Mercatus Site Feed http://mercatus.org/feeds/home/wp-login.php/publication/publication/eileen-norcross en The Joint Budget Resolution: A More Collaborative Budget Process http://mercatus.org/publication/joint-budget-resolution-more-collaborative-budget-process <h5> Publication </h5> <p><i>This essay is an edited excerpt from the 2015 Mercatus Research study, “The Budget Act at Forty: Time for Budget Process Reform,” which reviewed process reforms that can help facilitate agreement between Congress and the president and can focus attention on long-term spending commitments.</i></p> <p>The Congressional Budget and Impoundment Control Act of 1974 established the modern federal budget process. All signs indicate that the act, now four decades old, is not working.</p> <p>The fundamental problem with the nation’s finances—and thus the problem our budgetary procedures should focus on solving—is the runaway expense of entitlement programs, often described as “mandatory spending.” The current budget process does not force policymakers to confront the pressure that these massive programs exert on the federal budget. The process also lacks a ready mechanism for bridging the predictable conflicts that occur between the president and Congress.</p> <p>A joint budget resolution (JBR) could provide a partial antidote for the problems of budgetary drift, rising entitlement spending, and endless inertia in current federal budgeting practices. While today’s congressional budget resolution (CBR) applies restrictions only to consideration of legislation in Congress, the JBR is signed by the president and becomes law. It would thus have the potential to facilitate an agreement between the executive and legislative branches on key budgetary provisions that would govern decisions later in the budget process, and it could provide more structure and stability to government finances.</p> <p><b>THE ORIGINS OF TODAY’S BUDGET PROCESS</b></p> <p>The Budget Act of 1974 was enacted to turn back executive branch overreach in budgeting and to increase the legislative branch’s role in policymaking by creating an organized congressional process for budget development.</p> <p>The Budget Act’s most important institutional change was the creation of the House and Senate budget committees and the Congressional Budget Office (CBO). With the help of CBO’s independent and nonpartisan budgetary analyses, the budget committees develop a congressional budget resolution that serves as a counter or response to the president’s annual budget submission.</p> <p>Under the Budget Act, the CBR is not a law. Rather, it is a concurrent resolution, which means it is only relevant for Congress—the president is in no way bound by the CBR. If there is an ongoing disagreement between the branches, the anticipation of a veto is usually enough to bring the entire budget process to a standstill. This is an important reason why there are regular, drawn-out budget fights between Congress and the president.</p> <p><b>MOVING TO A JOINT BUDGET RESOLUTION</b></p> <p>A joint budget resolution<b> </b>may provide a better way forward. As a JBR must be signed into law, it has the potential to facilitate—and perhaps even pressure—agreement between the legislative and executive branches on key budgetary provisions that would govern decisions made by both branches later in the year.</p> <p>While today’s process allows for ad hoc negotiations on multiyear budgets, there is no expectation of regular legislative-executive engagement on a budget framework. This is one reason why the two branches engage so infrequently, allowing both branches to put off pressing fiscal issues like entitlement reform.</p> <p>The JBR would address each of the main decision points of a federal budget: discretionary spending (perhaps with separate limitations on defense and nondefense spending), entitlement programs, and revenue. Constructing the JBR in this way would help policymakers think more clearly about tradeoffs between the key budget categories and about projected deficit spending and debt. For instance, Congress and the president could choose to put more pressure on entitlement programs to ease pressure on discretionary accounts (or vice versa). They could also authorize higher levels of spending, but that would also mean larger deficits and higher debt. And proposals that cut deficit spending with tax hikes would be clearly identified in the budget plan.</p> <p><b>THE ENFORCEMENT MECHANISM</b></p> <p>The purpose of establishing an enforceable budgetary framework in a JBR is to set in motion additional legislation in Congress to bring programs and taxes in line with budget totals. Presumably, large changes in entitlement spending and taxes contained in a JBR would be assigned to the authorizing committees in the form of reconciliation instructions. This would allow fast-track consideration of the reforms implied in the JBR’s top-line numbers.</p> <p><span style="font-size: 12px;">Congress will only feel the pressure to act on tough legislative reforms if the budgetary caps in the JBR are binding in some way. It is critical, therefore, that the JBR have the capacity to trigger discipline in mandatory spending, along with enforceable caps on discretionary expenditures. Indeed, the primary advantage of the JBR over the CBR is that budgetary limits can be coupled with enforcement actions if they are combined in a law signed by the president.</span></p> <p>Budget sequestration—automatically triggered spending reduction—has been effective at controlling discretionary spending and could be continued in its current form in a JBR. Sequestration eliminates spending above the agreed-upon cap by applying a uniform, across-the-board cut to all nonexempt programs at a rate sufficient to eliminate the breach.&nbsp;</p> <p>Restraining mandatory spending will require additional features. Spending could be cut by canceling future spending increases and planned program liberalizations. Those changes could be coupled with other predetermined mechanisms of restraint.</p> <p>The process for enforcing mandatory spending levels should be recalibrated periodically so that actual spending is brought in line with the JBR levels based on revised estimates. In addition, spending restraint should be implemented over several years, perhaps as many as five, to avoid abrupt annual adjustments.</p> <p>Some programs for very low-income Americans, such as Supplemental Security Income, should be exempted from an enforcement mechanism for mandatory spending, but it is not unreasonable to include some income-support programs within the parameters of an enforcement approach. For instance, if spending breached an upper limit, eligibility for the Supplemental Nutrition Assistance Program might be lowered modestly for the highest-income participants. Similar adjustments could be made to other programs.</p> <p>Medicare and Medicaid should be explicitly included in the enforcement mechanism. For example, Medicaid matching payments to states should be reduced as needed to help keep total spending on mandatory programs below the cap. States will rightly complain that this move will burden their budgets. They should be granted relief from existing federal Medicaid mandates to provide them with flexibility when coping with this cut.</p> <p>Automatic cuts to Medicare should be designed to promote reform rather than hinder it, meaning cuts should focus on adding much-needed cost consciousness to the program’s design. For example, higher-income beneficiaries should be required to pay more for their services, and all beneficiaries should be required to pay something when they receive care.</p> <p><span style="font-size: 12px;">Finally, an effective sequester design would preclude any automatic increases if spending came in below the budget resolution caps. Any new spending would require legislation.</span></p> <p><b>IMPLEMENTING THE JOINT BUDGET RESOLUTION</b></p> <p>The Budget Act should be amended to allow an optional JBR “spin-off” from any CBR agreed to by both the House and Senate. Congress would not have to pursue a JBR, but if it chose to do so, the legislation would automatically be sent to the president upon adoption of a CBR. The JBR would reflect the key budgetary aggregates: total discretionary spending, total mandatory spending, revenues, deficits, and debt. The president could then approve or veto the bill.</p> <p>If the president vetoed the JBR, the process would revert back to the process that is in place today under the Budget Act. Congress could proceed under the terms of the budget resolution, and engagement with the executive branch would be postponed until later in the year when the spending and tax bills flowing from that budget move to the president. If, however, the president agreed to the JBR, the budget framework contained within it would be law, and both branches would be bound by it.</p> <p><b>CONCLUSION</b></p> <p>Reforming the congressional budget process cannot make up for a lack of political will, nor can it substitute for the policy changes necessary to correct the government’s fiscal problems. Yet the right reforms to the process, including the JBR, can open up new potential for agreements between Congress and the president and can focus attention on long-term spending commitments. Even in times of divided government, the JBR would allow for engagement between the branches that might, under some circumstances, facilitate compromise and agreement.</p> http://mercatus.org/publication/joint-budget-resolution-more-collaborative-budget-process Mon, 23 May 2016 18:46:12 -0400 Save Puerto Rico by Setting the Island Free http://mercatus.org/expert_commentary/save-puerto-rico-setting-island-free <h5> Expert Commentary </h5> <p class="p1"><span class="s1">There’s an old saying about raising children that “healthy birds fly away from the nest.” Applying this concept to territories of the United States, it may be time to consider setting a timetable for Puerto Rican independence as part of any effort by federal policymakers to help the beleaguered island regain its financial health.</span></p> <p class="p1"><span class="s1">Puerto Rico is the largest of the United States’ territories in terms of size and population. It’s also one of the largest headaches currently facing policymakers. That’s because the Caribbean island located <a href="http://www.uscg.mil/sectorsanjuan/welcome_aboard.asp"><span class="s2">1,000 miles southeast</span></a> of Miami is mired in a debt crisis thanks to a long-slumping economy — an economy hindered by counterproductive federal policies and its own fiscal incompetence.</span></p> <p class="p1"><span class="s1">Puerto Rico’s debt obligations have reached <a href="http://www.usatoday.com/story/money/2016/05/02/how-puerto-rico-amassed-72-billion-debt/83820238/"><span class="s2">$72 billion</span></a> (<a href="https://www.cia.gov/library/publications/the-world-factbook/geos/rq.html"><span class="s2">roughly equal</span></a> to the size of its entire economy), and thanks to lavish benefits given to government employees over the decades, it faces more than <a href="http://money.cnn.com/2016/05/12/investing/puerto-rico-debt-crisis/"><span class="s2">$40 billion</span></a> in unfunded liabilities. The island defaulted on<a href="http://www.wsj.com/articles/puerto-ricos-debt-crisis-turns-up-the-heat-on-congress-1462219483"><span class="s2"> $400&nbsp;million in debt service</span></a> payments at the beginning of May, and the prospects of it making good on another <a href="http://finance.yahoo.com/news/puerto-rico-govt-bank-continue-140946705.html"><span class="s2">$1.9 billion in early July</span></a> look bleak unless it works out agreements with creditors or the federal government gets directly involved.</span></p> <p class="p1"><span class="s1">At this point, there’s little doubt that the latter will happen. The big question is how that involvement should be structured. Fortunately, a direct infusion of taxpayer-financed federal aid is unlikely now, though there appears to be sufficient support for legislation that would create an independent <a href="http://www.nytimes.com/2016/05/20/business/puerto-rico-debt-bankruptcy.html"><span class="s2">financial control board</span></a> to tackle the mess. There’s a genuine concern, however, that such legislation could lead to a trampling of bondholders’ rights and provide an incentive&nbsp;to&nbsp;other states in our union — with their own <a href="http://www.usdebtclock.org/state-debt-clocks/state-of-illinois-debt-clock.html"><span class="s2">growing debt problems</span></a> — to hold out for help from the federal government. Other critics argue that Washington should focus on removing federal regulations that impede the island’s economic growth and force the Puerto Rican government to confront decades of fiscal profligacy.</span></p> <p class="p1"><span class="s1">To be sure, policymakers could help the island by exempting it from the federal minimum wage —which <a href="http://www.nber.org/chapters/c6909.pdf"><span class="s2">helped foster</span></a> the island’s high unemployment rate — and the federal <a href="http://www.pbs.org/newshour/making-sense/jones-act-holding-puerto-rico-back-debt-crisis/"><span class="s2">Jones Act</span></a>, which requires shippers to use costly U.S. flagged ships that result&nbsp;in Puerto Rican consumers paying artificially higher prices for goods.</span></p> <p class="p1"><span class="s1">But the issue of Puerto Rico’s status as a territory of the United States should also be included in the discussion. Although it may be unlikely to happen, any legislation addressing the territory’s financial plight should come with a provision laying out a time-frame for the orderly granting of Puerto Rican independence. The idea sounds crazy, but it shouldn’t.</span></p> <p class="p1"><span class="s1">Puerto Rico didn’t become a territory of the United States until it, Guam, and the Philippines were obtained from Spain under the <a href="https://www.loc.gov/rr/hispanic/1898/treaty.html"><span class="s2">Treaty of Paris in 1898</span></a>, which ended the Spanish-American War. Prior to that, Puerto Rico was <a href="https://www.loc.gov/rr/hispanic/1898/bras.html"><span class="s2">under Spanish control</span></a> for centuries. And before that, it was populated by indigenous peoples. American-occupied Cuba, which was relinquished by Spain, was allowed to declare <a href="https://history.state.gov/countries/cuba"><span class="s2">formal independence</span></a>from the United States in 1902 with conditions (that’s why there’s still an American military base in Guantanamo Bay). While Guam remains a U.S. territory (and should also be freed), the Philippines formally obtained its independence back in <a href="http://www.gov.ph/featured/republic-day/"><span class="s2">1946</span></a>.</span></p> <p class="p1"><span class="s1">The point is that the United States’ ownership of Puerto Rico is, historically speaking, relatively new and occurred during a period when the western imperial powers were still fighting over the colonial spoils. Yes, in subsequent decades, the Puerto Rican people <a href="http://www.pbs.org/wgbh/masterpiece/americancollection/woman/timeline.html"><span class="s2">received greater control</span></a> over its internal affairs, and today a person born on the island automatically becomes a&nbsp;U.S. citizen. But the fact is that Puerto Rico owes its status to the United States’ lamentable turn toward global territorial expansion.</span></p> <p class="p1"><span class="s1">And what has this territorial expansion brought us? Over 100 years later, the United States’ federal government finds itself with a virtual military empire that, when all related costs like veterans’ benefits are factored in, soaks taxpayers <a href="http://www.usatoday.com/story/military/2015/12/16/budget-omnibus-fy16-defense-veterans-affairs-pentagon/77416466/"><span class="s2">close to $800 billion</span></a> a year. That’s a lot of money to effectively subsidize the defense needs of wealthy allies and exert control over foreign populations for the ostensible purpose of “spreading democracy.” And not coincidentally, the tentacles of the federal government can be found in virtually every aspect of our lives. After all, federal involvement in everything from <a href="http://schoolsofthought.blogs.cnn.com/2012/03/20/report-calls-education-a-national-security-issue/"><span class="s2">education</span></a> to the <a href="http://www.fhwa.dot.gov/infrastructure/originalintent.cfm"><span class="s2">federal highway system</span></a> has been justified on dubious “national security” grounds.</span></p> <p class="p1"><span class="s1">So, while raising the question of Puerto Rican independence might seem quaint, its prominent place in the news is at least an occasion to recognize that big government abroad and big government at home are two sides of the same coin. Relinquishing control of Puerto Rico would be a&nbsp;significant step toward a badly needed downsizing of the federal government.