The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Are Narrow Networks a Good Way to Control Out-of-Control Health Spending?


Chattanooga, Tenn., has higher than average rates of obesity, smoking, and hypertension, yet on the Obamacare exchanges, the county has surprisingly low insurance rates. Relatively low, at least: One resident explained to The Atlantic that he’s paying only $187 a month for a silver plan, and others’ premiums were cut in half from what they were before the law. How?

Perhaps partly because the area’s health problems were going to push rates way up when the ACA was implemented, insurers in Chattanooga have designed plans that cover extremely limited networks of doctors and hospitals.

The practice of “narrow network” plans has become more common across the country since the ACA went into effect because new regulations leave limited options for cost containment. Before the ACA, insurers could reduce benefits, adjust risk pools, or increase rates to remain profitable. Now, narrowing networks is one of the few tools insurers have left to control costs. This may be why 70 percent of the silver plans offered on the Obamacare exchanges, on which individuals purchase insurance, are narrow-network plans, when a much smaller proportion of employer-provided plans have narrower networks.

But narrow networks have low premiums for a reason: They limit choice. Having limited options can be frustrating, especially if a doctor or hospital you like doesn’t end up in your network. However, evidence suggests that individuals who are currently uninsured and low-income individuals — the people most careful about pricing of insurance – say they’d rather have fewer choices and lower rates than pay more for a broader network.

Plenty of people have criticized Obamacare for causing the proliferation of narrow networks, but those who want more choices will still have the option to purchase broad-network plans. On the Obamacare exchanges, they report, McKinsey & Company explains:

Broad networks are available to close to 90 percent of the addressable population [while] narrowed networks are available to 92 percent of that population; they make up about half (48 percent) of all exchange networks across the U.S. and 60 percent of the networks in the largest city in each state.

But, with premiums having increased so dramatically under Obamacare, many people feel forced into narrower networks to avoid ruinous premium increases. The (relative) savings can be substantial, according to McKinsey:

Compared to plans with narrowed networks, products with broad networks have a median increase in premiums of 14 to 17 percent. . . . Across the country, close to 70 percent of the lowest price products are built around narrow, ultra narrow, or tiered networks.

Narrow networks limit choice, but don’t necessarily compromise access to care: The ACA lays out Qualified Health Plans (QHP) standards, which require plans to have a network large enough to deliver all services without excessive wait times and within a reasonable distance of the patient. Some states also have specific laws about minimum networks that regulate patient-to-provider ratios, waiting periods, and travel times.

When consumers pay less for their care, are they getting a lower-quality product? Not necessarily. McKinse compared broad and narrow networks using Centers for Medicare Services hospital metrics and found that both types of plans performed equally well in terms out outcomes and patient satisfaction. This might seem surprising on its face, since narrow-network plans basically reduce costs by contracting with only the least expensive providers and excluding more-expensive ones. But there is little evidence to show a positive correlation between high-cost medical services and quality, so having an insurer discriminate based on price won’t necessarily reduce quality.

In some cases, narrow networks can even provide better quality care. They may cover just one hospital system, so patients will receive all of their care within that system. This could improve outcomes by making medical records more accessible between doctors, increasing the likelihood that patients see the same physicians continuously, and reducing the amount of duplicative care and unnecessary procedures. (There are also signs of a similar effect within Medicare Advantage enrollees, who may fare better than regular Medicare because their care is constrained to a smaller network.)

If these types of networks become more prevalent — and it looks like they might — it’s likely that state will become more active in regulating narrow networks, as consumers seek lower prices but worry about access. Already, both California and New York have passed laws to limit the amount patients can be charged for using out-of-network hospitals.

Narrowing networks to decrease costs isn’t too popular among the majority of Americans (recall the outrage over one insurance executive telling the New York Times that consumers should learn to break their “choice habit”). But any measure that controls health costs without compromising access or quality could be a move in the right direction. Narrow networks remain one of the insurance market’s few remaining cost-control mechanisms — we’ll see how long regulators let them last.

My Ambivalent Case Against Stuyvesant


One of the qualities I value most is loyalty, and I’m sorry to say that I’ve just filed a profoundly disloyal column. At Slate, I make the (tentative) case for shutting down Stuyvesant High School, my alma mater. Critics of Stuyvesant, a selective exam school in New York city, have focused on the underrepresentation of black and Latino students relative to their share of New York city’s public school population. I argue that the dynamics behind the racial composition of Stuyvesant High School are poorly understood, that its hyper-competitive nature is not an ideal fit for students who need a supportive environment to flourish, and that most gifted and talented students would be better served by a diverse array of smaller, focused schools. Moreover, I maintain that it is Stuyvesant’s perceived “elite-ness” guarantees that its admissions policies will be politically contentious. My friend David Schleicher reminds me that I neglected to cite the work of Harvard economist Roland Fryer, which is very relevant. The following is drawn from Fryer’s abstract:

Publicly funded exam schools educate many of the world’s most talented students. These schools typically contain higher achieving peers, more rigorous instruction, and additional resources compared to regular public schools. This paper uses a sharp discontinuity in the admissions process at three prominent exam schools in New York City to provide the first causal estimate of the impact of attending an exam school in the United States on longer term academic outcomes. Attending an exam school increases the rigor of high school courses taken and the probability that a student graduates with an advanced high school degree. Surprisingly, however, attending an exam school has little impact on Scholastic Aptitude Test scores, college enrollment, or college graduation — casting doubt on their ultimate long term impact. [Emphasis added]

This suggests that Pedro Noguera is right to have argued that Stuyvesant’s “sink-or-swim” environment does not offer much to the black and Latino students who would be given a boost in the admissions process under the proposals advanced by New York Mayor Bill de Blasio and his allies in Albany. 


Today’s Policy Update: Obamacare ‘Funding Cliffs’ Loom for Some Programs


Contraceptives are not actually free for insurers.

Today at the New York Times’ Upshot, Austin Frakt looked into one element of the Burwell v Hobby Lobby opinion, the assertion that that covering contraception is cost-neutral for insurers:

Studies the departments cited are suggestive, but far from definitive. A fuller review of the literature on the cost and cost offsets of contraceptive coverage by Daniel Liebman, a colleague, finds that the evidence is thin that, from an insurer’s perspective, contraceptive coverage pays for itself in the long term. Moreover, it almost certainly does not in the short. The cost of contraceptive coverage is immediate, and the possible offsets (reduced pregnancies) are downstream, often years in the future.

Even the most expensive birth-control options cost much less than the cost of delivering and caring for a child, so how could birth control be a bad deal for insurers? Because the HHS mandate, for the most part, simply shifts costs of contraceptives from women who previously bought contraceptives on their own to their insurers, and the same amount of pregnancies are prevented. The only difference is insurers pick up the tab. As I wrote about here, there is little evidence that free contraceptives will even reduce the rate of unintended pregnancies in general. It turns out that the popular argument that contraceptives save everyone money may fall short.

667 million dollars later, people still don’t understand how to use 

Researchers at the University of Pennsylvania discovered that even highly educated young adults had a hard time navigating the federal government’s lavishly funded health-care exchange. They report on a study they conducted

Participants were challenged by poor understanding of health insurance terms that were inadequately explained. Although participants expressed their preferential benefits (for example, preventative care and dental coverage), they had difficulty matching plans with their preferences, partially because they perceived that the amount of information was overwhelming. Young adults qualifying for affordability provisions were confused by discount applications that made more-comprehensive plans (such as silver) cheaper than less comprehensive plans (such as catastrophic).

The website’s problems were numerous: The health-insurance terminology it used was too complicated, it wasn’t clear about what benefits plans would cover, and it didn’t properly explain how subsidies affect plans’ prices. Obamacare may have more or less reached its projected enrollment numbers, but Penn’s study suggests that almost anyone would have trouble buying a plan through the exchange. Unless the site becomes more user-friendly, the “navigators” hired to help sign peopel up for the exchanges may become a permanent fixture in the U.S. health-care system, in some sense replacing what private insurance brokers used to do.  While they may have helped make the exchanges functional, navigators are both expensive and sometimes problematic, as NRO’s Jillian Kay Melchior wrote about here.

Some of the subsidies crucial to making Obamacare work are expiring next year — will they be extended?

The Affordable Care Act has all kinds of federal subsidies in it, but some of them — to raise Medicaid payment rates, fund community health clinics, and insure children on CHIP to increase health-care access for low-income individuals — were designed as temporary measures to help boost access to care. As Jed Graham reports for Investor’s Business Daily, the subsidies are scheduled to shrink rapidly over the next couple years, with no replacement funds in sight:

Jed writes:

These funding cliffs weren’t driven by policy but by politics: Provide short-term funding to get ObamaCare off the ground, then cut it off — at least on paper — to make the budget forecasts look better over 10 years.

Now, with the money set to dry up next year, a push has begun to save funding for all three programs at an annual cost approaching $13 billion.

Time will tell whether Congress decides to plug the gaps, and increase Obamacare’s price tag.

Today’s Policy Agenda: Patent Trolls Really Do Slow Innovation


We all agree on improving teacher quality, but how should we do it?

In the Wall Street Journal, Jeffrey Sparshott discusses a new White House initiative to improve teacher quality.

The Obama administration on Monday announced an initiative to try to improve teacher quality at schools with high poverty rates and large minority populations, another effort to advance the White House’s agenda while broader programs remain stalled in Congress . . .

Under the initiative, states will be required to analyze data and submit plans to ensure students are taught by “effective educators,” the Department of Education said. The agency is setting aside $4.2 million to assist the effort and starting this fall will publish profiles of school districts, identifying schools that are falling short of standards as well as highlighting those that are recruiting and retaining effective educators. Mr. Obama said the pool of teachers is deep enough but many aren’t getting the training, professional development and support they need . . .

Mr. Duncan said he would consider linking performance with waivers from requirements under the No Child Left Behind education law. The White House says the law, passed under the previous administration, is broken though efforts to rewrite it haven’t advanced through Congress.

