For-Profit, Anti-Student

For-Profit, Anti-Student

by Nino C. Monea, JD ’17

The legal job market is notoriously rocky. Virtually all law schools have trouble securing full-time jobs for their students. However, not all schools are equal in this regard, and many use deceptive techniques. Some of the worst cases involve private, for-profit law schools. One particularly troubling example is the Charleston School of Law (“CSOL”)—a for-profit law school in South Carolina with a poor track record of helping its graduates find gainful employment.

Annual tuition is nearly $40,000 (not counting the $12,600 for room and board)—only a little less than the median private sector salary of $47,000 for its graduates.[1] Of course, this median only includes graduates who have a job. According to Law School Transparency, 21.4% of CSOL’s graduates in 2014 are non-employed.[2] Hit by declining enrollment, the school considered not admitting any students for the new school year. It has since decided to keep its doors open, and instead laid off faculty members to stay afloat.[3]

For all the school’s woes, at least one group has done well: its owners. Over the institution’s twelve years of operation, the five original owners paid themselves more than $25 million.[4] Two of them sold their shares for an additional $6 million and retired, and a third resigned in disgust. Despite this windfall, the remaining owners announced last year that they would not pay for graduation ceremonies.[5]

Sadly, CSOL is not an aberration. These kinds of low employment statistics are par-for-the-course in the for-profit education sector. This is true not only in law schools, but for universities in general. Although not all for-profit schools use deceptive tactics, the industry overall has used numerous questionable tactics.

For-profit schools charge substantially higher tuition, on average, than nonprofit schools. An average university student will pay $13,000 to $16,000 per year for their for-profit education.[6] For comparison, the average student at a public, in-state four-year university pays $8,000 annually.[7] To make matters worse, for-profit schools target vulnerable populations, including high school dropouts, non-traditional students, the learning disabled, and even the homeless.[8] As a result, students in poverty are nearly four times as likely to be at a for-profit institution in spite of the higher tuition.[9]

Unsurprisingly, these low-income students need assistance to finance the costly education. Much of this assistance comes in the form of government grants and loans. For-profit schools have collectively taken $22 billion in Pell Grants in 2014.[10] The result is taxpayers effectively footing the tuition bill and lining the pockets of the owners of for-profit corporations.

If low-income students ultimately received remunerative employment, there would be nothing wrong with this picture. Low-income students are undoubtedly worthy recipients of public help, and the government frequently works with the private sector to achieve better outcomes.

Sadly, graduates of for-profit schools have grim job prospects, and the high tuition costs do not have a correspondingly high return on investment. There have been reports of employers saying that degrees from for-profit schools are not credible.[11] Even though students at for-profit institutions are more likely to earn certificates and associate degrees than those in community college, they reported less satisfaction with their education, were more likely to experience long-term unemployment, and have lower earnings six years after finishing.[12]

Some schools have been accused of offering misleading information about tuition and job placement. Students at one for-profit law school brought a lawsuit, claiming that their school wrongfully inflated its employment statistics.[13] A Senate investigation revealed that for-profit schools employed aggressive tactics to enroll veterans, going so far as to recruit at veteran hospitals and wounded warrior centers and misleading them about the costs of tuition.[14] Students recruited deceptively face a combination of high debt coupled with anemic job prospects.

Because of poor job prospects for graduates of for-profit schools, they commonly default on their debt. Only eleven percent of students nationwide are enrolled in a for-profit educational institution. Yet these students account for nearly half of all federal student loan defaults.[15] A quarter of all students in for-profit institutions will default within three years, nearly triple the rate of students in nonprofit schools.[16]

Legislative solutions have been proposed, but not enacted. Senators Dick Durbin, Tom Carper, and Richard Blumenthal introduced a bill that would bar for-profit colleges from getting more than ninety percent of their revenue from federal student loan funding.[17] Corinthian Colleges, Inc., a for-profit education company, alone received $180 million in GI dollars from enrolling veterans, and for-profit institutions have been accused of predatory lending and rigging job placement rates.[18] Senators Jeff Merkley and Tom Harkin also recently introduced legislation to close the loophole that allows institutions to accept federal funds even when their programs are not accredited.[19]

Efforts to enact accountability standards for these programs have met fierce opposition. Lobbying groups representing for-profit education are naturally opposed, and have deployed lobbyists to try to stymie reforms and flood regulators with form letters arguing against any new rules.[20] Members of Congress from both parties have also tried to block plans to take on for-profit educational institutions.[21]

Prospects for passage thus look dim in the current Congress. Given that we are in throes of the 2016 presidential election, it would be optimism to the point of foolishness to expect lawmakers to tackle such a contentious issue.

Fortunately, until new legislation is passed, there is an immediate solution: utilizing existing laws.

Federal agencies can utilize existing laws to crack down on deceptive industry practices. In 2014, the Consumer Financial Protection Bureau (“CFPB”) brought suit against ITT Educational Services (“ITT”), a for-profit corporation, under the Consumer Financial Protection Act of 2010 (“CFPA”). The CFPB charged ITT with employing a bait-and-switch model of education. Specifically, ITT offers students short-term loans that are zero-interest for the first nine months. If students could not pay off these loans by the end of the academic year, which exceedingly few students do, ITT coerced them into taking out high-interest, high-fee private loans to pay off the “zero-interest” loans from before.[22]

A similar suit by the CFPB against Corinthian yielded significant gains. Corinthian will forgive nearly half a billion dollars in loans, and sold half of its campuses to a company called ECMC. The new owner is working to change some of the worst practices so that future students do not face the same predatory tactics. For instance, ECMC will no longer use binding arbitration clauses, which can limit students’ ability to enforce their rights in court, in enrollment contracts.[23]

The Federal Trade Commission (“FTC”) has issued new warnings consumers about the dangers of deceptive educational institutions.[24] More recently, the FTC has demanded information on enrollment, recruitment, financial aid, and tuition from Apollo Education Group, Inc., owner of a for-profit chain.[25]

The Department of Education has promulgated rules that impose sanctions on schools where graduates’ annual loan payments exceed 20% of their discretionary income, or 8% of their total earnings.[26] Modest as these rules are, roughly 1,400 educational programs, virtually all of which are for-profit, would not make the cut.[27] The Department of Education relies upon a line in the Higher Education Act of 1965 for this rule-making authority. The law states that federal aid decisions can be given to programs that “lead to gainful employment in a recognized occupation.”[28] Over the summer, the Department of Education announced that it would fine Corinthian $30 million for misleading students about job placement opportunities and loan repayment rates.[29]

Efforts to police deceptive institutions should continue so that students are not left out to dry. There have been calls from consumer groups for the FTC to go further in policing for-profit education, as the agency has stronger enforcement powers than the Department of Education.[30] Due to industry pushback, the Department of Education had to water down sanctions on for-profit schools in its final proposed regulation.[31] The CFPB deal with ECMC was great progress, but the school is still allowed to restrict student class-action lawsuits.

All of these efforts are worth fighting for in subsequent enforcement actions. Comprehensive legislation in the mold of bills that have already been introduced would be the best long-term solution to the problem. But with Congress on cruise control, it’s up to agencies to ensure that low-income students don’t get thrown under the bus.

 


 

[1] Charleston School of Law, U.S. News & World Report, http://grad-schools.usnews.rankingsandreviews.com/best-graduate-schools/top-law-schools/charleston-school-of-law-03194 [perma.cc/Y3N5-NGBX].

[2] Charleston School of Law Profile, Law School Transparency, http://www.lstscorereports.com/schools/charleston/jobs/2014/ [perma.cc/YU9G-2UZZ].

[3] See Debra Cassens Weiss, Charleston School of Law lays off seven more faculty members, plans to enroll fall class, ABA J. (May 26, 2015, 7:00 AM), http://www.abajournal.com/news/article/charleston_school_of_law_lays_off_seven_more_faculty_members_plans_to_enrol [perma.cc/3PRR-MYR2].

[4] John M. Burbage, A legal maneuver to save the Charleston School of Law, Post & Courier (May 17, 2015 12:01 AM), http://www.postandcourier.com/article/20150517/PC1002/150519415/1268/a-legal-maneuver-to-save-the-charleston-school-of-law&source=RSS [perma.cc/WBK4-9BLZ].

[5] Id.

[6] Kayla Webley, For-Profit Schools: ‘Agile Predators’ or Just Business Savvy?, Time (Jan. 9, 2012), http://business.time.com/2012/01/09/for-profit-schools-agile-predators-or-just-business-savvy/ [perma.cc/3TG7-6T9N].

[7] Id.

[8] See Kayla Webley, Are For-Profit Colleges Targeting Low-Income Students?, Time (June 15, 2011), http://business.time.com/2011/06/15/are-for-profit-colleges-targeting-low-income-students/ [perma.cc/ZC2G-U42M].

