The Health Care Law

So, a couple weeks ago was the Supreme Court decision about whether the individual mandate to buy health insurance in PPACA (also known as Obamacare) was constitutional. It turns out, it is, but not for the reasons you might expect.

There were basically two main issues. One is where the "Commerce Clause" - the power given to the federal government by the Constitution to regulate "interstate commerce" - covers the health care law. The other was whether, even if the Commerce Clause doesn't apply, the individual mandate can also be considered constitutional because it is a tax, and thus falls under the government's power to levy taxes.

It was a close 5-4 decision in favor of the law, and the swing voter, Chief Justice John Roberts, wrote in his opinion that the Commerce Clause does not apply, because in order to "regulate interstate commerce" there first has to be commerce to regulate, and people who don't want to buy health insurance are those that are not engaging in any relevant commerce in the first place. One counter-argument to this is that people who aren't insured will still eventually need health care and end up "engaging in commerce" sticking others with the tab. Roberts rejects this argument, because the fact that someone might engage in commerce at some point in the future doesn't justify forcing him to now. For instance, all of us will buy food at some point in the future, and the government can regulate food sales, but the government can't force me to go to the grocery store right now and buy a specific food item.

However, Roberts does cast the deciding vote in favor of the law's constitutionality on the grounds of the Taxing Clause - that it can be viewed as a tax on not having health insurance, and the government has the power to levy taxes. PPACA states that anyone who does not have health insurance must pay money to the IRS along with their normal federal taxes. Although PPACA does not call it a "tax" - it calls it both a "penalty" and a "shared responsibility payment"*, legal precedent requires that "every reasonable construction must be resorted to in order to save a statute from unconstitutionality" - i.e. if you could make the statute constitutional by re-wording it a bit, then it's constitutional.

One issue that was not discussed in the opinions was the following. Let's say that instead of saying that you have to pay a penalty of $X if you don't buy insurance, the law just raised everyone's taxes by $X across the board, and additionally said that if you do buy insurance, you get a reduction in $X on your taxes. That certainly seems like another "reasonable construction" that is functionally equivalent to the existing law. And it is very clearly constitutional: The government obviously has the power to raise taxes, and the government gives tax breaks to encourage you to buy/do certain things all the time (buy a house, get married, etc.) and nobody claims those are unconstitutional. (I am not the only one to notice this.)

As far as the Commerce Clause part goes, a major argument against constitutionality was as follows. The idea of the individual mandate is that people not buying health insurance imposes increased health care costs on others, so the government can mandate that people buy health insurance. So by that logic, since people eating unhealthy foods also increases health care costs, that means the government can mandate that everyone buy fruits and vegetables. (One version of the argument specifically mentions broccoli, although that was not part of the final opinion.) And since the government mandating that everyone buy broccoli is clearly an unconstitutional government overreach, mandating that everyone buy health insurance is similarly unconstitutional.

Here's my response to that argument:

First of all, why is it so obvious that the government forcing us to buy broccoli is unconstitutional? Again, suppose the government were to raise our taxes, use the proceeds to buy broccoli, and then provide it to us for free. Clearly each step in this process is constitutional, and the result is economically equivalent to making us buy broccoli, except with extra overhead.

But a better way of analyzing this question might be to think about why we have constitutional limits on government power in the first place. The point of such limits isn't to prevent the government from doing anything that might be a bad idea. There are lots of things the government can do that are clearly bad ideas (say, raising everybody's tax rate to 100%) but that the government clearly has the power to do. The thing that protects against these kind of bad policies is that if politicians enact bad policies, their constituents can vote them out (of course, it's not clear how well that incentive works, but at least that's the theory.)