The president and Secretary Duncan are right that improving teacher quality is one of the most important things we can do to improve our education system and to enable upward mobility. Raj Chetty and others found that getting rid of the worst 5 percent of teachers and replacing them with merely average teachers would yield gains of $250,000 in lifetime income for the students in the affected classrooms.

However, the most obvious solutions do not include more federally prescribed professional development and would actually make the teachers’ unions even angrier at Arne Duncan, if that’s possible. First, as Andrew Biggs has argued on NRO, districts need to fire the worst teachers and focus less on class sizes that research suggests is overrated. Second, we should allow differential pay that could help attract and retain good teachers while pushing the worst out of the profession and encourage states to supplement the income of those who take jobs in the worst schools.

Patent trolls really do slow innovation.

Alberto Galasso and Mark Schankerman show in their new NBER working paper that while patents are useful for encouraging innovations in many contexts, they stifle it in many of our most dynamic industries. They write:

Patent rights block downstream innovation in computers, electronics and medical instruments, but not in drugs, chemicals or mechanical technologies. Moreover, the effect is entirely driven by invalidation of patents owned by large patentees that triggers more follow-on innovation by small firms.

Both anecdotal and now empirical evidence strengthen the case that our intellectual-property legal framework is slowing innovation and growth, as Jonathan Last describes in more detail in his new piece for The Weekly Standard. Taking on the rent-seeking behavior of patent trolls and large companies that indulge in troll-like behavior is something Republicans should prioritize — former House staffer Derek Khanna has detailed some of what such an agenda should look like.

Sherrod Brown wants to expand one of our worst poverty traps.

Lisa Ruhl has the story for the Washington Examiner.

Sen. Sherrod Brown, D-Ohio, is fighting for Social Security disability insurance for the millions of Americans who use it. He’s saying it’s not enough to protect the current model of how the insurance works: Now is the time to expand and grow the program…”We need to do more than defend the program and play defense,” Brown said at the Center for American Progress on Tuesday morning. “We need to play offense. We need to expand the program.”

The Social Security Disability Insurance Trust Fund is set to run out of money in 2016.

Of course, a just market economy will have a safety net that protects those who can’t work, but the Social Security Disability program has devolved into a permanent welfare program that makes no efforts to include its clients in the broader economy and virtually guarantees that those on its rolls will always be poor and will never work again. For a vivid picture of how this works, This American Life devoted an illuminating show to the SSDI poverty trap, its erosion of people and communities, and how over time it’s become possible for those with questionable ailments to enter the program.

The program desperately needs to be reformed, possibly in ways that make it more expensive or resting on a mandate that conservatives might not like. But to claim that SSDI is “one of the nation’s most successful insurance programs” and to call for its expansion is utter malpractice and ignores the perverse incentives and terrible consequences the program lays on our most helpless neighbors. 

Why Down Payment Subsidies Are Better Than Mortgage Guarantees


In his critique of the much-admired new book House of Debt, Jay Weiser warns that government mortgage guarantees have “undermined market discipline, encouraging risky borrowers to load up on artificially low-rate debt.” Might there be another, more constructive approach to helping U.S. households achieve sustainable homeownership? For the sake of argument, let’s leave aside the question of whether it’s appropriate for public policy to favor homeownership over renting. 

In 2010, O. Emre Ergungor of the Federal Reserve Bank of Cleveland argued that if our goal is to encourage sustainable homeownership, we ought to favor down-payment assistance over interest-rate subsidies, like the federal mortgage-interest tax deduction. In a similar vein, Joseph Gyourko of the Wharton School has called for replacing the Federal Housing Administration, which guarantees mortgages and which has been a financial failure, thanks in part to high default rates among the borrowers it backs, with a subsidized savings program that would match the savings of qualified households, thus helping them make 10 percent down payments on homes within their economic reach. 

Gyourko’s proposal is motivated by a number of concerns:

(1) the FHA has failed to discipline its risk-underwriting process, and he is skeptical that it will ever do so, due in part to political pressures. Starting from scratch makes sense if this is indeed the case.

(2) The FHA is undercapitalized, with a leverage ratio (as of last year) of over $40 in outstanding insurance guarantees to every $1 in what it calls total capital resources to pay off losses, a marked deterioration from the 12 to 1 ratio in fiscal year 2007. The mortgages the FHA insures belong to borrowers who are leveraged at 33 to 1 on average. As soon as housing prices fall, the FHA will find itself quickly overwhelmed and it is a safe bet that taxpayers will be left to pick up the pieces. 

(3) A subsidized savings program will address the equity shortfall, it won’t require a large bureaucracy capable of pricing complex mortgage guarantees and managing the foreclosure process, and the success of big mutual-fund companies demonstrates that such a program can be operated with low overhead, thus ensuring that taxpayers resources are directed to achieving the underlying goal of helping households accumulate wealth. 

(4) By focusing on borrowers, Gyourko’s proposed subsidized savings program is less likely to have its benefits siphoned off by realtors and homebuilders. Consider the distinction between Pell grants, which go to students from low-income households, and tuition tax credits, which benefit all students, including more affluent students. While Pell grants only increase the purchasing power of a discrete group of students below a certain income cutoff, tuition tax credits that benefit all, or almost all, students shift the entire demand curve. So while we wouldn’t expect Pell grants to contribute to tuition increases, universal aid would do so if supply is not terribly elastic. In a similar vein, the mortgage-interest tax deduction shifts the entire demand curve; in supply-constrained regions like coastal California and the northeastern United States, this shift contributes to higher home prices, as Gyourko and Edward Glaeser observe in Rethinking Federal Housing Policy. A narrowly-targeted subsidized savings program designed to help borrowers save up for a down payment would have a far more modest impact on home prices, even in capacity-constrained regions. 

(5) Unlike mortgage guarantees, which are notoriously difficult to price properly, a subsidized savings program would have highly visible costs. This is very much a feature in that it allows policymakers to more carefully weigh its costs and benefits. Yet it is a political liability, for obvious reasons. 

(6) The program would increase domestic savings and encourage financial discipline and long-term planning among borrowers. In contrast, the FHA subsidizes risky, highly-leveraged bets on the direction of the housing market that can leave the balance sheets of low- and middle-income households badly damaged when the housing market goes south. 

As for the cost of the program, Gyourko suggests that it would be far lower than that of putting the FHA on a sound financial footing. This seems like an excellent proposal for conservatives interested in fostering personal responsibility and who hope to avoid a future taxpayer bailout of the FHA, which looks all but inevitable in the absence of meaningful reform. 


Sharing the Leverage


Editor’s note: The following is a guest post by Jay Weiser, associate professor of law and real estate at Baruch College. In it, he addresses how policymakers should address consumer debt buildup – and, just as importantly, how they should not.

In their new book House of Debt, economists Atif Mian and Amir Sufi connect the vast increase in consumer debt with the Great Recession and slow-motion recovery. But rather than sing a requiem for a half-century of proxy Keynesianism, when borrowers leveraged up in pursuit of a government-defined American Dream, they shout hosannas for even more debt. They claim that compelling mortgage and student lenders to share equity risk with borrowers will reduce the severity of future financial crises by supporting consumer purchasing power. This is like saying that the overloaded Sewol ferry wouldn’t have capsized if the captain had added one more car in exactly the right place. Consumers and the financial system need less leverage and simpler loans.

Government guarantees and moral hazard

As the authors note, government incentives were a major cause of the consumer debt buildup. Without government backing, as guarantees or direct loans, lenders charge high rates for risky loans and expect high chargeoffs in an economic downturn – the reason why unsecured credit card debt, with its extortionate rates on unpaid balances, was not a systemic problem in the Great Recession. Express and implied mortgage and student loan guarantees undermined market discipline, encouraging risky borrowers to load up on artificially low-rate debt. 

Rather than eliminating government backing, whose benefit has gone mainly to the real estate and higher education industries rather than consumers, Mian and Sufi would add complexity by having lenders assume more of the risk of economic downturns. It’s unclear which lenders they’re talking about, since both student loan and residential mortgage debt have been effectively socialized.  Post-bust, the government backs 90 percent of residential mortgages and is the lender for 85 percent of student loans. If government guarantees remain in place for new loans, politicians will latch on to the supposed additional safety to pump even more loans to riskier borrowers.

Mian and Sufi claim at one point that consumer borrowers are not subject to moral hazard. But consumers have repeatedly leveraged to the max on subsidized loans and bet on good times later to pay them back. Bubble-era 100% loan-to-value home mortgages were premised on rising prices permitting cash-out refinancings. Relying on the exaggerated “college premium” for future earnings, student loans more than doubled from the start of the Great Recession in December 2007 to March 2014 ($1.26 trillion outstanding), notwithstanding a 14.7 percent three-year default rate for borrowers graduating in 2010. If borrowers know that their debt will be reduced during downturns, they will have even more incentive to borrow, bubbles will inflate further, and government losses in downturns will compound.

Doubling down on derivatives

If government guarantees disappear, Mian and Sufi’s risk-sharing requirement – reducing the amount owed when the unemployment rate rises (for student loans) or housing prices drop (for mortgages) drop will cause further distortions in the debt securities markets. Lenders already bear the risk of economic downturns, when defaults spike. If lenders are required to double their bet (by taking on the downturn risk currently borne by borrowers), they will cover the cost of this downturn insurance by raising interest rates. The authors confidently assert that lenders can price the risk based on past performance, but this reminds us that economics is the queen of the social sciences in the Ru Paul sense, offering vivid, but distorted, models. Lenders’ ability to predict the length and severity of downturns over the typical terms for student loans (ten years) and mortgages (30 years) is nil: as late as September 2008, the economists’ Consensus Forecast poll predicted that no country would be in recession by 2009. In the absence of the authors’ risk-sharing, borrowers with less ability to ride out a downturn wouldn’t borrow – reducing the default rate and financial instability when the inevitable downturn comes.

Perversely, the authors’ insurance scheme will force the massive use of derivatives not currently demanded by the market. Bond buyers are generally interested in a predictable fixed return. To provide this, the investment banks that securitize student loans and mortgages structure the securities into tranches (segments). Upper tranche buyers typically get relatively low interest rates that are comparable to Treasury or high-quality corporate bonds.  In exchange, they are the last to bear the risk of default on loans backing the bonds. 

