Jonathan Moore

Liberty Activists get a Black Eye, Keep on Fighting

by Jonathan Moore on March 24, 2010 · 1 comment

in Healthcare, Insurance, Legal, Odds & Ends, Regulation

As would be expected in the face of recently passed health care legislation this sweeping and controversial, pro-liberty citizens have been stepping out to oppose the bill.  One of the unusual tactics they have used is to turn to their state legislatures for what they see as protection from the encroachments on their liberties from the federal government. Legislation declaring a state’s opposition in one way or another to items in the federal health reform has been introduced in 37 states. Many states have even passed this legislation, and had it signed into law by their governors.

A hearing was recently held on one of these pieces of legislation, Maryland House Bill 603, the Health Care Freedom Act of 2010.  This bill would add an amendment to the Maryland constitution making it so that no person in Maryland would have to comply with an individual mandate to purchase health insurance, and that no person in Maryland will have to pay fees or penalties for refusing to buy health insurance. In short, it would preserve the freedom of Marylanders to contract with doctors they want to contract on their own terms, if they choose to do so.

There was much talk at the hearing about the Constitution, individual rights, and sovereignty of the states. One of the individuals providing testimony in favor of the bill at the hearing was Mark Kreslins, who leads a citizens’ political organization in Frederick, Maryland, known as We Surround Them (WST). WST is an organization dedicated to returning government to what they believe is the original intent of the Founding Fathers as enshrined in the founding documents of American.

They believe that the Constitution limits the federal government to 17 defined powers in Article 1, Section 8. Any government action which extends beyond the enumerated powers in Article 1, Section 8, is thus unconstitutional. They believe that the Constitution reserves the vast majority of state power for the states. The states, after all, existed before the federal government, and created it for clearly defined purposes. And the 10th Amendment to the Constitution states that all powers not delegated to the federal government are reserved to the states, or to the people. If the federal government was created with the intention that it have essentially limitless power to do as it wishes, then the 10th Amendment seems to be a nonsensical inclusion into the Constitution.

Mr. Kreslins testified that an individual mandate would be an unconstitutional exercise of federal authority, as the Constitution never gives the federal government the authority to mandate that all people buy insurance, and that it is the responsibility of the states to stand up for their sovereign rights, and to stand up for the rights of their citizens to own their own property and to do with it what they wish. It is thus entirely within the states’ authority, according to him, to refuse to obey this unconstitutional action on behalf of their citizens.

Many prominent constitutional scholars agree with state legislatures that an individual mandate for health insurance would exceed the power given to the federal government in the Constitution. For instance, Heritage Foundation legal scholars and well-known legal scholar Randy Barnett (who was a lead attorney in the Gonzales v. Raich case before the Supreme Court in 2005), have argued that the individual mandate is not only an unprecedented (few would debate this), but also an unconstitutional exercise of federal power.

Citizens fighting for individual liberty have gained some powerful allies in many state legislatures. The constitutional logic for state sovereignty is far from universally accepted by constitutional scholars. It will likely take a Supreme Court case to decide whether these nullification attempts will succeed in shielding state citizens from the most far reaching aspects of health care reform. But pro-liberty activists have not given up, even after passage of the vast health care reform bill.

In the spirit of full disclosure, Mark Kreslins is the author’s future father-in-law, the primary reason why the author was at the hearing at all.

Torches, Pitchforks, and Congress

by Jonathan Moore on February 26, 2010

in Deregulate to Stimulate, Healthcare, Insurance, Regulation

“It occurred to me that this panel would only take place, of the industrialized nations, in the United States of America.  That in every other industrialized country, they’ve made the threshold decision that health care would be provided in some fashion, maybe through the public sector, often entirely through the private sector…to all of their people.” “I want to tell you something.  I think that a 39% rate increase, at a time when people, Americans, are losing their jobs, losing their health care, is so incredibly audacious, so irresponsible….”