Rather, the purpose of constitutional limits is to stop the government from doing things that are politically popular (or are inclined to do anyway for other reasons) despite being bad ideas. In other words, things that we expect the government to be over-eager to do in comparison with the actual merits. For example, consider free speech. We know that governments can be particularly eager to restrict speech, both because such restrictions can be politically popular in the short term (especially since it can be hard politically to defend the right of people to engage in unpopular speech without appearing to endorse the content of the speech) and because it can be used to squelch criticism of government. That is why it is important to make sure that the government can't easily prohibit speech. Another example is the prohibition against unlawful searches and seizures (and other limits on police power.) We know that police would likely search more intrusively than is warranted in the absence of such protections (again, because most decisions about how to search are made by individual police officers, who are not as subject to political discipline, and because it can be difficult politically to advocate for less intrusive searches without being accused of helping criminals) so it makes sense to have those limits.

So, is the power to force people to buy things a power that government has the tendency to overuse? I don't think so (at least, not more so than other government powers that nobody claims are unconstitutional). The main argument that I tend to see for why the government would overuse the power to force people to buy things is that it could be used to give favors to special interest groups. For example, if Big Broccoli gives a lot of money in campaign contributions, it could "buy" a law that forces people to buy broccoli, irrespective of its actual merits. However, I think that the risk of this happening is significantly LESS than the risk of providing favors in other ways (e.g., subsidies to broccoli producers), because forced purchases are a significantly MORE transparent and publicly visible way of providing political favors than are other methods such as tax breaks and subsidies.

In other words, if the government is going to give away political favors to Big Broccoli, I would much rather that they do it by making everyone buy broccoli, because that way everyone will know what is happening, and we can have a political discussion and ensure accountability. In contrast, giving political favors the current way (like hidden tax breaks and subsidies) is much more problematic, because most people don't know who is being given what special favors, so there isn't as much political accountability.

But anyway, I am glad that the health care bill has passed and been ruled constitutional, so that we can find out what's in it.**

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*I really have to find a clever way to use this wonderfully euphemistic name for a tax. Maybe in Dungeons and Dragons, when the evil king taxes his people to get money to raise an undead army to conquer the world, he could call the tax a "shared responsibility payment." I mean, raising corpses from the dead counts as health care, right?

**I think that Pelosi has a very good point here, even if she expressed it using a poor choice of words. Before the law is actually implemented, it is very easy to come up with all sorts of scare stories - like the whole "death panel" thing and stuff. But once it is actually implemented, after a few years we will be able to tell whether any of those scare stories came to pass. I believe that once we actually see how it works, people will like it. I mean, my understanding is that most people who are on Medicare like it, even if they don't realize it's a government program.

Credit checks and employment

An article from the Fort Collins Coloradoan caught my eye, in part because it deals with a similar issue to the "avoid ghetto" GPS app: whether giving more information can make people worse off.

The article discusses efforts by Colorado lawmakers to prohibit businesses from running credit checks on prospective employees and using the results in hiring decisions. Obviously, the reason employers run these credit checks in the first place is because they think the people with better credit tend to be more responsible and thus better workers, as well as being less likely to steal from the till. The argument for banning such checks is that they can create an "unemployable class" of people because people can't improve their credit without income and can't get a job unless they have good credit, and also that it's possible to have bad credit even if you are financially responsible (say because of a layoff).

The readers' comments are predictable. Most of them say that it's just wrong for employers to "discriminate" based on credit checks, while there is a minority view that the government should not have a right to tell businesses how they can make hiring decisions. (I would like to point out the comment by Jeff Emmel, in the first category, which blames the problem on "too many people chasing too few jobs." If true, this seems to negate the idea that credit checks are the problem. If there are N people looking for a job and there are M openings, then at least N-M people will fail to get a job, regardless of what methods are used to screen applicants.)

Here is my analysis. A traditional economist would likely say something like the following:

If credit checks really provided no useful information about the quality of an employee, businesses would have no reason to use them. Any business that did use them anyway for whatever reason would face a competitive disadvantage in the marketplace because they would be screening out qualified employees, and a business that didn't use credit checks could gain an advantage by grabbing all the good employees that were rejected by others. Thus, if the practice really has no benefits, there is no need for a law against it; it will die out naturally. If it doesn't die out, that is evidence that it is in fact providing useful information.