</span></p> http://mercatus.org/expert_commentary/save-puerto-rico-setting-island-free Mon, 23 May 2016 11:22:41 -0400 New Overtime Regulations Could Harm Tech Startups and Small Businesses http://mercatus.org/expert_commentary/new-overtime-regulations-could-harm-tech-startups-and-small-businesses <h5> Expert Commentary </h5> <p class="p1"><span class="s1">The Department of Labor has just finalized their <a href="https://www.whitehouse.gov/the-press-office/2016/05/17/fact-sheet-growing-middle-class-paychecks-and-helping-working-families-0"><span class="s2">new overtime regulations</span></a>, an update to the Fair Labor Standards Act of 1938 that will raise the salary threshold under which workers will qualify for overtime pay to about $47,476 beginning December 1, 2016. Previously, only workers making under $23,600 were subject to mandatory overtime pay regulation where employers track employee hours and pay them time-and-a-half for every hour worked over 40 hours a week. The Obama White House <a href="https://www.whitehouse.gov/sites/default/files/docs/ot_state_by_state_fact_sheet.pdf"><span class="s2">estimates</span></a> that approximately 5 million workers could be affected by the law, 39% of whom are millennials between the ages of 16 and 34.</span><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><span class="s1">It’s important to realize that this policy change is not an anti-poverty adjustment to the tax code, like a hypothetical expansion of the Earned Income Tax Credit (EITC), but rather a broad mandate for businesses to fundamentally change their business practices, a requirement that potentially comes with a handful of distortions. In part, the law means that millions of salaried workers will be reclassified to hourly, and many will be “back on the clock,” to use a 20th</span><span class="s3">-</span><span class="s1">century term that has almost fallen out of use.</span></p> <p class="p1"><span class="s1"><b>Overtime pay regulations were originally designed for the working poor in the 20th century manufacturing economy</b></span></p> <p class="p1"><span class="s1">We understand the good intentions of the new regulation. But there are many factors that the Department of Labor did not consider when expanding an 80-year old law in the 21st&nbsp;century. Requiring employers to pay salaried employees by the hour and to pay overtime is more closely aligned with how work was tracked (by the hour) and compensated for in the 20th&nbsp;century manufacturing economy. Furthermore, workers on hourly wages tend to skew toward lower-income workers, so when mandatory overtime regulations were initially extended to those making less than $23,600 annually, the distortionary impact of compliance was mitigated.</span></p> <p class="p1"><span class="s1">By in large, the U.S. economy has since evolved into a services and information economy where more workers are salaried and paid not just in cash but also other forms of benefits such as equity compensation.&nbsp;The White House further <a href="https://www.whitehouse.gov/sites/default/files/docs/ot_state_by_state_fact_sheet.pdf"><span class="s2">estimates</span></a>&nbsp;that 81.8%&nbsp;of workers affected by expanding the mandatory overtime threshold to $47,476 would have some college, a bachelor’s degree or some advanced degree.</span></p> <p class="p1"><span class="s1">For&nbsp;companies below a certain size or certain financing level that employ educated salaried employees, these sorts of rules could do serious harm.</span><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><span class="s4"><b>Tech startups,</b></span><span class="s1"><b> non-profits and institutions of higher education are likely to bear the worst brunt of new overtime regulations</b></span><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><span class="s2"><a href="http://www.post-gazette.com/business/career-workplace/2016/04/10/Overtime-rule-worries-nonprofit-community/stories/201604030060?utm_campaign=echobox&amp;utm_medium=social&amp;utm_source=Facebook#link_time=1460265623">Non-profits</a></span><span class="s1"> and&nbsp;<a href="http://www.wsj.com/articles/colleges-brace-for-overtime-overhaul-1458674488"><span class="s2">institutions of higher education</span></a> have been vocal about how damaging such rules would be for them.</span><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><span class="s1">Another highly impacted sector is the dynamic area of tech startups.</span></p> <p class="p1"><span class="s1">In their early phases, many tech startups are pre-revenue which constrains their ability to pay employees as they build a vision and a product depending on their access to financing. Even after crossing the hurdle of introducing their product to market, startups often continue to operate on a weak revenue stream. Although many associate tech startups as companies that pay their employees vastly above the $47,476 threshold, this is not the case for all roles in early startups.</span></p> <p class="p1"><span class="s1">Many startups have margins that remain very small, and that is one of the reasons they pay employees in equity instead of cash wages.</span></p> <p class="p1"><span class="s1">The unhindered start-up model with flexible compensation options has played a substantial role in what has often enabled tech startups to take-off. Adding even miniscule costs to their operations could seriously impact the start-up model and unlike large companies which can afford large compliance departments, start-ups cannot easily pass on the cost of this regulation.</span></p> <p class="p1"><span class="s1">Boots Dunlap, the CEO of <i>RRA Capital</i>, a small financial technology company in Scottsdale, Arizona illustrated this point to us in an interview, saying “This new rule will put so many small businesses like mine into cardiac arrest.” He further explained that&nbsp;“It was valiant to attack the Fat Cats of the 1920’s when a few heads of industry controlled the newspapers and politics; however, this rule is designed to continue to widen the gap between small business and big business; between struggling entrepreneurs and the heads of industry.”</span></p> <p class="p1"><span class="s1">Moreover, adjustments to comply with this law are not free. Most small startups do not have in-house counsel or compliance departments. Lawyers who work with start-ups typically charge between $350 and $800 per hour, and legal costs for non-complex matters (such as payroll and worker classification) are about $5,000 a year.</span></p> <p class="p2"><span style="font-size: 12px; background-color: white;">In New York, tech entrepreneur Dan Gelertner of </span><i style="font-family: inherit; font-weight: inherit; background-color: white;">Dittach</i><span style="font-size: 12px; background-color: white;"> explained to us how hard the new rules could be for his new company:</span></p> <blockquote><p class="p5"><span class="s1">In a startup, where our margins are already so tight, where we enter this difficult and dangerous field knowing that the vast majority of us will fail, a small increase in operating cost – a fraction of a percent, even something that costs only a thousand dollars – can make us insolvent. It can mean that all the money and energy we spent up to that point was wasted. It can mean that instead of employing a half-dozen people we can now employ no one at all.</span></p></blockquote> <p class="p1"><span class="s1">Major aspects of the overtime regulation are premised on a traditional view of what it means to work and on a traditional view of compensation structure. These factors are not easily applicable to the 21st&nbsp;century—in particular, to tech startups. While enhanced overtime regulations may make sense in some industries and some company sizes, it doesn’t for many others. In part, various updates to the original Fair Labor Standards Act of 1938 have acknowledged this by creating exemptions for various disciplines, however, technology jobs and small businesses remain non-exempt.</span></p> <p class="p1"><span class="s1">Alex Goldberg, a former tech entrepreneur and now a <a href="http://www.forbes.com/managing/"><span class="s2">Managing</span></a>&nbsp;Director of a New-York based venture capital fund, <i>Canary Ventures, </i>argues for why such a tech exemption would make sense:</span></p> <blockquote><p class="p5"><span class="s1">I can imagine some contexts where the overtime regulations are important, with certain vulnerable populations in the workforce. But I do think there are certain types of companies, especially&nbsp;in tech,&nbsp;where a fluidity and variability of a policy would make more sense. In early phases of incubation, it’s quite usual for start-ups&nbsp;to drain their bank accounts,&nbsp;bit by bit. Money is extremely precious and salaries don’t look like what they are in corporate America. So you can imagine that when you have this type of&nbsp;government&nbsp;mandate on start-ups, the speed of innovation will be throttled.</span></p></blockquote> <p class="p1"><span class="s1"><b>Overtime Regulations Impacting Tech Startups and Innovation Could Further Hinder Productivity</b></span></p> <p class="p1"><span class="s1">The updated rules announced today unfortunately indicate that there will be no new exemption for tech companies. As real GDP growth continues to hover around 2%, largely driven by declining productivity, the new overtime rules and their negative impact on innovative tech startups are bound to exacerbate this trend more so than alleviate it.</span></p> http://mercatus.org/expert_commentary/new-overtime-regulations-could-harm-tech-startups-and-small-businesses Fri, 20 May 2016 12:37:51 -0400 FAA Projections Reflect Deep Uncertainty about the Effect of Regulations on Drone Adoption http://mercatus.org/publication/faa-projections-reflect-deep-uncertainty-about-effect-regulations-drone-adoption <h5> Publication </h5> <p><span style="font-size: 12px;">In March of this year, the </span><a href="http://hosted.ap.org/dynamic/stories/U/US_DRONE_DELIVERY_NEVADA?SITE=AP&amp;SECTION=HOME&amp;TEMPLATE=DEFAULT" style="font-size: 12px;">first FAA-approved autonomous commercial drone delivery</a><span style="font-size: 12px;"> to an urban residence took place in Nevada. This milestone highlights the exciting opportunities that unmanned aircraft systems (UAS) can present. If we get our policies right, UASs can yield dividends in cost savings and economic growth in areas like consumer delivery, agriculture, industrial management, and journalism. A </span><a href="https://www.faa.gov/data_research/aviation/aerospace_forecasts/media/FY2016-36_FAA_Aerospace_Forecast.pdf" style="font-size: 12px;">new FAA report</a><span style="font-size: 12px;"> suggests that a poorly considered regulatory regime could severely inhibit the growth of this promising industry before it has a chance to take flight.</span></p> <p><a href="http://mercatus.org/sites/default/files/Dourado-Drone-Projections-chart-1.png"><img src="http://mercatus.org/sites/default/files/Dourado-Drone-Projections-chart-1.png" width="585" height="424" /></a></p> <p>This week’s charts use data from a recent Federal Aviation Administration report titled <a href="https://www.faa.gov/data_research/aviation/aerospace_forecasts/media/FY2016-36_FAA_Aerospace_Forecast.pdf"><i>FAA Aerospace Forecast, Fiscal Years 2016–2036</i></a>, and show that even the FAA doesn’t know what effect its regulations will have on small UAS (sUAS) adoption over the next five years.<span style="font-size: 12px;">&nbsp;</span></p> <p>The agency’s report features two independently prepared forecasts. Both forecasts assume the same operating limitations for small UAS during the next five years: daytime operations, within visual line of sight, and a single pilot operating only one small UAS at a time. The independent estimates wildly diverged from each other because of the deep uncertainty generated by these regulations.</p> <p>The first chart displays the FAA’s projections of the number of sUAS units that will be sold from 2016 through 2020. The total number of projected model aircraft sales to noncommercial hobbyist operators are displayed in teal, while the projected sales of commercial sUAS units are displayed in green. The total of both categories is displayed on top of the bar for each year. The chart shows that the FAA expects roughly 7 million sUAS units to be sold by 2020, constituted of roughly 4.3 million noncommercial aircraft and 2.7 million commercial aircraft.</p> <p>In addition to this sales estimate, the FAA independently estimated the size of the operational commercial sUAS fleet in the US over the next five years. The agency expects that its final regulations will bifurcate the small drone market into two major categories: one “higher end” market consisting of units with an average sales price of approximately $40,000, and the second “lower end” market of crafts with an average sales price of roughly $2,500.&nbsp;</p> <p><span style="font-size: 12px;"><a href="http://mercatus.org/sites/default/files/Dourado-Drone-Projections-chart-2.png"><img src="http://mercatus.org/sites/default/files/Dourado-Drone-Projections-chart-2.png" width="585" height="425" /></a>&nbsp;</span></p> <p>The second chart displays the report’s projections of total “higher end” sUAS units in purple and “lower end” sUAS units in gold. The FAA states that it expects roughly 90 percent of the demand for sUAS units will be satiated by cheaper crafts. By 2020, the agency expects that the total US sUAS fleet will consist of around 542,500 units.<span style="font-size: 12px;">&nbsp;</span></p> <p>The FAA’s two independent projections of sUAS adoption in the US are wildly inconsistent. The agency projects that 7 million sUAS units will be sold by 2020, of which 2.7 million will be commercial aircraft. Yet the agency only expects that around half a million, or 20 percent of all commercial sUAS units they estimate will be sold, will constitute the US fleet of sUAS by 2020.</p> <p><a href="http://mercatus.org/sites/default/files/Dourado-Drone-Projections-chart-3.png"><img src="http://mercatus.org/sites/default/files/Dourado-Drone-Projections-chart-3.png" width="585" height="424" /></a></p> <p>The third chart compares the data from the first and second charts. The total number of projected commercial (nonhobbyist) sUAS unit sales are displayed in blue, while the total projected sUAS fleet (lower end and higher end) is displayed in red. Year after year, the FAA projects that the US sUAS fleet will comprise a slim portion of total sUAS sales.</p> <p>The inconsistency in these projections is understandable. The market for sUAS is still nascent, and the effect of the FAA’s regulations on the industry’s viability is unknown. It makes sense that two independent estimates might reach different conclusions about the health of the new industry after the imposition of unprecedented regulations.<span style="font-size: 12px;">&nbsp;</span></p> <p>The fact that there is so much uncertainty about the effect of the FAA’s regulations on the immature and fragile market for sUAS suggests that the regulations are far too burdensome. As Eli Dourado, Ryan Hagemann, and Adam Thierer of the Mercatus Center wrote in a <a href="%22http://">comment to the FAA on the proposed sUAS rule</a>, “An overly precautionary approach will discourage the many benefits associated with this rapidly evolving class of aerial technologies.” In light of the fact that even the FAA now acknowledges the possibility that its proposed rules may seriously damage the sUAS industry, the agency should reverse itself and adopt, as far as possible, a posture of <a href="http://permissi">permissionless innovation</a> toward sUAS.</p> http://mercatus.org/publication/faa-projections-reflect-deep-uncertainty-about-effect-regulations-drone-adoption Wed, 18 May 2016 14:49:14 -0400 Certificate of Need Laws Only Complicate Health Care and Stifle Competition http://mercatus.org/expert_commentary/certificate-need-laws-only-complicate-health-care-and-stifle-competition <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Sometimes complex problems require complex solutions. Sometimes issues become so twisted and tied that only the most sophisticated answers could solve them. Trying to dissect the current debates over health care would leave one thinking that we've found ourselves in such a mangled situation that only Rube Goldberg himself could devise an appropriate solution.</span></p> <p class="p1"><span class="s1">This thinking, however, is not new or unique to today's debates about health care. In fact, it is what has created much of the current mess in the first place.</span></p> <p class="p1"><span class="s1">Take, for example, little-known yet hugely significant certificate of need or CON laws. Thirty-six states currently require government permission before health care providers can open or expand a practice or invest in certain devices or technology. Permission is granted on the basis of so-called "need" by using complex formulas, hearings and a bureaucratic process that tends to look like high-stakes litigation. In fact, in most instances, current providers are invited to challenge a would-be competitor's right to open a practice. And it may take <a href="http://www.modernhealthcare.com/article/20160123/MAGAZINE/301239964"><span class="s2">years and hundreds of thousands of dollars</span></a> before a provider is granted permission to buy something as straightforward as an MRI machine.