[9] Inst. for Higher Educ. Policy, Initial College Attendance of Low-Income Young Adults 3 (June 2011), http://www.ihep.org/sites/default/files/uploads/docs/pubs/portraits-low-income_young_adults_attendance_brief_final_june_2011.pdf [perma.cc/8TJS-V58R].

[10] Allie Grasgreen, Obama retreats on college crackdown, Politico (Oct. 30, 2014 6:16 AM), http://www.politico.com/story/2014/10/obama-for-profit-colleges-crackdown-112340 [perma.cc/6DQQ-J3DU].

[11] See, e.g., Blake Ellis, My college degree is worthless, CNN Money (Dec. 2, 2015, 6:11 PM), http://money.cnn.com/2014/11/02/pf/college/for-profit-college-degree/ [perma.cc/RVD7-UEQQ].

[12] See Georgia West Stacey, For-Profit College Students Less Likely to Be Employed After Graduation and Have Lower Earnings, New Study Finds, Center for Analysis of Postsecondary Education and Employment, http://capseecenter.org/for-profit-college-students-less-likely-to-be-employed-after-graduation-and-have-lower-earnings-new-study-finds/?utm_source=rss&utm_medium=rss&utm_campaign=for-profit-college-students-less-likely-to-be-employed-after-graduation-and-have-lower-earnings-new-study-finds [perma.cc/J2M2-HBJY].

[13] See William Browning, Florida Coastal School of Law grads file suit against school, allege deceptive practices, Jacksonville.com (Mar. 7, 2012 12:06 AM), http://jacksonville.com/news/crime/2012-03-07/story/florida-coastal-school-law-grads-file-suit-against-school-allege [perma.cc/RF7A-T4JV].

[14] See Danielle Douglas-Gabriel, For-profit colleges aggressively target veterans for enrollment. These Democrats want it to stop., Wash. Post: Wonkblog (June 25, 2015), https://www.washingtonpost.com/news/wonk/wp/2015/06/25/for-profit-colleges-aggressively-target-veterans-for-enrollment-these-democrats-want-it-to-stop/ [perma.cc/ETK8-R8X7].

[15] Emily Fox, White House crackdown on for-profit colleges begins today, CNN Money (July 1, 2015, 2:34 PM), http://money.cnn.com/2015/07/01/pf/college/for-profit-colleges-debt/ [perma.cc/RM9N-NP47].

[16] Webley, supra note 6.

[17] See id.

[18] See Julia Glum, For-Profit Colleges’ 90/10 Loophole Latest Target For Democrats With Military And Veterans Education Protection Act, Int’l Bus. Times (June 24, 2015, 3:07 PM), http://www.ibtimes.com/profit-colleges-9010-loophole-latest-target-democrats-military-veterans-education-1982127 [perma.cc/ZKQ5-9D8A].

[19] See Ellis, supra note 11.

[20] See Grasgreen, supra note 10.

[21] See id.

[22] See CFPB Sues For-Profit College Chain ITT for Predatory Lending, Consumer Fin. Protection Bureau (Feb. 26, 2014), http://www.consumerfinance.gov/newsroom/cfpb-sues-for-profit-college-chain-itt-for-predatory-lending/ [perma.cc/P37H-AE87].

[23] See Alan Pyke, $480 Million in For-Profit College Debts Are Actually Worth Less Than $8 Million, ThinkProgress (Feb. 4, 2015, 11:10 AM), http://thinkprogress.org/economy/2015/02/04/3618792/corinthian-colleges-loan-forgiveness-debt-buyer/ [perma.cc/PAP6-7U8X].

[24] See Paul Fain, FTC Joins For-Profit Fight, Inside Higher Ed (Nov. 14, 2013), https://www.insidehighered.com/news/2013/11/14/federal-trade-commission-steps-scrutiny-profit-colleges [perma.cc/25K2-8CM2].

[25] See John Lauerman, Regulators Investigate For-Profit College Chain Apollo for ‘Deceptive’ Marketing, Bloomberg Bus. (July 29, 2015, 10:07 AM), http://www.bloomberg.com/news/articles/2015-07-29/apollo-education-slumps-as-ftc-investigates-college-marketing [perma.cc/4MYY-4MC4].

[26] Fox, supra note 15.

[27] Id.

[28] Grasgreen, supra note 10.

[29] See Alec Covington & Jodie Herrmann Lawson, CFPB Pursues Recovery Against For-Profit College Corinthian and Relief for Its Students, Subject to Inquiry (June 5, 2015), http://www.subjecttoinquiry.com/cfpb/cfpb-pursues-recovery-against-for-profit-college-corinthian-and-relief-for-its-students/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original [perma.cc/ZMP9-UG2W].

[30] See Fain, supra note 24.

[31] See Grasgreen, supra note 10.

The Apprentice(ship)

The Apprentice(ship) 

by Nino C. Monea, JD ’17

UnemploymentImage

When the Great Recession hit, the economy was devastated. In early 2008, unemployment, previously hovering at around 5%, shot up to 10.0% by October 2009.[1] The number of job openings plummeted from 4.5 million in December 2007 to fewer than 2.5 million in July 2009.[2] Average consumer spending fell from $49,638 in 2007[3] to $48,109 in 2010.[4] The impacts were felt across a wide spectrum of industries, from manufacturing, to retail and finance, with construction taking the biggest hit of all.[5] Clearly, the damage was far reaching.

But few groups were as badly hit as the young. Young workers are those within the 16–24 age cohort, and they oftentimes face much tougher employment prospects than their older peers. Because they possess fewer skills and less experience, they are usually the first to go when hard times fall upon businesses. They also have a harder time getting their foot in the door in the first place. For these reasons, youth unemployment is higher than the national average, even years after the recession has ended.[6]

As of July 2015, while 5.3% of the workforce as a whole were unemployed,[7] 12.2% of young workers were.[8] In total, there are about three million young workers who are looking for work and cannot find it. Certain groups are hit even worse than the average. For young Hispanics, the unemployment rate is 12.7%, and for African American youth, it is an alarming high of 20.7%.[9] For those aged 16–19, the unemployment rate is 16.9%.[10] Although the economy continues to improve, job growth for young workers remains sluggish, particularly in certain communities.

There are a myriad of adverse effects of joblessness among young workers. Young, unemployed workers may become “scarred”, meaning they receive lower wages over the course of their career. [11] If they cannot find jobs, they may take positions below their qualifications, or accept lower wages. This scarring effect can have long term repercussions. A study from the U.K. found that workers who experienced unemployment before age 22 were making 12–15% less twenty years later than those who did not.[12]

There are also negative health effects. Those who experience unemployment are less happy, more stressed, and have a higher chance of heart attacks, hypertension, constant headaches, and even suicide.[13] Mental health suffers as well. Unemployed workers experience heightened rates of anxiety, loss of self-esteem, and depression. These effects are greater on younger workers than on older ones.[14]

Perhaps worst of all, the toll unemployment has on life expectancy. In the year immediately following a layoff, there is a 75% increase in the mortality rate of laid off workers. Over the years, this moderates to a 10–15% increase. This means that over the course of 25 years, life expectancy is shortened by 1–1.5 years for a person without a job. Once again, the impact is more profound among younger workers.[15] Unfortunately, it is also a vicious cycle, as the biggest predictor for a person’s future unemployment is past unemployment. A person who is out of a job before age 23 for only three months will, on average, experience longer spells of unemployment later in life.[16]

To try to forestall unemployment, many young people go to college with the hopes that a degree will ensure them a well-paying job. Sadly, for many, they also graduate with a mountain of debt. Two-thirds of college graduates bear student loan debt, with an average of more than $25,000. The total value of student loan debt now exceeds one trillion dollars.[17] However, if young people cannot get jobs, repaying these loans is a daunting challenge.

Though part of unemployment is cyclical, or due to fluctuations in the economy, much of the problem is structural, meaning that there is a mismatch between skills and jobs. More than half of employers had trouble finding qualified workers for technical positions.[18] Improving education can help bridge this gap, but education is a long-term solution. Improving early childhood programs would do little to help today’s jobless. They need something in the present.