Of course, exactly the same argument was made with race, gender, etc. discrimination laws, and look how that turned out. But this case is different. The difference with racial discrimination was that customers had a preference against minority employees so businesses reacted to that, but we needed to get minority employees into restaurants and stores so that people would learn to overcome their prejudice. In this case, customers neither know nor care about the credit histories of the employees with whom they interact. Also, credit checks are a relatively new thing in employment, so unlike the issue with race discrimination, we're not starting from a status quo where everyone discriminates so nobody has a chance to realize what they're missing out on.

One could argue that it really is true that people with poor credit tend to not be as good workers, but that there's a public benefit to giving those people jobs that outweighs any harm done to employers. This position is not unreasonable; after all, someone who is consistently poor does cost society money to maintain because they are more likely to need welfare and other social services. But it is important to realize that this argument only applies if there is a greater public benefit to giving a poor-credit person a job than giving whoever the replacement would be a job. And most importantly, if there really is a public benefit to giving particular people or classes of people jobs, a better way to do it is with subsidies and incentives targeted at that group and let businesses decide whether the incentive is worth the cost, rather than through the indirect way of banning credit checks.

However, I can also think of several counter-arguments to the above.

1. It may be true that the practice will die out eventually if it is not providing useful information, but that could take a significant amount of time. In the meantime, many people will still be affected.

2. Let's say that half the people who have poor credit really are financially irresponsible, but the other half have poor credit for reasons completely out of their control. Then it makes sense from the businesses' perspective to avoid the risk, but the innocent half is still caught in the crossfire. (However, the arguments in the last paragraph above still apply.)

3. Suppose that it is possible to "manipulate" your credit rating*. Then everyone will manipulate their rating in order to get a better chance, but of course all this manipulation is a zero-sum signaling game, so it's a waste of effort. (If everyone manipulates their rating up by X points, then everyone is still in the same order so it gives exactly the same information as before, but nobody ends up better off.)

4. As for the comparison to racial/gender discrimination laws, there's another consideration which cuts the other direction. One problem originally identified with racial/gender discrimination laws was that it's essentially impossible for a business to prevent itself from obtaining information about an applicant's or employee's race or gender. Thus, for instance, a business might want to fire an unproductive worker but might have a difficult/expensive time proving in court that the firing was not because of race/gender, so it might decide not to. In contrast, it is very easy for a business to avoid obtaining information about an employee's credit history, so this is a non-issue.

5. It may be possible that there is a public benefit to giving jobs to certain classes of people - which tend to overlap with the people who have lower credit scores - but the first-best solution of "subsidies and incentives targeted at that group" is impractical due to other constraints such as political feasibility. So banning credit checks could be a good "second-best" solution.

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Perhaps surprisingly (but maybe not), very few of the comments in the article itself or the reader's comments directly address any of the questions above. I wonder why?





*This "manipulation" need not be anything shady or illegitimate. The only thing relevant for this analysis is that the "manipulation" has no relevant effect other than improving your credit score. Given all the advice about "how to improve your credit score" that you can find all over the place, it's very likely that this type of "manipulation" is possible.

Breaking News: More Evidence of Cylon Activity in Illinois Government

"I need your sage advice: Should I spend money I don't have?"

- Overheard at GameStop

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Unlike my last blog post about Illinois government, this time I won't make any accusations about who is the Cylon: I'll just lay out the facts and let you be the judge.

A few days ago, Governor Quinn unveiled his new "budget plan" - which involves borrowing $4.7 billion, leaving $6 billion worth of bills unpaid, including cuts to education funding, but no tax increase. The Chicago Tribune reported that the reason he did this was to encourage state senators to vote for a tax increase, because nobody would like the alternative. And Quinn's "Illinois Budget web site" now states that he supports a tax increase (see the bottom under "Increased State Revenues.")