</span></p><p class="p1"><span class="s1"><a href="http://www.usnews.com/opinion/articles/2016-05-16/certificate-of-need-laws-only-complicate-health-care-and-stifle-competition">Continue reading</a></span></p> http://mercatus.org/expert_commentary/certificate-need-laws-only-complicate-health-care-and-stifle-competition Wed, 18 May 2016 11:34:14 -0400 A Hearing Brought to Tears over Right to Try Legislation http://mercatus.org/expert_commentary/hearing-brought-tears-over-right-try-legislation <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Last week, Sen. <a href="http://thehill.com/people/ron-johnson"><span class="s2">Ron Johnson</span></a> (R-Wis.) introduced new Right to Try (RTT) legislation intended to prevent federal agencies from interfering with or blocking the implementation of RTT laws that have been passed in 28 states to date. I attended Johnson's press conference announcing his RTT bill — the<a href="https://www.hsgac.senate.gov/media/majority-media/johnson-introduces-trickett-wendler-right-to-try-act"><span class="s2"> Trickett Wendler Right to Try Act of 2016</span></a> — and was given the opportunity to speak at the briefing on RTT and the <a href="https://www.congress.gov/bill/114th-congress/house-bill/3012"><span class="s2">Right to Try Act of 2015 (H.R. 3012)</span></a>, both of which took place in Washington on Tuesday, May 10 — National ALS Advocacy Day.</span></p> <p class="p1"><span class="s1">Johnson's proposal mirrors H.R. 3012, which is sponsored in the House by Rep. <span class="s2"><a href="http://thehill.com/people/matt-salmon">Matt Salmon</a>&nbsp;</span>(R-Ariz.). The language of the Senate bill is quite straightforward:</span></p> <blockquote><p class="p1"><span class="s1" style="font-weight: normal;">[T]he Federal Government shall not take any action to prohibit or restrict (1) the production, manufacture, distribution, prescribing, or dispensing of an experimental drug, biological product, or device that (A) is intended to treat a patient who has been diagnosed with a terminal illness; and (B) is authorized by, and in accordance with, State law. ...</span></p><p class="p1"><span class="s1" style="font-weight: normal;">[N]o liability shall lie against a producer, manufacturer, distributor, prescriber, dispenser, possessor, or user of an experimental drug, biological product, or device for the production, manufacture, distribution, prescribing, dispensing, possession, or use of an experimental drug, biological product, or device that is in compliance with [the statute]. ...</span></p><p class="p1"><span class="s1" style="font-weight: normal;">[T]he outcome of any production, manufacture, distribution, prescribing, dispensing, possession, or use of an experimental drug, biological product, or device that was done in compliance with subsection (a) shall not be used by a Federal agency reviewing the experimental drug, biological product, or device to delay or otherwise adversely impact review or approval of such experimental drug, biological product, or device.</span></p></blockquote> <p class="p1"><span class="s1">The last provision is critically important for drug companies, who develop and manufacture the experimental products. Their reticence to provide experimental drugs to patients who are not participating in formal clinical trials is driven mostly by the very real threat that the Food and Drug Administration (FDA) will suspend all studies of the compounds if a severe or unexpected adverse event were to happen in a compassionate use setting, as occurred with <span class="s2"><a href="http://www.raps.org/Regulatory-Focus/News/2014/11/19/20780/Companys-Compassion-Leads-to-Clinical-Hold-on-Experimental-Drug/">CytRx Corp.</a>&nbsp;</span>Additionally, companies fear that adverse events and other outcomes that occur in these uncontrolled settings could hamper interactions with the FDA and have a severe deleterious impact on the development course and timetable, as well as the approval and final labeling of experimental drugs.</span></p> <p class="p3"><span class="s1">J<a href="https://www.youtube.com/watch?v=BSXWO6JmAqM"><span class="s2">oining Johnson at the event</span></a> announcing his proposed legislation were Tim Wendler and Matt Bellina. Wendler's wife, Trickett, died of ALS (amyotrophic lateral sclerosis) in March of 2015. She was 39 years old — married for just 10 years and balancing a career and three young children — when she was suddenly unable to walk in the middle of a business trip. Two months later, she was diagnosed with ALS. <a href="https://www.youtube.com/watch?v=tAb-ykDlnjs"><span class="s2">As Trickett states in a moving video</span></a>, "I was literally taking Zumba classes in March and in a wheelchair by July." Trickett's father also had ALS and succumbed to his disease. They also share something else in common: Both were treated with the same drug, Rilutek (riluzole), which was approved in 1995, and slows the progression of the disease, but is not curative. Tim stated that "in a terminal illness, opportunities for hope are few and far between ... and having a bill like this introduced gives an opportunity for hope." He is worried for his three children who are predisposed for developing ALS by virtue of having the inherited gene.</span></p> <p class="p1"><span class="s1">There are experimental drugs in clinical trials for ALS; however, the entry criteria are quite restrictive. Therefore, compassionate-use requests are needed for the vast majority of patients who cannot obtain access to the studies. State RTT and the national bills look to expand the FDA's compassionate-use program. But the FDA maintains that RTT poses a significant threat to patient safety.</span></p> <p class="p1"><span class="s1">Bellina, a 32-year-old former Navy fighter pilot <a href="https://www.youtube.com/watch?v=IE6mzkPSVR8&amp;feature=youtu.be"><span class="s2">who was diagnosed with ALS</span></a> in 2012 when he was 30 years old and is now confined to a wheelchair, doesn't see the safety issue when patients are terminal. He said, "we fight on principles for life, liberty and the pursuit of happiness ... our principles are not to provide an abundance of caution, or the illusion of safety ... we're about giving people a chance to do what they think is best for them." He closed by saying, "In this great country of ours, I am allowed to take my own life, in some states, but I can't try an experimental treatment that may save me."</span></p> <p class="p1"><span class="s1">Frank Mongiello, who developed ALS in October 2015 and is now wheelchair-bound and has great difficulty articulating due to muscle weakness of his jaw and tongue, also spoke. He drew a parallel to Abraham Lincoln's quote, "If I am killed, I can die but once; but to live in constant dread of it, is to die over and over again," by stating "I have an 80 chance to be dead in two years ... seeing these experimental drugs and not being able to take them is like dying over and over again."</span></p> <p class="p1"><span class="s1">Mongiello and is wife have six children, the youngest of which are 10-year-old twins. As v said, "We don’t have the luxury of time ... I have six children, a wife and great family and I am not ready to leave them." When Mongiello finished, there was not a dry eye in the packed room. As compelling as anything Frank labored greatly to say were two words on a bumper-sticker affixed to the back of his wheelchair: "ALS Sucks."</span></p> <p class="p1"><span class="s1">On Monday, May 16, the Reagan Udall Foundation for the FDA conducted a <a href="http://www.reaganudall.org/news-and-events/events-2/public-workshop-expanded-access-navigator/"><span class="s2">public meeting to discuss a navigator</span></a>, a "coordinated resource for clear information to help patients and healthcare providers navigate the Expanded Access (EA) request process, also known as compassionate use. The focus of the EA Navigator would be (non-emergency) individual patient access to investigational drugs ("single patient INDs")."</span></p> <p class="p1"><span class="s1">But a navigator is not what terminally ill patients need: With organizations like the <a href="http://goldwaterinstitute.org/en/search/?topic=healthcare&amp;issue=right-to-try"><span class="s2">Goldwater Institute</span></a>, which has provided the model for state RTT laws, and patient advocacy and disease awareness groups, the knowledge of experimental drugs that may help patients is not at issue. In fact, the RTT movement itself is testimony to the fact that patients and their loved ones are quite savvy and capable of using the internet to find the experimental drugs. The real issues are the amount of time (100 hours) and paperwork (multiple submissions to the FDA and to institutional review boards), as well as the liability incurred by drug companies, doctors, hospitals and patients.</span></p> <p class="p1"><span class="s1">If the FDA truly supported compassionate use, it would fully endorse state RTT laws and the national acts introduced by Salmon and Johnson. Simultaneously, it would immediately enact its own <a href="http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM432717.pdf"><span class="s2">guidance document</span></a> (issued in February 2015) that reduces the amount of time required to complete a compassionate use request from 100 hours to 15 minutes. Interestingly, at&nbsp;<a href="http://raps.org/Regulatory-Focus/News/2016/05/16/24951/Expedited-Compassionate-Use-for-Investigational-Drugs-Coming-Soon-FDA-Says/?utm_source=social&amp;utm_medium=post&amp;utm_campaign=RFnews"><span class="s2">yesterday’s navigator meeting</span></a>, the FDA committed to implementing this guidance document "very, very soon."</span></p> <p class="p1"><span class="s1">Actions speak louder than words, and the FDA's actions with respect to RTT clearly demonstrate that the agency is loath to see the compassionate use program expanded in any meaningful manner. The House and Senate need to pass these national bills to give terminally ill patients a chance and a real measure of hope.</span></p> http://mercatus.org/expert_commentary/hearing-brought-tears-over-right-try-legislation Wed, 18 May 2016 11:22:20 -0400 How FCC Transaction Reviews Threaten Rule of Law and the First Amendment http://mercatus.org/publication/how-fcc-transaction-reviews-threaten-rule-of-law-first-amendment <h5> Publication </h5> <p class="p1">The Federal Communications Commission (FCC) has the power to approve or deny any transfer of licenses issued under its jurisdiction. In recent years, the FCC has increasingly been using this power to review mergers and extract regulatory concessions from merging companies as a way to enforce rules that it is otherwise unable or unwilling to promulgate through the normal rulemaking process. Merging companies have little choice but to agree to the nominally voluntary concessions if they want their merger to go through. Furthermore, because these regulatory concessions are considered voluntary, many of them are practically unappealable, shielding the FCC’s actions from judicial review. The FCC has used its ability to extract these merger conditions to skirt statutory, and in some cases constitutional, limits on its power, posing a threat to good governance, free speech, and the rule of law.</p> <p class="p1"><span class="s1">A new study for the Mercatus Center at George Mason University examines how and why the FCC uses its power over license transfers to extract regulatory concessions from businesses, and identifies the legal implications of the expanding use of this power. The FCC has used transaction reviews both to maximize the scope of its jurisdiction and to avoid oversight. This power, which is supposed to benefit the “public interest,” has instead served the political interests of FCC administrators, stifled free speech, and created a climate of legal uncertainty in the communications industry.</span></p> <p class="p1"><span style="font-size: 12px; background-color: white;"><b>BACKGROUND</b></span></p> <p class="p4"><span class="s3"><b><i>No Explicit Authority for Merger Review</i></b></span></p> <ul class="ul1"> <li class="li5">While the Communications Act of 1934 doesn’t provide the FCC with any explicit authority to review mergers, the FCC does have a statutory duty to find that license transfers serve “the public interest, convenience, and necessity” before approving them. The agency interprets this as de facto power to review and approve mergers.</li> <li class="li5">The vague “public interest” standard by which the FCC is supposed to evaluate license transfers has rarely been constrained by Congress or the courts. This gives the agency broad discretion in exercising its power.</li> <li class="li5">Communications-industry mergers are also subject to review by the Department of Justice and the Federal Trade Commission, and they must meet the same standards as mergers in many other industries. Both of these agencies have clearly defined merger review authority and use review processes that rely on welfare-based standards and rigorous economic analysis rather than an amorphous public interest standard.</li> </ul> <p class="p4"><span class="s3"><b><i>“Empire Building” through Regulation</i></b></span></p> <p class="p1">Scholars have long recognized that regulators, far from seeking to maximize the public interest, often strive to achieve their own goals and objectives. The “empire building” model of agency behavior provides a framework for understanding how regulators maximize their jurisdictions, reputations, and output, among other variables. Increased use of transaction reviews helps the FCC achieve two such goals:</p> <ul class="ul1"> <li class="li5"><i>Expand jurisdiction.</i> Agencies’ regulatory agendas are constrained by the statutory authority granted to them by Congress. Courts may strike down regulations enacted outside the scope of an agency’s statutory authority. To avoid this constraint and expand its jurisdiction, the FCC has used concessions gained through merger review to enforce regulations previously struck down by courts.</li> <li class="li5"><i>Avoid oversight.</i> Formal rulemaking procedures require public notice and comment periods, and the resulting rules are subject to judicial review. Even when particular regulatory policies are explicitly authorized by statute, the FCC has sometimes chosen to enforce those policies through merger conditions to avoid scrutiny from both the public and the courts.</li> </ul> <p class="p2"><span style="font-size: 12px; background-color: white;"><b>KEY FINDINGS</b></span></p> <p class="p4"><span class="s3"><b><i>FCC Merger Reviews Threaten Free Speech</i></b></span></p> <p class="p1"><span class="s1">Many recent concessions achieved by the FCC have dealt with issues related to speech and the distribution of speech. Given that courts have steadily weakened the FCC’s ability to regulate speech since the 1970s, the growth in speech-related merger concessions is consistent with an empire-building model of FCC behavior. Two examples illustrate the FCC’s use of merger reviews to impose regulations of speech:</span></p> <ul class="ul1"> <li class="li5"><i>Net neutrality.</i> Rules forcing Internet service providers to carry content they do not wish to carry were struck down in 2010 and 2014, but merger conditions enforcing “net neutrality” on some of the largest providers allowed the FCC to enforce this rule without judicial review or congressional authorization.</li> <li class="li5"><i>Programming mandates.</i> While Congress has authorized the FCC to enact certain rules regarding television programming, implementing such policy through the formal rulemaking process could attract negative attention from Congress, media companies, and the public. The FCC extracted many commitments related to programming from Comcast and NBCU during their 2011 merger, including quotas for Spanish-language and children’s programs, thereby avoiding significant public and court scrutiny of TV content regulations.</li> </ul> <p class="p1"><span class="s1">The Supreme Court has held that licensing laws that regulate distributors of speech are presumptively unconstitutional when those laws lack explicit limits on authority. The FCC’s solicitation and encouragement of “public interest” programming and net neutrality commitments from merging firms therefore may expose the agency to First Amendment challenges.</span></p> <p class="p4"><span class="s3"><b><i>FCC Merger Reviews Undermine Rule of Law and Create Uncertainty</i></b></span></p> <ul class="ul1"> <li class="li5"><i>There are no practical avenues for appeal.</i> While merger conditions are nominally voluntary, the consequences of not offering or accepting them—a rejected merger—are very costly, giving companies no choice but to accept. Appealing the “voluntary” conditions is practically impossible, allowing the FCC to impose conditions with almost no legal consequences or constraints.</li> <li class="li5"><span class="s1"><i>The review proceedings are slow and opaque.</i> Unlike other federal agencies that regulate mergers, the FCC has no statutory time limit for its transaction reviews. Reviews typically take a year, during which merging companies may not know what conditions will be attached to their merger. Firms may spend tens or hundreds of millions of dollars on an FCC merger review alone, only to be rejected or saddled with impractical merger conditions.