By the way, I can’t resist chuckling about the main assertion put forth by Alan Colmes. He thought it would be effective to point out that some of the handouts started under President George W. Bush.

But so what?!? The fact that a bad policy originated under a Republican before being expanded by a Democrat doesn’t somehow turn a pig’s ear into a silk purse.

Also, just in case you’re curious about what I was planning to say when the interview was cut off. I was going to point out that I agreed with Alan about President Bush’s role, but I was going to say that was additional evidence (given Bush’s overall statist record while president) against what Hillary is proposing.

And then, my additional point was going to be that it’s a very bad idea to allow loan forgiveness just for former students who become bureaucrats (i.e., go into “public service”). For Heaven’s sake, people who get government jobs already are getting far higher compensation than taxpayers in the private sector. Needless to say, it’s not a good idea to make a life of bureaucratic indolence even more attractive.

But let’s return to the bigger issue of why it’s misguided to have bailouts, subsidies, and handouts for higher education. If you want the opinions of a real expert on this issue, Charlie Sykes has a column on the topic in the Wall Street Journal.

Hillary Clinton’s plan for higher education is simple: a massive bailout wrapped in the promise of free tuition and relief from student loans. It’s a proposal that seems specifically designed to further inflate the higher-education bubble, while relieving the college-industrial complex of any pressure to reform. …College today costs too much, takes too long and offers dubious value to too many students. For decades, the price of a degree has risen much faster than the rate of inflation. …schools are spending more than ever on administration, promotions, athletics and noninstructional student services. The New England Center for Investigative Reporting and the American Institutes for Research found that between 1987 and 2012, colleges added 517,636 administrators and professional employees, creating a ratio at public colleges of two non-academic staffers for every full-time, tenure-track faculty member.

The current system has been bad news for students, who – thanks to subsidy-induced increases in tuition and fees – have been trapped on a treadmill.

Mr Sykes elaborates.

If the student finances the bill with loans, it’s more like buying a Lamborghini on credit—and then driving it off a cliff. Total student-loan debt has hit $1.3 trillion, according to the Federal Reserve, exceeding both the nation’s credit-card debt and its auto loans. Two-thirds of students now borrow to pay for their education, up from 45% in 1993, according to a New York Times analysis of federal data. At the end of 2014 the average student-loan borrower owed $26,700,according to analysts at the New York Fed, while 4% owed $100,000 or more.

More giveaways from government may seem like a good idea for students, but that’s only made possible by instead hurting taxpayers.

And students almost surely will suffer as well when you consider the indirect effects of this intervention.

Forgiving student debt or providing “free” tuition, with no new accountability measures, will only worsen today’s problems for future generations. The multibillion-dollar bailout Mrs. Clinton has proposed would only shift the costs of higher education to taxpayers, many of whom have not had the benefit of college. The Democratic nominee’s plan would also encourage more students to make poor educational choices by creating the illusion that college is free.

By the way, it’s very important to note that taxpayers are getting a rotten deal.

We’ve had lots more spending in recent decades, but no actual improvement in education.

Over the past five decades, billions in state and federal subsidies have contributed significantly to the exploding cost of higher education by making it easier for colleges to justify outrageous amenities. “Free” tuition will only further distort the incentives. …there is little evidence that additional spending has enhanced the value of the college degree. In a 2014 academic study of collegiate spending, economists Robert E. Martin and R. Carter Hill noted that research universities had cumulatively spent more than half a trillion dollars from 1987 to 2005. “There should be evidence of higher quality at these investment levels,” they wrote. Instead, “completion rates declined, grade inflation increased, students spend less time studying, adult numeracy/literacy rates declined, and critical thinking skills did not improve.”

Amen.

Indeed, this is exactly what we’ve seen in K-12 education.

Someone (more clever than me) needs to come up with the collegiate equivalent of this famous chart from the late Andrew Coulson.

We already know that the United States spends more per student on K-12 education than any other nation and gets mediocre results . That’s probably mostly due to the inefficient monopoly structure of elementary and secondary education.

The problems at the collegiate level are third-party payer and the inevitable negative effects of bureaucratic bloat and inefficiency.

The bottom line is that Hillary is right when she says higher-education spending is an investment. The problem is that she likes making investments that generate negative returns.

P.S. You won’t be surprised to learn that Paul Krugman also approves of investments with negative returns.

Read Full Post »

Normally, leftists get upset if there’s a big industry that charges high prices, engages in lots of featherbedding, and manipulates the political system for handouts.

But for some reason, when the industry is higher education, folks like Hillary Clinton think the answer is to shower colleges and universities with ever-greater subsidies.

She says the subsidies are for students, but I point out in this interview that the real beneficiaries are the schools that simply boost tuition and fees to capture any increase in student loans.

And I also pointed out that the colleges and universities don’t even use the money wisely.

Instead, they build bureaucratic empires with ever-larger numbers of administrators while money devoted to the classroom shrinks.

Sort of a pay-more-get-less business model.

Though that only works when there are government subsidies to enable the inefficiency and bloat.

But don’t take my word for it. According to a study published by the National Bureau of Economic Research (h/t: James Pethokoukis), tuition subsidies get captured by colleges and universities.

With all factors present, net tuition increases from $6,100 to $12,559 [and] the demand shocks — which consist mostly of changes in financial aid — account for the lion’s share of the higher tuition. …These results accord strongly with the Bennett hypothesis, which asserts that colleges respond to expansions of financial aid by increasing tuition. In fact, the tuition response completely crowds out any additional enrollment that the financial aid expansion would otherwise induce, resulting instead in an enrollment decline… Furthermore, the students who do enroll take out $6,876 in loans compared to $4,663 in the initial steady state. The college, in turn, uses these funds to finance an increase of investment expenditures from $21,550 to $27,338… Lastly, the model predicts that demand shocks in isolation generate a surge in the default rate from 17% to 32%. Essentially, demand shocks lead to higher college costs and more debt, and in the absence of higher labor market returns, more loan default inevitably occurs. …Our model also suggests that financial aid increases tuition at the bottom of the tuition distribution more so than it does at the top.

By the way, I closed the above interview by stating that I want to make colleges and universities at least partially liable if students don’t pay back their loans because that will create a better incentive structure.

Two scholars from the American Enterprise Institute addressed this issue in an article for National Review.

Just as government-subsidized easy money fueled a real-estate bubble in the 1990s and 2000s, boosting house prices while promoting unwise borrowing and lending, today government-subsidized easy money is fueling an education bubble — boosting tuition rates and reducing students’ incentives to choose education options smartly. …Like the brokers who caused the subprime-mortgage crisis, colleges push naïve students to take on debt regardless of their ability to repay, because colleges bear no cost when graduates default. A true solution requires a new financing system where colleges retain “skin in the game.”

The authors point out that default and delinquency are very common, but they point out that this is merely a symptom of a system with screwed-up incentives.

The high delinquency rate is a symptom of a wider problem — a broken higher-education system. Colleges are paid tuition regardless of whether their alumni succeed. They face little incentive to control costs when those costs can be passed on to students who fund them with government-guaranteed loans that are available regardless of the students’ ability to repay.

It’s not just whether they have an incentive to control costs. The current approach gives them carte blanche to waste money and jack up tuition and fees.

Between 1975 and 2015, the real cost of attending a private college increased by 171 percent while the real cost of public universities rose by 150 percent. If the tuition, room and board, and other fees at a four-year private college in 1975 were projected forward to 2015, adjusting for the average inflation rate, the cost of college in 2015 would have been $16,213. Instead, the actual cost in 2015 was $43,921. A large share of rising college costs can be attributed to expanded administration, new non-educational services, athletic programs, and government regulation. Colleges have economized by switching to part-time adjunct faculty. The American Association of University Professors estimates that roughly 3 out of 4 college courses are taught by adjuncts.

