Health Spending Growth Moderate in Second Quarter (Maybe)

A recent report by actuaries working for the Centers for Medicare & Medicaid Services estimates that the rate of growth of health spending, subdued for many years, is picking up again: “The health share of US gross domestic product is projected to rise from 17.4 percent in 2013 to 19.6 percent in 2024.”

Readers of this blog’s discussion of regular releases of GDP estimates by the Bureau of Economic Analysis knew this was coming. Yesterday’s release of the advance estimate of second quarter GDP confirms that health spending is chewing up more and more of a slow-growing economy.

Comparing Q2 2015 to Q2 2014, GDP increased by $570.5 billion, of which $106.7 billion was health services. That’s about one dollar in every five.

Comparing Q2 2015 to Q1 2015, health spending growth looks a lot tamer: $21.6 billion of $191.2 billion GDP growth. That is only one dollar in ten, about half of what it has been running at. However, the advance estimate is subject to significant revision. Last quarter’s slow growth of health spending may be idiosyncratic and/or inaccurate.

Technical note: When I discuss health services in these quarterly GDP releases, I mean only health services. I do not include purchases of medical equipment, or facilities construction. While I include Medicare and Medicaid, I do not include Veterans Health Administration or other government benefits. So, these dollar figures undercount the amount of our economy consumed by the government-health complex.

(See: Measuring the Economy: A Primer on the GDP and the National Income and Product Accounts, Bureau of Economic Analysis, October 2014, pages 5-2 and 5-3; Micah B. Hartman, et al., “A Reconciliation of Health Care Expenditures in the National Health Expenditures Accounts and in Gross Domestic Product,” Research Spotlight, Survey of Current Business, September 2010, pages 42-52.)

Janet Napolitano Makes History as University of California Pension Reformer


University of California President Janet Napolitano

In an effort to control skyrocketing retirement costs in the University of California system, U.C. employees hired after July 1, 2016, will be able to choose a 401(k)-style pension plan, the first time this has been offered. Governor Jerry Brown and U.C. president Janet Napolitano negotiated the agreement, which was enshrined in the state budget approved recently by the California legislature.

Perhaps even more historic, however, are the arguments made by Napolitano in favor of 401(k) pensions.

Napolitano told the Sacramento Bee that, regarding 401(k)s: “This is where the pension world is moving, and for public institutions, it makes a lot of sense. It’s much more portable, so for many people that will be an attraction.”

Napolitano is correct on both points. The private sector largely abandoned old-fashioned defined-benefit pensions decades ago. Less than 15 percent of the “Fortune 100″—America’s largest companies—offer a defined-benefit pension anymore. Percentages are even lower for smaller companies. And more state and local governments across America offer 401(k)s than ever before.

Also, as I show in my new book California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, 401(k)s are often a better approach to retirement security for modern workers who do not stay with the same employer for 20, 30, or 40 years as was common in the past. Defined-benefit pension plans, which are “backloaded,” made more sense under the old “hire and retire” model when workers stayed with the same employer for decades. Modern workers in the private sector and public sector want more job flexibility, and 401(k)s are generally superior under these conditions.

The details of U.C.’s new 401(k) pension plan must be worked out by July 2016, but as Napolitano said: “Pension reform needs to happen. It’s the responsible thing to do.” I strongly agree, and I welcome Janet Napolitano to the populist cause of people across the political spectrum in California who correctly recognize that the current public pension system is unsustainable. Switching to 401(k)s going forward is a better approach to retirement security that will help spare our children and grandchildren from being crushed by future pension costs.

Medicaid’s Poverty Trap Illustrated

The tragic story of a disabled woman trapped in poverty by the hodge-podge of ways the U.S. finances health care illustrates why we need to sweep the whole thing away and give everyone a universal, refundable tax credit:

On a crisp California morning in February 2012, my sister-in-law, Marcella Wagner, was driving down the interstate toward Chico State University, where she had just entered the nursing program.

To avoid a collision, she jerked the wheel hard, and her car veered off the freeway. It rolled over, crushing the roof. The other driver sped off, never to be found.

But Marcella was left a quadriplegic, paralyzed from the chest down and with little use of her hands. She will need a wheelchair and round-the-clock personal care assistance indefinitely.

