One of the major developments in regulation over the last 30 years has been the rise of cost-benefit analysis. At first, agencies squirmed and resisted. But then they realized something: they’re in charge of their own accounting. It’s not an independent audit. There’s no third-party involved. An agency is free to use its own standards and its own measures when calculating its own regulatory costs and benefits.
When it’s that easy to game the system, of course agencies are going to lowball their costs and highball their benefits. This is on full display in the Office of Management and Budget’s pithily titled “Report to Congress on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities.” [PDF]
On page 13 of the report, Table 1-1 lists cost-benefit numbers for selected agencies for their major rules (costing $100 million or more) over the last ten years. It can be hard to quantify costs with precision, so agencies typically report a range estimate. EPA, for example, estimates that its major rules cost from $23.3 billion to $28.5 billion over the last decade.
Benefits are much trickier to calculate. EPA estimates that its major rules have had benefits of $81.8 billion to $550.7 billion — a range of nearly a factor of 7. They might as well say they have idea. Why such a large range? Because EPA is trying to put dollar figures on items such as its air quality rules lowering the number of premature deaths. To do that, they have to pull numbers out of thin air.
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News came last week that Republican Senator Saxby Chambliss would remove his “hold” on the nomination of Cass Sunstein to be the next Administrator of the Office of Information and Regulatory Affairs. But, while Sunstein has seen a bit of opposition from Republicans critical of his generally left-of-center political views, the main opposition has come from far-left Democrats and the environmental and consumerist movements over Sunstein’s embrace of cost-benefit analysis in regulatory policymaking. Especially troubling to these groups is Sunstein’s support for what critics deride as the “senior death discount,” which Time describes as “the statistical practice of taking into account years of life expectancy when evaluating a regulation.”
If that’s a problem for Cass Sunstein, then what are we to make of various Democratic proposals to allocate fewer health care resources on the basis of their expected value to society? My colleagues and I have been critical of the Administration’s desire to insert comparative effectiveness analysis into both the new drug approval process and government health program reimbursement policies. Cost-benefit and comparative-benefit analysis are useful tools and should be used in regulatory analysis. But, these analytical tools don’t take sufficient account of the vast differences from person to person in both physiology and value preferences, and they should be relied upon much more sparingly where collective decision-making is intended to cut off individual choice. And people spending private money ought to be free to spend it, even on things the government or someone else might find wasteful.
Now, John Goodman at NCPA points out that White House health care policy advisor Ezekiel Emanuel has explicitly endorsed adopting not only comparative-effectiveness and cost-benefit analysis in the health care realm, but also the senior death discount. In an article in the Lancet on January 31, 2009, Emanuel “advocated allocating health resources in order to maximize collective life years,” according to Goodman. “Suppose a 25-year-old and a 65-year-old have a life threatening disease. Since the 25-year-old has many more potential years of life ahead of him, he should receive preferential treatment, says Emanuel. He justifies denying care to elderly patients in the following way:
[Directly quoting Emanuel's Lancet article here:] The complete lives system discriminates against older people…. Unlike allocation by sex or race, allocation by age is not invidious discrimination; every person lives through different life stages rather than being a single age. Even if 25-year-olds receive priority over 65-year-olds, everyone who is 65 years now was previously 25 years.
Back in 2003, Senator Richard Durbin (D-Ill.) even proposed a statutory ban on regulatory agencies using the senior death discount. So, if embracing the senior death discount is sufficient grounds for people like Durbin to oppose Sunstein and his predecessors at OIRA — Susan Dudley and John Graham — I assume that, any day now, we can expect Senator Durbin and his colleagues to announce their opposition to the current health care reform proposals. Of course, I wouldn’t advise holding your breath.
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