Buyers of lower tranches (known as “B-pieces”) get higher interest rates (akin to junk bonds) in exchange for accepting equity-like risk: higher payments in a good economy but bearing the first losses when defaults rise in a downturn.  B-pieces are hard to value.  In past decades, they led to a series of investment bank blowups culminating in the Great Recession’s CDO conflagration. In response to Mian and Sufi’s structure, securitizers will dump the index risk into a speculative B-piece that will leave the incentives of upper tranche buyers untouched. 

Arbitraging indexes

The specific student loan and mortgage proposals have further problems. Mian and Sufi propose reducing student loan indebtedness when unemployment increases. There is little reason to subsidize groups such as recently graduated engineers, who command high starting salaries and have just 5 percent unemployment. There is even less reason to encourage borrowing by students who are unlikely to earn a college premium on graduation. Undergraduates have a six-year bachelors degree graduation rate of just 59 percent, and noncompleting students have a 59 percent incidence of student loan delinquency or default. Even among recent graduates who have completed their bachelors’ degrees, 56 percent are unemployed or work at jobs that do not require a college degree. Graduate student loans have exploded despite tiny wage premiums that make many degrees little more than cash cows for universities. Under the authors’ proposal, students will have even less incentive to limit their debt — and higher education institutions will have even less incentive to limit tuition. 

For home mortgages, Mian and Sufi propose reducing principal and payments when housing price indices drop, claiming that there are housing price indexes accurate down to the zip code level. But houses, even in a single zip code, are of multiple ages, sizes and quality. It took years to develop the data on repeat sales of the same houses that make the Case-Shiller index reliable — and Case-Shiller’s finest grained public indexes go down only to the metropolitan area level. Nor has economist Robert Shiller’s effort to promote housing index futures succeeded so far: as of July 3, the CME Group’s national S&P/Case-Shiller Home Price Index had all of 16 futures contracts outstanding.  

The more complex the reconciliation of the actual market price with the index value, the more litigation: commercial shared appreciation mortgages generated substantial litigation when they were popular in the 1970s and 1980s. Even without litigation over the amount of the writedown on sale, as of June 2013, it took an average 1,033 days to foreclose in New York and New Jersey, 907 days in Florida and 817 days in Illinois. 

With the loan principal reduced in a falling market and borrowers in control of the time of sale, borrowers will leverage up with even less concern for price than during the bubble, then strip the debt when the market falls. (Similar opportunism led to a prohibition on principal-stripping in Chapter 13 bankruptcy.) Nor will lenders be comforted by the authors’ proposal that, if prices go up, they get just 5 percent of the gain on sale, given that prices dropped by about a third nationally from peak to trough in the bust. (The authors offer student loan lenders no upside at all if the unemployment rate drops.)

The Soprano solution

Sufi’s University of Chicago colleague, Ronald Coase, won the 1991 Nobel Prize in Economics for demonstrating the importance of minimizing transaction costs. Coase recently died of natural causes at age 102, but given the authors’ treatment of his life’s work, it’s as if, Tony Soprano-style, they had smothered him with a pillow. Complex and opaque debt structures enable politicians and crony capitalists to disguise high leverage while spinning the predictable blowups as black swan events.

If a consumer debt hangover is hindering the economy, as Mian and Sufi plausibly argue, then the government should be encouraging writedowns in exchange for the elimination of future guarantees and other hidden debt subsidies. Borrowers and lenders, not taxpayers, should bear the risk.

Today’s Policy Agenda: Will Private Exchanges Be the Health Care of the Future?


 Obamacare provides doctor visits, eventually.

You may have to wait longer to see a physician in 2014, according to a report by health-care consulting firm Merritt Hawkins. Since 2009, wait times to see a general practitioner increased in two-thirds of the cities surveyed. While wait times to see a general practitioner only increased by a few days in some cities, others saw dramatic increases: Atlanta, Philadelphia, and Seattle all saw wait times increase by ten days or more.

Wait times are likely to keep increasing: Obamacare is adding millions of new patients to the already busy system via state Medicaid expansions and the health-care exchanges. Experts have long worried that the U.S. doesn’t have the doctors or facilities to meet new demand. The Association of American Medical College estimates that there will be a shortage of 45,000 general practitioners by 2020 (it has pushed for more government funding for medical education as a solution).

Long wait times will likely disproportionally affect low income patients because some physicians do not accept Medicaid or accept Medicaid patients at lower rates.

New York sees some of the worst rate shock of 2014.

New Yorkers may see premiums increase greatly in 2015: On average, insurers requested a rate increase of 13 percent relative to last year’s rates, according to the New York State Department of Financial Services. After many premiums in the state were reduced by the implementation of the law last year (New York had many costly regulations before Obamacare but no individual mandate), this large increase for 2015 premiums comes as an unwelcome shock.

Some New York state officials see no cause for concern, noting the availability of subsidies and the likelihood that proposed rate increases will be reduced. However, as Avik Roy explains here, new Yorkers likely still pay more than other Americans for insurance because New York already had a very unique — and very expensive — healthcare system before implementing Obamacare.

Official rates will be set in late August, around the time when other states will be finalizing their rates, too — a process sure to be of political interest for both parties in midterm season.

Will private exchanges offer the health care of the future? 

When one entrepreneur found that the options offered by District of Columbia’s federal run exchange were too expensive both for some employers and employees in the restaurant industry, she started her own exchange. Industree Exchange, started for an industry group by former private chef and meeting planner Alisia Kleinmann, features 15 full-coverage plans along with several lower-cost options that are especially attractive for young, typically healthy individuals – a common demographic in the restaurant industry.

“Every single option has been designed, negotiated and built specifically for the demographics of the restaurant industry,” Kleinmann said. “They keep you in compliance with Obamacare and they’re completely affordable.”

Private exchanges may reduce administrative burdens, lower costs for employers and employees, and offer more options tailored specifically to employees. In fact, some experts estimate that enrollment on private exchanges could be greater than enrollment on public exchanges by 2018. Private exchanges can complement public exchanges, as vehicles for individuals who have insurance through the public exchanges to purchase additional benefits through their employer, as Eric Grossman, a health-care consultant, explained to Paul Howard of Forbes in January. As the health-care market continues to change, mixing private and public options and exchanges may be one way people end up meeting their health-care needs.

It’s Much Easier to Be Socially Responsible In Some Businesses Than Others


This weekend, Ross Douthat wrote on Hobby Lobby as “a company liberals could love” in light of its insistence on paying full-time workers no less than $15 an hour, among other policies that tend to reduce turnover. Elsewhere in the New York Times, Jennifer Conlin profiles the Zingerman’s Community of Businesses (ZCoB), a network of for-profit firms in and around Ann Arbor, Michigan, that has pioneered a more collaborative approach to management, in which employees are encouraged to think of themselves as entrepreneurs invested in the health and growth of the larger enterprise. Zingerman’s is also committed to paying relatively high entry-level wages, and one of the founders of the business, has lobbied for an increase in the minimum wage. 

Far be it from me to criticize Hobby Lobby or the ZCoB, both of which strike me as creative, innovative businesses that deserve to be admired and emulated. But I was struck by one passage in Conlin’s profile that strikes me as relevant to the larger debate over wage floors:

“We get price questions a lot,” said Maddie LaKind, a recent University of Michigan graduate who worked part time in the deli during college and is now working and training full time at the deli, hoping for a career in food. “Customers might want to know, for instance, why our Italian submarine sandwich costs $15.50. I explain to them the value of the product. It has 11 different high-end ingredients. But we also happen to be paid and treated well.”

The ZCoB is devoted to selling premium products to customers who are willing to pay for them. This demands a level of commitment that at least some employees find less than suitable, as Conlin reports:

Former staff members talk about the frustrations of having to placate difficult customers, as well as the stress of being “Zingy” throughout a long shift. “It is exhausting to work somewhere where you feel like you have to improve what you do constantly,” said one former worker at Zingerman’s Roadhouse.

Essentially, the Zingerman’s business model relies on identifying conscientious employees, making them more conscientious through its rigorous, and expensive, training programs, and then retaining them by offering them opportunities for upward mobility within the organization, which requires that the organization grow steadily. It should be obvious that not all businesses can mimic this approach, as there are only so many workers who would choose to devote themselves so wholeheartedly to a corporate mission, and other employers will respond by crafting terms of employment that are a better fit for their needs (e.g., I might find it demoralizing to be constantly cheerful, and I’d be willing to accept a somewhat lower wage to avoid what I perceive to be this indignity); and not all business, particularly in retail, are capable of growing at such a rapid clip, for a variety of reasons, including the nature of the market being served. 

Yet in lobbying for an increase in the federal minimum wage, Zingerman’s co-founders have implicitly decided that other businesses, e.g., in which quick-service restaurants aim to serve low-income or cost-conscious consumers, who might need to outsource meal preparation in order to work longer hours, must either sharply increase their labor productivity, i.e., employ fewer workers, or pivot to serving a different kind of customer, a kind that doesn’t necessarily exist in every part of the country. 

And as for Hobby Lobby, a company that I’m inclined to think well of, like Douthat, I’m reminded of Megan McArdle excellent analysis of why Wal-Mart will never pay like Costco: while Costco is a place where relatively affluent consumers go to stock up on a small number of products in bulk, Wal-Mart serves virtually all of the shopping needs of a less affluent clientele; its business model is intrinsically more labor-intensive than Costco’s, and spending more to raise the quality of service would tend to raise prices, thus encouraging its price-sensitive customers to look elsewhere. Hobby Lobby is a specialty retailer that can carry a relatively limited array of products, and as such its business model lends itself to labor productivity. 

I absolutely agree with Douthat’s basic point about Hobby Lobby: the fact that its corporate leadership is influenced by an ethical and religious commitment contributes to the fact that its a great place to work. Something similar seems to hold for Zingerman’s. But it is no accident that both companies have flourished in niches that make it possible to avoid heavy reliance on low-wage, less-skilled labor. And given that low-wage, less-skilled jobs can, at their best, serve as the first rungs on the ladder to high-wage, skilled jobs, it’s not entirely clear to me that eschewing them entirely is such a good thing. 