And budgetary problems aren't the only "crisis card" that's shown up recently: pretty soon, restaurants and retail business across the state may be the host to yet another round of exciting combat action. That's right, a new bill is going to be passed to allow concealed carry of handguns in Illinois. There are just two interesting amendments that supporters of the bill added: one said that any state legislator who voted against the measure will not be allowed to get a concealed carry permit for himself, and the other says that any retail business that bans handguns inside the business will be civilly liable if a concealed carry permit holder get injured or killed in a violent crime at that business - the theory being that if the business "disarms" the permit holder, who then "can't defend himself" and gets hurt, the business should be liable..

Questions for discussion:

1. The point of the first amendment discussed above is that politicians shouldn't be "hypocrites" by voting against concealed carry but then getting a permit themselves. Should this principle be extended to apply to other laws too? For example, if Legislator X votes against a tax cut that passes, should Legislator X still have to pay the higher tax rate?

2. As for the other amendment, does it work both ways? If the business DOES allow concealed guns, a concealed carry permit holder legally brings a gun in, and the gun is discharged (either accidentally or on purpose) and injures someone, is the business liable for allowing the gun on?

3. If the purpose of concealed carry is to deter crime, then why make it "concealed"? It seems to me like if I was carrying a gun to deter crime, I would want criminals to know that I am armed so they will be deterred. (On the other hand maybe the idea is that if concealed carry is legal, then criminals won't know who is armed and who isn't, so would play it safe and not attack anyone.)

Ricci v. DeStefano

In the Supreme Court case Ricci v. DeStefano, the New Haven, Conn. fire department instituted a test to determine which firefighters would get promotions. After no black or Hispanic firefighters scored well enough to be eligible for promotions, the department, worried that they could be sued for racial discrimination, threw out the results of the test. Of course, now white firefighters sued them saying that they were being discriminated against, because the the decision to throw out the results was made based on racial factors. The Supreme Court just ruled in favor of the white firefighters.

This case brings up saveral interesting issues. One issue, of course, is whether standardized tests such as the one used in this case are a good way to select job candidates. My general opinion on this question is that although standardized tests are obviously not the solution in every case, they do tend to get an undeserved bad rap. Yes, standardized tests can be biased, and they are clearly an imperfect measure of qualifications. But the appropriate comparison is not with some perfect system, it's with whatever the alternative is. And there are plenty of common selection methods that produce far more inequality and discrimination than any test (and are just as questionable with regards to relevance) yet are rarely controversial. For example:

1. Many employers find new employees based on referrals from current employees - i.e. a current employee knows someone who would be a good fit for the company, and refers them. Of course, for most employers, the set of acquaintances of current employees is not even close to a representative sample of the entire population, and obviously there is no necessary correlation between being friends with a current employee and being qualified for the job. Even in the absence of a formal referral sytem, there are lots of jobs that are filled based on personal connections, and this critique could apply to all of them.

2. Many jobs require a college degree, and employers tend to value degrees from more prestigious schools more than degrees from less prestigious schools. Of course, whether you get a college degree (and where) depends on lots of factors, including where you grew up, whether your parents could afford to send you to college, etc., only some of which have relevance to whatever job you are applying for. And paying for college is a huge barrier for lower-income families. (One common critique of standardized tests like the SAT is that it favors people who can afford expensive test preparation. Which is a higher barrier: spending a few weeks and a few hundred dollars on a test preparation course, or spending four to six years and tens of thousands of dollars on a college education?)

In fact, it seems to me that standardized tests have the potential to mitigate some of these problems. A standardized test can be tailored to the requirements of a particular job, and it can be re-tested, adjusted, and fine-tuned to offer whatever balance is desired between racial balance, screening value, and any other relevant factors. In fact, by bypassing other "screening barriers" such as personal connections and subjective judgments, if a set of effective, general-purpose tests were to be developed, that would have the potential to go a long way toward mitigating racial and socioeconomic disparities.

Of course, this is not a panacea: not all jobs can be easily measured by a test. But for those that can be, it seems that designing an effective test is a much more tractable problem than say, equalizing access to elite schools or giving poor people opportunities to form personal connections with potential future employers.