Marcella qualified for Medi-Cal because she is disabled, but because Medi-Cal is for poor people, Dave and Marcella have to be poor to receive it.

As a family of three with one disabled member, they are allowed to keep $2,100 of Dave’s $3,250 monthly earnings to live on. The rest of Dave’s earnings, $1,150, would go to Medi-Cal as the family’s share of cost. That is, any month in which Marcella incurred medical expenses, she and Dave must pay the first $1,150. To our surprise, if Dave earned more money, the extra amount would also go to Medi-Cal: The cost sharing is a 100 percent tax on Dave’s earnings.

Essentially, the way they meet the income test is for Medi-Cal to skim off Dave’s income until they are in fact poor.

(Andrea Louise Campbell, “How Medicaid forces families like mine to stay poor,”, July 28, 2015)

This is the “poverty trap” imposed by means-tested welfare programs that I have discussed before. The best way to fix it is through a fixed sum, universal tax credit, as described by Senior Fellow John C. Goodman in his new book, A Better Choice.

Remembering Alexis de Tocqueville—and Civil Society in Early America

Today marks the 210th birthday of Alexis de Tocqueville, and so it’s appropriate that we reflect on his experiences and observations through the lens of modern American society.

Alexis de Tocqueville brought a unique perspective to his observations of nineteenth-century America. The French aristocrat and historian staunchly opposed the authoritarian French government and advocated for voluntary associations and local institutions as a way to solve problems and provide services. In America he saw how these ideals operated in practice.

In Democracy in America, Tocqueville wrote extensively about New England’s distinctive system of townships. He believed that smaller villages and towns were the most natural and organic form of civil governance, and that federal and state governments should be strictly limited in their size and scope so that they would not interfere in local affairs. He criticized centralized government, writing, “even the State is only a second-rate community, whose tranquil and obscure administration offers no inducement sufficient to draw men away from the circle of their interests into the turmoil of public affairs.” Tocqueville recognized that strong local institutions were necessary to promote a functioning society with active involvement from the citizens.

Recognizing the importance of public cooperation, Tocqueville advocated for the New England system because it fostered greater local freedom. Its civil society differed greatly from that of Europe. “The New Englander is attached to his township,” Tocqueville wrote, “because it constitutes a social body of which he is a member. . . . In Europe the absence of local public spirit is a frequent subject of regret to those who are in power.” He recognized that government interference into everyday life often crowds out voluntary cooperation and makes citizens dependent on larger government.

The “public spirit” of cooperation that Tocqueville witnessed profoundly impressed him. He observed how it translated in to practical problem solving, commenting that Americans “constantly form associations.” He contrasted this with European institutions: “Wherever, at the head of some new undertaking, you see the government in France, or a man of rank in England, in the United States you will be sure to find an association.” The formation of private associations allowed local residents to solve their own problems, rather than turn to the state and federal governments. The prevalence of voluntary associations allowed early Americans to retain liberties while effectively solving local problems.

Alexis de Tocqueville’s insights into early American institutions are extremely relevant today. As the government has grown, political entrepreneurship and rent seeking have run rampant over our political system. Citizens attempt to use government force to solve their problems, on issues ranging from poverty to infrastructure, rather than looking to voluntary and community-based solutions. By making government the solution to our problems, the public spirit of cooperation that once characterized the United States is now gone. In order to move forward, we should learn a lesson from the past. The best way to make America, and ultimately the world, a freer and more prosperous place is to replace government intervention with community-based, voluntary solutions.

[Jonathan Matt is a 2015 summer intern at Independent Institute and a junior at Grove City College studying economics. For more on privately provided social services, infrastructure, and governance, please see the Independent Institute book, The Voluntary City: Choice, Community, and Civil Society, edited by David Beito, Peter Gordon, and Alexander Tabarrok.]

Love Gov: “Too Real”?

LoveGov_YouBankruptedMeAs part of our recent exhibit at the FreedomFest conference, we continuously screened our new online video series Love Gov.

If you haven’t had a chance to watch it yet, each of the approximately 5-minute episodes deals with one of the five key issues that the Harvard Institute of Politics, Pew Research, and other polls have revealed as of greatest concern to Millennials: tuition loan debt (Episode 1), employment/unemployment (Episode 2), the cost of health insurance (Episode 3), the cost of housing (Episode 4), and government spying/surveillance (Episode 5).