Amen. This is what I mean by the pay-more-get-less business model.

The solution, of course, it to make fat and lazy college administrators have to worry that their budgets will shrink if they continue to jack up tuition while providing sub-par education.

The key to controlling costs and student-debt burdens is to require colleges themselves to have “skin in the game” so they have strong incentives not only to provide a good education, but also to safeguard the financial solvency of their graduates. …With “skin in the game,” colleges will face pressure to control unnecessary costs and limit student indebtedness. Colleges will redouble their efforts to ensure that students graduate with the skills necessary to succeed in the job market. Resources will no longer be freely available for unnecessary non-educational university spending.

The bottom line is that bad things happen when the visible foot of the government supplants the invisible hand of the market.

That’s what I basically was trying to say in the interview when I made the crack about a reverse Midas touch whenever there is government intervention.

The solution, of course, is to phase out the subsidies that have created the problem.

But (just as is the case with healthcare) that’s a challenge because of the inefficiency that is now built into the system. Consumers will be worried that tuition and fees will remain high, which will mean higher out-of-pockets costs for college.

So while I understand why politicians will be reluctant to address the issue, the longer they wait, the worse the problem will become.

P.S. This video from Learn Liberty, featuring Professor Daniel Lin, is a great (albeit depressing) introduction to the issue of how government handouts lead to higher tuition.

P.P.S. Is there a “bubble” in higher education? While government intervention and handouts definitely have enabled needlessly high tuition, I’ve explained that those high prices will probably be permanent so long as the subsidies continue.

P.P.P.S. Unsurprisingly, Paul Krugman doesn’t understand the issue.

Read Full Post »

What’s the worst loophole (properly defined) in the cluttered internal revenue code?

I think the deduction for state and local taxes is very bad policy since it enables higher tax burdens in states such as California, New Jersey, and Illinois. The exemption for municipal bond interest is another misguided provision since it makes it easier for states to finance spending with debt.

Special favors in the tax code for ethanol also deserve scorn and disdain, and I’m also not a fan of the charitable deduction or the ways in which housing gets preferential treatment.

But if I had to pick just one tax preference to repeal, it would be the so-called healthcare exclusion. This is the policy that enables employers to deduct the cost of health insurance policies they buy for their employees.

You may think that deduction is reasonable. After all, employers also can deduct the wages and salaries they pay their employees. But here’s the catch. Employees pay tax on their wages and salaries, but they don’t have to pay tax on the value of their health insurance, even though such policies obviously are a form of compensation.

Moreover, since this type of compensation is shielded from both income taxes and payroll taxes, the playing field is therefore very tilted, which generates some very perverse results.

First, some background. As part of a broader analysis of the non-taxation of fringe benefits, Scott Greenberg of the Tax Foundation explains how government has created a big incentive to take income in the form of fringe benefits rather than wages and salaries.

…eighty years ago, it was relatively uncommon to offer workers compensation other than their regular wages and salaries. In 1929, only 1.9 percent of employee pay took the form of fringe benefits. By 2014, fringe benefits had risen to 19.2 percent of worker compensation.

Here’s a chart looking at the historical data.

Greenberg says this distortion in the tax code is unfair.

…the growing trend of unreported fringe benefits is “inequitable and inefficient.” This claim is spot on. For an illustration, imagine two employees, one of whom makes a salary of $100,000, and one of whom makes a salary of $80,000 and benefits worth $20,000, which largely go unreported. Although both workers receive the same overall compensation, the first employee is subject to a significantly higher tax burden than the second, which seems plainly unfair.

Moreover, the distortion lures people into making economically foolish choices.

Furthermore, this arrangement incentivizes companies to shift more compensation towards benefits, to help employees avoid taxes. This leads to an inefficient allocation of resources, towards services that employers might not have been willing to pay for in the absence of tax incentives.

He’s correct

Writing for the Weekly Standards, Ike Brannon looks specifically at the biggest tax-free fringe benefit.

…allowing employers to provide health insurance tax-free to their workers is terrible policy, a truism that any honest economist—whether liberal, conservative, or otherwise—would agree with. …First, workers end up with more health insurance than they would ever purchase on their own (since tax-free health insurance is worth more than income that’s taxed at 30%-50%), which gives people less take-home pay to spend as they see fit. Second, more generous health insurance entails lower co-pays as well as other provisions that insulate the worker from the actual cost of their health care. As a result, people become less sensitive to prices when seeking health care, and they consume more of it—most of which does nothing to improve health outcomes, numerous studies have shown.

For further details on this unfortunate tax preference, A. Barton Hinkle looks at the evolution of the health exclusion in a column for Reason.

…the original sin of the American health-care marketplace…was committed back in World War 2, when inflation led workers to demand higher wages – which many employers could not afford to pay because of price controls. …With wages frozen, employers needed another way to compete for labor made scarce by the draft. So some began offering health coverage. The practice took root, spread, and outlasted the war. In 1949 the National Labor Relations Board ruled that health benefits counted as wages for the purpose of union negotiations. Five years later, the IRS ruled that health coverage was not taxable income. The result was a double incentive for employers to offer fatter health benefits in lieu of fatter paychecks. …The result: a skyrocketing, ultimately unsustainable increase in national outlays for health care. …In short, for decades the federal government has encouraged employers to provide gold-plated health-care plans.

Joe Antos of the American Enterprise Institute explains how the “healthcare exclusion” is bad fiscal policy, bad health policy, and bad economic policy.

If we hope to move to an efficient healthcare system that is fair to everyone, Congress will have to take on the largest subsidy in the tax code. …Premiums paid for employment-based health insurance are excluded from federal income and payroll taxes.

When describing provisions that allow people to keep more of their own money, I would prefer to say largest distortion rather than largest subsidy, but I realize I’m being pedantic. Regardless of word choice, the net effect of this preference is negative.

The tax exclusion…fuels the rapid growth of health spending, contributes to stagnating wage growth, and disadvantages low-wage workers. Because there is no limit on how much can be excluded from taxes, workers are encouraged to buy more expensive coverage than they would otherwise…makes consumers less sensitive to prices and promotes the use of medical services, including services that may not provide much value to the patient.

Let’s take a closer look at some of the problems associated with the exclusion.

The exclusion has caused a shift in compensation from taxable cash wages to greater health benefits which are not taxed. Between 1999 and 2015, the average employer contribution for family coverage nearly tripled while wage rates increased by only about half.

By the way, our leftists friends should oppose the exclusion for class-warfare reasons.

…workers in higher tax brackets benefit the most from the exclusion. The Joint Committee on Taxation found that the average savings for tax filers with incomes less than $30,000 was about $1,650 compared to about $4,580 for those with incomes over $200,000.

To deal with these negative effects, Antos proposes a modified version of the “Cadillac tax” from Obamacare combined with tax credits for consumers who purchase their own health insurance.

That’s better than the status quo, but the ideal solution is a flat tax, which would eliminate the deduction provided to employers for compensation in the form of fringe benefits.

In their book on tax reform, Professors Hall and Rabushka explain the obvious beneficial consequence of a level playing field for all forms of compensation.

The flat tax eliminates the distortion toward fringe benefits created by the fact that employers can deduct them, thereby receiving a subsidy that can be passed on to their employees. The best alternative, and one we expect your employer to select, is to offer you higher pay in exchange for lower fringes. You can then use the extra cash to buy whatever combination of benefits you desire.