Apprenticeships offer an attractive option. They are way to provide skills to young, inexperienced workers, which can help lead to higher earnings and employment. And there is already an agency that in charge of apprenticeships. The Department of Labor runs the Registered Apprenticeship program, first established in 1937 by the Fitzgerald Act, and works with states to administer the program.[19] Apprenticeships offer workers a salary while performing a remunerative job and receiving hands-on training with supplemental instruction and education. Eventually, the program leads to professional credentials.[20]

Current programs show a great deal of promise. A survey of ten states found that workers that participated in apprenticeships earned, on average, $6,000 more in the short term. Over the course of a career, benefits could range from $96,000 to $162,000. Those that completed the program saw an estimated career earnings increase of $240,000. The government cost of running the program is comparatively small, only about $700 per worker over the course of nine years, so there is a large net benefit for workers and taxpayers alike.[21] A separate study by the State of Washington found that over the course of a lifetime, earnings increased by more than $325,000, and total costs were only $22,000.[22]

Businesses that sponsored registered apprenticeships for the workers also reported favorably on the program. A survey of nearly 1,000 participating companies, consisting of firms in construction, utilities, and retail, found that 97% would recommend the program. They found it to include a wide array of benefits, including helping meet demand for skilled workers, raising productivity, and improving morale, safety, and retention. Costs of the program were not viewed to be a major problem.[23]

The success of the Registered Apprenticeship program sets it apart from other governmental efforts that failed to produce meaningful and broad based job growth. Hiring credits, which provide either tax incentives or subsidies to businesses that hire unemployed workers, have a spotty track record. While companies receive extra revenue, there is little evidence that the program improves job prospects for disadvantaged youths or raises incomes for low-income families.[24]

There are still significant areas for improvement in the Registered Apprenticeship program. Foremost among them, due to the fact that many apprentice jobs are in fields such as construction, the program consists of 90% men. As a result, benefits of participation are less pronounced for women. Their increase in short term earnings is only $2,000, less than half of men’s. Women in the program have voiced concerns about sexual harassment and the need for child care.[25] On the employer side, businesses have also had complaints. Employers in the Registered Apprenticeship program grumbled about the fact that it increased “poaching” from competitors, wanted a simpler registration process, and asked for more help finding and screening applicants.[26]

Problems notwithstanding, for young workers seeking an alternative to a four-year college degree, apprenticeships offer a path to stable, high paying careers. This could be a great program not only to boost youth employment, but offer a path to students whose career does not require a bachelor’s degree.

But for all of its benefits, the program is still relatively small. Total government spending is only a few hundred dollars per apprentice, on average, and less than $30 million to supervise and publicize the program. Many businesses do not even know about it. In 2011, 130,000 individuals nationwide became apprentices, and 55,000 graduated from a Registered Apprenticeship program.[27] These figures represent only 0.2% of the U.S. labor force.[28] Given that there are still 3.4 million unemployed youths,[29] to say nothing of all the older unemployed, the current size is far from adequate.

But how could it be expanded? Some methods for enlarging the program could be offering a tax credit to businesses that participate, supported by Senators Tim Scott (R-SC) and Cory Booker (D-NJ); increasing funding for the program, as President Obama has proposed in his 2015 budget; and offering wage subsidizes to incentivize students to sign up. Initiatives such as these are already in place in several states, and in some foreign countries.[30]

To make sure that young workers in particular benefit, high schools and community colleges should make a greater effort to connect employers with students. Currently, only 35% of sponsors got apprentices from high schools or post-secondary institutions, but they were cited as effective means of recruitment.[31] Increasing the role of schools in the program could help bring in more young workers.

Any effort to expand the program must also include diversifying it to reduce the heavy slant towards male-dominated industries and address the needs of female employees. For example, in 2013, the Department of Labor awarded a two million dollar grant to help train women in apprenticeships in high-skill occupations such as energy, IT, and transportation.[32] Bringing more women into the program would help highlight the issues of the gender pay gap, inadequate child care, and sexual harassment – and increase the impetus to solve them.

Democratic presidential candidate Senator Bernie Sanders (I-VT) has called for making public universities tuition free.[33] Former Secretary of State Hillary Clinton (D) has proposed increasing federal funding to make college more affordable.[34] Both of these ideas have their merits. They are an important piece of addressing youth unemployment and reducing the crushing burden of student loan debt.

But not everyone needs or desires a college degree. Apprenticeships offer a viable option for those seeking an alternative to a bachelor’s degree. The benefits far exceed the costs, and the program enjoys high levels of approval among both workers and employers. Although some policymakers are beginning to pay attention to this issue, it deserves a spot in the economic platform of any of the 2016 presidential hopefuls.


 

[1] Labor Force Statistics from the Current Population Survey, Bureau of Lab. Stats., http://data.bls.gov/timeseries/LNS14000000 [http://perma.cc/N9AJ-WGN6]

[2] Mark deWolf & Katherine Klemmer, Job Openings, Hires, and Separations Fall During the Recession, Monthly Labor Rev. 36, 38 (May 2010), http://www.bls.gov/opub/mlr/2010/05/art3full.pdf [http://perma.cc/WM6E-27KR].

[3] Consumer Expenditures in 2007, Bureau of Lab. Stats., (Apr. 2009), http://1.usa.gov/1Qg6Nyz [http://perma.cc/WV2H-989J].

[4] Consumer Expenditures in 2010: Lingering Effects of the Great Recession, Bureau of Lab. Stats. (2012), http://1.usa.gov/1JH8e4h [http://perma.cc/2SXF-NTLX].

[5] The Recession of 2007-2009, Bureau of Lab. Stats. (2012), http://1.usa.gov/1nrHeuy. [http://perma.cc/EUW3-G5HC].

[6] See Labor Force Statistics from the Current Population Survey, Bureau of Lab. Stats. (2015), http://1.usa.gov/L8BKrM [http://perma.cc/BFC3-B7U5]; Employment and Unemployment Among Youth Summary, Bureau of Lab. Stats (2015), http://1.usa.gov/1lUw15m [http://perma.cc/ZQY8-EDA9].

[7] Labor Force Statistics from the Current Population Survey, Bureau of Lab. Stats., supra note 6.

[8] Employment and Unemployment Among Youth Summary, Bureau of Lab. Stats., supra note 6.

[9] Id.

[10] Unemployment Rate – 16-19 yrs., Bureau of Lab. Stats. (2015), http://1.usa.gov/1IXgKL6 [http://perma.cc/C4F3-92TZ].

[11] See generally David Bell & David Blanchflower,Youth Unemployment in Europe and the United States (IZA, Discussion Paper No. 5673, 2011), http://bit.ly/1yGuHh9 [http://perma.cc/9ZRL-YJ7R].

[12] Reed Karaim, Youth Unemployment, 6 CQ Researcher 110 (2012), http://library.cqpress.com/cqresearcher/getpdf.php?id=cqrglobal2012030600 [http://perma.cc/3AD8-BQ6W].

[13] Susi Fidan Frauenfelder, The Cost of British Youth Unemployment, at 32 (Spring 2012) (unpublished Bachelor Thesis, Aarhus University), http://pure.au.dk/portal-asb-student/files/45263659/SK8397_The_Cost_of_British_Youth_Unemployment_with_focus_on_the_individual.pdf [http://perma.cc/NR6B-3DQM].

[14] Id.

[15] Daniel Sullivan & Till von Wacher, Job Displacement and Mortality: An Analysis using Administration Data 1 (Nat’l Bureau of Econ. Research, Working Paper No. 13626, 2009), http://www.columbia.edu/~vw2112/papers/sullivan_vonwachter_resubmission.pdf [http://perma.cc/Q3V8-VVG7]. The study did not examine workers in the 16–24 year old age cohort, but it did find that the younger the workers, the more profound the impact. Id.

[16] The jobless young: Left behind, The Economist (Sept. 10, 2011), http://www.economist.com/node/21528614 [http://perma.cc/PU8K-GVJD].

[17] Scott Gerber, 43 Troubling Facts about the Youth Unemployment Crisis, Business Insider (May 15, 2012, 1:51 PM), http://bit.ly/1Qg8FHx [http://perma.cc/F37D-VVAP].

[18] See Manpower Group, 2012 Talent Shortage Survey: Research Results 2 (2012), http://files.shareholder.com/downloads/MAN/2146490106x0x571882/ac2b52c1-55d8-4aaa-b99e-583bd8a82d0c/2012%20Talent%20Shortage%20Survey%20Res_US_FINAL%20(2).pdf [http://perma.cc/4UCG-KEV3].

[19] What is Registered Apprenticeship?, Dep’t of Lab., http://www.doleta.gov/oa/apprenticeship.cfm [http://perma.cc/K4WY-ABR4] (last updated Nov. 21, 2014).

[21] See Debbie Reed et al., Mathematica Policy Research, An Effectiveness Assessment and Cost-Benefit Analysis of Registered Apprenticeship in 10 States, at xvi–xvii (2012), http://wdr.doleta.gov/research/FullText_Documents/ETAOP_2012_10.pdf [http://perma.cc/N6FM-TMMW].

[22] See Workforce Training & Educ. Coordinating Bd., 2014 Workforce Training Results 21 (2014), http://wtb.wa.gov/Documents/2-Apprenticeship_2014.pdf [http://perma.cc/E9SS-NZ8S].

[23] See Robert Lerman et al., The Urban Inst. Ctr. on Labor, Human Servs., & Population, The Benefits and Challenges of Registered Apprenticeship: The Sponsors’ Perspective, at ii, 16 (2009), http://1.usa.gov/1ghBYKS [http://perma.cc/8RY4-DS94].

