Perspective - April 2014 by OCPA

PERSPECTIVE April 2014

OKLAHOMA COUNCIL OF PUBLIC AFFAIRS

In Case You Missed It Oklahoma’s conservative political leaders have yet to cut taxes. Instead, they have raised taxes— and are poised to do so again.

There is no justifiable case to be made by a fiscal conservative for accepting the Obamacare Medicaid expansion.

tinyurl.com/l86neg4

Wisconsin Gov. Scott Walker has enacted $2 billion in tax cuts. tinyurl.com/ngk87uk

Special-needs students who were bullied in their public schools are now thriving at Trinity School in Oklahoma City.

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Writing in USA Today, the author of an OCPA report says universal preschool is not the answer. ocpathink.org/articles/2633

youtu.be/1VL7Y4fMz7Q

Saying no to a $54 million Obamacare grant may have saved Oklahoma millions of dollars. tinyurl.com/n2dtuj8

OCPA distinguished fellow Andrew Spiropoulos says “promoting someone to fourth grade who cannot read isn’t a kindness; it’s a cruel joke.”

More than $27 million in “school improvement grants” has been given to seven Oklahoma public schools since 2011—but only one school improved.

tinyurl.com/mteo6dg

Internet sales taxes hurt businesses and the states that pass them.

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PERSPECTIVE OCPA Staff

OCPA Trustees

Brandon Dutcher .................................................. Editor

Blake Arnold • Oklahoma City

Tom H. McCasland III • Duncan

Daryl Woodard • Tulsa

Robert D. Avery • Pawhuska

David McLaughlin • Enid

Daniel J. Zaloudek • Tulsa

Lee J. Baxter • Lawton

Lew Meibergen • Enid

Steve W. Beebe • Duncan

Ronald L. Mercer • Bethany

OCPA Researchers

G.T. Blankenship • Oklahoma City

Lloyd Noble II • Tulsa

John A. Brock • Tulsa

Mike O’Neal • Edmond

Clint Colbert .................................................... Office Manager

David R. Brown, M.D. • Oklahoma City

Bill Price • Oklahoma City

Brandon Dutcher ............................. Senior Vice President

Paul A. Cox • Oklahoma City

Patrick T. Rooney • Oklahoma City

Kelly Hughes ........................ Communications Associate

William Flanagan • Claremore

Melissa Sandefer • Norman

Dacia Harris .............................. Communications Director

Josephine Freede • Oklahoma City

Thomas Schroedter • Tulsa

Ann Felton Gilliland • Oklahoma City

Richard L. Sias • Oklahoma City

John T. Hanes • Oklahoma City

Greg Slavonic • Oklahoma City

Brittoni Bobek ...................................................................... Intern Brian Bush ..................................... Executive Vice President Michael Carnuccio .................................................... President

Rachel Hays .................................... Development Assistant Rebecca Hobbes ................................................................ Intern

Steven J. Anderson, MBA Research Fellow

Tina Dzurisin

Research Associate

Vance Fried, J.D. Research Fellow

Jayson Lusk

Samuel Roberts Noble Distinguished Fellow

Matt Mayer, J.D. Research Fellow

Ralph Harvey • Oklahoma City

John F. Snodgrass • Ardmore

J. Scott Moody, M.A.

Jennie Kleese ............... Development Events Manager

John A. Henry III • Oklahoma City

Charles M. Sublett • Tulsa

Karma Robinson ...... Vice President for Development

Henry F. Kane • Bartlesville

Robert Sullivan • Tulsa

Andrew C. Spiropoulos, J.D.

Jonathan Small .............................Vice President for Policy

Robert Kane • Tulsa

Lew Ward • Enid

Gene Love • Lawton

William E. Warnock, Jr. • Tulsa

Research Fellow

Milton Friedman Distinguished Fellow

Wendy P. Warcholik, Ph.D. Research Fellow

Perspective is published monthly by the Oklahoma Council of Public Affairs, Inc. , an independent public policy organization. OCPA formulates and promotes public policy research and analysis consistent with the principles of free enterprise and limited government. The views expressed in Perspective are those of the author, and should not be construed as representing any official position of OCPA or its trustees, researchers, or employees.