But as for the Ricci v. DeStefano case, it's actually not clear what effect it will have on the use of testing. Superficially, the decision was in favor of testing (the decision effectively said that the test results should have been kept.) But what it also does is place employers who use tests in a catch-22 situation. If the test comes up with racially disparate results, they have no way to avoid a lawsuit - if they throw out the tests they will get sued by one side, if they keep them they will get sued by the other. So this might end up discouraging employers from using the tests.

(The court opinion said that throwing out the tests would have been okay if there were a "strong basis in evidence" that the city would in fact have been held liable, but that the city failed to meet this standard. But this still doesn't solve the problem - it essentially boils down to saying that an employer can be held liable for failing to be good enough at guessing how the courts will rule. And that's a hard thing to do - just look at how many 5-4 Supreme Court decisions there are.)

It's also still unclear exactly what employers are allowed to do. My understanding is that in this particular case the employer said "We'll be using this test to decide who gets promoted." Suppose that instead, the employer said "We're going to give you all this test, we haven't decided yet what we're going to do with the results." And then they had done the same thing as they did before. Would that have been okay? Or does the decision force employers to pre-commit as to what they are going to do with the test before they give it? If so, it seems like that might hinder development of more effective tests, because employers can't fine-tune the tests once they've been given out. (Although my understanding is that there are firms that do this test design, and they would pre-test the test on people outside the employer. So employers might use this method prior to giving it to their own employees or prospective employees.)

And finally, does the decision apply just to standardized tests, or to any method of avoiding racial discrimination? If the latter, then it seems that since any active attempt to avoid racial discrimination (e.g. against minorities) by definition implies trying to hire more minorities than otherwise, then it could be classified as "reverse discrimination" using exactly the same argument as the white firefighters made. And of course id they don't make that effort, then they're violating their duty to avoid discrimination against minorities. So how are employers possibly supposed to satisfy all their obligations under the law?

Dispatches from Vietnam: #3 - Lawsuit Culture (or lack thereof)

I just got back from a two-day cruise in Halong Bay, a bay a few hours outside of Hanoi. Rather than repeat a lot of information, I'll just point you to the post my mom posted on her blog about it that has lots of pictures.

But there was one interesting cultural difference we noticed. Throughout the trip we remarked on how if we were doing this in the United States, we would have to wear life vests everywhere we go, and we would have to sign all sorts of waivers. It really does make you think about how much more "lawsuit happy" our culture is than many others. (Of course, if the alternative is to beat people up, as I mentioned a couple blog posts ago, it may not be so bad in comparison.)

This issue does, however, give me an opportunity to blog about something that I thought would be an interesting topic but didn't really have the occasion for. And that is, just how good is our "lawsuit culture" at deterring harmful behavior? Consider the following real-life scenarios:

1. The Amtgard kingdom of Crystal Groves has liability insurance. It got this insurance because it was required to by the park it plays at. (Many, if not most, event sites will require that people renting them out have liability insurance. Even though Crystal Groves usually plays at a public park, the park still required them to have insurance.

IIRC (If I remember correctly), this insurance costs about $1,600 per year for a kingdom of about 200 people (maybe less, I'm not sure exactly). Additionally, the insurance company offered to extend it to our own barony of Solstice at a cost of $1 per person per year. Assuming that the actuarial value (i.e. the actual expected amount of losses from injuries or lawsuits) is approximately proportional to the number of people, and this offer was not a money-losing proposition for the insurance company, the actuarial value of the original policy is at most about $200 per year. In other words, almost 90% of the cost goes to administrative costs and profit for the insurance company, not actual compensation for risk. (And even the other 10% consists partially of court costs and other expenses not related to actual treatment of potential injuries.) Is this really the most efficient system?