Immigration Policy Is Not Binary


Immigration advocates have a frustrating tendency to insist that the immigration debate is binary. You are either for immigration or against it. They neglect the possibility that one might be for certain kinds of immigration and against others, and they routinely deploy data that fails to differentiate among immigrants by skill level or language proficiency. The reason, I suspect, is that many immigration advocates recognize that their arguments from global poverty alleviation fail to resonate with the broader public, and so they seek to yoke their case for less-skilled immigration to the much stronger case for skilled immigration by blurring the distinction between the two. 

Charles Kenny, a columnist for Bloomberg Businessweek and a proponent of large-scale less-skilled immigration, offers a comparative analysis of public opinion concerning immigration across several market democracies, drawing on 2013 data from the German Marshall Fund. Though I very much enjoy Kenny’s writing, his latest column obscures more than it reveals. 

The U.K. is the only country out of eight European countries and the U.S. surveyed by the German Marshall Fund where the majority of respondents thought there were too many immigrants in the country in 2013. Compare that with 41 percent in the U.S. and only 24 percent in Germany.

What Kenny does not mention is that when asked if there were “a lot but not too many” immigrants in the country, 39 percent of Americans, 55 percent of Germans, and 28 percent of Britons answered in the affirmative. One obvious possibility that Kenny neglects is that Germans might be reluctant to tell a pollster that there are “too many” immigrants residing in their country while Americans and Britons, who presumably don’t have the same anxieties about national chauvinism, are somewhat more inclined to do so. While Kenny cites the fact that only 24 percent of Germans will forthrightly say that there are too many immigrants in the country, he neglects to mention that 43 percent of Italians and 43 percent of the French say the same. The Swedes, like the Germans, are outliers in that only 23 percent report that there are too many immigrants in the country, yet Sweden is home to large numbers of migrants from neighboring countries like Finland (12.5 percent of all foreigners residing in Sweden), Denmark (6.8), and Norway (6) as well as countries like Iraq (9.3). A finer-grained question might ask respondents if there were “too many” immigrants from affluent market democracies or from the developing world.

Kenny’s column is, of course, about immigration, which is to say whether or not the citizens of market democracies should allow more immigrants to settle in their countries. The “too many” question is not the most obvious way to get at this particular concern. Ask Americans about illegal immigration and the German Marshall Fund finds that 61 percent are worried about it; 71 percent of Germans are worried about it, as are 80 percent of Britons. On legal immigration, only 25 percent of Americans are worried while the same is true of 29 percent of Germans and 41 percent of Britons. 

So why might Britons be so much more concerned than Germans? One hint comes from the World Bank, which finds that from 2009 to 2013, net migration to Germany has been 549,998 while net migration to Britain has been 900,000. This might sound like a relatively modest difference, but remember that Germany has a population of 82 million while Britain has a population of 62 million. Moreover, immigration to Britain has been concentrated in southeastern England while it has been somewhat more diffuse in Germany. 

In the U.S., more than two-thirds view immigration as a good thing for the country. And even in the outlier U.K., the percentage of people suggesting immigration has gone too far has been similar—and if anything a little higher—all the way back to the 1960s. The proportion of Britons who admit they are at least a little prejudiced against people of other races has fallen from 35 percent in 1980 to 30 percent in the latest survey. The downward trend looks set to continue: Opposition to immigration skews old, and young people are considerably more relaxed about migration and race. Thirty-seven percent of British people born before 1929 admit to being very or a little prejudiced against people of another race, compared with 25 percent of Generation Y.

First of all, to say that immigration is a good thing for the country is trivial, as it has no bearing on the kind of immigration policy a country ought to pursue. I would agree that immigration is a good thing for the United States; I also believe that a Canadian- or Australian-style immigration policy would be far superior to the status quo. Kenny’s findings concerning racial prejudice in Britain are not terribly surprising, considering that 14 percent of the UK population now belongs to visible minority communities, and it is expected to increase to 20-30 percent of the UK population by 2030. And of course Kenny is taking it for granted that opposition to immigration and racial prejudice are necessarily linked. British opposition to immigration has remained persistently high even as British society has grown more racially tolerant. 

The U.K. also demonstrates the disconnect between attitudes toward immigration and the scale of immigration itself. While rising concern in the U.K. over the past decade has followed an upswing in migration from new member states of the European Union, in 2012 U.K. net migration was at its lowest level since 2008. Prejudice is the least prevalent in the most racially diverse parts of the country. Inner London, perhaps the most diverse part of the U.K., sees only 16 percent willing to admit prejudice—about one half the national average. Similarly, animosity toward immigrants in the U.S. is concentrated in rural areas, according to Katherine Fennelly and Christopher M. Federico of the University of Minnesota. They suggest that might be because of “greater isolation and lesser contact with immigrants and minorities.”

What Kenny does not mention is that net migration has decreased from 2008 to 2012 in part because Britain’s Coalition government has sought to reduce net migration, and the share of Britons who believe that there are “too many” immigrants in the country has fallen from a peak of 59 percent in 2010 to 55 percent. That is, the Coalition appears to be reassuring some number of Britons that it is addressing anxieties about immigration.

Again and again, Kenny slides from a discussion of opposition to immigration to a discussion of racial prejudice, as if the two sentiments were indistinguishable. Leaving aside the fact that opposition to immigration and racial prejudice are not in fact indistinguishable, Kenny’s discussion of prejudice in inner London is curious, as only 45 percent of London’s population is white British; one assumes that white Britons who are prejudiced have over time migrated to other regions of the country.

Across Europe, the recent elections may reflect a growing animosity toward immigrants during a downturn, but the far right in Europe did better in countries that suffered comparatively little from the financial crisis. Decades of research suggest views about migration simply aren’t related to self-interested worries about the threat of losing jobs. In their survey (PDF) of public attitudes toward immigration, Jens Hainmueller and Daniel Hopkins suggest the idea has “repeatedly failed to find empirical support,” making it something of a “zombie theory.” At the same time, a cluster of attitudes toward race and nationalism alongside immigration are closely linked.

This all suggests attitudes toward migration are a cultural issue—like those toward guns or gay marriage. And cultural attitudes unmoored from immediate economic concerns can change fast—look at gay marriage, where popular backing for marriage equality increased from 27 percent to 55 percent over the past 18 years. 

Unfortunately, Kenny fails to take into account rising anti-immigration sentiment in Singapore, a racially diverse society with a large Chinese majority, where a large share of recent migration has come from China. Singapore has seen a dramatic increase (34 percent) in its population since 2000, and in the last general election, voters issued a stern rebuke to the ruling People’s Action Party, which has moved quickly to reduce reliance on foreign labor, which now represents a third of the workforce. The notion that Chinese Singaporeans are resisting Chinese immigration out of racial animus strains credulity, which is why Kenny is wise not to have invoked the (very salient) example of Singapore. Moreover, there is reliable evidence, from Gianmarco Ottaviano and Giovanni Peri, among others, that new immigration puts wage pressure on earlier immigrants, a fact that is worthy of note in societies like the U.S. where the foreign-born share of the workforce is above 15 percent. 

Or take another cultural question about employment: The World Values Survey in Germany in the late 1990s found more than one-fifth of the adult population thought that when jobs were scarce men had more right to a job than did women. That has fallen to 7 percent in the most recent survey. In Spain, that figure has dropped from 27 percent in the 1990s to 7 percent today. No major politician in Europe or America has come out with a proposal to shut women out of the workforce during the recent economic crisis. Hopefully, during the next economic crisis, the same will be true of migrants.

To be clear, Kenny is suggesting that the full inclusion of women in the workforce can meaningfully be compared to whether or not it is wise for a given country to increase net migration. This is a hard argument to take seriously. Reducing net migration may well lead to increased female labor force participation, thus further undermining patriarchal norms. 

Those politicians fostering “acceptable nativism” might want to look at long-term economic trends. A recent analysis by the U.K.’s National Institute of Economic and Social Research suggests that the long-term impact of reducing net migration by 50 percent—in line with the target proposed by Britain’s David Cameron—would reduce British income per capita by about 2.7 percent by 2060 and force income tax increases of about 2.2 percentage points. That’s largely because most migrants are young—and so populations skew older absent immigration. Lower net migration implies more retirees on pensions with heavy hospital bills and fewer working-age people paying taxes.

You can be the party of low taxes or of low immigration. You can’t be the party of both. Politicians on both sides of the Atlantic should consider that math next time they use immigrants as a convenient scapegoat come election time.

Kenny neglects the possibility — for good reason — that raising the average skill level of migrants could offset some of the cost associated with reducing net migration. While he frets over the difficulties of financing retirees on pensions with heavy hospital bills, he neglects the fact that migrants age and that retirees aren’t the only people who require labor-intensive services; so do low-income individuals in need of retraining, or the children of parents with low levels of educational attainment, who need supplementary instruction and other support services. Instead of admonishing politicians on both sides of the Atlantic to consider the math, Kenny should keep in mind that the math favors immigration policies that raise the average skill level over those that lower it. Lo and behold, it turns out that societies that select immigrants on the basis of skill are also less hostile to immigration.


America: No. 1 and Gaining in . . . Corporate-Tax Oppressiveness


You probably knew that the U.S. has the highest top statutory corporate-tax rate in the world (an honor it’s held for three years running – it used to be just barely topped by Japan). But you may not have known that its position has gotten substantially worse relative to its competitors over the past few years, as countries around the world are cutting their corporate-tax rates to increase competitiveness, even in an age of austerity.

Here’s a chart showing the top corporate rate in some of the world’s largest wealthy economies, with the U.S. in the stratosphere in light blue:

The chart comes from Brian Williams of the Motley Fool, a personal-finance website. The top statutory federal rate in the U.S. is 35 percent, but KPMG, from which the above data is drawn, deems 40 percent the right top rate because it takes into account an average of state corporate taxes.

The above chart is about to get worse, too: Japan, America’s closest competitor in the race for the highest corporate rate, is planning to cut its corporate rate again as part of Prime Minsiter Shinzo Abe’s “Abenomics” reform package, bringing the rate below 30 percent.