MEMBERS’ EVENT

Larry Arnn

John Bolton

COME MEET GEN. TOMMY FRANKS

William F. Buckley

George W. Bush

Special Guests: Sen. Jim Inhofe and Congressman Jim Bridenstine

April 17, 2014 • Tulsa Jeb Bush

Mitch Daniels

Dinesh D’Souza

For more information, contact Jennie Kleese at 405-602-1667

Artur Davis

Jim DeMint

J. Rufus Fears

Steve Forbes

John Fund

Newt Gringrich

David Horowitz Mike Huckabee Laura Ingraham

Frank Keating

Jeane Kirkpatrick Charles Krauthammer

Rich Lowry

Ed Meese

Russell Moore

Stephen Moore

Peggy Noonan

Marvin Olasky

Bill Owens

Sarah Palin

Star Parker

Michael Reagan

Paul Ryan

Joe Sobran

Thomas Stafford

John Stossel

Cal Thomas

Clarence Thomas

Scott Walker

John Walton

J.C. Watts

Allen West

Walter Williams

Art Laffer

Past OCPA speakers are pictured above.

Rich

By Patrick B. McGuigan

You had to be paying attention, or have it called to your attention. Thanks to a little bit of both, I’ve investigated another fascinating example of health care affordability in an increasingly insane health care market. It’s a blessing to share the good news. In mid-February, members of the Oklahoma County Budget Board approved, and then signed, a contract with Surgery Center of Oklahoma. In the long run, that one move may be regarded as among the most significant steps in county history to save taxpayers real money, in real time. At their February 20 meeting, the budget board approved a “provider services agreement” between the Surgery Center and the county. County Clerk Carolynn Caudill, a Republican, requested approval. Legality of the accord was approved by an assistant district attorney, who works for District Attorney David Prater, a Democrat. The county commissioners—two Republicans and one Democrat—joined Caudill and Treasurer Forrest “Butch” Freeman to ink the pact with Dr. Keith Smith, founder and lead physician at the Surgery Center. Sounds kind of technical. What’s the big deal? Relieving taxpayers and consumers from some of the accelerating costs of

PERSPECTIVE • April 2014

the Affordable Care Act (ACA) should be applauded. Oklahoma County’s health care plan for its employees is a self-financed plan, making county officials price-sensitive. The contract with the Surgery Center includes a lengthy list of the procedures its physicians perform, and what the charge for those services would be. As has been reported in many places—Perspective, Watchdog.org, Reason.tv, The Wall Street Journal, and many other news or “think tank” stories—the typical price at the Surgery Center runs from one-sixth to one-tenth of what it costs at mega-hospitals, including even those who include charity as part of their raison d’etre. Based on direct evidence, I project more than a quarter of a million dollars in cost savings for Oklahoma County taxpayers, in just the first quarter. I base this on what’s happened in just the first month of the county-Surgery Center hook-up. In late March, Caudill’s director of human resources, Jon Wilkerson, told me: “Oklahoma County has experienced tremendous results in only the first month of having a direct contract with the Surgery Center (benefits started in March). We added this as an optional benefit for covered employees, retirees, and eligible dependents on our self-insured health plan, and waived any out-of-pocket costs if they choose

to have their surgery at the Surgery Center. To date, there have been 10 surgeries scheduled. The total cost for these 10 surgeries will be $58,565.00. The combined cost of these surgeries at other facilities would have been well over $200,000.” The story gets even better—if keeping employees happy, healthy, and with more money in their pockets is one of the objectives of public-sector management. Wilkerson told me: “These 10 employees would also have had to pay out-of-pocket costs averaging $3,000 each. We have received very positive feedback from employees regarding the quality of care and the cost.” Although not an economist, I am a longtime student of government finance. Doing the math, Wilkerson shows direct savings of more than $140,000 for needed procedures. To drive the point home, here’s Wilkerson’s succinct summary (short enough for a billboard, in fact) of this story: “These savings will directly impact our self-funded health plan and ultimately the taxpayers of Oklahoma County. Quality care at a transparent price.” Some people believe county taxpayers are not the only ones who should be saving money. “The State of Oklahoma should immediately implement the same reforms implemented by Okla-

homa County regarding the purchase of surgical procedures in their employees’ health plan,” says Jonathan Small, OCPA’s vice president for policy. “In a fall 2013 legislative committee meeting, Dr. Smith testified that he tried to provide a rate of up to 30 percent less on some prices compared to the proposed contract from the state, but the staff of the state insurance plan declined because of pressure from medical providers who charge higher prices,” Small says. “If the state moved