</span></li> </ul> <p class="p2">&nbsp;<span style="font-size: 12px; background-color: white;"><b>POLICY RECOMMENDATIONS</b></span></p> <ul class="ul1"> <li class="li5"><i>Define clear limits and expand judicial review of merger conditions.</i> Constraining the FCC’s ability to extract concessions during merger reviews will require clear statutory limits on transaction reviews, such as limiting acceptable merger conditions to those that remedy specific merger-related harms. Allowing companies to appeal conditions in court could ensure that the FCC is not imposing arbitrary conditions that do not meet the new, strict criteria.</li> <li class="li5"><i>Remove the FCC’s transaction review power.</i> Congress should consider removing the FCC’s transaction review authority and relying instead on the Department of Justice and the Federal Trade Commission to oversee mergers, because both already have the authority and tools to do so. Furthermore, both agencies focus almost exclusively on competition policy across many industries, reducing the incentive to use merger review as a tool for enacting unrelated policy agendas.</li> </ul> http://mercatus.org/publication/how-fcc-transaction-reviews-threaten-rule-of-law-first-amendment Wed, 18 May 2016 18:06:24 -0400 The Regulatory Determinants of Railroad Safety http://mercatus.org/publication/regulatory-determinants-railroad-safety <h5> Publication </h5> <p>The dramatic improvement in railroad safety since the 1970s has been accompanied by a substantial increase in safety regulation and a substantial reduction in economic regulation after 1980. We assess the effects of both regulatory changes on railroad safety with the use of RegData: a new data set that was developed by one of the authors that measures the amount of regulation that is imposed by specific regulatory agencies on specific industries. We find that partial economic deregulation is associated with improved safety. Safety regulation was most closely associated with improved railroad safety during the period when economic regulation curtailed railroads’ incentives to operate safely.</p><p>Find the article at <a href="http://link.springer.com/article/10.1007/s11151-016-9525-0">Springer Link.</a></p> http://mercatus.org/publication/regulatory-determinants-railroad-safety Wed, 18 May 2016 10:02:31 -0400 The Curious Rise of the Push for $15 Wage http://mercatus.org/expert_commentary/curious-rise-push-15-wage <h5> Expert Commentary </h5> <p class="p1"><span class="s1">In 1987, the New York Times published an editorial, titled “The Right Minimum Wage: $0.00” – which advocated the complete abolition of minimum wage laws. In January 2009, the Democratic Party took complete control the federal government, including a filibuster-proof majority in the Senate. At the time, the minimum wage was $6.55 an hour, scheduled to rise to $7.25 an hour in July 2009. The Democrats decided not to boost the wage above the level set by the Bush administration, and thus the federal minimum wage has remained at $7.25 an hour ever since.</span></p> <p class="p1"><span class="s1">Over the next few years, however, something very strange happened. The progressive movement began advocating a $15-an-hour minimum wage, and the proposal has now been included in the Democratic Party platform. In a number of important states and municipalities, $15 minimum wage laws have been passed, albeit phased in over a number of years.</span></p> <p class="p1"><span class="s1">What explains this dramatic change in attitude?</span></p> <p class="p1"><span class="s1">Although it's been a few years since the most recent increase, the $15 proposals cannot simply be written off as a cost-of-living adjustment, as the consumer price index is up only some 11 percent since the previous increase.</span></p> <p class="p1"><span class="s1">Instead, there seems to have been a sea change in attitudes toward the minimum wage, not just among Democrats in the United States, but throughout the world. In 2004, Germany instituted a highly successful set of labor market reforms, which dramatically brought down the unemployment rate by controlling wage costs. Despite this success, Germany recently began reversing these reforms, instituting a new minimum wage law. The Conservative government in Britain recently enacted a dramatic increase in the minimum wage, and Republicans such as Mitt Romney have also advocated a higher minimum wage.</span></p> <p class="p1"><span class="s1">I have no answer to the question of why the minimum wage has suddenly become so popular, but I have done some research that suggests that we need to be very careful in this area. In my new book on the Great Depression, “The Midas Paradox,” I found five examples of New Deal policies that pushed up hourly wage rates in the United States.</span></p> <p class="p1"><span class="s1">The first, and most dramatic, occurred in July 1933, when President Franklin D. Roosevelt ordered an across-the-board 20 percent increase in hourly wages, despite high unemployment. In the previous four months, industrial production had soared by 57 percent. Unfortunately, the dramatic wage increase seems to have aborted the recovery, and industrial production would not reach July 1933 levels for another two years, after the Supreme Court ruled his wage-fixing policy unconstitutional in May 1935.</span></p> <p class="p1"><span class="s1">The other four wage shocks were not quite as dramatic, but in each case a promising recovery in industrial production was temporarily derailed. As a result, the United States did not recover from the Great Depression until the end of 1941, whereas recovery would have occurred years earlier if the growth had continued at the rapid rate that occurred during periods when wages were not being artificially inflated, such as the period right before July 1933 and right after May 1935.</span></p> <p class="p1"><span class="s1">There are some puzzling features associated with the push for a $15 an hour minimum wage in states like California. Many of the progressives that favor this initiative also oppose trade pacts with poor countries, worrying that apparel workers in Texas making $7.25 an hour can't possibly compete with Mexican workers making $3.50 an hour. That's not necessarily true if the differences reflect productivity. Ironically, it's a much better argument against an attempt to artificially boost the pay of apparel workers in California to $15 an hour, when workers with presumably comparable productivity in Texas could be paid $7.25 an hour.</span></p> <p class="p1"><span class="s1">It's also puzzling that labor unions in California have asked to be exempted from the minimum wage law. These groups were among the strongest proponents of this legislation. Why then, would they not want their own workers to benefit from this law? And even if they didn't think union workers needed the protection, perhaps because they could negotiate wages above $15 an hour without any help from the government, why bother to ask for an exemption? What harm could the law do?</span></p> <p class="p1"><span class="s1">Perhaps union leaders are aware of the impact of artificial attempts to push wages much higher during the 1930s.</span></p> http://mercatus.org/expert_commentary/curious-rise-push-15-wage Wed, 18 May 2016 08:57:48 -0400 Certificate-of-Need Laws and North Carolina: Rural Health Care, Medical Imaging, and Access http://mercatus.org/publication/certificate-need-laws-and-north-carolina-rural-health-care-medical-imaging-and-access <h5> Publication </h5> <p>Certificate-of-need (CON) programs are state laws that require government permission for healthcare providers to open or expand a practice or to invest in certain devices or technology. These programs have been justified on the basis of achieving several public policy goals, including controlling costs and increasing access to healthcare services in rural areas. Little work has been done, however, to measure what effects CON programs have on access and distribution of healthcare services. Two recent studies that examined the relationship between a state’s CON program and access to care found that these laws failed to achieve their stated goals.</p> <p>We highlight the results from these two studies and examine the effects that CON laws have on the distribution of hospitals and nonhospital providers, as well as the availability of medical imaging technology. Specifically, 36 states continue to enforce CON programs. Twenty-six of those states also regulate the entry and expansion of ambulatory surgical centers (ASCs), which are typically facilities that provide certain outpatient surgeries and diagnostic procedures. Additionally, 21 states restrict the acquisition of imaging equipment (i.e., MRI, CT, and PET scans).</p> <p>What effect do these regulations have on patients’ ability to receive care in North Carolina?</p> <p>CON laws protect established health care providers from competition, and this protection negatively affects North Carolinians. The data show that the presence of a CON program in North Carolina is associated with:</p> <ol> <li>Fewer rural hospitals and fewer hospitals overall;</li> <li>Fewer rural ASCs and fewer ASCs overall;</li> <li>Less availability of imaging services in CON states relative to non-CON states;&nbsp;</li> <li>Increases in the number of patients traveling out of state to obtain medical imaging relative to non-CON states.</li> </ol> <p>The following charts apply these findings to North Carolina, illustrating the empirical evidence regarding its CON program’s effect on rural health care, as well as its CON program’s effect on medical imaging services. The main finding is that CON laws create a formidable barrier to entry that restricts the available options for those seeking quality care in North Carolina. Moreover, for those policymakers looking to expand access to quality health care, repealing CON laws may be an easy place to start.</p> <p><b>The Impact of CON on Rural Health Care</b></p> <p>CON laws were supposed to protect access to health care, particularly in rural areas, by limiting how providers could enter and compete in particular markets. States justified regulating the entry and expansion of ASCs—which provide certain outpatient surgeries and procedures—based on the belief that, if not regulated, ASCs would choose to treat more profitable, less complicated, well-insured patients and leave hospitals to treat the less profitable, more complicated, and uninsured patients. The fear was that this disparity would put those hospitals operating with slim profit margins, especially in rural areas, in a precarious financial position and force some to close. Subsequent hospital closures would then leave rural populations with reduced access to important medical services.</p> <p>In reality, however, CON laws are associated with fewer overall hospitals and ASCs, as well as fewer rural hospitals and ASCs.</p> <p>The data show that the presence of a CON program is associated with 30 percent fewer total hospitals per capita. Moreover, the presence of an ASC-specific CON requirement is associated with 14 percent fewer total ASCs per capita. Figures 1 and 2 show what this might mean for North Carolina. In 2011, North Carolina had 132 hospitals and 85 ambulatory surgical centers. These charts show that the presence of a CON program in North Carolina means fewer new entrants, fewer providers, and lower overall access to care across North Carolina relative to non-CON states.</p> <p>Also, in direct contradiction to the stated justifications for these programs, the data show that CON laws are associated with fewer hospitals and ASCs in rural communities. Specifically, the presence of a CON program is associated with 30 percent fewer rural hospitals per 100,000 rural population, and the presence of an ASC-specific CON requirement is associated with 13 percent fewer rural ASCs per 100,000 rural population. In 2011, North Carolina had 56 rural hospitals and 11 rural ASCs. Figures 3 and 4 show that, while intended to protect access to care in rural communities, the presence of a CON program in North Carolina is associated with fewer providers.</p> <p><b>The Impact of CON on Medical Imaging Services</b></p> <p>CON requirements also effectively protect established hospitals from nonhospital providers, including independently practicing physicians, group practices, and others. The result of this protection is fewer overall imaging services in CON states relative to non-CON states.</p> <p>Specifically, the data show that the presence of CON is associated with a 34 percent decrease in MRI scans, a 44 percent decrease in CT scans, and a 65 percent decrease in PET scans. What does this mean for North Carolina? Using Medicare claims data, we can make some general estimates. Figure 5 shows that in 2013, North Carolina had almost 97,000 MRI claims, which means that there were an estimated 51,000 fewer MRI scans completed within the state given the presence of a CON requirement on MRI scans. Figures 6 and 7 show that for CT and PET, the presence of a CON requirement is associated with 61,000 fewer CT scans and 37 fewer PET scans.</p> <p>An additional and no less important factor in understanding a CON program’s effects on a state’s healthcare market is that the presence of a CON program has no statistically significant effect on imaging services provided by hospitals. This provides evidence that CON laws do protect hospitals from nonhospital competition, but they are also associated with a significant reduction in the number of imaging services provided across the state.</p> <p><b>The Impact of CON on Access to Care</b></p> <p>CON laws reduce the options available to patients across North Carolina. This is pushing patients to seek health care in other states, such as Georgia, South Carolina, Tennessee, or even Florida. These states have chosen not to regulate medical imagining as North Carolina does (Georgia does not regulate MRI or CT services, South Carolina and Tennessee do not regulate CT services, and Florida does not regulate MRI, CT, or PET services).</p> <p>For example, the presence of a CON program is associated with 3.93 percent more MRI scans, 3.52 percent more CT scans, and 8.13 percent more PET scans occurring out of state relative to states without CON. For North Carolina, this means that approximately 9,000 MRI scans, 19,000 CT scans, and 500 PET scans are happening outside of North Carolina annually.</p> <p><b>Conclusion</b></p> <p>CON laws decrease the supply and availability of healthcare services by limiting entry and competition. For North Carolina specifically, the data show that CON programs are associated with decreases in access and availability. This means there are fewer hospitals and ASCs across the state and in rural communities, imaging services are less available across the state, and an increasing number of patients are choosing to seek care outside of North Carolina.</p> <p>For policymakers in North Carolina, repealing CON laws would open the local healthcare market for new providers, allow for increased competition, and ultimately offer more options for quality care for North Carolinians.</p> <p>&nbsp;</p> <p>Figure 1. The Effect of CON on Hospitals in North Carolina</p><p><img src="http://mercatus.org/sites/default/files/Koopman-CON-Laws-Rural-North Carolina-MOP-charts-1.png" width="585" height="380" /></p> <p>Source: Authors’ calculations based on findings in Thomas Stratmann and Christopher Koopman, “Entry Regulation and Rural Health Care: Certificate-of-Need Laws, Ambulatory Surgical Centers, and Community Hospitals” (Mercatus Working Paper, Mercatus Center at George Mason University, Arlington, VA, February 2016).</p> <p>&nbsp;</p> <p>Figure 2. The Effect of CON on Ambulatory Surgical Centers in&nbsp;<span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">North Carolina</span></p> <p><img src="http://mercatus.org/sites/default/files/Koopman-CON-Laws-Rural-North Carolina-MOP-charts 2.png" width="585" height="354" /></p> <p>Source: Authors’ calculations based on findings in Stratmann and Koopman, “Entry Regulation and Rural Health Care.”</p> <p>&nbsp;</p> <p>Figure 3. The Effect of CON on Rural Hospitals in&nbsp;<span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">North Carolina</span></p> <p><img src="http://mercatus.org/sites/default/files/Koopman-CON-Laws-Rural-North Carolina-MOP-charts 3.png" width="585" height="386" /></p> <p>Source: Authors’ calculations based on findings in Stratmann and Koopman, “Entry Regulation and Rural Health Care.”</p> <p>&nbsp;</p> <p>Figure 4. The Effect of CON on Rural Ambulatory Surgical Centers in&nbsp;<span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">North Carolina</span></p> <p><img src="http://mercatus.org/sites/default/files/Koopman-CON-Laws-Rural-North Carolina-MOP-charts 4.png" width="585" height="372" /></p> <p>Source: Authors’ calculations based on findings in Stratmann and Koopman, “Entry Regulation and Rural Health Care.”</p> <p>&nbsp;</p> <p>Figure 5. The Effect of CON on Nonhospital MRI Claims for Medicare Beneficiaries in&nbsp;<span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">North Carolina</span></p> <p><img height="361" width="585" src="http://mercatus.org/sites/default/files/Koopman-CON-Laws-Rural-North Carolina-MOP-charts 5_0.png" /></p><p><span style="font-size: 12px;">Source: Authors’ calculations based on findings in Thomas Stratmann and Matthew C. Baker, “Are Certificate-of-Need Laws Barriers to Entry? How they Affect Access to MRI, CT, and PET Scans” (Mercatus Working Paper, Mercatus Center at George Mason University, Arlington, VA, January 2016).