This will make the healthcare marketplace much more efficient.

Here’s what I wrote about the healthcare exclusion way back in 2009, as part of a column on government-created inefficiency in the health sector.

…social engineering in the tax code created this mess. Specifically, most of us get some of our compensation in the form of health insurance policies from our employers. And because that type of income is exempt from taxation, this encourages so-called Cadillac health plans.  …our gold-plated health plans now mean we use insurance for routine medical costs. This means, of course, we have the paperwork issues discussed above, but that’s just a small part of the problem. Even more problematic, our pre-paid health care system is somewhat akin to going to an all-you-can-eat restaurant. We have an incentive to over-consume since we’ve already paid. Except this analogy is insufficient. When we go to all-you-can-eat restaurants, at least we know we’re paying a certain amount of money for an unlimited amount of food. Many Americans, by contrast, have no idea how much of their compensation is being diverted to purchase health plans. …this messed-up approach causes inefficiency and higher costs. We consumers don’t feel any need to be careful shoppers since we perceive that our health care is being paid by someone else. Should we be surprised, then, that normal market forces don’t seem to be working? (though it is worth noting that costs keep falling and quality keeps rising in the few areas – such as laser-eye surgery and cosmetic surgery – that are not covered by insurance) Imagine if auto insurance worked this way? Or homeowner’s insurance? Would it make sense to file insurance forms to get an oil change? Or to buy a new couch? That sounds crazy. The system would be needlessly bureaucratic, and costs would rise because we would act like we were spending other people’s money.  But that’s what would probably happen if government intervened in the same way it does in the health-care sector.

By the way, to make sure politicians don’t get a windfall of new revenue, the healthcare exclusion should only be repealed as part of a reform that also lowers tax rates.

Here’s a video from the Center for Freedom and Prosperity that highlights how the healthcare exclusion is a major cause of the third-party payer problem.

And if you like videos, I strongly recommend this Reason TV explanation of how simple and affordable healthcare can be in the absence of government-created third-party payer.

Read Full Post »

The ongoing cluster-you-know-what of Obamacare is a source of unhappy satisfaction.

Part of me is glad the law is such a failure, but it’s tragic that millions of people are suffering adverse consequences. These are folks who did nothing wrong, but now are paying more, losing employment, suffering income losses, and/or being forced to find new plans and new doctors.

And it seems we get more bad news every day, as noted in a new editorial from Investor’s Business Daily.

ObamaCare rates will skyrocket next year, according to its former chief. Enrollment is tumbling this year. And a big insurer is quitting most exchanges. That’s what we learned in just the past few days.

Why do we know these three bad things are happening? Because that’s what we’re being told by Mary Tavenner, the former head of the Center for Medicare and Medicaid Services for the Obama Administration who has now cashed out and is pimping for the health insurance companies that got in bed with the White House to foist Obamacare on the American people.

IBD gives us the sordid details.

Why will 2017 rates spike even higher? In addition to the cost of complying with ObamaCare’s insurance regulations and mandates, there’s the fact that the ObamaCare exchanges have failed to attract enough young and healthy people needed to keep premiums down. Plus, two industry bailout programs expire this year, Tavenner notes. Oh, and she admits that people are gaming ObamaCare just like critics said they would: buying coverage after they get sick — since insurance companies can no longer turn them down or charge them more — then dropping it when they’re done with treatments. “That churn increases premiums. So you have to kind of price over that.”

And that’s just one slice of bad news.

Here’s more.

ObamaCare enrollment has already dropped an average of more than 14% in five states since February — a faster rate of decline than last year — as people get kicked off for not paying premiums. Finally, we learned on Tuesday that UnitedHealth Group (UNH) is planning to drop out of almost every ObamaCare market it currently serves after losing $1 billion on those policies. …Skyrocketing premiums, fewer choices in the marketplace, and people fleeing ObamaCare in droves after signing up. This isn’t exactly what Obama promised when he signed ObamaCare into law.

For those who were paying attention, none of this is a surprise. It was always a fantasy to think that more government intervention was going to improve a healthcare system that already was cumbersome and expensive because of previous government interventions.

By the way, IBD isn’t the only outlet to notice the ongoing disaster of Obamacare.

Let’s look at some other recent revelations.

Chris Jacobs writes that “For millions of Americans, the Left’s insurance utopia has rapidly deteriorated into a bleak dystopia” and that “the ‘cheaper prices’ that the president promised evaporated as quickly as the morning dew.”

John Graham explains that “CBO estimates Obamacare will leave 27 million uninsured through 2019 – an increase of almost one quarter” and that “CBO estimates 68 million will be dependent on the program this year through 2019 – an increase of almost one third in the welfare caseload.”

Betsy McCaughey opines that, “Obamacare is already hugely in the red. …over the next ten years Obamacare will add $1.4 trillion to the nation’s debt” and that “Insurers struggling with Obamacare are already drastically reducing your choice of doctors and hospitals to cut costs.”

Devon Herrick reveals that “Obamacare has caused more people to reach for their wallets after a medical encounter — not less” and that “all but the most heavily subsidized Obamacare enrollees would be better off financially if they skipped coverage and pay for their own medical care out of pocket.”

Jeffrey Anderson observes that “it seems possible that Obamacare has actually reduced the number of people with private health insurance” and that “Obamacare is basically an expensive Medicaid expansion coupled with 2,400 pages of liberty-sapping mandates.”

John Goodman notes that “Prior to Obamacare, many employers of low-wage workers offered their employees a “mini med” plan, covering, say, the first $25,000 of expenses” and that “Those plans are now gone… employees…are…completely uninsured”

The CEO of CKE Restaurants warns that “fewer people buying insurance through the exchanges, the economics aren’t holding up” and that “Ten of the 23 innovative health-insurance plans known as co-ops—established with $2.4 billion in ObamaCare loans—will be out of business by the end of 2015 because of weak balance sheets.”

Critics of Obamacare now get to say “we told you so.”

As the Washington Examiner opines:

…conservatives screamed a simple fact from the rooftops: Obamacare will not work. No one wanted to listen then, but their warnings are now coming into fruition. Obamacare, as constructed, attempted to fix a dysfunctional health care payment system by creating an even more complicated system on top of it, filled with subsidies, coverage mandates, and other artificial government incentives. But its result has been a system that plucked Americans out of coverage they like and forced them to pay more for less. …Taxpayers and insurance customers alike should demand replacing Obamacare with a system that reduces costs and improves quality by injecting actual choice and competition into the insurance market.

I especially like the last part of the excerpt. Which is why we need to go well beyond simply repealing Obamacare if we want to restore market forces to the healthcare sector.

P.S. I wrote about that it’s tragic that so many people are suffering because of Obamacare. I should add that there are some victims who actually are getting what they deserve.

P.P.S. In the long run, I fear taxpayers will be the biggest (and most undeserving) victims.

P.P.P.S.Though, in fairness, the law does have at least one redeeming feature.

Read Full Post »

My colleague Michael Cannon has been a tireless advocated for market-based health reform. His research has helped pave the way for good Medicare and Medicaid reform proposals on Capitol Hill and he is justifiably famous for his dogged opposition to Obamacare.

With that glowing introduction, you may be surprised to learn that Michael has stirred up a hornet’s nest among conservatives by asserting that Marco Rubio’s healthcare reform legislation contains an Obama-like mandate.