in 1997. They have long attracted patients—health care consumers—with price transparency and quality. (One of the interesting things about the Surgery Center is that many of its cooperating physicians also perform procedures, at much higher prices, in the city area’s big hospitals.) It was only in 2009 that Smith and his colleagues focused on the astonishing power of up-front pricing in diverse areas of practice, including orthopedics, ear/nose/throat, general surgery, urol-

to such a plan and it saved 10 percent of total claims for state entities covered in the state insurance plan (approximately $197 million in 2012) this could save well over $20 million a year. This change should be implemented immediately; numerous private companies in Oklahoma are making such a change and saving hundreds of thousands a year in their health insurance plans.” Dr. Smith and his partner, Dr. Steve Lantier, established the Surgery Center

ogy, ophthalmology, foot and ankle, and reconstructive plastics. A simple decision—to post prices online, and stick to them—could transform the typical cost of many procedures. The Surgery Center has emerged as arguably the best-known practitioner of market-oriented billing that explicitly avoids entanglement with government regulators—whether through the ACA, Medicare, or Medicaid—as

well as the Big Hospitals and their allies in Big Insurance. The Surgery Center works with selfinsured companies, and now even with a local government, on a contract basis in which both parties retain independence. Agreements are voluntary and mutually beneficial. *** Turning away from the good news, here are sketches from not-so-random news stories in recent weeks. First, concerning health insurance premiums, the way sufficient income is generated to finance health insurance plans. In February, Jon Street of the Watchdog.org network reported on Vermont Gov. Peter Shumlin’s adamant insistence that health care costs were not rising in his state. But the Manhattan Institute, a free-market research group, predicts premiums in the state will increase 157 percent under Vermont Health Connect, the state-based exchange. Sarah Hurtubise, writing in The Daily Caller, reported on March 18 that health insurance premiums “have risen more after Obamacare than the average premium increases over the eight years before it became law.” The private health exchange eHealth reported those findings, including a premium increase of 39 percent in the

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individual market since February 2013. Hurtubise wrote, “Without a subsidy, the average individual premium is now $274 a month. Families have been hit even harder with an average increase of 56 percent over the same period— average premiums are now $663 per family, over $426 last year.” From 2005 to 2013, the average premium increase for individuals was 37 percent—it was 31 percent for families. Remember, in those instances where there is a subsidy, taxpayers pay the difference between the market price and the subsidized price. Last fall, a Forbes analysis estimated that, across 49 states, individual market premiums would increase an average of 41 percent. So, what about the long-term picture? With all these nightmare scenarios, where will we be in a decade or two? One place to look is Massachusetts, which embarked many years ago on an effort to create a subsidized market that would be more humane and affordable. It was a classic state-level experiment, albeit on the more liberal end of the economic scale. Actual events, as opposed to intentions, in Massachusetts, are a precursor to monopoly, unless conditions change. Reports analyzed since 2008 for the Massachusetts Association of Health Plans have found recurring factors that are accelerating health care system costs, including delivery. The Lowell Sun reported in late March that “high-price settings” do not necessarily “correlate to a greater quality of care.” The Sun reported that provider pricing, and its interplay with “market clout in price negotiations with insurers,” has emerged as a leading concern. Again, these are indicators of monopoly, or at least concentration of more and more power in fewer and fewer hands. Such things can certainly happen in government, but it’s not unheard of for some markets to become concentrated in fewer and fewer hands, especially when government is complicit in that process.

PERSPECTIVE • April 2014

John Freedman, a physician who conducted the Bay State’s recent analyses, said “The large provider organizations are not only large in terms of volume but because they tend to be market dominant they demand higher prices.” Read that last sentence again, slowly, my friends. It is a hint of the future—unless it’s not. The alternative is really not that complicated, and it is not impossible to mimic in states other than Oklahoma. The typical bill from the Surgery Center of Oklahoma is one page long, compared to three to four pages at a typical hospital laced with the distorting mandates of government regulations and insurance companies that rely on ties with government to flourish. This bears repeating: In provision of frequently provided procedures, a variety of incentives are built into government-regulated “private” care that drive up prices. These include mark-ups on material and prescriptions, duplicative

practices, government price-setting of “floors,” and consumer ignorance of pricing. Information, not ignorance, is the name of the game at the Surgery Center. The future will have at least some hope if more actors in the market— individuals and companies, governments, and insurers—choose to act in ways that are sensitive to market discipline, not market concentration. When I first wrote about the Surgery Center two years ago, I praised Dr. Smith and his colleagues for choosing to “light a candle, rather than curse the darkness.” As things now stand, every month Dr. Smith and his colleagues still draw scores of patients from abroad and from across the United States. Copycats have opened along the Canadian border, so the Surgery Center doesn’t see as many Canadian medical tourists as it did two or three years ago. Time to light more candles.