Japan is pursuing a growth-oriented package of reforms but also has huge deficits to worry about — as do a number of other countries on the above chart.

Few American corporations, of course, pay anything like a 40 percent corporate-tax rate — though as one example, large financial-services companies often do — because of the huge tax preferences embedded in the corporate tax code. (Here’s a breakdown from the New York Times of effective rates paid by various companies and industries.) With an exceptionally high rate, the U.S. corporate tax garners a whopping 9 or 10 percent of the federal government’s revenue every year. 

Here’s Why We Should Fight the Dragon: A Reply to Ramesh Ponnuru and Michael Strain


Editor’s note: The following post is by Oren Cass, who served as Governor Mitt Romney’s Domestic Policy Director in the 2012 presidential campaign. In it, he elaborates on several of the themes he first introduced in “Fight the Dragon,” his recent National Review cover story, and he replies to a critique from Ramesh Ponnuru and Michael Strain.

The last issue of National Review includes a response from Ramesh Ponnuru and Michael Strain to my essay in the prior issue arguing that the U.S. should aggressively confront China’s trade abuses. I appreciate their taking the time to respond, but wish they had engaged with the argument I made rather than simply trotting back out the standard “imports good, tariffs bad, trade deficits don’t matter” mantra that I was hoping to move beyond.

Indeed, their piece is an excellent case study of the phenomenon I described in my very first paragraph: “Conservatives, and most neoliberals, have embraced that view [of free trade as obviously positive] and consistently press for further liberalization while condemning as backward and reactionary ‘protectionism’ any proposed obstacles to the free flow of goods and services.” My goal was to explain the flaws in that view, so it is disappointing that the response is simply to have it shouted back louder. At times I thought I was reading a defense of NAFTA.

To understand just how narrow and incomplete their response is, it might be helpful to break the debate down into three discrete questions: First, what policies is China pursuing? Second, what is the impact of these policies on the United States? Third, to the extent that the impact is negative, what should the United States do?

On the first question, there seems not to be much disagreement. China is running roughshod over virtually every tenet of the free trade system. It blocks access to its own market and coerces firms that attempt to enter it (Ramesh and Michael make no mention of market access). It systematically steals intellectual property (they don’t use the words “intellectual” or “property” either). It manipulates its currency. And it uses both that currency manipulation and a range of subsidies to artificially depress the price of goods it sells into the U.S. market, with a focus on industries it has identified as most strategically important.

Ramesh and Michael do engage on this final element, taking issue with my comparison of subsidized selling to predatory pricing and correctly noting that — like Sasquatch — predatory pricing is frequently discussed but rarely found in nature. But that misses the (perhaps inartfully stated?) point. Regardless of whether China is actually selling below its cost, the subsidization has the same effect that predatory pricing would: driving other firms out of the market. And thus we should be worried about it for the same reasons: the resulting long-term cost in destroyed firms and eroded economic strength greatly exceeds any short-term benefit in cheap goods. As far as I can tell, they are not questioning that China subsidizes its producers. And they are not questioning that this harms domestic firms. Their Chicago School shout-out is just a distraction.

With China doing all these things, question two moves to the forefront: what is the impact on the United States? Here Ramesh and Michael stake out the claim that “free trade almost always benefits the country adopting it, regardless of the trade policies of other nations.” But that is a question-begging statement. Is what we have with China “free trade”? Surely it is not the case that the U.S. benefits from having its firms excluded from the Chinese market and coerced when they enter it. Nor can it be the case that the U.S. benefits from having the intellectual property of its firms expropriated. They address neither.

Instead, they focus solely on the question of whether cheap imports from China are beneficial to the United States. I read twice through their response to find a clear statement of their reasoning on this point to quote here, and came up empty. As far as I can tell, their argument is that because the classical model says free trade is beneficial, any criticisms of that model are incorrect. Kind of circular.

There are at least two reasons why we should be concerned by the flood of cheap imports generated by China’s economic strategy — not a flood of cheap imports per se, but rather a flood of artificially cheap imports that are strategically subsidized and buttressed by intellectual property theft and currency manipulation, coming from a centrally-controlled market closed to reciprocal imports. Not all influxes of cheap goods are equal, and while the classical model treats them as such our actual experience with China suggests otherwise.

The first problem is that we do not want to see our economy hollowed out. With actual free trade, some U.S. industries would see a decline in demand but others that had a comparative advantage would see an increase in demand. There would be economic disruption but at the end of the day a net economic gain. In practice we are seeing something very different: China’s imports flood the U.S. market, but China does not turn around and import U.S. goods in return. Instead, it hoards its surplus of dollars and loans it back. Which is a multi-step way of saying that it sends these imports across on credit. Applauding this is the equivalent of congratulating a friend for getting fired, lying on the couch while his skills erode, and buying everything he needs on a credit card. Because… hey, free stuff!

(Ramesh and Michael argue that savings and investment balances dictate trade balances but do not explain why causation should run in that direction and not vice versa. They also make the surprising claim that the policy decisions of the U.S. and its trading partners are irrelevant to where these balances land, as if government policy does not have the ability to influence savings and investment rates or the competitiveness of importers and exporters – an especially faulty premise when one of the parties is Communist.)

The second problem is one of distribution. Even if we took seriously the idea that running hundreds of billions of dollars in trade deficits while borrowing hundreds of billions of dollars is a healthy financial balance for the nation, we would still have to account for the uneven impact of that balance within the nation. Specifically, we would need to be prepared for substantially larger government redistributing a substantially larger share of national income. That has enormous economic and social consequences of its own.

(For more on the damage caused by the unprecedented surge of Chinese imports, see, e.g., the Wall Street Journal  that bastion of protectionism – summarizing the recent work of David Autor et al. And note that “Michael Spence, a Nobel Laureate economist at New York University [and a Senior Fellow at the Hoover Institution], said the new finding reflected how prevailing theories of trade aren’t up to the task of dealing with the breakneck pace of China and other developing economies.”)

To make matters concrete: let’s imagine that Ramesh and Michael write a book. And then let’s imagine that the Chinese government hacks into their computers, steals the manuscript, prints up 100,000 copies, and sends them over for free to bookstores and the Amazon warehouse. And let’s imagine that it is explicit Chinese policy to do this with every conservative policy book written for the next decade, and that there would be no legal recourse against retailers selling these copies. As a matter of economic policy, should the U.S. welcome this state of affairs because “free trade” is always good, or might there be cause for concern? Before you answer, remember: the book will be cheaper for consumers.

Having ignored (though not denied) many of China’s abuses, and having ignored (though not denied) many of the negative impacts on the U.S. economy, it is perhaps unsurprising that they take such umbrage upon arriving at the third question of what action the U.S. should take. Yes, if China’s only offense were offering low-cost goods to U.S. consumers then imposing a tariff in response would be foolish. But offering low-cost goods is one small and incomplete component of China’s trade strategy, and a tariff is only one small and incomplete component of my proposed response.

My goal in writing the initial essay was twofold. First, to lay out the full indictment of China’s trade abuses, emphasizing the ways its sophisticated economic strategy frustrates the classical economic model and the reasons it must be confronted. Second, to make the case that because withholding trade benefits is the primary tool by which international trading norms can be enforced, a credible willingness to disrupt the economic peace is critical to maintaining that peace and promoting prosperity.

Today’s Policy Agenda: There’s a Growing Consensus to Repeal the Employer Mandate


Rhode Island increased their minimum wage last week. The state’s unemployment rate is 8.2 percent — what are they thinking?

Last Thursday, Rhode Island governor Lincoln Chafee signed a bill to increase the state’s minimum wage from $8 to $9. At risk of re-litigating the minimum-wage debate, the specifics of the Rhode Island situation are unique and worthy of more analysis. While it’s true that the hike is just a 12 percent increase and will only apply to Rhode Island, which tend to have high prices and wages, unlike President Obama’s national proposal to raise the floor by 40 percent, the labor market in the Ocean State is among the weakest in the country.

At 8.2 percent, Rhode Island’s unemployment rate is the nation’s highest and clearly cannot endure the disemployment effects many economists and the CBO believe a minimum-wage increase will cause. But even if the CBO estimate (500,000 jobs lost nationwide with a $10.10 minimum wage, considered a mid-point in the academic literature) is too high and the disemployment effects are small, we know that those losses will be borne by the young and by low-skill, low-wage workers.

In Rhode Island, these groups are hurting: According to Census Bureau data, the teenage unemployment rate there is 24.8 percent, almost 14 percent of those with a high-school diploma or less are out of work, and unmarried men face an unemployment rate of 14.6 percent. These are the exactly the individuals who most need access to what work can provide: the first rung on the income ladder, inclusion in new, upwardly mobile social networks, the psychological benefits of working and experiencing human flourishing, growth in potential from learning new skills.

Maybe liberals are right and the costs of a wage hike will be small, but just moderate job losses are enough to put a better life a little farther out of reach for Rhode Island’s most vulnerable citizens.

Obamacare has increased coverage. How does this affect the starting point for conservative reforms?

The New England Journal of Medicine is out with a new study by David Blumenthal and Sarah Collins analyzing the state of Obamacare after the completion of its first enrollment period. They write:

Taking all existing coverage expansions together, we estimate that 20 million Americans have gained coverage as of May 1 under the ACA. We do not know yet exactly how many of these people were previously uninsured, but it seems certain that many were. Recent national surveys seem to confirm this presumption… With continuing enrollment through individual marketplaces, Medicaid, and SHOP, the numbers of Americans gaining insurance for the first time — or insurance that is better in quality or more affordable than their previous policy — will total in the many tens of millions.

While it’s true that rate shock and narrower networks will dampen consumer satisfaction with the new insurance products, it seems that despite the early struggles, the ACA has succeeded in at least reducing the numbers of the uninsured. This isn’t to say that Obamacare has been a success: We’re still far short of the goals set out in making the case for the law, and many of the conservative criticisms of the law still hold up and plenty of dire predictions have come true.

