Tuesday, March 10, 2015

Some interesting material on King v Burwelll

Some interesting material on King V. Burwell:

I set forth with a lot of energy with the goal of writing an informative post on the issue of King v. Burwell.   I quickly realized this is basically a task for a really arcane lawyer.  I found some interesting material and have decided to post some links, some brief descriptions, and some personal comments.

Basically, the whole topic and the post-ACA health care debate depresses me quite a bit.   

Some Articles:

Article on legal issues:

“In King v Burwell an easy answer to the ACA’s definition of an exchange”  By Brookings Institute.


Article asks whether the use of the phrase “in an exchange established by a state” in the section on tax credits means that citizens of states that rely on the federal exchange cannot have the federal tax credit. 

The author argues that plaintiffs need to come up with a reason why Congress intended that the federal exchange operate like the state exchange in all ways other than in availability of the federal tax credit.

Article outlining Amicus briefs filed in King Vs. Burwell:

Article summarizes over 30 Amicus briefs filed with the Supreme court on impact of King V. Burwell.   These briefs tended to suggest that a finding for the plaintiff would place states without an exchange in an untenable position.

Articles on market impacts of a ruling for the plaintiffs:

“How King vs Burwelll Threatens the Health and Financial Stability of Consumers,” Families USA. February 9, 2015.

The Implications of a Supreme Court Finding for the Plaintiff in King Versus Burwell:   8.2 Million More Uninsured and 35% Higher Premiums

The Effect of Eliminating the Affordable Care’s Tax Credits in Federally Facilitated Marketplaces, The Rand Corporation, 2015.

·      One study found 9.2 million people will lose subsidies for their insurance 8.2 million would become uninsured and premiums would increase by 35%

·      Another study found a drop in enrollment of 9.9 million and an increase in unsubsidized premiums of 47%

Comments on these Issues:

Comment One:  The Democrats held the pen when the ACA was written.    The highly precise language limiting availability of tax credits to citizens of states that established an exchange did not appear by accident.  What U.S. Senators or Senator’s aid created this wording?    Did the Administration sign off on it?

The Democratic majority that existed after 2008 was a once in a generation situation.   The Democrats who ran on health care reform never intended to create a system where people in many states did not have access to the new benefits.   Why did the Democratic majority squander this opportunity?   Was this outcome a consequence of corruption or just plain incompetence?

Comment two:  The plaintiff’s argue that the language used in the ACA was intended to induce states to set up their own exchange.    Supporters of the current interpretation of the ACA argue this intent was never sent to the states.   See article below.

Are governors of states children who are incapable of reading the text of the law?  
The plain language of the law is plain as day.   It states the tax credits are only available in states that establish their own exchanges.

This was one of the most reviewed laws in history.    Every government agency with  a role in health care --  the CBO, the CRS, OMB, Treasury, and HHS  -- had multiple offices reviewing this law.    Every major law firm with a health care practice had a group reviewing the law.   The reviews basically supported the consensus view that the ACA tax credit would be available in all states.

How is it possible that all of these reviews concluded that the law provided tax credits to all states when the plain text of the law clearly states otherwise?

Comment Three: The academic studies assert that 8-9 million people will lose insurance if plaintiffs prevail.   While I believe the number of people losing insurance will be a large number this is a difficult claim for me to evaluate. 

 The individual mandate should still be in place for people who can still afford insurance.    Individuals who find a silver plan unaffordable due to the loss of their tax credit will likely choose a bronze plan rather than drop insurance altogether.      The loss of the individual tax credit could increase the number of people with bare-bone health plans.   (From my perspective this is not a good outcome but is probably preferable than a total loss of insurance.)

The finding that 8-9 million people will lose insurance due to a ruling by the plaintiffs assumes that states do not establish exchanges in response to a ruling on behalf of the plaintiffs.   I suspect that over time many states will adopt exchanges and that the number people who lose insurance will be smaller than anticipated.   However, the transition process could be long and painful.

Comment Four:  I believe that it would be very difficult for Congress to act and fix problems caused by a ruling in favor of the plaintiffs.

Key actors in the debate continue to argue that a ruling by the plaintiffs would be followed by repeal of the ACA and a new health care law.   See the remarks of Senator Orrin Hatch below. 

Representatives and Senators in states that established their own exchange would have little incentive to repeal the ACA because the law is working for their constituents.