[24] See generally David Neumark, Spurring Job Creation in Response to Severe Recessions: Reconsidering Hiring Credits (Nat’l Bureau Econ. Research, Working Paper No. 16866, 2011), http://www.nber.org/papers/w16866.pdf [http://perma.cc/J7CV-KCKB].

[25] Reed et al., supra note 21.

[26] Lerman et al., supra note 23.

[27] What is Registered Apprenticeship?, supra note 19.

[28] Robert I. Lerman, Proposal 7: Expanding Apprenticeship Opportunities in the United States, The Hamilton Project, http://brook.gs/1AMv5tU [http://perma.cc/XUB3-KPRU].

[29] Employment and Unemployment Among Youth Summary, Bureau of Lab. Stats. (Aug. 18, 2015), http://1.usa.gov/1lUw15m [http://perma.cc/JP7G-B7GZ].

[30] Jobs for Youth, Org. for Econ. Cooperation & Dev. (2009), http://bit.ly/1AuISUD [http://www.oecd.org/els/emp/44161929.pdf].

[31] Lerman et al., supra note 23.

[32] Grants, Workforce Dev. Council, http://uscmwdc.net/page.asp?ID=28 [http://perma.cc/7EDS-HS68].

[33] Brent Budowsky, Bernie Sanders’s great idea: Free public college education, The Hill (June 09, 2015, 5:00 pm), http://bit.ly/1N4QzZo [http://perma.cc/5E8D-NVY8].

[34] Hannah Franser-Chanpong, Hillary Clinton avoids email controversy, fleshes out college affordability plan, CBS News (Aug. 14, 2015), http://cbsn.ws/1LurY0T [http://perma.cc/LNM2-DZED].

 

 

Congress is Broken. Fair Districts Could Help Fix It.

The Capitol Building. The bedrock of the first branch of government; home to the World’s Greatest Deliberative Body and the People’s House. Like no other structure, it stands as the very symbol of our system of self-governance.

Congress is Broken. Fair Districts Could Help Fix It.

Nino Monea[*]

 

 

The Capitol Building. The bedrock of the first branch of government; home to the World’s Greatest Deliberative Body and the People’s House. Like no other structure, it stands as the very symbol of our system of self-governance.

Today, it is covered in a shroud as it undergoes renovations to patch up the 1,300 cracks that puncture the Dome. It was not just weather that slowly wrecked the façade, but also the longtime impasse between the Republican House and the Democratic Senate to come to an agreement on how to fund repairs.[2] The scaffolding symbolizes the current state of legislative paralysis. The fractures on the exterior may be extensive, but the divisions inside the building run much deeper.

It’s no secret that Washington is gridlocked. The new Congress that was sworn in last January will have small shoes to fill. The previous 113th Congress managed to pass 296 laws over the course of two years, a slight increase over the 112th, which passed 283.[3] For comparison, the “do-nothing” 80th Congress of President Truman’s ire passed 906.[4] To make matters worse, and about a quarter of the laws passed by the 113th Congress were ceremonial acts like naming post offices, and roughly a third of the most recent Congress’s laws were crammed in the lame duck session at the very end of the term.[5]

There is no shortage of grim statistics about the body. Three quarters of votes cast are split mainly down party lines─Democrats clearly on one side, Republicans on the other.[6] Approval ratings have sunk as low as 9%.[7] So deep was the distain that when Congress was pitted against head lice, 67% of respondents expressed approval of the louse over the legislature.[8] Election spending in the 2014 midterms by outside groups was more than triple the level seen in 2010.[9] Political polarization between the parties is at its highest point in a hundred years.[10] I could go on.

The roots of these problems run deep. In the early and middle years of the 20th century, the two political parties were spread throughout the country. The Democrats controlled most of the conservative south, but also had liberal pockets in the north. Republicans held parts of the west, and had solid footholds in New England as well. The result was that regional factors mitigated partisan influences, and both parties had a wide range of viewpoints.[11]

Today, both parties have become consolidated, and much more ideologically homogeneous as a result. It has reached such a point that every single Republican in Congress is more conservative than any Democrat, and every Democrat is more liberal than any Republican.[12] The nation too has been experiencing a growing partisan divide.

The gap between Republican and Democratic voters has nearly doubled over the last 30 years on a series of 48 questions about values ranging from the social safety net, to the environment, to the scope of government. In 1987, there was a 10% disparity between the answers of Democrats and Republicans, by 2012, it has risen to 18%.[13] A quarter of Democrats and a third of Republicans see the other party as not simply incorrect, but “a threat to the nation’s wellbeing.”[14]

Such a state of affairs helps no one. Supporters of President Obama must watch as his agenda festers. But the situation is not necessarily good for conservatives either. A Congress that cannot pass laws is also a Congress that cannot repeal or replace bad ones. When legislative gridlock sets in, desperate lawmakers often resort to passing continuing resolutions, which base funding on levels of the past rather than the needs of the future.[15] The body has staged dozens of votes to strike down the Affordable Care Act, but has failed every time. Furthermore, when Congress does not act, the President may opt for unilateral action, which is hardly something Republicans are celebrating.

One key driver of the problem is gerrymandering. Politically motivated redistricting has virtually guaranteed that Congress will be bitterly split, as most incumbents have incredibly safe districts. 85% of House members won with 55% of the vote or more,[16] a comfortable margin. After the 2012 elections, in the House, 95% of Democrats represented districts that President Obama carried, and 95% of Republicans were in districts Governor Romney won. Only about 25% of senators represent states that voted for a presidential candidate of the opposing party.[17]

As a result, there is almost no political incentive to compromise for the vast majority of members. They have little to fear from general elections, where their constituencies are starkly polarized, but reaching out to the other side could throw their ideological purity into question and prompt a primary challenge.

To begin fixing this, we should end gerrymandering. As the current system exists, state legislatures draw congressional districts. Naturally, they try to do so in a way that maximizes their own clout and minimize the strength of the opposition. This practice undermines public confidence in government. Roughly 70% of Americans oppose gerrymandering. This holds constant whether the respondent is a Democrat, Republican, or Independent, or whether they are liberal, conservative, or moderate.[18]

Based on the current political calculus, gerrymandering favors Republicans on average. After a strong showing in the 2010 elections, the GOP was well poised to redraw boundaries for their own benefit. For instance, in Michigan, the Democratic candidates for Congress received 1.52 million votes (49%), compared to the Republicans’ 1.46 million (47%), and yet only received 5 of the state’s 14 congressional seats. However, the issue cuts both ways. In Illinois, Republican congressional candidates received slightly above 50% of the vote, but only have a third of the seats in Congress.

There are several ways to address this problem. Florida voters recently passed a state constitutional amendment that stops legislators from redistricting in a way that advantages or disadvantages any political party or incumbent. Although this led to 2 of the state’s 27 congressional districts being challenged as unfair, it does not go so far so to ban politically motivated gerrymandering altogether, and there are allegations that legislators were trying to circumvent the new rules.[19]

Several states have turned the process over to non-partisan commissions, including Iowa, California, and Arizona. There is at least some evidence that this reduced undue political influence. According to data compiled by the Washington Post, Arizona has below average levels of gerrymandering, and Iowa, which has had its commission since 1981, much longer than the others, scored considerably below average.[20] Admittedly, California is just slightly above average. There is also a case pending before the Supreme Court to challenge this practice, arguing that the voter initiative-created nonpartisan commissions, as opposed to commissions created by a vote of the legislature, rob the states of their constitutional authority to prescribe “The Times, Places, and Manner of holding Elections for Senators and Representatives.”[21]

Perhaps the simplest plan suggested is to use a computer algorithm to aid the process. If the program could be designed correctly, it could help reduce the bias that is inherent in such a politically charged undertaking. There are many examples to look to. Massachusetts software engineer Brian Olson has designed a program that redraws every state and federal legislative district based on Census data to create “optimally compact” boundaries.[22]

A look at North Carolina’s Congressional Districts as drawn by the self-interested legislators versus Olson’s program show a clear distinction. The former looks like one of Picasso’s cubist abstractions; the latter an orderly set of tiles. To be sure, this algorithm isn’t perfect. It does not specifically attempt to draw politically balanced districts, nor does it factor in communities of interest, such as minority groups that have been politically marginalized.

The Constitution precludes the federal government from passing a national law to change the system. Therefore, I propose that each state should work to create a nonpartisan process to produce impartial districts for its legislature. Existing models in several states could serve as a framework, and I would add some guiding principles for the process. The goal should be to take politics out of the process, work towards preventing extremist districts, protect communities of interest, and create clean shapes as opposed to narrow, snaking districts that reek of political back dealing. State board could even work to create an algorithm, with input from the public, to help streamline the process. Whatever process is decided, it should be transparent and freely available online so that the public can view it.