</span></p> <p>&nbsp;</p> <p>Figure 6.&nbsp;The Effect of CON on Nonhospital CT Claims for Medicare Beneficiaries in&nbsp;<span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">North Carolina</span></p> <p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><img style="font-size: 12px;" height="361" width="585" src="http://mercatus.org/sites/default/files/Koopman-CON-Laws-Rural-North Carolina-MOP-charts 6.png" /></p><div></div> <p>Source: Authors’ calculations based on findings in Stratmann and Baker, “Are Certificate-of-Need Laws Barriers to Entry?”</p> <p>&nbsp;</p> <p>Figure 7.&nbsp;The Effect of CON on Nonhospital PET Claims for Medicare Beneficiaries in&nbsp;<span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">North Carolina</span></p> <p><img height="354" width="585" src="http://mercatus.org/sites/default/files/Koopman-CON-Laws-Rural-North Carolina-MOP-charts 7_0.png" /></p> <p>Source: Authors’ calculations based on findings in Stratmann and Baker, “Are Certificate-of-Need Laws Barriers to Entry?”</p> http://mercatus.org/publication/certificate-need-laws-and-north-carolina-rural-health-care-medical-imaging-and-access Wed, 18 May 2016 09:48:32 -0400 A Federal Fintech Regime Should Be Opt-In http://mercatus.org/expert_commentary/federal-fintech-regime-should-be-opt <h5> Expert Commentary </h5> <p class="p1"><span class="s1">The question of whether the <a href="http://www.americanbanker.com/bankthink/fintech-regs-can-be-imperfect-as-long-as-theyre-consistent-1080323-1.html"><span class="s2">current regulatory environment</span></a> is adequate or unnecessarily impeding positive innovation is gaining importance as technology continues to allow nontraditional companies to provide financial services in new ways.</span></p> <p class="p1"><span class="s1">How federal policymakers respond to the emergence of fintech disruptors will have far-reaching consequences. Among the regulatory proposals are efforts to rationalize rules for fintech firms that have a national footprint. For example, one legislative proposal would grant technology companies <a href="http://www.americanbanker.com/news/law-regulation/preemption-for-fintechs-theres-a-bill-coming-1080000-1.html"><span class="s2">federal preemption</span></a> powers, so they could avoid having to comply with multiple state regimes. The Office of the Comptroller of the Currency is also considering a "limited-purpose" national bank charter for fintech firms.</span></p> <p class="p1"><span class="s1">But as these reform efforts gain steam, policymakers need to weigh the unique realities of this market. The array of financial services providers that use technology in some form is very diverse. There are large fintech insurgents getting the most attention in federal reform discussions that would benefit from preemption. But there are also smaller local nonbank providers — that use technology to varying degrees — that serve local needs and for which the state-level regulations were created. They stand to lose if federal fintech laws are imposed on them.</span></p> <p class="p1"><span class="s1">For example, the federal government has authority over interstate commerce, which has been defined very broadly, too broadly perhaps. Let's say a local brick-and-mortar lender, which only serves customer face to face decides to use the Internet — available in all 50 states — to expand its marketing efforts. If financial technology providers are suddenly bound by a federal framework, that lender could suddenly find itself subject to federal jurisdiction via the "Commerce Clause" since it is using a "channel" of interstate commerce. This could be even if it never seeks to do business across state lines.</span></p> <p class="p1"><span class="s1">Just as it doesn't make sense to force companies that serve a national market to comply with a patchwork of inconsistent state rules, it also isn't fair to ask businesses that only operates in a state or two to abandon the laws that work for them. Needlessly sweeping small local firms into a more comprehensive federal regime could also overburden federal regulatory, supervisory and enforcement resources that could be better used elsewhere.</span></p> <p class="p1"><span class="s1">Marketplace lenders, which use the Internet to make loans on a nationwide basis, need a federal framework. Storefront payday lenders that serve local areas but use the Internet to advertise or post information do not. Similarly, the PayPal's of the world could benefit from a federal solution, but not small money transmitters that operate a storefront to transmit money for people off the street.</span></p> <p class="p1"><span class="s1">Nationwide <a href="http://www.americanbanker.com/bankthink/redir.aspx?REF=iO4hk1s9Tp27WbAcJ9JKIum0nThBLVbGBGN_mpT7c15_4rMn4nnTCAFodHRwOi8vd3d3LmFtZXJpY2FuYmFua2VyLmNvbS9iYW5rdGhpbmsvZmludGVjaC1yZWdzLWNhbi1iZS1pbXBlcmZlY3QtYXMtbG9uZy1hcy10aGV5cmUtY29uc2lzdGVudC0xMDgwMzIzLTEuaHRtbA.."><span class="s2">consistency</span></a> is vital. However, the new rules should also avoid imposing a one-size-fits-all regime built for fintech firms with diverse business models and expansive geographic reach on companies with a limited scope. Balancing these goals is tricky but possible, provided policymakers and regulators exercise wisdom and humility — and construct a system that offers choice and scalability.</span></p> <p class="p1"><span class="s1">Any new federal regime should be optional. Sure, making rules optional may seem silly. After all, isn't an optional rule just a suggestion? But in this case, it's important to remember that the status quo isn't a lack of regulation. Already, there is a body of law that exists at the state level for many fintech transactions, such as nonbank lending or money transfers. While these state laws may be inconsistent, cumbersome and counterproductive for companies that use technology to operate on a national level, they may make sense for traditional brick-and-mortar establishments that only operate locally or regionally. Forcing companies that have only had to comply with one or two states' laws to change to a national standard may do more harm than good.</span></p> <p class="p1"><span class="s1">A choice between a federal regime and the existing state-by-state approach would also respect the ability of the citizens of a particular state to create rules in cases where the costs, benefits and all of the relevant parties are within that state, while preventing the cumulative burden of each state's actions from hampering national markets.</span></p> <p class="p1"><span class="s1">It would also continue to allow the states to innovate and compete to create the regulatory system that best serves the needs of entrepreneurs and consumers. It is even possible that the states could create sufficient uniformity that state-by-state regulation becomes attractive enough to compete with the federal system for national-level companies.</span></p> <p class="p1"><span class="s1">Crafting rules that give innovators tools to compete with incumbents on the national stage but exempt small-scale companies from a regulatory regime not suited for them will be challenge. But policymakers, motivated by the great benefits of such a system, can and must meet the challenge.</span></p> http://mercatus.org/expert_commentary/federal-fintech-regime-should-be-opt Mon, 16 May 2016 16:37:41 -0400 When Technology Makes Regulations Obsolete http://mercatus.org/expert_commentary/when-technology-makes-regulations-obsolete <h5> Expert Commentary </h5> <p class="p1"><span class="s1">It is difficult to overstate the seismic shifts that have occurred over the last decade in how people connect with one another. Walk down any street in America, and it’s hard to ignore the fact that smartphones have changed everything. But it isn’t just selfie sticks, Facebook posts, Snapchats and tweets that are radically changing our interaction.</span></p> <p class="p1"><span class="s1">The disruption that sharing economy platforms cause is a story as common as these platforms themselves, but there’s another story: Technology is solving problems traditionally assigned to regulators. And it is doing it better, faster, cheaper and more flexibly.</span></p> <p class="p1"><span class="s1">Take, for example, a common justification for many consumer protection regulations: information asymmetry. This is the idea that consumers lack sufficient information to protect themselves from the unskilled or the unscrupulous. It’s why we license stockbrokers, barbers, cosmetologists, and, sometimes, florists. It’s why we regulate taxis and hotels. In fact, it’s why nearly 30 percent of workers in America must get a license to work.</span></p> <p class="p1"><span class="s1">As technology continues to change our lives, however, it’s also eliminating the need for many regulations with the speed of a Tinder swipe.</span></p> <p class="p1"><span class="s1">For example, the five-star rating systems that have become a hallmark of the sharing economy allow consumers to give immediate feedback on drivers, TaskRabbiters, Airbnb hosts, and nearly anyone they interact with. And it is reciprocal. Those who make interactions easy receive better reviews, and those who are difficult to work with are flagged for others. The best drivers, passengers, hosts and tenants rise to the top. Yelp, OpenTable, Angie’s List and others extend this information sharing into nearly every facet of our modern economy. It’s hard to imagine any set of regulations producing equally rich real-time information to buyers, sellers and observers.</span></p> <p class="p1"><span class="s1">This is only the beginning. Soon, your phone will be a pocket-size chemistry lab: Using a device called Nima, people can test food for even tiny concentrations of gluten. This technology could be adapted to test for all manner of bacterial contaminants — including E. coli and salmonella. Despite all the current restaurant regulations, one in six Americans still get food-borne illnesses annually, but what if every patron could test each bite? Outbreaks such as the recent one at Chipotle would become things of the past. Other devices will let you assess the content — ingredient by ingredient — of your food. If users share information, statistical analysis designed for big data will reduce the inevitable uncertainty associated with individual lab tests.</span></p> <p class="p1"><span class="s1">The irony of this, however, is that regulations — which sought to solve the problems now fixed by technology — now prohibit that technology from reaching consumers. Half-century-old regulations, for example, keep adaptive headlight systems out of our cars and keep drivers and pedestrians in the dark. Obsolete rules are not only pointless, but can also be counterproductive. While European carmakers expand 21st century safety features, regulations in the United States limit our options to those developed 50 years ago.</span></p> <p class="p1"><span class="s1">Occasionally, however, new technology will pose a large enough leap forward to instigate true reform. For example, the Department of Transportation — while still maintaining its antiquated rules preventing adaptive headlights — is now creating an alternative process to allow the development of driverless cars to proceed uninhibited by a regulatory framework designed for a different era. While the department’s current efforts are noteworthy, wouldn’t it be better if technological advances were anticipated in every regulatory rule’s design?</span></p> <p class="p1"><span class="s1">The first step is trying to design self-destructing regulations that simply dissolve when the justifications for their existence do the same. But no regulatory agency wants to admit even partial obsolescence — just like no business owner wants to close shop or lay off an employee. Both, however, face the same reality — technology evolves.</span></p> <p class="p1"><span class="s1">This is the challenge: How do we design a system that removes the political considerations from a conversation that should be focused on consumer benefits? Technology will always outpace regulation, but it requires a different set of incentives, plus a dose of humility, for regulators to admit that a regulation’s day is done. If only there were an app for that.</span></p> http://mercatus.org/expert_commentary/when-technology-makes-regulations-obsolete Mon, 16 May 2016 16:33:09 -0400 Certificate-of-Need Laws and Michigan: Rural Health Care, Medical Imaging, and Access http://mercatus.org/publication/certificate-need-laws-and-michigan-rural-health-care-medical-imaging-and-access <h5> Publication </h5> <p>Certificate-of-need (CON) programs are state laws that require government permission for healthcare providers to open or expand a practice or to invest in certain devices or technology. These programs have been justified on the basis of achieving several public policy goals, including controlling costs and increasing access to healthcare services in rural areas. Little work has been done, however, to measure what effects CON programs have on access and distribution of healthcare services. Two recent studies that examined the relationship between a state’s CON program and access to care found that these laws failed to achieve their stated goals.</p> <p>We highlight the results from these two studies and examine the effects that CON laws have on the distribution of hospitals and nonhospital providers, as well as the availability of medical imaging technology. Specifically, 36 states continue to enforce CON programs. Twenty-six of those states also regulate the entry and expansion of ambulatory surgical centers (ASCs), which are typically facilities that provide certain outpatient surgeries and diagnostic procedures. Additionally, 21 states restrict the acquisition of imaging equipment (i.e., MRI, CT, and PET scans).</p> <p>What effect do these regulations have on patients’ ability to receive care in Michigan?</p> <p>CON laws protect established health care providers from competition, and this protection negatively affects Michiganders. The data show that the presence of a CON program in Michigan is associated with:</p> <ol> <li>Fewer rural hospitals and fewer hospitals overall;</li> <li>Fewer rural ASCs and fewer ASCs overall;</li> <li>Less availability of imaging services in CON states relative to non-CON states;&nbsp;</li> <li>Increases in the number of patients traveling out of state to obtain medical imaging relative to non-CON states.</li> </ol> <p>The following charts apply these findings to Michigan, illustrating the empirical evidence regarding its CON program’s effect on rural health care, as well as its CON program’s effect on medical imaging services. The main finding is that CON laws create a formidable barrier to entry that restricts the available options for those seeking quality care in Michigan. Moreover, for policymakers looking to expand access to quality health care, repealing CON laws may be an easy place to start.</p> <p><b>The Impact of CON on Rural Health Care</b></p> <p>CON laws were supposed to protect access to health care, particularly in rural areas, by limiting how providers could enter and compete in particular markets. States justified regulating the entry and expansion of ASCs—which provide certain outpatient surgeries and procedures—based on the belief that, if not regulated, ASCs would choose to treat more profitable, less complicated, well-insured patients and leave hospitals to treat the less profitable, more complicated, and uninsured patients. The fear was that this disparity would put those hospitals operating with slim profit margins, especially in rural areas, in a precarious financial position and force some to close. Subsequent hospital closures would then leave rural populations with reduced access to important medical services.</p> <p>In reality, however, CON laws are associated with fewer overall hospitals and ASCs, as well as fewer rural hospitals and ASCs.</p> <p>The data show that the presence of a CON program is associated with 30 percent fewer total hospitals per capita. Moreover, the presence of an ASC-specific CON requirement is associated with 14 percent fewer total ASCs per capita. Figures 1 and 2 show what this might mean for Michigan. In 2011, Michigan had 171 hospitals and 91 ambulatory surgical centers. These charts show that the presence of a CON program in Michigan means fewer new entrants, fewer providers, and lower overall access to care across Michigan relative to non-CON states.</p> <p>Also, in direct contradiction to the stated justifications for these programs, the data show that CON laws are associated with fewer hospitals and ASCs in rural communities. Specifically, the presence of a CON program is associated with 30 percent fewer rural hospitals per 100,000 rural population, and the presence of an ASC-specific CON requirement is associated with 13 percent fewer rural ASCs per 100,000 rural population. In 2011, Michigan had 58 rural hospitals and 6 rural ASCs. Figures 3 and 4 show that, while intended to protect access to care in rural communities, the presence of a CON program in Michigan is associated with fewer providers.