The law also appears to be working in many states with a federal exchange.      President Obama was able to win election in many of these states (Ohio, Maine, Florida, and Wisconsin) that now have Republican governors and state legislatures.    Senators and Congressmen in these states, including Florida, Ohio, Maine and Wisconsin are faced with a difficult political choice.

Currently, there are 27 states with a federal exchange, 7 states with a federal/state partnership exchange and 16 states with a state exchange.

There seems to be little scope for compromise when one side wants repeal and the other side believes the law is working.

Comment Five:  The federal government might be able to facilitate the establishment of state exchanges by simply selling or giving the existing federal exchange to each state.    Could this be done without an act of Congress through an executive order?    Alternatively, could a governor of the state act to convert an existing exchange without actions by the state legislature?  


Post Mortem on the 2014 Elections: Implications for 2016 and Beyond

The Democratic Party believes all they have to do is sharpen their message.   My appraisal is a bit harsher.

Brief excerpt:

·      First, President Obama did not actively campaign in many states.   President Obama’s vote totals far exceeded the vote totals of 2014 Democrats.  It is likely that appearances by President Obama could have made a difference in several races.

·      Second, the Democrats spent a lot of money on unwinnable races especially but not exclusively the Senate race in Kentucky and Georgia and the gubernatorial race in Texas.  Republicans have successfully nationalized red-state elections.   Democrats need to recognize this reality and reallocate resources towards states and districts where their efforts have proven successful in recent elections.  

·      Third, (and possibly most importantly) the Democrats are not committing enough money or political capital to competitive House contests.     Many political analysts claim that most House Seats are safe.   However, 26 House Districts taken by President Obama in 2012 now have Republican Congressman.   Moreover, Governor Romney won 27 other House seats by less than five percentage points.   Data presented below suggests that Democrats are not seriously campaigning in the Districts they need to retake the House.

·      Fourth, several Democratic nominees picked by party leaders were ineffective on the campaign trail and unpopular with the base.    The Democratic Party needs more intra-party competition and debate.

Wednesday, December 24, 2014

What is going on at Citi Bank?

Conspiracy theory at Citi Bank 

The character played by Mel Gibson in the movie conspiracy creates his blogs by connecting pairs of articles in the newspaper.  The president is in Turkey and NASA is sending up a space shuttle so there is likely to be an earthquake near Turkey when and where the president is visiting.  

Well I found these two recent articles in the paper.

My Comments:

Citi expended considerable political capital and public image because of their role in getting this change to Dodd frank done.    Why did Citi lead this charge?  Why now?   Are activities like the Chinese commodity fiasco more prevalent than realized?    Are losses larger than what has been acknowledged? 

Second article states Citibank has failed two recent Federal Reserve stress tests.   How bad are the problems at Citi?   Did Citi have an urgent need for this legislation?    

The second article points out that the bank has slimmed down by axing a life insurance unit and a brokerage unit.  The bank is still number 3 in assets and is still too large to fail or jail.   The article does not have any discussion of the size of the bank's off-balance sheet activities that can now be transferred on balance sheet.

Most major banks gain from change to Dodd-Frank.   However,  each bank has an incentive to not lobby for the change with hopes that some other bank will push and get blamed for pushing too hard.    This is a variant of the prisoner's dilemma problem.   Why did Citi push so hared for this change at this time?   Does Citi need the change more than the other actors in the industry?

Concluding thought:   Two failed stress tests and a manic high-profile push for changes in Dodd Frank.   What's happening at Citi?   

Thursday, December 11, 2014

Thoughts on the Partial Repeal of Dodd-Frank

Personal Anecdote:  In 1991, the Treasury Department was pushing legislation to move the regulator for Freddie Mac and Fannie Mae out of HUD and into an independent agency.  I was a young analyst loaned from Economic Policy to Domestic Finance to study HUD’s models

HUD had written a report claiming that Fannie Mae could survive an interest rate shock up to 24 percent or so.   I went through the model line by line and found a problem with the assumption about Fannie Mae’s portfolio.   HUD assumed that the adjustable rate mortgages in Fannie Mae’s portfolio were pure ARMS with no annual or lifetime caps.   Most ARMS limit annual changes in interest rates to 2 to 3 points and lifetime changes in interest rate to 6 percentage points.