Patrick McGuigan (M.A. in history, Oklahoma State University) is editor of CapitolBeatOK.com. He is the editor of seven books on legal policy, and the author or co-author of three books, including Ninth Justice: The Fight for Bork. Last year the Washington Post political blog, “The Fix,” designated McGuigan one of the three best political reporters in Oklahoma.

‘Essentially No Link’ Between State Education Spending and Student Performance By Brandon Dutcher

Even as various school-employee labor unions and other members of the public-education community converged on the state capitol March 31 for an “education funding rally,” a new study released two weeks prior suggests that “there is essentially no link” between state education spending and student performance. Using a time-series regression approach, Cato Institute scholar Andrew J. Coulson “adjusts state SAT score averages for factors such as participation rate and student demographics, which are known to affect outcomes, then validates the results against recent state-level National Assessment of Educational Progress (NAEP) test scores. This produces continuous, state-representative estimated SAT score trends reaching back to 1972. The present paper charts these trends against both inflation-adjusted per pupil

spending and the raw, unadjusted SAT results, providing an unprecedented perspective on American education inputs and outcomes over the past 40 years.” Coulson gives state-by-state results, but he says “the overall picture can be summarized in a single value: 0.075. That is the correlation between the spending and academic performance changes of the past 40 years, for all 50 states. Correlations are measured on a scale from 0 to 1, where 0 represents absolutely no correlation between two data series and 1 represents a perfect correlation. Anything below 0.3 or 0.4 is considered a weak correlation. The 0.075 figure reported here suggests that there is essentially no link between state education spending (which has exploded) and the performance of students at the end of high school (which has generally stagnated or declined).”

www.ocpathink.org

Parental Choice Is Accountability By Joseph L. Bast, Jason Bedrick, Lindsey Burke, Andrew J. Coulson, Robert C. Enlow, Kara Kerwin, and Herbert J. Walberg

Americans face a choice between two paths that will guide education in this nation for generations: selfgovernment and central planning. Which we choose will depend in large measure on how well we understand accountability. To some, accountability means government-imposed standards and testing, like the Common Core State Standards, which advocates believe will ensure that every child receives at least a minimally acceptable education. Although wellintentioned, their faith is misplaced and their prescription is inimical to the most promising development in American education: parental choice. True accountability comes not from top-down regulations but from parents financially empowered to exit schools that fail to meet their child’s needs. Parental choice, coupled with freedom for educators, creates the incentives and opportunities that spur quality. The compelled conformity fostered by centralized standards and tests stifles the very diversity that gives consumer choice its value.

PERSPECTIVE • April 2014

Most low- and middle-income families today have no viable alternative to their zoned public school. Absent any alternatives, the school is not directly accountable to them, so policymakers try to approximate real accountability through onesize-fits-all regulations. But distant bureaucrats cannot know the individual needs and preferences of every family. Nor do they share the local knowledge enjoyed by educators. Nevertheless, some policymakers and education experts have come to view topdown regulations as synonymous with “accountability” rather than as a pale imitation. They therefore mistakenly view parent-driven choice programs as “unaccountable,” confusing regulation with accountability. In recent days, some have even argued that states should impose the Common Core tests on all school-choice programs. Yet there is no compelling body of evidence that top-down regulation improves student outcomes in schools that are already directly accountable to parents. By contrast, there is much

evidence that direct accountability to parents yields results superior to those that are defined by bureaucratic red tape. A global review of the scientific research comparing different types of education systems reveals that the most market-like, least regulated systems consistently outperform more centralized and regulated ones—by a ratio of 15 statistically significant findings to one, across seven different measures of educational outcomes. In the United States alone, eleven of twelve randomized-controlled trials—the gold standard of socialscience research—have found that school-choice programs improve student outcomes, from academic achievement to graduation rates and college matriculation. Schoolchoice students outperform their public peers even though public schools, which are already heavily regulated, generally spend more than twice as much per pupil. Moreover, as the education marketplace grows, all students benefit. In 22 of 23 empirical studies, academic performance of public-

REGULA TION IS

NOT

ACCOUN TABILI TY.