Ending gerrymandering will not singlehandedly solve gridlock. This is evidence to suggest that much of the polarization is due to the parties hardening their positions across the board.[23] But it would help reverse the trend of swing districts rapidly disappearing. In a time where too many voters feel as if their ballots don’t actually matter, anything to help increase competition would be welcome.


[*] J.D. Candidate, Harvard Law School, 2017; B.A., Eastern Michigan University.

[2] Jennifer Steinhauer, Capitol Dome Is Imperiled by 1,300 Cracks and Partisan Rift, N.Y. Times (Aug. 24, 2012), https://www.nytimes.com/2012/08/25/us/politics/capitol-dome-is-imperiled-by-cracks-and-a-partisan-divide.html [https://perma.cc/VP8G-ZH96].

[3] Kendall Breitman, The Worst Congress Ever? Maybe Not., Politico (Dec. 29, 2014), https://www.politico.com/story/2014/12/113th-congress-not-worst-ever-113850 [https://perma.cc/T847-Q5Y9].

[4] Kyle Inskeep, Congress to make history—but for the wrong reason, NBC News: FirstRead (Nov. 28, 2012: 1:11 PM), http://firstread.nbcnews.com/_news/2012/11/28/15518240-congress-to-make-history-but-for-the-wrong-reason [https://perma.cc/Z3WB-U984].

[5] Breitman, supra note 2.

[6] Ezra Klein, 14 reasons why this is the worst Congress ever, Wash. Post: Wonkblog (July 13, 2012), https://www.washingtonpost.com/news/wonk/wp/2012/07/13/13-reasons-why-this-is-the-worst-congress-ever/ [https://perma.cc/NZU9-LN77].

[7] Tom Jensen, Congress Less Popular than Cockroaches, Traffic Jams, Pub. Pol’y Polling (Jan. 8, 2013), https://www.publicpolicypolling.com/wp-content/uploads/sites/17/2017/09/PPP_Release_Natl_010813_.pdf [https://perma.cc/737L-XHQM].

[8] Id. Congress also lost matchups against colonoscopies (58-31%), Genghis Khan (41-37%), and Nickleback (39-32%). Congress did manage to narrowly beat out Lindsey Lohan (45-41%).

[9] Jon Terbush, The 2014 midterms will blow away campaign spending records, The Week (Feb. 12, 2014), https://theweek.com/articles/451111/2014-midterms-blow-away-campaign-spending-records [https://perma.cc/8G4W-F6YE].

[10] See generally Thomas Mann & Norman Ornstein, It’s Even Worse than It Looks (2012).

[11] Norman Ornstein, Worst. Congress. Ever., Foreign Pol’y (July 19, 2011), https://foreignpolicy.com/2011/07/19/worst-congress-ever/ [https://perma.cc/498K-DHL7].

[12] Drew Desilver, Pew Research Ctr., The polarized Congress of today has its roots in the 1970s (June 12, 2014), http://www.pewresearch.org/fact-tank/2014/06/12/polarized-politics-in-congress-began-in-the-1970s-and-has-been-getting-worse-ever-since/ [https://perma.cc/9N7P-KWVU].

[13] Pew Research Ctr., Partisan Polarization Surges in Bush, Obama Years (June 4, 2012), http://www.people-press.org/2012/06/04/partisan-polarization-surges-in-bush-obama-years/ [https://perma.cc/CKL8-4DVL].

[14] Pew Research Ctr., Political Polarization in the American Public (June 12, 2014), http://www.people-press.org/2014/06/12/political-polarization-in-the-american-public/ [https://perma.cc/S8MJ-37EC].

[15] House Resolution Continues Last Year’s Spending, Mostly, Comm. for a Responsible Fed. Budget (Sept. 17, 2014), http://www.crfb.org/blogs/house-resolution-continues-last-year%e2%80%99s-spending-mostly [https://perma.cc/SM82-F4JP].

[16] Chris Cillizza, Why Congress is so partisan—in 2 charts, Wash. Post: The Fix (Dec. 12, 2012), https://www.washingtonpost.com/news/the-fix/wp/2012/12/12/why-congress-is-so-partisan-in-2-charts/ [https://perma.cc/26V4-M8RS].

[17] Olympia Snowe, Why I’m leaving the Senate, Wash. Post (Mar. 1, 2012), https://www.washingtonpost.com/opinions/olympia-snowe-why-im-leaving-the-senate/2012/03/01/gIQApGYZlR_story.html [https://perma.cc/H4QP-RE2W] (“Before the 1994 election, 34 senators came from states that voted for a presidential nominee of the opposing party. That number has dropped to just 25 senators in 2012. The result is that there is no practical incentive for 75 percent of the senators to work across party lines.”).

[18] Americans Across Party Lines Oppose Common Gerrymandering Practices, Harris Interactive (Nov. 7, 2013), https://www.prnewswire.com/news-releases/americans-across-party-lines-oppose-common-gerrymandering-practices-230953121.html [https://perma.cc/Q4KY-QCQC].

[19] Marc Caputo, Kathleen McGrory & Michael Van Sickler, Emails show GOP consultants’ ‘almost paranoid’ mission to circumvent Fla.’s gerrymandering ban, Miami Herald (Nov. 23, 2014), https://www.miamiherald.com/news/politics-government/article4077044.html [https://perma.cc/7GLE-733K].

[20] Christopher Ingraham, How gerrymandered is your Congressional district?, Wash. Post (May 15, 2014), https://www.washingtonpost.com/wp-srv/special/politics/gerrymandering/ [https://perma.cc/28A5-2L7Z].

[21] Norman Ornstein, The Pernicious Effects of Gerrymandering, Nat’l J. (Dec. 3, 2014), https://www.nationaljournal.com/s/34715 [https://perma.cc/KXS5-UX2B].

[22] Christopher Ingraham, This computer programmer solved gerrymandering in his spare time, Wash. Post (June 3, 2014), https://www.washingtonpost.com/news/wonk/wp/2014/06/03/this-computer-programmer-solved-gerrymandering-in-his-spare-time/ [https://perma.cc/37GX-JNBJ].

[23] John Slides, Gerrymandering is not what’s wrong with American politics, Wash. Post (Feb. 3, 2013), https://www.washingtonpost.com/news/wonk/wp/2013/02/03/gerrymandering-is-not-whats-wrong-with-american-politics/ [https://perma.cc/SCM2-2N2C].

Why Price Transparency Cannot Cure American Healthcare

Why Price Transparency Cannot Cure American Healthcare

Jonathan Klein[*]

 

“Price transparency” is a buzz-phrase one tends to hear a lot in discussions over healthcare reform. Price transparency laws, which require covered health care providers to disclose to consumers cost estimates for health care services, are attractive to lawmakers on both sides of the aisle, and it’s easy to see why. They ostensibly empower consumers by making more pricing information available to them. In theory, consumers can then use this information to shop around, ultimately saving money both at both the individual and systemic levels. As Nino Monea, Class of 2017, noted, greater price transparency will probably generate at least some savings for individuals and the healthcare system as a whole. In this article, I explore the situations in which price transparency is most likely to reduce health care costs, and suggest ways to expand the impact of transparency mandates on the cost of health care.

Perhaps most importantly, transparency laws are premised on consumerism—a premise that is somewhat controversial. Many people are reluctant to view health care as simply another other market good, amenable to price shopping and marketplace competition.[2] Concerns about “reducing” health care to the status of a market good are evident in the language we use: Are those who undergo surgeries patients, or merely “consumers”? Many doctors and patients resist viewing health care as any other market commodity, and as a result may be less comfortable doing what consumers do: shopping for the best combination of price and quality. People feel attached to their doctors, to their hospitals, and to the care they know. They may not be willing to leave the comfort of what’s familiar simply for a better price across the street.

In addition to concerns about the commodification of health care, patient preferences about their roles in the health care decision-making process may also deter shopping. One meta-analysis on patient preferences found that as many as 80 percent of patients preferred to take an active or collaborative role in the decision-making process.[3] These patients were more likely to seek out, or at least to inquire about, alternative treatments. These patients, by extension, may be more likely than passive health care participants to seek out lower-cost providers.[4] Ultimately, if price transparency mandates and other market-driven solutions are to successfully lower the costs of health care, then a paradigm change may be necessary: Patients must acknowledge that the market for health care, while unique in many ways, is ultimately still a marketplace in which they can—and should—seek out the best value for their money.

In more concrete terms, transparency laws are premised on price sensitivity. This means that consumers react when prices are too high. In most markets other than health care, consumers respond predictably to pricing information. Take, for example, two gas stations on opposite sides of the street: When one sells gas for a quarter less than the other station, rational consumers will choose the cheaper station, all else being equal (and emphasis on this point, because other factors like product quality and brand loyalty will alter the decision-making process for some consumers).

