Restraining the Administrative State and Making Government Better

I’m back from our nation’s 50^th state, and perhaps our nation’s most beautiful with stunning beaches and amazing mountains, cliffs, and valleys. Thanks to Theo for writing last week’s newsletter in my absence.
 
Yesterday, Theo and I were on Capitol Hill discussing our paper, Follow the Money: How Tax Policy Shapes Health Care. One of our key recommendations, which I highlighted in a recent Paragon Prognosis, is that Congress should allow the enhanced Affordable Care Act (ACA) premium subsidies to expire after 2025.
 
In today’s newsletter, I highlight a new paper by Dr. Joel Zinberg on the growth of the administrative state, today’s Paragon Pic showing the average benefit for Medicare beneficiaries far exceeds what they paid or will pay in payroll taxes and premiums, and a new analysis by one of our public advisors, Ge Bai.

Restoring Good Guidance Practices

Federal agencies issue thousands of rules and regulations that far outnumber the statutes that authorize the agencies’ actions. Legislative rules, which carry the force of law, are required to go through the notice and comment procedures of the Administrative Procedure Act, review by the Office of Management and Budget (OMB) for significant regulations, and possible review and revocation by Congress under the Congressional Review Act (CRA).
 
In a new paper being released today jointly by Paragon and the Competitive Enterprise Institute, Restoring Good Guidance Practices: How to restrain the administrative state and make government better, Joel highlights a less well-known category of agency rules—guidance documents—that are even more numerous than legislative rules. Guidance includes general statements of policy or interpretive rules advising the public of how the agency interprets the statutes and regulations it administers.
 
Agencies are increasingly relying on guidance to circumvent the notice-and-comment rulemaking process, central OMB review, and Congressional scrutiny under the CRA. Guidance escapes these safeguards because it technically is not binding. In addition, guidance, unlike legislative rules, cannot be judicially reviewed until there has been final agency action. Joel posits that if the Supreme Court overturns or substantially limits Chevron deference, which seems likely before this term ends, these features make it likely that agencies will increase guidance issuance to evade notice and comment rulemaking and judicial review.
 
Nevertheless, as a practical matter, many guidance documents do bind regulated entities and can have a large economic impact. Agencies frequently use guidance documents to effectively change the law or expand the scope of their delegated authorities. This is often done with little or no public input and sometimes in an opaque manner that leaves regulated entities and the public ignorant of new or changed guidance.
 
Joel’s paper examines Good Guidance Practices (GGPs) – such as notice and public comment, centralized review, and searchable databases – that attempt to subject significant guidance to public scrutiny, improve final guidance documents, and inform interested parties of relevant guidance. 
 
President Trump’s 2019 Executive Order 13891 directed each agency to promulgate regulations setting forth procedures for issuing guidance documents and to set up searchable data bases. Thirty-two departments and agencies issued guidance regulations. The most prominent was the Department of Health and Human Services (HHS) December 2020 regulation.
 
On his first day in office, President Biden revoked EO 13891 with his EO 13992 that directed departments and agencies to rescind their guidance regulations. As evidenced by the HHS regulation rescinding its GGP regulation, the agency and the Biden administration view GGP as a burden rather than a benefit. By doing so, the Biden administration empowered the administrative state and ignored the accountability and improved policy that results from GGP. They assume that bureaucratic experts know best and would not benefit from public input.
 
Ideally, Congress would pass a statute with the GGP requirements found in EO 13891. New GGP regulations will have to await a new administration sympathetic to restraints on the administrative state.

Medicare Enrollees on Average Receive Far More in Benefits Than They Pay in Premiums and Payroll Taxes

Counter to what many people believe, Medicare is a transfer program from workers to retirees, with current benefits largely being funded by current tax receipts and debt. Medicare beneficiaries over the course of their lifetimes tend to receive more in benefits than they pay in both taxes and premiums. This week’s Paragon Pic shows how lifetime benefits (net of premiums) have far exceeded Medicare taxes for average two-earner households at every point in the program’s history and will continue to do so for the foreseeable future.

The rising portion of Americans over 65—a function of the increasing number of elderly Americans and declining birth rates—will further strain the program’s finances. The mismatch between retired and working-age Americans is demonstrated by the decline in the number of workers per Medicare beneficiary—from about four from 1980 through 2008 to 2.9 in 2021 to an expected 2.5 in 2030.

Expensive Health Insurance Premiums By Design

Ge Bai has a compelling recent article in Forbes on how government mandates drive health insurance premiums higher. She highlights examples from the Inflation Reduction Act (IRA) and the ACA.

The IRA capped out-of-pocket drug costs for Part D beneficiaries at $2,000. The result: skyrocketing premiums which grew 21 percent from 2023 to 2024 and are supposed to rise that much or more for next year. The ACA’s mandates on required coverage and how the coverage could be priced caused similar premium spikes.

Ge cites data that most Americans consume little, if any, medical care each year and forcing all Americans to buy comprehensive health insurance makes us worse off.  Ge writes:

Most of us would be better off with more cash than more comprehensive insurance plans …. We have diversified risk profiles and preferences for insurance products. We are allowed to purchase other types of insurance based on our own tastes, but not health insurance. Individuals who choose a healthy lifestyle, have sufficient risk tolerance, avoid over-diagnosis and over-treatment, and are comfortable with comparison shopping should have the option to purchase health plans with narrower coverage, higher risk exposure, and cheaper premiums.

Savings on premiums and the reduced moral hazard are especially valuable for low-income individuals. More control over our healthcare dollars would also stimulate competition and innovation, exerting downward pressure on prices and upward pressure on quality. Importantly, high-risk-low-income individuals deserve a much better deal.

Consistent with Paragon’s HSA option proposal that would give low-income ACA enrollees an option to control a portion of the government subsidy as a deposit to a tax-advantaged account that they control, Ge recommends direct cash transfers for health care, rather than government indirectly subsidizing premiums or cost-sharing.

All the best,

Brian Blase
President
Paragon Health Institute