The HUD model substantially overstated the ability of Fannie Mae to survive a large increase in interest rates.   I was allowed to present this result to a Deputy Assistant Secretary in Domestic Finance.  This DAS was a smart man who left his Wall Street firm to spend a couple of years serving in Washington.   The DAS praised me for my findings and said that he was not concerned because he believed the long-term trend for interest rates was down.  

An independent regulator was created.   The DAS was correct.   The failure of Fannie Mae and the subsequent bailout was the result of credit risk not high interest rates.

 The Current Situation:  Our government is a joke.   After the bailout the Chairman of the Federal Reserve Board went before Congress and said he did not understand how derivatives and mortgage backed securities worked.

The issue today appears to be oil and whether bank supervisors are going to understand and evaluate and if necessary limit the way banks hedge risks against oil price changes.  The issue today also remains too big to fail.   Banks are bigger now than in 2008.   Banks have made scant progress describing how they would unravel their business in the next crisis.

 One of the major achievements of the Obama Administration was the passage of legislation mandating tighter supervision in order to restore confidence to the financial system.  The Obama Treasury populated by Clinton-era officials has not aggressively implemented the new law.

President Obama is pressuring Democrats in Congress to vote for the spending bill that removes restrictions the Dodd-Frank restrictions that he fought so hard for.   He should have issued a veto threat.

The sad truth is that the Administration of George H. W. Bush was more concerned about financial regulation than the current Administration.   In 2010, the Tea Party not the Democratic Party, was the major force opposing the excesses of Wall Street.

The issue of the next Wall Street bailout is becoming a question of “when” not “if.”

Concluding Thoughts and Anecdotes: Elizabeth Warren appears to be one of the few Senators aware of the magnitude of this problem.   The Clinton-era officials who dominate the Treasury are blithely unconcerned.     

I am concluding this post with a child’s math problem.  If Elizabeth Warren gave one of her balls to President Obama and another of her balls to Hillary Clinton, how many balls would President Obama have and how many balls would Hillary Clinton have?   Please show your work!

Monday, December 8, 2014

Resource allocation problems in the Democratic Party

Resource Allocation by the Democratic Party In Texas

Question:   How much did the Wendy Davis and Greg Abbott spend in the 2014 Governors race in Texas?

How much money did all Democratic and all Republican House candidates spend in their 2014 House races?

Did the Democrats wisely allocate resources in 2014 political races in Texas?  Comment on what these numbers imply about the viability of the Democratic Party in Texas?

Numbers:    I got the campaign expenditure numbers for the Texas Governor’s race from the web.

Texas Governors Race Expenditures
$ Millions

Abbot was able to spend around $11 million more than Davis.  The difference is non trivial but Davis had a decent amount of resources.    (These numbers do not include expenditures from outside independent groups.)

I obtained numbers on spending on all House races in Texas from the Federal Election web site.   Go to the portal below specify race=House, state=TX and Party= DEM or REP.

The database covers money spent in primaries by all candidates in both parties.  It is a measure of total political activity in all House races in 2014.

Statistics on House Candidates In Texas
# Of House Candidates
$ Spent Million


The Republicans had almost twice the number of candidates and spent over three times the Democrats on House seats in Texas.

Even with 56 candidates spending money the Republicans chose to not enter a couple of overwhelmingly Hispanic Districts in Texas.   This was smart because a lack of opposition in Democratic strongholds reduced turnout for Davis

Political Remarks:  The last Democrat to win statewide in Texas was Ann Richards.   However, the statewide election drought is less important than the lack of energy in local and District races.

The Democrats whine that they are losing because of gerrymandering and voter-id  laws.   The real problem is that the Democrats aren’t thinking clearly.   They’re not fielding a full team. 

Wendy Davis would have gotten more votes if she had given her money to Democratic House candidates.   These candidates would have gotten Democrats to the polls who would have voted for Davis. 

Outside groups and the DNC would also have gotten more bang for their buck by giving to Democrats running for the House than to Davis.

The money spent on Grimes in Kentucky would have been much better off spent in Texas.   (Seriously, why should the Democrats spend a nickel on a candidate who won’t say whether she voted for President Obama?)

The Democrats complain they have less money than Republicans but they don’t allocate their funds properly. 

November is past and a critic of this piece could claim that hindsight is 20/20.   But we are less than two years away from 2016.  

People interested in this post may also want to read the post about Hillary Clinton’s road map for 2016.