However, the healthcare market is fundamentally different than other markets. Consumers of health care often do not have time to shop for lower prices. In emergencies, the decision where to seek treatment is often dictated by geographical constraints (i.e. which emergency room is closest to the patient) and hospital facilities (i.e. whether a hospital has the equipment and staff necessary to treat the patient’s illness). This means price transparency in health care has a limited impact except for elective operations, where patients have time to shop for lower prices. But because emergency care is a relatively small portion of overall spending—estimates range from 2 to 10 percent[5]—price transparency still has the potential to significantly reduce health care costs.

Even for elective procedures, many consumers have too few incentives to seek out lower-cost care. As Jeremy Salinger, Class of 2017, notes, the market for healthcare is fundamentally different than other consumer markets because the party receiving healthcare—the patient—is often not the same party who pays for that care. This is the third-party insurance system, and it distorts patient incentives in a variety of ways. An important distortion that is sometimes overlooked in discussions about healthcare reform arises from the asymmetry between patient and payor preference. If consumers paid the full cost of their healthcare, we would expect rational consumers to be perfectly price-sensitive (provider quality and all other factors being equal). Uninsured patients must pay the full cost of their health care and, consequently, are most likely to search for the lower-cost provider.[6]

One useful way to discuss the different degrees to which patients care about the cost of health care is to categorize patients into different “zones” based on the size of their financial incentive in finding cheaper care. The uninsured patient falls into the first of three such incentive “zones.”[7] On the other end of the spectrum, in a third incentive zone, are patients who have no direct financial stake in the decision-making process.[8] For example, some patients with premium insurance plans may have no co-pays or deductibles, and as a result may be disinclined to search for lower-cost providers. In the middle of the spectrum are patients who have some financial incentive to seek out lower-cost health care; the strength of the incentive corresponds to the cost-sharing burden on the patient.[9]

Caps on patients’ out-of-pocket expenses may have the unintended consequence of making consumers less price sensitive. The Affordable Care Act, by capping cost-sharing (whether in the form of deductibles, co-pays, or co-insurance) at $6,600 for individual and $13,200 for family plans,[10] may disincentivize patients from seeking out lower-cost providers once they reach the cost-sharing cap.

In addition to the psychological hurdle discussed earlier, there are also practical problems with the implementation of a transparency mandate. Unlike many other consumer goods, health care is often not fungible, even for the same type of procedure.[11] In other words, many patients and procedures tend to be unique. This presents a challenge for health care providers, who are often unable or unwilling to give advance estimates unless they can evaluate the patient’s medical history in detail.[12] Inherent uncertainty in diagnosis also makes it difficult for patients to compare prices: Because physicians often cannot make a definitive diagnosis until the patient undergoes testing or an exploratory procedure, patients are poorly positioned to know whether a test or procedure is necessary and whether the hospital is charging an above-market rate.[13] While transparency mandates may have a limited impact on complex, costly procedures, they are likely to achieve cost savings where health care is easily consumed. For example, the markets for prescription drugs and flu shots are highly price-competitive in part because these items do not need to be tailored to the particular needs of each patient.

Even when providers are comfortable giving quotes in advance, many patients find themselves comparing apples to oranges.[14] One study of California hospitals found that not all hospitals included the total cost of the operation in their price quotes; they often excluded doctors’ charges and facility fees, which can account for a significant portion of the overall cost.[15] The presence of these “hidden fees” makes it difficult for consumers to accurately compare total price—the most relevant number from a consumer’s perspective—across providers. If lawmakers create an inclusive definition of what price must be disclosed, then they can help level the playing field for consumers.

Even if consumers gain better access to useful price information, there are reasons to believe that price transparency mandates will either not change or will increase the overall cost of health care. As Mr. Monea suggested, there are at least two circumstances in which price transparency mandates are especially unlikely to succeed. First, in markets with a single provider (for example, specialists in rural markets), the only way for consumers to seek out a lower-cost provider is to travel out of market, which may not be feasible for ill patients or lower-income patients who cannot afford to travel. New Hampshire’s experience confirms that mandated price transparency has minimal impact on rural health care markets.[16] Second, price transparency mandates may facilitate collusion by giving health care providers better access to their competitors’ pricing policies.[17] In this scenario, transparency laws could enable providers to discreetly call competitors, determine how much they charge for a particular procedure, and ultimately set their prices at the same rate.[18] Ultimately, this means that price transparency is likely to save consumers—or patients, depending on one’s perspective—money only where patients have meaningful choices between higher- and lower-cost providers.


[*] J.D. Candidate, Harvard Law School, 2016; B.A., University of Georgia.

[2] For an overview of the debate over health care as a market good, see Edmund J. Pellegrino, The Commodification of Medical and Health Care: The Moral Consequences of a Paradigm Shift from a Professional to a Market Ethic, 24(3) J. Med. Phil. 243 (1999).

[3] Jochnanan Benbassat, Dina Pilpel & Meira Tidhar, Patients’ Preferences for Participation in Clinical Decision Making: A Review of Published Surveys, 24(2) Behavioral Med. 81, 85–87 (1998).

[4] Id.

[5] See Louis Jacobson, Does emergency care account for just 2 percent of all health care spending?, PolitiFact (Oct. 28, 2013), http://www.politifact.com/truth-o-meter/statements/2013/oct/28/nick-gillespie/does-emergency-care-account-just-2-percent-all-hea/ [https://perma.cc/7YHB-VX7D] (citing Michael H. Lee, Jeremiah D. Schuur & Brian J. Zink, Owning the Cost of Emergency Medicine: Beyond 2%, 62(5) Ann. Emergency Med. 498 (2013), http://www.annemergmed.com/article/S0196-0644(13)00313-2/pdf []).

[6] Cf. Alan B. Krueger & Ilyanan Kuziemko, The demand for health insurance among uninsured Americans: Results of a survey experiment and implications for policy, 32(5) J. Health Econ. 780 (2013) (finding significant elasticity of demand for health care insurance among uninsured).

[7] Lecture by Prof. Christopher Robertson, Visiting Professor, Harvard Law School (Oct. 2014) (articulating the concept of “zones of insurance” to describe the different financial incentives facing health care consumers).

[8] Id.

[9] Id.

[10] See Out-of-pocket maximum/limit, U.S. Ctrs. for Medicare and Medicaid Servs. (Jan. 3, 2015), https://www.healthcare.gov/glossary/out-of-pocket-maximum-limit/ [https://perma.cc/SK75-8Z59].

[11] See, e.g., Mathew W. DeCamp, Ethics and the Physican-Patient Relationship: Medico-moral Consequences of Commodification, 19 Einstein Quart. J. Biol. Med. 135, 136 (2002) (rejecting health care as a commodity in part because it is not a fungible good); Pellegrino, infra note 14 (discussing fungibility in the context of commodification).

[12] See Kate Stockwell Farrell, Leonard J. Finocchio, Amal N. Trivedi & Ateev Mehrotra, Does Price Transparency Legislation Allow the Uninsured to Shop for Care?, 25(2) J. Gen. Internal Med. 110 (2009).

[13] Renee Y. Hsia, Abbas H. Kothari, Tanja Srebotnjak & Judy Maselli, Health Care as a ‘Market Good’? Appendicitis as a Case Study, 172 Archive Intern. Med. 818, 819 (2012).

[14] See Farrell et al., supra note 11, at 110–111.

[15] Id.

[16] See Ha T. Tu & Johanna R. Lauer, Ctr. for Studying Health System Change, Impact of health care price transparency on price variation: The New Hampshire experience (2009), http://www.hschange.org/CONTENT/1095/1095.pdf [https://perma.cc/TFN6-YU93].

[17] See Paul B. Ginsburg, Shopping for Price in Medical Care, 26(2) Health Affairs w208, w214–15 (2007) (explaining how price transparency mandates could facilitate collusion among health care providers).

[18] Id.

Competitive Ideas for Reducing Healthcare Costs

Competitive Ideas for Reducing Healthcare Costs

Jeremy Salinger[*]

 

I. Introduction

Nino Monea, Class of 2017, recently proposed that making price information for medical care available to consumers online would increase the transparency in healthcare shopping, which in turn would lead to greater competition among healthcare providers and lower costs to consumers. Mr. Monea’s analysis focused on the relationship between healthcare providers (hospitals, doctors, etc.) and consumers (you and me), but this is only one of three relationships in the healthcare industry where increasing competition can lead to price reductions. In addition to competition between providers for consumers, proposals to encourage competition must also consider competition between payers (insurance companies) for consumers and competition between providers for payers.

This comment will explore the impact of increasing competition in all three of these relationships and argue that lowering healthcare costs through competition would be best accomplished by focusing on competition between payers for consumers and between providers for payers. I also suggest a few ways in which legislation can be used to this end. It should be noted at the outset that these suggestions are offered only because they demonstrate ways in which competition can be increased. These proposals have other important policy implications, which I ignore for the purpose of maintaining a limited scope.