school students improved in response to increased competition. The only study to show no statistically significant difference was the voucher program in Washington, D.C., where public schools were intentionally shielded from competition. The gains from competition in the other studies tended to be modest, but so were the sizes of the choice programs. As in other sectors, greater competition will bring greater gains. As educational choice expands, parents and schools will adapt. They already do. Many independent schools voluntarily measure their students’ performance with one of numerous nationally normreferenced tests and publish the results to attract parents. Meanwhile, most parents talk with one another, visit schools, and otherwise do their homework before selecting a school—and even the least active choosers benefit from the decisions of their more active and informed peers. Educational choice has also been repeatedly shown to produce far higher levels of parental satisfac-

tion than does centrally planned schooling. That’s because choice empowers parents to find the best education for their children, and test scores are not their only consideration. Research shows that many parents care more about safety and discipline, graduation and college acceptance rates, and moral values. Dictating uniform standards and tests threatens those other valued features by redirecting educators’ focus from serving families to catering to bureaucrats. It also contributes to a culture of “teaching to the test” that has already resulted in several large-scale public-school cheating scandals. Children are not interchangeable widgets that can be beneficially fed through their education on the same conveyor belt. Even within a single family, children often learn different subjects at different speeds. Myriad new options are arising in response to that reality that allow students to learn at their own pace in every subject, helping all to fulfill their individual potential—the very antithesis of uniform government mandates.

Joseph Bast is president and CEO of the Heartland Institute. Jason Bedrick is a policy analyst with the Cato Institute’s Center for Educational Freedom. Lindsey M. Burke is the Will Skillman Fellow in Education Policy at the Heritage Foundation. Andrew J. Coulson is director of the Cato Institute’s Center for Educational Freedom. Robert Enlow is president and CEO of the Friedman Foundation for Educational Choice. Kara Kerwin is president of the Center for Education Reform. Herbert J. Walberg is a distinguished visiting fellow at the Hoover Institution, Stanford University. This article has numerous cosigners (including OCPA’s Brandon Dutcher), and is reprinted here with permission of the authors.

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Family Intactness, Parental Participation, and Student Performance By Wendy P. Warcholik

When President Obama was interviewed by Bill O’Reilly of FOX News, O’Reilly made the statement that poverty is driven by the dissolution of the American family. He specifically asked the president, “Why isn’t there a campaign by you and the First Lady to address this very explicitly?” President Obama pushed back that he has indeed mentioned the importance of families in at least 10 speeches since becoming president. As a black, married man with children, the president has a tremendous opportunity to change the dialogue about our cultural ills. Instead of just lobbying for more spending for broadband Internet in schools or universal pre-K to help America’s children, the president should heed O’Reilly’s advice and advance a national dialogue about the importance of marriage. According to a joint project between Princeton University and The Brookings Institution called Fragile Families, in 2006, 75 percent of black children were born to unmarried mothers. Black fathers are missing in action, and this absence is one of the greatest drivers of the failure of inner-city schools to effectively educate the children in poor neighborhoods. Bill Cosby and the Democratic mayor of Philadelphia, Michael Nutter, are among the successful black males that have publicly addressed the problem. Research by Robert Rector of the Heritage Foundation shows that if the inactive father becomes a participant in the household,

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80 percent of those families in poverty would no longer be impoverished. Children bring their personal struggles and frustrations to school with them. When you fill a room with angry, frustrated children, effective learning and comprehension are significantly impaired. Journalists at the Tulsa World recently wrote a series of articles addressing the challenges teachers and children face in one of Tulsa’s failing public schools. Oklahoma’s A-F grading system identified 36 schools in the district to receive an F in 2013, and this series of articles examined one of these failing schools: Hawthorne Elementary School. Tulsa Public Schools has 36 “F” schools and 44 schools where more than 90 percent of students qualify for free or reduced-rate school meals. At Hawthorne Elementary, 94 percent of students qualify for these programs. According to one of the articles, “Teachers, low-wage support staff, and PTA members spend money out of their own pockets to buy warm coats, gloves, socks, underwear, and even toiletries for kids in need.” Coupled with the poverty in this neighborhood is a high incidence of crime and violence. For the children at Hawthorne, this means that many of them have relatives who have been violently assaulted or killed. Many have parents that have been arrested and have been or currently are in jail. A preK teacher at Hawthorne said that in a reading of “The Three Little Pigs”—in