The series attracted a lot of attention from the FreedomFest attendees, who praised its high quality, and were generally laughing in the aisles.

All except one young woman, whom I’ll call Jane. I listened at length as Jane told me how her life parallels that of “Alexis,” in Love Gov.

Jane owns her own condo, out of which she operates a small business with one employee, her best friend. Contrary to Obama’s promises, her health plan was cancelled, and her insurance agent referred her to the state exchange. The best plan she could afford is a Bronze plan, with a $6,000 deductible, at a cost $50 per month higher than her previous plan that had no such deductible. Meanwhile, her employee, whose income is slightly below Jane’s, qualifies for a subsidy and has a Silver plan, with a lower cost and lower deductible.

Jane’s business, which provides marketing services, utilizes independent contractors to provide graphic design and other services. She’s currently under investigation by her state’s Labor Board to determine whether it will rule these contractors “employees,” with overtime and benefit obligations accruing to Jane. If the ruling goes against her, she’s out of business.

Jane drives a 10 year-old car, and has some health issues—which leaves her worrying that she’s one major car repair or one out-of-pocket health expense from losing her mortgaged condo. She keeps her expenses to a minimum, and just hopes for good fortune.

In summary, Jane told me, “I’m 39 years old and I’m living like a college student. It seems like there’s always another barrier.”

Yes, Jane, as Alexis discovered almost too late: that barrier is Gov.

I can understand that Jane doesn’t find Love Gov funny. But it’s also true that satire only “works” to the extent that it accurately reflects truth.

Sounds as if Love Gov hits its mark.

Watch Love Gov and see if you agree that it’s all too true. If so, please let us know how Gov is affecting your life, Share the videos, and encourage everyone to download and use the MyGovCost App in becoming better informed and getting engaged.

Let’s put an end to Gov’s abusive ways.

Patent Reform Is Not a Left Wing Thing

Over at R Street, Zach Graves has a good piece up looking at the American Conservative Union’s opposition to patent reform pending in the Congress. He points out that the sponsors of the much maligned legislation are not looney leftists, but solid leaders on the Right.

The American Conservative Union’s own scorecard ranks members sponsoring patent reform legislation among the most conservative in the nation. This includes members such as Sens. Mike Lee (R-Utah – 100 percent), Chuck Grassley (R-Iowa – 84 percent), John Cornyn (R-Texas – 93 percent) and Orrin Hatch (R-Utah – 89 percent); and Reps. Bob Goodlatte (R-Va. – 94 percent), Darrell Issa (R-Calif. – 89 percent), Jason Chaffetz (R-Utah – 92 percent), and Blake Farenthold (R-Texas – 80 percent), among others.

The article is a good read. Graves concludes by noting that “Patent reform has loud detractors of all stripes, but it also enjoys overwhelming support on both the left and right. And if we’re going to be honest, its support has always been stronger on the right.”

We’ll see what happens. Right now, it looks like patent reform might be put off again. This is not good timing considering that recent statistics show that patent trolls are working harder than ever to undermine American innovation.

Is Denial a Good Basis for Abortion Policy?

17 Weeks

17 Weeks

Once again, a political sideshow is likely to be the sole outcome from the revelations in the recent Planned Parenthood videos, drowning out what could have been an important conversation around another perennially politicized issue.

As could have been a good starting point, the videos show definitely that abortion involves far more than the suctioning of a formless glob of cells. The procedure discussed in detail throughout the videos is the forceable, fatal extraction of human bodies from their protective environment.

Bodies with lungs, livers, hearts, heads, and “lower extremities”—all clearly identifiable, differentiable—with abortions performed systematically to avoid crushing the body parts to be “supplied.”

The “17 weeker” whose body parts are at the center of part of the conversation is a baby who “can move her joints, and her sweat glands are starting to develop.” At 18 weeks, a girl’s uterus and fallopian tubes are formed and in place, and boys’ genitals have been formed, “but he may hide them from you during an ultrasound.”


Harassment Ruled a Protected Union Activity

What do you mean you don't want to join the union?