Yet when Republicans get their chance to move health policy in a market-oriented direction, they’ll have to do so in an environment where liberals made the case on moral and economic grounds for expanded insurance coverage, won that argument in the public square, and delivered on the expansion. This isn’t the end of the world: There are plenty of good Republican plans to reform health care that would also maintain or expand levels of coverage from the post-Obamacare status quo. But the starting point of the health-care debate seems to have changed for good.

Europe shows why we need to reform our entitlements now.

ECB Governing Council Member Christian Noyer made some interesting comments over the weekend, as reported by Mark Deen for Bloomberg.

“No country today has sufficient credibility to put in place a strategy” of financing public infrastructure with a major debt increase, Noyer said today at the Cercle des Economistes conference in Aix-en-Provence, France. “Decades of deficits have created profound skepticism.”

When deficits spiral out of control, forced, drastic austerity measures hurt the poor, and as French president François Hollande is discovering, debt-financed infrastructure investments — the kind of things governments are supposed to borrow to finance – are off the table.

If we reform our entitlements now before the worst of the demographic shift drives us to an unsustainable point, we can likely avoid the most painful of the possible paths to solvency. It’s critical, then, that the electorate and policymakers avoid “normalcy bias” and work now to enact sensible reforms.

There’s a growing consensus in favor of repealing the employer mandate.

For Politico, Paige Winfield Cunningham and Kyle Cheney report that many Democrats are changing their tune on Obamacare’s employer mandate:

The employer coverage rules were part of the ACA’s core philosophy that individuals, employers and the government should all contribute to paying health care costs. Some Democratic constituencies, including labor unions and Obamacare proponents like Families USA, still see it that way. But the shift among liberal policy experts and advocates has been rapid. A stream of studies and statements have deemed the mandate only moderately useful for getting more people covered under Obamacare. And they too have come to see it as clumsy, a regulatory and financial burden that creates as many problems as it solves. The main downside to eliminating the mandate, from the Democratic perspective? Money. Estimates of the mandate’s worth to Obamacare financing range from $46 billion to more than $100 billion over a decade. That helps pay for coverage expansion.

The employer mandate is, in a way, similar to the minimum wage: Politicians who want a certain benefit refuse to pay for it with subsidies and tax increases, so they pass off the expense on employers in an indirect way that lets them take the credit — while the costs are borne by the very people the policy was designed to help (through less employment). The employer mandate probably never should have been in the law in the first place, and now that liberals are finally realizing the unnecessary problems it causes, repealing the employer mandate should be the first of many changes to Obamacare. (Reihan wrote about the general issue of the employer mandate, in February.)

Keeping an Eye on the Relative Military Power of the United States


In “Have We Hit Peak America,” Elbridge Colby and Paul Lettow offer a broad look at the relative decline of American power as well as thoughts on how the U.S. might leverage its considerable strengths. I found their discussion of the future global distribution of military power particularly compelling. Among U.S. policymakers, it is widely-believed that U.S. military superiority is so firmly-established as to face no serious medium-term challenge, even if the U.S. pursues deep reductions in military expenditures. Colby and Lettow remind us that this is not in fact the case. 

It is often noted that the United States spends more on defense than the next 10 countries combined. But growth in military spending correlates with GDP growth, so as other economies grow, those countries will likely spend more on defense, reducing the relative military power of the United States. Already, trends in global defense spending show a rapid and marked shift from the United States and its allies toward emerging economies, especially China. In 2011, the United States and its partners accounted for approximately 80 percent of the military spending by the 15 countries with the largest defense budgets. But, according to a McKinsey study, that share could fall significantly over the next eight years — perhaps to as low as 55 percent.

I can imagine some of my interlocutors dismissing this finding, as 55 percent remains quite high. Yet raw spending obscures the fact that affluent societies have to pay more to secure trained personnel than less-affluent societies, as the opportunity cost of military service is higher in high-productivity, high-wage countries and there is a limit to the extent to which labor-intensive military functions can be outsourced. And so the difference in spending might actually overstate the capabilities of the U.S. and its (affluent) partners while understating those of potential rival states. Moreover, Colby and Lettow note that many of the technological tools (e.g., high-end sensors, guided weaponry, battle networking, space and cyberspace systems, and stealth technology) that have increased the effectiveness of U.S. forces are rapidly diffusing to rival militaries. China in particular is much closer to becoming a true peer competitor than Americans seem to think: 

China, in particular, is acquiring higher-end capabilities and working to establish “no-go zones” in its near abroad in the hopes of denying U.S. forces the ability to operate in the Western Pacific. China’s declared defense budget grew 12 percent this year — and has grown at least ninefold since 2000 — and most experts think its real defense spending is considerably larger. The International Institute for Strategic Studies has judged that Beijing will spend as much on defense as Washington does by the late 2020s or early 2030s. Meanwhile, regional powers like Iran — and even nonstate actors like Hezbollah — are becoming more militarily formidable as it becomes easier to obtain precision-guided munitions and thus threaten U.S. power-projection capabilities.

Colby and Lettow aren’t simply arguing that the U.S. should maintain high military expenditures; they are also concerned with the effectiveness of U.S. military expenditures. By 2021, they report that the Defense Department expects that almost half of military expenditures will go to personnel-related costs, like the cost of wages and health benefits, as opposed to procurement, training, research and development, or operations. Even if the U.S. and China are spending roughly the same amount in the 2020s and 2030s, it seems plausible that, barring reform, the U.S. will be spending far more than the Chinese on personnel costs, thus freeing the Chinese to invest a larger share of their military budget in building advanced weapons systems. 

For the most part, Colby and Lettow offer a hopeful account of how the U.S. can renew its national strength. But their careful analysis demolishes the notion that the U.S. can steeply reduce military expenditures, or leave its military personnel policies untouched, without further undermining America’s strategic position. It is true that the U.S. could decide to pivot from a policy of deep or selective engagement in Europe, East Asia, and the Gulf in favor of a role as an offshore balancer, or a role more tightly-focused on continental defense. Such an approach would mark a dramatic break with the national security policies the U.S. has pursued since the Second World War, and there are no guarantees as to what the world might look like in the wake of such a disengagement. My suspicion is that it would look much like the combustible Europe of the first years of the last century, only more dangerous.   

Weaponized Secularism


For a moment there I considered weighing in on the Hobby Lobby decision. But then I read Julian Sanchez of the Cato Institute on the subject and decided that he had basically said all that needed to be said. I’d also recommend reading Ann Friedman’s column on the same subject, as she is a talented writer who perfectly distills the left-liberal take on the decision. Joey Fishkin has argued that Hobby Lobby is ultimately about “the politics of recognition,” and specifically about recognizing various conservative religious claims. Fishkin neglects the extent to which the Obama administration’s decision to fight Hobby Lobby over its contraception mandate, and its initial decision to impose it on religious non-profits, is about recognizing claims made by liberal secularists, as Sanchez makes clear:

The outrage does make sense, of course, if what one fundamentally cares about—or at least, additionally cares about—is the symbolic speech act embedded in the compulsion itself. In other words, if the purpose of the mandate is not merely to achieve a certain practical result, but to declare the qualms of believers with religious objections so utterly underserving of respect that they may be forced to act against their convictions regardless of whether this makes any real difference to the outcome. And something like that does indeed seem to be lurking just beneath—if not at—the surface of many reactions.

It is the rising political assertion of the “nones,” or the religiously unaffiliated, that I find most interesting. America is developing a homegrown anticlerical politics, despite the fact that we’ve never had an established church. While chasing the mirage of theocracy, social liberals are increasingly embracing a weaponized secularism. This has led to sharp conflicts between right and left, and traditionalists seem to be finding themselves on the losing side of these debates as often as not. Going forward, though, I wonder if weaponized secularism will prove more divisive within the Democratic Party, which must appeal to the emphatically secular and the emphatically religious alike. 

Why Wage Subsidies Are Superior to Unconditional Income Support


Should the goal of anti-poverty policy be, as Columbia University political scientist Chris Blattman suggests, to purchase a better life for poor people through the use of cash transfers, or should it be to help poor people become less poor by helping them raise their earning potential, as the Campaign for Boring Development (CBD) argues? While Blattman and the CBD are both focused on the developing world, their disagreement is relevant to poverty-fighting efforts in the United States, where a growing number of policy intellectuals, on the left but also among libertarians, favor an unconditional basic income (UBI) on the grounds that it is an efficient means of redistribution and it is free of paternalism.

The trouble with a basic income in an affluent market democracy like the United States is that while it might help the most motivated poor people with the strongest social networks to raise their earning potential by giving them the resources they need to invest in their human capital, or to reduce the cognitive load caused by scarcities of various kinds (e.g., when you have very little, you have to devote considerable time and effort to making minor life decisions, which can make it hard to think long-term), it might also reduce the incentive for other poor people, who live in isolated neighborhoods or regions, or who are disconnected from the world of work, to do the same. Such is the peril of any one-size-fits-all social policy. The thornier question is whether the benefits, to poor people who are not trapped in workless families and neighborhoods and who despite their poverty already have the noncognitive skills and the cultural and social resources that are the prerequisites for upward mobility, outweigh the potential harms.

In making the case against an unconditional basic income, Brink Lindsey recently observed that the negative income tax experiments of the 1960s and 1970s appear to have reduced labor supply. Moreover, he gathered evidence concerning the link between employment and well-being: 

study using German panel data examined changes in reported life satisfaction after marriage, divorce, birth of a child, death of a spouse, layoff, and unemployment. All had predictable effects in the short term, but for five of the six the effect generally wore off with time: the joy of having a new baby subsided, while the pain of a loved one’s death gradually faded. The exception was unemployment: even after five years, the researchers found little evidence of adaptation.

Evidence even more directly on point comes from the experience of welfare reform – specifically, the imposition of work requirements on recipients of public assistance. Interestingly, studies of the economic consequences of reform showed little or no change in recipients’ material well-being. But a pair of studies found a positive impact on single mothers’ happiness as a result of moving off welfare and finding work.