These are the words of borderline apoplectic Representative Schakowsky during a congressional hearing yesterday on Anthem Blue Cross’ recent premium hikes for insurance purchasers in the individual market in California.  The quote came during her questioning of WellPoint’s (Anthem’s parent company) CEO, Angela Braley.  Her comment was illustrative of the attitude most of the representatives shared towards Anthem’s recent rate hikes.  The representatives were, to put it delicately, quite upset by the rate hikes.  You can watch the hearing here, if you want to see what an angry mob of Congresspeople looks like.  Ms. Schakowsky’s comments quoted above can be found around nine and fifty-seven minutes into this session of the hearing.

Anthem announced its rate hikes (averaging 25%, and capped at 39%) in November, and hired an independent actuarial firm to determine whether or not the hikes were justified.  The company claims that increasing medical costs, combined with healthy people dropping their insurance because of tough economic times, caused the company to have to increase their rates in order to remain profitable.  In the last year, Anthem made about 2.38 billion dollars in profit (although only at a profit margin of less than 5%, as Braley continually reminded the panel).  Further, the company actually lost money in the individual market the previous year, necessitating the rate hikes in order to keep that segment of the business solvent.  Red ink does not tend to be a viable business model.

Braley’s grilling followed a heart-wrenching panel of people who had had their rates hiked by Anthem.  These people were all generally healthy, well-spoken, hard working, and sympathetic.  All undoubtedly face real hardship due to their increased insurance premiums.  What is worse is that all three had pre-existing conditions or children with pre-existing conditions.  This causes it to be very difficult for them to switch coverage, limiting their ability to shop around for the best price on insurance.

WellPoint faced increasing costs due to an inflation in doctors’ fees, hospital fees, and pharmaceutical fees.  Doctors’ fees had increased 6%, hospital fees were up 10%, and pharmaceutical fees were up 13%, which naturally resulted in a considerable increase in operating costs for insurers.  Braley pleaded her case to the representatives that the rate hikes were a mere symptom of the larger problem facing the American health care system, increasing medical costs.  She claimed not to like increasing premiums, but said that in order for Anthem to remain profitable she was forced to.  If WellPoint ran losses and went bankrupt, all of their customers would lose their coverage.  No one would want that.

One thing was incredibly clear from the hearing yesterday.  Our health care system is critically broken.  Seemingly endless price hikes, limited insurance portability, low competition, limited ability for consumers to switch insurance coverage, challenges for people with pre-existing conditions, and shortages of providers are all real reasons that the system must be reformed.  Essentially everyone (even insurance companies) agrees that health care must be reformed.  The question is, what reforms will be best for the American people?

The representatives seemed to think that these problems were caused by the desire of health insurance providers to profit from their businesses. As Mr. Stupak said approximately 35 minutes into the video linked to above, “The only way we’re going to get more affordable is to knock off these profits that are being paid for by the average American…I don’t mind you making a profit, but at the end of the year, 2009, a horrible year, you made 2 point something billion dollars, and that’s not enough?”   Demonizing for-profit health insurance companies is not the way to go about reforming health care.  Profits do not keep insurers from providing a satisfactory, affordable product any more than they keep grocers from providing satisfying, affordable groceries to consumers.  In fact, profits help the process of providing goods people want at an ever increasing level of efficiency.

The representatives seemed to be incensed that the companies were not providing health care to individuals as a public service.  But it’s not their job to provide health care as a public service.  It’s their job to make money for their shareholders.  Further, health insurance is not a zero-sum-game in which either you make profits or you serve consumers.  Making profits, in fact, means that companies are doing a good job serving consumers want (although the market incentives in health insurance have been admittedly been greatly distorted by government intervention).