What do you mean you don’t want to join the union?

In an advisory to employers, the California Chamber of Commerce provides this not-very-useful recap of a recent National Labor Relations Board decision:

Employers have an obligation to investigate and take appropriate corrective action for employee misconduct; at the same time, employees have a protected right to discuss union activities. In a 2012 decision, the National Labor Relations Board (NLRB) put employers between a rock and a hard place when these two issues intersected: If one employee harassed another in the course of discussing union activities, the employer could not discipline the harasser. However, the employer was then open to a lawsuit from the harassment victim for failing to act.

Recently, the NLRB issued a new decision opening the door slightly for employers to take corrective action against this type of harassment. An employer may terminate an employee for lying about misconduct, even if the underlying behavior constituted a protected union activity (Fresenius USA Manufacturing, Inc. and International Brotherhood of Teamsters, Local 445. Case 02– CA–039518 June 24, 2015).

So, in other words, the employer remains in a Catch-22: subject to a lawsuit for failing to protect an employee from the harassment of another who can work “discussing union activities” into his or her harassment.

Apparently the only possible protection the employer has is to ask the harasser if he or she in fact harassed another employee, and if Harasser says “No,” then the employer can discipline the harasser for lying.

Of course, these He said/She said cases are themselves a bag of worms no employer can hope to win.

Bottom line: Harassment is legal when practised by union sympathizers; employers and employees who aren’t interested in unionization can lump it.

Will 11 Million Pay Obamacare’s Mandate Penalty?

a_better_choice_1800x2700I recently took issue with lack of clarity in media coverage of a report by the IRS Taxpayer Advocate, which claimed that 6.6 million people paid Obamacare’s individual-mandate penalty last year. I figured the total must be significantly higher, because each tax return would cover more than one individual.

In an e-mail to me dated July 21, 2015, Doug Badger, a longtime veteran of Republican administrations, pointed out that there can be more than one person in a household applying for Obamacare coverage:

..... a more accurate measure of household size could be obtained by dividing the number of people included in a completed applications by the number of applications. That yields a factor of around 1.35, as opposed to 2.35. I admit that is a rough approximation and there may be better ways of calculating the number of people affected by the tax on the uninsured. In any event, your central point is exactly right: the number of people living in households that paid the tax is much greater than 6.6 million.

This brings us a little closer to reconciling the IRS report with the U.S. Department of Health & Human Services’ report (although the latter does not appear to have consistency used the word “individual” accurately).

Last Friday, another officer of the U.S. Treasury issued a different estimate: 7.5 million “taxpayers” paid Obamacare’s individual mandate penalty. (Again, it is unclear whether a taxpayer is an individual or a household.) The report also notes that only 135 million of 150 million estimated 2014 tax returns have been submitted and processed. That suggests that once all the tax returns are finalized, the 7.5 million who have paid the penalty will have increased to 8.3 million.

The report anticipates 4.8 million “taxpayers” will have to claim or reconcile Obamacare’s premium tax credits. As discussed in one of my previous blog posts, this group should represent around 6.14 million individuals, or 1.28 individuals per tax return (and broadly in line with Mr. Badger’s estimate).

However, the report also suggests that one-half of those who claimed Obamacare premium, tax credits received too much money, and have or will have to pay it back. That would be 2.4 million returns representing about 3 million people.

Also, if we assume there are also 1.28 individuals per tax return among those liable for 2014 Obamacare individual mandate penalties, that would turn 8.3 million “taxpayers” into just under 11 million individuals.

* * *

For the pivotal alternative to Obamacare, please see the Independent Institute’s new book, A Better Choice: Healthcare Solutions for America, by John C. Goodman.

Standing with Rand? Maybe Take a Seat.

rand paulOn April 7, Senator Rand Paul declared he is officially running for President in 2016. Since this time, there has been a lot of buzz surrounding his candidacy. In particular, many are pointing to Rand as a champion of liberty. I recently heard a talk in which the speaker was encouraged by Paul and several of his Congressional colleagues. He looked forward to more libertarian candidates making their way into Congress, arguing they would push for more limited government.