</p> <p><b>The Impact of CON on Medical Imaging Services</b></p> <p>CON requirements also effectively protect established hospitals from nonhospital providers, including independently practicing physicians, group practices, and others. The result of this protection is fewer overall imaging services in CON states relative to non-CON states.</p> <p>Specifically, the data show that the presence of CON is associated with a 34 percent decrease in MRI scans, a 44 percent decrease in CT scans, and a 65 percent decrease in PET scans. What does this mean for Michigan? Using Medicare claims data, we can make some general estimates. Figure 5 shows that in 2013, Michigan had almost 45,000 MRI claims, which means that there were an estimated 23,000 fewer MRI scans completed within the state given the presence of a CON requirement on MRI scans. Figures 6 and 7 show that for CT and PET, the presence of a CON requirement is associated with 25,000 fewer CT scans and 260 fewer PET scans.</p> <p>An additional and no less important factor in understanding a CON program’s effects on a state’s healthcare market is that the presence of a CON program has no statistically significant effect on imaging services provided by hospitals. This provides evidence that CON laws do protect hospitals from nonhospital competition, but they are also associated with a significant reduction in the number of imaging services provided across the state.</p> <p><b>The Impact of CON on Access to Care</b></p> <p>CON laws reduce the options available to patients across Michigan. This is pushing Michigan patients to seek health care in other states, such as Ohio, Indiana, Illinois, or Wisconsin (these states do not regulate medical imaging via CON).</p> <p>For example, the presence of a CON program is associated with 3.93 percent more MRI scans, 3.52 percent more CT scans, and 8.13 percent more PET scans occurring out of state relative to states without CON. For Michigan, this means that approximately 7,000 MRI scans, 18,000 CT scans, and 800 PET scans are happening outside of Michigan annually.</p> <p><b>Conclusion</b></p> <p>CON laws decrease the supply and availability of healthcare services by limiting entry and competition. For Michigan specifically, the data show that CON programs are associated with decreases in access and availability. This means there are fewer hospitals and ASCs across the state and in rural communities, imaging services are less available across the state, and an increasing number of patients are choosing to seek care outside of Michigan.</p> <p>For policymakers in Michigan, repealing CON laws would open the local healthcare market for new providers, allow for increased competition, and ultimately offer more options for quality care for Michiganders.</p><p>&nbsp;</p><p>Figure 1. The Effect of CON on Hospitals in Michigan</p><p><img src="http://mercatus.org/sites/default/files/Koopman-CON-Laws-Rural-MI-MOP-charts-1.png" width="585" height="384" /></p><p>Source: Authors’ calculations based on findings in Thomas Stratmann and Christopher Koopman, “Entry Regulation and Rural Health Care: Certificate-of-Need Laws, Ambulatory Surgical Centers, and Community Hospitals” (Mercatus Working Paper, Mercatus Center at George Mason University, Arlington, VA, February 2016).</p><p>&nbsp;</p><p><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">Figure 2. The Effect of CON on Ambulatory Surgical Centers in Michigan</span></p><p><img height="356" width="585" src="http://mercatus.org/sites/default/files/Koopman-CON-Laws-Rural-MI-MOP-charts-2.png" /></p><p>Source: Authors’ calculations based on findings in Stratmann and Koopman, “Entry Regulation and Rural Health Care.”</p><p>&nbsp;</p><p><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">Figure 3. The Effect of CON on Rural Hospitals in Michigan</span></p><p><img height="383" width="585" src="http://mercatus.org/sites/default/files/Koopman-CON-Laws-Rural-MI-MOP-charts-3.png" /></p><p>Source: Authors’ calculations based on findings in Stratmann and Koopman, “Entry Regulation and Rural Health Care.”</p><p>&nbsp;</p><p><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">Figure 4. The Effect of CON on Rural Ambulatory Surgical Centers in Michigan</span></p><p><img height="356" width="585" src="http://mercatus.org/sites/default/files/Koopman-CON-Laws-Rural-MI-MOP-charts-4.png" /></p><p>Source: Authors’ calculations based on findings in Stratmann and Koopman, “Entry Regulation and Rural Health Care.”</p><p>&nbsp;</p><p><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">Figure 5. The Effect of CON on Nonhospital MRI Claims for Medicare Beneficiaries in Michigan</span></p><p><img src="http://mercatus.org/sites/default/files/Koopman-CON-Laws-Rural-MI-MOP-charts-5.png" width="585" height="367" /></p><p>Source: Authors’ calculations based on findings in Thomas Stratmann and Matthew C. Baker, “Are Certificate-of-Need Laws Barriers to Entry? How they Affect Access to MRI, CT, and PET Scans” (Mercatus Working Paper, Mercatus Center at George Mason University, Arlington, VA, January 2016).</p><p>&nbsp;</p><p><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">Figure 6.&nbsp;<span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">The Effect of CON on Nonhospital CT Claims for Medicare Beneficiaries in Michigan</span></span></p><p><img src="http://mercatus.org/sites/default/files/Koopman-CON-Laws-Rural-MI-MOP-charts-6.png" width="585" height="360" /></p><p>Source: Authors’ calculations based on findings in Stratmann and Baker, “Are Certificate-of-Need Laws Barriers to Entry?”</p><p>&nbsp;</p><p><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;"><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">Figure 7.&nbsp;<span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">The Effect of CON on Nonhospital PET Claims for Medicare Beneficiaries in Michigan</span></span></span></p><p><img src="http://mercatus.org/sites/default/files/Koopman-CON-Laws-Rural-MI-MOP-charts-7.png" width="585" height="350" /></p><p>Source: Authors’ calculations based on findings in Stratmann and Baker, “Are Certificate-of-Need Laws Barriers to Entry?”</p> http://mercatus.org/publication/certificate-need-laws-and-michigan-rural-health-care-medical-imaging-and-access Wed, 18 May 2016 09:50:45 -0400 Mercatus Center Annual Dinner http://mercatus.org/events/mercatus-center-annual-dinner-2016 contact@mercatus.org (Mercatus.org) <h5> Events </h5> <p>The Mercatus Center Annual Dinner brings together an audience of distinguished scholars, senior congressional and agency staff, policy professionals, and Mercatus supporters from the corporate and foundation world.</p><p><span style="font-size: 12px; background-color: white;">Registration and Cocktail Reception 6:30 p.m. - 7:30 p.m<br />Dinner and Remarks 7:30 p.m. - 9:00 p.m.&nbsp;</span></p><div style="position: absolute; left: -10000px; top: 0px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste">For questions or to RSVP, please contact Caitlyn Schmidt, at <a href="mailto:cschmidt@mercatus.gmu.edu">cschmidt@mercatus.gmu.edu</a> or (703) 993-4925. This event is by invitation only and your invitation is non-transferrable.</div><div style="position: absolute; left: -10000px; top: 0px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste">Seating is limited and we encourage you to RSVP early.&nbsp;</div><div style="position: absolute; left: -10000px; top: 0px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste">For purposes of congressional ethics rules, this dinner is a widely attended event.&nbsp;</div><p><span style="font-size: 12px; background-color: white;"><i>Dress for this event is business attire.&nbsp;<br /><br />For purposes of congressional ethics rules, this dinner is a widely attended event.&nbsp;</i></span></p><p><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal; font-weight: normal;">For questions or to RSVP, please contact Caitlyn Schmidt at <a href="mailto:cschmidt@mercatus.gmu.edu">cschmidt@mercatus.gmu.edu</a> or (703) 993-4925. This event is by invitation only and your invitation is non-transferrable. Seating is limited and we encourage you to RSVP early. &nbsp;</span></p><p><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal; font-weight: normal;"><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal; font-weight: normal; background-color: #ffffff;">View sponsorship opportunities&nbsp;</span><a href="http://mercatus.org/sites/default/files/Mercatus%20Center%20Annual%20Dinner%20Sponsorship%20Opportunities.pdf "><font color="#666699"><span style="background-color: #ffffff;">here</span></font><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal; font-weight: normal; background-color: #ffffff;">.</span></a></span></p> http://mercatus.org/events/mercatus-center-annual-dinner-2016 Mon, 23 May 2016 09:37:00 -0400 Judge Rules Administration Illegally Delivering Funds to Insurers Participating in ACA http://mercatus.org/expert_commentary/judge-rules-administration-illegally-delivering-funds-insurers-participating-aca <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Today, a federal judge sided with the House of Representatives in a major lawsuit challenging executive branch overreach, <a href="http://www.politico.com/story/2016/05/house-gop-wins-obamacare-lawsuit-223121"><span class="s2">ruling</span></a> that the Obama administration has been making illegal payments to health insurance companies participating in the Affordable Care Act (ACA) exchanges. U.S. District Court Judge Rosemary Collyer found that Congress never appropriated the billions of taxpayer dollars that the administration has delivered to insurers through the ACA’s cost sharing reduction (CSR) program. Today’s decision is a victory for the rule of law. It may also give insurers pause about their future participation in the exchanges.</span></p> <p class="p1"><span class="s1"><b>Illegal Payments through the ACA’s Cost Sharing Reduction Program</b></span></p> <p class="p1"><span class="s1">The issue raised by the House of Representatives lawsuit is that the executive branch cannot spend money without a congressional appropriation since Article I of the Constitution gives Congress the power of the purse. Today, Judge Collyer agreed, writing “Paying out [cost-sharing subsidies] without an appropriation violates the Constitution. Congress is the only source for such an appropriation, and no public money can be spent without one.”</span></p> <p class="p1"><span class="s1">In addition to the clear language of the ACA, <a href="http://www.politico.com/story/2016/05/house-gop-wins-obamacare-lawsuit-223121"><span class="s2">the House’s suit</span></a> argued that the White House was aware that there was not a permanent appropriation for this program when the administration asked Congress to fund the program in its fiscal year 2014 budget request. Congress did not appropriate the funding but the administration funded the program anyway. The non-partisan Congressional Research Service also studied the issue and <a href="https://energycommerce.house.gov/sites/republicans.energycommerce.house.gov/files/114/Letters/20150203HHS.pdf"><span class="s2">concluded</span></a> that there is not a permanent funding stream for the CSR payments and that “it appears…that funds for these payments are intended to be made…through annual appropriations.”</span></p> <p class="p1"><span class="s1">The size of the illegal payments is substantial. In 2014, these payments <a href="http://mercatus.org/sites/default/files/Blase-Significant-Insurer-Losses-WP-v2.pdf"><span class="s2">totaled</span></a> $2.8 billion. Given premium and enrollment increases in 2015, they will likely be about 50% higher, which means that the administration, through the CSR program, has unlawfully delivered upwards of $7 billion to insurers participating in the exchanges during the last two years.</span></p> <p class="p1"><span class="s1"><b>ACA Plans Unattractive Without Cost Sharing Reduction Payments</b></span></p> <p class="p1"><span class="s1">With its new mandates and regulations, the ACA significantly raised the price of individual market health insurance. In fact, individual health insurance spending per enrollee <a href="http://www.forbes.com/sites/theapothecary/2016/05/11/new-report-suggests-massive-insurer-losses-in-2015-on-obamacare-as-health-care-spending-explodes/#78fbd43c4a63"><span class="s2">increased</span></a> nearly 70% from 2013 to 2015—with most of this increase the result of the ACA’s mandates and regulations. In order to induce people to buy the more expensive coverage, the ACA contained two types of subsidies—premium tax credits and the CSR payments.</span></p> <p class="p1"><span class="s1">The premium tax credits reduce people’s out-of-pocket premiums and are generally available to people with income between 100% and 400% of the federal poverty level (FPL), which equals $11,880 this year. These credits were placed in the Internal Revenue Code. The Treasury Department cuts monthly checks directly to insurers on enrollees’ behalf. The credits phase out as income increases as about $1,000 of additional income decreases the amount of the credit by $150.</span></p> <p class="p1"><span class="s1">The CSR payments are additional subsidies for people with income below 250% of the FPL. These payments effectively make plans more generous by reducing deductibles, cost-sharing amounts, and out-of-pocket limits. In technical terms, the CSR payments increase the actuarial value of plans—the approximate percentage of an average person’s health care expenses that the plan covers. For people who select a silver plan (actuarial value of 70%), the CSR payments increase the plan’s actuarial value to 94% for those with income between 100% and 150% of the FPL, to 87% for those with income between 150% and 200% of the FPL, and to 73% for those with income between 200% and 250% of the FPL.</span></p> <p class="p1"><span class="s1">People below 200% of the FPL have been able to buy deeply discounted insurance (because of the premium tax credit) that carries relatively low deductibles and cost-sharing amounts (because of the illegal CSR payments). As I have written about <a href="http://mercatus.org/publication/downgrading-affordable-care-act-aca-unattractive-health-insurance-and-lower-enrollment"><span class="s2">before</span></a>, enrollment data reveals that the insurance available through the exchanges is not attractive to people who are relatively young and healthy and who earn more than about 200% of the FPL. Two-thirds of exchange enrollees have income below 200% of the FPL.</span></p> <p class="p1"><span class="s1">The unattractiveness of exchanges plans to people who do not quality for the&nbsp;large subsidies has proven surprising to many of the law’s proponents. For example, just last year, the Urban Institute <a href="http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000062-The-Implications-King-vs-Burwell.pdf"><span class="s2">projected</span></a> that 39% of enrollees would have income above 300% of the FPL. In fact, 2016 enrollment <a href="http://www.forbes.com/sites/theapothecary/2016/02/05/obamacares-very-disappointing-2016-enrollment-period/#6197784a4d6e"><span class="s2">data</span></a> show that only 12% of enrollees have income above this amount.</span></p> <p class="p1"><span class="s1">While today’s legal decision is a victory for the rule of law and checks executive branch overreach, it is also a reminder of one of the ACA’s central problems. People generally do not value the insurance mandated by the ACA unless they receive extremely large subsidies for it.</span></p> http://mercatus.org/expert_commentary/judge-rules-administration-illegally-delivering-funds-insurers-participating-aca Fri, 13 May 2016 14:24:37 -0400 Regulating FinTech: Creating a Regulatory Regime that Enables Innovation While Providing Appropriate Consumer Protection http://mercatus.org/publication/regulating-fintech-creating-regulatory-regime-enables-innovation-while-providing <h5> Publication </h5> <p>Dear Comptroller Curry:</p> <p>I appreciate the opportunity to respond to the Office of the Comptroller of the Currency’s (OCC) request for feedback on its recent report, Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective. The Mercatus Center at George Mason University is dedicated to bridging the gap between academic ideas and real-world problems and advancing knowledge about the effects of regulation on society. This comment, therefore, does not represent the views of any particular affected party or special interest group but is designed to assist the OCC as it considers how best to address the evolving landscape of technology-enabled financial services.