…where is conservative outrage over Marco Rubio’s health plan, which actually contains an individual mandate? …The centerpiece of Rubio’s proposal… If you purchase a government-approved health plan, you could save, for example, $2,000 on your taxes. If you don’t, you pay that $2,000 to the government. That is exactly how Obamacare’s individual mandate works.

As you might expect, this rubs a lot of people the wrong way.

Writing for Forbes, Ryan Ellis argues that tax preferences aren’t mandates.

By this twisted, Orwellian logic, there is a government mandate to have kids (child tax credit), buy a house (mortgage interest deduction) and save for retirement (401(k) plans).

James Capretta is similarly critical in his column for National Review.

Cannon’s logic is absurd. Senator Rubio…wants to make sure that all Americans get a comparable tax break for health insurance, regardless of whether or not they get their insurance through their place of work. …No one would be required to do anything.

Grace-Marie Turner, in her column for Forbes, echoes those statements.

The Rubio plan does not and would not involve a mandate, and there are no enforcement penalties for not taking the credit. …Claiming that the Rubio plan is at least as bad as Obamacare is an irresponsible position.

Wow, Michael is apparently twisted, absurd and irresponsible. And these are statements from his friends and allies! When I get slammed, by contrast, it’s by leftists.

So what gives? At the risk of sounding like a mealy-mouthed politician, I’m going to argue that both Michael and his critics are right and that this fight is not really about a “mandate” but instead is a battle over whether (and how) government should use fiscal policy to induce certain healthcare decisions.

First, let me explain why Michael is right. His core argument, as captured by this excerpt from his article, is very straightforward.

Rubio’s tax credit would…give the federal government as much power to force you to purchase unwanted coverage as Obamacare does.

And he’s basically right. Under Obamacare, you can choose to buy a health insurance policy in order to pay less to the IRS. Under Rubio’s plan, you can choose to buy a health insurance policy in order to pay less to the IRS.

To be sure, the mechanisms are different. Under Obamacare, you pay less to the IRS because you’re not being fined. Under Rubio’s plan, you pay less to the IRS because you’re taking advantage of a tax credit. But the net result is still somewhat similar, at least from an economic perspective.

Now here’s why Michael’s critics are right. Notwithstanding a degree of economic equivalence, most people do not think a penalty and a bribe are the same.

The average person probably won’t get offended if you tell them they can have $1,000 if they touch a hot stove. They may say yes or they may say no, and they may think you’re weird for making the offer, but there presumably won’t be hard feelings.

On the other hand, if you tell the average person that you will coercively deprive them of $1,000 if they don’t touch a hot stove, they will probably be upset that you’re putting them in an unpleasant position. And regardless of what they choose, they’ll resent you.

This helps to explain why many people don’t like Obamacare. It forces them to choose between two things they may not want.

But in Rubio’s plan, the choice is whether you should choose something in order to get something. That’s a more pleasing scenario.

Now let’s shift to the real issue, which is the degree to which fiscal policy should be used to encourage health insurance.

Michael is an advocate of large health savings accounts and most everyone else prefers tax credits (and they prefer refundable credits, akin to the EITC, which means Uncle Sam would give money to people who don’t earn enough to pay tax).

Digging into that issue is not the goal of today’s column. Suffice to say that if your long-run goal is to get government out of the health sector, you’ll probably be more sympathetic to Michael’s view. If you think getting government out of the health sector is a pipe dream, you’ll probably be more sympathetic to tax credits.

The bottom line is that this isn’t a fight between good guys and bad guys. It’s a tactical disagreement among people who realize that government intervention has screwed up our healthcare system and don’t fully agree on how to get the toothpaste back in the tube.

P.S. Shifting to a different topic, it’s time to savor a rare victory. Regular readers may recall the postscript in a column last year about the IRS stealing the bank account of a guy who runs a convenience store in North Carolina. That was horrible and disgusting (and there are many other examples of similar misbehavior by the feds). But the good news is that the bureaucrats have been forced to return the money.

But remember that this is just a victory in one battle. We won’t win the war until the disgusting practice of civil asset forfeiture is abolished.

Read Full Post »

Even before it was enacted, it was obvious that Obamacare was going to have a negative economic impact.

From a fiscal policy perspective, the law was bad news because all the new spending and higher taxes increased the fiscal burden of government.

From a regulatory intervention perspective, the law was bad news because it exacerbated the third-party payer problem.

Form a jobs perspective, the law was bad news because it increased the attractiveness of government dependency compared to employment.

But those were just the slap-you-in-the-face impossible-to-overlook problems.

As Nancy Pelosi infamously noted, the law needed to pass so we could know what was in it.

And the more we learn about the contents, the more evidence we find that (as shown in this poster) that more government is never the answer.

A new empirical study by scholars at Harvard and Stanford finds that “free” goodies from the government actually have a hefty price tag.

The dependent care mandate…one of the most popular provisions of the 2010 Affordable Care Act…requires that employer-based insurance plans cover health care expenditures for workers with children 26 years old or younger. …there has been little scholarly work measuring the costs and incidence of this mandate and who pays the costs of it. In our empirical work, ….we find that workers at firms with employer-based coverage – whether or not they have dependent children – experience an annual reduction in wages of approximately $1,200. Our results imply that the marginal costs of mandated employer-based coverage expansions are not entirely borne only by the people whose coverage is expanded by the mandate.

Wow, this is worse than I thought. I assumed the pejoratively nicknamed “slacker mandate” wasn’t a big issue because the types of kids getting coverage (ages 19-26) presumably had very low health expenses.

But if average wages at affected firms are $1200 lower than they otherwise would be, that’s a big hit. Maybe Pajama Boys have physical health problems in addition to their mental health problems.

Now let’s look at another higher-than-expected cost, except this time the victims are taxpayers and other health care consumers rather than workers.

Politico has a depressing story of how people have figured out how to game the system

Obamacare customers are gaming the system, buying coverage only after they find out they’re ill and need expensive care… No one knows precisely how many might be manipulating the system, but the plans say they run up much higher medical bills and then jump ship, contributing to double-digit rate increases and financial losses. Health plans also complain some customers are exploiting a three-month “grace period” — when they can keep getting subsidized coverage even if they’ve stopped paying their share of premiums.

In other words, Obamacare is so poorly designed – thanks to subsidies, mandates, and other forms of intervention – that many people can basically wait until they’re sick before signing up.

Then they incur expenses that are covered by taxpayers and/or passed on to other healthcare consumers.

There’s also another group of victims, though I confess that part of me thinks that the insurance companies deserve to suffer since they (like Big Pharma) endorsed Obamacare.

…those trends make the risk pools skew toward sicker, costlier customers — and under Obamacare, plans can no longer deny coverage to those with expensive medical conditions. That problem has been exacerbated by the large numbers of healthier people who are choosing to stay uninsured rather than shell out money for coverage.

Yup, I experience a warm glow of schadenfreude after reading that passage. But I also know that it won’t be good for the American economy and the American people if the market for private health insurance entered an Obamacare-driven death spiral.

That being said, I also don’t want them to get any bailout cash.

In any event, if the health insurance companies have a meltdown, you could bet your last dollar that the crowd in Washington somehow will blame capitalism and say that the solution is single-payer health care (even though that system is so dysfunctional it was repealed by Bernie Sanders’ Vermont and even though that system leads to endless horrors in the United Kingdom).

P.S. In the interest of fairness, I will admit that there is a group that has benefited from Obamacare.

P.P.S. Actually, there’s another group, so we can say there are two winners from government-run healthcare.