Most of the problems in the health care marketplace have been caused, at least in part, by the intervention of government into our health care system.  Employer-based insurance was literally created by government intervention during World War II, when wage controls caused employers to look to offer benefits as a way to attract skilled employees in lieu of high wages, and is perpetuated by the favoritism it is shown over individual health insurance in the tax code.  This third party payment system has caused people to be separate from their health care dollars, reducing the costs to the consumer of consuming more health care than he needs.  Requiring stringent examination of new drugs by the FDA has caused drug prices to skyrocket, and has shielded big drug companies from new competitors (while still allowing dangerous drugs onto the market).  Federal restrictions on buying insurance from out of state have reduced the ability of consumers to shop around for the best coverage at the lowest price.  And state restrictions on who can perform what medical services have reduced the number of available medical providers, increasing costs.

The result of government “fixing” health care has been that health care has become more expensive and less efficient.

Other countries which run their health care as a public service suffer nasty side effects.  Long lines for services, shortages of beds, care-givers, and medication, lack of innovation, and higher taxes are just a few consequences of operating health insurance as a public service.

Attacking Anthem’s rate hikes is, in medical terminology, a palliative (treating the symptoms rather than curing the disease) treatment.  In order to reform health care and keep costs low, policy makers must deregulate the health care industry in order to spur competition, improve consumer choices, and decrease prices.  Eliminating restrictions on purchasing out of state insurance, increasing the number of routine medical practices nurse practitioners and other non-MD health care providers can perform, easing FDA restrictions, and equalizing the tax incentives for individual and employer-based insurance would be a good start.

NOTE: Anthem was not standing up for a free market approach to health care during the hearing.  They favor health care reform in which everyone is forced to buy insurance, which, not so surprisingly, would benefit them and other health insurance companies.  Corporations are not saints.  In fact, very frequently, like Anthem, they seek regulations that will benefit themselves or kneecap their competitors.  They are simply efficient providers of goods and services, health care included, when government does not interfere with the workings of the market.

Peekaboo! PCAOB More Powerful and Less Accountable than Government Claims

by Jonathan Moore on December 4, 2009 · 7 comments

in Legal

On December 7, the U.S. Supreme Court will hear Free Enterprise Fund v. Public Company Accounting Oversight Board. The case, brought by CEI and Jones Day attorneys on behalf of the Free Enterprise Fund, challenges the constitutionality of the way Public Company Accounting Oversight Board (also known as PCAOB, or not so affectionately as Peekaboo) members are appointed. The PCAOB, which was established by the Sarbanes-Oxley Act of 2002, is an independent governmental agency (according to Sarbanes-Oxley it is a private institution, but even supporters of the Board’s structure admit that it is a governmental body) whose members are selected by the SEC commissioners collectively. The lawyers arguing the case argue that this selection process violates the appointments clause of the Constitution.

The Constitution, in Article 2 sec. 2, establishes that the President “Shall have Power, by and with the Advice and Consent of the Senate to… nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.”

According to the Constitution, the President is responsible for appointing what has later been defined as “principal officers.” Further, if the officers are deemed to be “inferior officers,” Congress may give appointment power to the President, a judge, or the head of a department. Lawyers for the Free Enterprise Fund charge that regardless of whether the PCAOB members are principal or inferior, the Constitution has been violated. The President does not appoint the board members, and as such, if they are principal officers, the Constitution has been violated. If the board members, however, are inferior officers, they have not been appointed by a head of a department, rather, they have been appointed by the SEC commissioners.

Lawyers defending the constitutionality of the PCAOB have charged that the board members are inferior officers, and that the SEC commissioners collectively are the head of the SEC. Further, they claim that the SEC has complete control over the PCAOB through several powers, including the power to review all PCAOB rules, and approving the PCAOB’s budget. As such, they argue, this direct supervisory authority makes the PCAOB clear inferior officers, and since the President has control over the SEC commissioners, who have control over the PCAOB, the President has “fully effective control” over the PCAOB.

Yesterday, however, at an American Enterprise Institute event titled “Public Company Accounting Oversight Board: A Preview”, former SEC Commissioner (2002-2008) Paul Atkins provided an alternative story of the SEC’s control over the PCAOB, as well as refuting the claim that the SEC commissioners are collectively the head of the SEC.