 

II. The Provider-Consumer Relationship

It makes sense to begin the discussion by assessing the relationship which Mr. Monea focused on: the relationship between providers and consumers. In doing so, it emerges that there is room to increase competition between providers for consumers in order to lower prices, but the impact is stymied by the role of payers. Third party payers, insurance companies, hide pricing for medical services, making it so most consumers never see the sticker price of their medical care.[2] When a consumer goes to a doctor or hospital, that individual is responsible for the cost only up until they reach their annual deductible. Once a consumer’s cost of care surpasses his or her deductible, most insurance plans require that the consumer only pay a copay, a small, standard fee, or coinsurance rate, a percentage of the costs, for their medical care. For individuals receiving health coverage through their employer, the average deductible in 2013 was $1,135.[3] For those with copays, a system of greater price clarity—even if fully realized—will only save money up until they reach the $1,135 mark because after that point, consumers pay a standard copay for all of their providers within their network and so become indifferent to provider prices. For those with coinsurance plans, consumers remain price sensitive, but their value to saving becomes pennies on the dollar, decreasing the incentive to perform diligent research on cutting costs. Moreover, many plans offer out-of-pocket maximums, which cap the amount that someone with that plan can pay each year on their healthcare.[4] Once the maximum is reached, insurance companies pay the full costs of medical care, leaving consumers indifferent to prices. Sticker prices might be reduced through greater competition, but total savings to consumers is unlikely to significantly increase through competition in this area.

 

III. The Payer-Consumer Relationship

The next relationship to assess is that between consumers and payers. Greater competition among insurance companies for consumers would translate into lower prices for consumers. One of the major achievements of the Affordable Care Act was the establishment of state online marketplaces, formally called “exchanges,” where consumers can shop for health insurance. The marketplaces encourage competition between payers by allowing consumers to compare prices and features of various plans on one website. In Massachusetts, for example, an individual student in Cambridge can log onto the Massachusetts Health Connector, type in their name and zip code, and compare 103 options from 9 different companies sorted by 5 levels of comprehensiveness.[5] A website can most always be modified to help increase clarity and transparency, but the reductions in health spending stemming from even greater price transparency between consumers and payers would be negligible.

But there are at least two other ways new legislation could increase competition in this area. The first is by reducing barriers to entry for new competitors. Such legislation might include favorable tax laws for new entrants or reductions in the red tape that prevents new competitors from entering a given state’s insurance market. In doing so, a state can increase the supply of insurance companies, furthering the competition between them. The second option is to allow consumers to insure with companies across state lines. Presently, most states only allow for in-state health insurers to offer health coverage to consumers, and this limitation is largely a relic of history that does not serve a present, practical purpose.[6] If, however, more states passed legislation opening up their borders to out-of-state insurers, or the federal government made a law forcing the issue, consumers would have access to a greater number of insurance companies. In this model, state marketplaces would be replaced by a national or regional marketplaces of insurance plan options.[7] In doing so, consumers would gain access to a dramatically increased number of insurance suppliers, increasing competition between payers for consumer business, and ultimately resulting in reduced healthcare costs for consumers. Increasing the number of insurance companies reduces the bargaining power of payers in their negotiations with providers which puts an upward pressure on prices, but this point is addressed with a proposal in the Section IV below.

 

IV. The Provider-Payer Relationship

The final relationship to be considered is that of the payer and the provider, and here too more competition could reduce prices for consumers. Insurance companies rarely pay a provider’s sticker price for healthcare. Instead, payers and providers negotiate over the prices that are to be paid for various treatments. These negotiated costs are then passed on to the consumers through insurance premiums. If the hospital maintains the upper hand during a negotiation, the hospital can set high rates for reimbursement, and insurance companies will pay those rates in order to keep that hospital in the health plan. Those costs are then shifted to consumers. In some areas, health care providers hold regional monopolies, giving them strong pricing power and allowing them to drive up costs.[8] Increasing insurance company bargaining power in these negotiations, however, will result in lower negotiated prices which translates into lower healthcare premiums for consumers.[9] Increasing competition between hospitals for inclusion in health plans can help increase payers’ bargaining power.

One option to increase the bargaining power of insurance companies in its negotiations with providers is to increase the number of available health systems in any given area. This would reduce health care costs because if one health system demands high prices, insurance companies can negotiate with that health system’s competitors and exclude that first health system from its insurance plans. Health systems available in a given region could be increased in a number of ways. States could subsidize the creation of new health systems or by providing tax or other incentives for new health systems to enter particular markets, for example. Alternatively, state attorney generals could apply anti-trust laws on a regional level to break up local healthcare monopolies or oligopolies.[10] Utilizing existing anti-trust law or passing specific, health system based anti-trust legislation, however, should be done cautiously because breaking up larger health networks might damage economies of scale, negating the advantages of reduced hospital bargaining power.

Another way to increase bargaining power of insurance companies vis-à-vis healthcare providers is to restrict the number of hospitals with which insurance companies can negotiate discounted rates. If each insurance company is restricted to negotiating with only one health system in each region, those health systems would compete by lowering prices in order to be the preferred system of an insurance company so that people with that company’s coverage utilize their medical services. Insurance would then cover medical care provided in-network and emergency services. Beyond increasing competition, such a mandate would promote greater coordination of patient care as patients will receive most of their medical care within one health system. Enhanced coordination will lead to reduced costs for providers and a greater quality of care for patients such that they will then need to spend even less on healthcare.[11] Increasing the number of insurance companies available to consumers does reduce payer bargaining power as alluded to in the end of Section III, but requiring each payer to form selective contracts with one provider greatly reduces that effect by shifting the burden of competition onto the providers who must compete in order to be included on insurance plans.

 

V. Conclusion

Increasing competition between providers for consumers can help lower prices, but this effect is likely to be small given the role of payers in the healthcare system. Instead, any legislation intending to reduce the cost of health care by increasing competition should focus on competition between payers for consumer and competition between providers for payers. Legislation addressing these important relationships can be state or national. State legislatures can pass laws to make their states more welcoming to new insurance companies to increase the supply of insurers. Congress can pass a bill to amend the Affordable Care Act and to establish a national or regional marketplaces for insurance in place of individual state marketplaces. Both of these proposals would increase the number of payers available to consumers, increasing competition between them and incentivizing payers to reduce their prices. Another method is to increase competition among healthcare systems for contracts with payers in order to increase the bargaining power of payers, resulting in lower prices for consumers. Increasing competition can be accomplished through breaking up larger health systems or through requiring payers to contract with only one provider at a time. Increasing competition in all three relationships, however, would be the most comprehensive approach and have the greatest impact on reducing healthcare prices for consumers.


[*] J.D. Candidate, Harvard Law School, 2017; B.A., University of Pennsylvania.

[2] See Elise Gould, Econ. Pol’y Institute, Increased health care cost sharing works as intended: It burdens patients who need care the most (May 8, 2013), https://www.epi.org/publication/bp358-increased-health-care-cost-sharing-works/ [https://perma.cc/G8AK-TZGM].

[3] Matthew Rae, Nirmita Panchal & Gary Claxton, Kaiser Family Foundation, Snapshots: The Prevalence and Cost of Deductibles in Employer Sponsored Insurance (Nov. 2, 2012), https://www.kff.org/health-costs/issue-brief/snapshots-the-prevalence-and-cost-of-deductibles-in-employer-sponsored-insurance/ [https://perma.cc/UWP7-MGYN].

[4] Copays, Deductibles and Coinsurance: How do out-of-pocket costs work?, Cigna, https://www.cigna.com/individuals-families/understanding-insurance/copays-deductibles-coinsurance [https://perma.cc/9K7F-9Y49].

[5] See Massachusetts Health Connector, State of Massachusetts, https://www.mahealthconnector.org/ [https://perma.cc/VTA3-C6SG].

[6] See Richard Cauchi, Allowing Purchases of Out-of-State Health Insurance, Nat’l Conf. of State Legislatures, http://www.ncsl.org/research/health/out-of-state-health-insurance-purchases.aspx [https://perma.cc/XSJ5-EUJZ].

[7] Stephen T. Parente, Roger Feldman, Jean Abraham & Yi Xu, Consumer Response to a National Marketplace for Individual Health Insurance, 78 J. Risk & Ins. 389 (2010), available at https://onlinelibrary.wiley.com/doi/full/10.1111/j.1539-6975.2010.01393.x [https://perma.cc/RED8-R2QF].

[8] See Clark C. Havighurst & Barak D. Richman, The Provider-Monopoly Problem in Health Care, 89 Ore. L. Rev. 847 (2011).