Read Full Post »

I’ve put together a collection of political cartoons that show government as a bloated, clumsy, and sometimes malicious person.

This isn’t because of any special animus, but rather because the unintended consequences of government intervention are almost always harmful.

Consider the issue of higher education. Politicians start with the warm and fuzzy notion that it would be good to help more people go to college. So they create loans and grants to help them pay for tuition.

Sounds nice and noble, right? And just think of the votes that can be harvested from grateful parents!

So is this a win-win situation for both politicians and students? Well, let’s look at the real-world results.

As explained in this video, there’s a lot of evidence that these loans and grants are the reason that higher education is now far more expensive (just as there is powerful data showing that subsidies lead to higher costs in other areas as well).

And additional research is confirming this concern. A new study by Professor Grey Gordon of Indiana University and Professor Aaron Hedlund of the University of Missouri finds that government subsidies for higher education wind up benefiting colleges and universities and hurting students.

Here are the key findings.

We develop a quantitative model of higher education to test explanations for the steep rise in college tuition between 1987 and 2010. …We measure how much changes in underlying costs, reforms to the Federal Student Loan Program (FSLP), and changes in the college earnings premium have caused tuition to increase. All these changes combined generate a 106% rise in net tuition between 1987 and 2010, which more than accounts for the 78% increase seen in the data. Changes in the FSLP alone generate a 102% tuition increase.

Robby Soave of Reason reports on the new research.

…skyrocketing college tuition costs are the result of all-too-generous student loan policies. The study, authored by Grey Gordon and Aaron Hedlund, used a computer model to measure the effects of various economic forces on college costs. According to the model, no factor had more to do with rising tuition prices than loan subsidies. “Looking at individual factors, we find that expansions in borrowing limits drive 40% of the tuition jump and represent the single most important factor,” wrote the study’s authors. In fact, the “Bennett hypothesis”—the idea, first proposed by President Ronald Reagan’s Education Secretary William Bennett, that increasing student aid encourages colleges to jack up prices—fully explains all the tuition increases between 1987 and 2010, according to the study. …A recent study by the New York Federal Reserve reached a similar, albeit less dramatic, conclusion regarding the link between loans and tuition.

Regarding the study from the N.Y. Fed, here’s Robby’s report on that research.

The bottom line is that politicians want us to believe that subsidies are needed because college is getting more expensive. But what’s really happening is that college is getting more costly because of the subsidies!

Now let’s move to a separate question. We know that colleges and universities are getting a big windfall as a result of students loans and other subsidies. So how are they spending the money?

Not very well, according to researchers.

And that’s probably because much of this money is mostly being wasted on more bureaucracy. Here’s a chart showing trends in recent years.

Even more depressing, the research also shows that all this spending doesn’t improve human capital, so there’s a negative impact on overall economic performance.

P.S. Politicians who complain about “cuts” in spending for higher education are either dishonest or ignorant.

P.P.S. Speaking of which, Hillary Clinton’s plan for higher education is a recipe to enable even higher costs for colleges and universities.

P.P.P.S. Some folks hope that there’s a soon-to-pop bubble in higher education, which means that tuition will soon become more affordable. But I’m worried that higher education is more like health care rather than housing, which means that prices will climb even higher over time.

Read Full Post »

Like many Americans, I’m suffering from Obamacare fatigue.

Health Freedom Meter before ObamacareBefore the law was implemented, I repeatedly explained that more spending and more intervention  in the health sector would worsen a system that already was suffering from too much government.

And since the law went into effect, I’ve pointed out – over and over again – the predictably negative effects of Health Freedom Meter after Obamacaregiving the government even more control.

So I’m tempted to wash my hands of the issue.

But that would be wrong, particularly since advocates of statism disingenuously might claim that silence somehow means acceptance or approval.

Moreover, we need to continuously remind ourselves that big government doesn’t work just in case there’s a chance to enact good reforms after Obama leaves office.

With that in mind, let’s look at recent developments that underscore the case against government-run healthcare.

How about the fact that Obamacare is extremely vulnerable to fraud?

…the GAO report showed that federal auditors 11 out of 12 times were able to gain subsidized coverage with fictitious applications, three of the successful applications never provided citizenship or immigration documentation. The investigators in each case were able to obtain $2,500 or around $30,000 annually in advance premium tax credits.

And what about the fact that the Obamacare co-ops have been a big flop?

Nonprofit co-ops, the health care law’s public-spirited alternative to mega-insurers, are awash in red ink and many have fallen short of sign-up goals, a government audit has found. Under President Barack Obama’s overhaul, taxpayers provided $2.4 billion in loans to get the co-ops going, but only one out of 23 — the one in Maine — made money last year, said the report out Thursday. Another one…was shut down by regulators over financial concerns. The audit by the Health and Human Services inspector general’s office also found that 13 of the 23 lagged far behind their 2014 enrollment projections.

Or what about the fact that deductibles have increased under Obamacare?

A survey released earlier this week by the Kaiser Family Foundation found that..deductibles have risen almost three times as fast since 2010 for employer-sponsored plans.

And should we care that Obamacare has meant rising health care costs?

…the actuaries estimated that health spending that year jumped by 5.5 percent, a bigger rise than the country had experienced in five years. …The actuaries cited three main reasons they think health spending is set to tick up. One is the aging of the population… Another is the improving economy… But the third, and a big one, was Obamacare’s coverage expansion.

All of the aforementioned things are contrary to what Obamacare supporters promised.

Though since I focus on policy rather than politics, I’ll take this opportunity to point out that higher deductibles in some ways are a good thing. Which is why I’ve defended Obamacare’s Cadillac tax.

But now let’s look at two additional Obamacare developments. And both represent very bad news.

First, new scholarly research shows that Obamacare will be bad news for all income levels, and even will be of questionable value to those getting big subsidies (h/t: Marginal Revolution).

…the average financial burden will increase for all income levels once insured. Subsidy-eligible persons with incomes below 250 percent of the poverty threshold likely experience welfare improvements that offset the higher financial burden, depending on assumptions about risk aversion and the value of additional consumption of medical care. However, even under the most optimistic assumptions, close to half of the formerly uninsured (especially those with higher incomes) experience both higher financial burden and lower estimated welfare.

In other words, people generally were making sensible choices when they had some degree of freedom.

But now that they’re being coerced into Obamacare, many of them are worse off. Even in many cases if they’re the ones getting subsidized!

Second, we now know that President Obama’s promise to lower health insurance premiums by $2,500 was laughably misleading.

But it’s not simply that the President exaggerated. As Investor’s Business Daily explains, the numbers actually have gone in the other direction

Since 2008, average family premiums have climbed a total of $4,865. The White House cheered the news, saying it was a sign of continued slow growth in premium costs. …Slightly less higher premiums aren’t what President Obama promised Americans when he ran for office touting his medical overhaul. He specifically said his plan would cut premiums. “We will start,” Obama said back in 2008, “by reducing premiums by as much as $2,500 per family.”

And keep in mind that Obama’s claim of big savings was not a one-time, off-the-cuff comment.

As you can see in this video, it was a pervasive part of his campaign for further government control of the health care system.

But the real story isn’t prevarication by a politician. That comes with the territory.

The real issue is that our healthcare system is more screwed up because government now is playing a bigger role.

And keep in mind that fixing the problem means a lot more than simply repealing Obamacare. We also need to deal with spending programs such as Medicare and Medicaid and address tax preferences and regulations that encourage over-insurance.

After all, never forget that our real healthcare crisis is a giant government-caused third-party payer problem.