which a pig died when the wolf ate him, and the wolf was caught and sent to jail—one child said, “My dad’s in jail for shooting someone.” Another student said, “My dad is dead.” Recently, faculty members recognized a man on Tulsa’s “Most Wanted” list as the father of one of their students. According to Hawthorne’s principal, the most horrifying thing that she has dealt with is a fifth grade boy who was prostituting himself to men to bring extra money home for his family of 10 children that lives in a two-bedroom apartment. Hawthorne’s principal remarks about the boy’s family, “All of the kids in the family have special needs and serious behavior issues. Three of them were sent to foster homes or group homes because of behavior problems.” Former Heritage Foundation scholar Patrick Fagan, now of the Family Research Council, testified last year in House Speaker T.W. Shannon’s interim study on “how to reform Oklahoma means-tested welfare programs so as to improve the health of the nuclear family.” In his testimony, Fagan reported on household income, which is an important proxy for economic activity and human capital formation. Human capital formation is driven by the labor activity of the head of the household, and our future economic growth and human capital are determined by America’s children. Dr. Fagan stated that, of those households with children, it is married intact

GPA English/Math by Family Structure Source: Adolescent Health Survey, Wave I. Adolescents grade 7-‐12.

2.90

Average GPA English/Math Combined

2.9 2.80

2.70

2.6 2.60

2.6

2.5

2.50

2.40

2.30 INTACT

households which have the highest median income. The lowest median income is in those households where marriage has never occurred. With regard to the relationship between marriage and educational outcomes, children from intact families have higher GPAs in English and math, as you can see in the nearby chart. Further, Dr. Fagan finds in his “Index of Family Belonging and Rejection” that family intactness is very influential on high school graduation rates. It influences high school graduation rates more than does the fraction of adult college graduates in an area. Further, he finds that family intactness and the fraction of adult high school graduates in an area have similar beneficial influences on prime-age male employment rates. In the series of Tulsa World articles, teachers do stress that the significant lack of funds available for curriculum obviously impairs the children’s ability to succeed. However, their greatest challenge in trying to create a hospitable learning environment is the children’s behavior issues. The lack of concern and involvement from Hawthorne

STEP

COHABIT (BOTH NATURAL)

COHABIT (ONE NATURAL)

DIVORCED

parents is overwhelming. Hawthorne’s counselor recently visited the homes of parents of 15 students because they “weren’t responding to repeated phone calls over the course of three weeks about the possibility of their children having special education needs.” Chronic absenteeism is common, with many parents not even assuring their kids get to school. According to one article, which mentions a fifth-grader who is student body president and two second-graders with perfect attendance who were recently named to the honor roll, “The active PTA members’ children are proof positive that kids can not only succeed but can flourish academically, even in an F school.” School faculty’s focus on incorporating children’s family into the curriculum on a regular basis is crucial to

NEVER MARRIED

marked academic improvement. Hawthorne held its first Donut with Dads event and had 120 dads attend. In its first-ever honor roll assembly, teachers were elated at the 100-plus in attendance. Given that the school hadn’t engaged parents before this to publicly share in the success of their children is disappointing, but the fact that the faculty recognizes the importance of this involvement is the first step toward improvement. Increases in per pupil spending will never affect the academic outcomes of students like the encouragement and active participation of their parents in their learning. Hawthorne’s new principal seems to recognize the importance of engaging parents. We can only hope that her colleagues in the 35 other “F” schools take notice and phone her for advice.

OCPA research fellow Wendy P. Warcholik (Ph.D., George Mason University) formerly served as an economist at the U.S. Department of Commerce’s Bureau of Economic Analysis, and was the chief forecasting economist for the Commonwealth of Virginia’s Department of Medical Assistance Services. She is a co-creator (with J. Scott Moody) of the Tax Foundation’s popular “State Business Tax Climate Index.” She blogs at PhDMomDropout.com.

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Obamacare Medicaid Expansion Is a Bad Idea By Michael D. Tanner