Among supporters of an unconditional basic income, and in particular those who favor it on anti-paternalist grounds, it is commonplace to argue that employment is not the only way for people to lead meaningful, challenging lives. Yet Lindsey finds that for most adults, paid employment is the surest route to the sense of purpose and membership that all humans need to flourish. 

Consider the most recent results from the American Time Use Survey, compiled annually by the Bureau of Labor Statistics. In 2013, employed men averaged 6.43 hours a day on work and related activities (like commuting). So how did men without jobs fill up all that free time? Well, compared to employed men they spent 19 extra minutes a day on housework, 11 more minutes on socializing, 9 more minutes on exercise and recreation, 8 more minutes on childcare, and 6 more minutes on organizational, civic, and religious activities. The really dramatic differences in time use, though, came in two areas: jobless men spent an extra hour sleeping (for a total of 9.25 hours a day!) and two extra hours watching TV (4.05 hours a day!). The evidence is quite clear: people who don’t work can’t be counted on to fill that void with other forms of productive, engaged, goal-oriented activity.

The case for an employment-conditional earnings subsidy is far stronger than the case for a UBI. Notice that that while there is a danger that a UBI will benefit the poor people who already have the prerequisites for upward mobility while harming those who do not, the same can’t be said of a wage subsidies, which benefit poor people in both categories: by raising the incomes of the working poor, who raise their earning potential by gaining work experience, and by drawing the non-working poor into paid employment, which in turn will tend to reduce their social and economic isolation.

In other words, while a UBI is a policy that will make poverty more tolerable, wage subsidies have the potential to, over time, make poverty less pervasive. 

Today’s Policy Agenda: California Thinks More Regulation Will Fix Rate Shock


Is it worth forgoing the logic of districts to stop gerrymandering?

In their new paper, Nicholas Stephanopoulos from the University of Chicago Law School and Eric McGhee from the Public Policy Institute of California suggest a new method for drawing nonpartisan congressional districts. The metric they use is called the “efficiency gap,” which determines the number of “wasted” votes in each district — votes the party that won the district didn’t need to win it — and then translating those votes into seats for the minority party.

They write:

 The efficiency gap has several properties that make it ideal for measuring the extent of gerrymandering. First, it directly captures the packing and cracking that are at the heart of every biased plan. Surplus votes for winning candidates are the definition of packing, and lost votes for defeated candidates the essence of cracking. All a gerrymander is, in fact, is a plan that results in one party wasting many more votes than its opponent. The efficiency gap tells us exactly how big the difference between the parties’ wasted votes is.

The efficiency gap aims to distribute seats based on a “partisan symmetry” model, which aims to give each party the number of seats that corresponds to the overall percentage votes they receive within the state. This model varies greatly from the current system, in which seats are distributed based on simple majorities within individual districts.

But should we abandon or override the district model in favor of essentially statewide elections, just because districts look ridiculous or are at the mercy of the state’s majority party? Not necessarily: Districts can be a good thing. They can group people from similar demographic areas who may have similar interests and give them direct, individualized representation from a person within their community. (That can also promote informed voting.)

Outsourcing redistricting to independent commissions, however, wouldn’t necessarily mean abandoning all of those advantages.

A college degree is worth a lot less if you’re black.

It’s no secret that the effects of past and present systematic discrimination present real problems for the African-American community. But even in the context of this reality, the extent to which race limits black mens’ employment prospects is still shocking.

A new report from the liberal nonprofit Young Invincibles lays out some stark contrasts: A black man with a bachelor’s degree, for instance, has the same chances of finding a job as a white man who dropped out of college. The gap between the likelihood of a black man and a white man’s having a job is widest for those with the least education, and only essentially closes with a professional degree:

Education is a powerful factor in shrinking job-attainment and wage disparities. But affirmative-action and tuition-subsidy policies that offer easier access to higher education can sometimes work against the people it’s intended to benefit.

Consider the case of highly selective universities who admit some students with lower standardized testing scores relative to the whole student body. These policies can have a negative effect on future achievement, because these students are academically unprepared to compete with their peers. This can later contribute to employment gaps by pushing minority students into less rigorous and potentially less professionally useful college majors. Policies that place students in environments where they are likely to succeed academically may be one way to better address this disparity.

California might vote to give its health-insurance commissioner power to reject premium hikes. This is not the way to fix rate shock.

In November, California will vote on Proposition 45, a proposal that would give the state the power to veto premium changes by health-insurance company. Shockingly, Dave Jones, the insurance commissioner, supports the measure: “This is the missing piece of the Affordable Care Act,” he says. “Without health insurance rate regulation, we will continue to see excessive rates.”

But over 200 groups, including hospitals, small businesses, and labor unions oppose Proposition 45, noting that the measure would increase barriers to care by creating delays and raising costs.

But this approach to curbing costs has understandable popular appeal: Californians suffered huge premium increases when the ACA was implemented, and Consumer Watchdog released a report saying that 1 million Californian insurance policy holders paid $250 million dollars for unreasonable premium hikes in 2012. But insurers can’t hold down rates for free: If passed, Proposition 45 could add to the pressure that insurers are already feeling to shrink networks, raise deductibles, and lower benefits to cut costs — in other words, people will see more of the other effects of the ACA that they’ve already suffered from. The existing regulations and mandates are responsible for the price increases that Californians are upset about now, so it’s doubtful that piling on more regulations will get consumers better care at lower prices in the future.

Vox-aggerating Climate Change


Vox has an interesting take on a recent set of documents released by the Organization for Economic Cooperation and Development, a club of industrialized nations, projecting the performance of the world economy over the fifty years from 2010.

Their first takeaway: “Growth is going to slow down.” Yes, somewhat steadily after 2030:

Their second takeaway: “Climate change will pay a big part in dragging down growth.” Whoa now — that’s interesting, will it really? Here’s the OECD chart they cite:

Spoiler alert: This chart may look dramatic, but it doesn’t show climate change playing a big part in dragging down growth. It shows climate change being about 5 percent of the explanation for slower growth.

Here’s why: Vox is implicitly comparing one value — the size of the world economy — with a mathematical derivative of it — the rate at which the economy is growing at any given time. I can’t tell if the writer understands the problem here or not, but the climate-change chart explains almost none of the drop in the growth-rate chart — just about 5.2 percent of it, in fact.

What’s shown in the second chart is not the change in the growth rate of the economy over the next 50 years caused by climate change. Instead, it’s the change in the size of the world economy over that period of time caused by climate change.​

“By 2060, climate change will drag on GDP growth anywhere from 0.6 percent to nearly 2.5 percent,” Vox says. No, it will drag down GDP by that amount. “Ironically, the climate change brought about by economic growth is set to be a major drag on the global economy for decades to come,” the post says.

Just how wrong is this? Well, if you take out the effects of climate change, the OECD thinks that the global economy in 2060 will be 4.38 times the size it was in 2010. In other words, if the GDP of the world economy were 100 dollars in 2010, in 2060 it’d be 439 dollars.

But how much is that going to be dragged down when we take into account climate change? Let’s be pessimistic, and assume the OECD’s worst-case environmental scenario. If that holds true and we do nothing about climate change, in 2060 world GDP will be just . . . 428 dollars.

Yes, those 11 dollars we missed out on — or $6.58 under the most likely scenario — weren’t nothing.

But are they “a big part” of slowing growth? Nope. To be precise, what Vox says will play a “big part” in slower growth will account for 5 percent of said slower growth, according to the OECD’s central projection. (My detailed calculations are here.)

If growth rates remain until 2060 what they have been this decade, the world economy would be worth $126 dollars more than it would be under the OECD’s central projection for the world after climate change. Climate change accounts for just $6.58 of that.

(Of course, these projections are highly uncertain — climate change could be much more costly than the OECD thinks, growth could slow more, whatever. But their projections for now suggest that climate change is basically, for the world — even more so for the U.S., actually — just one economic problem in a much larger slowdown. If we think we can mitigate those relatively insignificant economic costs in a way that’s a net economic benefit, okay, something that produces a 1 or 2 percent bigger economy decades from now is a great policy. But that requires cost-benefit analyses — saying climate change is such a big part of slowing growth implies that it would be worth doing a great deal to stop it.)

UPDATE: The author has kindly amended her piece to reflect the points I’ve raised here. The wording now — “Climate change will play a part in dragging down growth” — is accurate. Like I said, climate change isn’t irrelevant; we consider policies, like fundamental tax reform, that may just result in a 1 or 2 percent bigger economy in the future well wiorth considering as a political matter. An intervention like fundamental tax reform, though, I’d note, is always assessed on its net economic benefits — policies to avert the 1 or 2 percent of GDP losses caused by climate change, if such policies are practically possible, will probably come with substantial economic costs that might well outweigh the benefits of avoiding the environmental costs the OECD projects.

The Problem with the ‘Neocon’ Case for the Export-Import Bank


Reason’s Nick Gillespie points to an op-ed by Tom Donnelly of AEI arguing that there’s a justification for the Export-Import Bank you may not have heard of: its utility as a foreign-policy lever. He writes, noting that opponents argue that by fair-value accounting, Ex-Im costs taxpayers money:

This green eyeshade view of the bank misses a lot of [Ex-Im's] political and strategic value. Take the case of Dubai, which, as Lane notes, got an Ex-Im-underwritten loan for $117 million to buy some Boeing 737s. Dubai and the rest of the United Arab Emirates aren’t exactly hurting for cash – they have the second largest economy in the Persian Gulf and have used their oil wealth to become a regional tourist attraction – and could certainly get private financing for the plane purchases. Indeed, Emirates Airlines has been growing like a weed and is a major international carrier; it’s even got its name on the plush new stadium of the London soccer powerhouse, Arsenal.

At the same time, the UAE is a critical U.S. ally in the struggle with al Qaeda and, more generally, in security matters throughout the Muslim world; in part because Dubai has become a regional entrepot, it is a critical “node” for a host of reasons. Just this spring, an al Qaeda cell was rounded up in Abu Dhabi. At the same time – and particularly as the Obama administration’s Middle East policy continues to unravel – the UAE, like the royal family next door in Saudi Arabia, sometimes hedges its bets.