Atkins noted several areas in which the PCAOB managed to evade SEC controls and operate very independently of the SEC. First, he stated that the PCAOB’s budget was not nearly as under control by the SEC as has been claimed. Atkins stated that the “staff at Peekaboo were not telling the truth” to the SEC about the PCAOB’s budget. His experience at the SEC led him to the conclusion that the SEC “didn’t really have the authority it supposedly did” over the PCAOB’s budget.

At one point, the SEC asked the PCAOB for a business plan regarding their operations. The PCAOB chairman informed the SEC that Sarbanes-Oxley “was his business plan” and for five years the PCAOB evaded the SEC’s demand for a business plan.

After the PCAOB produced their “Audit Standard 2”, “all five” SEC commissioners were in favor of “radical” changes to it, and yet it took the SEC years to even make “some” changes to the auditing standards due in part to PCAOB recalcitrance.

He stated that the PCAOB used “informal rulemaking” to adopt “staff-driven” rules which evaded the need to obtain SEC approval for all rules. As an example, he says that the PCAOB’s rule making regarding stock options was “not subject to any rule at all” despite functioning as a rule.

Atkins directly refuted the claim that the SEC has plenary power over the PCAOB, stating bluntly that the SEC’s “power is not plenary” regarding the PCAOB. He even said that a good analogy for SEC oversight of the PCAOB was that of “pushing on a string”.

Atkins also implied that considering the SEC commissioners as a collective head for the SEC was ignoring the realities of the day-to-day operation of the SEC. He stated that the chairman has considerably more power than the other commissioners. He noted that the 1950 Reorganization Plan 10 gave “authority over the budget” and “HR decisions” to the SEC’s chairman. He did say that consensus among the commissioners is generally important, but said that “in reality, he can still appoint whoever he wants” to critical appointment posts. And yet, this does not apply to the PCAOB, who are appointed collectively by the SEC. Further, Atkins even questioned whether or not the President had direct power over the SEC, a lynchpin of the defenders of the SEC’s argument. He stated that the SEC’s history “illustrates how difficult it is for the President to assert authority” over the SEC, much less the PCAOB.

Atkins’ telling of the SEC and PCAOB’s relationship calls much of the PCAOB’s legal defense into question. If the SEC lacks reliable control over the PCAOB, how can the President have “fully effective control” over the PCAOB? If, one wonders, the SEC chairman is treated as the appointer for other positions within the SEC, which implies that he is the head of the department, why is it that he does not have the power to appoint the PCAOB members? And why is the SEC chairman sufficiently powerful to act as the head in all other appointment cases, but when it comes to the PCAOB he must act as an equal to his fellow commissioners? And further, if the President lacks even control over the SEC, how can he truly have control over the PCAOB members, who are an additional step further down the chain of command?

These are some questions the justices should be asking on December 7.

What Would Rudy Say?

by Jonathan Moore on November 23, 2009

in Healthcare

A college professor once described what he called the “Rudy’s Test” to his class.  The Rudy’s test involves going into Rudy’s (a bar) sitting down next to any guy at the bar, and asking them their opinion about a proposed policy.  Typically, the professor said, the Rudy’s Test would reveal what the policy would really do.  Many times, the average man’s common sense view of government will provide a simple, clear insight into public policy.

One current statement that fails the Rudy’s Test is that health care reform is going to save us money.  As Saturday Night Live satirically noted, “How exactly is extending health care coverage to 30 million people going to save you money?”

The savings in the health care bills are predicted over the course of the next 10 years.  These predictions are derived by comparing the projected savings with the projected costs of health care reform.  This approach is flawed on both sides.  Government routinely fails to predict how much an entitlement will cost, and also fails in predicting exactly how much a new tax can gather in terms of revenue.