&nbsp;</p> <p><b>Introduction</b></p> <p>The recent rise of “FinTech”—the use of technology to provide financial services in innovative ways—has the potential to significantly change how consumers access financial services. These changes are pressuring existing regulatory structures and norms, and they are creating concern that regulators will hamper needed modernization or fail to prevent a harmful destabilization of the financial system. I commend the OCC for acknowledging that its existing model for regulation could be improved to better match the needs of the current market and for providing an initial framework for how it plans to address innovation within its jurisdiction. I further applaud the OCC for inviting comment on its proposals. I respond to this invitation with a desire to see a regulatory environment that allows innovation to occur with minimal impediments and provides sufficient consumer protection. To that end, I suggest that the OCC should avoid undue regulations motivated by fear so as to avoid hampering innovation, and any regulations that are promulgated should be driven by the risk created, not the service provided. A centralized office representing the concerns of both consumers and innovators would be beneficial, as would increased coordination among regulators. Additionally, the OCC should consider whether the current regulatory structure for certain market actors who are currently primarily regulated at the state level has become obsolete.&nbsp;</p> <p><b>General Principles to Consider When Developing the OCC’s Framework for Innovation</b></p> <p>What follows are some general principles that the OCC should consider in developing its framework for innovation.&nbsp;</p><p><span style="font-size: 12px;"><i><b>1. Curtailing innovation via undue regulation motivated by fear is unwarranted.</b></i></span></p> <p>The OCC has stated that it aims to support “responsible innovation,” which seeks to “balance” innovation with “effective risk management and corporate governance.” While it is important to be mindful of potential risks posed by innovations, it is also important to consider the risks posed by impeding innovations that are driven by market demand, especially at those innovations’ early stages. As my colleague Adam Thierer points out, basing policy on the fear of hypothetical worst-case scenarios can impede innovation and prevent the full benefits of innovation from being achieved. The OCC has acknowledged this risk in its report’s discussion of steps the OCC can take to “support responsible innovation” and make the OCC’s culture more welcoming to innovation.&nbsp;</p> <p>The current period of innovation, driven by the application of technology to financial services in new ways, has the potential to significantly improve financial access, inclusion, and quality for consumers. Undue regulatory burdens will discourage entrepreneurs and firms from devoting resources to providing new services and products or utilizing technology to try to expand services to underserved markets. While the OCC should monitor developments closely, it also should avoid impairing innovation. Any foregone beneficial innovation will extract a cost on consumers, especially those who are most poorly served by the current system. At the forefront of the OCC’s considerations should be concern over the risk that consumers could be denied better, cheaper, more effective services than are currently available, simply because of unnecessary impediments to innovation.</p> <p>Likewise, while the OCC should be vigilant, it should also remember that innovation alone is generally not sufficient to create widespread harm. In discussing the need for “responsible innovation,” the OCC references the financial innovation linked to the financial crisis. While it is true that financial innovation played a role in creating the conditions for the crisis, the crisis was more fundamentally attributable to failures of both public and private sector actors to appreciate the change in market conditions and incentives created by regulatory policies and to respond to resulting risks. For example, the size of the US mortgage market at the end of 2007 was approximately $10 trillion, with subprime mortgages accounting for approximately $1.2 trillion. From 1998 to 2007, approximately $3.15 trillion worth of residential mortgage-backed securities (RMBS) were generated from prime and Alt-A mortgages, and approximately $2.44 trillion in RMBS were backed by subprime and junior lien mortgages, along with approximately $640 billion in mortgage-backed collateralized debt obligations. It is unlikely that the markets most impacted by financial innovation will pose a similar risk anytime soon. In fact, the recent market pullback from purchasing loans originated by alternative lenders may indicate that the market is attuned to risk and is operating in a disciplined manner, unlike the reckless activity leading up to the crisis. This is not to say that the OCC should not monitor market developments, or that no regulation is needed, but the risks presented by the current FinTech environment are not yet, and may never become, similar to those that caused the crisis.&nbsp;</p> <p>Additionally, while technological innovation could contribute to increased risks, it might also help mitigate risk for consumers. To the extent that innovation increases competition and encourages entry into the market, it can result in consumers enjoying more choice and being more resilient against economic shocks. For example, the fixed costs faced by a lender have a significant impact on the rates they can charge borrowers. Technology may permit lower overhead costs that could allow for lower prices and better terms to customers. Likewise, there is evidence that technology-enabled alternative lenders have helped fill the gap for small business credit in areas that have seen a comparatively high reduction in the number of banks.&nbsp;</p> <p>Innovation may also lower systemic risk by lowering market concentration, encouraging diversification, and improving transparency. As US Commodity Futures Trading Commission Commissioner J. Christopher Giancarlo recently said with regard to the potential benefits of distributed ledger technology (DLT) for regulators:&nbsp;</p> <p>If an accurate DLT record of all of Lehman’s transactions had been available in 2008, then Lehman’s prudential regulators could have used data mining tools, smart contracts and other analytical applications to recognize anomalies in trade activity, divergence in counterparty exposure (specifically those willing to trade with Lehman), widening credit spreads and disruptions in short term funding activity. Regulators could have reacted sooner to Lehman’s deteriorating creditworthiness.&nbsp;</p> <p>Commissioner’s Giancarlo’s comments highlight that innovations may be able to mitigate existing risks, making markets safer. However, this will only happen if entrepreneurs are not discouraged from spending the resources necessary to pursue new ideas. Unduly onerous regulation, or a regulatory environment that is needlessly paranoid about new ideas, can serve as a major deterrent, depriving consumers, and the market, of the benefits of innovation.</p> <p>Lastly, the OCC should consider the advantage that comes with waiting to regulate new technologies. If it exercises restraint to let new technologies develop it can always intervene later with appropriate regulation should risks emerge, but if it regulates excessively or prematurely it may hamper the development of beneficial innovation. Overregulation may raise the costs of entry into a market so high that new competitors cannot enter to compete with incumbents, or it may cause companies to distort otherwise effective business models to obtain technical compliance—at the cost of decreased efficiency and increased complexity. As such, the OCC should exercise caution and forbearance when deciding whether and how to regulate new technological innovations to allow the market to develop, and intervene aggressively if, and only if, it is absolutely necessary.&nbsp;</p><p><span style="font-size: 12px;"><i><b>2. Regulations should be driven by the risk created, not the service provided.</b></i></span></p> <p>One of the most important effects of technological innovation is its ability to meet old needs in new ways. Generally speaking, financial service providers—both incumbents and insurgents—do not create completely new products. Instead, they use technology to meet the existing needs of clients more efficiently. As such, new methods compete with old, which inevitably prompts concerns about regulatory arbitrage. While these concerns deserve attention to the extent that bona fide risks that merit a regulatory response “fall through the cracks,” when existing firms express these concerns, they may also be masking an effort to obtain a competitive advantage—or mitigate a competitive disadvantage—via regulation.&nbsp;</p> <p>Some have advocated imposing bank regulation on new innovators as a matter of both prudence and fairness. There may be cases where, because traditional banks and innovative providers present risks that are sufficiently similar,&nbsp; applying the same rules make sense. However, there is also a risk that identical regulation will be unnecessarily burdensome or will fail to address unique issues posed by the different methods and models. Adopting existing regulations where doing so is not justified could result not only result in unnecessary burden but also in suboptimal consumer protection.&nbsp;</p> <p>To avoid these mistakes when designing new regulations, the OCC should always consider the specific nature of the entity, market, and business model in question, rather than simply transposing existing regulations to new circumstances for which they may not be appropriate. For example, institutions that fund loans with federally insured deposits may present different risks than loans funded by invested risk capital, and regulation should reflect that difference. Likewise, financial institutions that provide a range of services may merit different regulation than institutions that offer more limited options because of their increased complexity, diversification, or structural significance. &nbsp; &nbsp;</p> <p>While regulations should be fair, fairness does not necessarily mean that competitors should be treated the same. Different models and methods may create different risks and should be fairly regulated based on those risks. While regulation should not unduly advantage or disadvantage any market participants, to the extent that a method, model, or innovation lowers risk, there should be a concomitant reduction in regulatory burden. This difference in regulatory burden may result in some firms or methods having an advantage because their way of doing business necessitates a lower compliance burden, but so long as this is a result of fair and properly scaled regulation, the ultimate benefit will accrue to the consumer.&nbsp;</p> <p><b>What Can the OCC Do to Foster Positive Innovation?</b></p> <p>Consistent with the general principles above, the OCC can take several steps—either by itself or in conjunction with market participants, other regulators, and Congress—to create an environment where innovation can thrive. While there is likely no “magic bullet,” regulatory clarity, consistency, transparency, and predictability will help market participants best serve the needs of consumers. To this end, the OCC should consider the following.</p><p><span style="font-size: 12px;"><i><b>1. The OCC should create a centralized office of innovation charged with internally representing the interests of innovators and consumers who benefit from innovation.&nbsp;</b></i></span></p> <p>As part of its framework, the OCC proposed the creation of a centralized office of innovation to help meet the needs of regulated entities seeking to innovate. Done properly, this would be a significant step in the right direction. Such an office could serve as an independent voice for innovators and the consumers who benefit from new products and services, and it could provide needed balance within the OCC. The OCC is charged with helping to protect the safety and soundness of the banking system. As such, it is expected that its culture, mindset, and assumptions would be risk-averse and conservative. An office of innovation would serve as an internal counterweight that could argue for the opportunities afforded by new technologies, methods, and competitors. Providing examiners with clear guidance would be a significant benefit to consumers, market participants, and the OCC.</p> <p>While an office of innovation could be beneficial, it is important that, if established, it does not become a gatekeeper that innovative companies must receive approval from to participate in the market. Such a development would not only frustrate the OCC’s salutary efforts to help encourage innovation and the increased quality and access to financial services that follow, but it could also make the environment for innovation worse than the status quo. Entry into the market should be as free and open as possible, and while an office that provides the OCC with internal expertise and advocacy for innovation would be an improvement, an office that stymies innovators with unnecessary bureaucracy would be a great loss to not only the OCC but also to the consumers it ultimately serves.</p> <p><span style="font-size: 12px;"><i><b>2. The OCC should lead efforts to bring more effective coordination among regulators.</b></i></span></p> <p>The OCC lists as one of its guiding principles for innovation “collaborate with other regulators.” This is to be applauded—but to be effective there must be tangible changes to how regulators work with each other. As a recent Government Accountability Office report makes clear, the US financial regulatory landscape is highly fractured, with many agencies responsible for overlapping jurisdictions. Given its openness to innovation and willingness to lead, the OCC can play a central role in creating structural changes to improve regulatory coordination and provide innovators with a more transparent and seamless regulatory environment.</p> <p>One option the OCC should consider is spearheading a multiagency web-based tool that would help inform innovators about what laws and regulatory agencies their products implicate. The Federal Trade Commission, in conjunction with the Office of the National Coordinator for Health Information Technology and the Department of Health and Human Services Office for Civil Rights, has launched a similar tool for health care apps. Innovators using the tool anonymously describe their application via a questionnaire and receive a list of laws that are likely applicable. The OCC, in conjunction with other financial regulators, could provide a similar tool that could at least provide entrepreneurs with a general idea of the legal issues they potentially face and the regulators that govern a particular product. While this will not replace competent legal counsel, it could help provide some clarity and transparency to innovators without significant cost, allowing them to better adapt their business models and expectations to reality.</p> <p>Another admittedly more difficult possibility is to establish a uniform and consolidated process for companies seeking no-action relief from financial regulators. Numerous regulators offer companies the opportunity to request insight on a proposed course of action via some form of no-action letter or comparable process. While no-action programs can provide welcome transparency for regulators and certainty to market participants—including firms who are informed by relief granted to other firms—these programs are limited to the jurisdiction of the single regulator. For transactions that cut across jurisdictions, innovators still must deal with uncertainty about how all of the relevant regulators will react. The federal government could provide a common point of entry program, where companies submit requests that are reviewed by all of the federal regulators, with the relevant ones engaging and either granting or denying no-action relief. This program could dramatically simplify and clarify the process and allow companies to adapt their plans to better conform to the law.&nbsp;</p><p><span style="font-size: 12px;"><i><b>3. The OCC should consider whether new charters for innovative companies that only offer a portion of traditional bank services are appropriate.</b></i></span></p> <p>Technology is enabling specialized insurgent competitors to compete with full service banks on a nationwide basis. These new firms may compete with banks in one product line (e.g., payments or lending) without adopting the full suite of services or taking federally insured deposits. While these companies may provide a better fit for some consumers, they often operate under a different and more diffuse regulatory regime. For example, even though marketplace lenders offer loans to customers nationwide, they are regulated and licensed on a state-by-state basis or partner with banks to take advantage of banks’ preemptive abilities. &nbsp;</p> <p>This two-tier system, where banks and nonbanks provide similar services but are regulated differently, has led to concerns of regulatory arbitrage from both sides. While the OCC expressed concern about the possibility of providing a federal license to firms that do not have “any of the safeguards or responsibilities that apply to banks and thrifts,” the appropriate question should not be “are the regulations the same as existing banks or thrifts?” but “are the regulations appropriate for the risks reasonably generated by this business model?”