[9] Peter Ubel, Are Insurance Companies the Key to Lower Prices?, Forbes (Oct. 1, 2012), https://www.forbes.com/sites/peterubel/2012/10/01/are-insurance-companies-the-key-to-lower-prices/ [https://perma.cc/A2R7-BNX3].

[10] Avik Roy, Hospital Monopolies: The Biggest Driver of Health Costs That Nobody Talks About, Forbes: The Apothecary (Aug. 22, 2011, 7:00 PM), https://www.forbes.com/sites/theapothecary/2011/08/22/hospital-monopolies-the-biggest-driver-of-health-costs-that-nobody-talks-about/ [https://perma.cc/35VJ-HCRT].

[11] See Improve Care Coordination, U.S. Dep’t of Heath and Human Servs., https://www.healthit.gov/topic/health-it-basics/improve-care-coordination [https://perma.cc/GW8A-WYML].

A Clear Solution for Health Care Costs

A Clear Solution for Health Care Costs

Nino Monea[*]

 

The market for health care is an economist’s nightmare. Many of the market forces that would militate against rising prices in other industries simply do not exist for the health care market in the United States. Sudden injuries and illnesses create demand uncertainty by preventing consumers from planning in advance when they will purchase care. Third-party payers distort incentives to reduce costs.[2] But perhaps most vexing of all, the true cost of most medical services are obscured, leading to dramatic markups in prices.[3] Anecdotes of overpriced products are widely available. $50 disposable gloves.[4] $500 IV bags.[5] $1,000 toothbrushes.[6] The list goes on and on. All of them are examples of patients, ignorant of the price of a good or service until after it has been charged, who are unable to discern the actual value of their care.

Of course, these are just isolated examples; we may also look to more systematic variations in costs caused by pricing failures. Costs vary widely not just between products, but also between regions. The average cost of a Medicare enrollee in Miami, the most expensive city, verses Honolulu, the least expensive, was $16,000 and $5,300. One might assume that this was simply the result of aging populations, but even spending in the last two years of life showed a dramatic difference between the two cities: $72,000 and $43,000 respectively.[7]

Taken together, pricing failures are estimated to add anywhere from $84-131 billion in unnecessary spending.[8] Greater transparency in health care prices could alleviate these huge disparities in prices. This would take the form of making health care information assessable to consumers online. By allowing consumers to make more informed choices, providers will be forced to compete to lower prices to attract more business. Price transparency has been successful at reducing spending in other industries, such as toll roads and electricity.[9] For example, by making consumers aware of real time prices of the electricity they were using, they chose to shift usage to lower priced, off-peak hours. Additionally, transparency could indirectly lower prices by giving insurance companies more information, and therefore, more bargaining power with care providers. This could allow them to negotiate better prices with hospitals.[10]

It must be noted that the policy solution is not as simple as posting the prices online and leaving market forces to work. The Centers for Medicare and Medicaid Services (CMS) has already posted the raw data for hundreds of hospitals, but it is in a form that is not readily accessible to the average patient. There are three specific principles that must be incorporated into a price transparency policy in order for it to achieve maximum potential effectiveness. First, the disclosure website should be user friendly, and actively promoted. Second, disclosure should include not only sticker price, but also negotiated prices, as well as quality of care information. Third, disclosure must be done with an eye towards preventing collusion among health care providers.

On the first point, as the CMS data release showed, simply putting out raw data does not necessarily provide average consumers with usable information. Some states, by contrast, have turned raw data into helpful information for consumers. After New Hampshire passed a price transparency law, the state’s Insurance Department compiled and published comprehensive information on physician services, out-of-pocket costs, and total prices. In California, visits to the state transparency website spiked after the commencement of a publicity campaign.[11] Making raw price data into something that is useable to consumers—and promoting the use of that information—is essential to controlling health care costs. Closely related to this point, patients should also be provided with information on quality of care, such as mortality rates for procedures, complication rates, and average length of stay, so that they can make informed decision about what procedures they want. A comprehensive price transparency law makes sure that data is translated into useable information and that consumers are aware that the information is available to them.

But regulators must be wary about the dangers of collusion if comprehensive price transparency is enacted. Although collusion is usually associated with secrecy, in markets with high concentration and low competition (such as health care), care providers might take advantage of transparency by raising, rather than lowering, prices to match their rivals. At the same time, firms may have less incentives to cut prices if they know that the move would be matched by other providers, eroding any competitive advantage they would have had.

The Federal Trade Commission (FTC), working with the Department of Justice, is already active in policing anti-competitive behavior. And cases have already been filed against medical device suppliers, pharmaceutical companies, and hospitals for monopolistic practices. Thus, there may be no need for new enforcement laws, so long as current ones are adequately enforced.

So what would be the potential costs and benefits of a disclosure website of the type I am advocating? To account for my lack of methodical rigor, I will be generous when estimating costs, and conservative on benefits. A study from the University of Chicago found that price transparency could be responsible for a 6.5% reduction in the cost of an angioplasty. On a broader scale, a white paper from Thomson Reuters calculated that price transparency could shave off $36 billion in health care spending per year.[12] Costs are a little more difficult to estimate. First, there is the cost of building the actual website. To use a timely comparison, the federal government recently built and rolled out Healthcare.gov. Cost estimates for Healthcare.gov vary, but its staunchest critics claim $350 million.[13] Second, there would be costs of fighting any increase in collusion. The total budget of the Antitrust Division of the Department of Justice is $163 million, and the FTC spends roughly $25 million on “promoting competition” through stopping collusion. Taken together, that’s about $200 million to prevent collusion in all industries. Add the costs together can you get $550 million. Even if you double the costs and halve the benefits, the result is still $1.1 billion in costs for $18 billion in benefits.

Given all this, it appears that in terms of health care, price transparency offers a rare chance to reduce costs without cutting benefits to patients. The challenge now is finding the political will to make it happen.


[*] J.D. Candidate, Harvard Law School, Class of 2017; B.A., Eastern Michigan University.

[2] See Hans B. Christensen, Eric Floyd & Mark Maffett, The Effects of Price Transparency Regulation on Prices in the Healthcare Industry (2013), https://www.bakerinstitute.org/media/files/event/01ce2e80/HPF-paper-AHEC-Floyd.pdf [https://perma.cc/6SH7-QS5T].

[3] See Donald Berwick & Andrew Hackbarth, Eliminating Waste in US Health Care, 307(14) J. Am. Med. Assoc. 1513–16, available at https://jamanetwork.com/journals/jama/fullarticle/1148376 [https://perma.cc/WAB6-EBFZ].

[4] See Lisa Rosenbaum, The Problem with Knowing How Much Your Health Care Costs, The New Yorker (Dec. 20, 2013), http://www.newyorker.com/online/blogs/elements/2013/12/price-transparency-health-care-costs.html [https://perma.cc/5XRC-DAZG].

[5] See Nina Bernstein, How to Charge $546 for Six Liters of Saltwater, N.Y. Times (Aug. 25, 2013), http://www.nytimes.com/2013/08/27/health/exploring-salines-secret-costs.html [

[6] Tina Rosenberg, The Cure for the $1,000 Toothbrush, N.Y. Times (Aug. 13, 2013), https://opinionator.blogs.nytimes.com/2013/08/13/the-cure-for-the-1000-toothbrush [https://perma.cc/JJ9Q-49HH].

[7] The Unsustainable Cost of Health Care, Social Security Advisory Bd. (2009), at 1–37.

[8] See supra note 2.

[9] Increasing Transparency in the Pricing of Health Care Services and Pharmaceuticals, Cong. Budget Office, at 4–5 (June 5, 2008), available at https://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/92xx/doc9284/06-05-pricetransparency.pdf [https://perma.cc/V2V2-49R5].

[10] Morgan Muir, Stephanie Alessi & Jaime King, Clarifying Costs: Can Increase Price Transparency Reduce Health Spending, 4 Wm. & Mary Pol’y Rev. 319 (2013).

[11] Health Care Price Transparency: Meaningful Price Information Is Difficult for Consumers to Obtain Prior to Receiving Care, U.S. Gov’t Accountability Office (Sept. 2011), available at https://www.gao.gov/assets/590/585400.pdf [https://perma.cc/3553-9LQK].

[12] Bobbi Coluni, White Paper, Save $36 Billion in U.S. Healthcare Spending through Price Transparency, Thomson Reuters (Feb. 2012), available at http://64.64.16.103/wp-content/uploads/sites/17/2012/09/thomsonreuters_savings_from_price_transparency.pdf [https://perma.cc/MNK6-GVGD].

[13] See Glenn Kessler, How much did HealthCare.gov cost?, Wash. Post: Fact Checker (Oct. 24, 2013), https://www.washingtonpost.com/news/fact-checker/wp/2013/10/24/how-much-did-healthcare-gov-cost [https://perma.cc/P266-8GME].