In sum, even if the Emiratis get a “sweetheart deal” from Uncle Sugar’s Ex-Im Bank, it’s a baksheesh well spent. And it’s pretty likely that the UAE will fulfill the terms of the loan. This ain’t capitalism, it’s strategy.

Let’s leave aside the problem of whether this kind of suasion appears to be working (the fact that al-Qaeda cells get rounded up in Dubai and routinely funnel baksheesh of their own through there suggests it may not). Is it, in theory, worth having Ex-Im to support deals like this, at relatively low cost to the U.S. taxpayer? Quite possibly. The problem is that this isn’t representative of the kind of deals Ex-Im supports, or what almost all of its defenders say it does, or what it’s chartered to do.

Here’s how the charter of the Export-Import Bank begins (emphasis mine):

The objects and purposes of the Bank shall be to aid in financing and to facilitate exports of goods and services, imports, and the exchange of commodities and services between the United States or any of its territories or insular possessions and any foreign country or the agencies or nationals of any such country, and in so doing to contribute to the employment of United States workers. The Bank’s objective in authorizing loans, guarantees, insurance, and credits shall be to contribute to maintaining or increasing employment of United States workers.

Not much there about national defense. Now, the charter, which sets the bank’s policies, does contain a number of foreign-policy-related restrictions and priorities: no sales to Marxist-Leninist countries, for instance (the Democratic Republic of Afghanistan is still listed as a no-no), though this can be waived when the president says it’s in the national interest, as President Obama did in 2012 to authorize a deal with a Vietnamese telecom. And no sales of any military equipment are permitted at all — as Donnelly has lamented.

He wants Ex-Im restored to its original role, where it appears to have had a de facto focus on certain foreign-policy aims. Specifically, Donnelly wants it to become a financier of arms exports again, replacing the apparently dysfunctional Pentagon program that does finance U.S. arms exports. I’ll do him one better: It might make good sense to have an export-finance institution that’s intended to help reach deals with allies, prospective allies, or whatever. The non-negligible but relatively small fiscal and economic costs of such loans might be the right price to pay for the diplomatic benefits. (Tim Carney argues it would make more sense to just use cash transfers instead — he’s right that using loans rather than direct transfers is usually just a way to mask a budgetary cost, but there are justifications for credit rather than cash in the foreign-policy and export realm.)

But what Donnelly suggests used to be Ex-Im’s job isn’t what Ex-Im does today — it’s become more or less solely an economic-policy tool, not a foreign-policy one. As such, it should produce measurable net benefits for the U.S. economy, taking into account the fiscal and economic costs of corruption, misallocation of resources and credit, etc. It’s not clear that it does so, which is why I’m not sure Ex-Im really deserves to survive.

Now, a credit agency focused on supporting U.S. foreign policy and national-security interests may not be able to accomplish those interests in the short term at a reasonable cost, either. But at least those interests are a key task of the federal government. Supporting an extremely thin slice of export transactions at highly uncertain costs to the rest of the economy is not. As Donnelly points out, for a couple reasons, the Pentagon’s attempts at such financing schemes have failed (development-focused ones like OPIC are not super successful either). But it’s certainly possible such policies could work, and I don’t want our diplomats or national-security staffs to lack for tools of American power (what do you think I am, a Reason reader?!). But this is an argument for something fundamentally different from Ex-Im, and Donnelly doesn’t explain why we should save Ex-Im rather than design an institution specifically for the purposes he envisions.

Finally Some Repeated Good News: 288,000 Jobs Added


The U.S. economy added an impressive 288,000 jobs in April, continuing a streak of what’s now six straight months of the economy’s adding more than 200,000 jobs. The past six months have in fact been essentially the fastest half-year since the recovery (such as it is) began: Job growth over the past three months, a reasonable smoothing of month to month variations, has been an impressive 272,000 jobs a month. April’s jobs report, in fact, was revised up from 282,000 to 304,000 — a very nice number.

In fact, if you (arbitrarily) look at half-years since the recovery began, this is the best January–June we’ve seen (chart via FiveThirtyEight’s Ben Casselman):

‎Wall Street had expected a strong report, but not this strong — something more on the order of 215 or 220,000 jobs.

The unemployment rate was cut to 6.1 percent, from 6.3 percent. The unemployment rate is being cut, thankfully, by jobs growth, not by a dropping labor-force-participation rate. The composition of the jobs created wasn’t bad, either: Some decent growth in manufacturing, well-above average growth in business services, which pay much better than the median wage. One soft spot: Earnings didn’t really rise, and haven’t been rising too much this year.

Skeptics — see that incorrigible pessimist Arthur Brooks — will always question why exactly we’re celebrating the labor-force-participation rate merely staying steady, at the lowest rate since the 1970s, and jobs growth at a rate at which it will take years to return to employment levels, as a share of the population, that we saw before the recession.

Two points: It’s all relative, and it is notable that we are seeing stronger growth now than we have seen in years. Second, the labor-force-participation rate isn’t just being pushed down by a bad economy — it’s in a secular demographic decline. I’d like it to rise, and to be higher than it is, but in a certain sense, it’s not ridiculous to celebrate its holding steady as a victory.

One worrying data point: Obamacare’s employer mandate goes into effect for businesses with more than 100 employees in January, and this time last year, we began seeing some weak job growth in full-time jobs and bizarrely strong growth in part-time jobs. These data are very noisy, but it could be happening again: In June, much of the employment growth was in part-time jobs. If that sticks, the next few months could be a lot less encouraging than the last few have been, but we’ll have to see. It’s too early to draw conclusions.

Another downside: While the overall labor-force-participation rate isn’t dropping, the long-term unemployed still don’t appear to be finding jobs — they are more likely to be dropping out of the labor force than finding a job. (Which, by the way, is incredibly difficult for them, which is why some conservative economists have proposed interventions specifically to correct this huge economic and human problem.)

Is There a Compelling Public-Health Case for the HHS Mandate? Not Really


In this week’s Hobby Lobby decision, the Court decided that it didn’t need to question whether the HHS mandate serves a compelling government interest in order to rule against it. But if it had considered the question, it’s far from an open-and-shut case that HHS was justified in including contraception under its “preventive services” mandate — under the assumption that reducing the rate of unintended pregnancies is a compelling state interest, and that free contraception is the right way to get there.

The first assumption is easily defendable. From an economic standpoint, reducing unintended pregnancies is linked to more women in the workforce and significant savings for taxpayers. Further, allowing women to better control when or if they conceive leads to higher levels of educational attainment, happier mothers, and healthier children.

The second assumption is much more problematic. Contrary to what you might think, there is little evidence to suggest free contraceptives necessarily reduce the rate of unintended pregnancy.

In 2012, the widely publicized Contraceptive CHOICE Project study published in Obstetrics and Gynecology showed strong links between a free-contraception program and reductions in abortions and teen pregnancy. However, as NRO’s Michael New points out, the study is riddled problems: It has no control group, for instance: Participants opted into a program offering them free contraception. And the study included contraceptive counseling to participants when they signed up and then throughout the study — which might be worthwhile, but isn’t a realistic experiment.

In fact, a good amount of research indicates that the effect of contraceptives on the rate unintended pregnancy is more dependent on proper use than on cost and access.

Proper use is especially relevant in regard to oral contraceptives, the most commonly used type of contraceptive in the United States. A Guttmacher Institute study found that inconsistent or improper use caused 76 percent of unintended pregnancies among oral contraceptive (i.e., the pill) users. The majority of women who do not use contraceptives consistently cite ambivalence about becoming pregnant as the reason, while ethnicity, educational attainment, level of sexual activity, and relationship status were also significant factors. While one study suggests that copay-free contraception can increase use of methods more reliable than oral contraception, the fact that ambivalence about pregnancy is such a concern for many women suggests there are limits to how much that might help.

Socioeconomic status may have little impact on consistency of use. Women with private insurance and those using publicly funded clinics experienced the same rate of gaps and inconsistencies in contraceptive use, further indicating that inconsistent use may not be directly tied to costs. A 2011 University of Michigan study found that while price increases did reduce oral contraceptive use, particularly among financially constrained women, the rate of unintended pregnancy was not significantly changed. The study reported that women had fewer sexual partners and effectively used other forms of contraceptives to avoid pregnancy.

Moreover, the mandate will only address these financial barriers, while doing little about access. There’s an important distinction between the two: While the cost of contraception can sometimes be a barrier, it is not the cost of oral contraceptives themselves that is prohibitive; rather, it is often the cost of the doctor visit associated with accessing oral contraceptives that poses a problem. Additionally, the inconvenience or impossibility of setting aside the time for and getting to a doctor’s visit limits access for some women. That’s in part why the American College of Obstetricians and Gynecologists recommends making oral contraceptives available over-the-counter to improve access, an idea that’s gained fans on both the right and left.

Some of the problems with the effectiveness of oral contraceptives can be eliminated by long-acting reversible contraceptive (LARC) methods such as IUDs and dermal implants. LARC methods are more effective because they require no consistent user action to work and remain effective for several years. In the past, the relatively high upfront cost of implanting IUDs and dermal devices and doctor’s liability concerns have limited the use of these methods. The Affordable Care Act requires that health insurance plans cover IUDs and dermal implants, so cost is no longer a barrier to LARC methods. But doctors may remain reluctant to perform implants due liability concerns, making free contraception less effective at reducing unintended-pregnancy rates, and the methods simply remain unappealing to many women.

With oral contraceptives and other user-dependent methods, user consistency appears to be the primary barrier to reducing unintended pregnancy. And regardless of their affordability under the new health-care law, access to LARCs remains limited because of doctors’ liability concerns. Offering copay-free contraceptives will not address either of these issues.

Instead, perhaps public-health efforts to raise awareness about the importance of consistent contraceptive use, making contraceptives available over the counter, or restructuring malpractice laws to reduce liability concerns about LARCs would better meet the compelling public interest of reducing the rate of unintended pregnancy. Regardless of what approach, or combination of approaches, may be effective, it’s clear that simply providing free access to contraceptives is a merely a popular policy that fails to address key factors causing high rates of unintended pregnancy.


Sign up for free NRO e-mails today:

Subscribe to National Review