Read Full Post »

Over the past few years, Hillary Clinton has taken advantage of several opportunities to demonstrate that she doesn’t understand economics.

Though that’s not a problem. I have friends who routinely demonstrate their economic ignorance by saying things that don’t make sense.

The problem is that Hillary may actually wind up in a position of power. So there’s a danger that the entire nation could be victimized because of her disregard of the laws of supply and demand.

Let’s look at a fresh example. The New York Times has a story about Ms. Clinton’s latest effort to bribe people with their own money.

Hillary Rodham Clinton on Monday will propose major new spending by the federal government that would help undergraduates pay tuition at public colleges without needing loans. …her proposals…would cost $350 billion over 10 years…about $175 billion in grants would go to states that guarantee that students would not have to take out loans to cover tuition at four-year public colleges and universities.

To make matters worse, some of this money would be used to bribe states into additional spending (sort of the higher-education version of Obamacare’s Medicaid scam).

In return for the money, states would have to end budget cuts to increase spending over time on higher education, while also working to slow the growth of tuition, though the plan does not require states to cap it.

And to make matters even worsier (yes, that’s a made-up word, but it seems appropriate), there’s a big tax increase to finance Ms. Clinton’s new scheme.

Mrs. Clinton would pay for the plan by capping the value of itemized deductions that wealthy families can take on their tax returns.

I don’t like distortionary tax preferences, but loopholes should be eliminated as part of a shift to a low-rate flat tax, not to finance the vote-buying schemes of the crowd in Washington.

But let’s set aside the concerns about fiscal policy and focus on what Clinton’s plan would mean for higher education.

And we’ll start with a thought experiment. Imagine you sold cars and the government decided to give people lots of money to buy your products. In the world of economics, this causes the “demand curve” to shift to the right.

Now answer a simple question: Would car prices under this policy (a) increase, or (b) decrease?

The obvious answer is (a). That’s certainly what has happened in the healthcare sector because of programs such as Medicare and Medicaid. That also happened in housing last decade thanks to bad monetary policy and corrupt Fannie Mae and Freddie Mac subsidies.

Moreover, there’s lots of evidence that the same thing already has happened with higher education. And now there’s new research that reaches the same conclusion.

As pointed out by the Wall Street Journal, recent scholarly data confirms that colleges and universities jack up prices to capture the additional subsidies.

Politicians…their solutions—cheap loans and taxpayer cash—end up increasing the cost of a degree. The latest evidence that schools jack up tuition to absorb federal money comes in a new report from the Federal Reserve Bank of New York. …The Fed researchers looked at how colleges responded when Congress bumped up per pupil aid limits between 2006 and 2008. Sure enough, students took out more loans, but universities gobbled up most of the money. Ohio University economist Richard Vedder connected these dots a decade ago, estimating in 2006 that every dollar of grant aid raised tuition 35 cents. He now looks prescient. The New York Fed study found that for every new dollar a college receives in Direct Subsidized Loans, a school raises its price by 65 cents. For every dollar in Pell Grants, a college raises tuition by 55 cents. This is one reason tuition has outpaced inflation every year for decades, while the average borrower now finishes college owing more than $28,000.

So what’s the bottom line? What will happen if Hillary Clinton expands subsidies to higher education?

Simple, more government subsidies will mean more wasteful inefficiency and higher costs.

Administrative bloat, reduced faculty loads and Shangri La dorms… College will continue to be expensive as long as government aid amounts to a wealth transfer to universities.

In other words, Ms. Clinton’s plan will double down on the policies (described in this video) that already have made college needlessly expensive.

All she’s doing is shifting more of the cost onto the backs of taxpayers.

Fortunately, there is a solution to this mess. Simply get the federal government out of the education business. This would reverse the bad policies that have caused colleges and universities to become more expensive and less efficient.

Sadly, this ideal approach probably won’t be adopted anytime soon.

But that doesn’t mean progress is impossible. Washington may actually move policy a bit in the right direction. And Elizabeth Warren (yes, that Elizabeth Warren) may even play a constructive role.

As reported by the Wonkblog section of the Washington Post, there’s growing interest in a plan to make colleges and universities partly responsible when students default on loans.

A coalition of liberal and conservative lawmakers is promoting a plan on Capitol Hill that would force colleges to pay up when their students default. If schools share the risk of borrowing or have some “skin in the game,” policymakers figure they would work harder to keep costs down….Senate Democrats, led by Elizabeth Warren (D-Mass.) and Jack Reed (D-R.I.), introduced legislation in 2013 requiring schools with default rates above 15 percent to reimburse the government 5 percent of the total defaulted debt. The higher the default rate, the higher the penalty. …Congressional Republicans are renewing the call for schools to share the risk of borrowing, as are presidential hopefuls Wisconsin Gov. Scott Walker and Ben Carson. The policy is being considered as a part of the re-authorization of the Higher Education Act.

The story even has some very sensible economic analysis about how third-party payer should be blamed for rising prices.

As it stands, there is little incentive for colleges to keep costs under control. As long as there is a supply of students and federal financial aid, both for-profit and nonprofit schools can charge high prices and encourage people to take out loans to cover the cost. If schools had a financial stake in every student’s ability to repay loans, they might be less inclined to saddle students with debt in the first place—or they might lower costs altogether.

Gee, what a shocking thought. If people have to play with their own money rather than taxpayer money, they suddenly behave more responsibly!

P.S. We should also remember that there is such a thing as too much “investment” in higher education.

P.P.S. Third-party payer in higher education also shows how government money can corrupt private institutions. Though any effort to stamp out such corruption should apply equally to government schools as well.

P.P.P.S. Now for the most important news. The Beltway Bandits are now Eastern National Champions of 55+ AAA softball, winning five straight games in Raleigh, NC, this past weekend.

We’ll play in Las Vegas for a national title in late September.

Read Full Post »

Not all birthdays are a cause for untrammeled joy. Most of us baby boomers, for instance, don’t like being reminded that we’re getting older.

And for folks who follow fiscal policy, the fact that Medicare is now 50 years old is hardly a cause for celebration. That’s because the program, as one of the three big entitlement programs, will turn American into Greece without substantial structural reform.

But it’s not just a budgetary issue.

Writing for the Wall Street Journal, Sally Pipes of the Pacific Research Institute opines that this isn’t a happy birthday for taxpayers, seniors, or the healthcare system.

The only birthday gift this middle-age government program merits is a reality check. Health insurance for senior citizens was part of LBJ’s expansion of the welfare state, all in the service of establishing a “Great Society.” Yet many beneficiaries today are struggling to secure access to high-quality care. Future beneficiaries, meanwhile, are forking over billions of dollars today to keep a program afloat that may be bankrupt when they retire.

Like many government programs, it is far more expensive than initially promised.

Medicare spending has zoomed far beyond original expectations and is now anything but sustainable. In its first year, 1966, Medicare spent $3 billion. In 1967 the House Ways and Means Committee predicted that the program would cost $12 billion by 1990. It ended up costing $110 billion that year. Last year the program cost $511 billion, and seven years from now it will double to more than $1 trillion, according to the Kaiser Family Foundation.

And like many government programs, it is riddled with waste, fraud, and abuse.

Medicare has been dogged by fraud and other improper payments—$60 billion overall in fiscal 2014, according to a recent report by the Government Accountability Office.

You can click here if you want some jaw-dropping examples of how the program squanders money.

Moreover, many doctors don’t want to treat Medicare recipients because they lose money after you included the expense of accompanying paperwork and regulations.