Even as those parts of Obamacare that have not yet been postponed stagger toward the finish line, one part of the president’s health-care law continues to build momentum. As of this writing, 25 states and the District of Columbia have chosen to expand their Medicaid programs in accordance with Obamacare. The Obama administration claims that nearly 7 million Americans have been added to the Medicaid rolls as a result of the Affordable Care Act, but those numbers are wildly inflated. The Washington Post’s fact checker has given the claim “four Pinocchios,” and firms that track the data, such as Avalere, suggest that the real number is somewhere between 1.1 and 1.8 million at last count. The rest of the enrollments are simply the normal turnover and reenrollments that occur in the program. Yet the expansion could get a lot bigger over the next few months if several additional states decide to expand their programs. Supporters of expanding the program, along with much of the media, portray opposition to the idea as essentially political. It’s about governors and state legislators who simply oppose Obamacare and refuse to do anything that would help implement it, they contend. No doubt there’s a certain amount of truth to this claim. But expanding Medicaid also raises serious policy concerns: It would increase government dependency, cost state taxpayers millions if not billions of dollars in new taxes, squeeze other state services, and do little to improve health care for the poor. A close examination of the claims made by proponents of Medicaid expansion shows that they carry very little weight. For example:

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Claim 1: Medicaid expansion will save lives. In Florida, Republican-cum-independent-cum-Democratic gubernatorial candidate Charlie Crist has been running ads claiming that six Floridians die every day because Republican governor Rick Scott has not succeeded in expanding Medicaid. (Scott actually tried to expand the program, but the legislature rejected his plan, and he has since backed away from it.) But Crist’s numbers are based on studies with deeply flawed and discredited methodologies. A gold-standard study in Oregon, with similar individuals randomly assigned to Medicaid or uninsured populations, concluded that “Medicaid coverage generated no significant improvements in measured physical-health outcomes.” Other studies show that, in some cases, Medicaid patients actually wait longer and receive worse care than the uninsured. Claim 2: Medicaid expansion saves money by reducing uncompensated care and emergency-room visits. Among the special-interest groups pushing hardest for Medicaid expansion are hos-

pitals. They made a devil’s bargain with the Obama administration to support Obamacare despite its cuts in hospital payments, in the hopes that new Medicaid enrollees (as well as subsidized exchange customers) would reduce the number of patients showing up without insurance and using emergency rooms for primary care. Unfortunately, it doesn’t. The Oregon study cited above found that Medicaid enrollment actually increased ER use by as much as 40 percent, meaning annual emergency-room spending increased by roughly $120 per covered individual. For a state like Virginia, for instance, that would mean almost $100 million in additional ER costs per year. Claim 3: Medicaid expansion doesn’t cost states anything. Under Obamacare, the federal government would pay the entire cost of Medicaid-expansion enrollees through 2016. After that, the federal share would gradually decline, but it is still supposed to pick up at least 90 percent of the cost for those made newly eligible in perpetuity. This is a much higher

Expanding Medicaid would increase government dependency, squeeze other state services, and do little to improve health care for the poor.

Pictured here is a new billboard on I-235 in Oklahoma City. The billboard is the handiwork of MoveOn.org, an advocacy group funded in part by the liberal billionaire (and Obama donor) George Soros. MoveOn.org is but one of the many left-liberal organizations and individuals supporting the president’s health law. Others include: the National Education Association, the Service Employees International Union and several other labor unions, the Economic Policy Institute, the Center for American Progress, Planned Parenthood, Michael Moore, the Oklahoma Policy Institute, the National Abortion Rights Action League, the Human Rights Campaign (which advocates for lesbian, gay, bisexual and transgender rights), the National Organization for Women, People for the American Way, The Nation, People’s World, the American Civil Liberties Union, the American Federation of Teachers (AFL-CIO), state Sen. Al McAffrey, state Rep. Mike Brown, several members of the Religious Left, and Oklahoma Democratic Party chairman Wallace Collins.

share of costs than states receive under traditional Medicaid. Many governors thus see this as virtually free money. There are at least three big problems with this notion. First, even though the feds will cover 90 percent of the new costs, 10 percent of this really big number is still a really big number. Medicaid is already the largest single line item in most state budgets, so the expansion will further crowd out other priorities such as education, roads, and prisons. Second, the increased federal funding applies only to those added to Medicaid as a result of expanding eligibility to everyone earning less than 138 percent of the poverty level. This ignores a second category of recipients more likely to be added to the Medicaid rolls if this expansion moves forward, thanks to what the Robert Wood Johnson Foundation has dubbed “the woodwork effect.” When states market the expansion, thousands of state residents will end up enrolling who would have been eligible under traditional Medicaid. Some will be uninsured, but others will either be paying for insurance themselves or receiving it from their employer. This group is not eligible for the more generous federal matching funds, meaning state taxpayers must pay as much as half of their costs. Claim 4: Finally, any estimate assumes