A recent Washington Times story shows fairly conclusively that government economists and bureaucrats do not possess the gift of prophecy.  In 1965, Medicare’s hospital insurance program was estimated at 9 billion dollars.  The actual cost of the program was 67 billion dollars.  In 1987, Medicaid’s projected cost was less than 1 billion dollars.  The actual cost of the program was 17 billion dollars.  In 1993 the cost of Medicare’s home care benefit program was projected to be 4 billion dollars.  The actual cost of the program was 10 billion dollars.  These are only a few examples of how estimated and actual costs are rarely consistent.  There are many reasons for this, as Michael Cannon points out in his article on Medicare Part D cost overruns, including the facts that politicians intentionally conceal costs (accurate in this case because the “doc fix” of Medicare reimbursements, which will cost an estimated 250 billion dollars, has been moved into another bill), that people alter their behavior to maximize the benefits of an entitlement, and that Congress often later expands programs.  I would add a fourth item to this list; that politicians and economists simply do not have the detailed knowledge of every human being in America to be able to predict the future.  In a complex economy filled with rational actors, no economic projection can ever truly capture the future.  There are simply too many parts moving independently of each other to boil down the human behavior of 300 million people into an accurate mathematical formula.  Cost estimates simply cannot be accurately predicted with any regularity.

Further, income estimates are impossible to predict.  Take, for instance, the cosmetic surgery tax included in the Senate’s health care reform proposal.  A similar tax has been instituted in New Jersey, and has been such a failure at bringing in the amount of revenue expected that the assemblyman who first introduced the tax in 2004 introduced a measure to repeal it in 2006.  At the time of it was enacted, the tax was estimated to generate 24 million dollars.  It actually generated 6.8 million dollars.  We have tried this kind of tax before, and it simply doesn’t work the way it is expected.  No doubt the amount of revenues expected by the Obama administration from a host of new taxes will be lower than expected.

Always think about the Rudy’s Test when considering a new policy.  If it sounds too good to be true, it probably is.

Sure, just what we need: yet another regulatory government agency

by Jonathan Moore on October 26, 2009

in Regulation

Here’s my letter published in the Oct. 25th edition of the Boston Globe responding to an editorial advocating the creation of a Consumer Financial Protection Agency:

Your editorial, “To Fix Financial System, Protect Consumers First”, claims that a Consumer Financial Protection Agency will prevent a “recurrence” of the “financial pathology” that caused the banking crisis. But the source of that “financial pathology” was bad government policy, and your editorial calls for more of it.

Government subsidized toxic mortgages through entities like Fannie Mae and mandated many of them through laws like the Community Reinvestment Act. Government imposes entry barriers to the market for new banks. As a result, existing banks claimed a greater market share than would have been possible in a free market, becoming too big to fail.

Also, contrary to the Globe’s claims, Frank’s bill would give the new agency power over many non-financial businesses who can be said to “extend credit,” probably including merchants with layaway plans. It would also give state attorneys general unique power to interpret Federal law and hire private plaintiff lawyers to harass Main Street businesses.

When government subsidized, regulated, and protected banks caused the crisis, why regulate Main Street businesses that had nothing to do with the crisis?

Jonathan Moore

Research Associate

Competitive Enterprise Institute

Madison on National Health Care Reform

by Jonathan Moore on October 14, 2009

in Healthcare

Here is the letter I wrote that appeared in the Los Angeles Times in response to Erwin Chemerinsky’s article on the constitutionality of health care reform.  Chemerinsky teaches at UC Irvine’s law school.

Chemerinsky argues that according to Supreme Court precedent, the proposed health care reform bills will be considered constitutional.

Unfortunately, he is probably right.

The author of our Constitution, however, would disagree. In Federalist 45, Madison writes, “the powers delegated by the proposed Constitution to the federal government, are few and defined.”  According to Chemerinsky’s reasoning, Congress’ powers are anything but few and defined.

[click to continue…]