…nearly three in 10 seniors on Medicare struggle to find a primary-care doctor who will treat them, according to the Medicare Payment Advisory Commission. Another survey conducted by Jackson Healthcare, the health-care staffing company, found that 10% of the more than 2,000 physicians it surveyed don’t see Medicare patients at all.

So what’s the solution?

We’ve tried price controls and that doesn’t work.

Other approaches also won’t be adequate. So the only answer, Sally explains, is to shift to a form of vouchers sometimes called “premium support.”

…tweaking the eligibility age won’t be enough. If Medicare is to survive into old age, the program has to be converted from an open-ended entitlement to a system of means-tested vouchers. Under such a system, the government would give every senior a voucher based on health status, income and age. Seniors in better health and those who are wealthy would receive smaller vouchers. Sicker or needier seniors would receive larger ones. Seniors would then choose from among privately administered health plans the one that best suited their needs and budget. Insurers would have to compete for beneficiaries’ business, and providers would have to compete to get on the most popular plans. Lower prices and better-quality care would be the result.

Grace-Marie Turner of the Galen Institute and Merrill Matthews of the Institute for Policy Innovation have a similarly pessimistic perspective.

In a column for Investor’s Business Daily, they highlight some of the same problems with cost and quality, but they also add important insight about how Medicare has caused rising health care costs.

…health economist Theodore Marmor pointed out: “Hospital price increases presented the most intractable political problem for the Johnson administration. In the first year of Medicare’s operation, the average daily service charge in America’s hospitals increased by an unprecedented 21.9%. Each month the Labor Department’s consumer price survey reported further increases…”

Gee, what a surprise. With Uncle Sam picking up the tab, normal market forces were eroded and providers responded by jacking up prices.

The federal government has responded with price controls, but that’s been predictably ineffective.

Congress imposed a type of price-control mechanism in 1983 called Diagnostic Related Groups, or DRGs. And in the early 1990s, Congress tried to cut spending on physicians by creating the Resource Based Relative Value Scale. Then there was the infamous Medicare “Sustainable Growth Rate,” later dubbed the “doc fix,” which passed in 1996 to contain Medicare spending by cutting doctors’ fees. It was repealed only recently, after Congress had postponed the vote 17 times.

So what’s the bottom line?

Government involvement dramatically increases spending, followed by clampdowns on soaring prices, leading to restrictions on doctors and patients. Perhaps next time, we might try market forces rather than another failed effort at centralized government programs.

Or we can simply leave policy on autopilot and somehow have faith that Obamacare’s death panels will “solve” the problem.

P.S. Here’s the video I narrated which explains the importance of the right kind of Medicare reform.

And if you want (what I think) is a very good description of the program, it’s that Medicare charges seniors for a hamburger and gives them a hamburger, but taxpayers are getting a bill for a steak.

Read Full Post »

What’s the most effective way of screwing up a sector of the economy? Since I’m a fiscal policy economist, I’m tempted to say that bad tax policy is the fastest way of causing damage. And France might be my top example.

But other forms of government intervention also can have a poisonous effect. Regulation, for instance, imposes an enormous burden on our economy.

Today, though, we’re going to look at how subsidies can result in costly distortions. More specifically, using examples from the health sector and higher-ed sectors, we’re going to see how “third-party payer” is a very expensive form of intervention.

We’ll start with the example from the healthcare sector. Writing for the Institute for Policy Innovation, Merrill Matthews has a must-read article about an unintended consequences of Obamacare.

He starts with a very sensible point about the effect of third-party payer.

Health care actuaries will tell you that when people have to spend more out of pocket for health care, they tend to spend less. And when a third party—employers, health insurers or the government—insulates consumers from the cost of care they tend to spend more. Just imagine how much more people would spend on cars if they could have any car they wanted for a $20 copay.

The car-buying example is great. I’ve previously tried to make the same point about third-party payer by using the examples of home insurance and car insurance, but I may have to steal Merrill’s argument since it’s so intuitively effective.

But that’s a digression. Merrill has a far more important point about what’s actually happening today in the health care sector.

…out-of-pocket spending on health care has declined for decades—until the Affordable Care Act kicked in. In 1961, Americans forked over 43 cents out of their own pocket for every dollar spent on health care. That out-of-pocket spending steadily declined over the years so that by 2010 consumers were only spending about 12 cents out of pocket.Enter Obamacare in 2010. By 2012 out-of-pocket spending had risen to 14.8 percent of total health care spending, and by 2013 it was up to 15.2 percent, according to the Health Care Cost Institute. With people spending more out of pocket, they will naturally curb their spending. And expect to be spending more out of pocket in the future. That’s in part because so many Americans have had to shift to very high deductible policies in order to afford Obamacare’s very expensive coverage. Thank you, President Obama! …The upshot of these higher deductibles is that people will spend less on health care, and that is helping to slow the growth in health care spending—giving Obama his boasting point. Rising deductibles aren’t the only factor, but they are an important one.

Yet Obama doesn’t really deserve to boast.

But here’s the irony: Obama never intended any of this. He thought Obamacare would reduce out-of-pocket spending. And he and most Democrats have railed against high-deductible policies for years, claiming that greedy health insurers were taking people’s money but didn’t have to pay any claims (because of the high deductibles). And yet under Obamacare deductibles have never been so high. The fact is that moving to higher deductibles, especially when accompanied by a tax-free health care spending account for smaller and routine expenditures, is good policy.

And let’s not forget that Obama’s “Cadillac tax” on employer-provided health insurance also is good policy (though it was implemented the wrong way).

So maybe, as that policy also takes effect, we’ll get even further reductions over time in third-party payer!

Which might cause me adjust my overall assessment of Obamacare. In the past, I’ve said it was awful policy because it expanded the Medicaid entitlement while also mucking up the private insurance market.

All that’s still true, but we’re getting some unintended consequences that are positive. Not only are some states refusing to expand Medicaid, but Merrill’s big point is that the private insurance market is evolving in ways that have some good effects.

So maybe instead of Obamacare shifting us from a 68-percent-government-controlled healthcare system to one where government has 79-percent control, as I speculated back in 2013, maybe we’ll wind up with a system that’s “only” 73-percent dictated by government.

Not a victory, to be sure, but at least we’re going in the wrong direction at a slower pace.

Now let’s shift to the higher-ed sector.

Paul Campos, a law professor at the University of Colorado, writes in The Atlantic about the surging level of subsidies for higher education.

…when considering government support for American higher education as a whole, subsidies for colleges and universities are—even on a per-student basis and despite the enrollment explosion—greater than ever before. In particular, per-capita government subsidies are far higher now than they were 35 years ago, when tuition was drastically lower. …The federal government is currently spending approximately $80 billion per year on subsidies for higher education—a figure that almost exactly matches the combined higher-ed spending of the 50 legislatures. …The Pell grant program has expanded rapidly, more than tripling in size since 2000.  …What’s far less known…is the remarkable extent to which the federal tax code has been amended in ways that benefit colleges and universities. According to the congressional Joint Committee on Taxation’s most recent estimates of federal tax expenditures, the IRS is currently redistributing approximately $45.7 billion annually in tax revenue in ways that directly and indirectly support American higher education. (This represents a 675 percent increase in such spending since 1990.)

Even though I agree with his analysis, I get agitated when tax preferences are referred to as “spending.”

But that’s not particularly relevant today. What matters is that there’s been an unbroken increase in handouts and subsidies for the higher-ed sector over the past few decades.

Here’s a chart from his article.

Now let’s look at the policy implications. Mr. Campos outlines a series of problems in the higher-education sector.