the federal government will keep its side of the bargain when it comes to future funding. But with Washington facing a debt crisis, Medicaid cuts will almost certainly be on the table in the coming years. Indeed, in budget negotiations during the 2012 fiscal-cliff talks, the Obama administration reportedly offered to cut the 90 percent funding promise for Medicaid expansion to a lower “blended rate formula.” While the administration has backed off that offer, it shows how tenuous federal funding promises really are. The “private option” is a conservative way to expand Medicaid. Some states have tried to find a compromise on Medicaid expansion by using the dedicated Medicaid funds to allow recipients to buy into private health plans. Pioneered by Arkansas, where defections by Republican legislators recently allowed the experiment to move forward, this so-called private option attempts to address some of the worst aspects of Medicaid’s centralized “command and control” struc-

ture. Because it incorporates private insurers and the rhetoric of “markets” and “choice,” some conservatives might be fooled into believing that the private option represents a real step toward Medicaid reform. In reality, however, the federal government continues to dictate many aspects of the insurance plans, including costsharing and benefits. The “private option” still lacks the price competition and innovation that characterize real markets. Nor is the private option likely to save states money. Indeed, evidence suggests it may end up being more expensive than traditional Medicaid. It’s really little more than camouflage for an expansion of the flawed federal program. It will be ironic indeed if the only aspect of Obamacare to ultimately survive is a bigger, unreformed version of a failed entitlement program. It will be even more ironic if it was Republican governors and legislators who brought it about.

Michael Tanner is a senior fellow at the Cato Institute and the author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

www.ocpathink.org

@OCPAThink 1. OCPA’s Jonathan Small tells FOX 25 that it’s unnecessary for school-employee labor unions to organize an education funding rally when education revenues are at an all-time high. 2. Charlie Daniels, Michael Carnuccio, and Mark Stephen review documents at the inaugural board meeting of the Opportunity Scholarship Fund, a new scholarship-granting organization launched by OCPA to provide privateschool tuition assistance for low-income children. Not pictured is board member Jabar Shumate of Tulsa. 3. Pictured here is a scene from OCPA’s latest mini-documentary, “Lindsey Nicole Henry Scholarship Stories: Trinity School,” which can be viewed at ocpathink. org/videos. Brandon Dutcher recently spoke in Oklahoma City and in Shawnee about the scholarship program. To request that Mr. Dutcher speak to your organization, write to brandon@ocpathink.org. 4. OCPA’s Brandon Dutcher is pictured here at a recent meeting in New Orleans with school-choice heroine Virginia Walden-Ford. She is a founding member of the Black Alliance for Educational Options and the author of Voices, Choices, and Second Chances: How to Win the Battle to Bring Opportunity Scholarships to Your State. 5. In a recent meeting with state policymakers at OCPA, attorney Trent England, executive vice president of the Olympia, Washington-based Freedom Foundation, defends the Electoral College and criticizes the National Popular Vote scheme.

3 14 PERSPECTIVE • April 2014

5 www.ocpathink.org

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QUOTE UNQUOTE “Liberty must at all hazards be supported. We have a right to it, derived from our Maker. But if we had not, our fathers have earned and bought it for us, at the expense of their ease, their estates, their pleasure, and their blood.”

“We have reached the point where successful and civic-minded Oklahomans must question whether their investment in politics is paying diminishing returns. While elections are important, winning them won’t make any difference if the people holding office don’t understand what to do.”

Andrew Spiropoulos, OCPA’s Milton Friedman Distinguished Fellow, lamenting the breakdown of conservative policy leadership at the state Capitol

“Parents will end up paying for their 15-year-old daughter’s treatment for chlamydia, for “$27,566,250” The amount of “school improvement grants” given example, but will never know to seven Oklahoma public schools since 2011, about it.” John Adams

according to CapitolBeatOK.com. One school improved, one stayed flat, and five declined on statewide assessments.

Mary Rice Hasson, a fellow of the Ethics and Public Policy Center, discussing another pernicious aspect of Obamacare

“It should be known that at the beginning of the dynasty, taxation yields a large revenue from small assessments. At the end of the dynasty, taxation yields a small revenue from large assessments.”

Muslim philosopher Ibn Khaldun, writing 600 years before the advent of the Laffer Curve

“In such a structure [a true public education system], the traditional public schools exist as one delivery method among several—charter schools, private schools, homeschooling, virtual schools, and possibly others to be created. But they are no longer the ‘public education system’ that must be preserved at all costs and to the detriment of the others.”

Peter H. Hanley, executive director of the American Center for School Choice