2. The built-in navigation system on the Toyota Prius is designed with a feature that prevents it from being operated when the car is in motion. The purpose of this is to prevent drivers from taking their eyes off the road the use the navigation system. Of course it also means that even if there is a passenger in the car, he can't use the navigation system. (This could even reduce safety in some situations: let's say you're on a highway going 70 mph and you have to pull over, program the navigation system, and merge back into highway traffic.) On 2005 and earlier models, there was a hidden menu that enabled the user to override this lockout. After users discovered this, it was removed from later models. Currently, there are companies that sell devices which can be installed in the Prius that will override the lockout on newer models.

Effectively, Toyota is engaged in an arms race against its own customers in an attempt to reduce the functionality of its product in order to avoid lawsuits. One solution would be if it was possible to sign a legally binding waiver to not sue due to accidents caused by using the navigation systenm, and if you signed that waiver then they would unlock the navigation system for you. But of course if you actually signed a waiver like that, it would probably not be upheld in court. Effectively the consumer's inability to credibly commit to not suing hurts them, because it stops them from using the navigation system (or forces them to buy costly insurance, in the case of the first scenario above).

Dispatches from Vietnam: #1 - Traffic

I will be in Vietnam for the next couple weeks visiting my parents, so I'll be blogging about interesting things I see there. One of the first things you notice in Vietnam is that there are few cars; there are mostly motorbikes. But the most amazing thing is that there are very few traffic lights and traffic laws are not well enforced. For example, at most intersections, traffic from two perpendicular directions will travel through the intersection simultaneously, and people will just avoid each other in the middle. Even in intersections which do have traffic lights what often happens is that on the road that has a red light, traffic going from each direction will spill out from their side over the entire road (rather than staying to their side like they do in ths U.S.) creating two opposed "walls" of motorbikes. Then when the light turns green, both sides will go at the same time!

Surprisingly, there are few crashes. Part of this may simply be due to the relatively slow speeds that traffic travels at (rarely more than 30 mph or so, at least on the parts that we've been on so far) but part of this may be due to the method used to punish drivers who are the cause of accidents. Apparently, in any crash, the driver of the larger vehicle is considered to be at fault. And, since Vietnam does not have a well-developed court system like in the U.S., they use the next best alternative: all the bystanders will pull the driver out of his car and beat him up. (Of course, this makes drivers in Vietnam much more careful than drivers in the U.S.)

DISCUSSION QUESTION:

At least in the context of traffic accidents, how does the Vietnamese justice system compare to the American justice system in terms of efficiency, cost, and effectiveness at deterring harmful behavior? Are there lessons that the U.S. could learn from Vietnamese experience in this area?

Searching for hidden treasure (not related to geocaching or D+D)

"I think I just failed a Spot check."

- Belkar Bitterleaf, "Order of the Stick", by Rich Burlew

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This article in Slate discusses a Supreme Court case in which a police officer was summoned to a domestic disturbance and when he got there, the husband was not home. The wife claimed her husband was dealing drugs and allowed the cop to search the house. During the search the husband got home and demanded that the search stop. The cop did not stop the search and eventually found drugs. The question of course is whether or not it was a legal search because the wife agreed to it, even if the husband did not.

One hypothetical situation that was not discussed in the article was: what would have happened if the husband did not show up before drugs were found, and only later claimed that the search was illegal because the wife did not have the authority to consent for him? If this would be considered illegal, then if I were a drug dealer, I would make sure to have an accomplice waiting in the wings to swoop down and claim the drugs were his when the police found them in a "consented" search, thus making the search illegal. The police would have no way to know about this plan in advance (even if they asked me, I could tell them that all the stuff in my house was mine, and the accomplice could argue that my false statement does not mean that the violation of his rights was legal). Therefore, the only way for the police to protect themselves against this tactic would be to wait for a warrant (if they had probable cause) even if the subject consents. This would significantly inconvenience innocent subjects, because they would have to be detained until a warrant was issued - even if they had nothing to hide and were perfectly willing to let them search right then and there!

If you accept the argument of the husband in this case that the wife did not have authority to consent for him, then presumably this fact would not depend on whether or not he happened to return in the middle of the search, so you would end up with the conclusion above.