Certainly, this speaker is not the only one to hold these hopes. Many libertarians, or generally liberty-minded people, are pushing for more libertarianish (there is certainly a spectrum which most libertarians readily acknowledge) individuals to enter into the political process. In doing so, they claim “freedom-friendly policies” will be enacted and predatory policies will be blocked. If enough libertarian candidates get into Congress, it is thought, perhaps they can tip the scales away from Leviathan and toward liberty.

The question then comes—are we headed toward a “libertarian revolution?” Will politicians who value freedom take office and work to constrain the ever-expanding powers of the government? Will freedoms lost in the name of combating the war on drugs and war on terror be restored? Will such political figures repeal or drastically alter a variety of policies detrimental to individual liberty?

While I sympathize with the desire for such an event, I think my libertarian friends would be disappointed with Rand Paul as President, or any other “libertarianish” politician.


First, it seems to me that many people are hitching their wagons to Paul without really looking at his record. While I can appreciate Senator Paul’s filibuster regarding the use of drones abroad and his opposition to the USA PATRIOT Act and the FREEDOM Act, he’s hardly the pinnacle of the classical liberal ideal. He’s still a politician.

Let me repeat that. He’s a politician.

Look at Paul’s voting record. Far from breaking away from partisan politics, Paul votes align with the Republican Party some 84 percent of the time. This includes affirmative votes for the annual National Defense Authorization Acts. These bills work to sustain and expand the arguably most nefarious crusher of liberties domestically and around the globe—the U.S. military.

As opposed to cutting out government waste and superfluous government activity, he’s sponsored some 50 bills and co-sponsored another 120.

He supports bills that positively reek of special interest and do anything but offer individual liberties. He sponsored a bill that would outlaw all abortions in the United States. He opposes same-sex marriage, the legalization of drugs like marijuana, and even suggested in an interview in 2011 that he was supportive of profiling and even imprisoning people who listened to “radical political speeches.”

There are further reasons for those who value liberty to be skeptical of Paul or any other politician claiming to champion liberty. Put simply, there’s a problem with the political game. Moreover, there is a problem with the people who choose to play. Certainly, I’m not the first to point this out. In fact, don’t take my word for it at all. Instead, let’s look at two Nobel laureates, F. A. Hayek and James M. Buchanan.

Almost a year ago, I wrote a post on an idea presented in F. A. Hayek’s most famous work, The Road to Serfdom. Specifically, I discussed the chapter, “Why the Worst Get on Top.” As I explained in the post, people often claim that government would function better “if only we could get the right people in office.” In his work, Hayek explains why this is not the case. That is, the very institutional structure of government draws particular people into its fold. As he explains, these are not going to be the harbingers of freedom.

Furthermore, James Buchanan, the father of public choice economics, explained that government is not some benevolent homogeneous mass working for the betterment of the people. Instead, political actors are like any other people interacting with one another. They respond to the incentives they face. These incentives are determined by the institutional context in which they operate. The incentives facing politicians do not necessarily align with those of the population as a whole. As a result, we wind up with pork barrel spending and policies that benefit special interests at the expense of the average American taxpayer.

Paul is no exception to this critique. For example, he voted to kill legislation that would have done away with some federal subsidies for tobacco farmers. But why? Why would Paul, a supposed beacon of free market ideals, shoot down legislation that would not only eliminate some government activity, but help to end a practice that nearly all economists agree is a bad idea (see here, here, here and here for examples)? He would because it’s in his interest. Tobacco is a major cash crop in his home state of Kentucky. Voting to end the subsidies would cut against the interests of his constituents and harm his chances of reelection. As such, Paul voted with his own interests and not those of the broader populace.

Many individuals who claim to value liberty, who have read and claim to appreciate the work of both Hayek and Buchanan seem to put on blinders when it comes to Rand Paul. Although they would never claim to trust the broader system of government, that is precisely what they are doing! Arguing that “more libertarians” or “the right people” in office will bring the changes they desire is like asking the fox to guard the henhouse. It’s placing trust in the broken and backward bureaucratic system they claim to despise and magically expecting it to achieve a different result.

Maybe I’m wrong. Some may accuse me of letting the perfect be the enemy of the good. But I don’t think so. When pressed, I’ll put my money on Buchanan and Hayek every time. While many claim to #StandwithRand, forgive me if I take a seat.