…total per-student government support for higher education has increased. Yet this increase has failed to stop or even slow massive tuition increases at both public and private schools. …many higher-ed institutions have become increasingly bloated and inefficient—even as they’ve relied on a growing population of poorly paid contingent faculty members and on hundreds of billions of dollars of federal student loans, only a small percentage of which are currently being repaid in a timely manner. …roughly half of recent college graduates in the U.S. find themselves either unemployed or seriously underemployed. And many graduates struggle to pay educational debts that, unlike almost all other debts in American society, typically can’t be settled via bankruptcy.

But he doesn’t really connect the dots, other than to point out that it is absurdly dishonest when some people (like Senator Bernie Sanders) want others to believe that we need even more intervention and more handouts to compensate for non-existent budget cuts.

Claiming that skyrocketing tuition has been caused by “cuts” in government subsidies only helps delay American higher education’s inevitable day of fiscal reckoning.

If he did connect the dots, he would have explained that the higher-ed sector is needlessly expensive and pointlessly inefficient because of all the subsidies from government.

He may even agree with that assessment, though he isn’t explicit about the connection. Though Professor Richard Vedder doesn’t hesitate in pointing out that bad government policy deserves the blame.

And if you want to learn more, here’s a great video from Learn Liberty explaining why subsidies have translated into higher tuition.

Last but not least, here’s my two cents on the issue, including my dour prediction that the higher-ed bubble won’t pop until and unless we stop the handouts from government.

Yet another reason why we should dismantle the Department of Education.

Read Full Post »

I’ve often complained that government-created third-party payer is the main problem with America’s healthcare system, and I was making that point well before Obamacare was imposed upon the country.

The issue is very straightforward. In a genuine free market, people pay “out of pocket” for routine expenses. And they rely on insurance only in cases where they may face large, unexpected costs.

But in our current healthcare system, thanks to Medicare, Medicaid, and the tax code’s healthcare exclusion, most of us buy services with other people’s money and that dramatically distorts incentives.

Here’s some of what I wrote about this messed-up approach back in 2009.

…our pre-paid health care system is somewhat akin to going to an all-you-can-eat restaurant. We have an incentive to over-consume since we’ve already paid. Except this analogy is insufficient. When we go to all-you-can-eat restaurants, at least we know we’re paying a certain amount of money for an unlimited amount of food. Many Americans, by contrast, have no idea how much of their compensation is being diverted to purchase health plans. Last but not least, we need to consider how this messed-up approach causes inefficiency and higher costs. We consumers don’t feel any need to be careful shoppers since we perceive that our health care is being paid by someone else. Should we be surprised, then, that normal market forces don’t seem to be working? …Imagine if auto insurance worked this way? Or homeowner’s insurance? Would it make sense to file insurance forms to get an oil change? Or to buy a new couch? That sounds crazy. The system would be needlessly bureaucratic, and costs would rise because we would act like we were spending other people’s money.  But that’s what would probably happen if government intervened in the same way it does in the health-care sector.

As you can see, I’m frustrated.

I think the system is inefficient from an economic perspective. But I’m also a consumer, and I’m very dissatisfied whenever I have to deal with the healthcare system.

Fortunately, more and more people are adding their two cents on this topic.

Here’s some great analysis on the issue by Mark Perry of the American Enterprise Institute. He starts by pointing out how prices for health care generally climb much faster than the overall CPI price level.

Between 1998 and 2014 the price of medical care services in the US (as measured by the BLS’s CPI for Medical Care Services) has increased by 88.5%, or more than twice the 45.8% increase in consumer prices in general over that period… On an annual basis, medical care costs in the US have increased more than 4% per year compared to an average inflation rate of only 2.4% over the last 16 years.

He then explains that a big problem is third-party payer, which eviscerates normal market forces.

As a result, consumers are relatively insensitive to price, which means producers and providers can charge more and be relatively inefficient.

One of the reasons that medical care costs in the US have increased almost twice as much as general consumer prices since 1998 is that a large and increasing share of medical costs are paid by third parties (private health insurance, Medicare, Medicaid, Department of Veterans Affairs, etc.) and only a small and shrinking percentage is paid out-of-pocket by consumers. According to data from the Census Bureau, almost half (47%) of health care expenditures in 1960 were paid by consumers out-of-pocket, and by 1990 that share had fallen to 20% and by 2009 to only 12%. …Consumers of health care have no incentive to monitor prices and be cost-conscious buyers of medical services when they only pay 10% themselves, and the incentives of medical care providers to hold costs down are greatly reduced knowing that their customers aren’t price sensitive.

Mark then asks what the world would look like if the free market was allowed to function. And he identifies a niche in the healthcare system where that happens.

How would the market for medical services operate differently if consumers were paying out-of-pocket for medical procedures in a competitive market? Well, we can look to the $7.5 billion US market for elective cosmetic surgery for some answers.

And the information he shares is remarkable.

The table…shows the top five most popular surgical procedures and top five most popular non-surgical procedures for 2014, the number of each of those procedures performed last year, the total expenditures for each procedure, the average price per procedure both in 1998 and 2014, and the percent increase in price since 1998 for each procedure. …For the top ten most popular cosmetic procedures last year, none of them has increased in price since 1998 more than the 45.8% increase in consumer price inflation…, meaning the real price of all of those procedures have fallen over the last 16 years. …For three of the top five favorite non-surgical procedures in 2014 (botox, laser hair removal and chemical peel), the nominal prices have actually fallen since 1998 by large double-digit percentage declines of -23.6%, -31.2% and -30.1%.  …none of the ten cosmetic procedures in the table above have increased in price by anywhere close to the 88.5% increase in medical care services since 1998.

Here’s Mark’s chart, and I’ve circled the relevant bits of data.

Just in case it’s not obvious, Mark then draws the should-be-obvious conclusions from this data.

Simply stated, when people spend their own money, they are careful shoppers. And when consumers are careful shoppers, that leads to competitive pressure on producers and providers to be much more efficient.

The competitive market for cosmetic procedures operates differently than the traditional market for health care in important and significant ways. Cosmetic procedures, unlike most medical services, are not usually covered by insurance. Patients paying out-of-pocket for cosmetic procedures are cost-conscious, and have strong incentives to shop around and compare prices at the dozens of competing providers in any large city. Because of that market competition, the prices of almost all cosmetic procedures have fallen in real terms since 1998, and some non-surgical procedures have even fallen in nominal dollars before adjusting for price changes. In all cases, cosmetic procedures have increased in price by less than the 88.5% increase in the price of medical care services between 1998 and 2014.

That last sentence is the key. Because of third-party payer, overall health care expenses have climbed about twice the rate of inflation.

For cosmetic surgery, where normal market forces operate thanks to an absence of government-imposed and government-subsidized third-party payer, prices climb slower than overall inflation.

Here’s a video, produced by the Center for Freedom and Prosperity, on the problem of third-party payer.

As you can see, Obamacare made the problem worse, but it’s just one small part of a really big problem caused by decades of government intervention.

P.S. The video expands upon the analysis provided in a previous CF&P video.

P.P.S. Setting aside the debate about whether it’s right or wrong, the abortion market also is an interesting case study of how prices don’t rise when consumers pay out of pocket.

P.P.P.S. Government-created third-party payer also is screwing up the market for higher education.

P.P.P.P.S. Mark Perry not only is a good economist, as you can see above, but he’s also a brave guy for being willing to antagonize feminists.

Read Full Post »

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.

Read Full Post »

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.

Read Full Post »

Older Posts »

%d bloggers like this: