Diary

Some Thoughts on the Passing Tide

<!– @page { size: 8.5in 11in; margin: 0.79in } P { margin-bottom: 0.08in } –> <!– @page { size: 8.5in 11in; margin: 0.79in } P { margin-bottom: 0.08in } –>The following represent some general thoughts on law and economics.

The Minimum Wage

Repealing the minimum wage is long overdue.

The fact that unemployment does not spike as predicted when states raise their minimum wage does not indicate that the minimum wage works.  Instead, it implies that the minimum wage acts to suppress wages in good economic times, especially for more productive workers at the lower end of the wage scale.  This is further supported by the fact that people working under the table tend to earn comparable market wages in employment sectors like the building trades.

In bad times, a minimum wage creates a needless economic incentive for employers to drop workers rather than lower wages.  The fact that wages have dropped in this down turn is a sign that employers do see lowering wages as a better option than lay-offs.

There should be income inequality to the degree that more productive people should earn more than less productive people at all economic levels.  The government cannot effectively involve itself with these decisions and should cease to do so.

Economic Regulation: Transparency and Caveat Emptor

The huge money that is available on Wall Street has tended to bring the very brightest people in the world to make their livings, indeed their fortunes, in the US Financial sector, especially in hedge funds.

Michael Lewis’s book, The Big Short (http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393072231), brings up a simple truth that many people are uncomfortable with: ordinary people, those not good enough to work in the hedge funds, like the people in the ratings agencies like Moody’s and S&P or with regulatory agencies like the SEC, simply are not able to regulate people who are generally so much more able, have so many more resources and who are motivated by the chance to attain unimaginable wealth.

How then should regulation work?

The best answer is that regulation must be based on transparency, not outcomes.  So long as everything is in the 10-K filing or the bond offering prospectus, the government’s work is largely done.  It is up to short-sellers and hedge funds to discipline the markets by attacking bad business plans and unworkable ideas early.  Individual investors and institutions need to read these market trends, as do regulators looking for clearly fraudulent schemes.

“It takes a thief to catch a thief,” especially where the thieves are among the smartest and best resourced people on Earth.

Health Care Reform:  Still No Real Understanding

People keep repeating the same misunderstandings.

The 1996 Health Insurance Portability and Accountability Act (“HIPAA”)  basically solved the issue of pre-existing conditions in employment-based health insurance, requiring only a waiting period and allowing a higher premium to be charged.  This is because this applies to GROUP plans, where the risk is spread.  In contrast, the Cuomo Administration brought in coverage requirements for pre-existing conditions in individual (non-employment based) health insurance plans in NYS in the early 1990s.  As a result, while individual coverage has grown nation-wide, it has shrunk in NYS.  Health Care Reform (“HCR”) follows the NYS model.

What should have been done?

Rep. Ryan’s ideas of state high risk pools and association plans would have spread risk and made coverage of individuals with pre-existing conditions economically viable for third party payors.

Buying health insurance across state lines is largely meaningless.

In the first instance, McCarren-Ferguson does not keep insurers from operating across state lines. They do so using subsidiaries, a preferable option from a liability standpoint.  The companies that do operate across state lines are either national players (United, GHI, Aetna, etc.) or smaller Managed Care Organizations (“MCOs”) who operate near a state line.

MCOs are not indemnity insurers.  They operate mostly on a discounted fee-for-service basis with a panel of participating doctors and institutional providers.  Unless they can recruit providers for their panels, they can’t come into an area, which is why big national players and smaller regional players whose catchment area naturally crosses a state boundary operate across state lines.  So, competition is not really the issue.

The advantage to “buying insurance across state lines” is that you can get cheaper coverage under a plan that does not have the NYS Insurance Law required “bells and whistles” that we have in New York.  You don’t benefit that much is a state with a less intrusive insurance law.

Is their a better answer?

Yes.  Self-insured Employee Retirement Income Security Act (“ERISA”) Welfare Benefit Plans (i.e., non-pension benefit plans, like disability or health insurance) for health care preempt state law, thus giving you the benefit of buying insurance across state lines, while also having the ability to secure a group discount.  This could have been done through Rep. Ryan’s association plans, for example, with some changes to ERISA.

Tort reform is not a national issue.

Reining in Medical Malpractice excesses is clearly an area, regulation of the learned professions, reserved to the states under the Ninth and Tenth Amendments.  Trying to regulate this by federal fiat, likely runs afoul of Morrison and Lopez, as it seems to be an attempt to poach in an area of specific state concern using the fig-leaf of the Commerce Clause.

Too Big To Fail

Too much government intervention has created these bloated entities which are too big to fail . . . and too big to function effectively in the market place.  In order to down-size these entities, we must either more energetically enforce Anti-trust Laws or allow market forces to make these entities fail.  Regulation by market discipline seems the better course.

Shareholder Rights

If we are talking financial market reform, the best approach might be to give shareholders in public companies the ability to more easily oust self-interested management and captive boards.  Enforcing the fiduciary duties of board members of public companies, ostensibly chosen for their insight and savvy, to the same degree that we do those of executors of small estates might be a good step in the right direction.

Federalism

People often tell me that a country of 308 million needs a large federal government.  I reply that a nation of 308 million that is divided into 50 states should not need such a large government.  This MUST become the century of the Tenth Amendment, as surely as the Twentieth Century was the century of the Civil War Amendments.

“Enough or too much.” —Blake