&nbsp;</p> <p>Current and future innovations will allow new competitors and incumbent banks to satisfy consumer needs in ways that may create less systemic and consumer risk. The regulatory environment should reflect that, but it currently does not. As a result, companies that could provide improved services have to deal with complex, fractured, and inconsistent rules that discourage these companies’ contributions. For example, Oportun, a nonbank lender that specializes in small-dollar loans to the Hispanic community, commented to the Department of the Treasury:&nbsp;</p> <p>The lack of consistency [among state laws] creates a significant challenge to any online marketplace lender’s ability to successfully scale its products and offer them to the full scope of traditionally underserved consumers that would benefit from having less expensive choices.</p> <p>A modernized and properly scaled regulatory regime that reflects the evolution of these specialized providers and gives them a fair and consistent set of rules will help them better serve the needs of their customers. Such a regime should not necessarily be mandatory since existing state rules may be appropriate for some providers who operate primarily within a small number of states. But an “opt-in” regime can provide a way for companies that operate or seek to operate on a national scale to have regulations that match the needs and risks of the market.&nbsp;</p> <p>The OCC should consider whether the special purpose bank charter is the appropriate vehicle to enable innovative companies to conduct business in a manner that best benefits the public. If so, the OCC should permit companies to obtain such charters, and it should structure regulations so they adequately protect the public without unnecessary hindrance to innovation or competition. To the extent the OCC believes that the special purpose banking charter is not an appropriate vehicle, it should identify and explain the reasons why so that the public and policymakers can understand the deficiencies and adopt an adequate solution.&nbsp; &nbsp;</p> <p><b>Conclusion</b></p> <p>The OCC should be commended for taking the lead on addressing the role of innovation in the provision of financial services. However, this leadership also entails a significant responsibility to set the appropriate tone, and adopt appropriate policies to avoid needlessly frustrating beneficial innovation. The truth is that at, ex ante, it will be difficult if not impossible to identify any particular product or service as “good” or “bad.” As such, while the OCC should remain vigilant, it should focus on establishing internal and external facing policies and structures that encourage innovation, provide regulatory transparency and certainty, and allow for regulation that addresses risks created and allows for a fair playing field.&nbsp;</p> <p>I thank you again for the opportunity to comment. If I can be of any further assistance as you consider these important issues, please do not hesitate to ask.</p> <p>Respectfully,</p> <p>Brian Knight<br /> Senior Research Fellow, Financial Markets Working Group<br /> Mercatus Center at George Mason University</p> http://mercatus.org/publication/regulating-fintech-creating-regulatory-regime-enables-innovation-while-providing Fri, 13 May 2016 10:07:05 -0400 Book Chapter: Beyond All or Nothing: Reforming Social Security Disability Insurance to Encourage Work and Wealth http://mercatus.org/publication/book-chapter-beyond-all-or-nothing-reforming-social-security-disability-insurance <h5> Publication </h5> <p class="p1"><i>This book was published by <span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal; font-weight: normal;">The McCrery-Pomeroy SSDI Solutions Initiative</span>, and includes a chapter by Mercatus scholars Jason Fichtner and Jason Seligman.</i></p><div>Order a copy of a book on <a href="http://www.amazon.com/SSDI-Solutions-Strengthen-Disability-Insurance/dp/1495809560">Amazon</a>.</div> http://mercatus.org/publication/book-chapter-beyond-all-or-nothing-reforming-social-security-disability-insurance Thu, 12 May 2016 14:18:43 -0400 Book Chapter: The Power of the Purse: Rethinking Runway Debt and a Broken Budgeting Process http://mercatus.org/publication/book-chapter-power-purse-rethinking-runway-debt-and-broken-budgeting-process <h5> Publication </h5> <p style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><i>This book was published by The Center for the Study of the Presidency &amp; Congress, and includes a chapter by Mercatus scholar Jason Fichtner.</i></p><p class="p1"><span class="s1">In 2000, CSPC developed "Triumphs and Tragedies&nbsp;of the Modern Presidency: 76 Case Studies in&nbsp;Presidential Leadership." This anthology of case&nbsp;studies was written by subject matter experts, and&nbsp;intended to provide the President-elect with&nbsp;lessons from his predecessors’ experiences in a&nbsp;wide array of issues. During the course of 2013,&nbsp;CSPC, with the help of subject matter experts,&nbsp;assembled case studies that focused on&nbsp;Congressional Leadership into "Triumphs &amp;&nbsp;Tragedies of the Modern Congress." The anthology&nbsp;will have four co-editors, James Kitfield who is a&nbsp;Senior Correspondent at the National Journal and&nbsp;CSPC Senior Fellow, Christopher P. Lu who is Deputy&nbsp;Secretary of the U.S. Department of Labor, Norman&nbsp;Ornstein who is a Resident Scholar at the American&nbsp;Enterprise Institute and a CSPC Senior fellow, and&nbsp;Max Angerholzer who is the President &amp; CEO at&nbsp;CSPC. "Triumphs &amp; Tragedies of the Modern&nbsp;Congress" is an anthology with 52 Case Studies, its&nbsp;intention is to&nbsp;allow for those interested to learn more about prior Members' experiences in Congress.</span></p><p class="p1"><span class="s1"><a href="http://www.abc-clio.com/ABC-CLIOCorporate/product.aspx?pc=A4370C">Order the book online.&nbsp;</a></span></p> http://mercatus.org/publication/book-chapter-power-purse-rethinking-runway-debt-and-broken-budgeting-process Thu, 12 May 2016 14:10:48 -0400 Book Chapter: Retirement Behavior and the Global Financial Crisis http://mercatus.org/publication/book-chapter-retirement-behavior-and-global-financial-crisis <h5> Publication </h5> <p style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><i>This book was published by the Pension Research Council, and includes a chapter by Mercatus scholar Jason Fichtner.</i></p><p style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><i></i><span style="font-size: 12px;">The worldwide financial crisis has wrought deep changes in capital and labor markets, old-age retirement systems, and household retirement and consumption patterns. Confidence has been shaken in both the traditional defined benefit and defined contribution plans.&nbsp;</span></p> <p class="p1"><span class="s1">Around the world, plan sponsors, fiduciaries, policymakers, and households have gained a new awareness of retirement risk. When pressed to reform post-crisis, many would recommend enhancing financial advice for plan participants, emphasizing flexibility and the positive effect of working another one or two years to make up for investment losses in the downturn. Adding to this is the continuing need for financial education, essential as the retirement system moves increasingly toward personal account pensions. Perhaps most important of all is the need for greater understanding of risk throughout the retirement security system, along with new approaches to re-engineering retirement pensions.</span></p> <p class="p1"><span class="s1">This volume explores the lessons to be learnt for retirement planning and long-term financial security in view of the massive shocks to stock markets, labour markets, and pension plans resulting from the financial crisis. It aims to rethink retirement in the new economic era, including the resilience of defined contribution plans and how defined benefit plans reacted to the financial crisis.</span></p> <p class="p3"><span class="s1">Order this book from <a href="https://global.oup.com/academic/product/reshaping-retirement-security-9780199660698?cc=us&amp;lang=en&amp;">Oxford University Press</a>.&nbsp;</span></p> http://mercatus.org/publication/book-chapter-retirement-behavior-and-global-financial-crisis Thu, 12 May 2016 14:11:45 -0400 Time for National Right to Try Legislation http://mercatus.org/expert_commentary/time-national-right-try-legislation <h5> Expert Commentary </h5> <p class="p1"><span class="s1">The goal of Right to Try laws is to allow patients with terminal diseases access to promising new treatments that are being safely used in clinical trials, but are not yet available on pharmacy shelves. The laws protect doctors and their institutions from the legal ramifications stemming from prescribing therapies that are not yet Food and Drug Administration (FDA)-approved to patients with no alternatives.</span></p> <p class="p3"><span class="s1">As Darcy Olsen, president of the Goldwater Institute — the driving force behind the movement — said at a Senate hearing in February 2016, "Patients have the right to die; why don't they have the right to live?" She is not alone; indeed, 28 states have passed Right to Try laws to date. If the laws are passed by the 10 additional states currently considering it, enough support for an amendment to the Constitution will have been garnered!</span></p> <p class="p1"><span class="s1">Under the current system, the FDA allows experimental drugs to be prescribed to patients under its <a href="http://www.fda.gov/NewsEvents/PublicHealthFocus/ExpandedAccessCompassionateUse/ucm431774.htm"><span class="s2">Expanded Access programs</span></a>, which include (1) single patient use — regular and emergency access; (2) intermediate-sized populations; and (3) widespread use. The latter two pathways require drug companies to submit formal protocols to the FDA as part of an Expanded Access IND (Investigational New Drug) or Treatment IND, respectively. For single patients, a Single Patient or Emergency IND must be submitted by either a company or, more typically, the patient's physician, which includes the protocol governing the drug's use. These are no small efforts; it is estimated that completing the paperwork requires <a href="http://www.raps.org/Regulatory-Focus/News/2015/02/04/21243/From-100-Hours-to-1-FDA-Dramatically-Simplifies-its-Compassionate-Use-Process/"><span class="s2">100 hours</span></a> from a physician. The existing process is a great deterrent to the submission of a compassionate use request; so, too, is the 30-day waiting period, which is imposed in order to provide the FDA time to review the requests. In the time required to complete the paperwork and to provide the FDA time to review the request, the patient may likely have succumbed to his or her disease.</span></p> <p class="p1"><span class="s1">In February 2015, the FDA released a guidance document outlining a <a href="http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM432717.pdf"><span class="s2">more streamlined process</span></a> requiring just 45 minutes of paperwork, but the 30-day delay remained. The agency has not implemented the new process, because expanding the number of compassionate use requests is anathema to the FDA, which has publicly expressed this sentiment. In order to deflect critics, the FDA points out that the overwhelming majority of requests are approved. Indeed, from 2010 to 2014, just 33 of 6,082 requests (0.5 percent) were rejected. For terminally ill patients, their families and physicians, it is not about the rate, but the number. And they want more.</span></p> <p class="p1"><span class="s1">Drug companies have to agree to provide drugs and to submit Expanded Access and Treatment INDs. Typically, companies are very hesitant to do so, especially early in the clinical development phase, because compassionate use exposes them to great risk. Considering that terminally ill patients have multiple grave medical conditions, the potential for unwanted toxicity is high. Moreover, these events are likely not to occur in patients for whom the drug is ultimately intended; that is, patients that match those entered on the clinical trials. Just the same, however, adverse events that occur in compassionate use settings must be reported in the approved labeling with the drug, and severe events can even trigger a suspension of all trials — an IND hold — as was <a href="http://www.fiercebiotech.com/r-d/fda-orders-cytrx-to-halt-patient-enrollment-after-death-of-a-cancer-patient"><span class="s2">experienced by CytRx</span></a>, a biotechnology company.</span></p> <p class="p1"><span class="s1">There are also costs to the companies for providing drugs: production, tracking dissemination and collecting information from its use, as well as legal liability. And there is little "upside" for the company, apart from the ethical satisfaction, because the results observed in compassionate use patients are not poolable with results from other studies due to the extreme heterogeneity of the patient population in the compassionate use settings. To an investor, compassionate use represents all risk for little, if any, gain. So, the companies need protection, as well, to participate in this labor of love.</span></p> <p class="p1"><span class="s1">Patients are tired of waiting for each state to pass laws that would likely be ignored by the federal government in the prosecution of doctors, families, hospitals and companies that abide by them. This would then require challenges in court, and ultimately, in the Supreme Court, resulting in a huge state-versus-federal-government battle. Patients don't want battles; rather, they want access to drugs that might help them, even with the knowledge that these compounds have not been fully tested and might actually hurt them.</span></p> <p class="p1"><span class="s1">Therefore, patients have voiced demand for a national Right to Try Law. Rep. <a href="http://thehill.com/people/matt-salmon"><span class="s2">Matt Salmon</span></a> (R-Ariz.) and Sen. <a href="http://thehill.com/people/ron-johnson"><span class="s2">Ron Johnson</span></a> (R-Wis.) are listening. On Tuesday, May 10, Salmon is conducting a House briefing on <a href="https://www.congress.gov/bill/114th-congress/house-bill/3012"><span class="s2">H.R. 3012, the Right to Try Act of 2015</span></a>, which "[b]ars the federal government from prohibiting or restricting the production, manufacture, distribution, prescribing, dispensing, possession, or use of an experimental drug, biological product or device that is: (1) intended to treat a patient who has been diagnosed with a terminal illness; and (2) authorized by, and in accordance with, state law."</span></p> <p class="p1"><span class="s1">Also on May 10, Johnson is announcing his Senate proposal, which addresses similar issues.</span></p> <p class="p1"><span class="s1">Right to Try isn't just for older patients dying of cancer — it is for patients, young and old, suffering from all manner of disease, who have no hope. For example, children suffering from cancer or from Duchenne Muscular Dystrophy (DMD) — which is a terminal diagnosis — as well as adults with Alzheimer's and Parkinson's diseases, or <a href="http://www.alsa.org/about-als/aam-2014/learn-about-als/lou-gehrig.html?referrer=https://www.google.com/"><span class="s2">Amyotrophic Lateral Sclerosis</span></a> (ALS), better known as Lou Gehrig's disease. Named in honor of the New York Yankee great, who was called the "Iron Horse" for his rugged durability, ALS robbed Gehrig of his strength and rendered him unable to tie his shoelaces, forcing him to retire.</span></p> <p class="p1"><span class="s1">In 2012, Matt Bellina, a U.S. Navy pilot, was diagnosed with ALS when he was 30 years old. There are no effective treatments for ALS, which is a relentlessly progressive disease that destroys neurons that control muscle movement. Only one drug, Rilutek, is approved; it slows the progression of the disease in some patients. But there are no drugs that reverse the course of ALS, which is universally fatal. <a href="http://bit.ly/mattbellinaALS"><span class="s2">In a magnificent video of Matt and his wife</span></a>, the two discuss their frustration with being unable to try experimental therapies. "The hardest thing for me in having a husband who is terminal would be growing old without him," said Matt's wife, mother of two young children. May is ALS Awareness Month, and Tuesday, May 10, is Virutal Advocacy Day.</span></p> <p class="p1"><span class="s1">Right to Try has the potential to help many patients who have no hope. Of course, patients would prefer that new drugs were formally approved outright by the FDA much more quickly, or under programs akin to <a href="http://www.ema.europa.eu/docs/en_GB/document_library/Scientific_guideline/2009/10/WC500004908.pdf"><span class="s2">conditional authorization</span></a> and <a href="http://www.ema.europa.eu/docs/en_GB/document_library/Regulatory_and_procedural_guideline/2009/10/WC500004883.pdf"><span class="s2">exceptional circumstances</span></a> that are available in Europe.</span></p> <p class="p1"><span class="s1">Right to Try is a cry for help in every sense. It is about time that patients' pleas are heard and real compassion shown.</span></p> http://mercatus.org/expert_commentary/time-national-right-try-legislation Thu, 12 May 2016 12:26:00 -0400